DBRS Morningstar Confirms Credit Ratings on All Classes of GSF 2022-1 Issuer LLC

DBRS Limited (DBRS Morningstar) confirmed its credit ratings on the following classes of notes issued by GSF 2022-1 Issuer LLC (the Issuer):

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

All trends are Stable.

The transaction closed in May 2022 and, as part of the issuance analysis, DBRS Morningstar used a combination of its “North American CMBS Multi-Borrower Rating Methodology” and “North American Single-Asset/Single-Borrower Ratings Methodology” to construct a worst-case pool based on concentration limits and eligibility requirements as defined in the Indenture: Schedule 3. The Indenture: Schedule 4 defines the minimum subordination requirements for each Rating Confirmation Event. DBRS Morningstar expected the $500.0 million trust to be fully funded within 12 months of the first loan funding date.

The pool currently consists of four performing loans, secured by traditional commercial real estate properties with a combined balance of $97.0 million. DBRS Morningstar is required to analyze newly funded loans when the pool reaches 25%, 50%, and 75% of funding to ensure the underlying collateral meets target credit enhancement criteria. As of the October 2023 remittance, the pool is 19.4% funded. For this review, DBRS Morningstar considered a pool funded to the $500 million future trust balance, maintaining the issuance approach in constructing a worst-case scenario as allowed by the eligibility requirements for loans to be funded while also considering the credit quality of loans contributed since issuance. The Issuer has not met the initial expectation of funding the trust to the maximum balance of $500.0 million within the first year of transaction closing. Given the slower-than-expected pace of loan contributions, DBRS Morningstar is unable to project if or when the transaction will be fully funded.

Two of the four contributed loans are backed by multifamily properties, comprising 61.9% of the funded balance, with the other two loans backed by retail properties, comprising 38.1% of the funded balance. The contributed loans reported a weighted-average (WA) issuance loan-to-value ratio (LTV) of 56.3% and a WA balloon LTV of 55.3%. Three of the four loans, representing 84.3% of the funded balance, have full-term interest-only (IO) payment structures, while the fourth loan pays IO for the first two years of the loan term, amortizing over a 30-year schedule thereafter. The loans are also concentrated by market rank, as all of the contributed loans are in markets designated with a DBRS Morningstar Market Rank 3 or 4, denoting suburban markets.

The largest loan funded into the trust to date, Embarcadero Club Apartments (representing 7.0% of the maximum allowable trust balance), is secured by a 404-unit, garden-style, multifamily complex in College Park, Georgia, 11 miles south of downtown Atlanta. The sponsor purchased the property in 2006 and has invested an additional $3.8 million ($9,464 per unit) since 2014 on interior and exterior upgrades. At loan origination in June 2022, the property had 97 renovated units, achieving rental rate premiums between $100 per unit to $175 per unit. The sponsor budgeted an additional $1.1 million ($2,682 per unit), to be funded out of pocket, for additional capital improvement works and plans to continue renovating units monthly going forward. As of the June 2023 rent roll, the property was 91.1% occupied with an average rental rate of $1,251 per month, compared with the June 2022 figures of 93.1% and $1,161 per unit, respectively. Since June 2022, the sponsor has completed $2.0 million of capital improvements to the property, primarily for roofing and gutter upgrades ($1.4 million) and additional unit-interior upgrades ($600,000).

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 (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
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 22, 2023; https://www.dbrsmorningstar.com/research/420982)

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 analyses 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].