KBRA Downgrades All Remaining Ratings for GSMS 2012-GCJ9
22 Mar 2024 | New York
KBRA downgrades the ratings of the three remaining classes of certificates for GSMS 2012-GCJ9, a $120.8 million CMBS conduit transaction. The rating actions follow a review of the transaction and KBRA’s loss expectations and the likelihood of interest shortfalls continuing during the resolution of the transaction’s two remaining loans.
As of the March 2024 remittance period, there are two remaining loans in the transaction, the largest of which is Jamaica Center (52.2% of pool balance), which is in foreclosure and was deemed non-recoverable during the December 2023 remittance period. The non-recoverable determination has resulted in interest shortfall occurring on all the remaining classes of the transactions as the master servicer is diverting payments from the Gansevoort Park Avenue (47.8%) loan to pay back non-recoverable advanced interest from the Jamaica Center loan. The details of both remaining loans are outlined below.
Jamaica Center (largest, 52.2%, K-LOC, Underperform, Foreclosure)
- The loan is collateralized by a 215,806 sf, three-story, mixed-use complex located in Queens, New York. The property combines office, retail, theater, and parking uses. The City of New York serves as an equity partner in the property through a 99-year ground lease structure which allows the city the right to participate in cash flows derived from the property.
- KBRA maintains the loan's K-LOC designation and its KPO of Underperform based on its maturity default in November 2022. The loan was initially transferred to the special servicer in August 2020 due to the impact of COVID-19 and continuing delinquency. The special servicer is exclusively pursuing foreclosure and litigation remains ongoing. In addition, National Amusements, which operates a 15-screen movie theatre and accounted for 8.0% of total base rent at last review and 83,000 sf (38.7% of total sf), has announced that it will close in April 2024. As a result, occupancy is expected to decline to below 65.0%.
- The servicer-reported occupancies and DSCs are: 92.0% / 1.39x (YTD June 2022), 80.0% / 0.90x (FY 2020), at closing, these were 100% / 1.61x. An appraisal dated July 2023 valued the asset at $88.7 million ($411 per sf), which is 30.0% below the $125.5 million ($582 per sf) value at issuance. KBRA's analysis resulted in an estimated loss of $10.8 million (17.1% estimated loss severity) on the $63.1 million loan balance.
Gansevoort Park Avenue (2nd largest, 47.8%, K-LOC, Underperform)
- The loan is collateralized by a 19-story, 249-key, luxury, boutique hotel located in the Gramercy Park/Flatiron neighborhood of Manhattan in New York City.
- KBRA maintains the loan’s K-LOC designation and its KPO of Underperform based on its ongoing weak financial performance. In July 2021, the special servicer approved a loan modification and extension, extending the loan’s term two years, to June 2024. Performance has trended downwards since 2014 and was exacerbated by the COVID-19 pandemic. The steady decline in the property’s financial performance is primarily attributable to lower food and beverage income and to an increase in real estate taxes. The servicer commentary indicates that borrower has requested further modification of the loan.
- An ownership transfer occurred in December 2017, at which time the collateral was valued at approximately $200.0 million ($803,212 per key). In conjunction with the permitted transfer, an entity affiliated with the sponsor at issuance retained an equity stake, a new joint venture of GreenOak Real Estate and Highgate purchased an equity stake, the $20.0 million mezzanine loan was paid off, and the hotel was re-branded as Royalton Park Avenue.
- The servicer-reported occupancies and DSCs are: 73.0% / 0.35x (TTM June 2023), 65.0% / 0.41x (FY 2022); at closing, these were 84.0% and 1.77x. An appraisal dated June 2021 valued the asset at $98.2 million ($394,378 per key), representing a 64.7% decrease from the $278.0 million ($1.1 million per key) value at issuance. The loan matures in June 2024. KBRA's analysis resulted in an estimated loss of $52.1 million (42.0% estimated loss severity) on the whole loan balance of $124.2 million.
Details concerning the classes with ratings changes are as follows:
- Class D to CCC (sf) from BBB- (sf)
- Class E to CC (sf) from B- (sf)
- Class F to C (sf) from CCC (sf)
Rating Sensitivities
Future rating actions will be dependent upon the ongoing assessment of the timing and likelihood of ultimate payment of principal and accrued interest on the rated certificates. The assessment will consider the expected and actual losses on the remaining assets in the transaction, as well as the continuing magnitude and extent of interest shortfalls on the certificates.
To access rating and relevant documents, click here.