Morningstar DBRS Downgrades Credit Ratings on Six Classes of GS Mortgage Securities Trust 2018-GS10, Changes Trends to Stable From Negative
CMBSDBRS Limited (Morningstar DBRS) downgraded its credit ratings on six classes of Commercial Mortgage Pass-Through Certificates, Series 2018-GS10 issued by GS Mortgage Securities Trust 2018-GS10 as follows:
-- Class B to A (sf) from AA (low) (sf)
-- Class C to BBB (sf) from A (low) (sf)
-- Class D to BB (high) (sf) from BBB (sf)
-- Class E to B (low) (sf) from B (high) (sf)
-- Class X-B to A (high) (sf) from AA (sf)
-- Class X-D to B (sf) from BB (low) (sf)
In addition, Morningstar DBRS confirmed the following credit ratings:
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class F at CCC (sf)
-- Class G-RR at C (sf)
-- Class X-A at AAA (sf)
Morningstar DBRS changed the trends on Classes C, D, E, and X-D to Stable from Negative. Classes F and G-RR are at a credit rating level that does not typically carry a trend in commercial mortgage-backed securities (CMBS) ratings. All other classes have a Stable trend.
The credit rating downgrades on Classes E and X-D are supported by the increased loss projections for two of the three loans in special servicing, GSK North American HQ (Prospectus ID#1, 9.5% of the pool) and Capital Complex (Prospectus ID#25, 1.1% of the pool), stemming from updated appraisals. Both of these loans were in special servicing at the time of the last rating action in July 2024 and had obtained updated appraisals exhibiting significant declines in value from issuance. Both loans received updated appraisals since July 2024, cumulatively showing an overall decline from the previous values. Morningstar DBRS is now projecting approximately $35 million in losses as compared to the $28 million at the last rating action in July 2024. The updated liquidation analysis suggests losses would erode the entirety of the unrated Class H-RR and nearly all of Class G-RR, diminishing the credit support available to Class E and X-D, supporting those credit rating downgrades.
The credit rating downgrades on Classes B, C, D, and X-B are supported by the continued erosion of credit support available to those classes from the liquidation analysis described above as well as Morningstar DBRS' view that the overall credit risk for this transaction is expected to remain elevated through to maturity in 2028. Morningstar DBRS had previously placed Negative trends on Classes C, D, E, and X-D due to potential for future value declines for the assets in special servicing, which has occurred. The pool is also most concentrated by loans that are secured by office properties, representing 39.5% of the pool balance. Although most of the office properties in the pool continue to perform as expected, there are some loans that continue to exhibit credit deterioration, specifically the 1000 Wilshire - Pooled (Prospectus ID#2, 8.3% of the pool), which is currently in special servicing but was not analyzed under a liquidation scenario at this time. Morningstar DBRS does acknowledge increased credit risk from issuance remains present, especially in the loans secured by office properties. Morningstar DBRS has sufficiently accounted for that elevated risk through the liquidation analyses and, where applicable, elevated probability of default (POD) and loan-to-value (LTV) stresses used for loans of concern, supporting both the credit rating downgrades and change in trends back to Stable.
As of the June 2025 remittance, all 33 of the original loans remain in the pool with an aggregate principal balance of $787.1 million, representing a nominal collateral reduction of 2.9% since issuance. There are five loans, representing 13.5% of the pool, on the servicer's watchlist being monitored for low debt service coverage ratios (DSCRs), occupancy concerns, and servicing trigger events. There are three loans, representing approximately 19.0% of the pool, that are in special servicing, all of which are secured by office property.
The largest specially serviced loan, GSK North American HQ (GSK), is secured by a Class A office complex in Philadelphia's Navy Yard submarket. The property's single tenant, GSK, decided to vacate its space in Q1 2022, ahead of its 2028 lease expiry, and the loan subsequently transferred to special servicing for imminent maturity default in November 2022. As of July 2024, a foreclosure sale has been completed and a receiver is in place. Although the space is dark, GSK is expected to make its monthly rental payments until September 2028; however, the June 2025 remittance notes the loan to be 60-days delinquent, last paid in March 2025. GSK's departure triggered a cash flow sweep and approximately $10.3 million was being held across all accounts as of the June 2025 reporting. Per the January 2025 appraisal obtained by the special servicer, the property was valued at $72.5 million, which remains relatively in line with the April 2024 valuation of $76.7 million, and slightly below the trust exposure of just over $79.0 million. Morningstar DBRS analyzed the loan with a liquidation scenario based on a 20% haircut to the January 2025 value, inclusive of the outstanding advances and expected servicer expenses; the resulting loan loss severity was approaching 40% or approximately $29.0 million.
The second-largest loan in special servicing, 1000 Wilshire, is secured by a 477,774 square foot Class A office building in Los Angeles. The loan transferred to the special servicer in March 2025 due to the borrower's inability to pay off the loan at its March 2025 maturity date. Morningstar DBRS previously noted the subject has experienced occupancy declines over the last several years and was most recently 66.9% occupied as of December 2024, as compared to the December 2023 figure of 74.5%. Over the next 12 months, there is an approximate rollover risk of 24% of the property's net rentable area (NRA), concentrated primarily with the largest tenant, Wedbush Securities (Wedbush; 21% of the NRA, lease expiry in December 2025). An October 2024 article from the Los Angeles Times indicated Wedbush will vacate at lease expiry. According to the most recent financials, the subject reported a YE2024 DSCR of 3.57 times (x) and net cash flow (NCF) of $8.0 million; the high coverage is down from the issuer's underwritten DSCR of 4.55x and cash flows are expected to continue to fall given the previous and upcoming vacancy spikes. According to a Reis report from Q1 2025, Los Angeles' downtown submarket reported a vacancy rate of 19.0%, up from the Q1 2024 figure of 17.1%. At the last review, Morningstar DBRS removed its shadow rating on the loan due to its sustained occupancy and cash flow declines relative to issuance expectations, an approach that has been further supported by the more recent maturity default. For this review, Morningstar DBRS analyzed this loan with an elevated POD and stressed LTV, which resulted in an expected loss (EL) approximately triple the weighted-average (WA) pool EL.
Two loans, Aliso Creek Apartments (Prospectus ID#3, 8.0% of the pool balance) and Marina Heights State Farm (Prospectus ID#11, 3.5% of the pool balance), were shadow-rated investment grade by Morningstar DBRS at issuance. With this review, Morningstar DBRS confirms that the performance of these two loans remains consistent with investment-grade loan characteristics.
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 (May 16, 2025): https://dbrs.morningstar.com/research/454196
Classes X-A, X-B, and X-D 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 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.
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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.
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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 (April 9, 2025)/North American CMBS Insight Model v 1.3.0.0: https://dbrs.morningstar.com/research/451739
-- 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
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024): https://dbrs.morningstar.com/research/438283
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.
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