SEPTEMBER 2019
STRUCTURED FINANCE: CMBS PRESALE REPORT GS Mortgage Securities Trust 2019-GC42 Table of Contents
Capital Structure 3 Transaction Summary 3 Rating Considerations 4 DBRS Credit Characteristics 6 Largest Loan Summary 7 DBRS Sample 8 Transaction Concentrations 10 Loan Structural Features 11 Moffett Towers II Buildings 3 & 4 16 Northpoint Tower 22 2 Cooper 27 19100 Ridgewood 32 New Jersey Center of Excellence 37 Woodlands Mall 42 Diamondback Industrial Portfolio 1 47 105 East 17th Street 53 USAA Office Portfolio 58 Covington Portfolio 63 U.S. Industrial Portfolio V 69 Capitol Commons 75 Powered Shell Portfolio - Manassas 79 Millennium Park Plaza 84 Pharr Town Center 90 Transaction Structural Features 95 Methodologies 97 Operational Risk Reviews 97 Surveillance 97
Jake Noeldner Dan Kastilahn Senior Financial Analyst Vice President +1 312 332 9576 +1 312 332 9444 [email protected] [email protected]
Kevin Mammoser Erin Stafford Managing Director Managing Director +1 312 332 0136 +1 312 332 3291 [email protected] [email protected] PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Capital Structure
Description Rating Action Balance Subordination DBRS Rating Trend
Class A-1 New Rating - Provisional $11,528,000 30.000% AAA (sf) Stable
Class A-2 New Rating - Provisional $117,422,000 30.000% AAA (sf) Stable
Class A-3 New Rating - Provisional TBD4 30.000% AAA (sf) Stable
Class A-4 New Rating - Provisional TBD4 30.000% AAA (sf) Stable
Class A-AB New Rating - Provisional $20,849,000 30.000% AAA (sf) Stable
Class X-A New Rating - Provisional $823,402,000 - AAA (sf) Stable
Class A-S New Rating - Provisional $98,394,000 20.500% AAA (sf) Stable
Class B New Rating - Provisional $45,313,000 16.125% AA (sf) Stable
Class X-B New Rating - Provisional $89,332,000 - A (sf) Stable
Class C New Rating - Provisional $44,019,000 11.875% A (low) (sf) Stable
Class D New Rating - Provisional $28,482,000 9.125% BBB (high) (sf) Stable
Class X-D New Rating - Provisional $50,491,000 - BBB (sf) Stable
Class E New Rating - Provisional $22,009,000 7.000% BBB (low) (sf) Stable
Class F-RR New Rating - Provisional $22,010,000 4.875% BB (sf) Stable
Class G-RR New Rating - Provisional $10,357,000 3.875% B (high) (sf) Stable
Class H-RR New Rating - Provisional $40,134,720 0.000% NR n/a
Notes: 1. NR = Not Rated. 2. The Class X-A, X-B, X-D, and X-F and balances are notional. The notional balance of the Class X-A certificates will be equal to the aggregate Certificate Balanec of the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-AB and Class A-S certificates. The notional balance of the Class X-B certificates will be equal to the aggregate Certificate Balances of the Class B and Class C certificates. The notional balance of the Class X-D certiicates will be equal to the aggregate Certificate Balance of the Class D and Class E certificates. 3. The notional amounts of the Class X-A, Class X-B and Class X-D certificates may vary depending upon the final pricing of the classes of the Principal Balance Certificates. 4. The exact initial certificate balances of the Class A-3, and A-4 Certificates are unknown and will be determined based on the final pricing of those classes of certificates. The aggregate initial certificate balance of Class A-3 and Class A-4 cerificates is expected to be approximately $575,209,000, subject to a variance of plus or minus 5%.
Transaction Summary
POOL CHARACTERISTICS
Trust Amount $1,060,426,720 Wtd. Avg. Interest Rate 3.760%
Number of Loans 36 Wtd. Avg. Remaining Term 112
Number of Properties 94 Wtd. Avg. Remaining Amortization 344
Average Loan Size $29,456,298 Total DBRS Expected Amortization3 3.2%
Wtd. Avg. DBRS Term DSCR 2.30 Wtd. Avg. DBRS Term DSCR Whole Loan 2.66x
Top Ten Loan Concentration 50.6% Avg. DBRS NCF Variance -14.2%
Structured Finance: CMBS 3 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
PARTICIPANTS
Depositor GS Mortgage Securities Corporation II
Mortgage Loan Sellers Goldman Sachs Mortgage Company
Citi Real Estate Funding Inc.
German American Capital Corporation
Master Servicer Midland Loan Services, a Division of PNC Bank, National Association
Special Servicer Midland Loan Services, a Division of PNC Bank, National Association
Certificate Administrator Wells Fargo Bank, National Association
Trustee Wells Fargo Bank, National Association
Custodian Wells Fargo Bank, National Association
Rating Considerations
The collateral consists of 36 fixed-rate loans secured by 94 commercial and multifamily properties. The transaction is a sequential-pay pass-through structure. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. Five loans, representing a combined 19.4% of the pool, are shadow-rated investment grade by DBRS. The pool additionally includes 11 loans, representing a combined 27.3% of the pool by allocated loan balance, with issuance LTVs equal to or in excess of 67.1%, a threshold historically indicative of above-average default frequency. The WA LTV of the pool at issuance is 58.8%, and the pool is scheduled to amortize down to a WA LTV of 56.6% at maturity.
STRENGTHS • The collateral features five loans, representing a combined 19.4% of the pool, that are shadow-rated investment grade by DBRS: 30 Hudson Yards, Grand Canal Shoppes, Moffett Towers II Buildings 3 & 4, Woodlands Mall and Diamondback Industrial Portfolio 1. The 30 Hudson Yards loan exhibits credit characteristics consistent with a BBB shadow rating, Grand Canal Shoppes exhibits credit characteristics consistent with a BBB (high) shadow rating, Woodlands Mall and Moffett Towers II Buildings 3 & 4 exhibit credit characteristics consistent with a AA shadow rating and the Diamondback Industrial Portfolio 1 exhibits credit characteristics consistent with an “A” shadow rating. For more information on Moffett Towers II Buildings 3 & 4, Woodlands Mall and Diamondback Industrial Portfolio 1, please see pages 16, 42 and 47, respectively. • Nine loans, representing a combined 32.5% of the pool by allocated loan balance, exhibit issuance LTVs of less than 59.3%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency. • No properties were deemed Average (-), Below Average or Poor quality. Additionally, 13 loans, representing 51.5% of the pool by allocated loan balance, exhibited Average (+), Above Average or Excellent property quality. The pool’s largest loan, Moffett Towers II Buildings 3 & 4, and 30 Hudson Yards are secured by collateral that DBRS deemed to be of Excellent property quality. • Ten loans, representing a combined 30.0% of the pool, are located in areas with a DBRS Market Rank of 6, 7 or 8, which are characterized as urbanized locations. These markets benefit from increased liquidity that is driven by consistently strong investor demand. Such markets therefore tend to benefit from lower default frequencies than less dense suburban, tertiary and rural markets. Areas with a DBRS Market Rank of 7 or 8 are especially densely urbanized and benefit from significantly elevated liquidity. Six loans, representing 18.5% of the pool by allocated loan balance, are located in areas with a DBRS Market Rank of 7 or 8.
Structured Finance: CMBS 4 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
CHALLENGES AND CONSIDERATIONS • Eleven loans, representing 38.5% of the aggregate pool balance, are secured by properties that are either fully or partially leased to a single tenant. The largest single-tenant property by proportion of pool balance (Moffett Towers II Buildings 3 & 4) represents 6.2% of the aggregate pool balance, and five of the top ten loans by proportion of pool balance are either fully or partially leased to a single tenant. –– DBRS sampled nine of the 11 loans secured by single-tenant properties. Additionally, three of the 11 loans leased to a single tenant are shadow-rated investment grade by DBRS (Moffett Towers II Buildings 3 & 4, Diamondback Industrial Portfolio 1 and 30 Hudson Yards). –– Ten of the 11 identified properties are leased to single tenants that DBRS considers to be investment-grade rated: Moffett Towers II Buildings 3 & 4, 19100 Ridgewood, Diamondback Industrial Portfolio 1, 105 East 17th Street, USAA Office Portfolio, Capitol Commons, Powered Shell Portfolio – Manassas, Powered Shell Portfolio – Ashburn, 30 Hudson Yards and 1609 Avenue Y. • The pool has a relatively high concentration of loans secured by office properties, as evidenced by ten loans, representing 37.0% of the pool by allocated loan balance, being secured by such properties. DBRS considers office properties to be a riskier property type with a generally above-average historical default frequency. –– Of the ten loans secured by office properties, two loans, representing 8.1% of the pool by allocated loan balance, are shadow- rated investment grade by DBRS: 30 Hudson Yards and Moffett Towers II Buildings 3 & 4. –– Three of the ten identified loans, representing 8.8% of the pool by allocated loan balance, are secured by office properties located in areas with a DBRS Market Rank of 8, which is characterized as a highly dense, urbanized area such as New York or San Francisco. These markets benefit from increased liquidity that is driven by consistently strong investor demand. Such markets therefore tend to benefit from lower default frequencies than less dense suburban, tertiary and rural markets. –– The WA expected loss of the seven loans secured by office properties that are not located in DBRS Market Rank 8 or are shadow-rated investment grade is more than two times the WA expected loss of the overall pool. As a result, the risk of these loans is reflected in the credit enhancement levels of the pool. • Twenty-six loans, representing a combined 81.7% of the pool by allocated loan balance, are structured with full-term IO periods. Expected amortization for the pool is only 3.2%, which is less than recent conduit securitizations. –– Of the 26 loans structured with full-term IO periods, six loans, representing 18.5% of the pool by allocated loan balance, are located in areas with a DBRS Market Rank of 7 or 8. These markets benefit from increased liquidity that is driven by consistently strong investor demand. Such markets therefore tend to benefit from lower default frequencies than less dense suburban, tertiary and rural markets. –– Five of the 26 identified loans, representing 19.4% of the pool by allocated loan balance, are shadow-rated investment grade by DBRS: Moffett Towers II Buildings 3 & 4, Woodlands Mall, Diamondback Industrial Portfolio 1, 30 Hudson Yards and Grand Canal Shoppes. –– The full-term IO loans are for the most part pre-amortized, as the WA issuance LTV for these loans is low at 57.0%. • The pool features a relatively high concentration of loans secured by properties located in less favorable suburban market areas, as evidenced by 17 loans, representing 46.0% of the pool by allocated loan balance, being secured by properties located in areas with a DBRS Market Rank of either 3 or 4. –– Four of the identified loans, representing 16.2% of the pool balance, that are secured by properties located in areas with a DBRS Market Rank of either 3 or 4, will amortize over the loan term, which can reduce risk over time. The average expected amortization of these loans is 15.6%, which is notably higher than the pool’s total WA expected amortization of 3.2%.
Structured Finance: CMBS 5 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
DBRS Credit Characteristics
DBRS TERM DSCR DBRS ISSUANCE LTV
DSCR % of the Pool (Trust Balance1) Issuance LTV % of the Pool (Trust Balance1)
0.00x-0.90x 0.0% 0.0%-50.0% 17.5%
0.90x-1.00x 0.0% 50.0%-55.0% 8.0%
1.00x-1.15x 0.0% 55.0%-60.0% 12.6%
1.15x-1.30x 3.5% 60.0%-65.0% 25.0%
1.30x-1.45x 9.0% 65.0%-70.0% 31.6%
1.45x-1.60x 1.9% 70.0%-75.0% 5.3%
1.60x-1.75x 16.3% >75.0% 0.0%
>1.75x 69.3% Wtd. Avg. 59.1%
Wtd. Avg. 2.30x 1. Includes pari passu debt, but excludes subordinate debt.
DBRS BALLOON LTV
Balloon LTV % of the Pool (Trust Balance1)
0.0%-50.0% 20.6%
50.0%-55.0% 9.9%
55.0%-60.0% 20.3%
60.0%-65.0% 28.3%
65.0%-70.0% 16.3%
70.0%-75.0% 4.7%
>75.0% 0.0%
Wtd. Avg. 56.9%
Structured Finance: CMBS 6 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Largest Loan Summary
LOAN DETAIL
DBRS Loan Name Trust Balance % of Pool Shadow Rating Appraised LTV DBRS DSCR (x)
Moffett Towers II Buildings 3 & 4 $65,550,000 6.2% AA 48.21% 3.23
Northpoint Tower $65,500,000 6.2% n/a 62.28% 2.88
2 Cooper $65,000,000 6.1% n/a 51.26% 1.74
19100 Ridgewood $55,000,000 5.2% n/a 69.83% 2.14
New Jersey Center of Excellence $54,720,000 5.2% n/a 59.61% 2.71
Woodlands Mall $50,000,000 4.7% AA 25.97% 3.27
Diamondback Industrial Portfolio 1 $50,000,000 4.7% A 34.11% 4.35
105 East 17th Street $49,500,000 4.7% n/a 73.33% 1.99
USAA Office Portfolio $45,000,000 4.2% n/a 63.79% 2.27
Covington Portfolio $36,200,000 3.4% n/a 69.95% 1.34
U.S. Industrial Portfolio V $32,800,000 3.1% n/a 64.37% 2.24
Capitol Commons $32,500,000 3.1% n/a 68.86% 1.37
Powered Shell Portfolio - Manassas $32,250,000 3.0% n/a 55.87% 2.07
Millennium Park Plaza $30,000,000 2.8% n/a 65.83% 1.73
Pharr Town Center $30,000,000 2.8% n/a 67.08% 1.17
PROPERTY DETAIL
DBRS Year Loan per Maturity Balance Loan Name Property Type City State Built SF/Units SF/Units per SF/Units
Moffett Towers II Buildings 3 & 4 Office Sunnyvale California 2019 701,266 $93 $93
Northpoint Tower Office Cleveland Ohio 1985 873,335 $75 $75
2 Cooper Multifamily New York New York 2010 143 $454,545 $454,545
19100 Ridgewood Office San Antonio Texas 2009 618,017 $89 $89
New Jersey Center of Excellence Mixed Use Bridgewater New Jersey 1970 785,598 $70 $70
Woodlands Mall Retail Woodlands Texas 1994 758,231 $66 $66
Diamondback Industrial Portfolio 1 Industrial Various Various 2009 2,234,598 $22 $22
105 East 17th Street Office New York New York 1960 125,000 $396 $396
USAA Office Portfolio Office Various Various 2013 881,490 $51 $51
Covington Portfolio Industrial Various Various 1983 1,206,288 $30 $27
U.S. Industrial Portfolio V Industrial Various Various 1975 3,585,623 $9 $9
Capitol Commons Office Lansing Michigan 1988 185,494 $175 $114
Powered Shell Portfolio - Manassas Industrial Manassas Virginia 2018 728,460 $44 $44
Millennium Park Plaza Mixed Use Chicago Illinois 1982 560,083 $54 $54
Pharr Town Center Retail Pharr Texas 2013 437,815 $69 $60
Structured Finance: CMBS 7 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
DBRS Sample
DBRS SAMPLE RESULTS
DBRS Prospectus DBRS NCF DBRS Major Variance Property ID Loan Name % of Pool DBRS NCF Variance Drivers Quality
1 Moffett Towers II Buildings 3 & 4 6.2% $43,189,930 -6.6% Gross Potential Rent Excellent
TI/LCs, Rent Steps, 2 Northpoint Tower 6.2% $8,733,451 -13.0% Average + Management Fees
Real Estate Taxes, Ground 3 2 Cooper 6.1% $4,667,299 -23.7% Average + Rent, Management Fee
4 19100 Ridgewood 5.2% $11,094,481 -11.7% Vacancy, Rent Steps, TI/LCs Average +
Vacancy, TI/LCs, 5 New Jersey Center of Excellence 5.2% $9,339,947 -16.5% Average + Management Fee
Occupancy Markdown, TI/ 6 Woodlands Mall 4.7% $34,897,745 -17.3% Average + LCs, Other Income
7 Diamondback Industrial Portfolio 1 4.7% $11,008,016 -1.8% Rent Steps, TI/LCs Average
8 105 East 17th Street 4.7% $7,028,371 -1.1% Vacancy Average
9 USAA Office Portfolio 4.2% $18,834,048 -19.8% Rent Steps, Vacancy, CapEx Average +
10 Covington Portfolio 3.4% $2,899,556 -6.4% TI/LCs, R&M, G&A Average
Vacancy, TI/LCs, 11 U.S. Industrial Portfolio V 3.1% $11,204,404 -9.9% Average Management Fee
12 Capitol Commons 3.1% $2,978,608 -14.3% Rent Steps, Vacancy Average
Powered Shell Portfolio - 13 3.0% $6,412,126 -20.6% Rent Steps, Vacancy, TI/LCs Average + Manassas
14 Millennium Park Plaza 2.8% $13,468,166 -13.9% Vacancy, Leasing Costs Average
Vacancy, TI/LCs, CapEx 15 Pharr Town Center 2.8% $4,966,417 -13.5% Average Reserves
16 Powered Shell Portfolio - Ashburn 2.7% $5,324,896 -20.1% Rent Steps, Vacancy, TI/LCs Average +
Holiday Inn Express & Suites San Occupancy, Franchise Fee, 20 2.3% $2,065,917 -19.3% Average + Diego Mission Valley Insurance
TI/LCs, Vacancy, Operating 21 222 Kearny Street 2.2% $3,292,287 -36.1% Average Expenses
Operating Expenses, 23 30 Hudson Yards 1.9% $112,510,831 -7.6% Excellent Recoveries
Markdowns, Vacancy, TI/ 24 Grand Canal Shoppes 1.9% $66,038,221 -5.8% Above Average LCs
26 Hampton Inn Clearwater 1.9% $1,838,452 -20.3% Occupancy Average +
Structured Finance: CMBS 8 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
DBRS SITE INSPECTIONS DBRS Sampled Property Quality The DBRS sample included 21 of the 36 loans in the pool, representing a combined 78.3% of the pool by allocated # of % of Loans Sample loan balance. Site inspections were performed on 38 of the Excellent 2 10.3% 94 properties, representing 71.7% of the pool by allocated Above Average 1 2.4% loan balance. DBRS conducted interviews with an on-site Average (+) 10 53.0% property manager, leasing agent or representative of Average 8 34.3% the borrowing entity for 19 loans, which collectively Average (-) 0 0.0% represented 73.7% of the pool by allocated loan balance. Below Average 0 0.0% Poor 0 0.0% DBRS CASH FLOW ANALYSIS DBRS completed a cash flow review as well as a cash flow stability and structural review on 21 of the 36 loans, repre- senting a combined 78.3% of the pool by allocated loan balance. DBRS generally adjusted cash flows to current in-place rent and, in some instances, applied an additional vacancy or concession adjustment to account for deteriorating market conditions or tenants with above-market rents. In certain instances, DBRS accepted contractual rent bumps if they were within market levels. Most expenses were generally recognized based on the higher of historical figures or the borrower’s budgeted figures. Real estate taxes and insurance premiums were inflated if a current bill was not provided. Capex was deducted based on the greater of the engineer’s inflated estimate or the DBRS standard, according to property type. Finally, leasing costs were deducted to arrive at the DBRS NCF. If a significant upfront leasing reserve was established at closing, DBRS reduced its recognized costs. DBRS gave credit to tenants not yet in occupancy if a lease had been signed and the loan was adequately structured with a reserve, LOC or holdback earn-out. The DBRS sample has an average NCF variance of -14.9% and ranged from -1.1% (105 East 17th Street) to -36.1% (222 Kearny Street). For loans not subject to an NCF review, DBRS applied the average NCF variance of its respective loan seller.
