DBRS Morningstar Downgrades One Class, Confirms Six of GS Mortgage Securities Trust 2011-GC5

DBRS Limited (DBRS Morningstar) downgraded its credit rating on one class of Commercial Mortgage Pass-Through Certificates, Series 2011-GC5 issued by GS Mortgage Securities Trust 2011-GC5 as follows:

-- Class B to A (sf) from AA (high) (sf)

DBRS Morningstar also confirmed its credit ratings on six classes as follows:

-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class C at C (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)

The trends on Classes A-S, X-A, and B are Stable. Classes C, D, E, and F have ratings that typically do not carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

The downgrade action is driven by a moderate increase in DBRS Morningstar’s loss projections in conjunction with concerns surrounding the disposition of the remaining five loans, four of which are secured by regional malls in secondary or tertiary markets that have shown performance declines from issuance. Three of these loans (79.1% of the pool) are in special servicing. Since DBRS Morningstar’s last rating action, the collateral remains unchanged, although one loan (6.4% of the pool), was returned to the master as a result of a loan modification. Given the concentration of the transaction, DBRS Morningstar’s ratings are based on a recoverability analysis of the outstanding assets, which continues to indicate the four lowest-rated classes are likely to experience losses relative to the DBRS Morningstar’s concluded values for the remaining assets.

As of the December 2023 reporting, the pool’s collateral has been reduced by approximately 75.6%. The transaction has been relatively insulated from losses to date as the principal balance of the unrated Class G certificate has been eroded by only 13.1% because of realized losses, with $43.6 million of unpaid principal remaining. Two of the loans in special servicing, however, became real estate owned (REO) in Q3 2023, and based on the most recent appraisals obtained from Q2 2023, the property value for both assets has declined by over 70.0% since issuance. Based on the updated values, the resulting loan-to-value ratio (LTV) for each loan exceeded 160%, and DBRS Morningstar believes loss severities of approximately 70.0% are likely for each loan, implying the principal balance of Class D would be eroded by over 50%.

The larger of the two loans, Park Place Mall (Prospectus ID#1, 36.1% of the pool) is secured by a portion of a regional mall in Tucson. The mall was originally owned by Brookfield Properties; however, after the loan transferred to special servicing in September 2020, the loan sponsor indicated it would no longer be contributing capital to support the property or loan. According to several news articles, the mall was sold at a foreclosure auction to Pacific Retail Capital Partners (PRCP) in October 2023 at a purchase price equal to the June 2023 appraised value of $87.0 million, a significant drop from the issuance value of $313.0 million. The smaller of the two loans, Champlain Center (Prospectus ID#13, 6.4% of the pool), is secured by a regional mall in Plattsburgh, New York. Loan modification discussions were originally ongoing but, according to the servicer, reached an impasse regarding the borrower’s issue with the recourse guaranty. The property was reappraised in May 2023 at a value of $17.2 million, a sharp decline from the issuance value of $61.0 million.

The third special serviced loan and largest loan in the pool, 1551 Broadway (Prospectus ID#2, 36.6% of the pool), is secured by a 26,500-square-foot (sf) retail property in Times Square in midtown Manhattan. The property includes a 25-story LED sign and is fully occupied by sole tenant American Eagle Outfitters, with a scheduled lease expiration in February 2024. According to the servicer, a short-term renewal of the tenant’s lease is under consideration; however, negotiations are ongoing, and an agreement has not yet been reached. The loan has been in special servicing since November 2021 and is flagged as a nonperforming matured balloon with the last payment being made in September 2023. According to the latest servicer update, the borrower is currently making efforts to secure financing and/or sell the property to pay off the senior and mezzanine loans, the former of which is in the trust. The current workout strategy is listed as full payoff per the latest reporting; however, the servicer continues to dual track legal remedies and hold workout discussions with the borrower. The property was most recently appraised in December 2022 at a value of $378.0 million, a significant decrease from the January 2022 appraised value of $442.0 million, but greater than the appraised value from issuance of $360.0 million. The resulting LTV is 47.6%, suggesting that even in an event of an adverse liquidation scenario, loss to the trust is unlikely.

The two remaining loans in the pool, Parkdale Mall & Crossing (Prospectus ID#5, 13.8% of the pool) and Ashland Town Center (Prospectus ID#9, 7.2% of the pool) were previously in special servicing, but both received loan modifications in 2022, which extended their respective maturity dates.

Parkdale Mall & Crossing is secured by a regional mall and adjacent strip mall in Beaumont, Texas. The loan has been in special servicing since February 2021. The loan sponsor, CBL Properties, filed for bankruptcy in November 2020 and emerged from bankruptcy in November 2021. The sponsor requested and received a maturity extension to March 2026 and was subsequently returned to the master servicer in October 2022. According to the March 2023 reporting, the property was 92.4% occupied, and the loan reported a debt service coverage ratio (DSCR) of 0.96 times (x), with performance generally flat year over year. Despite the sponsor’s commitment to the property, and the loan’s return to the master servicer, the February 2022 appraised value of $42.1 million is well below the current outstanding loan balance of $58.9 million, reflecting an LTV of 140.0%, and the asset has experienced sustained performance declines since issuance. As such, DBRS Morningstar believes there is continued significant term and refinance risk associated with this loan.

Ashland Town Center is secured by a regional mall in Ashland, Kentucky, and was transferred to special serving in July 2021 for imminent default having failed to repay ahead of its original maturity. The sponsor, Washington Prime Group, was granted a loan modification in November 2022, extending the loan maturity to July 2023 with two additional one-year extension options. The borrower exercised the first of two options to July 2024. Per the June 2023 financials, the property reported an occupancy rate of 99.7%, with a DSCR of 2.44x. The property was re-appraised in September 2022 for $42.9 million, a 9.0% increase from the 2021 appraised value; however, still below the issuance appraised value of $66.0 million. Based on the updated value, the resulting LTV is 40.0%. Given these factors, DBRS Morningstar believes the near-term performance outlook is stable, but this does not rule out the likelihood for potential losses should the borrower fail to pay off the loan at the extended maturity date.

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).

Class X-A is an interest-only (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 (November 3, 2023; https://www.dbrsmorningstar.com/research/422859).

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.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is in wind-down, with only five loans remaining. In those cases, the DBRS Morningstar ratings are typically based on a recoverability analysis for the remaining loans.

DBRS Limited
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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 (November 3, 2023)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/422859)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/425261/rating-north-american-cmbs-interest-only-certificates)

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, 2023; https://www.dbrsmorningstar.com/research/425081)

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].