DBRS Morningstar Confirms All Ratings on GS Mortgage Securities Corporation Trust 2019-GC40, Removes Under Review with Developing Implications Status

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2019-GC40 issued by GS Mortgage Securities Corporation Trust 2019-GC40 (the Issuer):

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

All trends are Stable. The ratings have been removed from Under Review with Developing Implications, where they were placed on December 10, 2019.

The Class DB-X balance is notional.

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.

Prior to the finalization of the NA SASB Methodology, the DBRS Morningstar ratings for the subject transaction and all other DBRS Morningstar-rated transactions subject to the methodology in question were previously placed Under Review with Developing Implications, as the proposed methodology changes were material.

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 Class DB-A, DB-B, DB-C, DB-D, DB-E, DB-F, and DB-X loan-specific certificates (the Diamondback Loan-Specific Certificates) are collateralized by subordinate mortgage components associated with the Diamondback Industrial Portfolio 1 and Diamondback Industrial Portfolio 2 loans. Each loan is evidenced by multiple senior notes and one junior note. Payments allocated to (1) certain senior note(s) evidencing the Diamondback Industrial Portfolio 1 loan and (2) all senior notes evidencing the Diamondback Industrial Portfolio 2 loan are payable to the pooled certificates. Payments allocated to the Diamondback B Notes are payable to the Diamondback Loan-Specific Certificates. Accordingly, the Diamondback Loan-Specific Certificates will be exposed to risks related to the Diamondback B Notes and will not be supported by payments allocated to the senior notes or any other loans deposited into the trust. The Diamondback Industrial Portfolio 1 and Diamondback Industrial Portfolio 2 senior notes are generally senior to the related Diamondback B Notes and losses on the Diamondback Industrial Portfolio 1 and Diamondback Industrial Portfolio 2 loans are first borne by the related Diamondback B Notes and, therefore, the Diamondback Loan-Specific Certificates. Following an event of default, the related Diamondback B Notes are not entitled to principal allocations until the senior notes for such loans have been paid in full and, therefore, the Diamondback Loan-Specific Certificates may experience shortfalls.

The DBRS Morningstar net cash flow (NCF) derived at issuance was reanalyzed for the subject rating action to confirm its consistency with the “DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria.” The resulting aggregate NCF figure was $21.9 million and a cap rate of 7.75% was applied, resulting in a DBRS Morningstar Value of $283.1 million, a variance of -33.9% from the aggregate appraised value at issuance of $428.2 million. The DBRS Morningstar Value implies an LTV of 95.1% on the aggregate whole loan compared with the LTV of 62.9% on the appraised value at issuance. The NCF figure applied as part of the analysis represents a -6.6% variance from the Issuer’s aggregate NCF, primarily driven by rent-step credit as well as tenant improvement and leasing costs.

The cap rate DBRS Morningstar applied is in the middle of the DBRS Morningstar Cap Rate Ranges for industrial properties, reflecting the location, quality, and market positions of the properties in each portfolio. In addition, the 7.75% cap rate DBRS Morningstar applied is above the implied cap rate of 5.48% based on the Issuer’s aggregate underwritten NCF and aggregate appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis totaling 3.50% to account for cash flow volatility and property quality.

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 DB-X 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 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 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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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