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Rating Action: Moody's affirms three and downgrades six classes of GSMS 2011-GC5
Global Credit Research - 22 Dec 2020
Approximately $1.0 billion of structured securities affected
New York, December 22, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on three classes and downgraded the ratings on six classes in GS Mortgage Securities Trust 2011-GC5 ("GSMS 2011-GC5"), Commercial Mortgage Pass-Through Certificates, Series 2011-GC5, as follows:
Cl. A-4, Affirmed Aaa (sf); previously on Jun 4, 2020 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aaa (sf); previously on Jun 4, 2020 Affirmed Aaa (sf)
Cl. B, Downgraded to A1 (sf); previously on Jun 4, 2020 Affirmed Aa2 (sf)
Cl. C, Downgraded to Ba1 (sf); previously on Jun 4, 2020 Downgraded to Baa1 (sf)
Cl. D, Downgraded to Caa1 (sf); previously on Jun 4, 2020 Downgraded to B1 (sf)
Cl. E, Downgraded to Caa3 (sf); previously on Jun 4, 2020 Downgraded to Caa1 (sf)
Cl. F, Downgraded to C (sf); previously on Jun 4, 2020 Downgraded to Caa3 (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on Jun 4, 2020 Affirmed Aaa (sf)
Cl. X-B*, Downgraded to Caa2 (sf); previously on Jun 4, 2020 Downgraded to Caa1 (sf)
* Reflects interest-only classes
The ratings on two of the P&I classes were affirmed due to the credit support and because the transaction's key metrics, including Moody's loan-to-value (LTV) ratio, Moody's stressed debt service coverage ratio (DSCR) and the transaction's Herfindahl Index (Herf), are within acceptable ranges.
The ratings on five of the P&I classes were downgraded due to a decline in pool performance and higher anticipated losses as a result of the increased share of specially serviced loans. The two specially serviced loans are secured by retail and hotel properties and make up 16.7% of the pool. The largest specially serviced loan, Park Place Mall (16% of the pool), is secured by a regional mall which had experienced declining performance prior to 2020, was 30 days delinquent as of the December 2020 remittance date and has an upcoming maturity date in May 2021. In aggregate non-defeased retail and hotel loans represent 56% and 5% of the pool, respectively. Furthermore, the pool faces upcoming refinance risk with all loans maturing in less than 10 months.
The rating on one IO Class, Cl. X-A, was affirmed based on the credit quality of its referenced classes.
The rating on one IO Class, Cl. X-B, was downgraded due to a decline in the credit quality of its referenced classes. The IO Class references all P&I classes including Class G, which is not rated by Moody's.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of commercial real estate from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Stress on commercial real estate properties will be most directly stemming from declines in hotel occupancies (particularly related to conference or other group attendance) and declines in foot traffic and sales for non-essential items at retail properties.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
Moody's rating action reflects a base expected loss of 13.8% of the current pooled balance, compared to 6.1% at Moody's last review. Moody's base expected loss plus realized losses is now 8.8% of the original pooled balance, compared to 4.3% at the last review. Moody's provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range can indicate that the collateral's credit quality is stronger or weaker than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool's share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in rating all classes except interest-only classes were "Approach to Rating US and Canadian Conduit/ Fusion CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778 and "Moody's Approach to Rating Large Loan and Single Asset/Single Borrower CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1190579. The methodologies used in rating interest-only classes were "Approach to Rating US and Canadian Conduit/ Fusion CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778, "Moody's Approach to Rating Large Loan and Single Asset/Single Borrower CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1190579 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
As of the December 11, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 39% to $1.1 billion from $1.7 billion at securitization. The certificates are collateralized by 46 mortgage loans ranging in size from less than 1% to 17% of the pool, with the top ten loans (excluding defeasance) constituting 59% of the pool. Seventeen loans, constituting 28% of the pool, have defeased and are secured by US government securities.
Moody's uses a variation of Herf to measure the diversity of loan sizes, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 8, compared to a Herf of 9 at Moody's last review.
As of the December 2020 remittance report, loans representing 79% were current or within their grace period on their debt service payments, 4% were beyond their grace period but less than 30 days delinquent, 16% were between 30 -- 59 days delinquent and 1% were 90+ days delinquent.
