Rating Action: Moody’s affirms nine classes and downgrades one class of GSMS 2014-GC26
Global Credit Research – 26 Jan 2021
Approximately $891.6 million of structured securities affected
New York, January 26, 2021 — Moody’s Investors Service, (“Moody’s”) has affirmed the ratings on nine classes and downgraded the rating on one class in GS Mortgage Securities Trust 2014-GC26, Commercial Mortgage Pass-Through Certificates, Series 2014-GC26 as follows:
Cl. A-3, Affirmed Aaa (sf); previously on Mar 11, 2020 Affirmed Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on Mar 11, 2020 Affirmed Aaa (sf)
Cl. A-5, Affirmed Aaa (sf); previously on Mar 11, 2020 Affirmed Aaa (sf)
Cl. A-AB, Affirmed Aaa (sf); previously on Mar 11, 2020 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aa1 (sf); previously on Mar 11, 2020 Affirmed Aa1 (sf)
Cl. B, Affirmed Aa3 (sf); previously on Mar 11, 2020 Affirmed Aa3 (sf)
Cl. C, Downgraded to Baa1 (sf); previously on Mar 11, 2020 Affirmed A3 (sf)
Cl. PEZ**, Affirmed A1 (sf); previously on Mar 11, 2020 Affirmed A1 (sf)
Cl. X-A*, Affirmed Aa1 (sf); previously on Mar 11, 2020 Affirmed Aa1 (sf)
Cl. X-B*, Affirmed Aa3 (sf); previously on Mar 11, 2020 Affirmed Aa3 (sf)
* Reflects interest-only classes
** Reflects exchangeable class
The ratings on six 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 rating on Cl. C was downgraded due to decline in pool performance and higher anticipated losses as a result of the increased share of specially serviced loans. The six specially serviced loans are secured by retail and hotel properties and in total make up 12% of the pool. The largest specially serviced loan, Queen Ka’ahumanu Center (8% of the pool), is secured by a regional mall which had experienced declining performance prior to 2020 and was 60 days delinquent as of the January remittance date.
The ratings on the IO classes were affirmed based on the credit quality of the referenced classes.
The rating on class PEZ was affirmed due to the credit quality of the referenced exchangeable classes.
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 11.8% of the current pooled balance, compared to 7.9% at Moody’s last review. Moody’s base expected loss plus realized losses is now 10.5% of the original pooled balance, compared to 7.3% 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 principal methodology used in rating all classes except exchangeable classes and interest-only classes was "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. 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 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.
As of the January 12, 2021 distribution date, the transaction’s aggregate certificate balance has decreased by 14% to $1.07 billion from $1.26 billion at securitization. The certificates are collateralized by 81 mortgage loans ranging in size from less than 1% to 8% of the pool, with the top ten loans (excluding defeasance) constituting 46% of the pool. Eleven loans, constituting 10% 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 27, compared to a Herf of 30 at Moody’s last review.
As of the January 2021 remittance report, loans representing 80% were current or within their grace period on their debt service payments, 8% were beyond their grace period but less than 30 days delinquent, 8% were between 30 — 59 days delinquent and 3% were 90+ days delinquent.
Fifteen loans, constituting 28% of the pool, are on the master servicer’s watchlist, of which three loans, representing 10% of the pool, indicate the borrower has 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.
Two loans have been liquidated from the pool, resulting in an aggregate realized loss of $4.7 million (for an average loss severity of 15%). Six loans, constituting 12% of the pool, are currently in special servicing. Five of the specially serviced loans, representing 11% of the pool, have transferred to special servicing since April 2020.
The largest specially serviced loan is the Queen Ka’ahumanu Center loan ($86.8 million — 8.1% of the pool), which is secured by the borrowers’ fee simple interest in a 507,904 square foot (SF) regional mall located on the island of Maui in Kahului, Hawaii. The mall features an open-air design and is the only regional mall in Maui. The property is anchored by two Macy’s stores (82,950 SF and 80,080 SF) with lease expiration in 2024 and a Sears (77,580 SF) with a lease expiration in October 2023. Junior anchors include a Foodland Grocery Store and a 6-screen Ka’ahumanu Theatre, which had temporarily closed as a result of the coronavirus pandemic. As of March 2020, the property was 89% leased compared to 90% leased in December 2019. As of year-end 2019 in-line occupancy was 80%. The property’s net operating income (NOI) had been falling since year-end 2016 due to declining rental revenue and increased expenses. The year-end 2019 NOI was 44% lower than in 2016 and the 2019 DSCR (NOI) was 0.96X. The declining performance accelerated in 2020 with a NOI DSCR in March 2020 of 0.84X. The loan was originally structured with a five-year interest-only period that ended in October 2019 and has since amortized 1.9% from securitization. The loan transferred to special servicing in June 2020 after the property’s cash flow had been further impacted by the coronavirus pandemic. The borrower was previously funding debt service shortfalls through portions of 2020, however, as of the January 2021 remittance date the loan was last paid through its October 2020 payment date. The special servicer is currently dual tracking the foreclosure process along with a potential loan modifications.
