Morningstar DBRS Downgrades the Credit Ratings on Seven Classes of GS Mortgage Securities Trust 2014-GC22

DBRS Limited (Morningstar DBRS) downgraded the credit ratings on seven classes of Commercial Mortgage Pass-Through Certificates, Series 2014-GC22 issued by GS Mortgage Securities Trust 2014-GC22 as follows:

-- Class A-S to A (sf) from AAA (sf)
-- Class B to BBB (low) (sf) from A (sf)
-- Class C to CCC (sf) from BBB (sf)
-- Class D to C (sf) from CCC (sf)
-- Class X-A to A (high) (sf) from AAA (sf)
-- Class X-B to BBB (sf) from A (high) (sf)
-- Class PEZ to CCC (sf) from BBB (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-5 at AAA (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class X-C at C (sf)

Morningstar DBRS maintained Negative trends on Classes AS, B, X-A, and X-B. There are no trends on Classes C, D, E, F, X-C, and PEZ, which have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings. The trend on Class A-5 is Stable.

The downgrades reflect an increase in Morningstar DBRS' loss expectations, stemming from the extremely concentrated nature of the pool as the transaction is now in wind-down. Since the last credit rating action, 45 loans have repaid from the trust. Interest shortfalls increased to $5.4 million as of December 2024, compared with the $2.1 million reported at last review in January 2024. To date, there have been realized losses of approximately $20.0 million attributed to non-recoverable advances and the liquidation of one loan (Prospectus ID#41), which is contained in the nonrated Class G.

As of the December 2024 remittance, only five loans are remaining, all of which are in special servicing and two of which, EpiCentre (Prospectus ID#3, 26.4% of the current pool balance) and Westwood Plaza (Prospectus ID#22, 3.0% of the current pool balance), are real estate owned. Given the concentration of defaulted and underperforming assets, Morningstar DBRS' analysis considered liquidation scenarios for all five remaining loans to determine the recoverability of the outstanding bonds. Morningstar DBRS determined that Classes A-5, A-S, and B remain insulated from losses at this time. However, while the two largest loans, Maine Mall (Prospectus ID#1, 34.2% of the pool) and Selig Portfolio (Prospectus ID#2, 31.1% of the pool), remain current and loan modifications are in negotiation, Morningstar DBRS notes that the risk of payment default remains high, an event which would extend the recoverability timeline for the outstanding bonds and increase the propensity for interest shortfalls. This consideration was a primary factor in Morningstar DBRS' decision to maintain Negative trends on Classes A-S, B, X-A, and X-B.

Morningstar DBRS' loss expectations are primarily driven by the largest loan in the pool, Maine Mall (Prospectus ID#1, 34.2% of the pool), which is secured by a 730,444 square foot (sf) portion of a 1.0 million sf super-regional mall in Portland, Maine. The $125.0 million loan is pari passu with a note securitized in the Citigroup Commercial Mortgage Trust 2014-GC21 transaction, which is also rated by Morningstar DBRS. The loan transferred to the special servicer in February 2024 following the borrower's notification that it would be unable to repay the loan at scheduled maturity in April 2024. According to the December 2024 remittance, the special servicer is discussing workout strategies with the borrower, while dual tracking foreclosure. Occupancy at the subject was reported at 92.0% in September 2024, down slightly from 97.2% at issuance. In addition, approximately 39.5% of the collateral tenants have lease expiries within the next 12 months. The loan reported a debt service coverage ratio (DSCR) of 1.40 times (x) for the trailing nine-month (T-9) period ended September 30, 2024, compared with the issuer's DSCR of 1.83x. Cash flow has been stabilizing, however, and Morningstar DBRS notes that the nearest competing mall is located 37 miles away. An August 2024 appraisal valued the property at $196.0 million, 50.4% below the issuance appraised value of $395.0 million. Given the declining occupancy, high near-term rollover, and considerable decline in value, Morningstar DBRS used a liquidation scenario based on a haircut to the August 2024 appraised value, which implied a loss severity of nearly 40.0%.

The second-largest loan in special servicing is the Selig Portfolio (Prospectus ID#2, 31.1% of the pool), which is secured by seven office buildings totaling 1.1 million sf in Seattle. The subject loan of $100.0 million represents a pari passu portion of a $239.0 million whole loan, with the additional senior notes secured in the CGCMT 2014-GC23 (not rated by Morningstar DBRS) and Morgan Stanley Capital I Trust 2017-H1 transactions (rated by Morningstar DBRS). The loan transferred to the special servicer in March 2024 for imminent maturity default and subsequently missed its May 2024 maturity date. Per the most recent servicer commentary, the borrower and special servicer entered a 60-day forbearance period that commenced in November 2024 in exchange for a $2.7 million reserve deposit; terms surrounding a potential loan modification were expected to finalize by YE2024. An update regarding the execution of the loan modification was requested by Morningstar DBRS but no response was provided as of this commentary. Occupancy has been declining in recent years, most recently reported at 59.8% as per the most recent financial statement, compared to the issuance occupancy rate of 85.4%. The loan reported a DSCR of 1.32x for the T-9 period ended September 30, 2024, compared with the issuer's DSCR of 2.06x. Office properties within the Central Seattle submarket reported an average vacancy rate of 20.0% in Q3 2024, according to Reis. A March 2024 appraisal valued the property at $188.9 million, 43.7% below the issuance appraised value of $335.3 million. The borrower has indicated there is continued interest in the collateral properties, noting several ongoing negotiations and scheduled tours from prospective tenants. While the leasing activity and modification discussions are positive developments, Morningstar DBRS remains concerned with the declines in occupancy and cash flow, softening submarket fundamentals, and recent maturity default. As such, the loan was analyzed with a liquidation scenario based on a haircut to the March 2024 appraised value, resulting in a loss severity of approximately 35%.

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

Classes X-A, X-B, and X-C 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 (December 13, 2024; https://dbrs.morningstar.com/research/444617) which can be found on dbrsmorningstar.com under Methodologies & Criteria.

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 five loans remaining. In such cases, Morningstar DBRS credit ratings are typically based on a recoverability 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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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 (December 13, 2024),
https://dbrs.morningstar.com/research/444617

-- 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

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

-- 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.

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