Thirteen loans, constituting 26% of the pool, are on the master servicer's watchlist, of which five loans, representing 15% of the pool, indicate the borrower has received loan modifications in relation to coronavirus impact on the property. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody's ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance.
One loan has been liquidated from the pool, resulting in an aggregate realized loss of $6.5 million (for a loss severity of 47%). Two loans, constituting 17% of the pool, are currently in special servicing, both of which recently transferred to special servicing since August 2020.
The largest specially serviced loan is the Park Place Mall Loan ($167.3 million -- 15.7% of the pool), which is secured by 478,000 SF portion of a 1.06 million SF dominant super-regional mall in Tucson, Arizona. At securitization the non-collateral anchors were Sears, Dillard's and Macy's. Sears (221,000 SF) closed its store at this location in July 2018, however, Round 1 (44,000 SF), an entertainment venue, backfilled a portion of the former Sears space in 2019. Additionally, Macy's (160,000 SF) recently announced that they will be vacating their space at this location. The largest collateral tenant is a Century Theaters, an 18-screen movie theatre with a lease expiration in August 2021. The property's net operating income (NOI) has declined over the past two years due to declining rental revenue. The year-end 2019 NOI was 17% lower than in 2018 and the 2019 NOI DSCR was 1.30X. The loan transferred to special servicing in September 2020 as the property's cash flow has been further impacted by the coronavirus pandemic. The special servicer indicated the borrower no longer plans to support the property with additional equity and the special servicer is currently dual-tracking the foreclosure process along with potential loan modifications. The loan has amortized approximately 16% since securitization, however, the loan matures in May 2021 and Moody's analysis factored in concerns of future declines in performance, co-tenancy risks being triggered by the departure of Macy's and the overall retail environment.
The other specially serviced loan is the Holiday Inn Express Anchorage ($10.9 million -- 1.0% of the pool), which is secured by a 129-unit limited service hotel property located in Anchorage, AK. The property operates under a franchise agreement that expires in June 2022. Through year-end 2019 the property's NOI had improved over the prior two years and was 12% higher than in 2011. The loan benefits from amortization and has amortized 20% since securitization, however, the property's cash flow was significantly impacted by the pandemic and the loan transferred to special servicing in August 2020. As of the December 2020 remittance statement the loan is last paid through July 2020 and the special servicer is currently in the process of setting up cash management while dual tracking the foreclosure process and discussing workout alternatives.
Moody's has also assumed a high default probability for three poorly performing loans. The largest troubled loan is the Parkdale Mall and Crossing Loan and is discussed further in detail below. The second largest troubled loan is the Champlain Centre Loan ($29.7 million -- 2.8% of the pool) which is secured by a 484,000 SF retail center located in Plattsburgh, New York. Sears previously vacated the property in April 2016 and the loan has been on the master servicer's watchlist since July 2016 due to occupancy and tenant issues. Hobby Lobby (11% of NRA) opened in part of the vacated Sears space although occupancy at the property has continued to struggle and the year-to-date September 2019 NOI DSCR was below 1.00X. The loan is sponsored by Pyramid and was paid through November 2020 as of the December remittance date. The special servicer had previously approved a modification including payment of interest only from April through September debt service payments.
Moody's estimates an aggregate $124 million loss for the specially serviced loans and troubled loans (a 41% expected loss on average).
As of the December 2020 remittance statement cumulative interest shortfalls were $1.3 million. The specially serviced loans have not yet recognized any appraisal reductions. Moody's anticipates interest shortfalls will continue because of the exposure to specially serviced loans and/or modified loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal entitlement reductions (ASERs), loan modifications and extraordinary trust expenses.
The credit risk of loans is determined primarily by two factors: 1) Moody's assessment of the probability of default, which is largely driven by each loan's DSCR, and 2) Moody's assessment of the severity of loss upon a default, which is largely driven by each loan's loan-to-value ratio, referred to as the Moody's LTV or MLTV. As described in the CMBS methodology used to rate this transaction, we make various adjustments to the MLTV. We adjust the MLTV for each loan using a value that reflects capitalization (cap) rates that are between our sustainable cap rates and market cap rates. We also use an adjusted loan balance that reflects each loan's amortization profile. The MLTV reported in this publication reflects the MLTV before the adjustments described in the methodology.
