DBRS Morningstar Confirms Ratings on All Classes of GS Mortgage Securities Corporation Trust 2019-BOCA; Removes All Classes from Under Review with Negative Implications

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-BOCA (the Certificates) issued by GS Mortgage Securities Corporation Trust 2019-BOCA as follows:

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

With this review, DBRS Morningstar removed all classes from Under Review with Negative Implications, where they were placed on September 24, 2020. The trends for Classes A, B, C, D, and E are Stable, and the trends for Classes F, G, and HRR are Negative.

The rating confirmations reflect DBRS Morningstar’s view that the overall credit profile for the transaction has strengthened in the last year, particularly given the sponsor’s long-term commitment to the underlying hotel portfolio displayed by the raising of additional capital to fund cash shortfalls throughout the pandemic and reinvest in the collateral. The Negative trends on the aforementioned classes reflect DBRS Morningstar’s concerns with the subject, which continues to face performance challenges as it begins to rebound after the relaxation of travel restrictions related to the Coronavirus Disease (COVID-19) global pandemic.

Because of the coronavirus pandemic, the lodging sector has experienced an unprecedented decline in demand across multiple revenue segments. The subject’s reliance on international leisure demand will continue to put significant stress on the hotel’s performance in the short to medium term. In May 2020, the sponsor informed the master servicer of a revenue decline caused by the pandemic; however, the sponsor continues to support the hotel and still plans to invest $175.0 million in capital expenditures (capex) that are scheduled to be completed during winter 2021-22. Phase 1 renovations will include upgrades and expansions to food and beverage (F&B) offerings; renovations to a 27-story tower that will create 130 standard suites, 10 executive suites, and a presidential suite; and a four-acre lakefront oasis featuring luxury cabanas, four pools, a retail boutique, and new dining options. The loan continues to be monitored on the servicer’s watchlist for low cash flow, which was reported at $11.0 million as of year-end (YE) 2020, representing an 80.0% decline from the previous year.

According to the trailing 28-day period ended July 7, 2021, STR, Inc. report, the subject reported occupancy, average daily rate (ADR), and revenue per available room (RevPAR) of 14.4%, $486.54, and $70.04, respectively. A recent site inspection conducted in July 2021 reported that occupancy had increased to 48.2%. In comparison, the competitive set reported occupancy, ADR, and RevPAR of 47.6%, $425.66, and $202.48, respectively. As of Q1 2021, the Boca Raton submarket reported an average occupancy, ADR, and RevPAR of 23.9%, $199.78, and $47.80, respectively.

The Certificates are backed by a $600.0 million, floating-rate, two-year loan with five one-year extension options originated in June 2019. The borrower exercised their first extension option in June 2021, extending the loan’s maturity through June 2022; no concessions were required. The loan to facilitated the purchase of the Boca Raton Resort & Club, a Waldorf Astoria Resort for $875.0 million, funded a seasonality reserve of $5.5 million, and paid closing costs of $17.4 million. As part of the acquisition, the sponsor invested $297.9 million in equity.

The 1,047-key Boca Raton Resort & Club is one of South Florida’s premier resort destinations. The AAA Four Diamond Award-winning resort is situated on 162 acres, much of which is waterfront property, and includes resort amenities such as 30 tennis courts, two 18-hole championship golf courses, seven swimming pools, a 32-slip marina capable of anchoring 170-foot yachts, 16 F&B outlets, 200,000 square feet of indoor/outdoor event space, fitness centers, and other attractions. The collateral is located between Fort Lauderdale and Palm Beach within driving distance of three international airports serving South Florida. The loan collateral excludes the Boca Country Club and the Jewel Parcel, an undeveloped parcel adjacent to the Boca Country Club.

The hotel features five separate main structures, each with a different guest-targeted price point. In addition to the resort hotel accommodations, the hotel offers a membership club that provides revenue through initiation fees, annual dues, dining and bar revenues, and usage fees for the extensive facilities without the need to stay at the hotel. This private membership club generates roughly 30% of total hotel revenue. The sponsor is permitted to release the bungalow parcel, one of the main structures that is the lowest-priced tier of hotel rooms at the facility. The release is subject to debt paydown of 105% of the allocated loan amount and certain debt yield tests.

The previous sponsor, the Blackstone Group Inc., invested more than $302.0 million in the resort amenities and facilities from 2005 to 2018. The renovations featured upgrades to certain groups of guest rooms, restaurants, and the Beach Club facilities. Renovations of a 361-key guest wing resulted in a near doubling of revenue, driven by improved room rates and a 50% increase in occupancy. The current sponsor is MSD Partners, L.P., a New York-based development group owned by billionaire Michael Dell. The facility is managed and flagged by Hilton Worldwide Holdings Inc. and operates under the Waldorf Astoria brand, which is a strong brand affiliation associated with luxury quality.

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.

The DBRS Morningstar rating assigned to Classes C, D, E, F, G and HRR had a variance that were higher than those results implied by the LTV Sizing Benchmarks from the September 24, 2020 review, when market value declines were assumed under the Coronavirus Impact Analysis. The DBRS Morningstar ratings did not have any variances than those results implied by LTV Sizing Benchmarks considered with this year’s review, when a baseline valuation scenario was used. For additional information on these scenarios, please see the DBRS Morningstar press release dated September 24, 2020, in respect of the subject transaction. DBRS Morningstar maintains Negative trends on certain classes as outlined in this press release as a reflection of our ongoing concerns with the Coronavirus impact to the subject transaction.

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 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 [email protected].

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 [email protected].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577