DBRS Morningstar Confirms Ratings on GS Mortgage Securities Trust 2017-GS5

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-GS5 issued by GS Mortgage Securities Trust 2017-GS5 as follows:

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

All trends are Stable.

The rating confirmations and Stable trends reflect the stable to improving performance for the majority of the underlying loans.

As of the September 2022 remittance, 30 of the original 32 loans remained in the trust with an aggregate principal balance of $990.6 million, reflecting a collateral reduction of 6.7% since issuance as a result of loan repayment and scheduled loan amortization. Since the last rating action, one loan totalling $30.0 million has been repaid in full. There are two loans, representing 8.8% of the pool, in special servicing and five loans, representing 30.9% of the pool on the servicer’s watchlist.

The largest loan in special servicing, Writer Square (Prospectus ID#7, 6.0% of the pool), is secured by a 186,233-square-foot (sf) mixed-use property with street-level retail and an 11-storey office tower in Denver. The loan transferred to the special servicer in December 2021 after performance declined as a result of impacts of the Coronavirus Disease (COVID-19) pandemic. Property occupancy declined to 75% as of September 2021, compared with 77% at YE2020 and 81% at YE2019. Similarly, the debt service coverage ratio (DSCR) declined to 0.78 times (x) as of September 2021, compared with 0.87x at YE2020 and 1.30x at YE2019. The special servicer is currently assessing next steps for this loan, which remains current. Given the persistent performance declines and weak market, DBRS Morningstar considers this loan to have an elevated credit risk relative to the trust.

The second-largest loan in special servicing, 20 West 37th Street (Prospectus ID#16, 2.8% of the pool), is secured by a 77,100-sf mixed-use property in Midtown Manhattan, New York. The loan transferred to special servicing in August 2020 because of imminent default stemming from the impacts of the coronavirus pandemic; the borrower has worked to remit past due payments, but the loan remains delinquent as of the September 2022 remittance. The servicer reported occupancy was 61% as of December 2021, a decline from 68% in December 2020 and 94% in December 2019. Cash flow declined as a result of decreasing rental revenue after several tenants vacated the property resulting in a depressed DSCR of 0.36x as of YE2021, compared with 0.97x at YE2020 and 1.45x at YE2019. The special servicer is dual-tracking foreclosure while continuing to discuss the resolution of outstanding code violations and a potential workout solution with the borrower. While an updated appraisal would likely yield a sizable reduction in property value, increasing the credit risk profile of the loan, the loan did have a low going-in loan-to-value ratio of 50.9%, providing some cushion against any value declines.

The largest loan in the pool is 350 Park Avenue (Prospectus ID#1, 10.1% of the pool), secured by a 585,357-sf office property in New York’s Plaza District in Manhattan. The $400.0 million whole loan is divided between two other commercial mortgage-backed securities (CMBS) transactions, with 44.0% contributed to VNDO Trust 2016-350P ($233.3 million; rated by DBRS Morningstar) and 23.0% contributed to JPMDB Commercial Mortgage Securities Trust 2017-C5 ($66.7 million; not rated by DBRS Morningstar). This loan has been on the watchlist since December 2019 because of lockbox activation and the partial vacancy of the largest tenant, Ziff Brothers Investments, LLC (Ziff; 50.3% of the net rentable area). At issuance, Ziff sublet about half its space, and while a number of former subtenants signed direct leases upon Ziff’s departure, property occupancy fell to 66.0% as of December 2020; however, occupancy improved to 73.7% as of YE2021. The loan included a cash sweep (subject to a $25 million cap) that was triggered 18 months prior to Ziff’s lease expiry in April 2021, which partially mitigated the rollover risks. In lieu of a re-leasing reserve, the sponsor was allowed to post a $25 million guaranty as contemplated in the loan documents. The lockbox was deactivated as a result of this guaranty being posted. According to several news articles, Vornado Realty Trust, the loan’s sponsor, is contemplating redeveloping the site by building a 1,500-foot tower once all existing leases expire, which would require the existing building on Park Avenue and the neighbouring 23-storey tower owned by Rudin Management to be demolished.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and 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. (May 17, 2022)

Classes X-A, X-B, X-C, 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.

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 (October 3, 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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