Morningstar DBRS Confirms Credit Ratings on All Classes of GS Mortgage Securities Trust 2013-GC10

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-GC10 issued by GS Mortgage Securities Trust 2013-GC10 as follows:

-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (sf)
-- Class E at CCC (sf)
-- Class F at C (sf)

The trends on Classes C and D are Stable. There are no trends on Classes E and F, which have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

The transaction is in wind down, with only three loans remaining. Two of the three assets, One Technology Plaza (Prospectus ID#13, 9.5% of the current pool balance) and 701 Technology Drive (Prospectus ID#15, 9.7% of the current pool balance), are real estate owned and have experienced significant declines in property value since issuance. The largest loan remaining, Empire Hotel & Retail (Prospectus ID#1, 80.8% of the current pool balance) is secured by a full-service hotel and ground-floor retail space in New York with an upcoming scheduled maturity date in January 2025. While the loan continues to perform in line with the terms of its 2022 modification, Morningstar DBRS' analysis considered liquidation scenarios for all three remaining loans to determine the recoverability of the remaining bonds. Morningstar DBRS determined that Classes C and D remain insulated from losses. However, Morningstar DBRS remains concerned with the ability of Empire Hotel & Retail to refinance ahead of its maturity date. A default of this loan would extend the recoverability timeline for the outstanding bonds and increase the propensity for interest shortfalls.

The Empire Hotel & Retail loan was modified in June 2022, and terms of the modification included a principal paydown of 5.0%, a maturity extension through January 2025, a conversion to interest-only (IO) payments for the remainder of the term, and a period of reduced interest, which expired in December 2023. Half of the past due interest was repaid at the closing of the loan modification and the remaining is to be repaid at loan maturity; the balance is fully guaranteed by the guarantor. Although cash flow has improved over the past few years, the asset continues to underperform its competitive set, according to the most recent STR reports. Moreover, the most recent appraised value of $165.0 million, dated June 2022, represents a 58.0% decline from the issuance appraised value and implies a current loan-to-value ratio (LTV) of 98.5%. Offsetting some of these concerns are the continued stabilization efforts and the loan's significant reserve balance. As part of the modification, all excess cash was required to be swept into a reserve account, which reported a balance of $26.6 million as of the November 2024 reserve report, with a total of $36.1 million held across all reserves. Though the debt service coverage ratio remains below issuance levels and the high LTV based on the July 2022 appraisal is indicative of increased credit risk since issuance, Morningstar DBRS notes the improving performance, significant cash reserves, and the borrower's compliance with the terms of the loan modification thus far as mitigants. Based on a liquidation scenario that considered a conservative haircut to the 2022 appraisal, Morningstar DBRS expects any losses associated with this loan will be contained to the non-investment-grade bonds.

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.

Class X-B is an IO certificate that references 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.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is in wind down, with only three loans remaining. In such cases, Morningstar DBRS credit ratings are typically based on a recoverability analysis.
 
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 (March 01, 2024);
https://dbrs.morningstar.com/research/428797

-- 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 (December 3, 2024);
https://dbrs.morningstar.com/research/444064

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 (July 17, 2023).

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