KBRA Downgrades Two Ratings and Affirms All Others for CGCMT 2012-GC8
30 Aug 2024 | New York
KBRA downgrades the ratings of two class certificates and affirms all other ratings for CGCMT 2012-GC8, a $130.2 million CMBS conduit transaction, which has two assets remaining in the underlying mortgage pool, both of which have been identified as K-LOCs. The rating actions follow a surveillance review of the transaction, which reflected an increase in KBRA’s estimated losses compared to KBRA’s last review as well as the likelihood of an increase in interest shortfalls as the servicer works through the resolution of the two remaining assets. As of the August 2024 remittance period, Gansevoort Park Avenue is specially serviced after failing to pay off at its June 2024 maturity date, while Pinnacle at Westchase is REO. The details of both remaining loans are outlined below.
Gansevoort Park Avenue (51.1%, 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 KPO of Underperform based on its transfer to the special servicer for maturity default. In July 2021, the special servicer approved a loan modification and extension, extending the loan’s term two years, to June 2024. The loan was subsequently returned to the master servicer in August 2021; however, it was transferred back to the special servicer when it failed to pay off at its updated June 2024 maturity date. According to August 2024 special servicer commentary, counsel has been retained and a forbearance agreement has been sent to the borrower for review. Performance has trended downwards since 2014 and was exacerbated by the COVID-19 pandemic and never fully recovered. 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.
- An appraisal dated June 2021 valued the property at $98.2 million ($394,378 per key), representing a 65.0% decrease from the $ 278.0 million value at issuance ($1.1 million per key). The servicer reported occupancies and DSCs are: 77.3% / 0.50x (FY 2023); 65.3% / 0.41x (FY 2022); at issuance these were 83.6% and 1.77x. KBRA's analysis resulted in an estimated loss of $89.2 million (71.8% estimated loss severity) on the whole loan balance of $124.2 million considering a distress liquidation of the property based on current performance. An ownership transfer occurred in December 2017; at which time the transaction was valued at approximately $200.0 million ($803,212/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, Royalton Park Avenue.
Pinnacle at Westchase (48.9%, K-LOC, Underperform)
- The loan is collateralized by a nine-story, 470,940 sf, Class-A office building and five-story parking garage located in Houston, Texas.
- KBRA maintains the loan’s K-LOC designation and its KPO of Underperform based on the asset's REO status. A foreclosure sale was completed in early June 2021. Prior to the asset becoming REO, the loan transferred to the special servicer during the March 2020 remittance period, triggered by a payment default. Preceding the delinquency, the collateral property suffered from low physical occupancy in a high-vacancy office market. Physical occupancy had declined in 2016 as a result of ConocoPhillips, a High Quality Credit-Worthy Tenant (HQCWT, 44.7% of collateral sf, 65.0% of total base rent), vacating its space prior to its July 2019 lease expiration date. Although physical occupancy had declined, ConocoPhillips continued to make its lease payments. Then in 2020, MHWirth, which occupied 196,501 sf, vacated its space at lease expiration. The sole remaining tenant at the property, Empyrean Benefit Solutions, a benefits administration company, currently leases 108,109 sf through January 2025. Occupancy was 23.6% as of June 2024. According to REIS, the market and submarket office vacancy rates are 25.7% and 25.8%, respectively, as of May 2024.
- An updated appraisal dated December 2023 valued the property at $23.5 million ($50 per sf). The most recent appraisal represents an 80.0% decline relative to the $117.5 million ($250 per sf) appraisal at origination. In June 2024, the loan reported an ARA of $58.2 million and a cumulative ASER amount of $5.7 million. The servicer reports occupancies and DSCs are: 24.0% / -0.07x (FY 2023); 25.0% / -0.13x (FY 2022); at issuance these were 95.0% and 1.56x. In addition, the property has outstanding advances and cumulative nonrecoverable interest outstanding totaling $3.7 million. KBRA's analysis resulted in an estimated loss of $54.4 million (85.6% estimated loss severity).
Details concerning the ratings:
Ratings Changed:
- Class C to B- (sf) from BB (sf)
- Class D to CC (sf) from CCC (sf)
Ratings Affirmed:
- Class E at C(sf)
- Class F at C(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 magnitude and extent of interest shortfalls, if any, on the certificates.
To access rating and relevant documents, click here.