Morningstar DBRS Downgrades Two Classes of GS Mortgage Securities Trust 2015-GC30, Changes Trends on Three Classes to Negative

DBRS, Inc. (Morningstar DBRS) downgraded its credit ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2015-GC30 issued by GS Mortgage Securities Trust 2015-GC30 as follows:

-- Class E to B (high) (sf) from BB (sf)
-- Class F to CCC (sf) from B (sf)

Morningstar DBRS also confirmed its credit ratings on the following classes:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEZ at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at BBB (low) (sf)

In addition, Morningstar DBRS changed the trends on Classes D, X-D, and E to Negative from Stable. All other classes have Stable trends, with the exception of Class F, which has a credit rating that typically does not carry a trend in commercial mortgage-backed securities (CMBS) transactions.

The credit rating downgrades on Classes E and F reflect Morningstar DBRS’ increased loss projections for loans in special servicing, primarily driven by Bank of America Plaza (Prospectus ID#5, 4.6% of the pool), which is no longer expected to be supported by the borrower. The Negative trends on Classes D, X-D, and E reflect the transaction's exposure to loans that Morningstar DBRS has identified as being at increased risk of maturity default given recent performance challenges, weakening submarket fundamentals, and unfavorable lending conditions for certain property types. The remaining pool continues to exhibit overall stable performance. Twenty-five loans, representing 18.5% of the pool, have been fully defeased. All outstanding nondefeased loans are scheduled to mature by YE2025, and Morningstar DBRS expects the vast majority of these loans will repay from the pool.

As of the April 2024 remittance, 79 of the original 90 loans remained in the pool with a current trust balance of $960.4 million, representing a collateral reduction of 22.4% since issuance. There are 19 loans, representing 27.8% of the pool, on the servicer’s watchlist and two loans, representing 4.9% of the pool, in special servicing. The three largest property type concentrations are office (19.5%), retail (18.4%), and mixed-use (14.9%).

The largest contributor to Morningstar DBRS’ projected losses is Bank of America Plaza, a 742,244-square-foot (sf) office property in St. Louis’ central business district. The loan transferred to special servicing in June 2023 for imminent monetary default following the lease expiry of the largest tenant, Bank of America (previously 29.8% of the net rentable area (NRA)), in June 2023. Servicer commentary indicates the tenant may still occupy some space at the property after giving portions back; however, Morningstar DBRS has so far been unable to confirm this. Regardless, Morningstar DBRS expects the change, in addition to a significant concentration of upcoming rollover, to put additional downward pressure on the subject’s cash flow. According to the March 2023 rent roll, the property reported an occupancy of 83.4%. Excluding Bank of America, leases representing 33.1% of the NRA have expirations prior to the loan’s maturity in May 2025. Among the rolling tenants are three of the five largest tenants at the property. The second-largest tenant, TreeHouse Private Brands (18.9% of the NRA, lease expiry in July 2024), has already indicated that it will be vacating its space upon lease expiry. As performance and occupancy have continued to decline, the borrower has indicated it will not continue to fund any shortfalls, and CBRE has been appointed as receiver. Given the above-noted concerns, Morningstar DBRS expects that the property’s value has declined significantly since issuance. In its analysis for this loan, Morningstar DBRS considered a liquidation scenario based on a conservative haircut to the issuance appraisal, resulting in a projected loss severity approaching 65%.

Outside of the loans in special servicing, Morningstar DBRS identified seven other loans, representing 23.31% of the deal balance, as being at elevated refinance risk related to observed performance declines, upcoming concentrated rollover, and submarket pressures. Three of these loans—Selig Office Portfolio (Prospectus ID#2, 12.81% of the pool), 311 California Street (Prospectus ID#9, 2.6% of the pool), and River Drive III (Prospectus ID#20, 1.25% of the pool)—represent 16.7% of the pool balance and are backed by office properties or mixed-use properties with significant office exposure. Morningstar DBRS has a cautious outlook for this asset type as sustained upward pressure on vacancy rates in the broader office market may challenge landlords’ efforts to backfill vacant space, and, in certain instances, contribute to value declines, particularly for assets in noncore markets and/or with disadvantages in location, building quality, or amenities offered. Where applicable, Morningstar DBRS increased the probability of default penalties and/or applied stressed loan-to-value (LTV) ratios for these seven loans. The weighted-average (WA) expected loss (EL) for these loans was almost 30% higher than the WA EL for the pool. The WA EL for the office-backed loans in particular was more than 20.0% higher than the WA EL for the pool.

The largest of these loans is Selig Office Portfolio, a portfolio of nine office properties in Seattle totaling more than 1.6 million sf. The portfolio has exhibited stable cash flow performance historically; however, occupancy has been in year-over-year decline. The YE2023 occupancy rate was reported at 74% compared with 84% at YE2021 and 92% at issuance. Given the softening of Seattle’s office market, including increased vacancy, combined with the loan’s upcoming maturity in April 2025, Morningstar DBRS identified this as a loan with elevated refinance risk. As a result, Morningstar DBRS analyzed the loan with a stressed LTV by applying an elevated capitalization rate to the YE2023 net cash flow, resulting in an EL that was nearly 10.0% higher than the pool’s WA.

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 (January 23, 2024), at https://dbrs.morningstar.com/research/427030.

Classes X-A, X-B, and X-D 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 the North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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.

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

-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model version 1.2.0.0, https://dbrs.morningstar.com/research/428797
-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261
-- 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 (April 15, 2024), https://dbrs.morningstar.com/research/431205

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