DBRS Morningstar Downgrades Three Classes of GS Mortgage Securities Trust 2011-GC5

DBRS, Inc (DBRS Morningstar) downgraded its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2011-GC5 issued by GS Mortgage Securities Trust 2011-GC5 as follows:

-- Class C to C (sf) from A (sf)
-- Class D to C (sf) from BB (sf)
-- Class E to C (sf) from CCC (sf)

In addition, DBRS Morningstar confirmed the following ratings:

-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class F at C (sf)

DBRS Morningstar maintained the Stable trend on Classes A-S and X-A and the Negative trend on Class B. Classes C, D, E, and F have ratings that do not carry a trend. The downgrades and Negative trends reflect the elevated risk profile of the remaining five loans in the pool, all of which have passed their maturity dates and four of which are with the special servicer. With this review, DBRS Morningstar removed the Interest in Arrears designation on Class F.

The largest loan remaining in the pool, 1551 Broadway (Pros ID#2; 37.7% of the remaining pool), continues to be monitored on the servicer’s watchlist after the loan matured in July 2021. The loan, which is backed by a 26,500-sf single-tenant retail building in the Times Square submarket of Manhattan, received a 60-day forbearance to grant additional time for the borrower to secure takeout financing. According to the October 2021 servicer commentary, the master and special servicer are evaluating a letter of intent (LOI) for either a sale or refinance of the property. If the LOI is deemed satisfactory, the forbearance would be extended for an additional 60 days through November 6, 2021. The property is 100% leased to American Eagle Outfitters (AEO) and includes a 25-story LED sign tower. The lease for AEO expires in February 2024 and includes three five-year renewal options. Per a Bloomberg article from January 2020, the AEO space was being marketed for sublease; in addition, AEO has announced plans to close more than 200 stores. However, the tenant remains in operation at the subject property per AEO’s website.

The remaining four loans in the pool are in special servicing. These loans, which are all backed by regional malls, include Park Place Mall (Pros Id#1; 34.3% of the pool), Parkdale Mall & Crossing (Pros Id#5; 14.7% of the pool), Ashland Town Center (Pros Id#9; 7.2% of the pool), and Champlain Center (Pros Id#13; 6.1% of the pool). The malls are located in secondary markets and have been affected by a combination of factors including anchor closures, cash flow declines, and sponsorship issues. As a result, DBRS Morningstar’s loss severities across the four loans range from 49.2% to 62.7%.

DBRS Morningstar’s primary concern about the specially serviced loans is associated with the transaction’s largest loan at issuance, Park Place Mall, which is secured by a 1.1 million-sf regional mall in Tucson, Arizona. At issuance, the mall was anchored by Sears (which vacated in July 2018 and later backfilled the space with Round 1 Bowling & Amusement), Macy’s (which permanently closed in Q2 2020), and Dillard’s, all of which own their improvements and are not part of the collateral. The loan transferred to special servicing in September 2020 because of imminent monetary default resulting from business disruptions stemming from the pandemic; the loan subsequently matured in May 2021. The sponsor, Brookfield Properties, has now indicated that it will no longer support the property with any additional equity. Performance has been trending downward year-over-year as the mall’s most recent financial reporting as of June 2021 reported an occupancy rate of 85%, down from 90% as of YE2020 and 97% as of YE2019. As of the most recent year-end reporting, the YE2020 net cash flow was down 23.5% compared with issuance with a debt service coverage ratio (DSCR) that has fallen to 1.06 times (x). An updated July 2021 appraisal valued the property at $88.0 million, which is about 70% below the issuance value. The as-is value implies a $102.5 million loss to the trust in a liquidation scenario, equating to a 62.7% loss severity.

The second-largest loan in special servicing, Parkdale Mall and Crossing, is secured by a 663,000-sf portion of a 1.3 million-sf regional mall and adjacent 80,000-sf strip center in Beaumont, Texas. The loan transferred to special servicing in February 2021 for imminent default in advance of its March 2021 maturity. Net cash flow in 2020 was down 30.8% compared with issuance and it was barely above breakeven with a DSCR of 1.03x as of YE2020. In addition to the performance concerns, the loan’s sponsor, CBL Properties (CBL), filed for bankruptcy in November 2020. While the company is expected to emerge from bankruptcy in November 2021, CBL’s long-term plans for its Tier 2 properties, which are classified as malls with tenant sales greater than $300 psf but less than $375 psf, remain unclear. According to the servicing commentary, the special servicer is dual-tracking foreclosure while CBL has expressed interest in either a modification or a discounted payoff. An updated July 2021 appraisal valued the property at $41.2. million, which is about 72.3% below the issuance value. The as-is value implies a $41.1 million loss to the trust in a liquidation scenario, which results in a 58.5% loss severity.

The two remaining specially serviced loans in the pool, Ashland Town Center and Champlain Center, both transferred to special servicing for maturity default in 2021. The underlying properties are both located in tertiary markets with exposure to weak sponsorship in Washington Prime Group and Pyramid Management Group, respectively. Ashland Town Center, which is secured by a single-level regional mall in Ashland, Kentucky, has maintained stable performance as the YE2020 net cash flow (NCF) was 12.5% higher than the issuance level while covering with a DSCR of 1.98x. Further, occupancy increased to 99% as of the June 2021 reporting, up from 95% as of YE2020. Despite the relatively strong performance, the mall reported in-line tenant sales of just $255 psf as of the 12 months ended February 28, 2021, which is down from the prior sales figures of $415 psf in 2019. Champlain Center is secured by regional mall in Plattsburgh, New York. The mall’s performance has deteriorated in recent years as occupancy has decreased to its current level of 78% as of June 2021, down from 91% at issuance. The drop in occupancy along with a decrease in base rents has caused the YE2020 NCF to trail issuance by 54.0%, resulting in a below breakeven DSCR of 0.98x. A June 2021 appraisal valued the property at $21.0 million, which reflects a 61% value decline from the issuance appraisal. The as-is value implies a loss of $41.1 million loss, which results in a 49.2% loss severity.

ESG CONSIDERATIONS
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.

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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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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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