DBRS Sampled Property Type 45.0% 45.0%
40.0% 40.0%
35.0% 35.0%
30.0% 30.0%
25.0% 25.0%
20.0% 20.0%
15.0% 15.0%
10.0% 10.0%
5.0% 5.0%
0.0% 0.0% MultifamilyStudent MHCOfficeFull Service Limited Industrial OtherSelf StorageRet ail Housing Hotel Service Hotel Excellent Above Average Average + Average Average - Below Average Poor Pool
Structured Finance: CMBS 9 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Transaction Concentrations
DBRS Property Type Geography
# of % of # of % of Property Type Loans Pool State Properties Pool Full Service Hotel 0 0.0% TX 18 18.3% Hotel - Other 0 0.0% NY 6 17.3% Industrial 6 18.6% CA 7 16.0% Limited Service Hotel 3 4.6% OH 8 7.2% Manufactured Housing 0 0.0% FL 6 6.5% Mixed-Use 2 8.0% VA 7 5.8% Multifamily 2 8.4% All Others 42 28.9% Office 10 37.0% Other 0 0.0% Self Storage 2 0.9% Retail 8 19.9% Unanchored Retail 3 2.6%
Loan Size DBRS Market Types
# of % of # of % of Loan Size Loans Pool Market Type Properties Pool Very Large 22 82.4% 1 0 0.0% (>$20.0 million) 2 6 12.1% Large 9 15.0% 3 11 28.4% ($10.0-$20.0 million) 4 6 17.6% Medium 3 1.8% ($5.0-$10.0 million) 5 3 12.0% Small 2 0.7% 6 4 11.5% ($2.0-$5.0 million) 7 2 3.5% Very Small 0 0.0% 8 4 14.9% (<$2.0 million)
Largest Property Location
Property Name City State Moffett Towers II Buildings 3 & 4 Sunnyvale CA Northpoint Tower Cleveland OH 2 Cooper New York NY 19100 Ridgewood San Antonio TX New Jersey Center of Excellence Bridgewater NJ Woodlands Mall Woodlands TX Diamondback Industrial Portfolio 1 Various Various 105 East 17th Street New York NY USAA Office Portfolio Various Various Covington Portfolio Various Various U.S. Industrial Portfolio V Various Various Capitol Commons Lansing MI Powered Shell Portfolio - Manassas Manassas VA Millennium Park Plaza Chicago IL Pharr Town Center Pharr TX
Structured Finance: CMBS 10 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Loan Structural Features
Pari Passu Notes: Seventeen loans, representing a combined 63.5% of the pool by allocated loan balance, have pari passu debt and are identified in the table below.
PARI PASSU NOTES
% of % of Total Controlling Property Name Balance Pool Deal ID Pari Passu Loan Piece (Y/N) Moffett Towers II Buildings 3 & 4 $65,550,000 6.2% GSMS 2019-GC42 18.7% N
$65,000,000 BCREI 18.6% Y
$50,000,000 BANK 2019-BNK19 14.3% N
$49,750,000 BCREI 14.2% N
$43,175,000 CGCMT 2019-GC41 12.3% N
$34,450,000 CD 2019-CD8 9.8% N
$25,000,000 BCREI 7.1% N
$12,075,000 CGCMT 2019-GC41 3.5% N
$2,750,000 MFTII 2019-B3B4 0.8% N
$1,125,000 MFTII 2019-B3B4 0.3% N
$1,125,000 MFTII 2019-B3B4 0.3% N
$350,000,000 n/a 100.0% n/a
Northpoint Tower $40,500,000 6.2% GSMS 2019-GC42 44.8% Y
$25,000,000 CREFI 27.6% N
$5,000,000 GSMS 2019-GC42 5.5% N
$20,000,000 GSMS 2019-GC42 22.1% N
$90,500,000 n/a 100.0% n/a
19100 Ridgewood $55,000,000 5.2% GSMS 2019-GC42 39.3% Y
$50,000,000 GSBI 35.7% N
$35,000,000 GSBI 25.0% N
$140,000,000 n/a 100.0% n/a
New Jersey Center of Excellence $54,720,000 5.2% GSMS 2019-GC42 60.0% Y
$36,480,000 AREF 40.0% N
$91,200,000 n/a 100.0% n/a
Woodlands Mall $50,000,000 4.7% GSMS 2019-GC42 20.2% N
$76,200,000 Benchmark 2019-B12 30.8% N
$70,000,000 CD 2019-CD8 28.3% N
$51,400,000 DBR Investments Co. Limited 20.8% N
$247,600,000 n/a 100.0% n/a
Diamondback Industrial Portfolio 1 $50,000,000 4.7% GSMS 2019-GC42 71.4% N
$20,000,000 GSMS 2019-GC40 28.6% N
$70,000,000 n/a 100.0% n/a
Structured Finance: CMBS 11 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
PARI PASSU NOTES
% of % of Total Controlling Property Name Balance Pool Deal ID Pari Passu Loan Piece (Y/N)
105 East 17th Street $49,500,000 4.7% GSMS 2019-GC42 45.0% N
$60,500,000 MSBNA 55.0% Y
$110,000,000 n/a 100.0% n/a
USAA Office Portfolio $45,000,000 4.2% GSMS 2019-GC42 18.6% N
$135,000,000 Goldman Sachs Bank USA 55.7% N
$62,400,000 CGCMT 2019-GC41 25.7% Y
$242,400,000 n/a 100.0% n/a
U.S. Industrial Portfolio V $32,800,000 3.1% GSMS 2019-GC42 25.2% N
$50,000,000 CGCMT 2019-GC41 38.4% Y
$47,558,000 Goldman Sachs Bank USA 36.5% N
$130,358,000 n/a 100.0% n/a
Powered Shell Portfolio - $32,250,000 3.0% GSMS 2019-GC42 38.5% N Manassas
$51,550,000 CGCMT 2019-GC41 61.5% Y
$83,800,000 n/a 100.0% n/a
Millennium Park Plaza $30,000,000 2.8% GSMS 2019-GC42 14.3% N
$110,000,000 Goldman Sachs Bank USA 52.4% N
$70,000,000 CGCMT 2019-GC41 33.3% Y
$210,000,000 n/a 100.0% n/a
Pharr Town Center $30,000,000 2.8% GSMS 2019-GC42 42.9% N
$40,000,000 CD 2019-CD8 57.1% Y
$70,000,000 n/a 100.0% n/a
Powered Shell Portfolio - Ashburn $29,000,000 2.7% GSMS 2019-GC42 41.5% N
$40,800,000 CGCMT 2019-GC41 58.5% Y
$69,800,000 n/a 100.0% n/a
222 Kearny Street $23,750,000 2.2% GSMS 2019-GC42 50.0% Y
$23,750,000 GSBI 50.0% N
$47,500,000 n/a 100.0% n/a
30 Hudson Yards $20,000,000 1.9% GSMS 2019-GC42 1.8% N
$698,000,000 Hudson Yards 2019-30HY 62.3% N
$100,000,000 CGCMT 2019-GC41 8.9% N
$93,200,000 Benchmark 2019-B12 8.3% N
$84,400,000 BANK 2019-BNK19 7.5% N
$84,400,000 GSBI 7.5% N
$40,000,000 DBNY 3.6% N
$1,120,000,000 n/a 100.0% n/a
Structured Finance: CMBS 12 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
PARI PASSU NOTES
% of % of Total Controlling Property Name Balance Pool Deal ID Pari Passu Loan Piece (Y/N) Grand Canal Shoppes $20,000,000 1.9% GSMS 2019-GC42 2.6% N
$100,000,000 BANK 2019-BNK19 13.2% N
$95,384,615 GSBI 12.6% N
$93,846,155 MSBNA 12.3% N
$70,000,000 MSC 2019-H7 9.2% N
$65,384,615 UBS AG 8.6% N
$60,384,615 JPMCB 7.9% N
$60,000,000 CGCMT 2019-GC41 7.9% N
$50,000,000 Benchmark 2019-B12 6.6% N
$40,000,000 BANK 2019-BNK20 5.3% N
$40,000,000 WFB 5.3% N
$40,000,000 Benchmark 2019-B13 5.3% N
$25,000,000 CCRE 3.3% N
$760,000,000 n/a 100.0% n/a
Midland Office Portfolio $20,000,000 1.9% GSMS 2019-GC42 28.8% Y
$49,500,000 GSBI 71.2% N
$69,500,000 n/a 100.0% n/a
Structured Finance: CMBS 13 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Additional Debt: Three loans, representing a combined 13.6% of the pool by allocated loan balance, has existing mezzanine debt. Six loans, representing 22.1% of the pool by allocated loan balance, have subordinate financing secured by the property. One loan, representing 6.1% of the pool by allocated loan balance, has a Preferred Equity piece of $10.0 million (representing 15.4% of the total funding for that specific property). Five loans, representing a combined 15.6% of the pool, permit future mezzanine debt, provided that certain LTV, debt yield and/or DSCR thresholds are met and a lender- approved Intercreditor Agreement and rating agency confirmation are obtained. One loan, representing 2.7% of the pool by allocated loan balance, allows future preferred equity.
SUBORDINATE DEBT
Mezz/ Unsecured Future Mezz/ Pari Passu B-Note Debt Unsecured Debt Total Debt Loan Name Trust Balance Balance Balance Balance (Y/N) Balance
Moffett Towers II Buildings 3 & 4 $65,550,000 $284,450,000 $155,000,000 $85,000,000 N $590,000,000
2 Cooper $65,000,000 $0 $10,000,000 $0 N $75,000,000
Woodlands Mall $50,000,000 $197,600,000 $177,400,000 $40,000,000 N $465,000,000
Diamondback Industrial Portfolio 1 $50,000,000 $20,000,000 $60,300,000 $0 N $130,300,000
Cross Bay Plaza $29,000,000 $0 $0 $6,000,000 N $35,000,000
30 Hudson Yards $20,000,000 $1,100,000,000 $310,000,000 $0 N $1,430,000,000
Grand Canal Shoppes $20,000,000 $740,000,000 $215,000,000 $0 N $975,000,000
Leasehold: Five loans, representing a combined 19.8% of the pool by allocated loan balance, are either fully or partially secured by the borrower’s leasehold interest. These loans include Northpoint Tower, 2 Cooper, Covington Portfolio, 222 Kearny Street and Grand Canal Shoppes. In each instance, the ground lease either has an expiration date (inclusive of renewal options) far enough beyond loan amortization to be considered traditionally financeable or the land owners have pledged their property interest as security for the loan.
RESERVE REQUIREMENT BORROWER STRUCTURE
Type # of Loans % of Pool Type # of Loans % of Pool
Tax Ongoing 21 52.7% SPE with Independent Director and 22 81.5% Non-Consolidation Opinion
Insurance Ongoing 14 25.6% SPE with Independent Director Only 0 0.0%
CapEx Ongoing 21 48.4% SPE with Non-Consolidation 0 0.0% Opinion Only
Leasing Costs Ongoing1 10 25.7% SPE Only 14 18.5%
1. Percent of office, retail, industrial and mixed use assets based on DBRS property types.
Structured Finance: CMBS 14 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Interest Only DBRS Expected Amoritization
# of % of # of % of Loans Pool Loans Pool Full IO 26 81.7% 0.0% 26 81.7% Partial IO 5 8.8% 0.0%-5.0% 0 0.0% Amortizing 5 9.5% 5.0%-10.0% 3 5.5% 10.0%-15.0% 3 3.8% 15.0%-20.0% 1 1.9% 20.0%-25.0% 2 4.1% >25.0% 1 3.1% Note: For certain ARD loans, expected amortization may include amortization expected to occur after the ARD but prior to single/major tenant expiry.
Sponsor Strength: DBRS identified one loan, accounting DBRS Sponsor Strength for 3.4% of the pool by allocated loan balance, to be # of % of associated with a prior voluntary bankruptcy, inadequate Loans Pool commercial real estate experience and/or negative credit Strong 6 18.9% events. DBRS applied POD penalties to mitigate this risk. Average 29 77.7% DBRS additionally identified six loans, representing a Weak 1 3.4% combined 18.9% of the pool by located loan balance, to be Bad/Litigious 0 0.0% associated with Strong sponsorship because of the sponsors’ extensive experience in the commercial real estate sector and significant wherewithal.
Property Release: Three loans, representing 9.7% of the pool, allow for the release of one or more properties or a portion of the mortgaged property, subject to release prices in an amount at least equal to the allocated loan amounts of the respective properties and/or certain leverage tests prescribed in the individual loan agreements.
Property Substitution: There are no loans in the pool that allow for the substitution of properties.
Terrorism Insurance: Terrorism insurance is required and in place for all loans.
Structured Finance: CMBS 15 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Moffett Towers II Buildings 3 & 4 Sunnyvale, California
Loan Snapshot Seller GSMC Ownership Interest Fee Simple Trust Balance ($ million) $65.6 Loan psf/Unit $499 Percentage of the Pool 6.2% Loan Maturity/ARD July 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Year Built/Renovated 2019 Issuance DSCR City, State Sunnyvale, CA Physical Occupancy 100.0% 3.46x SF 701,266 Physical Occupancy Date August 2019 Issuance LTV 48.2% Balloon LTV The loan is secured by the Borrower’s fee simple interest in Moffett Towers II – 48.2% Building 3 and Building 4, two Class A office buildings totaling 701,266 sf. While not part of the collateral, the Tenant has access to and pays rent on 23,860 sf of DBRS Property Type Office allocated amenity space. Building 3 is located at 1190 Discovery Way (350,633 sf ) and DBRS Property Quality Building 4 is located at 900 5th Avenue (350,633 sf ) in Sunnyvale, California. Loan Excellent proceeds of $590.0 million refinanced $408.9 million of existing construction debt, Debt Stack ($ million) returned approximately $114.3 million of sponsor cash equity, funded $39.8 million of Trust upfront TI/LCs and free rent reserves and covered closing costs of $27.0 million. The $65.6 $590.0 million debt package is composed of a $350.0 million A-note, a $155.0 million Pari Passu B-note and $85.0 million of mezzanine debt. This transaction contains approximately $284.4 $65.6 million of A-note proceeds in the trust. The fixed-rate financing has a ten-year B-Note term, is fully IO and represents a relatively high LTV of 74.7%, based on the appraised $155.0 value of $790.0 million. The loan has been structured with an anticipated repayment Mezz date (ARD) after ten years and a final maturity date approximately five years beyond $85.0 the ARD. This five-year tail allows for substantial principal repayment estimated by Total Debt DBRS at $158.9 million prior to when the Facebook, Inc. (Facebook) leases expire $590.0 in 2034. Loan Purpose Refinance Situated on 13.4 acres of land, the collateral consists of two nearly identical office Equity Contribution/ buildings that each contain 350,633 sf. The two subject office towers were the most (Distribution) ($ million) ($114.3) recently constructed projects within the Moffett Towers II office park. The Moffett Towers II campus consists of five office buildings totaling 1.8 million sf of office and research and development (R&D) space as well as a 59,200-sf amenity building. Buildings 1 to 4 and the proposed site for Building 6 are situated on the same parcel of land bordered by Moffett Park Drive to the south, Bordeaux Drive to the west, Borregas Avenue to the east and commercial development to the north. Building 5 is situated
Structured Finance: CMBS 16 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
MOFFETT TOWERS II BUILDINGS 3 & 4 – SUNNYVALE, CA on its own land parcel adjacent to the other properties and directly west of Bordeaux Drive. Building 6 is a proposed addition to the Moffett Towers II campus that has yet to begin construction, though plans for the addition are currently being explored and will be finalized within the next 24 months. Building 6 would be located on the northeast corner of the lot near the intersection of 5th Avenue and Discovery Way. Buildings 1 to 4 are arranged around a central courtyard, which includes the amenity building, a three-story parking structure and outdoor common-area space. Building 1 and Building 2 are leased to Amazon.com, Inc. (Amazon), and Building 3, Building 4 and Building 5 are leased to Facebook.
