DBRS Morningstar Confirms Ratings on All Classes of GS Mortgage Securities Trust 2018-GS10

DBRS, Inc. (DBRS Morningstar) confirmed the Commercial Mortgage Pass-Through Certificates, Series 2018-GS10 issued by GS Mortgage Securities Trust 2018-GS10 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- 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 (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G-RR at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with expectations at issuance. At issuance, the transaction comprised 33 fixed-rate loans secured by 57 commercial and multifamily properties with a trust balance of $810.7 million. Per the October 2021 remittance report, all loans and properties remain in the pool with a trust balance of $803.5 million, representing a 0.9% collateral reduction since issuance.

Only two loans, totaling 2.5% of the trust balance, are secured by hospitality properties. Given the unique stresses for hotel properties amid the Coronavirus Disease (COVID-19) pandemic, this is considered a strength for the transaction. Additionally, the collateral exhibits relatively low leverage with a weighted-average (WA) loan-to-value ratio of 59.7% based on the appraised values at issuance. The pool also demonstrated strong debt service coverage ratios (DSCRs) with a WA preceding-year DSCR of 2.43 times (x), compared to the WA DBRS Morningstar Term DSCR of 2.10x at issuance. Three loans (1000 Wilshire, Aliso Creek Apartments, and Marina Heights State Farm), totaling 19.4% of the trust balance, were shadow-rated investment grade by DBRS Morningstar at issuance. With this review, DBRS Morningstar confirmed that the loans continue to perform in line with the investment-grade shadow ratings.

The pool has minimal expected loan amortization throughout the life of the transaction as there are 14 loans, representing 60.8% of the trust balance, that are interest-only (IO) throughout the loan terms and an additional 10 loans, representing 23.5% of the trust balance, with partial IO terms. Ten loans, representing 20.9% of the trust balance, are secured by properties in tertiary or rural markets. Per the October 2021 remittance, eight loans, totaling 15.3% of the trust balance, are on the servicer’s watchlist for low occupancy rates, upcoming lease maturities, or a low DSCR. All loan payments across the watchlist loans remain current.

DBRS Morningstar is closely monitoring the largest loan in the pool, GSK North American HQ (Prospectus ID#1 – 9.4% of the trust balance), as the single tenant announced it will vacate the property in early 2022. The subject loan is secured by the fee-simple interest in a Class A office complex in the Navy Yard submarket of Philadelphia. The office was built-to-suit for GlaxoSmithKline plc (GSK) for a cost of $80.0 million in 2013 and GSK executed a 15-year lease (expiring in September 2028) with no termination options. Per a BizJournals article dated October 2021, GSK is relocating corporate operations from the subject property to the FMC Tower in University City. The company plans to sublease its space when it vacates. GSK is considered a long-term credit tenant as the corporate entity is rated investment grade and the subject lease expires more than five years beyond the June 2023 loan maturity date. The loan is structured with an excess cash flow that is triggered should GSK vacate or go dark in at least 90% of its space, other than certain subleases by GSK. Per Q2 2021 Reis data, average asking rent in the market is $28.67 per square foot (psf) and average vacancy rate is 1.3% for Class A properties. Reis projects stable performance of average asking rents and average vacancy rate through 2026. The subject’s in-place base rent of $41.88 psf as of June 2021 is well above market rents as indicated by Reis. DBRS Morningstar will follow the subleasing updates for the subject space as well as the triggering of the excess cash flow reserve. Loan payments are expected to remain current throughout the life of the loan; however, refinance risk at loan maturity has increased.

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, and X-D are 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 updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – GSK North American HQ (9.4% of the pool)
-- Prospectus ID#2 – 1000 Wilshire (8.1% of the pool)
-- Prospectus ID#3 – Aliso Creek Apartments (7.8% of the pool)
-- Prospectus ID#5 – MOA Hotel Leased Fee Portfolio (5.4% of the pool)
-- Prospectus ID#11 – Marina Heights State Farm (3.4% of the pool)

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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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

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