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GS Mortgage Securities Trust 2014-GC18 -- Moody's affirms four and downgrades five classes of GSMS 2014-GC18

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Rating Action: Moody's affirms four and downgrades five classes of GSMS 2014-GC18Global Credit Research - 10 Mar 2021Approximately $740 million of structured securities affectedNew York, March 10, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on four classes and downgraded the ratings on five classes in GS Mortgage Securities Trust 2014-GC18 as follows:Cl. A-3, Affirmed Aaa (sf); previously on Sep 29, 2020 Affirmed Aaa (sf)Cl. A-4, Affirmed Aaa (sf); previously on Sep 29, 2020 Affirmed Aaa (sf)Cl. A-AB, Affirmed Aaa (sf); previously on Sep 29, 2020 Affirmed Aaa (sf)Cl. A-S, Downgraded to Aa2 (sf); previously on Sep 29, 2020 Affirmed Aaa (sf)Cl. B, Downgraded to Ba1 (sf); previously on Sep 29, 2020 Downgraded to A2 (sf)Cl. C, Downgraded to Caa1 (sf); previously on Sep 29, 2020 Downgraded to Ba2 (sf)Cl. X-A*, Affirmed Aaa (sf); previously on Sep 29, 2020 Affirmed Aaa (sf)Cl. X-B*, Downgraded to Ba1 (sf); previously on Sep 29, 2020 Downgraded to A2 (sf)Cl. PEZ**, Downgraded to B1 (sf); previously on Sep 29, 2020 Downgraded to Baa2 (sf)* Reflects interest-only classes** Reflects exchangeable classesRATINGS RATIONALEThe ratings on three P&I classes were affirmed because of their credit support and 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 three P&I classes, Cl. A-S, Cl. B and Cl. C, were downgraded due to higher anticipated losses and increased interest shortfall concerns as a result of the significant exposure to specially serviced loans secured by regional malls. The two largest contributors to the anticipated losses are The Crossroads (9.9%) and Wyoming Valley Mall (8.0%), both of which have reported declining net operating income (NOI) in recent years. The Wyoming Valley Mall loan is already real estate owned (REO) and a possible deed-in-lieu is being discussed in relation to The Crossroads Mall. Furthermore, both loans have now recognized significant appraisal reductions exceeding 80% of their respective loan balance and Moody's anticipates interest shortfalls will continue and may increase from their current levels due the performance of these loans.The rating on the IO class, Cl. X-A, was affirmed based on the credit quality of its referenced classes.The rating on the IO class, Cl. X-B, was downgraded due to a decline in the credit quality of its referenced class.The rating on class PEZ was downgraded due to a decline in the credit quality of the referenced exchangeable classes.The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world's economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of commercial real estate from a gradual and unbalanced recovery in US economic activity. 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 20.7% of the current pooled balance, compared to 14.2% at Moody's last review. Moody's base expected loss plus realized losses is now 16.5% of the original pooled balance, compared to 11.5% 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 RATINGSThe 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 exchangeable classes and 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 principal methodology used in rating exchangeable classes was "Moody's Approach to Rating Repackaged Securities" published in June 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1230078. 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 *) and exchangeable classes (indicated by the **). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. DEAL PERFORMANCEAs of the February 12, 2021 distribution date, the transaction's aggregate certificate balance has decreased by 21% to $882.9 million from $1.11 billion at securitization. The certificates are collateralized by 66 mortgage loans ranging in size from less than 1% to 11.8% of the pool, with the top ten loans (excluding defeasance) constituting 52.8% of the pool. Sixteen loans, constituting 13.7% 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 16, the same as at Moody's last review.As of the February 2021 remittance report, loans representing 77% were current or within their grace period on their debt service payments, 2% were beyond their grace period but less than 30 days delinquent, 11% were 90+ days delinquent, and nearly 10% were REO.Nineteen loans, constituting 29.7% of the pool, are on the master servicer's watchlist, of which seven loans, representing 7% of the pool, indicate the borrower has received loan modifications. 