The second largest specially serviced loan is the Hilton Garden Inn Cleveland Airport loan ($13.1 million — 1.2% of the pool), which is secured by a 7-story, 168-key full-service hotel located in Cleveland, OH approximately 1-mile North of Cleveland-Hopkins International Airport and 10-miles SW of Cleveland CBD. The property operates under a franchise agreement with Hilton expiring in 2034. The loan benefits from amortization and has amortized nearly 10% since securitization. The property had performed well prior to 2020 with increasing revenue and had a 2.57X NOI DSCR for the trailing-twelve-month period ending September 2019. However, the property’s cash flow was significantly impacted by the pandemic and the loan transferred to special servicing in June 2020. As of the January 2021 remittance statement the loan was last paid through March 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.
The third largest specially serviced loan is the Staybridge Suites Lafayette loan ($12.4 million — 1.2% of the pool), which is secured by a 118-key extended-stay hotel located in Lafayette, Louisiana. The loan transferred to special servicing in December 2017 and subsequently became REO in March 2019. Property performance had already declined due to significant exposure to the oil and gas industry. According to the special servicer, the property is under contract for sale and scheduled for closing in February 2021.
The remaining three specially serviced loans are secured by limited service hotel properties and each represent less than 1% of the pool. Moody’s estimates an aggregate $72.1 million loss for the specially serviced loans (59% expected loss on average).
As of the January 2021 remittance statement cumulative interest shortfalls were $1.5 million. 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 94% of the pool (excluding specially serviced and defeased loans). Moody’s weighted average conduit LTV is 112%, compared to 108% 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 9.6%.
Moody’s actual and stressed conduit DSCRs are 1.50X and 0.97X, respectively, compared to 1.55X and 1.00X 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 21% of the pool balance. The largest loan is the 1201 North Market Street loan ($81.0 million — 7.5% of the pool), which is secured by a 23-story, Class A office building containing 447,440 SF of net rentable area, located in Wilmington, Delaware. The building contains a 32,800 SF component that operates as a Tier III data co-location center, which provides high speed data connections to area networks and providers. As of the September 2020 annualized financials, revenues at the property had declined 10% when compared to 2018 while occupancy and expenses have remained relatively stable. As of September 2020, the property was 79% leased, unchanged from December 2019 and down from 81% as of December 2018. The September 2020 year-to-date actual NOI DSCR dropped to 1.30X from 1.35X in December 2019 and 1.43X in December 2018. The loan began amortizing in November 2017 after a three-year interest-only period and has since amortized 5.2%. Moody’s LTV and stressed DSCR are 133% and 0.77X, respectively, compared to 120% and 0.85X at the last review.
The second largest loan is the 5599 San Felipe loan ($78.5 million — 7.3% of the pool), a 20-story, Class A office building located in Houston, Texas. The property includes an eight-level parking garage, an on-site deli and panoramic views of downtown Houston and the Galleria district. The property’s cash flow has been impacted by the coronavirus pandemic and the annualized September 2020 NOI at the property declined 30% when compared to the year ending December 2019, primarily driven by a decline in rental revenues. As of September 2020, the property was 92% leased, compared to 99% as of December 2019. Schlumberger Ltd, an oilfield services company, is the property’s largest tenant, occupying 72% of the NRA with a lease expiration in July 2027. Moody’s value takes into account declining performance of the property and the significant single tenant exposure. The loan began amortizing in November 2019 after a five-year interest-only period and has since amortized 1.9%. Moody’s LTV and stressed DSCR are 153% and 0.72X, respectively, compared to 130% and 0.89X at the last review.
The third largest loan is the Twin Cities Premium Outlets loan ($65.0 million — 6.1% of the pool), which represents a pari passu interest in a $115.0 million senior mortgage loan. The loan is secured by a 409,207 SF open-air outlet shopping center located in Eagan, MN, approximately 10 miles south of downtown Minneapolis and 5 miles south of Mall of America. The borrowing entity is a joint venture between affiliates of Paragon Outlets (an affiliate of The Lightstone Group) and Simon Property Group, L.P. The property was constructed in 2014 and major tenants at the property include Saks Off Fifth (6.8% of NRA), Nike (4.2%), Polo (3.7%), Old Navy (3.0%), Under Armour (2.9%) and Gap (2.8%). As of September 2020, the property was 88% leased compared to 93% in 2019 and 96% in 2018. There is minimal lease rollover over the next twelve months, however, approximately 53% of the NRA is due to expire in 2024. The trailing-twelve-month sales at the property as of June 2020 were $429 PSF compared to $485 PSF as of June 2019. The year-end 2019 NOI was up 17% as compared to securitization due to higher revenues, however the property’s cash flows have since been affected by the coronavirus pandemic. The property closed temporarily in March 2020 due to the pandemic but reopened in May 2020. Although property performance declined through June 2020, the June 2020 NOI DSCR was 2.51X compared to 2.93X in 2019. The loan is interest only for its entire term and has remained current. Moody’s LTV and stressed DSCR are 105% and 1.00X, respectively, compared to 97% and 1.09X 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.
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.
Yoni Lobell Associate 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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