Morningstar DBRS Confirms Credit Ratings on All Classes of GS Mortgage Securities Trust 2020-GC45, Changes Trends on Five Classes to Negative from Stable

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2020-GC45 issued by GS Mortgage Securities Trust 2020-GC45:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- 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 AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class X-D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F-RR at BB (low) (sf)
-- Class G-RR at B (sf)

Morningstar DBRS also confirmed its credit ratings on the loan-specific certificates as follows:

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

In addition, Morningstar DBRS aligned its credit rating on the interest-only certificate Class X-B to its current lowest applicable reference obligation (Class B) resulting in an upgrade to AA (sf) from A (sf). The trends on Classes D, E, F-RR, G-RR and X-D were changed to Negative from Stable, while trends on all other classes are Stable.

The pool includes a high concentration of loans secured by office properties or mixed-use properties with significant office components, representing approximately 31.7% of the current balance. While a select number of those loans continue to perform as expected, several others, including 650 Madison Avenue (Prospectus ID#8; 3.8% of the pool), 90 North Campus (Prospectus ID#10; 3.8% of the pool), and The Lincoln (Prospectus ID#16; 2.7% of the pool), all of which are backed by office collateral, are exhibiting increased credit risk, as further outlined below. The Negative trends on the four lowest-rated classes reflect these loan-specific challenges, considering that those classes are most exposed to loss if the underlying collateral's performance continues to deteriorate. Where applicable, Morningstar DBRS increased the probability of default (POD) penalties and/or applied stressed loan-to-value ratios (LTVs) for loans exhibiting increased credit risk, resulting in expected losses (ELs) that were between 1.7 times (x) and 2.8x greater than the pool average.

The 650 Madison Avenue pari passu loan is collateralized by a Class A office and retail tower that consists of approximately 544,000 square feet (sf) of office space, with additional ground-floor retail and storage space. The loan has been on the servicer's watchlist since April 2023 as a result of a low debt service coverage ratio (DSCR), driven by the departure of several tenants. According to the June 2024 rent roll, the property's occupancy was 81.9%, down from 97.0% at issuance. Morningstar DBRS expects the occupancy rate to fall further following the servicer-confirmed downsizing of both the largest tenant, Ralph Lauren (currently 40.7% of the net rentable area (NRA); lease expiration in December 2024), and the second-largest tenant, BC Partners Inc. (previously 11.7% of the NRA; lease expiration in April 2024). According to the servicer, Ralph Lauren will continue to occupy 141,871 sf (23.6% of the NRA; new lease expiration in April 2036), while BC Partners Inc. has agreed to renew a portion of its space representing 7.4% of the NRA (lease expiration in August 2037), both at reduced rates compared with those previously paid. In addition, both tenants were given one year of free rent as part of their respective long-term renewals. As of the most recent financials for the trailing 12 months ended March 31, 2024, the net cash flow (NCF) was $38.5 million (reflecting a DSCR of 1.71x on the senior debt and 1.36x on the whole loan), well below the Morningstar DBRS NCF of $50.8 million derived at issuance (DSCR of 2.45x on the senior debt). Although the high availability rate and cash flow declines are indicative of significantly increased risks for this loan, Morningstar DBRS notes mitigating factors in the strong sponsorship, building quality, and desirable location. To stress the loan in the analysis, given the increased risks, Morningstar DBRS considered an elevated LTV and POD, resulting in an EL that was nearly 1.8x the pool average.

