DBRS Morningstar Assigns Provisional Ratings to GS Mortgage Securities Corporation Trust 2021-STAR Commercial Mortgage Pass-Through Certificates, Series 2021-STAR

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the classes of GS Mortgage Securities Corporation Trust 2021-STAR Commercial Mortgage Pass-Through Certificates, Series 2021-STAR as follows:

-- Class A at AAA (sf)
-- Class X-CP at A (high) (sf)
-- Class X-FP at A (high) (sf)
-- Class X-NCP at A (high) (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable. Classes H, HRR, P and ELP are not rated by DBRS Morningstar.

Classes X-CP, X-FP and X-NCP are interest-only (IO) classes whose balances are notional.

The collateral for GSMS Trust 2021-STAR includes the borrower’s fee-simple interest in seven Class A suburban apartment properties totaling 2,494 units across five states and five distinct multifamily submarkets throughout the U.S. The portfolio is primarily concentrated in Florida (three properties, 1,004 units, 37.0% of NCF), Texas (one property, 583 units, 25.6% of NCF), and Arizona (one property, 360 units, 16.0% of NCF). Within Florida, the three assets are located in Tampa. The Texas property is in Austin and the Arizona property is in Phoenix. Additional markets include Raleigh, North Carolina, and Atlanta, Georgia and are directly or indirectly owned (except for certain interests owned by other persons for the purpose of establishing or maintaining the REIT status of certain equity holders in the borrowers) by a joint venture between Starlight Group Property Holdings Inc (Starlight), Public Sector Pension Investment Board (PSP), and Future Fund Board of Guardians (Future Fund). Future Fund has recapitalized PSP and Starlight through an investment vehicle that indirectly owns all seven properties. Six of the seven properties were previously purchased by entities indirectly owned by PSP and Starlight through joint venture structures. Tuscany Bay was previously owned by a separate structure controlled by Starlight. The recapitalization of equity by Future Fund to PSP and Starlight was based on a gross purchase price of $662.8 million ($265,766 per unit) that was completed on October 26, 2021. The Portfolio is currently indirectly owned by all three investors after Future Fund contributed cash equity of $86.5 million in exchange for a 45% interest. The final equity ownership is PSP 45%, Future Fund 45%, and Starlight 10%.

The properties comprising the portfolio generally exhibit favorable finish qualities and comprehensive amenity offerings with the properties being built between 1994 and 2007 and a WA year built of 2002. Approximately 35.0% of the units within the portfolio have been renovated, which has allowed an average yield of 20.6% on an average unit renovation cost of $15,400. The current business plan calls for renovation of 1,214 units (75% of remaining eligible units) across the portfolio during the first three years. This would equate to approximately four per month with an estimated cost of $16,491 per unit, which is estimated to bring in a monthly premium of $281 per unit. Additionally, there is planned property level capex to common areas including renovated clubhouses, common rooms, gyms and gym equipment, rebuilt dog parks, and barbecue areas with patio furniture. Overall, total capital expenditures are estimated to be $29.08 million. While DBRS Morningstar did not give any credit to potential upside in cash flow from the sponsor’s business plan, the portfolio’s generally favorable asset quality and location in high-growth markets make it well positioned to maintain stable operating performance through the loan term. Additionally, DBRS Morningstar expects there would be no issues funding any planned renovations, given the sponsor’s strong access to capital and significant financial wherewithal.

In addition to the generally favorable asset quality of the underlying collateral, DBRS Morningstar generally views the markets to which the portfolio is exposed as highly desirable for multifamily assets, with strong growth potential and favorable population statistics. The generally favorable market conditions are further evidenced by relatively tight submarket vacancy rates, which averaged 4.0% across the portfolio per the appraiser and are generally projected to decline through the fully extended loan maturity. While 100% of the properties are in areas characterized as having a DBRS Morningstar Market Rank of between 2 and 4 (ranks generally associated with more suburban locations), the cross-collateralized and geographically diversified nature of the portfolio generally mitigates a portion of the market risk. As of November 2021, the portfolio was 94.9% occupied. In addition, As of the trailing four week leasing activity through October 31, 2021, the portfolio has exhibited leasing activity with new rents trade-outs growing by 29.7% over prior leases and renewal trade-outs growing 15.7% over prior leases. Combined, the portfolio’s trade outs have grown 18.8% on a WA basis month-over-month.

The transaction sponsorship is a joint venture Starlight, PSPIB, and Future Fund. Starlight is affiliated and under common control with Starlight Investments, which includes both Starlight U.S. Multi-Family and Starlight Canadian Multi-Family and is a real estate investment and asset management company. Founded in 2011 by Daniel Drimmer, Starlight’s multi-family portfolio consists of more than 70,000 multi-family units in over 600 properties located across Canada and the US as of October 31, 2021. During the past 20 years, Starlight Investments and its predecessor companies have acquired, operated, and sold in excess of 110,000 multi-family units valued at over $30 billion and have over $23 billion assets under management as of November 30, 2021. PSP is one of Canada’s largest pension investment managers by assets under management. PSP manages a diversified global portfolio composed of investments in public financial markets, private equity, real estate, infrastructure, natural resources, and credit investment. Established in 1999, PSP manages net contributions to the pension funds of Canada’s Federal Public Service, the Canadian Armed Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, Canada, PSP has its principal business office in Montréal and offices in New York and London. As of March 31, 2021, the organization maintained $204.5B CAD of net assets under management, The Future Fund is the sovereign wealth fund of Australia. It was founded by the Australian Government in 2006 to “strengthen the Australian Government’s long-term financial position.” The Future Fund operates independently from the Australian Government, investing the assets of six special purpose public asset funds in accordance with each fund’s individual investment mandates, as determined by the Australian Government under legislation. The specific funds under the purview of the larger sovereign wealth fund are the Future Fund, the Medical Research Future Fund, the Aboriginal and Torres Strait Islander Land and Sea Future Fund, the Future Drought Fund, the Emergency Response Fund, and the DisabilityCare Australia Fund. Total funds under management as of September 30, 2021 were approximately $248 billion across all six funds.

The trust collateral was originated by Goldman Sachs Bank USA, and consists of a mortgage loan in the amount of $470.6 million. Future Fund will recapitalize Starlight and PSP through a new investment vehicle and Starlight will retain a 10% interest in the portfolio, with the remaining 90% being split equally between two investors: PSP and Future Fund. Following the recapitalization, the sponsors will have approximately $204.7 million of cash and implied market equity in the properties based on the as-is portfolio appraisal value of approximately $675.3 million.

Classes X-CP, X-FP and X-NCP are interest-only (IO) certificates that references a multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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.

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

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

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

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (March 2, 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. 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

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

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