Morningstar DBRS Confirms Credit Ratings on All Classes of Citigroup Commercial Mortgage Trust 2022-GC48 Yorkshire & Lexington Towers Loan-Specific Certificates

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Yorkshire & Lexington Towers Loan-Specific Certificates issued by Citigroup Commercial Mortgage Trust 2022-GC48 as follows:

-- Class YL-A at A (sf)
-- Class YL-B at BBB (low) (sf)
-- Class YL-C at BB (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the two underlying multifamily properties, which are in the Upper East Side submarket of Manhattan, New York. The 21-story Yorkshire Towers property is significantly larger, with 681 residential units and 63,778 square feet (sf) of commercial space. In comparison, the 15-story Lexington Towers property consists of 127 residential units and approximately 17,000 sf of commercial space. At issuance, there were 503 market-rate units (62.3% of the total) and 305 rent-stabilized units (37.7% of the total) across the two properties.

The $221.5 million subject transaction consists of the two junior B notes that are part of a larger $714.0 million whole loan. The whole loan consists of 18 senior A notes totaling $318.0 million, two junior B notes totaling $221.5 million, and four mezzanine loans totaling $174.5 million. Whole-loan proceeds were used to refinance $550.0 million of existing debt, return $55.3 million of borrower equity, fund $20.3 million of various upfront reserves, and cover closing costs. The fixed-rate loan is interest only throughout its five-year term and is scheduled to mature in June 2027, with no extension options available.

The loan, which is currently performing, transferred to special servicing in November 2024 after the borrower defaulted on its obligation to fund a supplemental income reserve as prescribed in the loan documents. The reserve funding requirement is based on failing to achieve a 5.0% debt-yield on the whole-loan amount of $714.0 million (including the four mezzanine loans). According to the most recent financial reporting, the current debt yield as of YE2024 was approximately 4.0%. The borrower has yet to replenish the reserve account; however, the servicer has confirmed receipt of a workout proposal from the borrower and noted the mezzanine lenders have expressed an interest in negotiating cure scenarios.

At issuance, it was noted that the sponsor had completed 57-unit renovations with plans to carry out an additional $6.5 million project to renovate another 311 units over a three-year period. More specifically, the business plan contemplated 283 traditional renovations and 28 major renovations involving the combination of multiple units into a single floorplan, or materially altering floorplans (post-renovation, the combined unit count was expected to decrease to 793 units, consisting of 492 market-rate and 301 rent-stabilized units). The sponsor intended to take advantage of existing state regulations at the time, which allowed for the rent-stabilized legal rent to be reset to the first rent achieved following the renovation, however the State of New York changed the regulations in 2023 restricting the landlord's ability to increase rents on renovated units. According to the servicer, the borrower has halted its business plan in light of the recent changes. As of April 2024, 65.0% of the units were designated as market-rate while 35.0% of the units were designated as rent-stabilized, relatively in line with issuance.

According to year-end (YE) 2024 financial reporting, the property generated a net cash flow (NCF) of $29.3 million and a debt service coverage ratio (DSCR) of 1.76 times (x), an improvement from the YE2023 figure of $28.9 million (a DSCR of 1.61x), and in line with the Morningstar DBRS NCF of $29.4 million (a DSCR of 1.77x) derived at issuance. At issuance, Morningstar DBRS noted the inherent risk in the sponsor's business plan and, as such, the Morningstar DBRS NCF figure noted above does not include any stabilization credit. According to the March 2025 rent roll, the residential portion of the property had an occupancy rate of 91.6%, an improvement from the YE2023 figure of 87.5%. Market rent units achieved an average rental rate of approximately $5,860 while rent stabilized units achieved an average rental rate of approximately $2,840, an improvement from YE2023, when the average rental rates for those unit types was $5,620 and $2,795, respectively. According to Reis, the Upper East Side submarket reported an average vacancy rate of 1.8% with an average asking rental rate of $5,464 per unit, as of Q4 2024. The commercial portion of the property was 98.6% occupied as of March 2025 with minimal tenant rollover projected over the next 12 months.

The Morningstar DBRS value of $511.4 million derived at issuance, was based on the Morningstar DBRS NCF as noted above, and a 5.75% capitalization rate. This results in a Morningstar DBRS loan-to-value ratio (LTV) of 105.5% on the secured debt balance of $539.5 million and 139.6% on the total debt of $714.0 million. The Morningstar DBRS concluded value estimate represents a -46.4% variance from the as-is appraised value ($954.0 million) at issuance. The appraiser's as-stabilized value estimate of $1.1 billion was largely reliant on the sponsor's ability to successfully carry out its business plan. Morningstar DBRS maintained positive qualitative adjustments to the final LTV sizing benchmark, totaling 8.5% to reflect the low cash flow volatility, favourable property quality, and strong market fundamentals.

Although the sponsor failed to achieve its business plan, in-place cash flows remain in line with Morningstar DBRS' expectations. In addition, the property benefits from a substantial floor value based on its desirable location within Manhattan. The appraiser's concluded land value at issuance was approximately $365.0 million, or approximately $451,733 per unit, which covers approximately 66.7% of the secured senior and subordinate loan balances. In addition, while the loan's transfer to special servicing is noteworthy, Morningstar DBRS expects there remains significant incentive for the sponsor to continue to work toward a resolution in the near to moderate term, given the positive factors outlined above.

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

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 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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

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 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/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.