KBRA Downgrades Ratings for Six Classes and Affirms One Rating for GSMS 2018-RIVR
25 Oct 2024 | New York
KBRA downgrades the ratings for six classes of GSMS 2018-RIVR, a CMBS SASB transaction. KBRA simultaneously removes the Watch Downgrade (DN) status for all of the rated classes where they were placed on July 24, 2024 as a result of an increase in interest shortfalls for the transaction, after the April and May servicer remittance reports were restated to include a $226.0 million ARA and corresponding ASER. The downgrades reflect a further increase in the ARA since KBRA's last ratings adjustment in May 2024 and the resulting interest shortfalls which now impact all classes of certificates.
KBRA previously downgraded the ratings of seven classes of certificates following a surveillance review of the transaction in May 2024. The downgrades were primarily driven by a deterioration in collateral performance as well as the loan’s non-performing status with the special servicer and interest shortfalls affecting the deal at that time. As of the October 2024 reporting, the loan’s status is non-performing matured balloon and there are $5.2 million in outstanding P&I advances and the cumulative ASER is $9.1 million. Due to the magnitude of the current ASER, with the exception of Class A, none of the rated classes of certificates have received monthly interest distributions since June. Class A has been receiving distributions at about 70.0% of its monthly accrued interest.
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 one-month Term SOFR plus an initial spread of 1.495%. The financing includes mezzanine debt of $60.0 million. 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 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 Chicago CBD’s River North submarket, which has experienced a significant weakening in recent quarters. According to Colliers Q2 2024 CBD Office Report, the overall Chicago office market vacancy was 29.6%, with the River North submarket posting total availability of 31.8%. According to the collateral property's June 2024 rent roll, occupancy decreased to 65.3% compared to 68.5% as of December 2023 and 92.1% at issuance.
KBRA analyzed the cash flow for the property utilizing information from the trustee and servicer to determine KNCF. The analysis produced a KNCF of $9.7 million and a KBRA value of $97.1 million ($75per sf) which considers an as-is distressed liquidation of the property. The resulting in-trust KLTV is 318.9%, compared to 209.9% at last review and 99.6% at securitization. Based on KBRA’s value, it is likely that the trust will incur principal losses upon final disposition of the asset. 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 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 status and its KPO of Underperform.
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 which will be dependent on the value of the asset and the disposition of the loan. The assessment will consider the expected and actual losses, as well as the magnitude and extent of accrued interest shortfalls on the certificates.
Details for the classes with rating changes are as follows:
- Class A to B- (sf) from A- (sf)
- Class B to CCC (sf) from BBB- (sf)
- Class C to CC (sf) from BB- (sf)
- Class D to C (sf) from B- (sf)
- Class E to C (sf) from CCC (sf)
- Class F to C (sf) from CC (sf)
To access ratings and relevant documents, click here.