TENANT SUMMARY
DBRS UW % of Total DBRS Investment Tenant SF % of Total NRA Base Rent PSF UW Base Rent Lease Expiry Grade? (Y/N)
Facebook 350,633 48.4% $52.20 48.4% 05/2034 Y
Facebook 11,930 1.6% $52.20 1.6% 05/2034 Y
Facebook 350,633 48.4% $52.20 48.4% 05/2034 Y
Facebook 11,930 1.6% $52.20 1.6% 05/2034 Y
Total/Wtd. Avg. 725,126 100.0% $52.20 100.0% 5/2034 Y
Both buildings are 100.0% pre-leased to Facebook, for which DBRS has performed an internal assessment with a high investment-grade conclusion. Facebook is a leading technology firm that specializes in social media and networking. As of the fiscal year ending December 31, 2018, the company reported total revenues of $58.8 billion and a net income of $22.1 billion. As of June 2019, the company had an equity market capitalization in excess of $500 billion and carries very little debt. Both buildings were turned over to the tenant this past month upon completion of the exterior shells. The interior office and amenity build out process is estimated to take approximately seven months for each building. The firm signed two separate leases for Building 3 and Building 4 that commenced on June 1, 2019, and May 1, 2019, respectively. As the tenant was given seven months of free rent to account for the interior build out process, rent payments began for Building 3 on January 1, 2020, and for Building 4 on December 1, 2019. The tenant will be responsible for all operating expenses associated with its leased units. Both leases are set to expire on May 31, 2034, five years beyond the loan maturity and are structured with two 84-month extension options each at 95% of the fair-market rent with no termination options. The base rent is $52.20 per sf with 3.00% annual increases. It is expected that the landlord will provide TIs of $60.00 psf, which have been reserved for upfront. The sponsor reported that Facebook will spend $200 psf in addition to what the landlord is providing, amounting to a $260 psf build-out cost.
SPONSORSHIP The loan is sponsored by Jay Paul Company, a California-based real estate development and investment management firm. Jay Paul Company has acquired or development more than 13.0 million sf of office space since its founding in 1975 and currently has a portfolio of over 20 properties in the Silicon Valley area. The sponsor is developing the entirety of the Moffett Towers II office park and has thus far been successful in leasing out all buildings to major technology firms. The company specializes in developing superior office product for technology-focused tenants in California markets and previously developed 181 Fremont in the San Francisco CBD for Facebook. Jay Paul Company has previously leased projects to a host of leading technology giants, including Amazon, Apple, Microsoft Corporation, Google and many others. The firm has closed over $13.0 billion in debt and equity financings over the course of its history. The non-recourse carveout guarantor for this transaction is Paul Guarantor LLC, with a current net worth of $980.0 million.
Structured Finance: CMBS 17 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
MOFFETT TOWERS II BUILDINGS 3 & 4 – SUNNYVALE, CA
DBRS ANALYSIS SITE INSPECTION SUMMARY Based on the DBRS site inspection and management meeting on June 10, 2019, DBRS found the property quality to be Excellent.
The subject is located in the fast-growing Sunnyvale submarket, within the larger San Jose-Sunnyvale-Santa Clara MSA. The subject buildings are accessible via three ingress and egress points, two along Discovery Way and one along 5th Avenue. The Moffett office park is located approximately one mile from the intersection of California State Route 237 and U.S. Route 101, which runs north to south along the western shore of the San Francisco Bay. This highway connects San Jose with San Francisco, allowing Moffett Park to be easily accessed by residents across the Bay Area. There is also a light rail stop serving the entirety of Moffett Park that is situated along the campus’s main entrance on West Moffett Park Drive. The collateral is centrally located approximately 9.5 miles northwest of the San Jose CBD and 33.0 miles southeast of the San Francisco CBD. The Sunnyvale submarket is rapidly developing with substantial new office space supply partially because of the strong growth of Silicon Valley and saturation of the downtown San Francisco office market. Google, headquartered in adjacent Mountain View, California, has made substantial investments into the Sunnyvale market in particular. The company’s new campus was visible from the eighth floor of Building 4 and appeared to be in the early stages of construction at the time of inspection. Another locational advantage for the subject is the fact that Stanford University (Stanford) is located 7.5 miles northwest of the Moffett office park in Palo Alto, California. This allows for technology firms in Sunnyvale to easily recruit from the talented Stanford student body.
All office towers within the campus stand nine stories tall and are virtually identical. The subject buildings contain amenity and meeting space on the ground floors, office space on Floors 2 through 8 and mechanical equipment on the ninth floors. The towers’ exterior facades are composed of steel; concrete; and double-paned, thermal glass windows with aluminum frames, similar to the facades of the other buildings in the complex, which were all very attractive with strong curb appeal. The reflective blue-tinted glass windows are particularly eye catching.
The Club at Moffett Towers II (the Club) is the two-story amenity building that serves Buildings 1 through 5 of the Moffett Towers II office park. The Club is ideally located in the middle of the Moffett Towers II campus, allowing for Facebook and Amazon employees at all five properties to easily access the various amenity offerings. The Club features spectacular amenities, including a fitness center, indoor and outdoor basketball courts, an outdoor pool, a tennis court, a cycling room and a yoga studio, among other things. The fitness center is spacious and airy with plenty of cardio and weight-lifting equipment available. Of note, personal trainers, yoga sessions, spin classes and other fitness add-ons are available for purchase by Facebook and Amazon employees. The Club contains a large ground-floor meeting/event space that can be
Structured Finance: CMBS 18 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
MOFFETT TOWERS II BUILDINGS 3 & 4 – SUNNYVALE, CA rented out by either Facebook or Amazon. This meeting room appeared larger than any of the interior breakout rooms featured in Building 3, Building 4 or Building 5.
The Moffett Towers II campus also features 19 acres of outdoor green space and three parking garages. There are minimal local dining options within walking distance of the subject and most retail establishments are concentrated on the south side of U.S. Route 101. Consequently, the Moffett Towers II office buildings are being built to include on-site cafeterias and dining selections. In addition to the ground floor cafeterias in Building 3 and Building 4, the club amenity building will contain a Specialty’s Café & Bakery, providing convenient breakfasts, lunches and baked goods for tenants.
Facebook reportedly plans to move approximately 5,000 to 6,000 employees to Building 3, Building 4, and Building 5 but has yet to share its plans on the office space build-out specifications for Building 3 and Building 4. The tenant has also not shared which units and operations of the company will be moved into the subject buildings. According to the sponsor, employees working in Facebook’s web services division are being moved into Building 5 according to the sponsor. DBRS toured the ground floors and several office floors of Building 3 and Building 4 and toured the interior of Building 5, which was several months into the build out process, in order to get a sense of what the potential office space would look like. Building 5 was delivered to Facebook in February 2019 and the construction process is expected to be completed this August. Building 3 and Building 4 were delivered to the tenant within the last month and are projected to have similar seven-month construction timelines. The ground floors of Building 3 and Building 4 will feature front and rear building security desks and large cafeterias. There will also be ground floor meeting and event space. Office space will be built out on Floors 2 through 8 of the collateral. Floor 3 and Floor 8 contain large outdoor patio spaces that will likely be utilized as event spaces; the patio of the eighth floor in particular offers scenic views of the surrounding area. The office spaces were in raw condition at the time of inspection with exposed concrete floors, unpainted walls and no interior floorplan work yet to be completed. The office space in Building 5 contained exterior facing sit-stand desks that were generally clustered in groups of four; the interior areas of the floor plates contained a mix of breakout rooms and meeting spaces. This build out is typical for a tech tenant as it allows for efficient collaboration between coworkers and allows for many employees to receive natural light at their desks.
The collateral features three on-site parking garages that are shared by the Moffett office park. The parking garage associated with Phase Three of Moffett Towers II, which pertains solely to Building 3 and Building 4, is situated along 5th Avenue and is allocated for use by the Facebook employees in Building 3 and Building 4. There are also several surface parking lots scattered around the property with a large number of outdoor spaces located on the northeast corner of the lot near the intersection of 5th Avenue and Discovery Way. In total, there are 1,157 parking spaces allocated for Building 3 and 1,157 parking spaces allocated for Building 4. Overall, the collateral is best-in-class office space with outstanding amenity offerings and a superior location.
Structured Finance: CMBS 19 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
MOFFETT TOWERS II BUILDINGS 3 & 4 – SUNNYVALE, CA
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $47,847,323 $43,827,513 -8.4%
Recoveries $11,259,997 $11,404,174 1.3%
Other Income $0 $0 0.0%
Vacancy -$1,477,683 -$492,558 -66.7%
EGI $57,629,637 $54,739,129 -5.0%
Expenses $11,259,997 $11,404,174 1.3%
NOI $46,369,641 $43,334,955 -6.5%
Capex $145,025 $145,025 0.0%
TI/LC $0 $0 0.0%
NCF $46,224,616 $43,189,930 -6.6%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $43,189,930, representing a -6.6% variance from the Issuer’s NCF of $46,224,616. The primary drivers of the variance are GPR and real estate taxes. DBRS estimated GPR based on the contractual leases in place per the rent roll dated May 1, 2019. Facebook is being given LTCT status due to the tenant’s high-investment-grade internal assessment and lease terms that extend more than three years beyond the loan maturity. As a result, DBRS is straight-lining Facebook’s rent over the ten-year loan term. By comparison, the Issuer is giving straight-line rent credit through the lease term, picking up an additional five years of rent credit, establishing a variance of approximately $4.0 million on the GPR figure alone. The DBRS real estate tax figure was calculated by applying the local tax assessment rate of 1.15% to the whole loan amount, resulting in a much higher figure than in place taxes which will remain low because of California’s Proposition 13 statute. There are no TI/LC expenses because of the LTCT nature of the tenant.
DBRS VIEWPOINT The collateral is well positioned within the Bay Area because of its central location in Silicon Valley. Situated strategically between the San Jose and San Francisco MSAs, the subject properties can effectively attract the most talented employees in the Bay Area’s tech workforce. The properties are also closely situated to Stanford University (which is located 7.5 miles west in Palo Alto) and the University of California- Berkeley. Given the stellar quality of the Class A office product, superior amenity offerings and location amidst the talented Silicon Valley workforce, DBRS believes that there would be high levels of demand for this asset through different real estate cycles, which will suppress future downside volatility. In addition, Facebook is expected to spend $200 psf on interior buildout on top of the $60 psf landlord-funded TI allowance, resulting in a world-class property inside and out. The DBRS LTV on the $505.0 million mortgage loan is high at 90.6%, although the high level of curb appeal and strong location bring stability to the value over time.
DBRS considers Facebook to be an LTCT and will occupy 100.0% of the total NRA. The tenant’s two leases extend approximately five years beyond the loan maturity. DBRS performed an internal assessment on Facebook and considers the company to have characteristics consistent with a high investment-grade credit rating. Both Building 3 and Building 4 have been 100.0% leased to Facebook since construction began. Further, Facebook is the third-largest technology tenant in San Francisco with over 6.0 million sf of leased office space across the Bay Area, indicating a strong commitment to Sunnyvale and the greater Bay Area market. Given that all of the collateral’s income is generated by a tenant that DBRS considers investment-grade quality with a long-term lease, cash flow stability is expected to remain high over the foreseeable future.
Structured Finance: CMBS 20 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
MOFFETT TOWERS II BUILDINGS 3 & 4 – SUNNYVALE, CA
DOWNSIDE RISKS –– The loan is full-term IO, providing no reduction to the loan basis over the initial loan term. –– The DBRS NCF analysis is highly dependent upon the investment-grade treatment of Facebook. Any future internal assessment at a non-investment grade level may impact DBRS’s analysis and ratings on this transaction –– Although the subject is located in the booming Sunnyvale submarket, it is located in a competitive office market with high vacancy and availability rates. –– The loan has a high initial loan psf of $696 psf, especially given that the lowest rating on the certificates is high at “A.”
STABILIZING FACTORS –– Facebook’s two leases extend almost five years beyond the initial loan maturity date, providing stable cash flow beyond the loan maturity from an investment-grade-credit tenant. Further, the loan is structured with a five-year ARD period following the initial ten-year loan term. Therefore, if not paid off, the loan is estimated by DBRS to amortize down 31.5% to a maturity balance of $346.1 million, establishing a low DBRS LTV at lease expiry of only 62.1%. –– The appraiser estimates replacement cost of the assets, including land value, at $520 million, which is slightly above the rated debt proceeds of $505 million. The recent construction vintage, high property quality and strong location of the assets would make them highly re-leasable. –– The subject is located in a highly desirable area that is booming with development as many of Silicon Valley’s largest tech firms have moved into the submarket. The collateral offers best-in-class amenities and spectacular Class A office space that should position the properties at the forefront of Sunnyvale office product in the coming years. Although availability rates in the submarket are high, this is primarily a function of an abundance of new supply coming on-line recently; however, the majority of new Class A office buildings in Sunnyvale are build-to-suit developments that are pre-leased to other leading tech firms. –– This initial loan balance of $696 psf is relatively low considering office sales within a ten-mile radius of the subject averaged $1,049 psf across five transactions over the past two years, according to the appraisal. In addition, the subject is of excellent quality and the investment-grade tenant income alone provides for substantial amortization down to a fraction of the replacement cost at $474 psf. Further, considering that the lease doesn’t expire until 2034, the inflation-adjusted maturity exposure psf is more likely to be closer to $350 in today’s dollar terms.
Structured Finance: CMBS 21 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Northpoint Tower Cleveland, OH
Loan Snapshot Seller CREFI Ownership Interest Fee Simple and Leasehold Trust Balance ($ million) $65.5 Loan psf/Unit $104 Percentage of the Pool 6.2% Loan Maturity/ARD September 2024 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Year Built/Renovated 1985/2017-2019 Issuance DSCR City, State Cleveland, OH Physical Occupancy 79.50% 3.31x SF 873,335 Physical Occupancy Date August 2019 Issuance LTV 62.3% Balloon LTV This loan is secured by the borrower’s fee interest in the Northpoint Tower office 62.3% complex and leasehold interest in an attached 1,005-stall parking garage in Cleveland, Ohio. The Northpoint Tower complex is composed of two Class A office buildings — DBRS Property Type Office the 901 Building and 1001 Building — which are connected via a sky bridge and were DBRS Property Quality constructed in 1985 and 1990, respectively. The entire complex was 79.5% occupied Average + as of August 2019. Loan proceeds of $90.5 million were used to refinance the property Debt Stack ($ million) and repay prior debt of $82.7 million. The remaining proceeds were used to fund Trust Balance outstanding TI/LCs, fund a $18.5 million upfront TI/LC reserve and cover closing $65.5 costs. The five-year loan is IO through its entire loan term. Of the $90.5 million loan Pari Passu amount, $65.5 million will be contributed into the subject trust, and the remaining $25.0 $25.0 million pari passu portion will be contributed into a future securitization. B-Note Sponsorship acquired the property as part of a four-property portfolio in June 2016 $0.0 and since that time has spent approximately $5.8 million in capital improvements Mezz and TI/LCs. $0.0 Total Debt $90.5 Loan Purpose Refinance Equity Contribution/ (Distribution) ($ million) $1.9
Structured Finance: CMBS 22 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
NORTHPOINT TOWER – CLEVELAND, OH
TENANT SUMMARY
% of DBRS Base % of Total DBRS Investment Tenant SF Total NRA Rent PSF Base Rent Lease Expiry Grade? (Y/N)
Jones Day 342,641 39.2% $26.49 55.3% 6/2026 N
GSA- Dept. of Labor 79,151 9.1% $21.64 10.4% 10/2029 N
Willis Towers Watson US LLC 28,135 3.2% $22.00 3.8% 12/2025 N
CGI Technologies and Solutions 32,919 3.8% $20.00 4.0% 7/2020 N
Subtotal/Wtd. Avg. 482,846 55.3% $24.99 73.5% Various n/a
Other Tenants 211,291 24.2% $20.55 26.5% Various n/a
Vacant Space 179,198 20.5% n/a n/a n/a n/a
Total/Wtd. Avg. 873,335 100.0% 23.64 100.0% Various n/a
The property is currently 79.5% leased to a number of tenants, including Jones Day law firm, GSA Department of Labor, Willis Tower Watson LLC, and CGI Technologies and Solutions (CGI). Jones Day was established in Cleveland and maintains its corporate headquarters at the property. The tenant has been at the property since its original construction 30 years ago and recently invested over $16 million of its own money into a complete gut rehab of each of its floors in the 901 building. The GSA Department of Health and Human Services leases four floors in the 1001 building, which includes a new lease for approximately 45,000 sf. The space for the new lease is being built out, and the tenant is expected to take occupancy in December 2019. Willis Towers Watson LLC has renewed its lease twice at the property. With its most recent renewal in 2015, it downsized by nearly 50% into a more efficient space plan while maintaining the same employee headcount. The tenant has invested approximately $1.3 million of its own capital into its space. The building’s amenities include a 1,004-stall parking garage, an auditorium, restaurant/bar and fitness center.
