KBRA Places Ratings for all Classes of GSMS 2018-RIVR on Watch Downgrade

KBRA places all ratings GSMS 2018-RIVR, a CMBS SASB transaction, on Watch Downgrade. The Watch action is primarily driven by an increase in interest shortfalls which have impacted all of the rated classes since May 29, 2024, after the April and May servicer remittance reports were restated to include an Appraisal Subordination Entitlement Reduction (ASER), which totaled $1.1 million in April and $1.3 million in May. The May reporting also included a $226.0 million Appraisal Reduction Amount (ARA), a change from $168.5 million as of the April 2024 reporting. Due to the magnitude of the cumulative ASER, all of the rated classes of certificates have not received monthly interest distributions since June except Class A which has been receiving distributions at about 70% of its monthly accrued interest.

On May 2, 2024, KBRA downgraded the ratings of seven classes of certificates following a surveillance review of the transaction. The downgrades were primarily driven by a deterioration in collateral performance stemming largely from declining occupancy in the context of a weak Chicago office market, as well as the loan’s non-performing status with the special servicer and interest shortfalls incurring at that time. The loan transferred to the special servicer on May 11, 2023, after the borrower, an affiliate of Blackstone Inc. (Blackstone) indicated that it would be unable to remit amounts owed under the loan and would not support the property with additional equity. The loan’s third extension matured in July 2023, and it was not extended further.

The collateral for the transaction is a $309.8 million non-recourse, first lien floating rate mortgage loan that had an initial two-year term with five, one-year extension options and requires monthly interest-only payments based on a one-month Term SOFR plus an initial spread of 1.495%. The financing included mezzanine debt of $60.0 million. As of the July 2024 reporting the, the loan’s status is non-performing matured balloon and there are $3.8 million in outstanding P&I advances. The loan carries an ARA of $226.0 million and a cumulative ASER of $5.1 million. Although an appraisal value has not been made available by the special servicer, the current ARA suggests a 79.2% decrease in the collateral’s original appraised value of $469 million. According to the special servicer, which changed from Wells Fargo to KeyBank National Association on June 4 2024, potential resolution strategies are currently under consideration. Prior master servicer commentary indicated that the property was listed for sale with JLL in late 2023; however, a listing price was not provided.

The loan is secured by the borrower’s fee simple interest in 1.3 million sf of River North Point, a Class-A office property located in the River North submarket of Chicago, Illinois, within the city’s CBD. The Chicago office market has experienced a significant weakening in recent quarters. According to Colliers Q1 2024 CBD Office Report, overall office market vacancy has reached an historical record high of 29.6%, with the River North submarket posting total availability of 32.6%, representing over 6.0 million square feet. Pursuant to the December 2023 rent roll, collateral occupancy decreased to 71.8% compared to 75.4% a year prior and 92.1% at issuance. The servicer-reported DSCs are: 0.53x (FY 2023), 1.42x (FY 2022), 1.91x (FY 2021); at issuance, the underwritten DSC was 2.59x. KBRA maintains the loan’s K-LOC designation and KPO of Underperform.

If KBRA determines that the interest shortfalls will likely continue until the special servicer works through the resolution of the asset and that such workout timing could be protracted, downgrades are likely. KBRA will seek to resolve or update the Watch Downgrade status within 90 days.

Note: This press release has been updated since its original publication date on July 24, 2024, to correct an erroneous statement in the first sentence. All ratings were placed on Watch Downgrade, not Watch Developing.

Details for the classes with ratings changes are as follows:

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