DBRS Morningstar Downgrades Two Classes of GS Mortgage Securities Trust, Series 2012-GCJ7

DBRS Limited (DBRS Morningstar) downgraded the ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2012-GCJ7 issued by GS Mortgage Securities Trust, Series 2012-GCJ7 as follows:

-- Class D to C (sf) from BB (sf)
-- Class E to C (sf) from CCC (sf)

DBRS Morningstar discontinued the rating on Class C as the class was fully repaid as of the June 2022 remittance report. Classes D and E have ratings that generally do not carry a trend in commercial mortgage-backed securities ratings. The rating downgrades reflect the significant decline in value and DBRS Morningstar’s expectations for the ultimate recovery for the largest remaining loan in the pool.

Bellis Fair Mall (Prospectus ID#3, 76.7% of the pool) is secured by the in-line portion and two anchor boxes of a regional mall in Bellingham, Washington, approximately 20 miles south of the U.S./Canadian border. The loan transferred to special servicing as a nonperforming matured balloon loan in February 2022 and, as of the most recent update from the special servicer, the workout strategy is to dual track a foreclosure and the appointment of a receiver as well as a possible loan modification. Since DBRS Morningstar’s last review of this transaction in February 2022, the collateral was reappraised for a value of $49.1 million, suggesting as-is loan-to-value (LTV) of 155.1%, with the 2022 value well below the issuance value of $145.0 million, which resulted in an LTV of 65.0%. The mall is owned and operated by affiliates of Brookfield Property Partners (Brookfield), which acquired the original sponsor in 2018.

Macy’s (22.3% of the net rentable area (NRA), lease expiry January 2029), Dick’s Sporting Goods (9.5% of NRA, lease expiry January 2028), and Ashley HomeStore (5.5% of NRA, lease expiry September 2028) serve as collateral anchor tenants with noncollateral anchors comprising Target, Kohl’s, and JCPenney. The occupancy rate declined to 79.8% in September 2021, down from 87.7% in December 2019. As of a year-end 2021 tenant sales report, Macy’s reported sales of $68 per square foot (psf) and Ashley HomeStore reported sales of $171 psf. In-line tenants reported sales of $359 psf while the property as a whole reported sales of $208 psf. The loan reported a trailing nine months ended September 30, 2021, debt service coverage ratio (DSCR) of 1.06 times (x), well below from the YE2020 DSCR of 1.45x, YE2019 DSCR of 1.88x, and YE2018 DSCR of 2.07x. The decline in cash flow since 2018 has been driven by drops in base rental income, which was exacerbated during the pandemic. Although Brookfield could continue negotiations with the servicer for a loan modification, the as-is value decline and the decline in sales performance since issuance suggests a loss is likely at resolution. As such, DBRS Morningstar considered a liquidation scenario based on a haircut to the 2022 appraised value, which resulted in an implied loss severity in excess of 50.0%.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no environmental/social/governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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 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 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.

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

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