DBRS Morningstar Confirms All Classes of GS Mortgage Securities Corporation Trust 2021-ROSS

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates issued by GS Mortgage Securities Corporation Trust 2021-ROSS as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations at issuance last year. Collateral for the trust consists of the fee-simple interest in seven Class A/Class B properties totalling approximately 2.1 million square feet (sf) within the Rosslyn submarket of Arlington, Virginia. The $691.0 million mortgage loan has a two-year initial term, with three one-year extension options available, subject to certain provisions, including spread increases and debt yield hurdles. The mortgage loan pays floating-rate interest of Libor plus a spread of 3.02439% on an interest-only (IO) basis through the initial maturity in May 2023. Property releases are permitted with certain prepayment conditions. As noted at issuance, there is also a $150.0 million mezzanine loan in place, held outside of the trust.

The portfolio is owned by a joint venture between US Real Estate Opportunities I, L.P. (approximately 89% ownership) and an affiliate of Monday Properties (approximately 11% ownership). At issuance, the sponsors had invested almost $170.0 million in renovations and leasing costs for the portfolio since 2017. Based on the issuance as-is appraised value of $1.17 billion ($550 per sf (psf)), the sponsor had approximately $329.0 million of unencumbered market equity remaining in the transaction. The properties were 78.2% leased prior to close and were considered well positioned to take advantage of market demand given the recent capital improvements across the portfolio.

Following Amazon’s November 2018 announcement that it will construct its new HQ2 PenPlace campus in nearby Arlington, demand by private office tenants increased in the Rosslyn market as users found themselves priced out of the Arlington office market, where rents had already started to increase. In September 2021, Amazon revealed new design plans for the four-building PenPlace campus after receiving public feedback, with a focus on making the buildings more accessible and architecturally diverse. These changes have reportedly pushed the approvals expected from Arlington County into 2022, although it is not clear if this will affect the company’s plans to open the campus by 2025. Based on information from Amazon’s Career Day 2021, there were more than 3,000 employees assigned to HQ2, nearly double the number from the previous year, and Amazon was looking to hire an additional 2,500 corporate employees in the near future.

As of April 2022, spaces listed as available on the website for the subject’s property manager suggested the portfolio had a leased rate of approximately 82.2% across the seven properties, indicating moderate leasing activity since issuance. The portfolio’s largest tenant is the U.S. Department of State (16.1% of the portfolio’s net rentable area (NRA)), which executed a 15-year renewal prior to closing with a lease expiration in 2034. No other single tenant occupies more than 6.0% of the portfolio’s NRA or produces more than 8.0% of the gross rents. Approximately 31.6% of the portfolio’s NRA is leased to tenants that carry investment-grade ratings. Over the next 12 months, seven tenants, representing 6.6% of the NRA, have scheduled lease expirations. The servicer has confirmed that the fourth-largest tenant, Institute Management LLC (4.4% of the NRA, expiring November 2022), is not expected to renew beyond a short-term holdover period.

According to the April 2022 loan-level reserve reporting, leasing reserves totalled approximately $8.3 million. As of Q4 2021, Reis reported that the Rosslyn/Courthouse submarket had a vacancy rate of 19.9%. Over the next five years, the submarket is expected to see a positive absorption rate and declining vacancy rates, with Reis forecasting a vacancy rate at the end of 2023 of 19.1%.

DBRS Morningstar’s net cash flow derived at issuance was $44.6 million, a 17.7% haircut to the Issuer’s figure of $54.2 million, primarily driven by vacancy and below-the-line assumptions. The DBRS Morningstar concluded value of $615.0 million ($289 psf) reflects a high loan-to-value (LTV) ratio of 112.4% based on the $691.0 million mortgage loan, which increases substantially to an all-in DBRS Morningstar LTV of 136.7% when factoring in the mezzanine debt. However, the portfolio is well positioned to take advantage of improving market fundamentals, despite some moderate tenant rollover, with a strong sponsorship group in place that has invested heavily in the portfolio.

The Class A, A-Y, A-Z, and A-IO certificates (the CAST certificates) can be exchanged for other classes of CAST certificates and vice versa, as described in the offering memorandum.

ESG CONSIDERATIONS
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 A-IO 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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loan including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com.

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

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), 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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