DBRS Morningstar Assigns Ratings to GS Mortgage Securities Corporation Trust 2017-500K

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2017-500K issued by GS Mortgage Securities Corporation Trust 500-K (the Issuer) as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (high) (sf)
-- Class F at BB (high) (sf)
-- Class G at BB (low) (sf)
-- Class HRR at B (high) (sf)
-- Class X-CP at AA (low) (sf)
-- Class X-NCP at AA (low) (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upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings.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.

The collateral is a first-mortgage loan on a 349,325 square foot life sciences office building in the Kendall Square section of Cambridge, Massachusetts. The property is a 12-story, Class A building constructed in 2003 and initially 100% occupied by Sanofi Genzyme (Sanofi). Sanofi vacated the building when its lease expired in 2018; however, Shire Human Genetic Therapies, Inc. (Shire) executed a lease in 2016, which commenced in 2019 and expires in 2031, and now occupies the entire building. The lease has two five-year renewal options and no termination options. In early 2019, the Takeda Pharmaceutical Company Limited acquired Shire for $62 billion and uses this location as its U.S. headquarters.

The $344.0 million mortgage loan is interest only (IO) and has a fully extended five-year term with a final maturity date in 2022. There is co-terminus $39.0 million subordinate mezzanine debt held outside the trust. The loan is sponsored by Blackstone Real Estate Partners VIII, L.P., which owns a number of properties in the Kendall Square submarket through its BioMed Realty Trust, Inc. division.

In the analysis for these rating actions, the DBRS Morningstar net cash flow (NCF) figure of $25.7 million derived at issuance was accepted and a cap rate of 6.5% was applied, resulting in a DBRS Morningstar Value of $396.1 million, a variance of -20.1% from the appraised value at issuance of $496.0 million. The DBRS Morningstar Value implies a total debt LTV of 94.2% compared with the total debt LTV of 75.2% on the appraised value at issuance.

The DBRS Morningstar NCF was reanalyzed for the subject rating action to confirm its consistency with the “DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria.” The NCF figure applied as part of the analysis represents a -17.5% variance from the Issuer’s NCF, primarily driven by vacancy and rent steps. As of YE2019, the servicer reported a NCF figure of $27.7 million, a 7.0% variance from the DBRS Morningstar NCF figure, primarily due to the lack of vacancy.

DBRS Morningstar applied a cap rate at the lower end of the DBRS Morningstar Cap Rate Ranges for office properties, reflecting the strong location and property quality. In addition, the 6.5% cap rate DBRS Morningstar applied is above the implied cap rate of 6.3% based on the Issuer’s underwritten NCF and appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 7.0% to account for cash flow volatility, property quality, and market fundamentals.

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.

Classes X-CP and X-NCP 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 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.

DBRS Morningstar notes that the above press release was amended on May 12, 2020, to include adjustments made to the NCF resulting in a reduction of the NCF to $25.7 million from $25.8 million. Thusly, the DBRS Morningstar Value was reduced to $396.1 million from $397.5 million, a variance of -20.1% from the appraised value at issuance of $496.0 million. The changes to the DBRS Morningstar Value had no ultimate impact on the ratings or trends previously issued on April 27, 2020.

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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