DBRS Morningstar Confirms All Ratings on GS Mortgage Securities Trust 2017-GS5

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-GS5 issued by GS Mortgage Securities Trust 2017-GS5 as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class X-C at A (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The rating confirmations and Stable trends reflect the overall stability of the transaction. As of the October 2021 remittance, 30 of the original 32 loans remained in the pool, with an aggregate principal balance of $995.4 million, representing a collateral reduction of 6.3% since issuance. The pool is primarily concentrated by loans secured by office properties, representing nearly 40% of the pool, followed by concentrations in retail, mixed-use, and industrial properties, each around 20% of the pool. There are currently no defeased loans in the pool. According to the October 2021 reporting, there is one loan in special servicing, representing 2.8% of the pool, and seven loans on the servicer’s watchlist, representing 37.4% of the pool.

The loan in special servicing, 20 West 37th Street (Prospectus ID#16, 2.8% of the pool), is secured by a 77,100-square-foot (sf) mixed-use property in New York. The loan transferred to special servicing in August 2020 for monetary default, but was brought current in April 2021. The special servicer is dual-tracking a foreclosure action while continuing to discuss the resolution of outstanding code violations and a potential workout solution. Property occupancy was reported at 56.8% per the June 2021 rent roll, a decline from 68.0% in December 2020 and 94.0% in December 2019. The largest tenants to vacate since the outbreak of the Coronavirus Disease (COVID-19) pandemic include Rouge Jardin Jewelry (8.4% of net rentable area (NRA)) and NedGraphics (8.4% of NRA). According to the September 2021 rent roll, occupancy rebounded to 66.3% with a recently signed lease with Gorillas (6.5% of NRA; expiring July 2031). As a result of the decline in rental revenue, cash flow has fallen significantly, reporting a debt service coverage ratio of 0.34 times as of Q2 2021. While an updated appraisal would likely yield a sizable reduction in property value (two comparable commercial mortgage-backed securities (CMBS) loans within a one-mile radius have reported value declines in excess of 35% over their respective issuance figures), the subject loan did have a low going-in loan-to-value ratio of 50.9%, providing some cushion against any value declines.

The largest loan in special servicing at the last review, Simon Premium Outlets (Prospectus ID#12, 3.2% of the pool), is secured by two retail centers, the Queenstown Premium Outlets (63.7% of the allocated loan balance (ALB)) in Queenstown, Maryland, and Pismo Beach Premium Outlets (36.3% of the ALB) in Pismo Beach, California. The loan initially transferred to special servicing in July 2020 for payment default; however, the loan was returned to the master servicer in June 2021 as a corrected loan and remained current as of the October 2021 remittance. The loan is sponsored by Simon Property Group, Inc., which changed classifications on both properties from noncore to core assets since last year.

Property performance for both malls has been generally stable since issuance, as the most recent reported normalized cash flow showed an increase to $8.7 million from the YE2020 net cash flow of $6.7 million, though it is still below the issuance value of $12.7 million. As of June 2021, portfolio occupancy was reported at 77.3%, down from 81.0% at October 2020 and 93.0% at issuance. The largest tenants at the properties include Vanity Fair (5.0% of total NRA; expiring May 2022), Nike Factory Store (5.0% of NRA; expiring February 2022 and April 2023), and Polo Ralph Lauren (5.0% of NRA; expiring January 2026 and July 2026).

The largest watchlisted loan, 350 Park Avenue (Prospectus ID#1, 10.1% of the pool), is secured by a 585,357-sf office property in New York’s Plaza District in Manhattan. The $400.0 million whole loan is divided between two other CMBS transactions, with 44.0% contributed to VNDO Trust 2016-350P ($233.3 million) and 23.0% contributed to JPMDB Commercial Mortgage Securities Trust 2017-C5 ($66.7 million). This loan has been on the watchlist since December 2019 because of lockbox activation and the partial release of the largest tenant, Ziff Brothers Investments, LLC (Ziff; 50.3% of NRA). At issuance, Ziff sublet about half its space, and while a number of former subtenants signed direct leases upon Ziff’s departure, property occupancy fell to 66% as of December 2020; however, per the June 2021 rent roll, occupancy had improved to 73.7%. Per Reis, the Plaza submarket reported vacancy and average rental rates of 11.2% and $102.19 per sf, respectively. Some of the subtenants that signed direct leases include Citadel Securities (20.5% of NRA; expiring December 2023) and Square Mile Capital (3.8% of NRA; expiring in 2024). Other recent signings include Eldridge Business Services (3.2% of NRA; expiring April 2022) and Citco Gateway New York LLC (3.2% of NRA; expiring March 2022). Subtenant Raymond James & Associates’ (7.0% of NRA) lease expired in July 2021.

The loan was structured with a cash sweep (subject to a $25 million cap) to be triggered 18 months prior to Ziff’s lease expiry in April 2021, which partially mitigated the rollover risks. In lieu of a re-leasing reserve, the sponsor was allowed to post a $25 million guaranty as contemplated in the loan documents. The lockbox was deactivated as a result of this guaranty being posted. According to several news articles, Vornado Realty Trust, the loan’s sponsor, is contemplating redeveloping the subject site by building a 1,500-foot tower once all existing leases expire, which would require the existing building on Park Avenue and the neighbouring 23-story tower owned by Rudin Management to be demolished.

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-A, X-B, X-C, and X-D 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 the following loans in the transaction:

-- Prospectus ID#1 – 350 Park Avenue (10.1% of the pool)
-- Prospectus ID#12 – Simon Premium Outlets (3.2% of the pool)
-- Prospectus ID#16 – 20 West 37th Street (2.8% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes issuer and servicer 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 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/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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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