DBRS Morningstar Confirms Ratings on GSF 2021-1, Removes Ratings from Under Review with Developing Implications

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of notes issued by GSF 2021-1:

-- Class A-1 Notes at AAA (sf)
-- Class A-2 Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class X Notes at A (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (low) (sf)
-- Class E Notes at BB (low) (sf)

All trends are Stable.

With this review, DBRS Morningstar removed all classes from Under Review with Developing Implications, where they were placed on November 4, 2022, as part of rating actions taken by DBRS Morningstar in connection with the updates to the CMBS Insight Model and “North American CMBS Multi-Borrower Rating Methodology.” Please see the previous press release dated November 4, 2022, for more information.

The rating confirmations and Stable trends with this review reflect the stable performance of the collateral, which remains in line with issuance expectations.

As of the January 2023 remittance, the pool consisted of 19 performing loans, secured by traditional commercial real estate properties with a combined balance of $424.3 million. There were no loans on the servicer’s watchlist or in special servicing. The transaction documents require DBRS Morningstar to analyze newly funded loans when the pool reaches 25%, 50%, and 75% of funding to ensure the underlying collateral meets target credit enhancement criteria. The 75% threshold was met in November 2022, when the trust reached a balance of $378.2 million, representing 75.6% of the future trust balance.

As part of this and prior reviews, DBRS Morningstar considered a pool funded to the $500 million maximum trust balance, maintaining the issuance approach in constructing a worst-case scenario as allowed by the eligibility requirements for loans to be funded while also considering the credit quality of loans contributed since issuance. The transaction’s funding has not been executed at the pace anticipated at issuance, but it is noteworthy that the transaction documents allow for an available six-month extension for the 12-month funding guideline. In addition, DBRS Morningstar notes that the pool’s current top 10 loan concentration of 58.9% of the maximum pool balance falls outside of the 50% guardrail as defined in the indenture.

The 12 loans contributed since issuance have been backed by a mix of property types, including multifamily, industrial, office, mixed-use, and retail properties representing 32.1%, 20.1%, 7.4%, 4.8%, and 2.0% of the November 2022 funded balance, respectively. Those same loans reported a weighted-average (WA) issuance loan-to-value ratio (LTV) of 61.3% and a WA net cash flow (NCF) haircut of -20.7%. All but one of the 12 contributed loans were structured with interest-only (IO) provisions.

The largest loan funded in the trust to date, Strauss on Fifth (representing 9.9% of the maximum allowable trust balance), is secured by a newly constructed 141-unit Class A multifamily property in San Diego, developed by the sponsor in 2019 at a cost of $74.3 million. As of the September 2022 rent roll, the collateral reported an occupancy rate of 97.2% and an average rental rate of $2,945 per unit, compared with the May 2021 figures of 97.9% and $2,674 per unit, respectively. The loan reported a trailing 12 months ended September 30, 2022, NCF of $2.9 million, compared with the DBRS Morningstar NCF of $2.5 million. The sponsor, Strat Property Management, Inc., is a real estate investment and management firm based in San Diego that is focused primarily on ownership and management of multifamily and self-storage properties. The sponsor has a vast amount of local experience, with 28 of the 31 owned multifamily assets in San Diego. The loan is IO for the full five-year term, but also benefits from a moderate issuance LTV of only 58.2%.

The second-largest loan funded to date, 210 University (representing 8.1% of the maximum allowable trust balance), is secured by a 139,999 square-foot mixed-use property in Denver, acquired by the sponsor at a purchase price of $67.7 million. The property consists of a nine-story office building, two single-story retail buildings totaling 14,110 square feet, and a six-story parking structure with 437 spaces. At contribution, the property was 89.9% occupied with an in-place average rental rate of $41.01 per square foot. The largest tenants at contribution included Robert W. Baird (24.5% of the net rentable area (NRA), lease expiry in October 2030), U.S. Bank (10.1% of the NRA, lease expiry in November 2032), and Western Veterinary Partners (6.5% of the NRA, lease expiry in July 2028). There is minimal rollover risk of less than 5.0% of the NRA by year-end 2023. The sponsors for this loan are Corum Real Estate Group (Corum) and Koch Real Estate Investments (Koch). Corum is a Denver-based real estate firm focused on multifamily and commercial development, and property management services. Koch is a Dallas-based real estate firm with a portfolio of $3.0 billion consisting of office, life sciences, multifamily, hospitality, and mixed-use projects across North America. Like the Strauss on Fifth loan, this loan is fully IO but also benefits from a moderate issuance LTV of 58.0%.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Social (S) Factors
The special servicer cannot pursue a real estate owned (REO) recovery strategy. The issuer is prohibited from acquiring REO assets because of the inclusion of a non-United States entity in the sponsorship, which cannot hold real interest in U.S. equity without triggering tax implications. The limit on resolutions could possibly have an adverse outcome on loss severity for an impaired asset.

There were no Environmental or Governance factor(s) 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 is an 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.

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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