Morningstar DBRS Confirms Credit Ratings on All Classes of GS Mortgage Securities Corporation Trust 2023-FUN

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2023-FUN issued by GS Mortgage Securities Corporation Trust 2023-FUN as follows:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at A (sf)
-- Class HRR at A (low) (sf)

All trends are Stable.

The ratings actions reflect the stable credit outlook given performance remains in line with issuance expectations. Since issuance, the collateral portfolio has exhibited strong performance metrics with cash flow exceeding the Morningstar DBRS figures as of the most recent reporting. The transaction is secured by the fee-simple interest in Kalahari Resorts Pocono Manor, a 977-key waterpark resort in Pocono Manor, Pennsylvania. The resort was originally built in 2015 with a total 457 keys, and the sponsor subsequently invested approximately $228.1 million, or $233,469 per key, in capital improvements in two expansions in 2017 and 2019, bringing the subject to its current room count and extending the waterpark and convention center. Currently, the property boasts an indoor waterpark of 220,000 square foot (sf), an outdoor waterpark of approximately 90,000 sf, 16 food and beverage outlets, more than 91,500 sf of indoor/outdoor event space, a spa, and a fitness center. The transaction is sponsored by Kalahari Resorts & Conventions, which owns and operates 2,662 resort keys, with another location expected to open in 2026.

The $350.0 million loan was used to refinance $328.1 million of existing debt and return $14.5 million of equity to the sponsor. The two-year floating-rate loan pays interest only (IO) with three additional one-year extension options for a fully extended maturity date of March 2028. The first maturity is in March 2025 and, according to the servicer commentary, the borrower has requested to exercise the first extension option.

According to the most recent financials, the subject reported a net cash flow (NCF) of $76.1 million for the trailing 12-months (T-12) ended September 30, 2024, compared with the Morningstar DBRS NCF of $62.9 million derived at issuance. Despite this improvement, the June 2024 STR reported declining trends in the property's occupancy rate, average daily rate, and revenue per available room (RevPAR) from issuance. This could be a result of newly delivered and/or expanded resorts nearby. The subject continues to outperform its competitive set, as evidenced by its respective occupancy and RevPAR penetration rates of 68.9% and 108.6%.

The Pocono Mountains are well known as a leisure-oriented location, serving the tri-state area and, as such, there is some concentration of competing properties. The subject is one of the largest and newest such constructions in the area, which should continue to drive stable demand over the near to moderate term. However, with renovations to and delivery of existing and new competing resorts, performance metrics are likely to stabilize. Great Wolf Lodge Poconos, considered a direct competitor, completed an expansion in 2023. Two additional Great Wolf Lodges, one recently opened in Perryville, Maryland, and another in Mashantucket, Connecticut, that is scheduled to open in May 2025, are farther from the asset but may still be considered competitors given their positioning as drivable leisure destinations. Although these resorts could ultimately affect demand at the subject, the difference between the subject's in-place NCF and the Morningstar DBRS NCF provides significant cushion against potential cash flow disruptions.

At issuance, Morningstar DBRS derived a value of $627.4 million based on the Morningstar DBRS NCF of $62.9 million and a capitalization rate of 10.0%, resulting in a Morningstar DBRS loan-to-value ratio (LTV) of 55.8% compared with the LTV of 47.4% based on the appraised value of $739.0 million at issuance. Positive qualitative adjustments totaling 3.0% were applied to the LTV sizing benchmarks to reflect low cash flow volatility given the multiple revenue streams the resort offers, above-average property quality resulting from recent construction and renovations, and stable demand for the property type within the market.

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.

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.

Other methodologies referenced in this transaction are listed at the end of this press release.

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, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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 (December 13, 2024), https://dbrs.morningstar.com/research/444612

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

-- 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

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