Morningstar DBRS Downgrades Credit Ratings on Four Classes of GS Mortgage Securities Corporation Trust 2019-GC40, Changes Trends on Four Classes to Negative From Stable

DBRS Limited (Morningstar DBRS) downgraded credit ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2019-GC40 issued by GS Mortgage Securities Corporation Trust 2019-GC40 as follows:

-- Class E to CCC (sf) from B (low) (sf)
-- Class F to C (sf) from CCC (sf)
-- Class X-D to CCC (sf) from B (sf)
-- Class X-F to C (sf) from CCC (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AA (high) (sf)
-- Class B at A (low) (sf)
-- Class C at BBB (low) (sf)
-- Class X-B at BBB (sf)
-- Class D at BB (low) (sf)
-- Class G-RR at C (sf)

The trends on Classes B, X-B, C, and D were changed to Negative from Stable. All remaining trends are Stable, with the exception of Classes E, F, G-RR, X-D, and X-F, which have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating downgrades on Classes E and F reflect Morningstar DBRS' loss projections for the pool, stemming from liquidation scenarios modelled for two loans, 250 Livingston loan (Prospectus ID#2, 9.9% of the current pool balance) and 57 East 11th Street (Prospectus ID#15, 2.7% of the current pool balance), resulting in a cumulative projected loss amount of $41.6 million. The 250 Livingston loan is the largest loan in the trust and is being monitored on the servicer's watchlist due to the largest tenant terminating its lease well before the scheduled lease expiration date. The sole specially serviced loan, 57 East 11th Street, is collateralized by an office property with ground-floor retail within the Greenwich Village submarket of New York and was fully leased to WeWork Inc. on a lease through October 2034; however, the tenant filed bankruptcy and rejected the lease at the subject in November 2023. The fully vacant property was reappraised 78.0% below its issuance valuation and is scheduled for a foreclosure sale in September 2025. The aggregate losses for those loans would fully erode the Class H-RR and Class G-RR certificates and partially erode the Class F certificate, significantly reducing the credit enhancement on the junior bonds, the primary consideration in the credit rating downgrades on Classes E and F.

The Negative trends on Classes B, C, D, and X-B reflect the possibility of further value deterioration for the 250 Livingston and 57 East 11th Street loans, as well as Morningstar DBRS' concerns with a handful of loans exhibiting actual or expected declines in occupancy and net cash flow (NCF), primarily related to the transaction's large concentration of loans secured by office collateral and mixed-use collateral with a significant office component, which collectively represent 59.8% of the pool. Most notably, the following office/mixed-use loans have demonstrated consistent performance declines since issuance and have upcoming tenant rollover risk: Waterfront Plaza (Prospectus ID#3, 8.5% of the current pool balance), 101 California Street - Trust (Prospectus ID#4, 9.6% of the current pool balance), 59 Maiden Lane (Prospectus ID#6, 6.6% of the current pool balance), and Nitya Tower (Prospectus ID#12, 4.0% of the current pool balance). Morningstar DBRS notes that should the concerns with the aforementioned loans not resolve in the near to medium term, the Negative trends signal the likelihood of further credit rating downgrades to those identified Classes.

The credit rating confirmations reflect the otherwise stable performance of the remainder of the transaction, as exhibited by the pool's weighted average (WA) debt service coverage ratio (DSCR) of approximately 2.5 times (x) and a WA debt yield of 12.3% based on the most recent year-end financials. As of the July 2025 remittance, 31 of the original 35 loans remain in the trust, with an aggregate balance of $754.4 million, representing a collateral reduction of 17.5% since issuance. There are 11 loans on the servicer's watchlist that represent 40.3% of the pool, including the largest loan in the pool. The loans on the watchlist are primarily being monitored for performance concerns related to occupancy and/or DSCR declines.

As noted earlier, the primary driver of Morningstar DBRS' loss projections is 250 Livingston Street, a watchlisted loan that is secured by a 370,305-square-foot (sf), mixed-use commercial and residential building in Downtown Brooklyn. The subject note is pari passu with BMARK 2018-B12, which is also rated by Morningstar DBRS. The New York City Human Resources Administration occupies the entire office portion of the property (92.0% of the property's net rentable area on a lease through August 2030. However, the tenant has exercised its termination option and plans to vacate the building in August 2025. As a result, a cash flow sweep was initiated, and the funds will be used to re-lease the space. Morningstar DBRS expects the re-leasing efforts will likely be challenging given the soft office submarket evidenced by CBRE reporting a Q2 2025 vacancy rate of 17.9% with asking rents of $54.06 per sf (psf) for downtown Brooklyn. An updated appraisal has not yet been ordered as the loan continues to perform; however, Morningstar DBRS believes the property value has deteriorated significantly given the dated vintage, expectation that the office space will soon be going dark, and the challenged office landscape. Morningstar DBRS derived a dark value based on the market rental rate, tenant improvement costs of $60 psf for new leases and $30 psf for renewal leases, a stabilization period of two years, and a 9.0% stressed capitalization rate, which is on the higher end of the range used by Morningstar DBRS for office properties. The resulting dark value was approximately $60.0 million. Morningstar DBRS liquidated the loan from the trust based on a 60% haircut to the issuance value, resulting in an implied loss of $25.0 million, a loss severity in excess of 30.0%.

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 (May 16, 2025): https://dbrs.morningstar.com/research/454196

Classes X-A, X-B, X-D, and X-F are 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 assigned to the Class A-S Certificate materially deviates from the credit rating implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit rating would consider a three-notch or more deviation from the credit rating stress implied by the predictive model to be a significant factor in evaluating the credit rating. The rationale for the material deviation is uncertain loan-level event risk. The analysis for this review included stressed scenarios for a number of loans of concern, which resulted in downward pressure from the middle to the bottom of the capital stack. Morningstar DBRS believes the increased risks are most concentrated in the lower-rated classes, which were further downgraded with this review. As such, the resulting credit rating downgrades reflect the longer-term outlook for those affected classes. Should there be unforeseen circumstances that further increase the risks for the underlying loans in question, Morningstar DBRS notes that it could further downgrade the credit ratings, as suggested by the Negative trends.

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 17g-7 disclosure report and/or the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

As applicable, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

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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 (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.