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.Two loans have been liquidated from the pool, resulting in an aggregate realized loss of $1.5 million (for an average loss severity of 17%). Four loans, constituting 21% of the pool, are currently in special servicing. Two of the specially serviced loans, representing 11% of the pool, have transferred to special servicing since May 2020.The largest specially serviced loan is The Crossroads Loan ($87.0 million -- 9.9% of the pool), which is secured by a 349,000 square feet (SF) portion of a 770,000 SF regional mall located in Portage, Michigan. The property's non-collateral anchors include traditional department stores of J.C. Penney and Macy's, and the largest collateral tenant is Burlington Coat Factory (82,000 SF). The mall also has one vacant non-collateral anchor space, a former Sears (153,000 SF) which closed in late 2019 and remains vacant. The property's performance had declined significantly in recent years as a result of lower rental revenue and declining tenant sales. Furthermore, several tenants are currently paying percent in lieu rent. The reported year end 2019 net operating income (NOI) was 14% lower than in 2018 and 29% lower than in 2016. The property represents the dominant mall within its submarket and the loan has amortized by 13% since securitization. However, the loan transferred to special servicing in July 2020 for payment default. The servicer indicates they are in discussions regarding a potential deed-in-lieu and/or cooperative sale agreement. A recent appraisal values the collateral at an amount which is significantly lower than the remaining loan balance and an appraisal reduction of $73.0 million (nearly 84% of the loan's current balance) was recognized as of the February 2021 remittance report. As a result of the declining performance and overall retail environment, Moody's anticipates a significant loss on this loan.The second largest specially serviced loan is the Wyoming Valley Mall Loan ($70.9 million -- 8.0% of the pool), which is secured by a 913,000 SF super-regional mall located in Wilkes-Barre, Pennsylvania. The loan transferred to special servicing for imminent default in June 2018 after both Sears (177,477 SF; 12.9% of the net rentable area (NRA)) and Bon-Ton (155,392SF; 17.1% of the NRA) announced they would vacate. The anchor tenants vacated the property later in the year and those spaces remain largely vacant. The remaining anchors include J.C. Penney, Macy's and Macy's Men's & Home Furniture, with varying maturities in 2022. At securitization, approximately 35 tenants had co-tenancy clauses tied to occupancy thresholds between 60-80% occupancy and/or the closing of one or more department stores. As a result of anchor departures, co-tenancy clauses and other inline departures, the property's NOI has significantly declined since 2017. The property had some positive leasing in 2019 when a 49,829 SF Ashley Furniture store opened in the former HHGregg pad site across from the mall and a 20,048 SF Ken Pollock Tire and Auto opened in the former Sears Auto Center space. The mall was temporarily closed due to the pandemic but reopened during June and the year-to-date September 2020 NOI DSCR was only 0.09X. The property was approximately 64% leased as of September 2020, compared to 96% at securitization. The loan became REO in September 2019 and has amortized 9% since securitization. The special servicer indicated that the property manager is in discussions with multiple tenants regarding rent relief and is evaluating plans to improve the mall and make use of the vacant anchor spaces. An appraisal reduction of $57.8 million (approximately 82% of the current loan balance) was recognized as of the February 2021 remittance report. As a result of the significant decline in performance and overall retail environment, Moody's anticipates a significant loss on this loan.The third largest special serviced loan is the Hilton Garden Inn Pittsburgh - Cranberry ($15.3 million -- 1.7% of the pool), which is secured by a hotel property in Cranberry Township, Pennsylvania, 20 miles north of Pittsburgh. The loan transferred to special servicing in December 2018 due to imminent balloon/maturity default and the borrower was unable to pay off the loan at maturity in December 2018. The property's NOI has been declining annually since 2014 as a result of lower occupancy and RevPAR. A foreclosure sale occurred in January 2020 and the loan became REO in February 2020. An appraisal reduction of $8.9 million (58% of the current loan balance) was recognized as of the February 2021 remittance report.The remaining specially serviced loan is secured by a hotel property in Long Island City, New York in which property performance has deteriorated since 2015 due to new supply in the market. The property was further impacted by business disruptions resulting from the coronavirus outbreak and the borrower has requested payment relief.Moody's has also assumed a high default probability for six poorly performing loans, constituting 6% of the pool, and secured by hotel and retail properties that were experiencing declining performance prior to 2020. The largest troubled loan is secured by a hotel property located in Anchorage, Alaska (1.9% of the pool) which has requested payment relief due to coronavirus outbreak related business disruptions and has since received a loan modification.Moody's has estimated an aggregate loss of $161 million (a 68% expected loss on average) from these specially serviced and troubled loans.As of the February 2021 remittance statement cumulative interest shortfalls were $3.1 million and impact up to Class D (not rated by Moody's). 