DBRS Morningstar Downgrades One Class of GS Mortgage Securities Trust 2014-GC22, Changes Trends on Two Classes to Negative from Stable

DBRS, Inc. (DBRS Morningstar) downgraded one class of the Commercial Mortgage Pass-Through Certificates, Series 2014-GC22 (the Certificates) issued by GS Mortgage Securities Trust 2014-GC22:

-- Class F to CCC (sf) from B (sf)

DBRS Morningstar also confirmed the remaining classes of the Certificates as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 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 (high) (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class PEZ at A (high) (sf)
-- Class D at BBB (low) (sf)
-- Class X-C at BB (high) (sf)
-- Class E at BB (sf)

Additionally, DBRS Morningstar discontinued and withdrew its rating on Class X-D as the interest-only (IO) class references a CCC (sf) rated bond.

DBRS Morningstar changed the trends on Classes E and X-C to Negative from Stable. All other trends remain Stable.

The rating recommendations reflect the weakening performance of the transaction relative to issuance expectations, which is primarily driven by the performance declines for the EpiCentre loan (Prospectus ID#3; 11.5% of the pool balance). The subject loan is secured by a mixed-use property in downtown Charlotte, North Carolina, and the occupancy rate has drastically declined since issuance. The special servicer is anticipated to foreclose on the property in Spring 2022 and the recent appraised value is down 33.3% since issuance. Based on the most recent value, DBRS Morningstar expects a loss severity in excess of 20%, which is projected to be contained to the unrated Class G certificate, but would erode the credit support for the rated Class F, a primary driver for the downgrade to CCC (sf) with this review.

At issuance, the trust comprised 59 loans secured by 113 commercial properties with a total trust balance of $961.5 million. As of the January 2022 remittance, 51 loans secured by 80 properties remain in the trust with a total trust balance of $733.8 million, representing a collateral reduction of approximately 24%. One loan, Widewater Square (Prospectus ID#41), was liquidated from the trust in December 2021, yielding a $2.6 million loss. The trust is concentrated by loan size as the largest three loans total 40.2% of the trust balance, with the Maine Mall loan (Prospectus ID#1) representing 15.0% of the trust balance. The pool is fairly concentrated by property type as retail and office total 28.1% and 25.4% of the trust balance, respectively. Seven loans, totaling 15.7% of the trust balance, are fully defeased.

Two loans, comprising 13.0% of the trust balance, are in special servicing while an additional 14 loans, representing 28.5% of the trust balance, are on the servicer’s watchlist. The EpiCentre loan is the largest in special servicing and the loan matured in June 2021. A receiver was appointed in July 2021, which later engaged CBRE for property management and leasing. The special servicer reported the collateral’s occupancy rate was 31.1% as of August 2021, down from 89.9% at issuance. The collateral was reappraised in August 2021 for $87.0 million, down from the $130.5 million appraised value at issuance. The mixed-use property appears to have been mismanaged by the sponsor, as the local market has generally reported stable occupancy rates, with moderate disruption since the start of the pandemic. A foreclosure is expected to occur in the near term and DBRS Morningstar expects a moderate loss at disposition.

DBRS Morningstar is also monitoring the Maccabees Center loan (Prospectus ID#12; 2.5% of the pool) for significant occupancy declines at the collateral office property since 2019. This property is located in Southfield, Michigan, and occupancy fell sharply after the two largest tenants, which collectively represented 47.0% of the net rentable area, vacated in 2020. With those departures, occupancy has to approximately 35% as of January 2021, around where it appears to remain as of January 2022. The loan reported a negative net cash flow in 2020 and the borrower appears to be funding operating and debt service shortfalls as well as depositing into the leasing reserve. The sponsor is the original developer of the collateral and has retained ownership for nearly three decades, demonstrating its long-term commitment to the property. Reis data showed demand for the vintage set remains very weak and the borrower was unable to execute any new leases in 2021. The low in-place occupancy rate is a clear indicator of significantly increased risks from issuance and the loan has been added to the DBRS Morningstar Hotlist.

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, and X-C 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 – Maine Mall (15.0% of the pool)
-- Prospectus ID#3 – EpiCentre (11.6% of the pool) – DBRS Morningstar Hotlist Loan
-- Prospectus ID#12 – Maccabees Center (2.5% of the pool) – DBRS Morningstar Hotlist Loan

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 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 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.

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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