KBRA Downgrades Two Ratings and Affirms Two Ratings for GACM 2019-FL1
7 Jun 2024 | New York
KBRA downgrades the ratings of two notes and affirms the ratings of two notes of GACM 2019-FL1, a CRE CLO transaction with an 18-month reinvestment period, which ended in November 2020. The downgrades are driven by an increase in KBRA’s estimated losses for the remaining five loans, all of which have been identified as K-LOCs with losses. Of the five remaining loans, three of the loans (67.3% of the current pool balance) are specially serviced and include two loans with a non-performing matured balloon status (44.4%) and one loan in foreclosure (22.9%). However, the transaction has benefited from increased note subordination levels, which resulted in the trust paying down by $500.1 million (80.0% of the issuance balance).
The securitization includes an overcollateralization cash diversion test and an interest coverage test, both of which have been satisfied during each remittance date since closing. However, Class G is accumulating interest deferrals at this time, as insufficient cash is being generated as a result of two loans deferring monthly interest payments. If additional loans were to defer monthly interest payments, the PIKable feature could shift vertically in the capital structure to impact additional classes. The details of the loans are outlined below.
Sunset Yards (largest, 32.6%, K-LOC)
- The loan is collateralized by 192,174 sf, Class-A office property located in the Sunset Park neighborhood of Brooklyn, New York. The loan was contributed to the trust as a ramp up mortgage asset in October 2019.
- KBRA maintains the loan’s K-LOC designation due to challenges in the ability of the asset to meet business plan expectations due to a decline in the office market sector. The loan was modified in July 2023 to extend the final maturity to July 2024, and it has one, 12-month extension option remaining, which is expected to be utilized. As part of the modification, the loan was paid down by $1.0 million and $2.8 million was deposited into a reserve account.
- The sponsor’s business plan was to utilize $7.8 million to lease up the vacant property to a stabilized level of 88.0%. As of the March 2024 rent roll, the property was 36.8% leased, in line with last review. According to the manager’s most recent update, Friends at Prospect School, the largest tenant, has been approved to expand by an additional 40,152 sf. Once the expansion occurs, the property’s occupancy is expected to increase to 59.1%. KBRA’s analysis resulted in an estimated loss given default of $21.5 million (44.5% estimated loss severity) on the whole loan of $48.4 million. The whole loan includes the in-trust participation, outside participation, and unfunded future funding.
Ambassador Hotel (2nd largest, 26.6%, Non-Performing Matured Balloon)
- The loan is collateralized by a 285-key, full-service hotel located within the Gold Coast district of Chicago, Illinois, approximately two miles north of the CBD. The loan was contributed to the trust as a ramp up mortgage asset in October 2019.
- KBRA maintains the loan’s K-LOC designation due to the loan’s non-performing matured balloon status. The loan transferred to the special servicer in July 2023 following the failure to pay-off at final maturity and a receiver was appointed in August 2023. According to the manager’s most recent update, final sale bids were received in Q1 2024, and the final terms of a purchase and sale agreement are being negotiated with a buyer.
- An appraisal dated September 2023 indicates an as-is value of $32.0 million, down from $61.2 million at origination. KBRA’s analysis resulted in an estimated loss of $9.1 million (27.6% estimated loss severity) on the whole loan of $33.1 million. The whole loan includes the in-trust participation and outside participation.
7600 Leesburg Pike (3rd largest, 22.9%, Foreclosure)
- The loan is collateralized by a 218,758 sf, Class-B suburban office complex located in Falls Church, Virginia, approximately 10 miles west of Washington, D.C. The collateral contains 10.16-acres.
- KBRA identified the loan as a K-LOC due to the loan’s foreclosure status. The loan transferred to the special servicer in July 2023 following maturity default and in November 2023 was foreclosed on. The property has failed to meet the business plan’s expectation of achieving a stabilized occupancy of 81.7% due to a decline in the office market sector. As of the March 2024 rent roll, the property is 26.5% leased, compared to 66.9% at last review and 52.0% at securitization.
- According to the manager’s most recent update, the property is located within a Limited Office District with the ability to accommodate five to eight residential units per acre. Currently, a highest and best-use analysis is being completed and preliminary re-zoning has been submitted to the county board. An appraisal dated October 2022 indicates an as-is value of $37.8 million, up from $33.3 million at origination. KBRA’s analysis resulted in an estimated loss of $16.8 million (59.2% estimated loss severity) on the in-trust whole loan of $28.5 million.
DoubleTree Atlanta Perimeter (4th largest, 17.8%, Non-Performing Matured Balloon)
- The loan is collateralized by a 250-key, full-service hotel located in Atlanta, Georgia, approximately 14 miles north of the city’s CBD.
- KBRA maintains the loan’s K-LOC designation due to the loan’s non-performing matured balloon status. The loan transferred to the special servicer in August 2023 following the failure to pay-off at final maturity. According to the manager’s most recent update, a receiver has been appointed and is working to stabilize operations.
- An appraisal dated November 2023 indicates an as-is value of $18.5 million, down from $35.5 million at origination. KBRA’s analysis resulted in an estimated loss of $8.3 million (37.4% estimated loss severity) on the in-trust whole loan of $22.2 million.
2400 East Cesar Chavez (5th largest, 0.1%, K-LOC)
- The loan is collateralized by a 57,367 sf, mixed-use, office and retail, property located in Austin, Texas, approximately eight miles southeast of the CBD. The loan was contributed to the trust as a reinvestment mortgage asset in July 2020.
- KBRA identified the loan as a K-LOC due to tenant rollover concerns. Between 2024 and 2026, ten tenants have lease expirations. The tenants represent 85.6% of total base rent and 74.9% of total square footage. Coupled with the rollover concerns, the office market sector has experienced a decline in demand, and the property includes 33.9% of the collateral office square footage. The loan was extended to January 2025 and has no remaining options.
- The sponsor’s business plan included a capital expenditures plan and leasing up the property to a stabilized level of 92.0%. As of the March 2024 rent roll, the property is 91.0% leased, compared to 93.1% at last review and 88.0% at contribution. According to the collateral manager’s most recent update, the capital improvement projects have been completed. KBRA’s analysis resulted in an estimated loss given default of $1.7 million (10.8% estimated loss severity) on the whole loan of $16.0 million. The whole loan includes the in-trust participation and outside participation.
Details concerning the ratings are as follows:
Affirmations
- Class D at BBB (sf)
- Class E at BBB- (sf)
Downgrades
- Class F to B (sf) from BB- (sf)
- Class G to CCC (sf) from B- (sf)
Rating Sensitivities
To access rating and relevant documents, click here.