Morningstar DBRS Confirms Credit Ratings on All Classes of GS Mortgage Securities Corporation Trust 2017-375H

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-375H issued by GS Mortgage Securities Corporation Trust 2017-375H as follows:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the stable performance of the underlying collateral since the previous Morningstar DBRS credit rating action in April 2024.

The loan is secured by the borrower's leasehold interest in 375 Hudson Street, a 19-story, Class A LEED Gold-certified office building located between West Houston Street and King Street in the Hudson Square neighborhood of New York City. The property totals 1.1 million square feet (sf) of net rentable area (NRA), with 94.6% serving as traditional office space. The remaining space includes ground-floor retail suites, a gym and a rooftop outdoor running track, below-grade storage space, and a two-level, 125-space parking garage.

The ground lease has an initial 93-year term, expiring in August 2110. There is no annual base rent payment due under the ground lease for the entire term. The $400 million, interest-only (IO) fixed-rate loan has a 10-year term, maturing in September 2027. The loan is sponsored through a joint venture between The Rector, Church-Wardens, and Vestrymen of Trinity Church in the City of New York (Trinity); an affiliate of Norges Bank Real Estate Management; and an affiliate of Hines Interests Limited Partnership. Trinity has owned the land for more than 200 years.

Year-over-year property performance remained stable, as according to Q3 2024 servicer reporting, the property generated a trailing nine-months ended September 30, 2024, net cash flow (NCF) of $34.9 million. The annualized figure results in an NCF of $46.6 million, equating to a 3.27 times (x) debt service coverage ratio (DSCR) and 11.6% debt yield. All figures are relatively unchanged from YE2023 as the occupancy rate at the property remained at 90.8%, according to the September 2024 rent roll.

The largest tenant at the property is Lion Re:Sources, Inc. (Lion), which occupies 90.0% of the total property NRA and 93.0% of the available office space. In 2019, Lion executed a long-term lease through January 2043 with total buildout costs funded by the borrower and tenant estimated at $113.0 million ($118 psf). Beginning in April 2025, the base rental rate for leased space on Floor 2 through Floor 5 (totaling 279,471 sf) will increase to $41.50 psf from $25.00 and will remain flat through lease expiration. The leased space on Floor 7 through the penthouse suite on Floor 19 has a current base rental rate of $46.23 psf plus an additional Consumer Price Index upward adjustment, which was $7.67 psf as of the September 2024 rent roll for a current total rental rate of $54.00. Lion's 5,389 sf of ground floor retail space has a flat base rental rate of $77.50 over the lease term, which will commence in September 2024 at the conclusion of the tenant's free rent period.

Floor 6, totaling 71,667 sf, remains vacant. Turner Construction Company vacated the space in January 2023 and currently only occupies 2,048 sf on a lease expiring in January 2026. In terms of potential new leasing, the September 2024 rent roll noted a new 16-year retail lease for 3,293 sf was executed with an expected lease start of December 2024. The executed lease brings the retail occupancy rate to 79.4%. Morningstar DBRS is not aware of any potential leasing interest in the remaining vacant office, retail, or storage space.

The subject is located within the Midtown South office submarket as defined by Reis. According to Q4 2024 Reis data, the submarket reported an asking rental rate of $69.70 psf gross with an effective rental rate of $54.89 psf and occupancy rate of 85.9%. Lion is currently the primary office tenant at the property, paying a weighted-average base rental rate of $50.11 psf (including the upcoming contractual rental rate increase). In comparison with the submarket metrics, the subject trails only marginally in terms of the in-place rental rate and exceeds the submarket in terms of occupancy. Given the long-term lease of Lion and the expected increase in property cash flow throughout 2025, the performance of the subject is expected to remain stable.

At the previous Morningstar DBRS credit rating action in April 2024, Morningstar DBRS completed an updated collateral valuation. For more information regarding the approach and analysis conducted, please refer to the press release titled "Morningstar DBRS Takes Actions on North American Single-Asset/Single-Borrower Transactions Backed by Office Properties," published on April 15, 2024. For purposes of this credit rating action, Morningstar DBRS maintained the valuation approach from the April 2024 review, which was based on a capitalization rate of 7.50% applied to the Morningstar DBRS NCF of $40.1 million. Morningstar DBRS also maintained positive qualitative adjustments to the Loan-to-Value Ratio (LTV) Sizing benchmarks totaling 5.25% to reflect the subject property's stable cash flow, quality of the physical improvement, and stability of the submarket. The Morningstar DBRS concluded value of $535.0 million represented a -49.1% variance from the issuance appraised value of $1.05 billion.

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, or 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-A 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 (February 28, 2025) https://dbrs.morningstar.com/research/448963.

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.
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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 (February 28, 2025)
https://dbrs.morningstar.com/research/448962
-- 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/410863.

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