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Rating Action: Moody's affirms five and downgrades two classes of GSMS 2015-GS1
Global Credit Research - 25 Nov 2020
Approximately $639.6 million of structured securities affected
New York, November 25, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on five classes and downgraded the ratings on two classes in GS Mortgage Securities Trust 2015-GS1, Commercial Mortgage Pass-Through Certificates, Series 2015-GS1 as follows:
Cl. A-2, Affirmed Aaa (sf); previously on Dec 13, 2018 Affirmed Aaa (sf)
Cl. A-3, Affirmed Aaa (sf); previously on Dec 13, 2018 Affirmed Aaa (sf)
Cl. A-AB, Affirmed Aaa (sf); previously on Dec 13, 2018 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aa2 (sf); previously on Dec 13, 2018 Affirmed Aa2 (sf)
Cl. B, Downgraded to A2 (sf); previously on Dec 13, 2018 Affirmed A1 (sf)
Cl. X-A*, Affirmed Aa1 (sf); previously on Dec 13, 2018 Affirmed Aa1 (sf)
Cl. X-B*, Downgraded to A2 (sf); previously on Dec 13, 2018 Affirmed A1 (sf)
* Reflects interest-only classes
The ratings on four P&I classes were affirmed due 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 rating on Cl. B was downgraded due to a decline in pool performance and higher anticipated losses as a result of the increased share of specially serviced loans. The three specially serviced loans are secured by hotel and retail properties and make up 14.4% of the pool. The largest specially serviced loan, Glenbrook Square (7.2% of the pool), is secured by a regional mall and is last paid through its April 2020 payment date.
The rating on one IO Class, Cl. X-A, was affirmed based on the credit quality of the referenced classes.
The rating on one IO Class, Cl. X-B, was downgraded due to a decline in the credit quality of its referenced class.
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 8.8% of the current pooled balance, compared to 5.0% at Moody's last review. Moody's base expected loss plus realized losses is now 8.5% of the original pooled balance, compared to 4.9% 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 November 13, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 3.6% to $791.4 million from $820.6 million at securitization. The certificates are collateralized by 39 mortgage loans ranging in size from less than 1% to 12.6% of the pool, with the top ten loans (excluding defeasance) constituting 65.9% of the pool. One loan, constituting 12.6% of the pool, has an investment-grade structured credit assessment. One loan, constituting 0.9% of the pool, has defeased and is 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 17, compared to a Herf of 18 at Moody's last review.
As of the November 2020 remittance report, loans representing 73% were current or within their grace period on their debt service payments, 13% were beyond their grace period but less than 30 days delinquent and 14% were 90+ days delinquent.
Ten loans, constituting 36% of the pool, are on the master servicer's watchlist, of which three loans, representing 10% of the pool, indicate the borrower has either requested relief or 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.
No loans have been liquidated from the pool. Three loans, constituting 14% of the pool, are currently in special servicing. All the specially serviced loans have transferred to special servicing since March 2020.
The largest specially serviced loan is the Glenbrook Square Loan ($56.9 million -- 7.2% of the pool), which represents a pari passu portion of a $157.3 million mortgage loan. The loan is secured by 1.0 million square foot (SF) of a 1.2 million square foot (SF) regional mall located in Fort Wayne, Indiana. At securitization the mall included four anchor tenants, Macy's, Sears (non-collateral), JC Penney and Carson's. However, Sears and Carson's vacated their space in 2018. The Sear's space is currently being redeveloped into a multi-tenant structure and approximately 50% of the former Carson's space, approximately 61,000 SF, has been leased to Round 1 on a 10-year term. The property's historical performance has generally declined since 2016 driven primarily by lower rental revenue. The December 2019 NOI was 20% below the property's underwritten NOI and the actual 2019 NOI DSCR was 1.32X. As of September 2020, in-line occupancy at the property was 81%, or 70% if excluding temporary tenants. Excluding the dark Sears space, the total mall occupancy was 78%. Comparable in-line sales (<10,000 SF) for the trailing-twelve-month period ending June 2020 were $371 PSF, compared to $436 PSF in 2019 and $427 PSF in 2018. The loan has now amortized 5% since securitization after an initial 2-year interest only period. The loan transferred to special servicing in July 2020 as the property's cash flow was significantly impacted by the coronavirus pandemic. The property is the only major enclosed mall within the market, with the closest regional mall located 64 miles away. The loan is last paid through its April 2020 and the special servicer indicated they are in discussions with the borrower regarding a potential modification request, but are also exploring resolution alternatives in case an acceptable agreement cannot be reached.
The second largest specially serviced loan is the Hammons Hotel Portfolio Loan ($41.6 million -- 5.3% of the pool), which represents a pari passu portion of a $230.5 million mortgage loan. The loan is secured by the borrower's fee and leasehold interest in a portfolio of seven hotels located across seven states and totals 1,869 keys. Four of the hotels are flagged as Embassy Suites and the remaining three carry Marriott flags. The loan transferred to special servicing in June 2020 for delinquent payments due to both declining occupancy and revenue as a result of the pandemic. Through year-end 2019 the property's performance had significant increased from securitization due to higher revenue and the 2019 NOI DSCR was 2.16X. Furthermore, the loan has amortized 8% since securitization. The loan is last paid through its March 2020 payment date and the special servicer indicated they are currently in discussions with the borrower regarding a COVID-19 relief request. Due to the historical performance the loan was included in the conduit statistics with a Moody's LTV of 128%. However, these metrics are based on return of both leisure and group and meeting demand which may lag that of the overall US pace of recovery.
