DBRS Morningstar Assigns Ratings to GS Mortgage Securities Corporation Trust 2020-UPTN

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2020-UPTN issued by GS Mortgage Securities Corporation Trust 2020-UPTN (the Issuer) as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class X-A at A (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class HRR at B (sf)

All trends are Stable.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about May 11, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

DBRS Morningstar has requested an update from the servicer regarding any potential request for relief, but has not received a response to date.

DBRS Morningstar believes that The Union mixed-use complex is a well-located, high-quality property that is well positioned to compete in the Uptown and greater Dallas market. The property is an attractive premier alternative that serves the expanding local office market whose location is easily assessible from the affluent northern suburbs using the major highway and interstate system. In addition, numerous upscale apartments, some within the complex and residential condominium developments, provide a ready source of employees for the office tenants. The complex is a well-planned development that provides desirable options for young and more seasoned individuals and families seeking a live, work, and play environment. Technology, finance, real estate, and consulting services are major office users at the site and in the submarket. The lease rollover during the loan term is minimal with 1.4% of square footage rolling before the end of the loan term.

As of the January 2020 rent roll, the property was 95.2% leased to 26 tenants. The three largest tenants—Salesforce.com, Inc. (Salesforce); Akin Gump Strauss Hauer & Feld LLP; and Weaver and Tidwell LLP—represent approximately 49.3% of the property’s base rent and no other tenant represents more than 11.5% of base rent. The property’s office component is 94.2% leased and has a weighted-average (WA) lease term of 9.7 years. The retail portion of the property is 100.0% leased with a WA lease term of 16.6 years.

DBRS Morningstar is concerned that the lease for the largest tenant, Salesforce, expires two months after loan maturity, which could affect the prospects for refinancing; however, Salesforce made a large investment in its space and consolidated its various offices throughout Dallas into the property, which mitigates this risk. There is also a springing cash trap, which will be triggered if Salesforce does not provide notice of its intent to renew at least 12 months prior to lease expiry.

In the analysis for these rating actions, the DBRS Morningstar net cash flow (NCF) figure of $17.1 million derived at issuance was accepted and a cap rate of 7.0% was applied, resulting in a DBRS Morningstar Value of $243.9 million, a variance of 34.6% from the appraised value at issuance of $373.0 million. The DBRS Morningstar Value implies an LTV of 91.0% compared with the LTV of 59.5% on the appraised value at issuance.

The NCF figure applied as part of the analysis represents a -14.6% variance from the Issuer’s NCF, primarily driven by management fee, vacancy, and rent steps.

DBRS Morningstar applied a cap rate at the middle of the DBRS Morningstar Cap Rate Ranges for office properties, reflecting the property’s excellent location, solid tenant base, and somewhat weak market. In addition, the 7.0% cap rate DBRS Morningstar applied is substantially above the implied cap rate of 5.4% based on the Issuer’s concluded NCF and appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 5.0% to account for cash flow volatility, property quality, and market fundamentals. DBRS Morningstar also made other negative adjustments totaling -1.0% to account for the high going-in LTV.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Class X-A is an interest-only (IO) certificate that references 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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