Morningstar DBRS Confirms Credit Ratings on All Classes of GSMS 2013-G1

DBRS Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-G1 issued by GS Mortgage Securities Trust 2013-G1 as follows:

-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class DM at BB (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction. Although the remaining underlying collateral has experienced cash flow fluctuations in recent years and the loan maturity was recently extended, the value of the collateral continues to support the credit ratings of the outstanding classes.

The trust collateral originally consisted of three fixed-rate loans individually secured by two outlet malls and one regional mall: Great Lakes Crossing Outlets (Auburn Hills, Michigan), Katy Mills (Katy, Texas), and Deptford Mall (Deptford, New Jersey). The sole remaining loan is Deptford Mall, secured by 343,910 square feet (sf) of in-line space in the 1.0 million sf super regional mall. The original loan balance was $205 million, which was bifurcated into a $179.4 million senior pooled amount contributed to the pooled certificates and a $25.1 million subordinate non-pooled loan that backs the Class DM certificate. As of the May 2024 remittance, there is $126.0 million remaining in the senior pooled balance and $17.6 million in the subordinate note, representing a whole loan collateral reduction of 29.7% since issuance.

The super-regional mall, owned and operated by Macerich, is located just outside of Philadelphia and is anchored by non-collateral tenants Boscov's, Macy's, and JCPenney. A dark Sears box has been partially back-filled by Dick's Sporting Goods. Bonesaw Brewing Company, though not listed on the December 2023 rent roll, is noted on the property's directory as having taken additional space in the former Sears box. As of the December 2023 rent roll, collateral occupancy was 94.1%, compared with 96.1% at YE2022 and 89.8% at YE2019. Other major tenants include H&M (6.5% of the net rentable area (NRA)), lease expiry in January 2026), Forever 21 (5.9% of the NRA, lease expiry in January 2027), and Victoria's Secret (3.2% of the pool, lease expiry in March 2024). Victoria's Secret had a lease expiration in March 2024, and while the rent roll does not list any extension options, the store still appears to be open according to the Deptford Mall website.

The loan was previously in special servicing as the borrower had provided notice it would be unable to repay the loan at its original maturity date in April 2023. The loan was subsequently modified and the terms include an initial extension through April 2024, plus two additional one-year extension options subject to debt yield hurdles of 10.25% and 11%, respectively. The borrower recently executed its first extension option, pushing the current maturity to April 2025. As part of the loan modification, the borrower was also required to remit a $10 million principal curtailment, which was applied to pay down the balance of the certificates and pay all fees related to the modification. The loan is to remain in cash management for the remaining term. According to the May 2024 remittance, the loan has $5.9 million in reserves.

The YE2023 net cash flow (NCF) was reported at $15.6 million, compared with $14.9 million at YE2022, $16.7 million at YE2021, and $20.3 million at YE2019. The reported YE2023 NCF reflects a debt service coverage ratio of 1.37 times, and a debt yield of 12.4% on the pooled balance and 10.9% on the whole loan balance. As of the December 2023 sales report, in-line tenants reported average sales of approximately $558 per square foot (psf) for the trailing 12-month period, down slightly from $578 psf for the same period ended December 2022.

Although an updated appraisal was never provided as part of the modification, Morningstar DBRS believes the property has declined in value since issuance. Morningstar DBRS re-evaluated its cash flow and value approach in light of the updated performance metrics in 2023, and derived a value of $171.6 million, based on a standard stress to the YE2022 reported NCF and a cap rate of 8.5%. The Morningstar DBRS value represents a 50% haircut to the issuer's appraised value of $340.0 million. The subject loan is fixed-rate and has one more extension option, which would push the final maturity to April 2026. Macerich recently defaulted on its loan on Santa Monica Place, and in a Q1 2024 earnings call, indicated a deleveraging strategy that could include property sales or friendly foreclosures.

Offsetting some of this concern is the loan's 2023 modification and recent cash flow growth. The borrower's $10 million principal payment and ongoing amortization suggest continued sponsor commitment to the property and have contributed to deleveraging the asset. Additionally, the property's historically high occupancy and strong sales, and the continued interest in the vacant Sears space indicate healthy leasing activity and good market positioning. Moreover, the extended loan term provides additional runway for cash flow to further improve and interest rates to stabilize. DBRS Morningstar believes the asset will continue to perform in line with expectations.

At issuance, Morningstar DBRS shadow-rated the senior pooled portion of the subject loan as investment grade. With this review, Morningstar DBRS confirmed that the performance of the loan remains consistent with investment-grade loan characteristics.

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

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 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.

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 Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024; https://dbrs.morningstar.com/research/428799)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://dbrs.morningstar.com/research/420982)

Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024; https://dbrs.morningstar.com/research/428623)

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/legal-criteria-for-us-structured-finance)

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