Moody's received full year 2019 operating results for 100% of the pool, and partial year 2020 operating results for 91% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 87%, compared to 96% at Moody's last review. Moody's conduit component excludes loans with structured credit assessments, defeased and CTL loans, and specially serviced and troubled loans. Moody's net cash flow (NCF) reflects a weighted average haircut of 23% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 9.7%.
Moody's actual and stressed conduit DSCRs are 1.71X and 1.27X, respectively, compared to 1.52X and 1.15X at the last review. Moody's actual DSCR is based on Moody's NCF and the loan's actual debt service. Moody's stressed DSCR is based on Moody's NCF and a 9.25% stress rate the agency applied to the loan balance.
The top three conduit loans represent 28% of the pool balance. The largest loan is the 1551 Broadway Loan ($180.0 million -- 16.9% of the pool), which is secured by a 26,000 SF single tenant retail property and a 15,000 SF LED sign located in the "Bow Tie" area of Manhattan's Times Square district. The property and LED sign are leased to AE Outfitters, Inc. a fully owned subsidiary of American Eagle Outfitters, Inc. through February 2024. A significant portion of the property's revenue is related to the LED signage. Moody's utilized a lit/dark approach due to the single tenant nature of the asset. While retail properties in Times Square have been significantly impacted by the coronavirus pandemic, the loan's performance has remained stable and the loan was current as of the December 2020 remittance date. The loan is interest only for its entire term and matures in July 2021. Moody's LTV and stressed DSCR are 99% and 0.95X, respectively compared to 88% and 0.95X at the last review.
The second largest loan is the Parkdale Mall & Crossing Loan ($74.4 million -- 7.0% of the pool), which is secured by a 655,000 SF portion of a 1.31 million SF super-regional mall, Parkdale Mall, and an adjacent 88,100 SF strip center, Parkdale Crossing located in Beaumont, Texas. At securitization non-collateral anchors included Sears, Dillard's, J.C. Penney and Macy's. However, Macy's closed its location in 2017 and Sears recently closed its location in February 2020. The former Macy's location had been reconfigured and Dick's Sporting Goods, HomeGoods and Five Below took occupancy in 2019, however, the Sears space remains vacant. Furthermore, a major collateral tenant, Bealls (40,000 SF; 5% of the NRA) closed its location in May 2020 as a part of the larger Stage Stores Chapter 11 bankruptcy filing. As per the September 2020 rent roll, the collateral occupancy (including Bealls) was 85%, compared to 84% as of year-end 2019 and 92% as of year-end 2018. As of year-end 2019, mall store sales at the Parkdale Mall were $353 PSF compared to $360 PSF in 2018. The property's net operating income (NOI) has declined significantly over the past two years as a result of lower rental revenue. The 2019 NOI declined 10% year over year and the year-to-date September 2020 NOI DSCR declined to 1.11X. CBL & Associates Properties, Inc. ("CBL"), which is the sponsor and manages the property, declared Chapter 11 bankruptcy in November 2020. The loan remained current as of its December 2020 payment date after receiving a modification converting the loan to interest only payments for the months of July through December. The loan has amortized 21% since securitization, however, due to the decline in performance and the current retail environment the loan may face increased refinance risk at its upcoming March 2021 maturity date and Moody's has identified this as a troubled loan.
The third largest loan is the Cole Portfolio Loan ($46.7 million -- 4.4% of the pool), which is secured by the fee simple interest in fifteen single tenant properties and two power centers totaling 496,618 SF, located across 10 states. The fifteen single tenant properties are occupied by a variety of tenants including CVS, On the Border, O'Reilly Auto Parts and Tractor Supply Co. which make up 29% of the total portfolio square footage and 39% of the allocated loan amount. The largest property in the portfolio, Volusia Square (36% of ALA; 47% of total SF) is a 231,000 SF power center located in Daytona Beach, FL. The property was originally anchored by a Hobby Lobby, TJMaxx, Home Depot and Dollar Tree. As of March 2020, the property was 66% leased (31% occupied). In 2018, both the Hobby Lobby and TJMaxx vacated the property prior to lease expiration. As of September 2020, the portfolio was 69% leased compared to 78% as of year-end 2019 and 86% as of year-end 2018. Moody's LTV and stressed DSCR are 85% and 1.19X, respectively, compared to 78% and 1.25X at the last review.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Yoni Lobell Associate Lead Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Matthew Halpern VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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