DBRS Morningstar Downgrades One Class of GS Mortgage Securities Trust, 2010-C1

DBRS Limited (DBRS Morningstar) downgraded the rating of one class of the Commercial Mortgage Pass-Through Certificates Series 2010-C1 issued by GS Mortgage Securities Trust, 2010-C1 as follows:

-- Class D to C (sf) from CCC (sf)

In addition, DBRS Morningstar confirmed the ratings on the remaining classes as follows:

-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at A (high) (sf)

Class C carries a Negative trend. All other classes carry a Stable trend, other than Class D, which has been assigned a rating that does not carry trends. Classes A-2, B, and C were removed from Under Review with Negative Implications, where they were placed on December 29, 2020. In addition, DBRS Morningstar removed the Interest in Arrears Designation for Class D.

The downgrade of Class D and Negative trend on Class C reflect the difficult market conditions, limited credit enhancement to the lowest rated class, and negative credit events for some of the remaining loans in the pool, all of which have passed their respective maturity dates and have received extensions. As of the July 2021 remittance, only three loans remain in the pool, with a cumulative balance of $152.6 million, representing a collateral reduction of 80.7% since issuance. While there were no loans in special servicing, two loans were on the servicer’s watchlist, being monitored for a combination of various trigger codes including a low debt service coverage ratio (DSCR), occupancy declines, activation of cash management, and upcoming maturities.

The three remaining loans are all secured by retail properties, including one anchored retail property and two regional malls. Sponsorship for the two regional mall loans is provided by Washington Prime Group Inc. (WPG), a REIT that invests primarily in retail properties. In June 2021, WPG filed for Chapter 11 bankruptcy protection; however, the borrowing entities for each of the trust loans have not been included in any of the WPG bankruptcy filings to date. According to WPG’s Q1 2021 financial disclosures, the REIT considers each of the subject properties “Tier 1” (core) assets, suggesting a longer-term commitment as compared with those categorized in lower tiers.

As of the July 2021 remittance, the largest remaining loan in the pool is 660 Madison Avenue Retail, which represents 48.1% of the current trust balance. The loan is secured by an anchored retail condominium unit on the Upper East Side of Manhattan. The property formerly housed the flagship store for Barney’s, which occupied almost the entirety of the collateral at issuance. Barney’s declared bankruptcy in 2019 and vacated the subject in February 2020. The loan later transferred to the special servicer in June 2020 for imminent monetary default on the July 2020 maturity date. The special servicer approved a loan extension and modification agreement in August 2020 that extended the loan’s maturity date to January 2022, with an option to extend an additional six months subject to terms. The borrower contributed $5.9 million of equity to support operating shortfalls and cover special-servicer fees and expenses.

As of the December 2020 rent roll, the property was 48.6% leased to two tenants, both on short-term leases, and the servicer reported a year-end (YE) 2020 net cash flow (NCF) and DSCR of -$7.4 million and -0.99x respectively, compared with $22.2 million and 2.97x at YE2019. In discussions with the special servicer at the time of the loan modification, the borrower expressed tentative plans to commence a $16.9 million redevelopment of the property to convert the third through ninth floors to office space from its current retail use. While in special servicing, the special servicer reported that the property was reappraised as prospective office space at a value of $320.0 million, a significant increase to the issuance appraised value of $222.0 million; however the appraiser projected the office redevelopment would cost $55.1 million, which was considerably higher than the borrower’s estimate. The loan was returned to the master servicer in December 2020 and as of the July 2021 remittance, was being monitored on the servicer’s watchlist for low DSCR, occurrence of a servicing trigger event, and low occupancy. The sponsor for the loan is the Ashkenazy Acquisition Corporation, a private real estate investment firm, which has a portfolio containing more than 100 buildings throughout the U.S. and Canada valued at $12 billion.

The Mall at Johnson City loan (Prospectus ID#6 – 27.4% of the current trust balance) is secured by a regional mall in Johnson City, Tennessee, approximately 120 miles from Knoxville, owned and operated by WPG. The loan transferred to special servicing in November 2019 for an imminent maturity default on the May 2020 maturity. The loan was also being monitored following the loss of anchor tenant Sears, which vacated its space in January 2020. A loan modification was approved in December 2019, which extended the maturity to May 2023, and included two one-year extension options. Among the terms of the modification, the borrower was required to make a $5.0 million principal curtailment due in May 2020, deposit an additional $10.0 million into various reserves, and comply with the implementation of a cash trap which requires that all excess cash flow be deposited into reserve. The collateral mall was closed between March and May 2020 as a result of the Coronavirus Disease (COVID-19) pandemic and the borrower submitted a coronavirus relief request to the master servicer during that time. A forbearance was granted allowing for the deferral of three monthly debt service payments and escrow deposits between May 2020 and August 2020 that was to be repaid over the subsequent 12 months. As of the March 2021 rent roll, the occupancy rate at the property was 83.7%, a decline from the June 2019 rent roll, when the property was 97.5% occupied, attributable almost entirely to the departure of Sears. Remaining anchors and large tenants include JCPenney, Belk Home Store, Belk for Her, and Dick’s Sporting Goods, with some notably positive leasing activity including new leases signed with HomeGoods to back-fill part of the vacant Sears box, with opening targeted for the fall of 2021. The servicer reported a YE2020 NCF and DSCR of $5.7 million and 1.34x, respectively, down from $6.5 million and 1.52x at YE2019. As of the July 2021 remittance, the servicer was reporting that the loan was current and performing, and it was not on the servicer’s watchlist.

The Grand Central Mall loan (Prospectus ID #7 – 24.2% of the current pool balance), is secured by a regional mall in Vienna, West Virginia, which is located along the Ohio-West Virginia border. Occupancy declines began in 2018 when Toys “R” Us vacated, followed by Sears in January 2019. The loan was transferred to special servicing in April 2020 for an imminent monetary default on the July 2020 maturity. The special servicer approved a loan modification to allow for an initial maturity date extension to July 2021, a three-month forbearance for the June, July, and August 2020 debt service payments and escrows, to be repaid over the subsequent 12 months, and permission to apply leasing and capital improvement reserves toward operating shortfalls. A second maturity extension was recently negotiated in June 2021, pushing the extended maturity date out to July 2023, with two additional one-year extension options. The second extension is expected to be reflected with the August 2021 remittance.

According to the March 2021 rent roll, the property was 94.8% occupied, an increase from the September 2019 occupancy rate of 83.9%. This is largely a result of the sponsor’s efforts to back-fill the former Sears anchor box, which was demolished in March 2019 and redeveloped for new tenants TJMaxx, HomeGoods, and PetSmart, which were each open and operating as of July 2021. As of July 29, 2021, the property’s website also lists Ross Dress for Less as another new tenant expected to “open soon.” The servicer reported a YE2020 NCF and DSCR of $4.3 million and 1.32x, respectively, as compared with $5.3 million and 1.63x for YE2019. The loan was returned to the master servicer in January 2021 and the loan shows delinquent as of the July 2021 remittance, but as previously mentioned, the extended maturity date should be reflected next month, when the loan is expected to return to performing.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 26, 2021), 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 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@dbrsmorningstar.com.

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.

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

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