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

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

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction since issuance, backed by a portfolio of multifamily properties across three states. The collateral continues to exhibit healthy performance metrics, with occupancy and net cash flow (NCF) figures at or exceeding the Morningstar DBRS figures derived at issuance.

The collateral for the loan includes the borrower's fee-simple and leasehold interests in a portfolio of 18 suburban multifamily properties totaling 3,483 units in South Florida (58.8% of the allocated loan amount (ALA)), with one property in each of Salt Lake City (19.3% of the ALA) and Boston (22.1% of the ALA). All 16 of the properties in Florida are secured by affordable housing properties, of which five are age-restricted properties. Under the current legislation, 14 of the properties in Florida should receive 100% exemption of ad valorem taxes on all affordable units if the properties continue to meet all other statutory requirements for the affordable housing tax exemption. According to recent servicer commentary, the Cedar Forest property (4.7% of the ALA) in suburban Tampa, experienced major damage from recent hurricane activity. No estimate of total damage or payout has been provided.

The transaction sponsor is Starwood Real Estate Property Trust, Inc., which is indirectly controlled by the experienced institutional private investment firm Starwood Capital Group. Loan proceeds of $529.8 million along with the borrower's equity of approximately $392.8 million went toward acquiring the property for $883.0 million and covering closing costs and transaction expenses.

The transaction features a partial pro rata/sequential-pay structure, which allows for pro rata paydowns for the first 20.0% of the original principal balance, where individual properties may be released from the trust at a price of 105.0% of the ALA, with customary debt yield tests. Proceeds are applied sequentially for the remaining 80.0% of the pool balance with the release price increasing to 110.0% of the ALA. Morningstar DBRS applied a penalty to the transaction's capital structure to account for the pro rata nature of certain prepayments and for the weak deleveraging premiums. The interest-only floating-rate loan had an initial two-year term with three one-year extension options. The loan matured on November 8, 2024; As of the November 2024 reporting, the servicer noted that the borrower has exercised the second extension option with a current maturity date scheduled for November 9, 2025. Each extension is conditional upon, among other things, no events of default and the borrower's purchase of an interest rate cap agreement for each extension term. The borrower will be required to maintain a debt yield above 4.25% throughout the loan term or cash management provisions will be triggered. As of the YE2023 financials, the debt yield was 6.58%.

According to the trailing 12-month (T-12) financials for the period ended June 30, 2024, the portfolio had a consolidated occupancy rate of 96.8%, compared with 98.7% at issuance. Cash flows continue to steadily increase year over year, with the T-12 ended June 30, 2024, NCF at $36.6 million, compared with the YE2023 NCF of $34.4 million and the Morningstar DBRS NCF of $30.2 million at issuance. Despite the increase in interest rates since issuance, the loan continues to report a healthy debt service coverage ratio (DSCR) of 2.05 times (x) as of the June 2024 reporting, compared with the YE2022 DSCR of 1.84x. According to the June 2024 rent rolls, the portfolio had an average rental rate of $1,442 per unit, below the June 2023 figure of $1,610 per unit but above the $1,187 per unit figure at issuance. While the T-12 ended June 30, 2024, effective gross income has grown 20.9% when compared with the Morningstar DBRS NCF derived at issuance, operating expenses have also risen by 22.1%, primarily driven by increases in property insurance, utilities, and payroll and benefits.

Morningstar DBRS' credit ratings are based on a value analysis completed at issuance, which considered a capitalization rate for the portfolio of 5.89%, resulting in a Morningstar DBRS value of $513.3 million and a loan-to-value ratio (LTV) of 103.2% on the mortgage loan. The Morningstar DBRS value represents a 42.8% haircut to the appraiser's value of $899.3 million at issuance. To account for the high leverage, Morningstar DBRS programmatically reduced its LTV benchmark targets for the transaction by 1.5% across the capital structure. Morningstar DBRS applied positive qualitative adjustments to its sizing, totaling 6.75%, to reflect the historically stable performance, property quality, and strong submarket fundamentals for the underlying portfolio.

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

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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
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 Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024) https://dbrs.morningstar.com/research/439699

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

-- Legal Criteria for U.S. Structured Finance (October 28, 2024), https://dbrs.morningstar.com/research/441840

-- 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, 2024), https://dbrs.morningstar.com/research/438283

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.