DBRS Morningstar Confirms Ratings on All Classes of GSMS 2013-G1

DBRS Inc. (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-G1 issued by GS Mortgage Securities Trust 2013-G1 as follows:

-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class DM at BB (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction. Although the remaining underlying collateral has experienced cash flow fluctuations in recent years and the loan was recently modified to extend its maturity, the value of the collateral continues to support the ratings of the outstanding classes.

The trust collateral originally consisted of three fixed-rate loans individually secured by two outlet malls and one regional mall: Great Lakes Crossing Outlets (Auburn Hills, Michigan), Katy Mills (Katy, Texas), and Deptford Mall (Deptford, New Jersey). Since the last rating action in August 2022, both Great Lakes Crossing Outlets and Katy Mills have been fully repaid, contributing to the full repayment of the Class A-1 and A-2 certificates. The remaining loan is secured by 343,910 square feet of in-line space in the 1.0-million-square foot Deptford Mall. The original loan balance was $205 million, which was bifurcated into a $179.4 million senior pooled amount contributed to the pooled certificates and a $25.1 million subordinate non-pooled loan that backs the Class DM certificate. As of the June 2023 remittance, there is $130.7 million remaining in the senior pooled balance and $18.3 million in the subordinate note, representing a whole loan collateral reduction of 27.1% since issuance.

The super-regional mall, owned and operated by Macerich, is located just outside of Philadelphia and is anchored by non-collateral tenants Boscov’s, Macy’s, and JCPenney. A dark Sears box has been partially back-filled by Dick’s Sporting Goods. An incoming tenant, Bonesaw Brewing Company, is expected to take additional space in the former Sears box. As of the YE2022 rent roll, the total mall occupancy was 96.1% compared with March 2022, June 2021, and YE2019 occupancies of 94.6%, 87.3%, and 89.8% respectively. Other major tenants include H&M (6.5% of the net rentable area (NRA)), lease expiry in January 2026), Forever 21 (5.9% of the NRA, currently month-to-month), and Victoria’s Secret (3.2% of the pool, lease expiry in March 2024). Forever 21 had a lease expiration in January 2023, and while the rent roll does not list any extension options, the store still appears to be open according to the Deptford Mall website.

The loan transferred to special servicing in March 2023 for imminent default as the borrower had provided notice it would be unable to repay the loan at its original maturity date in April 2023. The loan was subsequently modified and the terms include an initial extension through April 2024, plus two additional one-year extension options subject to debt yield hurdles of 10.25% and 11%, respectively. The borrower was required to remit a $10 million principal curtailment, which has been applied to pay down the balance of the certificates and pay all fees related to the modification. The loan is to remain in cash management for the remaining term.

The YE2022 net cash flow (NCF) was reported at $14.9 million, down from the YE2021 figure of $16.7 million and the YE2019 figure of $20.3 million. At the October 2020 rating action, DBRS Morningstar previously derived a NCF of $19.9 million in a base-case scenario and a stressed NCF of $16.9 million as part of a coronavirus pandemic impact analysis. The decrease from YE2021 appears to be primarily driven by a 45.7% decrease in other income and a marginal increase in real estate taxes and utilities. The reported YE2022 NCF reflects a debt service coverage ratio of 1.31 times, and a debt yield of 11.4% on the pooled balance and 10.0% on the whole loan balance. As of the June 2022 sales report, in-line tenants reported average sales of approximately $621 per square foot for the trailing 12-month period ended June 30, 2022, up slightly from the prior year.

Although an updated appraised value has not been finalized, DBRS Morningstar believes the property has declined in value since issuance when it was appraised at $340.0 million. DBRS Morningstar previously derived a base-case and stressed value in 2020 in two separate scenarios. In the more conservative stressed scenario, the DBRS Morningstar value was $211.3 million. DBRS Morningstar re-evaluated its cash flow and value approach in light of updated performance metrics, and derived a value of $171.6 million, based on a standard stress to the YE2022 reported NCF and a cap rate of 8.5%. The updated DBRS Morningstar value represents an 18.8% haircut to the DBRS Morningstar 2020 stressed value and a 50% haircut to the issuer’s appraised value of $340.0 million.

Offsetting some of this concern is the loan’s recent modification. The $10 million principal payment by the borrower indicates continued sponsor commitment to the property and has contributed to deleveraging the asset. Macerich has continued to perform on its debt obligations across its mall holdings. Additionally, the property’s historically high occupancy and strong sales, and the continued interest in the vacant Sears space indicate healthy leasing activity and good market positioning. Moreover, the extended loan term provides additional runway for cash flow to restabilize. DBRS Morningstar believes the asset will continue to perform in line with expectations.

At issuance, DBRS Morningstar shadow-rated the senior pooled portion of the subject loan as investment grade. With this review, DBRS Morningstar confirmed that the performance of the loan remains consistent with investment-grade loan characteristics.

The DBRS Morningstar rating assigned to Class DM is higher than the results suggested by the loan-to-value sizing benchmarks. The variance is warranted given the offsetting factors noted above, including the loan’s recent modification, sponsorship commitment, and overall performance of the underlying asset.

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 (May 17, 2022).

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) https://www.dbrsmorningstar.com/research/410912.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023)
https://www.dbrsmorningstar.com/research/410191

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022) https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (September 8, 2022) https://www.dbrsmorningstar.com/research/402499

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023) https://www.dbrsmorningstar.com/research/415687

Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008

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