The subject is located on the north side of Cleveland’s CBD and is located only 0.3 miles away from Route 2, one of the major highways that connects the city of Cleveland to the various suburbs from where a majority of Cleveland employees commute. Other major highways located near the subject are I-71, I-77 and I-90. The Cleveland International Airport is also located 14.2 miles away from the subject. According to Reis Q2 2019 market data, the Downtown Cleveland submarket has a 24.4% vacancy rate with an average rental rate of $20.31 psf. The vacancy rate for the vintage class is lower at 10.3%. The Reis report indicates that there is no new office construction planned in the submarket through 2021.
SPONSORSHIP The sponsors for this transaction are Isaac, Sarah and William Hertz of the Hertz Investment Group. The company, headquartered in Santa Monica, California, was founded in 1977 and is a leading private equity commercial real estate firm specializing in the acquisition, marketing and management of Class A mid- and high-rise multi-tenant office properties. The guarantors have reported a combined net worth of $530 million. The properties will be managed through a sponsor affiliate.
Structured Finance: CMBS 23 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
NORTHPOINT TOWER – CLEVELAND, OH
DBRS ANALYSIS SITE INSPECTION SUMMARY
Based on the DBRS site inspection and management meeting conducted on August 26, 2019, at 9:00 a.m., DBRS found the property quality to be Average (+).
The subject office buildings and parking garage are located on Lakeside Avenue East in downtown Cleveland. Lakeside Avenue East is one of the northernmost roads in the city before Lake Erie, which affords the property unobstructed views of the lake and proximity to the lakefront entertainment and sports district. Access to the property is good, with several major highways and interstates within close proximity. Also, a local light rail commuter train stop is located a block away. The surrounding property uses are predominately office and hotel. Cleveland City Hall is a block away, and there is also a concentration of city and federal government buildings in the area. Although the subject address and main entrance are on Lakeside Avenue East, the ingress from that road is merely a turnabout with no access to parking. Instead, tenants and visitors may park at metered spots on the surrounding surface streets or in the parking garage located to the rear of the property and accessed via East 9th Street. The four-story parking garage is large and in good condition. In addition to being an amenity to the subject office building and tenants, the garage is ideally located to capture demand from the nearby FirstEnergy Stadium (home of the Cleveland Browns) and the Rock & Roll Hall of Fame. At the time of inspection, the parking garage was well occupied, and the posted daily rate was $13.00. The 901 office building does have a small subterranean parking garage, although all of the spaces are reserved, and it is known as the “executive garage.”
The 901 and 1001 buildings are connected by a nine-story atrium lobby and sky bridge on the third floor. The 901 building is five stories and leased entirely by Jones Day. The building exterior consists of terra cotta panels and green accented windows, with a large glass enclosed atrium that reaches over five stories tall. The atrium serves as a cafeteria and seating area for the tenant and provides nice views of Lake Erie. The recently renovated lobby exclusively serves Jones Day and has high-end finishes, including a granite accent wall, custom light displays and modern furniture. The lobby has high ceilings and an abundance of natural light from the glass curtain wall. The first floor of the 901 building is the executive floor and contains numerous meeting rooms, a large conference room and several seating areas. The property representative indicated that Jones Day had spent over $16 million building out its space in the past several years, which included interior finishes and upgrading the building HVAC systems. DBRS inspected several floors within the 901 building, and the build out was consistent across the property, with partner offices lining the walls and clerical cubicles in the interior. Each floor also had very nice kitchen and break room areas. It appeared that the tenant has a low employee count per square footage of office space, which was noticeable from the extra wide corridors and overall low density of offices and cubicles. The
Structured Finance: CMBS 24 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
NORTHPOINT TOWER – CLEVELAND, OH interior finishes were well appointed and showed very well. According to the property representative, Jones Day employs approximately 600 employees at this location. The property representative confirmed that there was no dark space and the tenant uses all of its space. In fact, Jones Day also occupies two entire floors in the 1001 building.
At 19 stories, the 1001 building is much taller than the 901 building. The exterior is predominately glass, with brick accents on the lower levels. The building lobby is a large, spacious area, with seating, a small security desk, two-story ceiling heights and wood accent walls. According to the property representative, the lobby had recently been renovated, which modernized the space and lightened the color palette. A similar renovation plan was implemented throughout various parts of the common areas and annexes in the building, although the majority of the capital spend was in the lobby. DBRS found the renovations to be similar to Class A office finishes, and although the renovations were not full-gut renovations, the updates were significant to the overall feel of the building.
DBRS inspected several vacant and occupied spaces through the 1001 building, including the vacant 19th floor, the Willis Towers Watson LLC space on the 15th floor and the vacant 12th floor. The 19th floor provided exceptional views of Lake Erie and downtown Cleveland. The space still contained the build-out from the prior tenant and would need to be demolished to accommodate a new tenant. The Willis Towers Watson LLC space had interior offices and cubicles around the perimeter. The office finishes were newer, reflecting the tenant’s recent commencement in 2016 and showed well. At the time of inspection, the tenant space was active with employees and was fully utilized. The 12th floor vacant space had been fully demolished and would allow a perspective tenant a shorter lead time to move in compared with the vacant 18th and 19th floors. The property representative indicated that asking rents for space in the building were in the low $20.00 psf range, and the landlord was offering $50.00 psf TI packages on ten-year lease terms. The property representative provided an update on near-term expirations, indicating that the GSA Department of Labor was renewing its space for five years and that CGI would be contracting to half its size upon its July 2020 expiration. DBRS also inspected the building’s amenities, which included a large, renovated conference room, a decent-sized fitness room that is free for tenants and a medium-sized amphitheater. The 1001 building also has a restaurant — David’s Deli — on the mezzanine level. The fairly large deli offers breakfast and lunch and was active with customers at the time of inspection. When asked about the subject’s competitive advantages in the market, the property representative listed the Class A finishes, downtown location and views, attached parking garage, on-site management and building amenities. Overall, the rather large property appeared to be well maintained and in good condition at the time of inspection.
DBRS NCF SUMMARY
NCF ANALYSIS
2017 2018 T-12 June 2019 Issuer NCF DBRS NCF NCF Variance
GPR $15,172,790 $14,586,882 $14,890,416 $20,310,373 $20,023,860 -1.4%
Recoveries $532,192 $263,012 $291,935 $265,351 $265,351 0.0%
Other Income $1,987,116 $1,816,309 $1,861,942 $1,861,942 $1,843,278 -1.0%
Vacancy -$288,518 -$253,755 -$273,300 -$3,776,292 -$3,867,721 2.4%
EGI $17,403,580 $16,412,448 $16,770,993 $18,661,374 $18,264,768 -2.1%
Expenses $8,558,873 $8,412,634 $8,378,781 $8,452,084 $8,552,624 1.2%
NOI $8,844,707 $7,999,814 $8,392,212 $10,209,290 $9,712,143 -4.9%
Capex $0 $0 $0 $174,667 $174,667 0.0%
TI/LC $0 $0 $0 $0 $804,025 100.0%
NCF $8,844,707 $7,999,814 $8,392,212 $10,034,623 $8,733,451 -13.0%
Structured Finance: CMBS 25 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
NORTHPOINT TOWER – CLEVELAND, OH
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $8,733,451, a variance of -13.0% from the Issuer’s NCF. The main driver for the NCF variance is the TI assumption and straight-line rent steps. DBRS assumed new TIs of $30.00 to $35.00 psf and gave credit to the upfront TI/LC reserve of $10.5 million over a ten-year term. Although the loan term is five years, DBRS assumes a ten-year term for purposes of straight-lining upfront reserves. DBRS did not accept straight-line rent steps related to any tenants with an investment-grade rating, due to the lease terms not extending three years past the loan maturity date.
DBRS VIEWPOINT The collateral represents a Class A office complex in downtown Cleveland with a desirable 1,004-stall parking garage. The property is located on the northern border of the downtown submarket and boasts unobstructed views of Lake Erie and the nearby FirstEnergy Stadium and Rock & Roll Hall of Fame. Sponsorship recently acquired the property in 2016 when the property was 73.0% occupied and invested over $5.8 million in capital improvements and TI/LCs into the property. As a result of sponsorship’s business plan, nearly 200,000 sf of new or renewal leases were executed, and occupancy has increased to approximately 80.0%. The capital improvements to the 1001 building lobby and common areas added a modern design element and presented well. When compared with the predominately early 1900s office stock in the submarket, the subject’s modern-day construction allows prospective tenants more flexibility with space configurations. The attached parking garage serves the building’s tenants and also draws significant business from the nearby FirstEnergy Stadium and Rock & Roll Hall of Fame. Sponsorship has a leasehold interest in the parking garage, with the City of Cleveland owning the underlying land. The ground lease between the two parties was recently renewed and will expire well past loan maturity in 2059. The issuance LTV is relatively low at 62.3% but will not change over the loan term due to the loan’s being full-term IO.
DOWNSIDE RISKS –– Jones Day, representing approximately 55.0% of the in-place base rent, has a 2026 lease expiration date, which is two years past loan maturity and could present refinance risk. –– The property is 79.5% occupied and contains multiple vacant floors.
STABILIZING FACTORS –– Jones Day was established in Cleveland and maintains is corporate headquarters at the property. The tenant has been at the property for over 30 years and recently invested over $16 million of its own money into a complete gut rehab of each of its floors in the 901 building. –– The loan is structured with a $10.5 million upfront TI/LC reserve, which can be used for re-tenanting the building and increasing occupancy. In addition, the DBRS in-place DSCR of 2.88x demonstrates that in-place cash flows are well in excess of the loan payment.
Structured Finance: CMBS 26 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
2 Cooper New York, NY
Loan Snapshot Seller GSMC Ownership Interest Leasehold Trust Balance ($ million) $65.0 Loan psf/Unit $454,545 Percentage of the Pool 6.1% Loan Maturity/ARD September 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Multifamily Year Built/Renovated 2010 Issuance DSCR City, State New York, NY Physical Occupancy 95.1% 2.28x Units 143 Physical Occupancy Date May 2019 Issuance LTV 51.3% Balloon LTV The loan is secured by the leasehold interest in a 15-story 143-unit multifamily 51.3% building with 21,848 sf of retail space and a four-story ten-unit townhouse building in downtown New York. Loan proceeds of $75.0 million are split between a $65.0 million DBRS Property Type Multifamily first mortgage funded by The Goldman Sachs Group, Inc. and a $10.0 million of DBRS Property Quality preferred equity funded by Lloyd Goldman through BLDG Management. Combined Average + with $30.0 million in sponsor equity, the proceeds will fund the acquisition of the Debt Stack ($ million) subject, as well as closing costs of $5.0 million and upfront reserves of $7,640. The Trust Balance sponsors David Werner and Isaac Kassirer will acquire the subject from the current $65.0 owner, Wafra Inc., which is liquidating the fund in which it is holding the leasehold Pari Passu position. The leased fee position is held by a trust controlled by Jane Goldman, a cousin $0.0 of Lloyd Goldman. The loan will be structured as a ten-year fixed-rate IO term. B-Note $10.0 The collateral is operating under a 70-year ground lease with approximately 57 years Mezz remaining on the term. The luxury multifamily asset was built in 2010 and was 95.1% $0.0 occupied as of the May 2019 rent roll. The unit mix consists of 40 studio apartments, Total Debt 77 one-bedroom apartments, 25 two-bedroom apartments and one four-bedroom $75.0 apartment. Units average 754 sf, and leases range from $4,106 to $9,353 per month for Loan Purpose studios through two-bedroom apartments and $17,950 for the four-bedroom apartment. Acquisition Relative to the competitive set of rental properties within a mile of the asset, the Equity Contribution/ improvements are, on average, newer with slightly better amenities and slightly higher (Distribution) ($ million) $27.3 average rent. Property amenities include a roof deck with a resort-style pool, barbecue grills, refrigerators, a fitness center, video arcade games, a private screening room, a residents’ lounge, meeting rooms, a tenant bicycle room and a 24-hour attended lobby. The retail space is fully leased to Crunch Fitness until January 2029, with 10,477 sf at ground level and 11,401 sf below grade. Annual base retail rent in place as of May 2019 is 14.7% of EGI.
Structured Finance: CMBS 27 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
2 COOPER – NEW YORK, NY
MARKET OVERVIEW According to CBRE, the West Village/Downtown multifamily submarket saw 115 units completed in this quarter, and 32 units were negative net absorption. Similarly, between 2020 and 2024, CBRE expects marginal negative net absorption while a minor 89 units are completed. The submarket vacancy rate is among the tightest in the primary market of New York at 2.4%. CBRE forecasts employment growth of 0.2% in the next five years led by the business services sector, along with a slight slowing of annual population growth to 0.2%. Based on CBRE’s summary of comparable sales, the average price in the submarket is $1,166 psf.
CBRE indicates the contract rent for the improvements’ retail component is on par with the mid- to upper end of the comparables range of $122 to $203 psf of grade-level space, as these comparables tend to have significant below-grade rentable space. Moreover, 2 Cooper Square is well located within its submarket, as it has corner frontage and receives significant foot traffic.
COMPETITIVE SET
Distance Year Built/ Avg. Rental Avg. Unit Property Location from Subject Units Renovated Rate Per Unit Size (SF)
1 Union Square South New York, NY 0.6 miles 240 1996 $6,681 783
74-84 Third Avenue New York, NY 0.3 miles 83 2014 $5,745 663
11 East 1st Street New York, NY 0.6 miles 9 2005 $4,902 749
229 Chrystie Street New York, NY 0.8 miles 14 2003 $5,262 754
211 East 13th Street New York, NY 0.5 miles 8 2013 $5,715 829
Total/Wtd. Avg. Comp. Set Various, State Various 354 2006 $6,338 754
2 Cooper New York, NY n/a 143 2010 $6,397 754
Source: Appraisal, Google maps
The 133 units in the main building have a 421a tax abatement in place through 2022. However, while the units are technically under rent stabilization guidelines, the contract rent and legal rent are above market rate, according to the appraisal, and will not be significantly affected by the expiration of the property’s 421a tax exemption. The appraiser expects the owner of the improvements to contest the asset’s tax assessment once the exemption expires, as the assessment is on the high end of the comparable range. The appraiser anticipates future assessments to move toward the comparable range.
SPONSORSHIP Sponsor David Werner is a New York-based private real estate investor with over 35 years of commercial real estate experience. He is a principal in over 15.0 million sf of office space and close to 9,000 multifamily units. Co-sponsor and recourse carveout guarantor Isaac Kassirer serves as Chief Executive Officer of Emerald Equity Group, which he founded in 2012, and has $100.0 million in net worth and $4.2 million of liquidity.
Structured Finance: CMBS 28 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
2 COOPER – NEW YORK, NY
DBRS ANALYSIS SITE INSPECTION SUMMARY
DBRS toured the interior and exterior of 2 Cooper Square on Monday, August 26, 2019, at approximately 2:00 p.m. Based on the site inspection, DBRS found the property quality to be Average (+).
2 Cooper Square is located on the northwest corner of Cooper Square and East 4th Street in the East Village neighborhood of Manhattan. The property has excellent public transport access: It is four blocks south of the Astor Place subway station, which provides access to the 6 line, and the 8th Street subway station, which provides access to the R and W lines. In addition, the Broadway-Lafayette Street station four blocks south of the property provides access to the B, D, F and M lines. The property has very good visibility and curb appeal given its corner location and because Cooper Square is a wide two-way thoroughfare. The immediate vicinity of the property has a number of restaurants, bars, art galleries and retail establishments as well as the Public Theater. The Cooper Union for the Advancement of Science and Art (Cooper Union) is located a block north of the property. In addition, New York University (NYU) owns and/or maintains a number of buildings in the area as dorms for its students.
