DBRS Morningstar Confirms Ratings on GPMT 2021-FL3, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of notes issued by GPMT 2021-FL3, Ltd. as follows:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (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 increased credit support to the notes as a result of successful loan repayment, resulting in a collateral reduction of 22.6% since issuance. The increased credit support to the notes serves as a mitigant to potential adverse selection in the transaction as eight loans are secured by office properties, representing 49.4% of the current trust loan balance. As a result of complications initially arising from impacts of the Coronavirus Disease (COVID-19) pandemic and the ongoing challenges with leasing available space, the borrowers of these loans have generally been unable to increase occupancy and rental rates to initially projected levels, resulting in lower-than-expected cash flows.

While all loans remain current, given the decline in desirability of office product across tenants, investors, and lenders alike, there is greater uncertainty regarding the borrowers’ exit strategies upon loan maturity. In the analysis for this review, DBRS Morningstar evaluated these risks by stressing the current property values for 10 loans, representing 56.8% of the current trust balance, collateralized by both office and nonoffice property types. That analysis suggested the rated notes remain sufficiently insulated (relative to the respective rating categories) from loan delinquency and increased credit risk. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction and with business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at [email protected].

As of the July 2023 remittance, the trust reported an outstanding balance of $637.8 million with 18 loans remaining in the trust. The transaction is static, with a Replenishment Period that expired with the May 2023 Payment Date. All future loan repayments will pay down the notes sequentially. Since the previous DBRS Morningstar rating action in November 2022, one loan with a former trust balance of $24.4 million has been repaid. The remaining loans in the transaction beyond the office concentration noted above include five loans secured by multifamily properties (26.2% of the current trust loan balance) and three loans secured by mixed-use properties (17.6% of the current trust loan balance). The transaction’s property type concentration has remained relatively stable since March 2022 when 47.3% of the trust loan balance was secured by office collateral, 29.5% of the trust loan balance was secured by multifamily collateral, and 14.8% of the trust loan balance was secured by mixed-use collateral.

The remaining loans are secured by properties in urban and suburban markets. Ten loans, representing 60.2% of the pool, are secured by properties in urban markets, as defined by DBRS Morningstar, with a DBRS Morningstar Market Rank of 6, 7, or 8. Eight loans, representing 39.8% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 3, 4, or 5, denoting a suburban market. In comparison with the pool composition in March 2022, properties in urban markets represented 61.9% of the collateral and properties in suburban markets represented 38.1% of the collateral. The location of the assets within urban markets potentially serves as a mitigant to loan maturity risk as urban markets have historically shown greater liquidity and investor demand.

Leverage across the pool has remained relatively unchanged since issuance as the current weighted-average (WA) as-is appraised value loan-to-value (LTV) ratio is 66.8% with a current WA stabilized LTV ratio of 64.1%. In comparison, these figures were 67.9% and 62.1%, respectively, at issuance. DBRS Morningstar recognizes these values may be inflated as the individual property appraisals were completed in 2021 and do not reflect the current rising interest rate or widening capitalization rate environments.

Through March 2023, the lender had advanced $160.4 million in loan future funding to 17 of the remaining individual borrowers to aid in property stabilization efforts. The largest loan advances included $61.7 million to the borrower of the Times Square West loan and $27.7 million to the borrower of the Courtyards on the Park loan. The Times Square West loan is secured by an office property in Midtown Manhattan and the borrower has used the advanced funds for its repositioning and renovation project of the asset as well as to fund debt service carry and leasing costs. The Courtyards on the Park loan is secured by a multifamily property in Des Plaines, Illinois, and the the borrower has used the advanced funds for its capital improvement project across the property to renovate unit interiors and property exteriors and amenities as well as to fund loan carry costs. An additional $35.8 million of loan future funding allocated to 15 individual borrowers remains available. The largest individual allocation, $7.8 million, is allocated to the borrower of the Times Square West loan for additional leasing costs.

As of the July 2023 reporting, no loans are delinquent in special servicing but five loans, representing 32.3% of the current trust balance, are on the servicer’s watchlist,. The loans have been flagged for performance issues with low occupancy rates and below breakeven debt service coverage ratios. The largest loan on the servicer’s watchlist is Times Square West, representing 13.8% of the transaction. An additional nine loans, representing 41.9% of the current pool balance, have upcoming loan maturity dates throughout 2023. Each loan has at least one remaining 12-month extension option, and DBRS Morningstar expects the majority of loans to be extended. In the instances where property performance does not meet required minimum thresholds, DBRS Morningstar expects the individual borrowers and lenders to agree to mutually beneficial terms to extend the loans, which will likely include fresh equity contributions from the borrowers.

Eleven of the remaining loans, representing 55.8% of the current pool balance, have also been modified as individual borrowers have either needed relief or additional time to execute business plans. Terms of loan modifications have varied; however, common elements include the delay of milestone completion dates for capital improvements, changes to floating interest rate terms, reallocation of existing reserves, and waiver of minimum property performance thresholds to qualify for maturity extensions.

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/416784 (July 4, 2023).

All credit ratings are subject to surveillance, which could result in credit 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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

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

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

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

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model Version 1.1.0.0 https://www.dbrsmorningstar.com/research/410913

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022) https://www.dbrsmorningstar.com/research/402646/dbrs-morningstar-north-american-commercial-real-estate-property-analysis-criteria

North American Commercial Mortgage Servicer Rankings (September 8, 2022)
https://www.dbrsmorningstar.com/research/402499/north-american-commercial-mortgage-servicer-rankings

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/legal-criteria-for-us-structured-finance

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