Morningstar DBRS Confirms Credit Ratings on All Classes of GS Mortgage Securities Corporation Trust 2021-STAR

DBRS Limited (Morningstar DBRS) confirmed the credit ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2021-STAR issued by GS Mortgage Securities Corporation Trust 2021-STAR as follows:

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, as evidenced by the stable-to-improving cash flow and occupancy reported since issuance. The portfolio is backed by multifamily properties in desirable submarkets with generally stable occupancy and rental rate trends. At issuance, Morningstar DBRS noted the portfolio's generally favorable asset quality and location in high-growth markets. These factors and the stability of the markets since issuance have contributed to performance metrics for the portfolio that are in line with Morningstar DBRS' expectations at issuance.
 
The $470.6 million loan is secured by the borrower's fee-simple interest in seven Class A suburban multifamily properties totaling 2,494 units across five states and five distinct multifamily submarkets of Tampa, Florida; Round Rock, Texas; Phoenix, Arizona; Raleigh, North Carolina; and Lawrenceville, Georgia. The transaction sponsorship is a joint venture between Starlight Group Property Holdings Inc (Starlight), the Public Sector Pension Investment Board (PSPIB), and the Future Fund Board of Guardians (Future Fund). The interest-only, floating-rate loan had an initial maturity in December 2023 and was structured with three one-year extension options. The borrower previously executed one extension option to December 2024 and is required to purchase a new interest rate cap agreement with each extension. The servicer has noted that a second extension is in process, which would extend the loan maturity to December 2025, leaving the loan with only one one-year extension option remaining.
 
The loan allows for pro rata paydowns for the first 20.0% of the original principal balance at a prepayment premium of 110.0% of the allocated loan amount (ALA) for the release of individual assets, provided the aggregate portfolio loan's debt yield is equal to at least 5.72% after the releases. Morningstar DBRS considers this structure credit negative, particularly at the top of the capital stack. At issuance, a penalty was applied to the transaction's capital structure to account for the pro rata nature of certain voluntary prepayments. To date, there have been no property releases.
 
At issuance, Morningstar DBRS noted the sponsors had planned a capital expenditure project of $29.1 million for the portfolio. Planned improvements during the first three years of the loan term included the renovation of 1,214 units across the portfolio along with improvements to common areas, including clubhouses, common rooms, gyms, and dog parks. The project was to be funded directly by the sponsors, with no reserve collected at issuance. The servicer provided site inspections dated November 2023 for all seven properties and, as of the date of those visits, while the larger scale renovations/repairs have been completed, some smaller planned renovations remain ongoing. Morningstar DBRS' analysis does not consider any upside as a result of the completion of the planned improvements, but it is expected to contribute to the overall stability of performance through the fully extended loan term.
 
The loan is currently on the watchlist for delinquent taxes and an upcoming maturity date. The servicer commentary notes that a maturity extension is currently in process, and that the borrower is in discussion with the tax authority regarding the delinquent taxes. As per the rent rolls dated June 2024, the portfolio reported a consolidated occupancy of 93.3%, compared with YE2023 and issuance occupancy rates of 93.6% and 94.9%, respectively. The net cash flow (NCF) for the trailing six months (T-6) ended June 30, 2024, was reported at $14.5 million, implying an annualized NCF of $29.0 million, compared with the YE2023 NCF of $28.7 million and the Morningstar DBRS NCF of $25.4 million. The DSCR has declined since issuance, given the floating-rate nature of the loan and increased debt service amount. The borrower has an in-place interest rate cap agreement that results in a minimum DSCR of 1.10x. As mentioned above, the borrower is required to purchase a replacement interest rate cap agreement with each extension.
 
Morningstar DBRS notes increased concern about the rising insurance costs for five of the seven properties (representing 75.5% of the total portfolio). These five properties are located in Florida, North Carolina, and Texas, all of which are areas prone to climate risk. As per the YE2023 financials, since issuance, insurance expenses across the three properties located in Florida increased 114.9% and 49.9% for the property in Texas. Morningstar DBRS confirmed minor damage was sustained across the portfolio during the recent Hurricanes Helene and Milton; however, there is no major performance impact expected. The underlying properties are located in submarkets that continue to be highly desirable for multifamily assets, with strong growth potential and favorable population statistics. According to Reis, the portfolio's respective submarkets reported a weighted-average vacancy rate of 5.5% as of Q2 2024, and a five-year forecasted vacancy rate of 4.5%. The portfolio benefits from geographical diversity, limiting total portfolio exposure to the idiosyncratic risks associated with each region.
 
At issuance, Morningstar DRBS derived a value of $391.2 million, based on a concluded cash flow of $25.4 million and a capitalization rate of 6.5%, resulting in a Morningstar DRBS loan-to-value ratio (LTV) of 120.3% compared with the LTV of 60.8% based on the appraised value at issuance. Morningstar DRBS made positive qualitative adjustments totaling 6.3% to the LTV sizing benchmarks to account for the portfolio's historical performance, ongoing renovations, and strong submarket fundamentals.

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 (August 13, 2024; https://dbrs.morningstar.com/research/437781/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-factors-in-credit-ratings).

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/north-american-cmbs-surveillance-methodology).

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.

DBRS Limited
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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 Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024; https://dbrs.morningstar.com/research/439699/north-american-single-assetsingle-borrower-ratings-methodology)

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024; https://dbrs.morningstar.com/research/439702/morningstar-dbrs-north-american-commercial-real-estate-property-analysis-criteria)

-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024; https://dbrs.morningstar.com/research/428623/interest-rate-stresses-for-us-structured-finance-transactions)

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024; https://dbrs.morningstar.com/research/438283/north-american-commercial-mortgage-servicer-rankings)

-- Legal Criteria for U.S. Structured Finance (October 28, 2024; https://dbrs.morningstar.com/research/441840/legal-criteria-for-us-structured-finance)

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.