DBRS Morningstar Confirms All Classes of GS Mortgage Securities Corporation Trust 2020-UPTN

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2020-UPTN issued by GS Mortgage Securities Corporation Trust 2020-UPTN (the Issuer) as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class X-A at A (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class HRR at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. The underlying loan is secured by the fee-simple interest in portions of The Union, a mixed-use complex in the Uptown/Turtle Creek submarket of Dallas, built in 2018. The overall development consists of four components: office; retail; parking; and apartments, all of which are individually structured as condominium units. The collateral for the subject loan includes three condominium units including the 21-story LEED Gold certified office building, a retail and restaurant cluster of three buildings surrounding an open courtyard, and a parking structure with three subterranean levels and six above-ground levels. The fourth, noncollateral, condominium unit is The Christopher, a 309-unit apartment building.

The five-year $222.0 million loan is interest only (IO) through the entire term and there is no additional pari passu or subordinate debt. The transaction funded the collateral property’s acquisition by the sponsor, KB Asset Management Co., Ltd., which injected $163.5 million of cash equity as part of the transaction. The property is managed by the developer, RED Development.

The subject has largely been unaffected by the ongoing Coronavirus Disease (COVID-19) pandemic. According to the YE2020 rent roll, the subject was 94.4% occupied, down marginally from 95.2% at issuance. The office portion was 94.2% occupied and the retail portion was 95.2% occupied. According to the servicer, only one restaurant tenant, Kotta Sushi, has closed permanently. No office tenants have requested rent relief to date; however, the remaining four restaurants did request relief, which was provided in the form of deferred rental payments. According to the servicer, all deferred rent has been repaid; however, the lease structure for Taco Lingo has been temporarily changed to allow the tenant to pay 10.0% of gross sales as rent through June 2021. The remaining retail tenant is a Tom Thumb grocery store, which accounts for 69.0% of the retail space and operates on a long-term lease that runs through April 2039.

The largest office tenant is Salesforce, which occupies 23.1% of the total net rentable area (NRA), paying a gross rental rate of $54.57 per square foot (psf) on a lease expiring in May 2025. At issuance, Salesforce was only in possession of two floors of space; however, DBRS Morningstar has confirmed that the tenant has since taken possession of its remaining space and is paying full rent on all space. The loan is structured with a full cash sweep if Salesforce does not execute its first of two five-year extension options one year in advance of its May 2025 lease expiration, which would result in available funds in excess of $6.0 million. Salesforce reportedly spent over $200 psf of its own capital to customize the space, a significant investment that would suggest a longer-term commitment to the property.

Remaining large office tenants include Akin Gump Strauss Hauer & Feld (14.6% of total NRA; lease expiring in September 2034), Weaver and Tidwell (11.6% of total NRA; lease expiring in October 2030), and HBK Services (8.6% of total NRA; lease expiring in November 2028). The subject benefits from tenants only contributing 1.9% of gross rental revenue having lease expirations by loan maturity in February 2025. Additionally, only two tenants have ongoing free rent periods, cumulatively totaling approximately $125,000. All free rent periods end by YE2021 with the funds being debited from the leasing reserve, which has a balance of $1.3 million as of the March 2021 remittance. According to YE2020 financial reporting, the loan had a debt service coverage ratio (DSCR) of 2.17 times (x), which is in line with the DBRS Morningstar DSCR of 2.31x.

The subject continues to operate above the submarket in terms of vacancy and rental rates as according to the Q4 2020 Reis report for the Uptown submarket, Class A office product reported vacancy and asking rental rates of 13.5% and $41.73 psf gross, respectively. In comparison, these figures were 17.4% and $38.58 psf gross, respectively, for all office product. Vacancy is projected to increase to above 20% by 2022 and remain above 21% through 2026 with only marginal improvements to rental rates. Current inventory in the submarket is 10.5 million square feet (sf), with new construction projected to be 663,000 sf in 2021, 285,000 sf in 2022, and 670,000 sf in 2023.

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.

Class X-A is an IO certificate that references 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 updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level 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 26, 2021), 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 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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