DBRS saw several units at Cooper Square, all of which had good-quality finishes, including wood floors throughout, in-unit washers and dryers and very high-end appliances. A number of units have private terraces, including some with wraparound terraces that are larger than the units to which they are attached. Amenities at the property include a rooftop swimming pool that is open from Memorial Day to Labor Day and has an outdoor barbecue area equipped with a grill, a residents’ lounge, a conference room and a screening room. All the amenity spaces can be reserved by tenants for private use at an additional charge. There is a fitness center with a boxing studio and massage room in addition to the cardio and strength-training equipment. The property also has a storage room with cages that can be rented by residents and a place to store bikes. The reception area also has a restaurant-style walk-in cold storage for food deliveries and perishables. All the units and the common areas appeared very well maintained; the equipment in the fitness center and screening room were relatively new, and the residents’ lounge had a full kitchen and arcade-style video games. There is complimentary Wi-Fi in all the common areas, and according to management, the residents’ lounge and the conference get heavy use from residents working from home.
In addition to the fitness center in the residential portion, there is a commercial fitness center on the ground floor and basement level of the building operated by Crunch Fitness. The upper level has various cardio equipment, and the lower level has studios and strength-training equipment. Per management, residents were offered concessionary rates when
Structured Finance: CMBS 29 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
2 COOPER – NEW YORK, NY the fitness center first opened. The manager at the Crunch Fitness did not permit photographs, but the fitness center was reasonably busy for a weekday afternoon.
Management indicated that the property was 97.5% occupied at the time of the site visit and that their average turnaround time between leases was about two weeks during the peak summer leasing season.
DBRS NCF SUMMARY
NCF ANALYSIS
T-12 NCF 2016 2017 2018 April 2019 Issuer NCF DBRS NCF Variance
GPR $9,815,907 $9,962,387 $10,027,353 $10,101,630 $10,379,296 $10,379,296 0.0%
Other Income $1,630,946 $1,707,748 $1,733,823 $1,856,023 $1,937,762 $1,884,666 -2.7%
Vacancy & Concessions -$645,283 -$975,761 -$422,029 -$404,148 -$580,019 -$618,166 6.6%
EGI $10,801,570 $10,694,374 $11,339,147 $11,553,505 $11,737,039 $11,645,797 -0.8%
Expenses $4,229,110 $4,626,007 $5,038,065 $5,288,729 $5,585,728 $6,939,459 24.2%
NOI $6,572,459 $6,068,367 $6,301,082 $6,264,776 $6,151,311 $4,706,338 -23.5%
Capex $0 $0 $0 $0 $35,750 $39,039 9.2%
NCF $6,572,459 $6,068,367 $6,301,082 $6,264,776 $6,115,561 $4,667,299 -23.7%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $4,667,299, representing a -23.7% variance from the Issuer’s NCF of $6,115,561. The primary drivers of the variance included real estate taxes, management fees and ground rent expense. Since the current 421A tax abatement will end in 2022, DBRS based real estate taxes on a straight-line average of the abated taxes for three years and the appraiser’s estimate of the full tax burden for the property for the remainder of the loan term. DBRS estimated the ground rent as an average of the in-place ground rent and the ground rent after a 10.0% contractual increase in 2025. The management fee is 3.0% of EGI, which is in line with the DBRS standard for multifamily properties with high rents.
DBRS VIEWPOINT 2 Cooper Square benefits from its location in a vibrant neighborhood with excellent public transport accessibility. The presence of Cooper Union, NYU facilities, the Public Theater, various art galleries, etc., as well as restaurants and bars, make the area attractive to prospective tenants. This is reflected in the occupancy levels at the property where vacancy has not exceeded 4.4% since 2016 and is line with the submarket vacancy levels during that time, according to Reis. In contrast, DBRS assessed a 5.0% vacancy for both the residential and retail portions of the property. The trust mortgage is moderately leveraged at 51.3%, and the total implied leverage, including $10.0 million of preferred equity, is 59.1% based on the as-is appraised value of $126.8 million. The Sponsor’s liquidity level at 0.06x is relatively low; however, the Sponsors will contribute $30.0 million of equity for this acquisition. Further, the Sponsors reportedly owns or manages 9,000 apartment units across the United States, including over 3,300 units in New York.
DOWNSIDE RISKS –– A 421A real estate tax abatement, presently in place at the property, will expire in 2022, resulting, potentially, in a significant increase in real estate tax expense. –– The collateral represents a leasehold position and is subject to a 70-year ground lease, which commenced in 2005 and has contractual base rent escalations of 20.0% every ten years, the first of which will occur during the term of the loan.
Structured Finance: CMBS 30 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
2 COOPER – NEW YORK, NY
STABILIZING FACTORS –– Upon the expiration of the 421A tax abatement, the units at the property may revert to free market rents, representing revenue upside potential. DBRS has conservatively not taken the upside potential into account in the NCF analysis. Further, DBRS’s real estate tax expense is based on the appraiser’s estimate of the unabated tax burden in 2022. –– DBRS estimated ground rent expense as an average annual ground rent payment over the loan term and represents 15.6% of the DBRS EGI.
Structured Finance: CMBS 31 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
19100 Ridgewood San Antonio, TX
Loan Snapshot Seller GSMC Ownership Interest Fee Simple Trust Balance ($ million) $55.0 Loan psf/Unit $227 Percentage of the Pool 5.2% Loan Maturity/ARD September 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Year Built/Renovated 2009 Issuance DSCR City, State San Antonio, TX Physical Occupancy 100.0% 2.42x SF 618,017 Physical Occupancy Date June 2019 Issuance LTV 69.8% Balloon LTV This loan is secured by the borrower’s fee interest in 19100 Ridgewood, a 618,017 sf office 69.8% building in San Antonio, Texas, approximately 18.0 miles north of the San Antonio CBD. Situated on a 15.3-acre site, the improvements consist of two Class A office buildings DBRS Property Type Office and a six-story parking garage containing a total of 2,355 parking spaces. Building I DBRS Property Quality is a 14-story office building, and Building II stands six stories tall. Loan proceeds of Average + $140.0 million, in addition to $58.6 million of sponsor equity, will be used to acquire Debt Stack ($ million) the subject property for $198.0 million and pay closing costs of $2.0 million. The ten- Trust Balance year loan is IO for the entire loan term and amortizes on a 30-year schedule. $55.0 Pari Passu $85.0 B-Note $0.0 Mezz $0.0 Total Debt $140.0 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $58.6
Structured Finance: CMBS 32 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
19100 RIDGEWOOD – SAN ANTONIO, TX
TENANT SUMMARY
% of Total DBRS UW % of Total DBRS Investment Tenant SF NRA Base Rent PSF UW Base Rent Lease Expiry Grade? (Y/N)
Marathon Petroleum 470,722 76.2% $35.54 76.2% 5/31/2029 Y
Marathong Petroleum - subleased by 147,295 23.8% $35.54 23.8% 5/31/2029 Y EOG Resources, Inc.
Subtotal/Wtd. Avg. 618,017 100.0% $35.54 100.0% Various n/a
Other Tenants 0 0.0% $0.00 0.0% Various n/a
Vacant Space 0 0.0% n/a 0.0% n/a n/a
Total/Wtd. Avg. 618,017 100.0% $35.54 100.0% Various n/a
The office buildings were constructed in 2009 and are 100.0% leased to Marathon Petroleum Corporation (Marathon), serving as a base of operations for its West Coast market presence. Amenities at the property include a fitness center, a corporate cafeteria, a commercial kitchen, a coffee kiosk, a dedicated commodities trading floor and private executive parking. The large parking garage, high-quality amenities and modern design elements make this one of the highest- quality office properties in the area.
The current Marathon lease was originally signed in 2009 by Tesoro Companies, which was later renamed Andeavor. In October 2018, Andeavor was acquired in October 2018 by Marathon. Prior to the acquisition by Marathon, Tesoro Companies (Andeavor) invested approximately $2.4 million in tenant-funded improvements during its time occupying the property. Building II, comprising 147,000 sf, is currently subleased to EOG Resources, Inc. (EOG), a company in the petroleum industry engaged in hydrocarbon exploration. The EOG sublease began in 2011 and expanded in 2012 to include 37,000 additional sf. EOG pays modified gross rent of $30.00 psf on a negotiated sublease with Marathon through 2026 — a sublease that only converts into a direct lease with the landlord in the event of a Marathon default.
SPONSORSHIP The sponsor for the loan is U.S. Realty Advisors, LLC (USRA), a real estate investment and asset management firm founded in 1989. USRA’s portfolio consists of over 1,500 properties across the country. The guarantor for the loan is USRA Net Lease III Capital Corp., which has a net worth and liquidity of $114.0 million and $248.0 million, respectively. The property is self-managed by Marathon for 1.0% of EGI.
Structured Finance: CMBS 33 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
19100 RIDGEWOOD – SAN ANTONIO, TX
DBRS ANALYSIS SITE INSPECTION SUMMARY
DBRS toured the interior and exterior of the property on Wednesday, August 28, 2019, at 1:00 p.m. Based on the site inspection, DBRS found the property to be Average (+).
The subject consists of a 618,017 sf office property located approximately 18.0 miles north of the San Antonio CBD and fewer than 10.0 miles north of San Antonio International Airport. The collateral has good accessibility with primary access provided by the East Charles W. Anderson Loop (Route 1604). The Class A office building is located within a suburban corridor featuring primarily office and retail developments in the surrounding area. The subject is the main focal point within the Ridgewood Park master-planned business community, which consists of ample greenspace, mid-rise office properties and limited-service hotels.
Originally constructed in 2009, the improvements consist of two office buildings and a six-story parking structure situated on a 15.0-acre site. Direct access to the building’s front entryway and to the subject’s parking structure is provided by Ridgewood Parkway. A large driveway off Marathon Drive consists of a brick-paved cul-de-sac with landscaping and flagpoles in the center, providing a dedicated space for drop-offs and deliveries. The lobby featured modern finishes with floor-to-ceiling windows and a large reception area. The centrally located lobby connected the two buildings. Building I, located to the right of the main entryway, is 100.0% leased by Marathon, while Building II, located to the left of the main entryway, is subleased by EOG. Access to each building for employees and visitors was provided by electronic security gates on either side of the main entryway. Directly behind the reception desk is a large staircase the provides access to both the second story and the lower level. Additionally, approximately 35,000 sf of conference-center space is located off the lobby, to the right of the reception area. According to management, the subject’s large conference is an amenity that sets the subject apart in comparison with other office properties in the surrounding area. The flexible conference space can accommodate meetings on various scales ranging from eight people to 425 people. According to management, comparable properties of the subject’s size typically offer much less conference space, ranging from just 1,500 sf to 5,000 sf. The carpet throughout the conference space was being replaced at the time of inspection, and new carpet is expected to be installed by mid-September 2019.
As of the time of inspection, the top three floors of Building I were being marketed for sublease and have actively been available since February 2019. The top floor was previously used as the offices for Andeavor executives, as the entire property served as the company’s office headquarters prior to the October 2018 Marathon acquisition. The vacant top floor
Structured Finance: CMBS 34 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
19100 RIDGEWOOD – SAN ANTONIO, TX featured glass entryways, a modern front-desk area with ample seating for visitors and beige carpet flooring throughout. Several meeting rooms and offices featured floor-to-ceiling windows, providing views of the surrounding San Antonio area and allowing plenty of natural sunlight to penetrate the space. Select offices included personal restrooms and fitness centers. According to management, the space is currently being marketed for sublease with the furniture available. Floors 12 and 13, also available for sublease, consist of an open layout, dark carpeting and drop-tile ceiling. Concentrated toward the exterior of the floor plates are several private offices. The remaining floors of Building I are consistent in build-out to Floors 12 and 13. Occupying the entirety of Building II, EOG’s build-out consisted of internal walkways with exterior private offices. The subject will not undergo any major renovations in the near future. At the time of inspection, the lobby, main corridors and parking lot were well trafficked with tenants, given the mid-afternoon time of day. Overall, the property was found to be in good condition and in line with comparable properties in the surrounding submarket.
DBRS NCF SUMMARY
NCF ANALYSIS
2016 2017 2018 T-12 June 2019 Issuer NCF DBRS NCF NCF Variance
GPR $12,842,592 $13,003,124 $13,165,663 $13,247,523 $14,551,152 $13,566,650 -6.8%
Recoveries $0 $0 $0 $0 $9,270,507 $9,192,963 -0.8%
Other Income $0 $0 $0 $0 $0 $0 0.0%
Vacancy $0 $0 $0 $0 -$753,209 -$2,275,961 202.2%
EGI $12,842,592 $13,003,124 $13,165,663 $13,247,523 $23,068,450 $20,483,652 -11.2%
Expenses $0 $0 $0 $0 $9,270,507 $9,192,963 -0.8%
NOI $12,842,592 $13,003,124 $13,165,663 $13,247,523 $13,797,943 $11,290,689 -18.2%
Capex $0 $0 $0 $0 $154,504 $154,504 0.0%
TI/LC $0 $0 $0 $0 $1,081,530 $994,537 -8.0%
NCF $12,842,592 $13,003,124 $13,165,663 $13,247,523 $12,561,909 $11,094,481 -11.7%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $11,094,481, a -11.7% variance from the Issuer’s NCF figure of $12,561,909. The primary drivers of the variance are vacancy and rent steps. DBRS applied a vacancy of 10.0% compared with the Issuer’s vacancy rate of 5.0%. DBRS is not accepting future rent steps given that Marathon does not meet the LTCT standard determined by DBRS, as its lease expires in May 2029.
DBRS VIEWPOINT The collateral for the loan is the fee simple interest in a single-tenant building in San Antonio. The subject property is located within the 121.0-acre Ridgewood Park business development, which includes various office, retail and lodging uses. The DBRS DSCR of 2.42x implies that the loan has a low term-risk profile, but refinance risk exists due to Marathon’s lease expiration in May 2029, which is four months prior to loan maturity. Marathon’s current lease is structured with a cash flow sweep 18 months prior to its lease expiration. If Marathon were to vacate its space upon lease expiration, the cash flow sweep of approximately $14.6 million, the appraised value of $200.5 million and the value of EOG’s space would bring the loan basis to approximately $74.9 million ($157 psf ) compared with the current loan basis of $140.0 million ($227 psf ). According to on-site management, Marathon has interests in several of the surrounding parcels, demonstrating significant investment the area. While DBRS did not treat Marathon with LTCT status, a representative from Marathon expressed their overall satisfaction with the space. The loan was assessed with Average (+) property quality due to the subject’s attractive campus, exterior facade and above-average amenities. The roughly 35,000 sf conference center space allows for collaboration with visiting employees from various office locations. Additionally, several limited- and full- service hotels had been recently developed and are in the process of being developed within the Ridgewood Park area.
Structured Finance: CMBS 35 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
19100 RIDGEWOOD – SAN ANTONIO, TX
DOWNSIDE RISKS –– The loan is IO for the full term, representing an elevated refinance risk at loan maturity. –– The property is 100.0% leased by Marathon with an initial lease expiration of May 2029, four months prior to loan maturity.
STABILIZING FACTORS –– This loan features a moderate LTV of 69.8%, and the borrower will contribute approximately $60.0 million of cash equity to acquire the subject property, representing 30.3% of the purchase price of $198.0 million. –– Building II, occupying 23.8% of the total NRA and DBRS Base Rent, is subleased to EOG, which is recognized as a direct tenant in the event that Marathon vacates.
Structured Finance: CMBS 36 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
New Jersey Center of Excellence Bridgewater, NJ
Loan Snapshot Seller CREFI Ownership Interest Fee Simple Trust Balance ($ million) $54.7 Loan psf/Unit $116 Percentage of the Pool 5.2% Loan Maturity/ARD August 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Year Built/Renovated 1970-2005 Issuance DSCR City, State Brdigewater, NJ Physical Occupancy 92.3% 3.24x SF 783,598 Physical Occupancy Date March 2019 Issuance LTV 0.60x Balloon LTV The loan is secured by the borrower’s interest in the New Jersey Center of Excellence, a 59.6% life sciences campus consisting of eight buildings that cover 785,598 sf in Bridgewater, New Jersey. Within the campus, there are seven buildings devoted to research and DBRS Property Type Office development (R&D) and office space, one manufacturing warehouse and one 669-spot DBRS Property Quality parking garage. The campus is situated along U.S. Hwy. Route 202/206 in central New Average + Jersey. The property was built between 1970 and 2005. The sponsor of the loan is a Debt Stack ($ million) joint venture between Joseph Sitt of Thor Equities LLC and PFA Pension (PFA). Loan Trust Balance proceeds of $91.2 million facilitated the $152.0 million acquisition of the property $54.7 and covered $62.86 million in closing costs. The ten-year loan is IO during the entire Pari Passu period. Of the $91.2 million loan amount, $54.72 million will be contributed to the $36.5 subject trust and the remaining $36.5 million pari passu portion will be contributed B-Note to a future securitization. $0.0 Mezz $0.0 Total Debt $91.2 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $62.9
Structured Finance: CMBS 37 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
NEW JERSEY CENTER OF EXCELLENCE – BRIDGEWATER, NJ
TENANT SUMMARY
% of % of Campus Investment Tenant SF Total NRA Total Income Income Lease Expiry Grade? (Y/N)
Ashland, Inc. 198,000 25.2% $5,743,269 22.2% 7/2029 Y
Nestle Health Science 182,427 23.2% $5,310,659 20.5% 9/2031 Y
Amneal (Kashiv) 142,780 18.2% $3,582,018 13.8% 9/2025 Y
PTC Therapeutics, Inc 43,000 5.5% $2,462,180 9.5% 6/2021 Y
Avantor Performance Mater 36,018 4.6% $1,628,302 6.3% 8/2024 Y
Insmed 28,002 3.6% $1,094,529 4.2% 12/2021 Y
Total/Wtd. Avg 630,227 80.2% $19,820,957 76.50% 2/2028 Y
The property was originally constructed as Sanofi S.A.’s (Sanofi) global R&D headquarters, featuring state-of-the-art facilities that had cost over $700.0 million. In 2013, Advanced Realty acquired the property from Sanofi to be converted into its own life sciences campus. Since the acquisition, occupancy levels have increased: occupancy was 26.7% in 2013, 43.9% in 2014, 44.0% in 2015, 60.6% in 2016, 81.1% in 2017, 84.3% in 2018 and 92.3% by Q2 2019. The campus is currently occupied by 14 life sciences companies. The three largest tenants are Ashland Global Specialty Chemicals Inc. (Ashland; 25.2% of the NRA), Nestlé Health Science S.A. (Nestlé Health; 23.2% of the NRA) and Amneal Pharmaceuticals, Inc. (Amneal; 18.2% of the NRA). Combined, these tenants generate nearly 60.0% of total campus income. Ashland is a global supplier of specialty chemicals intended for a wide range of human and machinery uses, including adhesives, construction and F&B. Nestlé S.A. (rated AA (low) with a Stable trend by DBRS) developed Nestlé Health as a subsidiary to create science-based nutritional solutions for individuals with dietary restrictions. Amneal is the United States’ fifth-largest generic drug company. All tenants benefit from the campus’s cafeteria and fitness center.
