DBRS Morningstar Confirms Credit Ratings on All Classes of GS Mortgage Securities Trust 2020-GC45

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2020-GC45 issued by GS Mortgage Securities Trust 2020-GC45 as follows:

-- 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-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (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 (low) (sf)
-- Class G-RR at B (sf)

DBRS Morningstar also confirmed the credit ratings on the loan-specific certificates as follows:

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

The trends are Stable.

The credit rating confirmations reflect the overall stable performance of the underlying loans in the transaction evidenced by the pool’s weighted-average debt service coverage ratio (DSCR) of 2.77 times (x), up slightly from 2.64x at issuance. The trust consisted of 52 fixed-rate loans secured by 152 commercial, hospitality, and multifamily properties with an original balance of $1.39 billion at issuance. As of the October 2023 remittance report, all of the original loans remain in the pool and there has been nominal collateral reduction of 1.1% since issuance. Amortization has generally been limited, as 29 of the loans representing 68.7% of the current pool balance are interest-only (IO) and two loans representing another 2.3% are partial-IO and remain in their IO periods. The collateral pool’s property type concentration is relatively diverse, with the greatest property type concentration by loan balance consisting of assets secured by retail properties (15 loans accounting for 21.6% of the pool balance). Assets secured by office properties account for the second-greatest property type concentration, with seven loans that represent 19.0% of the current pool balance. One loan, representing 3.7% of the pool balance, is defeased.

As of the October 2023 remittance, there were 11 loans representing 28.0% of the current pool balance on the servicer’s watchlist, including three loans representing 11.0% of the pool in the 15 largest loans. These loans are being monitored for a variety of reasons including deferred maintenance or a low DSCR, among others. There were no loans in special servicing and no delinquent loans as of the October 2023 remittance. In general, the office loans in the pool are performing as expected; in the case of two smaller loans backed by office properties (representing a combined 2.5% of the pool), DBRS Morningstar applied a value stress and a probability of default stress to increase the expected loss for each in the analysis for this review.

The largest loan on the servicer’s watchlist, Starwood Class A Industrial Portfolio 1 (Prospectus ID#3, 4.4% of the pool), which is secured by a portfolio of 33 industrial properties (including 24 warehouses, three distribution centers, two manufacturing facilities, two cold storage facilities, and two flex spaces) totaling 4.1 million square feet (sf) across four states (Indiana, Illinois, Ohio, and Wisconsin). The loan was flagged for upcoming scheduled tenant rollover representing just below 20% of the net rentable area (NRA) through the end of 2023, including the third-largest tenant, representing 4.8% of NRA, in November 2023. As of the June 2023 reporting, the DSCR and occupancy are healthy at 6.10x and 94.0%, respectively, suggesting significant cushion against cash flow declines should rolling tenants elect to vacate. Given the strong historical performance of the asset, granularity of the near-term rollover risk, and continued solid performance for industrial properties in general, DBRS Morningstar expects the loan’s overall performance to remain stable. At issuance, the loan was shadow-rated investment grade primarily because of the relatively low appraisal low-to-value ratio (LTV) of 45.2%, strong sponsorship, moderate geographic diversity, and material cash equity contribution.

In addition, the loan-specific certificates represented by Classes SW-A, SW-B, SW-C, and SW-D are backed by the $65.5 million subordinate companion loan of the $210 million Starwood Class A Industrial Portfolio 1 whole loan. The loan-specific certificates are not pooled with the remainder of the trust loans. With this review, DBRS Morningstar confirmed that the performance of the underlying loan remains in line with the expectations at issuance, supporting the credit rating confirmations for those classes and the maintenance of the shadow rating for the trust portion of the debt in the analysis for the pooled certificates.

650 Madison Avenue (Prospectus ID#8, 3.8% of the pool) is secured by a Class A office and retail tower at 650 Madison Avenue in the Plaza district of New York City. The property consists of approximately 544,000 sf of office space, 22,000 sf of ground-floor retail space, and 34,000 sf of storage and flex space. The loan is pari passu with other pieces of the whole loan secured in several transactions, including four other transactions that are also rated by DBRS Morningstar. The loan was added to the servicer’s watchlist in April 2023 because of a drop in DSCR, which was mainly driven by the departure of the former second-largest tenant, Memorial Sloan Kettering Cancer Center, upon its lease expiration in June 2022. As a result, the occupancy rate dropped to 77.6%, according to the January 2023 rent roll, compared with 90.2% at YE2021 and 97.0% at issuance. In addition, the lease for the current second-largest tenant, BC Partners Inc. (11.7% of the NRA), was set to expire in June 2023, but the company appears to have remained at the property as the location is still listed on its website. While there is minimal rollover risk through the next 12 months, the lease of the largest tenant, Ralph Lauren (40.7% of the NRA), is scheduled to expire in December 2024. The loan has a cash flow sweep if the tenant does not provide written notice of renewing its lease 18 months prior to expiration. The amount to be swept is $80 per square foot (psf), or approximately $20.0 million. According to a June 2023 article from The Real Deal, Ralph Lauren is planning to reduce its North American footprint by 30% in the coming years, and it may downsize or vacate the subject. DBRS Morningstar has requested an update from the servicer and a response is pending as of the date of this press release.

