Morningstar DBRS Downgrades Credit Ratings on All Classes of GS Mortgage Securities Corporation Trust 2021-ROSS

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

-- Class A to AA (low) (sf) from AAA (sf)
-- Class A-Y to AA (low) (sf) from AAA (sf)
-- Class A-Z to AA (low) (sf) from AAA (sf)
-- Class A-IO to AA (low) (sf) from AAA (sf)
-- Class B to A (low) (sf) from AA (sf)
-- Class C to BB (low) (sf) from A (high) (sf)
-- Class D to CCC (sf) from BBB (high) (sf)
-- Class E to C (sf) from BB (low) (sf)
-- Class F to C (sf) from B (low) (sf)
-- Class G to C (sf) from CCC (sf)

All classes continue to carry Negative trends, with the exception of Classes D, E, F, and G, which have credit ratings that do not carry a trend in commercial mortgage-backed securities (CMBS). The Class A, A-Y, A-Z, and A-IO certificates (the CAST certificates) can be exchanged for other classes of CAST certificates and vice versa, as described in the offering memorandum.

The credit rating downgrades and Negative trends are reflective of Morningstar DBRS' increased loss expectations for the underlying loan, driven by the trust's increasing exposure as the loan continues to be in default and in special servicing, and most recent decline in appraised value. The most recent appraisal as of January 2024 valued the collateral portfolio at $682.7 million, representing a 41.6% decline from its issuance value of $1.2 billion. In addition to the decline in value, outstanding advances and shortfalls continue to accrue, increasing the loan's total exposure to $728.8 million as of the October 2024 remittance. Given these factors, Morningstar DBRS considered a liquidation scenario in the analysis for this review, the results of which suggest that losses could be incurred to Classes E, F, and G at disposition.

In its liquidation scenario, Morningstar DBRS applied a 25.0% haircut to the January 2024 appraised value to provide cushion against the expected continued build of advances and the potential for further value decline, resulting in a liquidation value of $512.0 million (loan-to-value ratio (LTV) of 135.0%), and implying a capitalization rate of 9.9% on the YE2023 net operating income (NOI). Inclusive of a 1.0% liquidation fee, an additional year of principal and interest advances, and all current outstanding advances, Morningstar DBRS' liquidation scenario considers the total trust exposure could reach approximately $798.8 million. Although the results of the liquidation scenario suggest that Classes A, B, C, and D are insulated from loss at this point in time, the implied LTV for each of those classes, based on the estimated amount of proceeds available after paying all outstanding and expected future advances, has increased beyond the LTV Sizing Benchmarks at each of the respective prior credit rating categories, supporting the credit rating downgrades to those classes with this review.

Collateral for the trust consists of the fee-simple interest in seven Class A/Class B office properties totaling approximately 2.1 million square feet in Arlington, Virginia. The $691.0 million loan was structured with a two-year initial term that matured in June 2023. While the loan was structured with three one-year extension options, subject to certain provisions, including spread increases and the purchase of a new interest rate cap, the borrower did not elect to execute its extension option and the loan transferred to special servicing in May 2023 for monetary default. In addition to the subject loan, there is also a $150.0 million mezzanine loan in place, held outside of the trust. The mezzanine loan was purchased in February 2024 and, according to special servicer commentary, a loan modification is currently in progress which could ultimately include terms to allow for debt restructuring.

As of September 2024, the collateral was 75.7% occupied, in line with the submarket which reported a 74.5% occupancy rate, according to Reis. Reis projects submarket vacancy to marginally improve in the next five years but expects vacancy to remain above the pre-coronavirus pandemic rate of 18.6% in 2019. The portfolio's largest tenant is the U.S. Department of State (16.1% of the portfolio's net rentable area (NRA)), with a lease expiration in 2034. Inclusive of other government tenants, U.S. General Services Administration comprises 20.9% of the portfolio NRA. No other single tenant occupies more than 6.0% of the portfolio's NRA or represents more than 8.0% of the gross rents. Tenant rollover in the next 12 months is minimal, with tenants representing a combined 5.7% of the portfolio NRA, which have an upcoming lease expiration. Per the YE2023 financials, the loan reported a net cash flow (NCF) of $33.5 million, significantly less than the Morningstar DBRS NCF of $52.6, mainly because of an increase in below-the-line items. In comparison, the YE2023 NOI was reported at $50.6 million, compared with the Morningstar DBRS NOI of $56.0 million.

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) at https://dbrs.morningstar.com/research/437781.

Class A-IO is an 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 ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

The credit ratings of this transaction are highly subject to the asset's liquidation value. As a result, a sensitivity whereby Morningstar DBRS stresses the Morningstar DBRS Cap Rate and Morningstar DBRS NCF to evaluate the impact of a Morningstar DBRS value decline based on the LTV sizing benchmarks was not completed. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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 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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- 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 (October 28, 2024), https://dbrs.morningstar.com/research/441840

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.