DBRS Morningstar Downgrades Two Classes and Confirms Three Other Classes of GS Mortgage Securities Trust 2013-GC10

DBRS, Inc. (DBRS Morningstar) downgraded the ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2013-GC10 issued by GS Mortgage Securities Trust 2013-GC10 as follows:

-- Class E to CCC (sf) from B (sf)
-- Class F to C (sf) from CCC (sf)

In addition, DBRS Morningstar confirmed the ratings on three classes as follows:

-- Class X-B at AA low (sf)
-- Class C at A high (sf)
-- Class D at BBB (sf)

The trends on Classes X-B, C and D are Stable. Classes E and F have ratings which do not typically carry trends in Commercial Mortgage Backed Securities (CMBS) ratings.

In addition, DBRS Morningstar discontinued the rating on Class B as the bond fully repaid with the January 2023 remittance.

The rating confirmations reflect the increased credit support for the transaction as a whole, as 50 loans were repaid from the trust since the last review, representing a $517.2 million principal paydown.

The transaction is in wind down, with all remaining loans exhibiting increased risks because of performance declines and/or recent defaults. The credit profile of the remaining bonds has somewhat barbelled as a result. As of the January 2023 remittance, three of the original 61 loans remain in the trust with an outstanding trust balance of $127.3 million, reflecting a collateral reduction of 85.2% since issuance. Two loans, representing 20.1% of the pool balance, are in special servicing. The rating downgrades reflect DBRS Morningstar’s loss expectations for the largest loan in the pool, Empire Hotel & Retail (Prospectus ID #1; 79.9% of the pool balance), which received a loan modification that resulted in interest shortfalls affecting Classes E and F that are expected to persist through at least May 2023.

The Empire Hotel & Retail loan is secured by a full-service hotel and ground-floor retail space in New York. The loan transferred to special servicing in June 2021 for payment default after a history of reporting declining performance metrics. The loan returned to the master servicer in September 2022 after receiving a loan modification that includes a conversion to interest-only payments for the remainder of the term and a reduction in interest rate for 18 months, factors contributing to the previously mentioned shorted interest for Classes E and F. The August 2021 appraisal value of $137.0 million reflects a 65.1% decline from the issuance value of $393.0 million and a loan-to-value (LTV) ratio of 118.7% based on the outstanding whole-loan balance. When factoring in the outstanding shortfalls, the implied LTV on the trust’s total exposure is 74.8%. According to the November 2022 STR report provided for the property, revenue per available room (RevPAR) for the trailing 12 month period ended November 30, 2022, was $168 compared with the pre-pandemic YE2019 RevPAR of $183 and YE2018 RevPAR of $196.

The One Technology Plaza loan (Prospectus ID#13; 9.9% of the pool balance) is secured by an office property in Peoria, Illinois, and was transferred to special servicing in December 2021 for imminent monetary default. This loan also has a history of declining performance metrics, the result of occupancy declines since issuance. Occupancy declined to 59.0% as of YE2021 after the scheduled departure of the former largest tenant, Robert Morris University (20.6% of net rentable area (NRA)), which brought occupancy down from 77% at YE2020 and 79% at YE2019. The Illinois State Government Department (13.2% of NRA) also vacated upon lease expiration in March 2022 and leases representing 25.9% of the NRA were scheduled to expire by YE2022. The September 2022 appraisal value of $9.0 million represents a value decline of 60% from the issuance appraisal value of $22.7 million and reflects a LTV ratio of 136.4% on the loan’s remaining balance.

The 701 Technology Drive loan (Prospectus ID#15; 10.2% of the pool balance) is secured by a flex industrial property in Canonsburg, Pennsylvania, and was transferred to special servicing in November 2022 because of the borrower’s inability to repay the loan balance at its scheduled maturity date in December 2022. The property’s performance metrics have declined as a result of tenants vacating at lease expiration. The servicer-reported occupancy rate as of September 2022 declined to 66.8% from 73.4% at September 2021 and the net operating income debt service coverage ratio as of the same reporting period fell to 0.89 times. DBRS Morningstar considered a hypothetical liquidation scenario based on a stressed value for each of the collateral properties securing the three remaining loans that suggested Class F would be the most exposed to reduced credit support and/or losses in that scenario.

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.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

Notes:
All figures are in US dollars unless otherwise noted.

The principal methodology is the 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 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.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is in wind down, with only a few remaining loans. In these cases, the DBRS Morningstar ratings are typically based on a recoverability analysis for the remaining loans.

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

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