DBRS Morningstar Confirms All Classes of GS Mortgage Securities Trust 2019-GC42

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2019-GC42 issued by GS Mortgage Securities Trust 2019-GC42:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F-RR at BB (sf)
-- Class G-RR at B (high) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction as illustrated by the pool’s weighted-average debt service coverage ratio (DSCR) of 2.64 times (x). As of the September 2023 remittance, all of the original 36 loans remain in the trust, with an aggregate principal balance of $1.05 billion. Collateral reduction since issuance has been negligible. One loan, representing 4.8% of the current pool balance, is fully defeased. Only four loans are on the servicer’s watchlist, representing 8.4% of the pool; two loans (representing only 3.3% of the pool) are being monitored for low DSCRs. There is one loan in special servicing, representing 2.3% of the pool.

The transaction is concentrated by property type, as loans backed by office properties represent 36.7% of the pool, including five of the top 10 largest loans. Although there is general stress for that property type in today’s market, DBRS Morningstar notes that the office loans in this pool generally are performing as expected and, in several cases, benefit from stable long-term tenancy from investment-grade-rated tenants. All five office loans within the top 10 are reporting DSCRs above 2.50x as well as stable year-over-year occupancy rates and cash flows.

The sole loan in special servicing, 222 Kearny Street (Prospectus ID#21, 2.3%), is secured by a 148,000-square-foot (sf) office building in San Francisco. The loan transferred to the special servicer in July 2023 as a result of imminent monetary default following occupancy and cash flow declines. The special servicer reports ongoing discussions with the borrower, but the loan is delinquent, and the workout strategy is listed as to be determined. As of the August 2023 rent roll, the property’s occupancy rate fell to 64.6%, down from 91.0% at issuance; there are six tenants, representing 34.6% of net rentable area (NRA), with scheduled lease expirations through the end of 2024. Per a Reis report, the Union Square submarket reported Q2 2023 vacancy rate of 16% and an effective rent of $55.40 per sf (psf). Given the low in-place occupancy coupled with the soft submarket and general challenges affecting the office landscape, the property’s value has likely declined from issuance when it was appraised at $74.7 million. For this review, DBRS Morningstar analyzed this loan with a liquidation scenario based on a stressed haircut to the issuance value, resulting in a loss amount approaching $6.7 million, which is well-contained in the first loss piece of the bond stack.

The largest loan on servicer’s watchlist, Millenium Park Plaza (Prospectus ID#14, 2.9% of the current pool balance), is secured by a 557-unit apartment complex in Chicago. The subject features an extensive amenity package and is well located along Michigan Avenue in downtown Chicago. The property also features 85,017 sf of office/telecommunications space and 18,450 sf of ground-floor/mezzanine-level retail space. This loan was added to the servicer’s watchlist in March 2022 because of a decrease in the DSCR that was tied to a decline in the occupancy allocated to the commercial portion of the property. Per the most recent servicer reporting, the March 2023 weighted-average occupancy rate at the property was 80.0% with a DSCR of 1.35x, compared with YE2020 figures of 85.3% and 1.56x, and issuance figures of 99.2% and 2.01x, respectively. Rollover risk is also high with more than 42% of the commercial leases rolling through the next year. Given the declining cash flows and higher rollover risk with the commercial space, the loan was analyzed with a stressed scenario to increase the expected loss for this review.

There are four loans, representing 14.8% of the pool balance, that are shadow-rated investment grade. These loans include the two office loans in the pool, Moffet Towers II Buildings 3 & 4 (Prospectus ID#1, 6.2% of the pool) and 30 Hudson Yards (Prospectus ID#23, 1.9% of the pool), which are backed by office properties leased to investment-grade-rated tenants. Moffet Towers II Buildings 3 & 4 is fully leased to Meta Platforms through 2034, five years beyond the loan’s anticipated repayment date, and the lease is structured with two seven-year extension options. Based on the YE2022 financials, the loan reported a healthy DSCR of 3.09x. The 30 Hudson Yards property is in midtown Manhattan, New York, and is fully leased to Warner Media through January 2034, five years beyond the loan term. Based on the YE2022 financials, the loan reported a DSCR of 2.91x. The above-mentioned loans, along with the Woodlands Mall loan (Prospectus ID#6, 4.8% of the pool) and Grand Canal Shoppes loan (Prospectus ID#24, 1.9% of the pool) continue to be shadow-rated by DBRS Morningstar as the loan performance trends remain consistent with investment-grade loan characteristics.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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).

Classes X-A, X-B, and X-D are interest-only (IO) certificates that reference 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
DBRS Tower, 181 University Avenue, Suite 700
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]