Morningstar DBRS Confirms Credit Ratings on All Classes of GS Mortgage Securities Trust 2015-GC28, Changes Trends on Three Classes to Negative from Stable

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-GC28 (the Certificates) issued by GS Mortgage Securities Trust 2015-GC28 as follows:

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

Morningstar DBRS changed the trends on Classes D, X-C, and E to Negative from Stable. The trends on the remaining classes are Stable.

The credit rating confirmations and Stable trends reflect the overall performance of the transaction, with 26 of the 59 loans that remain in the pool (50.3% of the pool) secured by collateral that has been fully defeased, and the 33 non-defeased loans reporting a healthy weighted-average (WA) pool debt service coverage ratio (DSCR) of 1.61 times (x). However, the Negative trends reflect the challenges for the pool, including three loans (5.9% of the pool) in special servicing and 12 loans (22.4% of the pool) that Morningstar DBRS expects will face increased refinance risk, as a result of performance declines, increased tenant rollover risk, and/or general market concerns, with all remaining loans scheduled to mature prior to Q1 2025.

According to the May 2024 reporting, 59 of the original 74 loans remain in the pool, with an aggregate principal balance of $662.7 million, representing a 27.5% collateral reduction since issuance. The three largest property type concentrations for non-defeased loans are retail (17.4% of the pool), office (12.5% of the pool), and lodging (9.2% of the pool). Three loans are in special servicing (5.9% of the pool) and 11 loans (16.4% of the pool) are on the servicer's watchlist, but only seven of which (12.5% of the pool) are being monitored for performance related reasons.

With this review, Morningstar DBRS considered a liquidation scenario for the two largest specially serviced loans, resulting in moderate individual loss severities less than 35% or total implied losses approaching $8.5 million, which would be contained to the nonrated Class G. Morningstar DBRS also projected updated valuations for loans with elevated refinance risk, a number of which indicated value deficiencies as the loans approach their respective maturities, resulting in an increased credit risk for Classes E and F, supporting the Negative trends. Where applicable, Morningstar DBRS increased the probability of default penalties (POD) and/or increased loan-to-value ratios (LTVs) to reflect the increased risk of maturity default. These adjusted loans had a weighted-average (WA) expected loss that was nearly twice the pool's WA expected loss.

The largest loan in special servicing, Lansing Office/Retail Portfolio (Prospectus ID#9; 2.7% of the pool), is secured by a two-property portfolio in Lansing, Michigan. Collateral consists of a 144,264 square foot (sf) office property and a 142,600-sf retail property. The loan was initially added to the servicer's watchlist in February 2023 because of a low DSCR, which followed the departure of several larger tenants from the office property in 2021 and 2022. As of Q3 2023, the loan had a trailing six-month DSCR reported at 0.59x. While the portfolio occupancy rate improved to 73.0% as of June 2023, up from 68.0% in December 2022, the office and retail properties reported individual occupancy rates of 50.5% and 96.4%, respectively, with tenants representing 23.3% of the portfolio's net rentable area (NRA) having had recent lease expirations or scheduled lease expirations during the remainder of 2024. While the loan remains current, it was transferred to special servicing in December 2023, with servicer commentary noting that the borrower is attempting to defease the loan and is prepared to pay the loan off in full. In the event that the borrower is unable to repay the loan, Morningstar DBRS believes the portfolio's as-is value has declined significantly since issuance, with a stressed value scenario indicating an LTV in excess of 125.0%. With this review, Morningstar DBRS liquidated the loan using a stressed value, resulting in an implied loss severity exceeding 30.0%.

The largest loan on the servicer's watchlist, MacDade Retail (Prospectus ID#7; 2.8% of the pool), is secured by a four-building, 262,000-sf anchored retail property in Holmes, Pennsylvania. The loan was returned to the master servicer in March 2021 as a corrected mortgage after transferring to special servicing in June 2020 for imminent monetary default after the anchor tenant Kmart (40.3% of NRA) vacated. The loan remains on the servicer's watchlist given the low property occupancy rate and DSCR, most recently reported at 58.0% and 0.74x, respectively, as of Q3 2023. While the loan has been kept current with some moderate performance improvements, the borrower has been unable to generate significant leasing activity as occupancy has remained below 60.0% since Kmart's departure in 2020. The property's largest tenant, Acme Supermarkets (17.6% of NRA), has a lease expiration in August 2025, shortly after the loan's upcoming maturity date in January 2025. As a result, Morningstar DBRS believes the loan is at high risk for maturity default, with a stressed value scenario indicating an LTV ratio well above 200.0%. In the analysis for this loan, Morningstar DBRS applied an elevated LTV and a stressed POD penalty, resulting in an expected loss nearly three times the pool's WA expected loss.

Another loan with an elevated refinance risk that Morningstar DBRS has concerns about is 411 Seventh Avenue (Prospectus ID#8; 2.8% of the pool), which is secured by a 301,000-sf Class B office property in Pittsburgh. While the property benefits from stable, long-term tenancy in its largest three tenants, Duquesne Light Company (44.0% of NRA, lease expiration October 2029), Office Comptroller (15.8% of NRA, lease expiration April 2030), and Literacy Pittsburg (4.9% of NRA, lease expiration October 2029), with minimal tenant rollover prior to loan maturity in January 2025, the DSCR fell to 1.19x as of YE2023, as a result of a gradual increase in vacancy. According to the January 2024 rent roll, the property was 67.3% occupied with an average annual rental rate of $20.07 per square foot, compared with the January 2020 occupancy rate of 79.7%. The Pittsburgh central business district office submarket remains soft, with Reis reporting a vacancy rate of 24.1% for Class B properties with an average asking rental rate of $20.28. According to the servicer commentary, the borrower does not anticipate any leasing momentum for the subject during 2024. The issuance LTV was moderate at 69.5%, providing some cushion against the value deterioration to date; however, Morningstar DBRS anticipates an elevated LTV well in excess of 100%. As such, Morningstar DBRS analyzed the loan with a stressed LTV and an increased POD, resulting in an expected loss that was nearly double the pool's WA expected loss.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS 
There were no Environmental/Social/Governance factor(s) 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, X-C, and PEZ 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 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 ratings assigned to Classes C, D, and PEZ materially deviate from the credit ratings implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider a three-notch or more deviation from the credit rating stresses implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material deviations is uncertain loan level event risk. Although the transaction benefits from a significant amount of collateral reduction and defeasance, Morningstar DBRS remains concerned with several loans being monitored on the servicer's watchlist which exhibit elevated refinance risk.

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.

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.

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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

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 (July 17, 2023).

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