Morningstar DBRS Downgrades Credit Ratings on Seven Classes of GS Mortgage Securities Trust 2014-GC22, Changes Trends on Six Classes to Negative

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-GC22 issued by GS Mortgage Securities Trust 2014-GC22 as follows:

-- Class X-B to A (high) (sf) from AA (high) (sf)
-- Class B to A (sf) from AA (sf)
-- Class C to BBB (sf) from A (high) (sf)
-- Class D to CCC (sf) from BBB (low) (sf)
-- Class E to C (sf) from BB (low) (sf)
-- Class X-C to C (sf) from BB (sf)
-- Class PEZ to BBB (sf) from A (high) (sf)

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

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class F at C (sf)

Morningstar DBRS changed the trends on Classes A-S, B, C, X-A, X-B, and PEZ to Negative from Stable. Classes D, E, F, and X-C have credit ratings that do not generally carry a trend in commercial mortgage-backed security (CMBS) credit ratings. Classes A-3, A-4, and A-5 have Stable trends.

As of the January 2024 remittance, 50 of the original 59 loans remained in the trust, with an aggregate balance of $711.1 million, representing a collateral reduction of 26.0% since issuance. The credit rating downgrades reflect Morningstar DBRS’ increased loss projections for specially serviced loans, primarily driven by declines in appraised values, as well as concerns regarding a number of loans at increased risk of maturity default. All of the remaining loans in the pool are scheduled to mature within the next six months. While Morningstar DBRS expects the majority will repay from the pool, a concentrated number of loans exhibit increased default risk given weak credit metrics. Six loans, including the largest loan in the pool (Maine Mall; Prospectus ID#1, 15.5% of the current pool balance), representing 22.2% of the pool balance in aggregate, are current on payments but have been identified by Morningstar DBRS to be at risk for maturity default. Should these loans default as they near their respective maturity dates, Morningstar DBRS’ loss projections may increase to reflect additional adverse selection. This, in addition to concerns regarding increased propensity for interest shortfalls, are also drivers of the Negative trends.

There are three loans in special servicing, representing 15.8% of the pool. In its analysis, Morningstar DBRS used liquidation scenarios for the three specially serviced loans, resulting in projected losses approaching $60 million, which is higher than losses projected at the last credit rating action. Maccabees Center (Prospectus ID#12, 2.5% of the current pool balance), currently the second-largest loan in special servicing, was not in special servicing at the time of the last credit rating action. In addition, new appraised values have been received for the EpiCentre (Prospectus ID#3, 12.0% of the current pool balance) and Westwood Plaza (Prospectus ID#22, 1.4% of the current pool balance) loans, and increasing advances from the special servicer.

The EpiCentre is secured by a 304,722-square-foot (sf) mixed-use retail and office property in Charlotte, North Carolina. The loan transferred to the special servicer in March 2021 for imminent default and subsequently missed its June 2021 maturity date. A receiver was appointed one month later, and the loan became real estate owned in August 2022. According to the servicer commentary, the subject was 39.3% occupied in November 2023, a slight improvement from 38.0% at YE2021 and down significantly from 89.9% at issuance. The property has faced significant challenges over the past several years, including declining occupancy and a string of violent crimes prior to and following the onset of the coronavirus pandemic. As of the most recent financial reporting, the loan recorded a debt service coverage ratio (DSCR) of 0.26 times (x) for the trailing six months (T-6) ended June 30, 2022, compared with the YE2021 and YE2020 figures of 0.26x and 1.35x, respectively.

The most recent appraisal, dated May 2023, valued the property at $80.6 million, a decline from the July 2022 appraised value of $86.8 million and well below the issuance appraised value of $130.5 million. Media reports indicate the property has been rebranded to Queen City Quarter and is undergoing renovations and repairs to deferred maintenance. While these efforts are likely to improve the property’s condition, it is uncertain whether they will translate to increased leasing and stabilized performance. Morningstar DBRS’ analysis includes a liquidation scenario based on a stress to the appraised value to reflect this uncertainty, resulting in a loss severity approaching 50%.

The second-largest specially serviced loan is Maccabees Center, which is secured by a 12-story Class B office complex in Southfield, Michigan. The loan transferred to the special servicer in November 2023 for imminent monetary default. The loan had previously been on the servicer's watchlist for occupancy and DSCR declines following the departure of its two largest tenants in 2020. The most recently reported occupancy rate was 31.3% as of September 2023, compared with the YE2019 figure of 83.0%. The loan has reported negative net cash flow (NCF) since 2021; however, the borrower had kept the loan current until its transfer to the special servicer. The loan was 60 days delinquent as of the January 2024 remittance. The special servicer is dual tracking foreclosure and looking to obtain a receiver. As per Reis, office properties within the North Southfield submarket reported a high Q3 2023 vacancy rate of 29.4%, which will pose challenges for the borrower in backfilling vacant space. Although there has not been an updated appraisal since issuance, Morningstar DBRS expects the value has declined significantly given the sharp drop in occupancy rate since issuance, negative NCF, soft submarket conditions, and lack of recent leasing activity. In its analysis, Morningstar DBRS considered a liquidation scenario based on a stress to the issuance appraised value, resulting in a loss severity above 60%.

The largest loan in the pool is the Brookfield Properties (Brookfield)-sponsored Maine Mall which is secured by a 730,444-sf portion of a 1.0 million-sf super-regional mall in Portland, Maine. This loan is pari passu with the CGCMT 2014-GC21 transaction, which is also rated by Morningstar DBRS. The mall is anchored by Jordan Furniture Gallery (12.1% of the net rentable area (NRA), lease expiring in July 2030), JCPenney (8.6% of the NRA, lease expiring in July 2028), and a noncollateral Macy’s. Another noncollateral anchor space that was previously occupied by Sears has remained vacant since the store closed in 2020. The loan is on the servicer’s watchlist, being monitored for low DSCR and upcoming maturity in April 2024. In November 2020, the servicer and the sponsor executed a forbearance agreement wherein Brookfield provided rent deferrals to multiple tenants. Although the deferred amounts have been repaid, the mall’s performance has not rebounded to pre-pandemic levels.

The annualized NCF was $14.8 million (a DSCR of 1.33x) based on reporting for the T-9 period ended September 30, 2023, compared with YE2022 NCF of $15.4 million (a DSCR of 1.39x), and well below the Issuer's NCF of $20.3 million (a DSCR of 1.83x). The loan is currently in cash management as the DSCR is below 1.50x. As of November 2023, the loan had a cash trap balance of $10 million. The loan also had a total reserve balance of $16.1 million as per the January 2024 remittance. Although there is cash in reserve, given the property type, secondary market location, year-over-year decline in revenue, and near-term maturity, Morningstar DBRS’ analysis considered a stressed value based on a 10% capitalization rate applied to the YE2022 NCF in the event of default.

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

Classes X-A, X-B, and X-C 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 Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023), https://dbrs.morningstar.com/research/410912.

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

Morningstar DBRS 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.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is in its maturity year. In those cases, the Morningstar DBRS credit ratings are typically based on a recoverability analysis for the remaining loans.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS’ outlooks and credit ratings are monitored.

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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://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (November 3, 2023)/North American CMBS Insight Model version 1.2.0.0, https://dbrs.morningstar.com/research/422859
-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261
-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023), https://dbrs.morningstar.com/research/415687
-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

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