DBRS Morningstar Confirms Ratings on All Classes of GS Mortgage Securities Trust 2014-GC24

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-GC24 issued by GS Mortgage Securities Trust 2014-GC24 as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class PEZ at A (sf)
-- Class D at BB (high) (sf)
-- Class X-C at B (high) (sf)
-- Class E at B (sf)
-- Class F at CCC (sf)

Classes E and X-C carry a Negative trend, while Class F does not carry a trend as the rating assigned to that class does not typically carry trends in commercial mortgage-backed securities (CMBS) ratings. The Negative trends on Classes E and X-C and the CCC (sf) rating on Class F reflect DBRS Morningstar’s ongoing concerns, primarily with the largest loan in the pool, as well as the propensity for interest shortfalls given the delinquency of the third-largest loan in the pool. The trends on the remaining classes are Stable.

The rating confirmations reflect the overall stable performance of the transaction since DBRS Morningstar’s last rating action in November 2022. Since the last rating action, one loan previously in special servicing, Hampton Inn & Suites – Yonkers (Prospectus ID#8; previously 2.5% of the pool), was liquidated from the pool at a better-than-expected recovery. The realized trust loss was contained to the nonrated Class G certificate. In addition, four new loans were defeased, bringing current defeasance to 28.0% of the pool balance.

The largest loan in the pool is Stamford Plaza Portfolio (Prospectus ID#1; 15.3% of the pool), secured by four Class A office properties totaling 982,483 square feet (sf) in Stamford, Connecticut. The trust debt of $135.3 million is a pari passu portion of the $270 million whole loan. The loan was added to the servicer’s watchlist in October 2018 for low occupancy and debt service coverage ratio (DSCR), which triggered the activation of a cash trap. As of March 2023, the loan reported $2.4 million of lockbox receipts. The borrower was granted a forbearance in August 2021, which allowed leasing reserves to be released and deposits to the account deferred until April 2022. The depleted reserves are currently being repaid through April 2023 and, as of March 2023, the loan reported leasing reserves of $2.8 million.

As of September 2022, the collateral was 64.6% occupied with 132,480 sf (13.5% of total portfolio net rentable area (NRA)) rolling in 2023. The annualized DSCR for the trailing nine months ended September 2022 was reported to be 0.43 times (x), down from 0.56x at YE2021 (representing a 23.6% net cash flow (NCF) decline), 0.72x at YE2019 and 1.05x at YE2018. The portfolio’s NCF and occupancy have been in year-over-year decline nearly each year since issuance. Per Reis, the Stamford central business district submarket reported a Q4 2022 vacancy rate of 24.0% with asking rents of $38.01 psf. Given the soft submarket and sustained vacancy, as well as the shift in demand for office space following the Coronavirus Disease (COVID-19) pandemic, DBRS Morningstar increased the probability of default for this loan in its analysis. In addition, DBRS Morningstar derived a stressed value based on the property’s in-place cash flow, using the high end of DBRS Morningstar’s cap rate range for office properties, resulting in a modeled whole loan loan-to-value ratio (LTV) of more than 150.0%.

The Beverly Connection (Prospectus ID#3, 10.1% of the pool) loan is the largest specially serviced loan and the third-largest loan in the pool. It is secured by an anchored retail property in Los Angeles. The largest tenants are Target (29.7% of NRA, lease expiry in January 2029), Marshalls (10.2% of NRA, lease expiry in January 2027), Ross Dress for Less (9.0% of NRA, lease expiry in January 2026), and Nordstrom (8.8% NRA, lease expiry in September 2024). The loan transferred to special servicing in August 2020 and has been delinquent since May 2020; however, according to the most recent special servicer commentary, a forbearance agreement has been reached and is pending approval. An October 2022 appraisal valued the property at $239.0 million, representing less than a 10.0% decline from $260 million at issuance. The resulting senior debt LTV is 73.2%, and 87.9% when accounting for the loan’s subordinate B note debt. The sponsor, an affiliate of Ashkenazy Acquisition Corporation, contributed $39.7 million in equity to purchase the property in 2014.

The loan reported an annualized NCF of $11.2 million for the trailing six months ended June 2022, equating to an A note DSCR of 1.36x, as compared with the issuer’s NCF of $12.4 million. Despite the extended delinquency and an in-place cash flow that is slightly below issuance levels, historical occupancy has been stable, never dipping below 90% since issuance, the tenant mix is strong and the property is well-located. Based on the status of the workout proceedings, and a recent appraisal reporting value in excess of the current whole loan, DBRS Morningstar does not consider this loan to pose a significant credit risk to the trust; however, in the analysis for this loan, an elevated probability of default was applied to account for the loan’s extended delinquency and the possibility that the forbearance and reinstatement falls through.

As of the March 2023 remittance, 63 of the original 75 loans remain in the pool, with an aggregate balance of approximately $862.8 million, representing a collateral reduction of 19.7% since issuance as a result of loan repayments, scheduled amortization, and two liquidations. In addition, 18 loans, representing 28.0% of the pool, are secured by collateral that has been defeased. Two loans, representing 11.0% of the pool, are in special servicing and 11 loans, representing 25.1% of the pool, are on the servicer’s watchlist. The pool is concentrated in the three largest loans, which collectively comprise 37.5% of the pool, two of which, the aforementioned Stamford Plaza Portfolio and Beverly Connection loans, are being closely monitored by DBRS Morningstar.

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

Classes X-A, X-B, and X-C are interest-only (IO) certificates that reference 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 [email protected].

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 conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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