DBRS Morningstar Confirms Ratings on GSF 2021-1

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of notes issued by GSF 2021-1:

-- Class A-1 Notes at AAA (sf)
-- Class A-2 Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class X Notes at A (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (low) (sf)
-- Class E Notes at BB (low) (sf)

All trends are Stable.

The transaction closed in February 2021 and, as part of the issuance analysis, DBRS Morningstar used a combination of its “North American CMBS Multi-Borrower Rating Methodology” and “North American Single-Asset/Single-Borrower Ratings Methodology” to construct a worst-case pool based on concentration limits and eligibility requirements as defined in the Indenture: Schedule 4. The Indenture: Schedule 5 defines the minimum subordination requirements for each Rating Confirmation Event. DBRS Morningstar expected the $500 million trust to be fully funded within 12 months of the first loan funding date.

The pool currently consists of five performing loans, secured by traditional commercial real estate properties with a combined balance of $127.1 million. DBRS Morningstar is required to analyze newly funded loans when the pool reaches 25%, 50%, and 75% of funding to ensure the underlying collateral meets target credit enhancement criteria. The first 25% threshold was met in June 2021, when the five current loans were funded into the trust, representing 25.4% of the future trust balance.

For this review, DBRS Morningstar considered a pool funded to the $500 million future trust balance, maintaining the issuance approach in constructing a worst-case scenario as allowed by the eligibility requirements for loans to be funded while also considering the credit quality of loans contributed since issuance. The transaction’s funding has not been executed at the pace anticipated at issuance, but it is noteworthy that there is an available six-month extension for the 12-month funding guideline in the transaction documents.

The five contributed loans have been backed by a mix of property types, with loans backed by multifamily and office properties representing 38.8% and 35.2% of the funded balance, respectively, followed by industrial and unanchored retail representing 16.1% and 9.9% of the funded balance, respectively. Those same loans reported a weighted-average issuance loan-to-value (LTV) of 63.7% and a balloon LTV of 61.7%. Almost 80% of the contributed loans have full-term interest-only (IO) or partial IO payment terms, while the remaining loans amortize immediately. The loans are also concentrated by market rank, as 69.3% of the contributed loans are in DBRS Morningstar Market Rank 4 or 5, the weakest on the five-point scale.

The largest loan funded into the trust to date, Strauss on Fifth (representing 9.9% of the maximum allowable trust balance), is secured by a newly constructed 141-unit Class A multifamily asset in San Diego. The sponsor developed the property in 2019 at a cost of $74.3 million. As of the May 2021 rent roll, the collateral reported an occupancy rate of 97.9% at an average in-place rental rate of $2,674 per unit, suggesting that the sponsor achieved stabilization within 12 months. The sponsor, Strat Property Management, Inc., is a real estate investment and management firm based in San Diego focused primarily on ownership and management of multifamily and self-storage properties. The sponsor has a vast amount of local experience, with 28 of the 31 owned multifamily assets located in San Diego. The loan also benefits from a moderate issuance LTV of only 58.2%; however, the loan is IO for the full five-year term.

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 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.

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.

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.

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

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