DBRS Morningstar Confirms All Classes of GS Mortgage Securities Corporation Trust 2021-ROSS

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates issued by GS Mortgage Securities Corporation Trust 2021-ROSS, Series 2021-ROSS as follows:

-- Class A at AAA (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class A-IO at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations since issuance.

Collateral for the trust consists of the fee-simple interest in seven Class A/Class B office properties totaling approximately 2.1 million square feet (sf) in Arlington, Virginia. Between 2017 and 2021, the sponsor invested approximately $168.7 million ($79 per square foot (psf)) in capital expenditures to improve the collateral. The collateral benefits from an accessible location less than five miles west of the Washington, D.C. central business district in the Rosslyn neighborhood. The portfolio is owned by a joint venture between U.S. Real Estate Opportunities I, L.P. (approximately 89% ownership) and an affiliate of Monday Properties (approximately 11% ownership). Based on the as-is appraised value of $1.17 billion ($550 psf) at issuance, the sponsor had approximately $329.0 million of unencumbered market equity remaining in the transaction.

The $691.0 million mortgage loan has a two-year initial term with three one-year extension options available, subject to certain provisions, including spread increases, the purchase of a new interest rate cap, and a debt yield hurdle for the third extension option. The mortgage loan pays floating-rate interest on an interest-only (IO) basis through the initial maturity in May 2023. The borrower has not yet indicated whether it intends to exercise the first extension option. Given the current environment, DBRS Morningstar has inquired about whether an interest rate cap has been purchased, but notes the minimal upcoming tenant roll, stable performance expectations, and cash in reserves as factors mitigating the uncertainty surrounding the loan’s upcoming maturity. Property releases are permitted with certain prepayment conditions and no properties have been released to date. As noted at issuance, there is also a $150.0 million mezzanine loan in place, held outside of the trust.

As of December 2022, the collateral was 75.1% occupied with an average rental rate of $50.14 psf, slightly below the occupancy rate of 78.2% at issuance. The portfolio’s largest tenant is the U.S. Department of State (16.1% of the portfolio’s net rentable area (NRA)), with a lease expiration in 2034. No other single tenant occupies more than 6.0% of the portfolio’s NRA or represents more than 8.0% of the gross rents. Tenant rollover during the fully extended loan term totals only 16.7% of NRA and, in 2023, tenants representing just 4.3% of NRA are scheduled to roll. In addition, the sponsor has signed new leases with tenants representing a combined 2.3% of NRA, with commencement dates in 2023. Per the most recent financials, the loan reported a YE2022 net cash flow (NCF) of $52.6 million, slightly below the YE2021 NCF of $55.7 million but still above the DBRS Morningstar NCF of $44.6 million derived at issuance. DBRS Morningstar increased the assumptions for tenant improvement/leasing commission amounts in its analysis given the contractions of office space use over the past few years.

According to the March 2023 loan-level reserve reporting, tenant and leasing reserves totaled approximately $7.7 million. As of Q4 2022, Reis reported that the Rosslyn/Courthouse submarket had a vacancy rate of 19.9% and average asking rents of $44.34 psf. Over the next five years, Reis projects modest increases in asking rents, with vacancy expected to remain flat at approximately 20.0%.

The Class A, A-Y, A-Z, and A-IO certificates (the CAST certificates) can be exchanged for other classes of CAST certificates and vice versa, as described in the offering memorandum.

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Class A-IO is an IO certificate that references 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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the North American CMBS Surveillance Methodology (March 16, 2023), 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 info@dbrsmorningstar.com.

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 info@dbrsmorningstar.com.

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