DBRS Morningstar Confirms Ratings on GS Mortgage Securities Trust 2015-GC28; Four Classes with Negative Trends

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-GC28 issued by GS Mortgage Securities Trust 2015-GC28 as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-C at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-D at B (sf)
-- Class F at B (low) (sf)

DBRS Morningstar also removed Classes X-D and F from Under Review with Negative Implications, where they were placed on August 6, 2020. The trends on Classes E, F, X-C, and X-D are Negative, while all other trends are Stable.

According to the March 2021 remittance, 62 of the original 74 loans remain in the pool, with scheduled amortization, loan repayments, and the liquidation of one loan, 7 Becker (Prospectus ID#41), combining for a collateral reduction of 22.2% since issuance. 12 loans, representing 9.4% of the pool, are fully defeased. The pool is fairly concentrated by property type, with 39.1% of the pool secured by office properties and 19.7% of the pool secured by retail properties. Four loans, representing 4.1% of the pool, are in special servicing, while 16 loans, representing 37.1% of the pool, are on the servicer’s watchlist. The watchlisted loans are being monitored for tenant rollover, low debt service coverage ratios (DSCRs) and/or occupancy, failure to submit financials, or Coronavirus Disease (COVID-19)-related forbearance requests.

One top-10 loan, MacDade Retail (Prospectus ID#7, 2.9% of the pool), is on the servicer’s watchlist, having been returned to the master servicer after it was transferred to special servicing in June 2020 for imminent monetary default. According to the servicer, the borrower initially submitted a relief request because of the coronavirus pandemic, but the request was later withdrawn. The loan collateral is an anchored shopping center in Holmes, Pennsylvania. At issuance, Kmart occupied 40.3% of the net rentable area (NRA), but the store was closed in 2019 and no replacement tenants have been secured to date. Sears’ bankruptcy, which preceded the Kmart closure, triggered a cash flow sweep provision for the loan; however, in lieu of the sweep, the borrower posted a $500,000 letter of credit that remains on file with the servicer.

As of the September 2020 financials, the servicer reported that the property’s occupancy rate was 50.5%. The largest tenant is Acme Markets, which represents 17.6% of the NRA. Acme Markets’ lease expired in August 2020, but an Internet search as of March 2021 showed that the store remains open. Other large tenants include TJ Maxx (10.2% of NRA; lease expires in August 2023) and Ross Dress for Less (10.1% of NRA; lease expires in January 2025). Although the loan is now back with the master servicer and showed current as of the March 2021 reporting, there remain significantly increased risks from issuance in the extended vacancy of the former Kmart space. Prospects for backfilling the space are exponentially slimmer amid the ongoing coronavirus pandemic, which has presented significant challenges for retailers doing business in brick-and-mortar locations. As such, DBRS Morningstar applied a probability of default (PoD) penalty for this loan to increase the expected loss in the analysis for this review.

The largest loan in special servicing is the Iron Horse Hotel loan (Prospectus ID#11, 2.4% of the pool), which is secured by a 100-key full-service boutique hotel in Milwaukee. The loan transferred to special servicing in March 2020 for imminent monetary default, with the borrower requesting relief as a result of the coronavirus pandemic. Although the loan’s transfer to special servicing was said to be the result of the impacts of the coronavirus pandemic, DBRS Morningstar notes that the loan has reported performance declines for several years, with the YE2019 DSCR at 0.89 times (x) compared with the YE2018 DSCR of 0.85x and the DBRS Morningstar DSCR at issuance of 1.75x. The historical performance declines were primarily driven by a decrease in food and beverage revenue as the restaurant within the hotel lost banquet, reception, and event business. Based on the September 2020 appraisal obtained by the special servicer, the property was valued at $21.0 million, which is a decrease from the issuance value of $29.2 million but above the current loan balance of $17.4 million. Given the increased risks from issuance in the elevated loan-to-value ratio and sustained low cash flows prior to the loan’s transfer to special servicing, DBRS Morningstar applied a PoD penalty for this loan to increase the expected loss in the analysis for this review.

DBRS Morningstar also notes increased risks to the pool from the second-largest loan in the pool, Discovery Corporate Center (Prospectus ID#2, 6.9% of the pool), which is secured by three Class A office buildings in Rancho Bernardo, California, a San Diego suburb. At issuance, 92.8% of the NRA was leased to Broadcom Corporation, but the tenant downsized in 2018; as a result, property occupancy was at 44.0% by YE2018. Some leasing activity was achieved over the next few years, with the occupancy rate improving to 76.7% as of June 2020 and the DSCR improving to 1.22x for the first half of 2020 compared with the YE2019 DSCR of 0.95x and the YE2018 DSCR of 0.38x. According to Reis, the I-15 Corridor submarket reported an average vacancy rate of 16.3%, while properties within a two-mile radius reported a vacancy rate of 17.2%. Given the lower occupancy rate compared with the issuance figures and the likelihood that leasing activity has stalled amid the coronavirus pandemic, a PoD penalty was applied to increase the expected loss for this loan in the analysis for this review.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Classes X-A, X-B, X-C, and X-D are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides issuance metrics and all historical surveillance commentary on the DBRS Viewpoint platform.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 6, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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