According to the most recent financials for the trailing 12 months ended March 31, 2023, the net cash flow (NCF) was $37.8 million (reflecting a DSCR of 1.77x on the senior debt; 1.39x on the whole loan), compared with the YE2021 NCF of $63.2 million (DSCR of 2.82x on the senior debt; 2.23x on the whole loan) and the DBRS Morningstar NCF of $50.8 million (DSCR of 2.45x on the senior debt). Reis reports the property’s average base rent is $89.36 psf for office space as of January 2023, which is below the current average rental rate of $95.31 psf for Class A office space within a one-mile radius. However, leases that were executed at the subject in 2022 have rates that are well above $100 psf, with rental abatements provided and contributing to the lower YE2022 NCF. At issuance, the loan was shadow-rated investment grade primarily because of the low A note LTV of 32.1% and high DBRS Morningstar Term DSCR; however, given the declines in occupancy rate and NCF and the increased rollover risk, DBRS Morningstar removed the shadow rating for this review. DBRS Morningstar will continue to closely monitor this loan.

Parkmerced (Prospectus ID#14, 2.9% of the current pool balance) is secured by a 3,165-unit apartment complex in San Francisco. The noncontrolling pari passu loan has other pieces of the whole loan secured in several transactions, including four other transactions that are also rated by DBRS Morningstar. It was added to the servicer’s watchlist in March 2021 because of performance declines with the loan reporting below breakeven DSCRs in the past several years and is currently cash managed. Occupancy dropped to around the 70.0% range over the last two years from issuance levels of 94.3%, but it had improved to 81.2% per the March 2023 rent roll. The transaction closed during the height of the Coronavirus Disease (COVID-19) pandemic in 2020, and DBRS Morningstar had noted declines in rent caused by disruptions related to the pandemic. In addition, a portion of the units are under the Section 8 rent subsidy program.

The subject is well located, adjacent to San Francisco State University’s campus and directly east of Lake Merced and Lake Merced Park. According to Reis, multifamily properties in the West San Francisco submarket reported a Q2 2023 vacancy rate of 1.2%, same as the Q2 2022 vacancy rate. The property benefits from an experienced sponsor, Maximus Real Estate Partners, and a low LTV of 25.9% at issuance. The sponsor’s long-term development plan is scheduled for after the loan term ends in December 2024, when all the townhomes will be demolished and replaced by apartment towers. Although stabilization efforts are taking longer than expected following the impacts of the pandemic and the general challenges within the San Francisco market, occupancy at the subject has improved from prior years and the loan has remained current despite reporting low DSCRs, suggesting that the sponsor continues to be committed to the property. In addition, the low issuance LTV provides cushion for any declines in value. At issuance, the loan was shadow-rated investment grade primarily because of the low LTV, sponsorship strength, and desirable location. DBRS Morningstar maintained the shadow rating with this review with the expectation that the NCF should stabilize in the near term given the uptick in occupancy, but it will continue to closely monitor the loan for developments.

In addition to the Starwood Class A Industrial Portfolio 1, 650 Madison Avenue, and Parkmerced loans previously mentioned, DBRS Morningstar assigned an investment-grade shadow rating to five additional loans (four of which were included in the 15 largest loans): 1633 Broadway (Prospectus ID#1, 4.6% of the current pool); 560 Mission Street (Prospectus ID#2, 4.6% of the pool); Bellagio Hotel and Casino (Prospectus ID#4, 4.6% of the pool); Southcenter Mall (Prospectus ID#5, 4.6% of the pool); and 510 East 14th Street (Prospectus ID#17, 2.7% of the pool). With this review, DBRS Morningstar confirmed that the respective performance of each of these loans remains consistent with the characteristics of an investment-grade loan.

ENVIRONMENTAL, SOCIAL, AND 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).

Classes X-A, X-B, and X-D are IO certificates that reference a single rated tranche or multiple rated tranches. The IO credit 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 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)

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 Canadian Structured Finance (June 20, 2023; https://www.dbrsmorningstar.com/research/416101)

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