DBRS Morningstar Confirms Ratings on All Classes of GSF 2021-1

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of notes issued by GSF 2021-1 (the Issuer):

-- Class A-1 Notes at AAA (sf)
-- Class A-2 Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class X Notes at A (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (low) (sf)
-- Class E Notes at BB (low) (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect the continued performance of the underlying collateral, which remains in line with issuance expectations evidenced by steady financial performance for the majority of loans and a well-rounded favorable property type mix in the pool.

As of the August 2023 remittance, the pool consisted of 23 performing loans, secured by traditional commercial real estate properties with a combined balance of $496.5 million. There were no loans on the servicer’s watchlist or in special servicing. At closing, in November 2021, the transaction featured a funding period whereby the Issuer could contribute loans to the pool up to the expected maximum balance of $500.0 million. The pool was originally intended to be funded within the first year with an allowable six-month extension option. Although the Issuer did not fund the pool within the originally expected time frame, the 100% funding target was reached with the July 2023 remittance, when the trust reached a balance of $496.6 million, representing 99.3% of the originally planned $500 million pool balance. The transaction now pays sequentially. DBRS Morningstar notes one guardrail has been broken as the pool’s current top 10 loan concentration of 66.7% exceeds the 50% guardrail as defined in the indenture. The fully funded transaction is concentrated by property type with office, multifamily, and industrial properties representing 23.9%, 22.9%, and 19.2% of the current pool balance, respectively.

The six loans contributed since the previous DBRS Morningstar rating action in February 2023 are backed by a mix of property types, including industrial, self-storage, and a parking facility representing 9.6%, 12.0%, and 2.5% of the pool, respectively. Those same loans reported a weighted-average (WA) issuance loan-to-value ratio (LTV) of 58.4% and WA DBRS Morningstar net cash flow (NCF) variance of -14.7%. All of the newly contributed loans were structured with some sort of interest-only (IO) provisions.

DBRS Morningstar notes an elevated risk profile for the Westview (Prospectus ID#12, 7.9% of the pool) loan, which is secured by a 100,182-square-foot (sf) office building in Austin, adjacent to the Texas State Capitol. In 2018, the subject property underwent a $32.0 million capital expenditure program to modernize the exterior, add 75,000 sf, renovate, and install creative office space. As of March 2023 reporting, the subject remains 92.0% occupied, which remains in line with the rate at the loan’s contribution to the trust. As noted at issuance, the largest tenant at the collateral is WeWork, which occupies three floors at the subject, accounting for 46.3% of the net rentable area (NRA) with a lease expiry in January 2032. Recent news articles have stated that WeWork is seeking to renegotiate the vast majority of its leases around the world but expects to remain in most of its locations. The impact to the subject property is unknown at this time; however, WeWork has seven additional locations in the Austin metropolitan statistical area, and the March 2023 asset summary report provided by the servicer noted the subject property is one of the top performers in the Austin market. The tenants at the subject WeWork location are satellite offices for larger companies, most of which signed for longer than six months in duration. The lease was structured with a $3.5 million guarantee for the first six years, which declines to $2.0 million thereafter to the end of the lease in 2032. In addition, there is a $1.5 million letter of credit, which reduces to $1.0 million in February 2025 and expires in February 2026, providing an additional layer of security in the near to medium term.

Financial performance remains steady to date as the loan reported a trailing 12 months ended March 31, 2023, NCF of $3.6 million, compared with the DBRS Morningstar NCF of $2.9 million. There is marginal rollover risk with only one tenant, representing 5.9% of the NRA, that has an upcoming lease expiration in the next 12 months. According to a Q2 2023 Reis report, the Austin central business district submarket reported a vacancy rate of 22.5%, which is expected to grow to 23.8% by YE2023. Although the subject is noted as one of WeWork’s top-performing locations in the Austin submarket, in the event WeWork does reject its lease, the lease guarantee and letter of credit are risk mitigants. The soft submarket, however, may prove difficult for the borrower to effectively lease-up any future vacant space in a timely manner. The loan was analyzed with an elevated probability of default to account for the elevated credit risk profile given the tenancy concerns.

The largest newly contributed loan, East Dallas Industrial (Prospectus ID#20, 8.1% of the pool) is secured by a portfolio of five industrial assets situated across the Dallas-Fort Worth area specifically in Dallas, Mesquite, and Garland, Texas. The sponsor, Mavik Capital, acquired the portfolio in December 2022 in an all-cash transaction for a purchase price of $78.5 million. The portfolio was originally constructed between 1970 and 1980 but was recently renovated between 2020 and 2022 with the seller having completed a $3.6 million capital improvement plan. The loan is structured with individual release provisions at a release price of 115% of the respective property allocated loan amount; however, the remaining properties must have in-place metrics that are equal to or greater than the closing figures. As of the provided July 2023 rent roll, the portfolio was 100% occupied at an average rental rate of $5.14 per sf. Only one tenant, representing 7.8% of the portfolio NRA, has an upcoming lease expiration within the next 12 months. The largest tenants across the portfolio include Prolift Rigging Company (25.7% of the NRA, lease expiry in May 2029) and ADCO Industries (21.2% of the NRA, lease expiry in February 2027). The loan is IO for the full five-year term but also benefits from a low issuance LTV of 49.5%.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Social (S) Factors

The special servicer cannot pursue a real estate owned (REO) recovery strategy. The Issuer is prohibited from acquiring REO assets because of the inclusion of a non-U.S. entity in the sponsorship, which cannot hold real interest in U.S. equity without triggering tax implications. The limit on resolutions could possibly have an adverse outcome on loss severity for an impaired asset.

There were no Environmental or 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 (July 4, 2023) https://www.dbrsmorningstar.com/research/416784.

Class X is an IO certificate that references 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 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 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 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 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 Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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 v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

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 (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

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)

A description of how DBRS Morningstar analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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