Morningstar DBRS Confirms All Credit Ratings on GSF 2022-1 Issuer LLC

DBRS Limited (DBRS Morningstar) confirmed its credit ratings on the following classes of notes issued by GSF 2022-1 Issuer LLC (the Issuer):

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

All trends are Stable.

The credit rating confirmations and Stable trends reflect the consistent performance of the four contributed loans since Morningstar DBRS' last review. As of the October 2024 remittance, the pool consisted of four performing loans, secured by traditional commercial real estate properties with a combined balance of nearly $97.0 million. The transaction documents require Morningstar DBRS 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. Since the last surveillance review in October 2023, there have been no additional loans contributed to the trust, with the pool remaining 19.4% funded.

As part of the analysis for this transaction, Morningstar DBRS 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 Issuer did not meet the initial expectation of funding the trust to the maximum balance of $500.0 million within the first year of transaction closing and has not funded any loans since October 2023. The funding period was extended to November 5, 2024, with an additional six-month extension beyond that date currently in progress, as permitted by the loan documents. Given the slower-than-expected pace of loan contributions, Morningstar DBRS is unable to project if or when the transaction will be fully funded.

The pool composition remains unchanged from the last review. Two of the four contributed loans are backed by multifamily properties, comprising 61.9% of the funded balance, with the other two loans backed by retail properties, comprising 38.1% of the funded balance. The contributed loans reported a weighted-average (WA) issuance loan-to-value ratio (LTV) of 56.3% and a WA balloon LTV of 55.3%. Three of the four loans, representing 84.3% of the funded balance, have full-term interest-only (IO) payment structures, while the fourth loan pays IO for the first two years of the loan term, amortizing over a 30-year schedule thereafter. The loans are also concentrated by market rank, as all of the contributed loans are in markets designated with a Morningstar DBRS Market Rank 3 or 4, denoting suburban markets.

The largest loan funded into the trust to date, Embarcadero Club Apartments (representing 7.0% of the maximum allowable trust balance), is secured by a 404-unit, garden-style, multifamily complex in College Park, Georgia, 11 miles south of downtown Atlanta. As of the June 2024 rent roll, the property was 95.3% occupied with an average rental rate of $1,184 per unit, as compared with the Morningstar DBRS occupancy and average rental rate of 91.2% and $1,249 per unit, respectively, derived as part of its analysis when the loan was contributed to the pool. In order to increase rental rates at the property, the sponsor has funded capital improvements out of pocket, with recent renovations totaling $938,000 ($656,000 for interior renovations and $282,000 for common area improvements) during the trailing 12-month period (T-12) ended June 30, 2024. Completed renovations have not yet resulted in the expected increase in rental rates as the property's average rental rate remains below the Morningstar DBRS rental rate and the South Fulton average effective rent of $1,302 per unit as of Q2 2024. Property performance also remains below Morningstar DBRS' expectations as the T-12 Q2 2024 net operating income (NOI) was reported at $2.1 million (debt service coverage ratio of 1.09 times), approximately 18% below the Morningstar DBRS NOI of $2.6 million. In the analysis for this review, Morningstar DBRS increased the loan's LTV to reflect the increase in market capitalization rates and also applied a probability of default penalty given the loan's underperformance relative to Morningstar DBRS' expectations.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
There were no Environmental, Social, Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781

Classes X 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798

Other methodologies referenced in this transaction are listed at the end of this press release.

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-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0 https://dbrs.morningstar.com/research/428797
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205
A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.