SPONSORSHIP Thor Equities LLC is a New York–based real estate investment and management company, renowned as a leader in urban real estate development. It has acquired more than 100 properties concentrated in major North American cities. Additionally, the sponsor has an international portfolio valued at $10.0 billion and totaling more than 20 million sf.
PFA offers pension and insurance plans. It is the largest pension company in Denmark and the seventh largest in Europe. PFA has a portfolio consisting of commercial real estate holdings that total DKK 53.1 billion as of YE2018, accounting for 11.0% of PFA’s total investments.
Structured Finance: CMBS 38 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
NEW JERSEY CENTER OF EXCELLENCE – BRIDGEWATER, NJ
DBRS ANALYSIS SITE INSPECTION SUMMARY
DBRS toured the interior and exterior of the property on Tuesday, July 16, 2019, at approximately 11:00 a.m. Based on the site inspection, DBRS found the property quality to be Average (+).
Originally developed as the global R&D headquarters for Sanofi, the New Jersey Center of Excellence is a 31-acre campus comprising seven lab/office buildings with an aggregate NRA of 642,818 sf; a 142,780 sf warehouse/manufacturing building; a three-story 168,840 sf parking garage with 669 spaces; an under-construction amenity building, which will reportedly house a cafe and fitness center; and a 23,000 sf 4.5-megawatt cogeneration plant that provides 70.0% of the electricity for the property.
The property is in Bridgewater, approximately 30.0 miles west of Newark Liberty International Airport and 20.0 miles north of Princeton, New Jersey. Primary access to the property is via U.S. Route 202, which connects to I-287 about 2.0 miles south of the property and to the I-287-I-78 interchange about 3.0 miles north of the property. The Bridgewater Commons mall, located about 3.5 miles south of the property, provides various food options.
Although the campus is visible from U.S. Route 202, it does not have any frontage on the road and the buildings are clustered about half a mile from the entrance to the property, and entry access is controlled by a security booth. The signage for the property is also small and could be easily missed. In addition, tenants within the campus generally do not have any signage on or near their buildings. DBRS was provided with a plan of the campus at the security gate to indicate the property management office. The campus buildings had fairly typical suburban office facades and seemed to be well maintained. The grounds and the internal roads were also well landscaped and paved. There did not appear to be any apparent signs of deferred maintenance, and the PCR noted de minimis immediate and short-term repairs. A representative from Nestlé Health who accompanied DBRS during part of the tour pointed out that they were very satisfied with their space.
During the property tour, DBRS visited lab and office space occupied by Nestlé Health and Ashland, as well as the cogeneration unit. In addition, DBRS toured some of the vacant office and lab space. DBRS was not permitted by either Nestlé Health or Ashland to take pictures of their premises.
Structured Finance: CMBS 39 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
NEW JERSEY CENTER OF EXCELLENCE – BRIDGEWATER, NJ
Ashland, which is the largest tenant, occupies two buildings, one with pure laboratory space and one with office space. The office building has a conventional open office layout with workstations separated by low partitions. The lab building consists of laboratories along central corridors. Each lab is access controlled and most required sanitized clothing, headwear and footwear to enter. Nestlé Health has a mix of labs and offices in the building that it occupies. According to the Nestlé Health representative that accompanied DBRS during the tour, this facility is the U.S. headquarters for Nestlé Health and one of 30 Nestlé Product Technology Centres worldwide where new food products and packaging are developed and tested prior to mass production. As such, most the lab space has very strict protocols for access. Both Ashland and Nestlé Health lab spaces are operated as environmentally controlled spaces called Clean Rooms.
The property benefits from a captive Central Utility Plant (CUP), which provides 4.5 megawatts of cogeneration capability accounting for over 70.0% of the electricity used by the tenants, according to the sponsor’s representative. The CUP not only provides utility efficiency, redundancy and savings but also reportedly lab-quality air, which is a requirement for a number of tenants at the property that operate Clean Rooms.
DBRS NCF SUMMARY
NCF ANALYSIS
T-12 April 2019 Issuer NCF DBRS NCF NCF Variance
GPR $13,069,598 $19,997,979 $19,086,815 -4.6%
Recoveries $6,597,033 $5,947,636 $6,717,911 13.0%
Other Income $3,381,079 $2,896,999 $2,896,999 0.0%
Vacancy $0 -$2,396,957 -$3,119,209 30.1%
EGI $23,047,710 $26,445,657 $25,582,516 -3.3%
Expenses $13,490,652 $14,057,622 $14,287,553 1.6%
NOI $9,557,058 $12,388,036 $11,294,963 -8.8%
Capex $0 $298,527 $336,905 12.9%
TI/LC $0 $905,584 $1,618,111 78.7%
NCF $9,557,058 $11,183,925 $9,339,947 -16.5%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $9,339,947, representing a -16.5% variance from the Issuer’s NCF of $11,183,925. The primary drivers of the variance included vacancy, LCs, operating expenses and management fees. DBRS estimated a 12.1% economic vacancy loss at the property compared with the Issuer’s estimated vacancy loss of 9.2% based on the physical vacancy at the property. Although the submarket vacancy rate according to Reis for Q2 2019 is 15.8%, DBRS estimated a lower vacancy rate for the property because of the recent leasing velocity, the specialized nature of the space, the significant investments made by the tenants (especially Nestlé Health) in their spaces and the availability of the CUP cogeneration capability. DBRS estimated LCs in line with the appraiser’s estimates for TIs and LCs. DBRS generally based operating expenses on the 2020 budget. DBRS also applied a 4.0% management fee compared with the Issuer’s application of a 3.0% management fee estimate.
DBRS VIEWPOINT The New Jersey Center of Excellence is very well suited for its particular tenant roster. Since it was originally designed as a build-to-suit R&D facility for Sanofi, the buildings were built for lab usage, and according to management, each building can easily be configured for single- or multi-tenant use. The availability of an onsite CUP not only provides efficient and cost-effective electricity with redundancies to meet tenant requirements but also lab-quality air for the various Clean Rooms operated by the tenants. As a result, the tenants at the property have made significant investments in their spaces,
Structured Finance: CMBS 40 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
NEW JERSEY CENTER OF EXCELLENCE – BRIDGEWATER, NJ according to management, and the average lease term of the largest tenants, which together account for 66.7% of the NRA, is 14 years. Additionally, DBRS has not given LTCT credit to Nestlé Health, which is an investment-grade-rated tenant, because its lease just falls short of the DBRS threshold of three years beyond the loan term. However, a representative from Nestlé Health expressed their overall satisfaction with their space. With the 43,000 sf PTC Therapeutics, Inc. lease in July 2019, the property is physically 91.2% occupied; however, DBRS estimated an economic vacancy of 12.1% based on market rents for the vacant spaces, in line with the appraiser’s estimated rent. A proposed $250 million mixed-use development, to be called Bridge Town Center, adjacent to the property with frontage on U.S. Route 202, will reportedly include 400 multifamily units, medical offices, retail, restaurants and a hotel, which should enhance the desirability of the property. It should be noted that this proposed development still requires certain approvals from the Bridgewater planning board.
DOWNSIDE RISKS –– The loan is full-term IO and, therefore, prone to default risk at maturity. –– There is significant tenant concentration. The top three tenants account for 66.6% of the NRA and 63.0% of the base rent.
STABILIZING FACTORS –– The loan is modestly leveraged, evidenced by an issuance LTV of 59.6%. The sponsors have invested $62.7 million of fresh equity at closing, and the loan is structured with a cash flow sweep upon an event of default or if the debt yield falls below 6.0%. –– The lease rollover at the property is staggered and averages 6.1% per year over the loan term with rollover concentrations exceeding 10.0% in only two years — 2021 and 2025. In addition to the DBRS economic vacancy, DBRS also assumed high TI/LC costs, in line with the appraiser’s estimates, to partially mitigate rollover risk.
Structured Finance: CMBS 41 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Woodlands Mall Woodlands, TX
Loan Snapshot Seller GACC Ownership Interest Fee Simple Trust Balance ($ million) $50.0 Loan psf/Unit $327 Percentage of the Pool 4.7% Loan Maturity/ARD August 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Retail Year Built/Renovated 1994-2016 Issuance DSCR City, State Woodlands, TX Physical Occupancy 95.8% 3.95x SF 758,231 Physical Occupancy Date May 2019 Issuance LTV 26.0% Balloon LTV The loan is secured by the borrower’s fee-simple interest on a portion of The 26.0% Woodlands Mall, a super-regional mall located in Woodlands, Texas. The property was acquired by GGP Inc. (GGP) in 1995, shortly after its construction by Homart DBRS Property Type Retail Development Company. The sponsor, Brookfield Property REIT Inc. (Brookfield), DBRS Property Quality completed its acquisition of GGP in August 2018. The ten-year loan is IO for the entire Average + term. A-note proceeds of $247.6 million, along with $177.4 million of B-note debt and Debt Stack ($ million) $40.0 million of mezzanine debt, refinanced approximately $322.9 million of existing Trust Balance debt, returned $136.1 million of cash equity to the borrower, covered $3.9 million of $50.0 closing costs and funded $2.2 million of upfront reserves. Based on an appraised value Pari Passu of $953.4 million, the sponsor will maintain implied equity of $488.4 million behind the $197.6 combined debt and $705.8 million behind the A-note. The $247.6 million mortgage debt B-Note will be split into multiple pari-passu notes. The $50.0 million trust asset included in $177.4 this transaction represents non-controlling pieces of the larger A-note. Multiple pari- Mezz passu notes comprising a $76.2 million and $70.0 million non-controlling piece of the $40.0 A-note was securitized as part of the BMARK 2019-B12 transaction and CD 2019-CD8 Total Debt transaction, respectively. The remaining pari-passu debt will be securitized as part of $465.0 future transactions. As a result of the property’s quality, location, sponsor strength and Loan Purpose the senior position of the A-notes, DBRS considers the credit quality associated with Refinance the senior mortgage loan to be AA (sf ). Equity Contribution/ (Distribution) ($ million) ($136.1) The Woodlands Mall is located in the Woodlands area, a submarket within the Houston MSA known for its high quality of life and affluent population. The subject is a two- story enclosed super-regional shopping mall with a variety of national and regional tenants. As of May 2019, the property was 95.8% occupied by a mix of national and regional tenants. The four anchor tenants own their space and are thus not part of the collateral. These non-collateral anchors include Dillard’s, Macy’s, JCPenney and
Structured Finance: CMBS 42 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
WOODLANDS MALL – WOODLANDS, TX
Nordstrom, which occupy 713,438 sf of the total 1.47 million sf contained in the Woodlands Mall. All other tenants occupy space that is part of the collateral, including the junior anchors consisting of Dick’s Sporting Goods (Dick’s) and Forever 21.
TENANT SUMMARY
% of DBRS UW % of Total DBRS Lease T-12 May 2019 DBRS Tenant SF Total NRA Base Rent PSF UW Base Rent Expiry Sales PSF Occupancy Cost
FOREVER 21 85,150 11.2% $7.52 1.9% Jun 2025 $90 22.9%
DICK'S SPORTING GOODS 83,075 11.0% $16.79 4.2% Jan 2027 $153 16.1%
BARNES & NOBLE BOOKSELLER 30,471 4.0% $22.97 2.1% Jan 2020 $268 8.6%
MACY'S CHILDREN'S 17,161 2.3% $22.14 1.2% Jan 2022 $0 0.0%
TYLER'S 17,116 2.3% $34.88 1.8% Oct 2023 $302 14.6%
Subtotal/Wtd. Avg. 232,973 30.7% $15.94 11.3% Various $145 16.7%
Other Tenants 493,075 65.0% $24.26 88.7% Various $548 14.7%
Vacant Space 32,183 4.2% n/a n/a Various n/a n/a
Total/Wtd. Avg. 758,231 100.0% $22.42 100.0% Various $401 14.9%
Since 2010, collateral and the total mall occupancy has been relatively stable. Collateral occupancy has ranged from 81.3% to 95.8% with an average of 93.5% and mall occupancy has ranged from 83.8% to 97.8% with an average of 94.7%. The lower occupancy in 2014 was primarily driven by the 83,075-sf vacant Dick’s box that was being built out at the time. The sponsor invested approximately $30 million into the property in 2016 as part of the introduction of Dick’s. The subject reported strong DBRS-calculated comparable in-line (< 10,000 sf ) sales, excluding Apple, Inc. (Apple) of $574 psf as of T-12 ending May 31, 2019 (T-12). Although strong, DBRS-calculated comparable in-line sales have been dropping since YE2017, averaging $622 psf and $608 psf in YE2017 and YE2018, respectively. The drop in sales can be primarily attributed to the retail sector losing traffic and demand to online shopping. DBRS-calculated occupancy costs for the junior-anchor tenants, Forever 21 and Dick’s, were high at 22.9% and 16.1%, respectively, given their large store sizes. DBRS applied occupancy cost-markdown adjustments to both tenants, resulting in more reasonable DBRS occupancy cost levels. Lease rollover at the subject is concentrated in 2025 and 2027 when approximately 19.2% and 16.4% of the NRA will expire, respectively. Notable tenants that will expire 2025 include Forever 21 (11.2% of NRA) and Arhaus (0.2% of NRA) while tenants that will expire in 2027 include Dick’s (11.0% of NRA).
The property is considered to be the top-tier mall in the Woodlands Area submarket because of its strong mix of popular national and regional tenants. While there are several regional malls that compare in size with the subject, there are none in the Woodlands submarket.
SPONSORSHIP The loan’s sponsorship is held by Brookfield. The subject was previously held by GGP until Brookfield Property Partners L.P. acquired GGP and the merged entity, Brookfield, was created. The sponsor holds a portfolio of mall properties, consisting of more than 160 properties with over 146 million sf of retail space spanning more than 40 states. In addition to retail space, Brookfield holds approximately 300 million sf of commercial space through office, multifamily and hospitality properties. The sponsor’s total assets under management amounts to approximately $191 billion.
Structured Finance: CMBS 43 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
WOODLANDS MALL – WOODLANDS, TX
DBRS ANALYSIS SITE INSPECTION SUMMARY
Based on the DBRS site inspection and management meeting conducted on July 15, 2019, at approximately 2:45 p.m., DBRS found the property quality to be Average (+).
The collateral consists of 758,231 sf of a larger 1.47 million sf regional mall in Woodlands, approximately 30 miles north of the Houston CBD. The mall is well located along Lake Woodlands Drive off the I-45 exit with good visibility from the freeway. There is appropriate signage present at various points of ingress and egress, guiding shoppers in the right direction. The immediate area is suburban in nature and infill with a limited amount of land for development. The area is characterized by a mixture of commercial, office, mid-rise residential, lodging and retail uses. The closest competing shopping center is the Market Street at Woodlands (securitized in COMM 2007-C9), a lifestyle center located across the street from the subject to the west. Market Street is anchored by H-E-B grocery store and Cinemark and features tenants, such as Allen Edmunds, Tiffany’s, Tommy Bahama and Bath & Body Works. The next-closest competing malls are Willowbrook Mall and Deerbrook Mall (securitized in MSC 2011-C2), located approximately 15 miles south and 15 miles southeast, respectively. Both competing malls are sponsor owned and feature a similar tenant base as the subject. According to management, Market Street predominantly features a higher-end tenant roster, is much smaller than the subject and is complementary in nature. Management also believes that Willowbrook Mall and Deerbrook Mall are situated far enough from the subject property to establish a reasonably exclusive trade area for each. Area demand drivers include various energy, finance and health-care firms, including Anadarko Petroleum Corporation, Exxon Mobil Corporation, Wells Fargo Bank, the Bank of America Corporation and Children’s Memorial Hermann Hospital.
