DBRS Morningstar Confirms Credit Ratings on All Classes of GS Mortgage Securities Trust 2013-GC10

DBRS Limited (DBRS Morningstar) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-GC10 issued by GS Mortgage Securities Trust 2013-GC10 as follows:

-- Class X-B at AA low (sf)
-- Class C at A high (sf)
-- Class D at BBB (sf)
-- Class E at CCC (sf)
-- Class F at C (sf)

All trends are Stable, except for Classes E and F, which have credit ratings that do not generally carry a trend in commercial mortgage-backed security (CMBS) credit ratings. Although the transaction is in wind down, with significant credit support in the remaining structure for the Class C and D certificates, as well as the full balance of the unrated first loss Class G certificate remaining with no losses incurred by the pool to date, DBRS Morningstar notes all three remaining loans in the pool are exhibiting increased credit risks due to performance declines and/or recent defaults. As such, the analysis for this review considered liquidation scenarios for all three loans and, based on those scenarios, DBRS Morningstar expects losses will be realized through the Class F certificate. The resulting reduction in credit support, as well as the transaction’s concentrated exposure to the remaining collateral, support the rating confirmations with this review.

As of the December 2023 remittance, the transaction had an aggregate balance of $126.5 million, representing a collateral reduction of 85.3% since issuance. Two loans, One Technology Plaza (Prospectus ID#13, 9.6% of the current pool balance) and 701 Technology Drive (Prospectus ID#15, 10.0% of the current pool balance), are in special servicing. The Empire Hotel & Retail loan is secured by a full-service hotel and ground-floor retail space in New York. The loan was previously in special servicing between June 2021 and September 2022, when it was returned to the master servicer after a loan modification was granted that included a principal paydown of 5.0%, and a conversion to interest-only payments for the remainder of the term, as well as a reduction in interest rate for 18 months. This modification contributed to the interest shortfalls that previously affected Class E (until May 2023) and remain outstanding for the Class F certificate. Half of the past due interest was repaid at the closing of the loan modification, with the remainder to be repaid at maturity, with the balance fully guaranteed by the guarantor. The loan modification also included a two-year maturity extension option, which the borrower has exercised; the loan is now scheduled to mature in January 2025. Moreover, the loan modification required all excess cash to be swept into a reserve account, which reported a balance of $17.2 million as of the December 2023 reserve report, with a total of $25.2 million held across reserves.

The subject was most recently valued at $165.0 million in July 2022, representing an increase from the August 2021 value of $137.0 million, but still a 58.0% decline from the issuance value of $393.0 million and representative of a loan-to-value (LTV) ratio of 98.5% (based on the outstanding whole-loan balance as of the December 2023 remittance). As of the most recent STR report, the property reported a trailing 12 (T-12) months ended September 30, 2023, occupancy rate, average daily rate (ADR), and revenue per available room (RevPAR) of 79.4%, $267.18, and $212.14, respectively. While these figures are comparable to pre-pandemic figures from December 2019, the property is still underperforming its competitive set with RevPAR penetration of 90.5%. The T-12 ended June 30, 2023, financial statement analysis showed a debt service coverage ratio (DSCR) of 1.18 times (x), compared with YE2022 DSCR of 1.06x, and YE2021 DSCR of -0.12x. While the improvements in performance are noteworthy, the DSCR remains quite low and the high LTV based on the July 2022 appraisal is indicative of significantly increased risks for this loan. Based on a liquidation scenario that considered a haircut to the 2022 appraisal, DBRS Morningstar expects a loss will be realized at the loan’s ultimate resolution.

The One Technology Plaza loan (Prospectus ID#13; 9.6% of the pool balance) is secured by an office property in Peoria, Illinois, and was transferred to special servicing in December 2021 for imminent monetary default. The loan became real-estate owned as of March 2023 and was listed for sale in October 2023 but failed to trade. Though a recent rent roll was not provided, according to listings on Commercial Search, 95,381 square feet (sf) at the subject is currently being advertised for leasing, implying an estimated occupancy rate of 35.6%. The subject was reappraised in August 2023 at $5.4 million, representing a 76.2% decline from the issuance value of $22.7 million and representing an LTV ratio of 218.9% on the loan's remaining balance. Based on a significant haircut to the updated value, which was derived based on the property location and lack of investor demand for the property type in that market, DBRS Morningstar believes the loss severity will approach 90% at resolution.

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-B 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 (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.

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

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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 13, 2023; https://www.dbrsmorningstar.com/research/425261)

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)

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].