The 90 North Campus pari passu loan is secured by a 256,703-sf, four-building office complex in Bellevue, Washington. The loan was added to the servicer's watchlist in August 2024 because of a lockbox trigger tied to the consolidation of the property's largest tenant's (T-Mobile) office footprint (previously 65.9% of NRA). T-Mobile has a lease expiring in November 2029, one month ahead of loan maturity. The tenant reportedly went dark on 125,500 sf of its 169,185-sf space leased across three buildings; however, the lease is not structured with any termination options. The property's only other tenant, Mindtree Ltd. (36.6% of NRA, expiring August 2029), remains at the property, implying physical occupancy of 64% compared with the issuance rate of 100.0%. As of Q2 2024, the Bellevue/Issaquah submarket reported a vacancy rate of 11.8%, down from 12.1% at Q2 2023, according to Reis. According to the June 2024 financials, the DSCR was reported at 2.82x, a slight increase from previous years. Morningstar DBRS notes that cash flow is not likely to change significantly if T-Mobile continues to make contractual rent payments until lease expiration. According to an online article from The Registry in July 2024, Verizon subleased 33,000 sf of T-Mobile's space and the remaining available space is actively being marketed. To account for the increased risks associated with a suburban office property that is partially dark, Morningstar DBRS applied elevated LTV and POD assumptions in its analysis with this review, resulting in an EL that was approximately 3.0x the pool average.

The credit rating confirmations reflect the otherwise overall stable performance of the remaining loans in the pool, as evidenced by the most recent year-end weighted-average (WA) DSCR of 3.12x, with the five largest loans in the pool maintaining investment-grade shadow ratings and benefiting from strong performance, with a WA DSCR of 6.77x. As of the October 2024 remittance, all 52 of the original loans remain in the pool, with an aggregate principal balance of $1.31 billion, representing a collateral reduction of 1.6% since issuance. There are currently 12 loans, representing 30.2% of the pool balance, on the servicer's watchlist; these are primarily being monitored for low occupancy and DSCR figures, near-term tenant rollover, and cash management triggers. The pool benefits from two fully defeased loans, representing 4.5% of the current pool balance.

The only specially serviced asset, Parkmerced (Prospectus ID#14; 2.9% of the pool), is secured by a 3,165-unit apartment complex in San Francisco. The $1.5 billion mortgage loan consists of a $547.0 million senior loan and subordinate debt composed of a $708 million B note and a $245.0 million C note. There is also $275.0 million in mezzanine debt in place, which, according to an April 2024 online article from The Real Deal, was sold to a third-party buyer for $167.5 million. The trust debt represents a pari passu portion of the senior loan. At Morningstar DBRS' last credit rating action, the loan was on the servicer's watchlist for a low DSCR and was being cash managed. Although the low DSCR was a concern, Morningstar DBRS noted an improvement in occupancy as of the March 2023 rent roll and the subject collateral's strong historical performance as mitigating factors that supported maintaining the investment-grade shadow rating assigned at issuance. However, despite slow and steady improvements over the next six months, the loan eventually transferred to special servicing as of the March 2024 reporting period and was reported as current and with the special servicer as of the October 2024 remittance. The property received an updated appraisal in July 2024, valuing the complex at $1.4 billion, reflecting a 34.1% decline from the issuance value of $2.1 billion. Although the value decline and deteriorated performance are indicative of increased credit risk from issuance, the implied LTV for the senior debt with the updated value remains healthy at 39.3%, suggesting that the likelihood of loss to the trust at resolution remains low. In light of the default and generally increased risks from issuance, Morningstar DBRS removed the shadow rating and increased the POD, resulting in a loan EL that was approximately 2.0x the pool average.

With this review, Morningstar DBRS elected to remove the shadow rating for the Parkmerced loan, as outlined above. Investment-grade shadow ratings were assigned to six additional loans at issuance: 1633 Broadway (Prospectus ID#1; 4.6% of the current pool), 560 Mission Street (Prospectus ID#2; 4.6% of the pool), Starwood Industrial Portfolio¿Pooled (Prospectus ID#3; 4.4% of the pool), Bellagio Hotel and Casino (Prospectus ID#4; 4.6% of the pool), Southcenter Mall (Prospectus ID#5; 4.6% of the pool), and 510 East 14th Street (Prospectus ID#17; 2.7% of the pool). With this review, Morningstar DBRS confirmed that the respective performance of all six loans remains consistent with the characteristics of investment-grade loans.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

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 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 Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

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 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 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 info-DBRS@morningstar.com.

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.

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 Limited
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Toronto, ON M5H 3M7 Canada
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/North American CMBS Insight Model version 1.2.0.0 (March 1, 2024), https://dbrs.morningstar.com/research/428797
--North American Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024; https://dbrs.morningstar.com/research/439699
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- 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.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.