At the time of the site inspection, the parking lot was moderately filled with parked vehicles generally clustered in certain areas of the property, particularly around the northern main entrance and near the subject’s anchor and junior-anchor tenants. Although the stores were not overly busy, DBRS observed a few shoppers checking out the merchandise at several retailers. The collateral includes a mix of national and local tenants, including mid-tier, aspirational luxury, luxury in-line and junior-anchor stores as-well as numerous restaurants. Non-collateral stores include Dillard’s, Macy’s, JCPenney and Nordstrom. Although the subject was originally built in 1994, its exteriors appeared to be in good condition with no significant deferred maintenance noted. The property has undergone several expansions, including the addition of the 150,000-sf lifestyle component on the south side of the mall in 2004 and the addition of Dick’s in 2016. The Dick’s store was in good condition and showed well, given its newer build. Common areas generally featured tile flooring with vaulted ceilings and numerous skylights, allowing for natural light to flow through. Overall, the interior was well maintained, brightly lit and inviting. Store interiors were clean and well stocked with merchandise. While kiosk tenants are abundant,
Structured Finance: CMBS 44 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
WOODLANDS MALL – WOODLANDS, TX there is ample seating throughout the mall and a number of pieces of artwork or murals that add to the overall shopping experience. The store build-outs vary by retailer and include tile, wood or carpet flooring with painted, exposed or acoustical tile ceilings. At the time of DBRS’s inspection, Apple was in the process of building out its new center-court space, which appeared to be a much better location than its previous one, with more foot traffic.
DBRS toured the property with the property manager, who had been at the subject for about 2.5 years. The property manager appeared to be knowledgeable about the property and the market. At the time of the site inspection, management reported occupancy to be approximately 96%. The retail segment where the property manager believes it needs a bigger presence is apparel and men’s shoes, including tenants such as H&M and Johnston & Murphy. Management was content with how the property was maintained by Brookfield and indicated that there is an annual allotment that can be used at the property manager’s discretion toward upkeep and capital improvement projects. Capital improvement projects on the management’s wishlist include parking lot repairs, roofs and HVAC upgrades as well as installing new tile and digital directions. Planned capital improvement projects include implementing a $5 million exterior courtyard project that will include the addition of walkways, green space and a 12-foot video screen as well as an indoor/outdoor Shake Shack that is planned to open during summer 2020. Additionally, management noted that Macy’s is planning to renovate its space, including new paint, carpeting and fixtures as well as parking lot updates.
DBRS NCF SUMMARY
NCF ANALYSIS
2016 2017 2018 T-12 May 2019 Issuer NCF DBRS NCF NCF Variance
GPR $28,498,811 $30,832,590 $32,710,333 $33,203,578 $36,198,240 $31,461,412 -13.1%
Recoveries $11,821,126 $12,508,578 $11,984,194 $12,383,926 $13,320,934 $13,217,462 -0.8%
Other Income $6,723,425 $8,189,537 $8,267,824 $8,220,484 $7,378,029 $6,746,270 -8.6%
Vacancy $0 $0 $0 $0 -$2,965,936 -$2,124,078 -28.4%
EGI $47,043,362 $51,530,705 $52,962,351 $53,807,988 $53,931,267 $49,301,067 -8.6%
Expenses $9,088,306 $10,009,375 $9,785,492 $10,101,329 $10,814,593 $10,865,142 0.5%
NOI $37,955,056 $41,521,330 $43,176,859 $43,706,659 $43,116,674 $38,435,925 -10.9%
Capex $0 $0 $0 $0 $151,646 $150,386 -0.8%
TI/LC $0 $0 $0 $0 $758,231 $3,387,794 346.8%
NCF $37,955,056 $41,521,330 $43,176,859 $43,706,659 $42,206,797 $34,897,745 -17.3%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $34,897,745, a -17.3% variance from the Issuer’s NCF. The main drivers of the variance are occupancy cost markdowns, TI/LCs, other income and rent steps. DBRS will mark rents lower when a tenant’s occupancy cost ratio exceeds certain thresholds according to a sliding scale based on size. DBRS took the largest markdowns on Forever 21, Gap/Baby Gap/Gap Kids, Talbots and Coach, all of which had occupancy cost ratios above 20%. The Issuer concluded leasing TI/LCs of $1.00 psf. DBRS TIs were generally based on actual TI allowances provided to recently signed leases over the past two years, when available, or the appraiser’s assumptions, resulting in TI/LCs of $4.51 psf. DBRS generally based other income line items based on budget levels while the Issuer’s assumptions were generally based on the T-12 period estimates. For rent steps, the Issuer included rent steps through June 2020 in addition to applying straight-line rent credit to investment grade-rated tenants. DBRS typically includes income from contractual rent steps that occur six months from cutoff or February 2020. DBRS did not give straight-line credit to investment grade-rated tenants as no leases extend three years beyond loan maturity.
Structured Finance: CMBS 45 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
WOODLANDS MALL – WOODLANDS, TX
DBRS VIEWPOINT The collateral for the loan benefits from many positive attributes, including the subject’s location in an affluent area, improving operating performance, strong sponsorship and continued capital commitment from the sponsor; however, it does have high rollover concentration during the loan term. The subject has a great location near a major thoroughfare, I-45, and is located in an affluent area where the average household income level is $131,439 within a five-mile radius, which compares favorably with the Houston MSA level of $95,174. The subject property has been performing well with a T-12 NOI that has grown by 18.3% over its YE2015 NOI and 79.0% over its YE2009 NOI. The DBRS NOI is conservative at 7.4% and 12.7% less than the YE2017 and T-12 levels, respectively. The mall has maintained high occupancy for several years with the collateral occupancy averaging 93.5% from YE2010 through the T-12 period. DBRS-calculated comparable in-line sales (<10,000 sf ), excluding Apple, have been dropping annually since 2017, primarily because of losing traffic and demand to online shopping. Sales productivity is still strong with DBRS-calculated comparable in-line sales (< 10,000 sf ) productivity of $573 psf as of the T-12 period, excluding Apple. The sponsor is a long-term owner and has continued to invest in the property with multiple expansions and renovations, including the most recent introduction of the $30.0 million Dick’s space and the planned $5 million exterior courtyard project that is projected to be completed mid-year 2020. As a result of the property’s quality, location within an area with affluent demographics and the sponsor’s experience and strength, DBRS considers the credit quality associated with the $247.6 million of mortgage debt to be AA (sf ). Based on the DBRS NCF of $34.9 million and a 7.5% cap rate, which is 275 basis points higher than the appraiser’s 4.75% cap rate, the DBRS value is approximately $465.3 million, which represents a 48.8% cut to the appraised value of $953.4 million. The loan’s A-note credit metrics are considered excellent with an appraised LTV of 26.0% and DBRS DSCR of 2.60x.
DOWNSIDE RISKS –– The mall will have lease rollover of about 19.2% and 16.4% of the NRA in 2025 and 2027, respectively.
STABILIZING FACTORS –– The risk of significant vacancy during 2025 and 2027 is low as the rollover is scattered among 23 tenants, which reduces the risk from any single tenant. In addition, the sales productivity at the mall should encourage renewals as tenants may see higher sales than their respective national averages. If vacancy materializes over this period, the property has a history of backfilling spaces with new tenants as Brookfield represents one of the strongest mall operators in the nation with the ability to re-tenant spaces, given its national footprint and retailer relationships.
Structured Finance: CMBS 46 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Diamondback Industrial Portfolio 1 Various, Various
Loan Snapshot Seller GACC Ownership Interest Fee Simple Trust Balance ($ million) $50.0 Loan psf/Unit $31 Percentage of the Pool 4.7% Loan Maturity/ARD June 2024 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Industrial Year Built/Renovated Various Issuance DSCR City, State Various Physical Occupancy 100.0% 4.43x SF 2,234,598 Physical Occupancy Date September 2019 Issuance LTV 34.1% Balloon LTV This loan is secured by the borrower’s fee simple interest in the Diamondback 34.1% Industrial Portfolio 1, a three-property portfolio that spans more than 2.2 million sf of industrial warehouse and distribution space in South Carolina, Pennsylvania and DBRS Property Type Industrial Wisconsin. All three properties are 100.0% leased to investment-grade-rated tenants DBRS Property Quality (Amazon, TJ Maxx and FedEx Ground) and are being acquired by the sponsor for this Average transaction as part of a broader six-property portfolio acquisition. Whole loan proceeds Debt Stack ($ million) of $130.3 million, in addition to a borrower equity contribution of $75.9 million, Trust Balance financed the borrower’s $197.6 million acquisition of the three collateral properties, $50.0 covered more than $5.0 million of closing costs associated with the transaction and Pari Passu funded nearly $3.6 million in upfront reserves. The whole loan amount is composed $20.0 of $70.0 million in A-note proceeds and a $60.3 million B-note. Of the $70.0 million B-Note in A-note proceeds, $50.0 million will be contributed to the GSMS 2019-GC42 $60.3 securitization, and the remaining $20.0 million was securitized as part of the GSMS Mezz 2019-GC40 transaction. The five-year loan is full-term IO and represents an LTV of $0.0 63.5% based on the portfolio’s April 2019 appraised value of $205.0 million. The loan Total Debt represents a slightly lower loan-to-purchase-price (LTPP) of 65.9%. $130.3 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $75.9
Structured Finance: CMBS 47 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
DIAMONDBACK INDUSTRIAL PORTFOLIO 1 – VARIOUS
PORTFOLIO SUMMARY
% of Cut-Off Year Cut-Off Date Date Loan Largest Property City, State SF Built Loan Amount Amount Occupancy Tenant
Amazon - West Columbia West Columbia, SC 1,016,148 2012 $27,274,472 39.0% 100.0% Amazon
TJ Maxx - Philadelphia Philadelphia, PA 1,015,500 2001 $35,738,964 51.1% 100.0% TJ Maxx
FedEx Ground - Menomonee Falls Menomonee Falls, WI 202,950 2015 $6,986,564 10.0% 100.0% FedEx Ground
Total/Wtd. Avg. Various 2,620,673 Various $70,000,000 100.0% 100.0% Various
The portfolio features three single-tenant industrial properties: Amazon – West Columbia in West Columbia, South Carolina; TJ Maxx – Philadelphia in Philadelphia, Pennsylvania; and FedEx Ground – Menomonee Falls in Menomonee Falls, Wisconsin. The Amazon – West Columbia property is located approximately 8.0 miles southwest of Downtown Columbia in West Columbia, South Carolina, and consists of a 1.0 million sf, single-story warehouse and distribution facility with 32-foot clear heights, 64 dock-high doors, four drive-in doors and 2,151 surface parking spaces (2.1 spaces per 1,000 sf ). The TJ Maxx – Philadelphia property is located approximately 14.5 miles northeast of the Philadelphia CBD and consists of a 1.0 million sf, two-story warehouse and distribution facility with 32- and 45-foot clear heights, 134 dock-high doors, two drive-in doors and 819 surface parking spaces. The FedEx Ground – Menomonee Falls property is located approximately 15.5 miles northwest of the Milwaukee CBD in Menomonee Falls, Wisconsin, and consists of a 202,950 sf warehouse and distribution facility with 36-foot clear heights, 58 dock-high doors, seven drive-in doors and 625 surface parking spaces. All three properties benefit from generally favorable proximity to regional road systems and interstate highways, which enhance the properties’ accessibility and functionality for tenant distribution operations. Partial release of one or more of the properties within the portfolio is allowed. Releases are subject to certain leverage test requirements and release provisions set forth in the loan agreement, including, but not limited to, (1) maintenance of an aggregate portfolio DSCR equal to the greater of the DSCR ratio of all properties within the portfolio immediately preceding such release or 1.40x; and (2) maintenance of an aggregate portfolio LTV equal to the greater of the LTV of all properties within the portfolio immediately preceding such release or 65.0%. The release price of the first and second properties must be at least 110.0% and 115.0%, respectively, of the allocated individual loan amounts for the respective property being released.
TENANT SUMMARY
DBRS Base % of Total DBRS Investment Tenant SF % of Total NRA Rent PSF Base Rent Lease Expiry Grade? (Y/N)
Amazon 1,016,148 45.5% $4.66 39.8% Sep. 2026 Y
TJ Maxx 1,015,500 45.4% $5.62 48.0% Dec. 2034 Y
FedEx Ground 202,950 9.1% $7.15 12.2% Jul. 2030 Y
Total/Wtd. Avg. 2,234,598 100.0% $5.32 100.0% Various Y
As of September 2019, the portfolio was 100.0% occupied by three investment-grade-rated tenants, all of which have leases that are scheduled to expire over a generally well-dispersed period beyond loan maturity. The portfolio’s largest tenant, Amazon.com, Inc. (Amazon) is a diversified online retailer, dominant cloud services provider, grocery store operator, key player in the video streaming space and a market leader in web-based personal assistance. Amazon uses its location at the Amazon – West Columbia property as a fulfillment center via a 15-year lease expiring in September 2026, with four five-year renewal options exercisable at expiry. The portfolio’s second-largest tenant, TJ Maxx, is a well-recognized “off-price” apparel retailer and was ranked 85th among Fortune 500 companies in 2018. TJ Maxx uses its space at the TJ
Structured Finance: CMBS 48 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
DIAMONDBACK INDUSTRIAL PORTFOLIO 1 – VARIOUS
Maxx – Philadelphia property as a regional distribution center via a 20-year lease expiring in December 2034, with two seven-year extension options exercisable at expiry. The remaining tenant, FedEx Corporation, is a global transportation, e-commerce and business services provider and was ranked 50th among Fortune 500 companies in 2018. FedEx Ground uses its space at the FedEx Ground – Menomonee Falls property as a regional distribution center via a 15-year lease expiring in July 2030, with two five-year extension options exercisable at lease expiry.
SPONSORSHIP The sponsors for this transaction are TIGER Alternative Investors Co. and VEREIT, Inc. The sponsors are additionally being advised by OW Management Services, an affiliate of Ocean West Capital Partners (the portfolio’s asset manager). TIGER Asset Management was established in 2013 and held more than $300.0 million in funds under management as of loan closing. VEREIT, Inc. is one of the largest owners and operators of single-tenant commercial properties in the United States, with a portfolio of approximately 4,000 properties totaling roughly 95.0 million sf that was valued in excess of $14.0 billion as of loan closing. VEREIT, Inc. is publicly traded and listed on the New York Stock Exchange. The principals of Ocean West Capital Partners have over 100 years of combined experience, and the firm has completed more than $3.0 billion in commercial real estate transactions since 2009. Property management services are provided by VEREIT Realty Advisors, LLC., an affiliate of VEREIT, Inc.
DBRS ANALYSIS SITE INSPECTION SUMMARY
DBRS toured two of the three properties within the portfolio: Amazon – West Columbia and TJ Maxx – Philadelphia. Based on the site inspections and management meetings, DBRS found the aggregate property quality of the portfolio to be Average.
AMAZON – WEST COLUMBIA DBRS toured the interior and exterior of the property on Tuesday, June 4, 2019. Based on the site inspection, DBRS found the property quality to be Average.
The property is in a suburban location, approximately ten miles south of Columbia, South Carolina, just off the intersection of I-26 and I-77. The Columbia MSA has good interstate highway connectivity to other population centers, including Atlanta, Charlotte, Greenville, Charleston and beyond. The property is located within the Saxe Gotha Industrial Park, a large, developing industrial park that includes large-scale facilities occupied by Nephron (a pharmaceutical firm) and SCANA Corporation (a natural gas public utility). The area is largely rural, and there is plenty of available developable
Structured Finance: CMBS 49 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
DIAMONDBACK INDUSTRIAL PORTFOLIO 1 – VARIOUS land. At the time of inspection, developers were just beginning to clear lots for future use between the buildings occupied by Nephron and Amazon.
The property is a rectangular, reinforced-concrete tilt-up warehouse/distribution facility. The main entrance has two driveways off the 12th Street Extension, with ample parking for employees on surface lots. The opposite side is use- restricted for in-bound and out-bound truck shipments. Access to the property is regulated and requires prior approval. The main reception area is in the middle of the building and includes revolving gates with employee access cards. Once inside, there are rooms off to the side for employee lockers as well as a break area with snack foods, microwave ovens and drinks. There is also a second entrance that is almost identical, used for peak times when more employees are required. Per management, there are typically about 400 employees working on a given day. The maintenance manager indicated that freight generally comes into the facility on one end, is sorted and then placed in a racking system for storage. This area has three levels (two mezzanines), each with its own racks for hand picking. This area has a few freight elevators that were generally used to accommodate large pallet loads when the preferred conveyor-belt system is not in use. Orders are placed into yellow container pods and delivered onto conveyor-belts for packaging and later shipping. This facility only handles items that are generally 35 pounds or less, and per management, Amazon owns almost all the interior equipment and systems. Overall, the building was in good condition and well maintained, and exhibited no signs of deferred maintenance.
TJ MAXX - PHILADELPHIA DBRS toured the interior and exterior of the property on Friday, May 31, 2019. Based on the site inspection and management meeting, DBRS found the property quality to be Average.
