DBRS Morningstar Confirms Ratings on All Classes of GS Mortgage Securities Trust 2018-GS10

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-GS10 issued by GS Mortgage Securities Trust 2018-GS10 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-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G-RR at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction, which has remained consistent with DBRS Morningstar’s expectations. At issuance, the transaction comprised 33 fixed-rate loans secured by 57 commercial and multifamily properties with a trust balance of $810.7 million. As of the July 2022 remittance report, all loans remain in the pool with an outstanding trust balance of $801.0 million, representing a nominal collateral reduction of 1.2% since issuance.

There are three loans—1000 Wilshire (Prospectus ID#2, 8.1% of the pool balance), Aliso Creek Apartments (Prospectus ID#3, 7.9% of the pool balance), and Marina Heights State Farm (Prospectus ID#11, 3.4% of the pool balance)—that were shadow-rated investment grade by DBRS Morningstar at issuance. With this review, DBRS Morningstar confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

As of the July 2022 remittance, no loans have been defeased, nor are there any loans in special servicing. There are six loans on the servicer’s watchlist, representing 11.0% of the pool balance. The servicer is monitoring these loans for a variety of reasons, including low debt service coverage ratio (DSCR), concerns with occupancy, and/or tenant rollover risk.

DBRS Morningstar has been closely monitoring the largest loan in the pool, GSK North American HQ (Prospectus ID#1, 9.4% of the pool balance), following the decision by the property’s single tenant, GlaxoSmithKline plc (GSK), to vacate its space in Q1 2022, as announced in 2021. The subject loan is secured by a Class A office complex in Philadelphia’s Navy Yard submarket. The property was built-to-suit for GSK at a cost of $80.0 million in 2013, when GSK executed a 15-year lease through September 2028 with no termination options.

Although the subject is now physically vacant, GSK will continue to honor its rental payments through the remainder of the lease term. According to the servicer, Jones Lang LaSalle has been engaged to market the space for sublease. The loan was structured with a cash flow sweep that was to be triggered if GSK vacated or went dark in at least 90% of its space, excluding subleases signed by GSK. As of the July 2022 reporting, the servicer noted $1.7 million being held in the cash management account but no funds held in tenant reserves. Office properties in the South Philadelphia submarket have historically reported strong market fundamentals, supported by the Q1 2022 vacancy rate of 1.1% as reported by Reis.

According to an article published by The Philadelphia Inquirer on June 28, 2022, a $6.0 billion investment plan to revitalize and redevelop the Navy Yard over the next 20 years was announced, with the hope of creating a new neighborhood in the city. This plan is estimated to bring 12,000 new jobs to the Navy Yard, as well as 8.9 million square feet (sf) of new residential, commercial, retail, and mixed-use space. The developers, Mosaic Development Partners and Ensemble Real Estate Investments, plan to build 4,000 residential units as part of the redevelopment.

Based on the annualized Q1 2022 financials, the loan reported a DSCR of 2.40 times (x), compared with the YE2021 and YE2020 DSCR of 2.33x. The historically strong DSCR figures suggest that some meaningful excess cash can be trapped between the trigger event and loan maturity in June 2023. According to the appraisal at issuance, the dark value of the property was reported at $91.8 million, which is in excess of the whole-loan amount of $85.2 million. Although the loan’s refinance risk has significantly increased following the departure of GSK given the upcoming loan maturity in June 2023, mitigating factors include historically strong submarket and property performance in addition to the redevelopment plans discussed above and the sponsor’s commitment to the property. Korea Investment Management, an investment firm owned by Korea Investment Holdings Co., Ltd. (a financial services firm in South Korea), is the loan sponsor and has been working with Coretrust Capital Partners, LLC, which serves as a domestic asset manager in the United States. At issuance, the sponsor contributed $45.9 million of equity to purchase the property.

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.

Classes X-A, X-B, and X-D are interest-only (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.

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 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.

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. 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.

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

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