DBRS Morningstar Assigns Provisional Ratings to GS Mortgage Securities Corporation Trust 2021-ARDN

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the classes of Commercial Mortgage Pass-Through Certificates, Series 2021-ARDN to be issued by GS Mortgage Securities Corporation Trust 2021-ARDN (GSMS Trust 2021-ARDN) as follows:

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

All trends are Stable. Classes H, HRR, and ELP are not rated by DBRS Morningstar.

Class X is an interest-only (IO) class whose balance is notional.

The GSMS Trust 2021-ARDN transaction is collateralized by the borrower’s fee-simple interest in a portfolio of 140 flex buildings consisting of approximately 5.2 million square feet in 26 business parks (including 25 flex industrial properties and one flex office property). The properties are currently 92.4% leased with locations spanning eight cities including the greater metro areas of Atlanta, Georgia; Charlotte, North Carolina; Columbus, Ohio; Dallas, Texas; Philadelphia, Pennsylvania; San Antonio, Texas; Tampa, Florida; and Indianapolis, Indiana. Overall, the subject markets have solid fundamentals with positive annual growth in rents while absorbing new supply and compressing vacancies. DBRS Morningstar has a favorable view of the flex/warehouse sector despite uncertainties and risks that the Coronavirus Disease (COVID-19) pandemic has created across all commercial real estate asset classes. Rent collections were 99% in the portfolio during the pandemic.

Further enhancing the portfolio’s stability is granularity of the rent roll. There are in excess of 700 tenants in the portfolio with no tenant contributing over 2.4% of base rent. Furthermore, the top 20 tenants are responsible for only approximately 17.4% of the base rent. DBRS Morningstar also notes the stickiness of the tenants, with approximately 20% of the rent roll having tenancy for over 10 years. The portfolio is spread across eight markets spanning seven U.S. states including Georgia (35.3% of the net operating income (NOI)), North Carolina (8.1% of the NOI), Ohio (11.0% of the NOI), Texas (5.3% of the NOI), Pennsylvania (11.1% of the NOI), Florida (14.1% of the NOI), and Indiana (15.1% of the NOI). The collateral is generally well located, proximate to dense population centers and industrial gateway markets with high demand for industrial space.

The sponsorship is a joint venture between Arden Group and Arcapita Group (Arcapita). Founded in 1989, Arden Group is a vertically integrated real estate company that focuses on hotel, office, and industrial assets. Arden Group’s track record consists of over $6 billion in owned real estate and over $11 billion in assets managed. The portfolio was assembled by Arden Group in five transactions beginning in 2018 and is being recapitalized through a 49% acquisition by Arcapita. The actual ownership percentages at closing will change because of real estate investment trust tax issues whereby Arcapita will true-up to the 49% interest over the next 18 months. It is expected that 56.4% of the portfolio will be transferred by March 2022. Arcapita’s core business relates to Shariah-compliant alternative investments for corporate and individual investors, with an emphasis on real estate and private equity investment. Arcapita’s teams have completed investments in these areas globally, and both areas have portfolio management teams that maintain continuous oversight of each investment. Since 1997, the management team at Arcapita has completed over 80 transactions with a cumulative value exceeding $30 billion.

The loan was structured to comply with Shariah (Islamic) law. Title to the properties is held by an accommodation party, which is the mortgagor and which master leases the properties to Shariah-compliant investors’ entities. The rent payable pursuant to the master lease is intended to cover the debt service payments required under the related mortgage loan, as well as reserve payments and any other sums due under the mortgage loan. By its terms, the master lease is expressly subordinate to the mortgage loan. There is a risk that in a bankruptcy case of the master lessee, the master lease could be recharacterized as a financing lease. If such recharacterization occurred, the master lessee could be deemed to own the fee interest in the related mortgaged property and the master lease itself would be viewed as a loan.

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.

Class X is an IO certificate that references a single rated tranche. 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.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

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

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (March 2, 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/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277