DBRS Morningstar Confirms Ratings on GS Mortgage Securities Corporation Trust 2018-HULA

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-HULA issued by GS Mortgage Securities Corporation Trust 2018-HULA as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since DBRS Morningstar’s last review in September 2021.

The interest-only (IO) loan is secured by the Four Seasons Resort Hualalai, a luxury hotel and resort located on the Big Island of Hawaii. At issuance, whole-loan proceeds of $450.0 million were used to refinance existing debt, return $62.2 million of equity to the sponsor, and fund reserves and closing costs. The trust had an initial balance of $350.0 million, while a $100.0 million B note was held outside of the trust. There has been a principal reduction, primarily as a result of land that was part of the collateral and was sold for a residential development. The collateral consists of a 243-key resort spread across 39 acres, the private membership Hualalai Club, and, at issuance, 250 acres of residential master-planned community.

As of the July 2022 remittance, the trust had an outstanding balance is $320.2 million, representing a collateral reduction of 8.5% since issuance. With the exception of the residential lots, the collateral is subject to a ground lease. The underlying land is owned by the Trustees of the Estate of Bernice Pauahi Bishop. The ground lease expires in December 2061, with no renewal options. The borrower pays a minimum rent of $4.2 million and a percentage of revenue through December 2026.

The loan has an initial two-year term with five one-year extension options. Two of the options have been exercised while a third option is currently being processed, which would extend the loan maturity date to July 2023. The loan is currently on the servicer’s watchlist for its upcoming maturity as well as a servicing trigger event as the loan reported a September 2021 debt yield of 2.9%, below the 5.3% threshold. This was due to a large-scale renovation project that was completed in October 2021. However, the loan reported debt yields above the threshold for two consecutive quarters with the March 2022 figure at 10.6%. DBRS Morningstar expects the loan to be removed from the servicer’s watchlist for both events in the near term as the extension is finalized.

The renovation began in mid-2020 at a reported cost of approximately $100 million and was completed in October 2021 as per a press release from Four Seasons. The scope of the work included full renovations to all rooms, upgrades to the finishes and furniture, and a new bungalow that added six new rooms along the property’s oceanfront. Amenities were upgraded as well, with significant work to be completed at King’s Pond, the property’s swimmable aquarium, and to other pools at the property. Finally, the property’s golf course was to be upgraded with new features and a new turf.

According to the trailing 12-month ended (T-12) March 31, 2022, financials the loan reported a net cash flow (NCF) of $44.0 million, an increase from the year-end (YE) 2021 NCF of $28.8 million and YE2020 when the loan reported negative NCFs. As of the April 2022 STR report, the subject reported a T-12 occupancy rate, average daily rate (ADR), and revenue per available room (RevPAR) of 71.2%, $1,774, and $1,263, respectively, with a RevPAR penetration figure of 282.6%. This is a significant improvement over the T-12 ended June 30, 2021, figures, with the property’s occupancy rate, ADR, and RevPAR reported at 50.7%, $1,434, and $894, respectively.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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.

The DBRS Morningstar ratings assigned to Class C with this year’s review were higher than the results implied by the LTV Sizing Benchmarks when accounting for the paydown. This variance is the result of conservative assumptions made in light of the performance challenges during the Coronavirus Disease (COVID-19) pandemic, but, as DBRS Morningstar expected, the collateral’s performance continues to improve year over year as the effects of the pandemic lessen.

Class X-NCP 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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data. For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com..

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

The principal methodology is North American CMBS Surveillance Methodology (March 4, 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.

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