DBRS Morningstar Assigns Provisional Ratings to GS Mortgage Securities Corporation Trust 2021-DM Commercial Mortgage Pass-Through Certificates, Series 2021-DM

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the classes of GS Mortgage Securities Corporation Trust 2021-DM Commercial Mortgage Pass-Through Certificates, Series 2021-DM as follows:

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

All trends are Stable. Classes HRR, P and ELP are not rated by DBRS Morningstar

The collateral for GSMS Trust 2021-DM includes the borrower’s fee-simple and leasehold interests in 18 suburban multifamily properties totaling 3,483 units located across three submarkets in South Florida (60.8% of NCF), with one property in each of the Salt Lake (21.4% of NCF) and Boston (21.4%). Sixteen of the 18 properties are affordable-housing properties in Florida, five of which (Gardens at Rose Harbor, Nantucket Bay, Savannah Cove, Williams Landing, and Williams Villas) are age-restricted properties. The affordable component of the portfolio consists of 2,513 units, which equates to 72.2% of total units and 61.2% of NOI. These affordable properties are subject to regulatory agreements that restrict rents and have an average remaining term of approximately 30 years. The max rent growth on Florida affordable properties was 3.5% in 2021 and is projected to be 7.5% in 2022. In addition, On May 21, 2021, Florida Governor Ron DeSantis signed legislation that makes certain low-income housing tax credit (LIHTC) properties exempt from property taxes. Under this revised legislation, the property tax exemption increases from 50% to 100% for properties with 70 affordable units or more. Fourteen of the properties located in Florida should receive 100% exemption of ad valorem taxes on all affordable units if the properties continue to meet all other statutory requirements for the affordable housing tax exemption. DBRS Morningstar has a favorable view of LIHTC properties because of the enhanced cash flow stability given the high demand for affordable units.

The collateral had an average occupancy of 98.1% from YE2018 through YE2020, and occupancy is 98.7% per the portfolio’s October 2021 rent rolls. DBRS Morningstar generally views the markets to which the portfolio is exposed as highly desirable for multifamily assets, with strong growth potential and favorable population statistics. The generally favorable market conditions are further evidenced by relatively tight submarket vacancy rates, which averaged 3.5% across the portfolio per the appraiser and are generally projected to decline or remain constant through the fully extended loan maturity. While 100% of the properties are in areas characterized as having a DBRS Morningstar Market Rank of between 2 and 4 (ranks generally associated with more suburban locations), the cross-collateralization and substantial affordable component of the portfolio generally mitigate a portion of the market risk. The portfolio’s favorable locations and strong fundamentals of the surrounding multifamily markets, along with the sponsor’s experience in the ownership of multifamily housing in the U.S., reinforce DBRS Morningstar’s comfort in the portfolio’s ability to maintain cash flow stability.

Fourteen properties are expected to benefit from a 100% tax exemption based of their LIHTC status, which poses moderate risk as the loss of such benefits could diminish the value of the underlying collateral. However, tax exemption benefits throughout the portfolio are generally correlated with the provision of affordable housing units. Such affordable units are generally considered to be leased at below-market rates to make them affordable to tenants at limited income levels. As a result, a loss of the tax exemption may result in the ability to lease such affordable units at market-rate rents, potentially offsetting reductions in NCF incurred from a loss of the exemption.

The transaction sponsor is Starwood Real Estate Income Trust (SREIT). Starwood REIT Operating Partnership L.P., is a subsidiary of Starwood Property Trust, Inc. Starwood Property Trust, which commenced operations in 2009, is primarily focused on originating, acquiring, financing, and managing mortgage loans and other real estate investments throughout the U.S. The sponsor is indirectly controlled by indirectly controlled by an experienced institutional private investment firm, Starwood Capital Group (SCG). Since its inception in 1991, SCG has raised over $65 billion of capital and currently has approximately $100 billion of assets under management. Over the past 30 years, SCG has invested in over $195 billion of assets, including properties within every major real estate asset class. Across all of its affiliated investment vehicles, SCG has acquired more than 205,000 multifamily units since inception and currently owns approximately 1,915,000 multifamily units in total, making them the #1 multifamily owner in the US, per the NMHC 2021 rankings. Moreover, SCG has remained committed to the affordable housing space nationally, and is a top 5 owner of U.S. affordable housing with more than 39,000 affordable units.

The trust collateral was originated by Goldman Sachs Bank USA and consists of a mortgage loan in the amount of $529.8 million. Loan proceeds, together with an estimated equity contribution of approximately $392.8 million from the sponsor, were used to facilitate the acquisition of the properties. DBRS Morningstar typically views cash-in acquisition financings more favorably, given the stronger alignment of borrower incentives compared with situations in which a sponsor is refinancing and cashing out of its equity position.

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.

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

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

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

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (March 2, 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

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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