DBRS Morningstar Confirms Ratings and Maintains Negative Trends on All Classes of GS Mortgage Securities Corporation Trust 2018-LUAU

DBRS Morningstar, Inc. (DBRS Morningstar) confirmed all ratings of the Commercial Mortgage Pass-Through Certificates, Series 2018-LUAU (the Certificates) issued by GS Mortgage Securities Corporation Trust 2018-LUAU as follows:

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

All trends remain Negative because the underlying collateral continues to face performance challenges as it begins to rebound after the relaxation of travel restrictions related to the Coronavirus Disease (COVID-19) global pandemic.

The collateral for the Certificates is a $215.0 million mortgage loan on the 466-key Ritz-Carlton Kapalua resort hotel on the island of Maui, Hawaii. The hotel reported a healthy pre-pandemic cash flow in 2019 of $18.7 million, or 22.4% above the issuance level, with a reported occupancy rate of 86%. The impact of the pandemic resulted in a negative cash flow in 2020 and an occupancy level of 40%. The loan is currently in a cash trap period due to a failed debt yield test. The property was closed in early 2020 due to the global health crisis and reopened in mid-November, although full unrestricted travel to the state was not allowed until July 2021. While reports state that Hawaii is set to surpass tourism levels from 2019, new restrictions resulting from the Delta variant will set caps on both indoor and outdoor gatherings and could slow recovery in the hospitality industry. However, the hotel was already showing some signs towards a positive recovery as an April 2021 STR reported year-to-date penetration rates of 92.3% for occupancy, while far outpacing its competitive set with penetration rates of 136.3% for ADR, and 125.9% for RevPAR.

The hotel was constructed in 1976 and opened as a Ritz-Carlton in 1992 on the 49-acre site that features a three-tiered swimming pool, multiple whirlpools, a fitness facility and 17,500-square-foot (sf) spa, six food and beverage (F&B) outlets, retail space, tennis courts, and 229,000 sf of multipurpose space, including indoor meeting space and an outdoor ballroom. The hotel has access to two championship golf courses that are not part of the collateral. The hotel features 300 hotel keys and 107 residential condominium suites that total 166 keys. Of the 466 keys, 68 are owned by third parties that rent their units on the Ritz-Carlton hotel website. The unit owners pay all expenses and share revenue in a 50/50 split with the hotel. In addition, the hotel owns the remaining 98 condominium units, whose income is included to support the loan. Total collateral includes the 398 keys and the revenue sharing from other units.

The loan is a floating-rate, interest-only loan which exercised its first extension option in 2020, moving the maturity date to November 2021. The loan has four, one-year extension options remaining and the fully extended maturity is in November 2025. Interest is set at Libor plus 275 basis points (bps), and the spread is subject to an increase of 25 bps upon the fourth extension. The borrower purchased a Libor interest rate cap with a strike price of 3.5%. The Ritz-Carlton, Kapalua site is owned fee simple, which is highly unusual for any site on the islands.

The sponsor is Blackstone Group Inc., one of the largest private equity real estate investment managers in the world. The guarantor of the recourse carveouts is Blackstone Real Estate Partners VIII-NQ L.P. The guarantor’s liability is capped at 15% of the loan’s outstanding principal balance. Ritz-Carlton Hotel Company, LLC manages the hotel under a management agreement in which the fully extended term expires in 2071.

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.

Classes X-CP and X-NCP are interest-only (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.

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

The principal methodology is 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.

The rated entity or its related entities did 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.

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.

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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