DBRS Morningstar Downgrades One Class of GS Mortgage Securities Trust, Series 2012-GCJ7

DBRS, Inc. (DBRS Morningstar) downgraded the rating for a class of Commercial Mortgage Pass-Through Certificates, Series 2012-GCJ7 issued by GS Mortgage Securities Trust, Series 2012-GCJ7 as follows:

-- Class F to D (sf) from C (sf)

The downgrade reflects a principal loss following the liquidation of the Shoppes on Main loan (Prospectus ID#12) that was reflected in the December 2021 remittance report. The liquidation resulted in a loss severity of 95.3%, which was in line with DBRS Morningstar’s expectation, and equated to a $30.0 million loss to the trust. The loss fully reduced the balance of the unrated Class G certificate and reduced the balance of the Class F certificate by 65.9%.

In addition, DBRS Morningstar confirmed the following classes:

-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (sf)
-- Class D at BB (sf)
-- Class E at CCC (sf)

DBRS Morningstar discontinued the rating on Class A-4 as the class was fully repaid as of the February 2022 remittance report. The trend for Class D remains Negative and Classes E and F have no trends given their ratings. All other trends are Stable.

The Negative trend on Class D is driven by ongoing concerns with the largest loan, Bellis Fair Mall (Prospectus ID#3 – 27.5% of the trust balance), which did not pay off at loan maturity. The rating confirmations reflect sufficient credit support relative to DBRS Morningstar’s overall recovery expectations for the pool’s remaining loans. Three other loans, totaling 4.0% of the trust balance, are in special servicing. These loans are all secured by limited-service hotel properties in Anchorage, Alaska, that transferred to the special servicer in June 2020. The three loans are all cross-collateralized and cross-defaulted with the same sponsor and the most recent appraised values remain above the aggregate loan exposures.

Bellis Fair Mall is secured by the in-line portion and two anchor boxes of a regional mall in Bellingham, Washington. The collateral is just south of the Canadian border and sales have been historically dependent on traffic from Canadian consumers, which was severely limited for most of 2020 and 2021 because of the Coronavirus Disease (COVID-19) restrictions. The loan was scheduled to mature on February 6, 2022, but has not repaid as of the date of this writing. The mall is owned and operated by affiliates of Brookfield Property Partners, which acquired the original sponsor in 2018. DBRS Morningstar requested updates from the servicer regarding the borrower’s plan for the retirement of the subject debt; however, the borrower has been unresponsive.

The loan’s performance has been in decline since 2018 with a near breakeven debt service coverage ratio as of Q3 2021. The decline has been driven by decreases in base rental income, which was exacerbated during the pandemic. No coronavirus-related relief requests have been processed to date. Remaining borrower equity is believed to be limited and DBRS Morningstar expects the underlying collateral value has also declined since issuance. DBRS Morningstar will closely monitor the workout of the loan and potential impacts to the trust’s interest obligations. A delayed resolution of the outstanding debt would likely result in increased loan exposure as well as an increase of DBRS Morningstar’s loss projections for the pool.

The trust is in the process of winding down as all but one loan have scheduled maturity dates in Q1 or Q2 2022. At issuance, the trust comprised 79 fixed-rate loans secured by 175 commercial properties with a trust balance of $1.62 billion. According to the February 2022 remittance, 21 loans remain in the trust with a trust balance of $279.7 million, representing an 82.8% collateral reduction since issuance.

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 interest-only (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 the following loan in the transaction:

-- Prospectus ID#3 – Bellis Fair Mall (27.5% 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. 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].

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