DBRS Morningstar Confirms Ratings on All Classes of GS Mortgage Securities Trust 2011-GC5

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2011-GC5 issued by GS Mortgage Securities Trust 2011-GC5 as follows:

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

The trends on Classes A-S, X-A, and B are Stable, while Classes C, D, E, and F have ratings that generally do not carry trends. The rating confirmations reflect minimal changes to DBRS Morningstar’s expectations for the pool since the previous rating action. Five loans remain outstanding. Since the last rating action, one loan (14.0% of the pool) has returned to the master servicer from special servicing and another loan (7.3% of the pool) is pending return. The barbelled rating profile for the transaction is largely the result of the concentration of loans secured by regional malls in secondary and tertiary markets that have shown performance declines from issuance.

For this review, DBRS Morningstar utilized a recoverability analysis given the increasing concentration in the pool. The results continue to suggest that Classes C, D, E, and F are likely to experience losses relative to DBRS Morningstar’s concluded value for the remaining assets.

As of the January 2023 remittance, there are five loans remaining in the pool, four (86.0% of the pool balance) of which are in special servicing, with one loan pending return to the master servicer. Since issuance, the pool’s collateral has reduced by approximately 74.2%. The transaction has been relatively insulated from losses to date. The unrated Class G certificate’s principal balance has declined by approximately 13.1% because of realized losses, with $43.6 million of unpaid principal remaining.

The largest loan, 1551 Broadway (Prospectus ID#2, 37.3% of the pool), is secured by a retail property in Times Square in midtown Manhattan, which is one of the world’s most visited tourist attractions. The property includes a 25-story LED sign and is fully occupied by sole tenant American Eagle Outfitters, with a scheduled lease expiration in February 2024. The loan transferred to special servicing in November 2021 for maturity default and is currently flagged as a nonperforming matured balloon loan. According to the latest servicer update, the borrower is currently making efforts to secure financing and/or sell the property to pay off the senior and mezzanine loans, the former of which is in the trust. The current workout strategy is listed as full payoff per the latest reporting. The property was most recently appraised in January 2022 at a value of $442.0 million, representing a 22.8% increase from the issuance value of $360.0 million, citing the growing prospects for the midtown Manhattan area as the economy rebounds to pre-pandemic levels in the next few years. The resulting loan-to-value ratio (LTV) is less than 40.0%, suggesting that even in the event of an adverse liquidation scenario, a loss to the trust loan is unlikely. In addition to the low LTV, DBRS Morningstar believes the loan’s credit metrics, including a strong debt yield and debt service coverage ratio (DSCR), lend to favorable refinance prospects.

All of the remaining assets (63.0% of the pool) are secured by regional malls. The second-largest loan, Park Place Mall (Prospectus ID#1, 35.1% of the pool), is secured by a portion of a regional mall in Tucson. The loan transferred to special servicing in September 2020 and is a nonperforming matured balloon loan. The loan sponsor, Brookfield Properties, previously advised the servicer that no further capital will be contributed to support the property or loan; however, according to the December 2022 reporting, the servicer is working with the borrower on a revised loan modification proposal. Per the September 2022 rent roll, the property was 81.1% occupied, in line with the YE2021 figure of 79.9%. The loan reported a DSCR of 1.05 times (x) as of June 2022, also in line with the YE2021 figure. A comparable mall is the Tucson Mall, which is secured in the DBRS Morningstar-rated BB-UBS Trust 2012-TFT transaction, and it’s approximately 11 miles from the subject and also sponsored by Brookfield Properties. While both malls have struggled throughout the pandemic, the Tucson Mall is the superior asset based on performance, tenancy, and sponsor support. A June 2022 appraisal valued Park Place Mall at $86.0 million, a further decline from the July 2021 value of $88.0 million and a significant drop from the issuance value of $313.0 million. Given the outstanding loan amount, DBRS Morningstar believes a loss above 70.0% is likely.

The third-largest loan, Parkdale Mall & Crossing (Prospectus ID#5, 14.0% of the pool), is secured by a regional mall and adjacent strip mall in Beaumont, Texas. The loan has been in special servicing since February 2021. The loan sponsor, CBL Properties, filed for bankruptcy in November 2020 and emerged from bankruptcy in November 2021. The sponsor requested and received a maturity extension to March 2026, which was finalized in a modification dated September 2022. The loan returned to the master servicer in October 2022. According to the September 2022 rent roll, the property was 93.3% occupied, and the loan reported a DSCR of 0.94x, with performance generally flat year over year. Despite the sponsor’s commitment to the property, and the loan’s return to the master servicer, the February 2022 appraised value of $42.1 million is well below the current outstanding loan balance of $63.1 million, and considering the sustained performance declines since issuance, DBRS Morningstar believes there is continued significant term and refinance risk associated with this loan.

The Ashland Town Center loan (Prospectus ID#9, 7.3% of the pool) is secured by a regional mall in Ashland, Kentucky, and was transferred to special serving in July 2021 for imminent default having failed to repay ahead of its original maturity. The sponsor, Washington Prime Group, secured a loan modification, which was executed in November 2022, extending the loan maturity to July 2023 with two additional one-year extension options. The loan status is current and it is pending return to the master servicer. The property was reappraised in September 2022, at a value of $42.9 million; although this is a significant drop from the issuance value, it represents a slight increase from the September 2021 figure. Per the year to date (YTD) ended June 2022 financials, the property reported an occupancy rate of 99.5%, with a DSCR of 2.37x. Given these factors, DBRS Morningstar believes the near-term performance outlook is stable, but this does not rule out the likelihood for potential losses should the borrower fail to pay off the loan at the extended maturity date.

The Champlain Centre loan (Prospectus ID#13, 6.2% of the pool) is secured by a regional mall in Plattsburgh, New York. It was transferred to special serving in April 2021 for imminent default and is flagged as a nonperforming matured balloon loan. According to the latest servicer update, the loan modification discussions have reached an impasse regarding the borrower’s issue with the recourse guaranty. As such, the special servicer will continue to advance foreclosure proceedings and dual track workout discussions. The DSCR for the YTD period ended September 2022 was 0.91x. The property was reappraised in May 2022, at a value of $17.6 million, a sharp decline from the issuance value of $61.0 million. The resulting LTV exceeds 150%, and DBRS Morningstar believes a loss above 60.0% is likely.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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.

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

The principal methodology is North American CMBS Surveillance Methodology (October 3, 2022), 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 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. 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.

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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