Morningstar DBRS Downgrades Credit Ratings on Two Classes of A10 Single Asset Commercial Mortgage 2023-GTWY, Places All Classes Under Review With Negative Implications
CMBSDBRS Limited (Morningstar DBRS) downgraded its credit ratings on two classes of the Commercial Mortgage Pass-Through Certificates, Series 2023-GTWY (the Certificates) issued by A10 Single Asset Commercial Mortgage 2023-GTWY (A10 SACM 2023-GTWY):
-- Class E to B (low) (sf) from BB (low) (sf)
-- Class F to CCC (sf) from B (low) (sf)
In addition, Morningstar DBRS confirmed its credit ratings on the remaining classes as follows:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
Morningstar DBRS also placed all classes Under Review with Negative Implications and removed the existing trends on the credit ratings as credit ratings placed under review do not carry trends.
The underlying loan for this transaction is secured by a Class A office property in Miami's Wynwood neighborhood. In July 2024, Morningstar DBRS assigned Negative trends to Classes D, E, and F to reflect concerns about the financial struggles of the borrower, who defaulted on the debt payments and subsequently filed for bankruptcy, as well as the potential for value deterioration for the collateral property, following delays in the borrower's business plan. With that review, Morningstar DBRS considered a conservative scenario wherein a haircut was applied to the Morningstar DBRS stabilized value at issuance of $92.2 million, concluding that even in a stressed-value scenario, the senior bonds remained protected from losses; however, the junior bonds were deemed to be potentially exposed to realized losses given the extended timeline and projected fees that would be incurred as part of the workout. For further information on that credit rating action, please see the press release dated July 17, 2024, on the Morningstar DBRS website.
The credit rating downgrades for Classes E and F reflect Morningstar DBRS' increased loss projections, following an updated appraisal from October 2024, which provided as-is and stabilized values of $89.6 million and $105.9 million, respectively, representing substantial declines of approximately 45.0% from the issuance as-is and stabilized appraised values of $162.6 million and $193.2 million, respectively. Despite the collateral property's recent construction and desirable location, the overall challenges in the office landscape, softening submarket conditions, and the borrower's liquidity issues have significantly affected stabilization efforts, with occupancy most recently reported below the in-place figure of 66.1% at issuance. Morningstar DBRS analyzed a conservative liquidation scenario based on a haircut to the updated as-is appraised value. The resulting loss severity on the outstanding principal balance of the A note as of the June 2025 remittance was over 30.0%, suggesting realized losses would approach Class E, supporting the credit rating downgrades.
The underlying loan transferred to special servicing in July 2024. The B-note holder has kept both senior and junior debt payments current to date, with the servicer advising that an assumption of the A-note debt by the B-note holder has been under consideration as part of the workout strategy. However, litigation is ongoing and while a bankruptcy sale is expected to close in July 2025, the borrower could file further motions objecting to the sale, which may cause further delays. As a result, Morningstar DBRS has elected to place all rated classes Under Review with Negative Implications until more information can be gathered regarding the resolution of the outstanding defaults and ultimate workout strategy.
The transaction is secured by the borrower's fee simple interest in The Gateway at Wynwood (Gateway), a 219,532 square foot (sf) office building, and an adjacent 5,348 sf retail building (2830 N Miami) in Miami's Wynwood neighborhood. Gateway was developed by the sponsor, R&B Realty, and delivered in December 2021 while the 2830 N Miami building was built in 1936 and acquired by the sponsor in 2015. The subject floating-rate loan pays interest only (IO) and is structured with a three-year initial term and two one-year extension options, which can be exercised based on an approval of the bondholders with no performance thresholds within the loan documents.
Of the $92.0 million A note, $80.5 million was initially contributed to the trust; the remaining $11.5 million represents future funding for accretive leasing. According to the servicer, $11.2 million of future funding commitments remains available for leasing once the loan is cured.
As of the December 2024 rent roll, the property was 64.0% occupied with an average rental rate of $65.00 per square foot (psf), below the issuance figures of 66.1% and $66.18 psf, respectively. Since issuance, Thoma Bravo (9.3% of the net rentable area (NRA)) vacated in August 2024, with minimal rollover during the remainder of the loan term. Two tenants signed new leases, Central Rock Gym (4.6% of the NRA, lease expiring January 2025) and Simon Miami (1.8% of the NRA, lease expiring December 2026). In addition, Spearmint Energy (3.5% of the NRA) expanded to nearly twice its footprint, signing an extension through February 2030. Base rental rates for new leases and extensions have ranged from $65.00 psf to $67.00 psf.
According to Reis, comparable Class A office properties within a two-mile radius of the subject property reported average asking rental rates of $61.56 psf and a vacancy of 27.8%. At issuance, Morningstar DBRS derived a stabilized net operating income (NOI) of $8.6 million, which assumed a vacancy rate of 15.0%, giving credit to the $14.8 million of upfront leasing reserves designated and available for speculative leasing. The low in-place occupancy rate has kept cash flow well below Morningstar DBRS' issuance expectations, with the servicer reporting net operating income (NOI) of $5.6 million as of YE2024.
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.
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.
This credit rating is Under Review with Negative Implications designation. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.
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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 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
-- 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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025): https://dbrs.morningstar.com/research/450750
A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at (July 17, 2023): 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.