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.Moody's received full year 2019 operating results for 97% of the pool, and full or partial year 2020 operating results for 92% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 104%, compared to 105% 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 19% 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 1.39X and 1.06X, respectively, compared to 1.36X and 1.03X 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 25% of the pool balance. The largest loan is The Shops at Canal Place Loan ($104.2 million -- 11.8% of the pool), which is secured by a 217,000 SF shopping mall located in downtown New Orleans, Louisiana. The property, which is anchored by Saks Fifth Avenue, is attached to an office building and hotel which are not part of the collateral. The collateral also includes a parking garage that is shared between the mall and the Westin hotel. Saks Fifth Avenue recently extended their lease through January 2029, with three remaining, ten-year renewal options. The former second largest tenant, The Theaters at Canal Place (10% of NRA), closed permanently during 2019. The borrower is currently working to replace the theater with a local theater operator based in New Orleans. The collateral was 87% leased as of September 2020, compared to 93% in March 2019 and 95% in 2017. The property was temporarily closed in relation to the coronavirus outbreak and re-opened during April 2020. As of September 2020, the annualized 2020 DSCR was below 1.00X due to lower rental revenues. However, the property had exhibited stable operating performance prior to 2020 and the property benefits from its location adjacent to the French Quarter and directly across the street from Harrah's Casino. The loan has amortized by approximately 6% and Moody's LTV and stressed DSCR are 121% and 0.81X, respectively, compared to 118% and 0.80X at the last review.The second largest loan is the CityScape - East Office/Retail Loan ($93.7 million -- 10.6% of the pool), which represents a pari passu portion of a $173.4 million first-mortgage. The property is also encumbered by $25 million of mezzanine debt, held outside of the CMBS trust. The collateral consists of a 28-story office tower, ground-level retail, a five-level subterranean parking structure and the borrower's leasehold interest in an adjacent retail parking structure, all located in downtown Phoenix, Arizona. The property is part of a mixed-use development campus that spans three city blocks. The ground lease, with the city of Phoenix, has fixed payments of $27,500 during the first ten years and increases to $55,000 in the 11th year and 2.5% per annum thereafter. The property was 89% leased as of September 2020, compared to 89% in March 2019, 93% in June 2018 and 96% at year-end 2017. The property's 2019 NOI declined due to higher operating expenses combined with lower rental revenues. However, the largest tenant at the property recently renewed their lease and will be expanding its footprint at the property, increasing from 18% to approximately 25% of the property's NRA. The loan has amortized by over 6% and Moody's LTV and stressed DSCR are 112% and 0.89X, respectively, compared to 113% and 0.88X at the last review.The third largest loan is The Haier Building Loan ($23 million -- 2.6% of the pool), which is secured by a 63,500 SF mixed use property located in New York, New York. The largest tenant is Gotham Hall which occupies 47,000 SF (74% of NRA) through December 2032 and uses the venue for event space. The event space component is situated on the first five floors while the office component is primarily comprised of the basement level and sixth floor but includes parts of the third, fourth, and fifth floors. The property was 82% leased as of September 2020, unchanged from the last several years and compared to 100% at securitization. The asset is also zoned for building naming rights. Chinese home appliance company, Haier Group, terminated their lease in 2014, however, they continue to lease the naming rights through 2021. The loan is interest only for its entire term and matures in January 2024. Moody's LTV and stressed DSCR are 110% and 1.07X, unchanged from the last review.REGULATORY DISCLOSURESFor 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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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. Fred Kasimov Associate Lead Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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