Morningstar DBRS Assigns Provisional Credit Ratings to GSMS Trust 2024-FAIR

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2024-FAIR (the Certificates) to be issued by GSMS Trust 2024-FAIR (the Trust):

-- Class A at AAA (sf)
-- Class X-CP at BBB (sf)
-- Class X-NCP at BBB (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The collateral for the GSMS Trust 2024-FAIR transaction is the borrowers' leasehold interest in the Fairmont Austin hotel, which is composed of 1,048 keys. Mortgage loan proceeds of $430.0 million, as well as a sponsor equity contribution of approximately $50.3 million, will be used to refinance approximately $301.9 million of existing CMBS mortgage debt (AFHT 2019-FAIR), refinance $125.4 million of mezzanine debt, and cover closing costs of approximately $5.0 million. Additionally, Manchester plans to buy out the minority interest and pay $47.0 million to obtain all of Fortress's "Class A" membership interest in the property and purchase a rate buydown to achieve a debt service coverage ratio (DSCR) of 1.22x. The first mortgage loan is a five-year fixed-rate IO mortgage loan.

The hotel was built and opened for business in 2018 and is well-located within the Austin CBD. The property is the largest hotel in Austin and is connected via a skybridge to the 881,000-sf Austin Convention Center (ACC). The hotel is adjacent to Rainey Street Historic District and just half a mile from 6th Street, which has popular entertainment areas. Further, the University of Texas at Austin is located 2.7 miles north of the subject, which had an enrollment of 51,913 as of Fall 2023. Austin has consistently been deemed one of the most popular places to live in the United States and experienced 28% population growth between 2012 and 2022 as young people were drawn to the cultural scene, food and entertainment options, and ample outdoor recreation spaces. The hotel benefits from the 27.4 million tourists who visit Austin annually.

ACC, a driver adjacent to the subject that accounted for approximately 9.0% of room nights in the trailing 12-month (T-12) period ended April 2024, will be closed for renovations from April 2025 until March 2029. The convention center has brought major groups attending South by Southwest (SXSW) such as CoinDesk Inc, and Jamf to the Fairmont Austin. The sponsor and city have followed a comprehensive planning process to best retain ACC groups during the closure.

The loan is sponsored by Manchester Financial Group. Manchester Financial Group was founded in 1970 and is a privately held hotel and commercial real estate firm focused on acquisition, development, and management of high-profile properties throughout the United States with a focus on the West Coast. The company is headquartered in San Diego, California, and has experience working with nationally recognized hotel brands including Marriott, Fairmont, and Hyatt. The collateral is the inaugural development of Manchester Texas Financial Group, a subsidiary of the sponsor that manages all Texas-based holdings in commercial real estate and hospitality. The hotel is managed by Fairmont Hotels & Resorts, with a management agreement extending through December 2038.

The sponsor broke ground in November 2014 before completing the hotel in 2018 for a cost of approximately $412.1 million. Since development, the sponsor has invested approximately $9.2 million toward capex items including back of house improvements, meeting room and banquet space updates, and guest room and corridor updates. The sponsor's future plans include a redesign of two F&B outlets, meeting room and banquet space updates, and additional guest room and corridor updates among other items, which together are projected to cost $21.3 million. The subject's robust amenity package includes five F&B outlets, a rooftop terrace with a swimming pool, a full-service spa, and a fitness center. The subject also boasts 138,800 sf of meeting and event space.

In 2019, prior to the pandemic, the subject reported an occupancy of 74.1% and an average daily rate (ADR) of $260.87, resulting in a revenue per available room (RevPAR) of $192.38. While occupancy has declined since, the sponsor has been successful in recovering ADR and RevPAR to above their pre-pandemic levels. Most recently, the subject reported occupancy, ADR, and RevPAR levels of approximately 72.0%, $285.74, and $205.75, respectively, as of the T-12 ended February 28, 2024. The property performance for the T-12 period ended February 2024 is 6.5% above pre-pandemic levels, based on the 2019 RevPAR of $193.28. Morningstar DBRS believes that the strong recent performance is at least partially due to a higher transient proportion in the hotel segmentation resulting from pent-up pandemic-related restriction demand, and therefore Morningstar DBRS believes room rates will see a market correction in the near term. The location, strong amenities, projected capex, and experienced sponsorship should support modest growth above pre-pandemic levels. Morningstar DBRS concluded a stabilized RevPAR of $201.07, which is 4.0% above the 2019 level and 2.3% below the April 2024 T-12 level.

Morningstar DBRS' credit rating on the Certificates addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Distribution Amounts and Interest Distribution Amounts for the rated classes.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, yield maintenance premium.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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

Classes X-CP and X-NCP 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 US Dollars unless otherwise noted.

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799.

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

With regard to due diligence services, Morningstar DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of Morningstar DBRS' methodology, Morningstar DBRS used the data file outlined in the independent accountant's report in its analysis to determine the credit ratings referenced herein.

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

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.

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982.
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205.
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592.
-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261.

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