The third largest specially serviced loan is the Latham Crossing & Crossroads Plaza Loan ($14.7 million -- 1.9% of the pool), which is secured by a 83,575 SF neighborhood strip center, and, a free standing 17,235 SF retail building located in Latham, NY. The property is shadow anchored by a Sam's Club, Home Depot, Dick's Sporting Goods and Hannaford Supermarket. In September 2019, the third largest tenant, Kinkaid Furniture (12% of the NRA), vacated its space. As a result of the pandemic several tenants made partial payments or stopped paying rent completely and the loan transferred to special servicing in June 2020. The loan is last paid through its March 2020 payment date. The loan has amortized 5% since securitization and the special servicer indicated they are currently in discussions with the borrower regarding a potential resolution.
Moody's estimates an aggregate $28.3 million loss for two of the specially serviced loans (39.5% expected loss on average).
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 99% of the pool, and partial year 2020 operating results for 80% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 120%, the same as 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 21% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 10.1%.
Moody's actual and stressed conduit DSCRs are 1.51X and 0.93X, respectively, compared to 1.52X and 0.92X 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 loan with a structured credit assessment is the 590 Madison Avenue Loan ($100.0 million -- 12.6% of the pool), which represents a pari passu portion of a $369.4 million first-mortgage loan. A controlling subordinate loan with a principal balance of $280.6 million is subordinate to the three senior interests. The loan is secured by a 43-story Class A office building located in Midtown Manhattan. Additional loan collateral includes a 78-space tenant-only parking facility and a 15,000 SF glass enclosed atrium. The property was 78% leased as of June 2020, compared to 79% leased in December 2018. The loan was structured with a $19 million TI/LC reserve for the vacant space. As of August 2020, an additional 8.6% of the NRA was leased to American Securities LLC through January 2037. The property's NOI has yet to reach the expectation at securitization due to lower revenues. As of December 2019, the property's NOI was $46.8 million, up 7% from $43.5 million in 2016. Moody's structured credit assessment and stressed DSCR are aa2 (sca.pd) and 1.42X, respectively.
The top three conduit loans represent 26% of the pool balance. The largest loan is the South Plains Mall Loan ($70.0 million -- 8.8% of the pool), which represents a pari passu portion of a $200 million mortgage loan. The loan is secured by the borrower's fee simple interest in a 984,000 SF component of a 1.1 million SF super-regional mall located in Lubbock, Texas. The property is the dominant mall in its trade area and is the only enclosed regional mall for over 100 miles. The property is anchored by a JCPenney, Dillard's Women, Dillard's Men & Children, 16-screen Premier Cinemas, Bealls (non-collateral), a free-standing Home Depot (non-collateral) and Barnes & Noble. There was a 144,000 SF Sears (non-collateral anchor) at the property which closed in early 2019. The borrower has taken control of the vacant Sears space and is currently structuring a redevelopment plan which is being reviewed by the Master Servicer. As of September 2020, the mall was 94% leased, compared to 95% in September 2019 (83% excluding the vacant non-collateral Sears). The June 2020 trailing-twelve-month comparable in-line sales (excluding jewelry and food court) were $400 PSF, compared to $463 PSF in November 2019 and $421 PSF in June 2018. The property reopened in May 2020 after being closed due to the coronavirus pandemic. Through year-end 2019 the property's performance was in-line with expectation at securitization, however, through July 2020 property performance has declined as a result of the coronavirus pandemic. The year-to-date July 2020 NOI DSCR was 1.86X, compared to 2.15X in 2019. The loan is interest only throughout its entire term and Moody's LTV and stressed DSCR are 134% and 0.79X, respectively, compared to 112% and 0.90X at the last review.
The second largest loan is the Element LA Loan ($70.0 million -- 8.8% of the pool), which represents a pari passu portion of $168 million mortgage loan. The loan is secured by a five-building, 284,000 square foot (SF) creative office campus redevelopment and six-story parking garage located in Los Angeles, California. The property is 100% leased to Riot Games, a creator of online video games, through March 2030 and serves as their global headquarters. Moody's incorporated a lit/dark analysis to account for the single tenant nature of the building. Moody's LTV and stressed DSCR are 118% and 0.88X, respectively, compared to 124% and 0.84X at the last review.
The third largest loan is the Westin Boston Waterfront Loan ($63.9 million -- 8.1% of the pool), which represents a pari passu portion of a $187.2 million mortgage loan. The loan is secured by a 793-room, full-service hotel located in the Seaport submarket of Boston, Massachusetts. The property is 16 stories tall and includes 89,000 square feet (SF) of meeting space, five food and beverage outlets and a fitness center. The hotel is operated by an affiliate of Starwood under a long-term management agreement. The property reopened in September after being closed due to the coronavirus pandemic. The 2019 NOI DSCR was 1.93X, however, as a result of the property's temporary closure and the fallout from travel bans and social distancing measures, the property did not generate enough cash flow during the second quarter of 2020 to cover operating expenses. The loan has remained current as of the current distribution date and has amortized nearly 9% since securitization. Moody's LTV and stressed DSCR are 128% and 0.91X, respectively, however, these metrics are based on return of both leisure and group and meeting demand.
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_1133569.
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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