DBRS Morningstar Confirms All Ratings on GS Mortgage Securities Corporation Trust 2019-GC40

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-GC40 issued by GS Mortgage Securities Corporation Trust 2019-GC40 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-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G-RR at B (sf)
-- Class X-A at AAA (sf)
-- Class X-B at A (high) (sf)
-- Class X-D at BBB (sf)
-- Class X-F at BB (high) (sf)

Additionally, DBRS Morningstar confirmed its ratings on the following rake bonds (the Rake Bonds), which are secured by the beneficial interest in the subordinate debt placed on the Diamondback Industrial Portfolio 1 (Prospectus ID#14) and Diamondback Industrial Portfolio 2 (Prospectus ID#1) loans:

-- Class DB-A at AA (high) (sf)
-- Class DB-X at AA (low) (sf)
-- Class DB-B at A (high) (sf)
-- Class DB-C at BBB (high) (sf)
-- Class DB-D at BB (sf)
-- Class DB-E at B (high) (sf)
-- Class DB-F at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. As of the April 2022 remittance, all of the original 35 loans remain in the pool. The initial pool balance of $914.2 million has been reduced by 0.9% to $905.5 million. Twenty-seven loans, representing 75.1% of the pool, are interest-only (IO) for their full terms, limiting the amount of amortization over the cycle of the deal. No loans are delinquent and no loans are in special servicing. Twelve loans, representing 24.4% of the pool balance, are on the servicer's watchlist, including three loans in the Top 15.

The largest loan on the servicer’s watchlist is Diamondback Industrial Portfolio 2 (Prospectus ID#1; 8.6% of the pool), which is secured by the fee-simple interest in a portfolio of three single-tenant industrial properties, totaling more than 2.5 million square feet (sf), located in Pennsylvania, Tennessee, and Virginia. The portfolio is 100% leased to investment-grade single tenants: Nestlé S.A. (Nestlé; rated AA (low) with a Stable trend by DBRS Morningstar); The Home Depot, Inc. (The Home Depot; rated “A” with a Stable trend by DBRS Morningstar); and Amazon.com, Inc. (Amazon). All of the properties were build-to-suit projects and the current tenants have been the only occupants at their respective buildings since development. Nestlé has occupied its property since 1994, while The Home Depot and Amazon have occupied their spaces since 2008 and 2011, respectively. The facilities are well located near interstate highways and in close proximity to major population centers. The loan was added to the servicer’s watchlist because a ground lease for the Charleston Property – Amazon Fulfillment Center expired on December 31, 2021. According to the servicer, the borrower has given notice to exercise its option to purchase the fee-simple interest in the underlying real estate. The loan is sponsored by VEREIT, a full-service real estate company that owns and manages one of the largest portfolios of single-tenant commercial properties in the U.S.

The third-largest loan on servicer’s watchlist is the Waterford Lakes Town Center loan (Prospectus ID#10; 3.70% of the pool), which is secured by the fee-simple interest in a 691,265 sf regional retail shopping center in Orlando. The loan transferred to special servicing in April 2021 for imminent nonmonetary default after the sponsor, Washington Prime Group, requested a temporary waiver of all bankruptcy events prior to its bankruptcy filing in June 2021. The loan returned to the master servicer in November 2021 after the special servicer agreed to forbear all defaults and it has remained on the servicer’s watchlist for monitoring.

The property is anchored by Regal Cinemas and Best Buy. It is also shadow-anchored by Target, Ashley Furniture, and LA Fitness, none of which are part of the collateral. Other major collateral tenants include Jo-Ann Fabrics, Bed Bath & Beyond, Ross Dress for Less, and T.J. Maxx. As of September 2021, the property was 92.5% occupied, down from 97.7% as of YE2020. The annualized Q3 2021 net cash flow (NCF) was $20.3 million, which is on pace to exceed the YE2020 NCF of $15.3 million. As of YE2020, the loan had a debt service coverage ratio (DSCR) of 1.34 times (x).

Although it is not on the servicer’s watchlist, DBRS Morningstar is monitoring the 101 California Street loan (Prospectus ID#4; 7.1% of the pool) for occupancy concerns after the largest tenant, Merrill Lynch (8.2% net rentable area), announced in February 2022 that it would vacate the property upon its October 2022 lease expiration and relocate to 555 California Street. The loan is backed by the borrower’s fee-simple interest in a 1.3 million sf, Class-A, LEED Platinum office in San Francisco. With the loss of Merrill Lynch, occupancy is expected to decline to 68.0% from its current level of 76.2%. The YE2021 NCF decreased 9.1% year over year and remains 14.6% below the issuer’s NCF at issuance. The loan had a DSCR of 1.77x as of YE2021.

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, X-D, and X-F 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.

The DBRS Morningstar Viewpoint platform provides additional information on this transaction and underlying loans 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. 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 the 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 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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