The property is well located off Route 1, which is a major northeast/southwest arterial roadway to the region. The area provides good connectivity, allowing the property to benefit from proximity to several additional arterial roadways, including I-95 and I-276 (also referred to as the Pennsylvania Turnpike). The collateral serves as one of TJ Maxx’s 11 distribution centers nationwide, where incoming merchandise from suppliers is tagged and sorted before being sent out to retail locations throughout the United States. The subject property specifically serves as a distribution center for TJ Maxx’s Marshalls stores nationwide.
Management indicated that the property operates approximately 121.5 hours per week, employs roughly 1,500 workers and is responsible for the tagging/distribution of roughly $3.4 billion in merchandise annually, representing approximately 10.0% of the company’s total revenue. Access to the building is security-controlled, requiring access badges and that guests sign in. Directly inside the main entrance is a large employee lunchroom with access to an outdoor seating area and a bag check area. The warehouse space is impressive from an operational standpoint, featuring very large-scale sorters and conveyors. The office space is on the second floor and appeared limited in build-out and level of finishes, but it showed relatively well and did not appear dated. The property features a large employee parking area with truck parking access behind it. The property additionally benefits from an on-site Septa public-transit bus stop at the property. Overall, the subject showed well and appeared generally well located for this particular property type.
Structured Finance: CMBS 50 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
DIAMONDBACK INDUSTRIAL PORTFOLIO 1 – VARIOUS
DBRS NCF SUMMARY
NCF ANALYSIS
2016 2017 2018 Issuer NCF DBRS NCF NCF Variance
GPR $10,727,244 $11,077,461 $11,243,902 $11,833,660 $11,896,654 0.5%
Recoveries $949,928 $694,413 $532,533 $618,348 $3,262,137 427.6%
Other Income $322,645 $418,450 $390,001 $221,198 $221,198 0.0%
Vacancy $0 $0 $0 -$511,956 -$528,772 3.3%
EGI $11,999,817 $12,190,324 $12,166,436 $12,161,250 $14,851,217 22.1%
Expenses $974,318 $703,459 $634,113 $620,709 $3,378,284 444.3%
NOI $11,025,499 $11,486,866 $11,532,323 $11,540,541 $11,472,933 -0.6%
Capex $0 $0 $0 $335,190 $152,422 -54.5%
TI/LC $0 $0 $0 $0 $312,495 100.0%
NCF $11,025,499 $11,486,866 $11,532,323 $11,205,352 $11,008,016 -1.8%
The DBRS NCF is based on the DBRS North American Commercial Real Property Analysis Criteria. The resulting DBRS NCF was $11,008,016, representing a relatively minimal variance of -1.8% from the Issuer’s NCF of $11,205,352. The primary drivers of the variance were LCs. DBRS estimated aggregate LCs of $0.14 psf compared with the Issuer’s estimate of $0.00 psf. DBRS did not conclude LCs for the TJ Maxx – Philadelphia or FedEx Ground – Menomonee Falls properties, given their respective long-term leases to investment-grade-rated tenants. However, DBRS estimated TIs of $1.0 and $0.5 psf on a five-year term for new and renewal leases, respectively, at the Amazon – West Columbia property. DBRS additionally estimated LCs of 6.0% and 3.0% for new and renewal leases, respectively, at the Amazon – West Columbia property. The DBRS LC assumptions were generally in line with the appraiser’s assumptions at each property.
DBRS VIEWPOINT All three properties are generally located within proximity to regional arterial road systems that enhance connectivity throughout their respective locations. The portfolio’s geographical distribution across three different markets provides moderate market diversity to the transaction, though the transactions permittance of individual property releases could effectively mitigate such benefit. Release of the collateral requires achievement of specific leverage tests and, with respect to the release of either the Amazon – West Columbia or TJ Maxx – Philadelphia property, would result in the commencement of a Lease Sweep Period. The portfolio’s tenancy is relatively concentrated, with two tenants accounting for more than 45.0% of total NRA, and all three properties are 100.0% occupied by just three single tenants. However, the portfolio’s tenancy is generally well dispersed across multiple industries, and all three tenants are investment-grade rated and have leases extending beyond loan maturity. DBRS considers two tenants (TJ Maxx and FedEx Ground), representing 60.2% of the total DBRS base rent, to be LTCTs, but it does not consider Amazon to quality for LTCT treatment given its lease expiration in September 2026. Amazon’s lease expiration just two years beyond the scheduled loan maturity date poses a potential refinance risk for the transaction, though Amazon maintains four five-year lease renewal options that are exercisable immediately following lease expiration. Additionally, at the time of DBRS’s inspection, it appeared that Amazon had invested heavily in the warehouse and distribution equipment used for operations within its space.
DOWNSIDE RISKS –– The loan features a five-year term. Loans with five-year terms have generally been found to experience higher-than- average default rates. –– The loan is full-term IO, posing an enhanced risk of default at maturity. The loan’s default risk is further exacerbated by Amazon’s lease expiration just two years beyond loan maturity, which poses refinance risk for the transaction at maturity.
Structured Finance: CMBS 51 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
DIAMONDBACK INDUSTRIAL PORTFOLIO 1 – VARIOUS
STABILIZING FACTORS –– The collateral benefits from strong debt service coverage throughout the loan term, as evidenced by a relatively high DBRS A-Note DSCR of 4.35x at issuance. Additionally, the loan benefits from $75.9 million in borrower equity contributed at closing. –– Loans with partial IO periods ranging from two to seven years tend to exhibit the highest default rates. The loan is generally well levered, as is evidenced by a relatively low issuance LTV of 63.5% and a relatively low LTPP of 65.9%. Loans with LTVs of less than 67.1% at issuance have generally been found to experience lower-than-average default rates. Furthermore, at the time of inspection, management indicated that Amazon owned all equipment within its space, which effectively enhances the tenant’s probability of exercising one or more of its four remaining renewal options upon its lease expiration in September 2026.
Structured Finance: CMBS 52 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
105 East 17th Street New York, NY
Loan Snapshot Seller GACC Ownership Interest Fee Simple Trust Balance ($ million) $49.5 Loan psf/Unit $880 Percentage of the Pool 4.7% Loan Maturity/ARD September 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Year Built/Renovated 1960/2008 Issuance DSCR City, State New York, NY Physical Occupancy 100.0% 2.02x SF 125,000 Physical Occupancy Date July 2019 Issuance LTV 73.3% Balloon LTV This loan is secured by the borrower’s fee simple interest in 105 East 17th Street, 73.3% a 125,000 sf office building in New York. Built in 1960 and renovated in 2008, the four-story office property is 100.0% occupied by a single tenant. Loan proceeds of DBRS Property Type Office $110.0 million were used to refinance existing debt of $36.1 million, return $71.2 million DBRS Property Quality of cash equity to the borrower and cover closing and defeasance costs of $3.0 million. Average The ten-year loan is IO throughout the entire term. Of the $110.0 million loan amount, Debt Stack ($ million) a $49.5 million non-controlling piece will be contributed to the subject trust, while the Trust Balance remaining $60.5 million pari passu portion will be contributed to future securitizations, $49.5 which will be the controlling note. Pari Passu $60.5 In July 2011, the subject property was previously securitized in the MSC 2011-C3 B-Note conduit transaction and performed as agreed upon. The property has substantially $0.0 risen in value since the prior securitization when the appraised value at issuance was Mezz $73.0 million, or approximately half of the current appraised value of $150.0 million. $0.0 Total Debt $110.0 Loan Purpose Refinance Equity Contribution/ (Distribution) ($ million) ($71.2)
Structured Finance: CMBS 53 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
105 EAST 17TH STREET – NEW YORK, NY
TENANT SUMMARY
DBRS UW % of Total % of Base Rent DBRS UW Tenant SF Total NRA PSF Base Rent Lease Expiry Investment Grade? (Y/N)
New York University 125,000 100.0% $51.66 100.0% 10/31/2051 Y
Subtotal/Wtd. Avg. 125,000 100.0% $51.66 100.0% 10/31/2051 Y
Other Tenants 0 0.0% n/a n/a n/a n/a
Vacant Space 0 0.0% n/a n/a n/a n/a
Total/Wtd. Avg. 125,000 100.0% $51.66 100.0% 10/31/2051 Y
This single-tenant office building is 100.0% occupied by New York University (NYU), an investment-grade tenant, under a recently executed 32-year absolute NNN lease through 2051 with no termination or contraction options. NYU’s direct lease begins in November 2019, but it has occupied the property since 2012 under a sub-lease from the former tenant, Zurich Capital Markets Inc. Founded in 1831, NYU has over 51,000 students; offers overs 150 majors; and ranks among the top universities in the country. Given its size, NYU is the largest private university in the United States.
The subject property was renovated in 2008 by the prior tenant and sits at the corner of East 17th and Park Avenue in Manhattan, fewer than two blocks from the Union Square subway station and approximately 0.5 miles from the center of NYU’s campus. Given the urban nature of NYU’s campus, there are campus buildings scattered around the campus center, and some are fewer than 0.2 miles from the subject. According to Reis market data, the Midtown South submarket has an average vacancy rate of 6.7% and the average rent is $66.54 psf modified gross. The appraiser estimated modified gross market rent for the subject to be higher at $90.00 psf for floors two through four and $80.00 psf for the concourse level. Since the subject operates on an absolute net lease structure, the modified gross rents would need to be adjusted to convert them to a net basis. Based on the appraiser’s adjustments for real estate taxes and operating expenses, the resulting market net lease amount is approximately $56.80 psf. The appraiser deemed the subject rental rate to approximate the market’s, especially since the NYU lease did not include any free rent or a TI allowance.
SPONSORSHIP The sponsor for this transaction is The Related Companies, L.P. (Related), an industry leader with experience in acquisitions, development and property management. Founded over 40 years ago, Related has an extensive portfolio of real estate properties valued at over $60.0 billion. The portfolio includes properties of all types and are primarily located in premier markets. Related is focused on sustainability within its portfolio of assets. It developed one of the first “green” buildings in the United States and one of the nation’s first Leadership in Energy and Environmental Design Gold residential buildings. The company is headquartered in New York and has offices in several major cities, including Chicago, Los Angeles and London. The property will be self-managed by NYU.
Structured Finance: CMBS 54 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
105 EAST 17TH STREET – NEW YORK, NY
DBRS ANALYSIS SITE INSPECTION SUMMARY
Based on the DBRS site inspection and management meeting conducted on August 28, 2019, at 9:00 a.m., DBRS found the property quality to be Average.
The subject office building is located mid-block, between Park Avenue South and Irving Place road. The property fully extends between East 17th Street and East 18th Street, with the main entrance located on East 17th Street. Immediately surrounding buildings on East 17th Street are predominately red-stone walk-up residential buildings. Development is more dense closer to Park Avenue South, and the building directly across the street from the subject was undergoing renovation at the time of inspection. Adjoining the subject, to the west, is the W Hotel. The two buildings are attached and share fire-safety doorways. The W Hotel building is sixteen stories and was originally constructed as the Guardian Life Insurance Company building in the early 1900s. Later, in 1960, the subject property was constructed as an annex to the Guardian Life Insurance Company building. After the Guardian Life Insurance Company vacated the tower and annex, the sponsor acquired the property and redeveloped the tower into the W Hotel and continued operating the annex as an office. The office exterior stands in contrast to the surrounding buildings, with its modern glass curtain wall and vertical metal accents. At the time of inspection, there was moderately heavy foot traffic in front of the building, with most pedestrians coming from the direction of the Park Avenue South road.
The main entrance to the building is accentuated with a vertical NYU banner affixed to the building exterior. Upon entering the building, there is a large wooden security desk and multiple security turnstiles. The lobby lacks a seating area but does present well with an abundance of natural light, elevated ceilings and an accent stone wall. According to the property representative, the lobby had been renovated in the past ten years, and DBRS observed it to be in good condition. The property is served by two elevators, which had renovated elevator cabs. DBRS inspected each of the four floors and found them to be in a state of fluctuation, as movers were actively moving personnels’ belongings into the building. According to the property representative, NYU was consolidating personnel from other locations to the subject, and the move was expected to be completed within a few days. Based on DBRS’s inspection, the third floor appeared to already be occupied by NYU employees, while the second and third floors were being actively moved into. Although the tenant was actively moving into the space, DBRS did not notice any dark or underutilized space in the building. The office space across the floors was generally consistent, with exterior lined offices and interior workstations. There were only few interior walls, so the workstation space had an open feel. The workstation furniture was in like-new condition, and the property representative indicated that the tenant had replaced the carpets in the past six months throughout most of
Structured Finance: CMBS 55 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
105 EAST 17TH STREET – NEW YORK, NY the building. The color scheme across the office space was very light, with light-colored workstations, white walls and white-painted concrete ceilings. This gave a bright and open feel to the space, despite most of the natural light from the windows being contained to the perimeter offices. Throughout the floors were several conference and meeting rooms, and a few were in use during the inspection. The fourth floor had a separate executive wing, which was built out for a prior tenant. NYU did utilize the executive wing, and the property representative was unaware of any plans to renovate it to reflect the NYU building standard build-out. The concourse level is partially subterranean, was occupied by the human resources department and contains several training rooms of various sizes. Despite the subterranean nature of the concourse level and lack of floor-to-ceiling windows, the ceiling height was taller than the other floors, and natural light was let in through small windows at the street level. Overall, the property appeared to be well maintained and in average condition at the time of inspection.
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $7,070,782 $7,070,782 0.0%
Recoveries $1,012,115 $3,935,081 288.8%
Other Income $100,000 $100,000 0.0%
Vacancy $0 -$111,059 -100.0%
EGI $8,182,897 $10,994,805 34.4%
Expenses $1,043,468 $3,966,434 280.1%
NOI $7,139,429 $7,028,371 -1.6%
Capex $31,250 $0 -100.0%
TI/LC $0 $0 0.0%
NCF $7,108,179 $7,028,371 -1.1%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $7,028,371, a variance of -1.1% from the Issuer’s NCF. The main driver for the NCF variance is the vacancy assumption of 1.0% compared with the 0.0% vacancy rate applied by the Issuer. The DBRS vacancy assumptions are based on the tenant being LTCT and in the AA rating category.
DBRS VIEWPOINT The collateral benefits from its 100.0% occupancy by an investment-grade tenant and location in Manhattan. The recently executed lease with NYU has a 32-year term and extends well beyond the loan term, with no contraction or termination options. The property serves critical NYU administrative functions and is conveniently located near the center of NYU’s campus. The property is also located two blocks from Union Square subway station and various retail amenities and restaurants. In addition to offering traditional office space at the building, a substantial portion of the concourse level is dedicated to meeting and training facilities, which are desirable to the tenant. At the time of DBRS’s site inspection, NYU was in the process of consolidating administrative functions from surrounding buildings to the subject, which will bring the property to its full utilization. The tenant had also recently performed some light capital work at the property, including painting and replacing carpets. Although the loan returns over $71.2 million of equity to the sponsor, the sponsor has owned the property for over 20 years and has actively maintained the property as an institutional quality asset.
Structured Finance: CMBS 56 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
105 EAST 17TH STREET – NEW YORK, NY
DOWNSIDE RISKS –– The ten-year loan is full-term IO and has an elevated LTV of 73.3%. –– The subject exhibits single-tenant risk. Loans secured by single-tenant properties have been found to have higher loss severities in the event of a default.
STABILIZING FACTORS –– The DBRS Term DSCR of 1.99x is high and provides ample cash flow to support debt service. The cash flow is also backed by an investment-grade tenant, with a lease that extends well beyond the loan term. –– NYU is an investment-grade tenant and recently executed an absolute net lease with a 32-year term. The property is located in close proximity to the NYU campus and will serve critical administrative functions for the university. As evidenced by the long lease term with no contraction or termination options and the active consolidation of nearby NYU administrative personnel to the subject, the tenant is committed to the property and is expected to provide stable cash flows throughout the loan term.
Structured Finance: CMBS 57 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
USAA Office Portfolio Various
Loan Snapshot Seller GSMC Ownership Interest Fee Simple Trust Balance ($ million) $45.0 Loan psf/Unit $275 Percentage of the Pool 4.2% Loan Maturity/ARD August 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Office Years Built/Renovated 1999-2019 Issuance DSCR City, State Various Physical Occupancy 100.0% 2.84x SF 881,490 Physical Occupancy Date August 2019 Issuance LTV 63.8% Balloon LTV This loan is secured by the borrower’s fee-simple interest in the USAA Office Portfolio, 63.8% a five-property portfolio that covers 881,490 sf of Class A office space in Plano, Texas, and Tampa, Florida. Loan proceeds of approximately $242.2 million and borrower DBRS Property Type Office equity of $133.4 million will be used to acquire the properties for $375.0 million and DBRS Property Quality cover closing costs of $383,640. The ten-year loan is IO in its entirety and is structured Average + with a cash-flow sweep if the United Services Automobile Association (USAA) Debt Stack ($ million) surrenders, cancels or materially modifies any of its leases 12 months prior to lease Trust Balance expiration. The loan also allows for the release of one or more of the properties from $45.0 the mortgage, provided that no default exists and subject to certain qualifications set Pari Passu forth in the loan agreement. Based on the appraisal reports, the portfolio’s overall as-is $197.4 market value of $380.0 million represents an LTV of 63.8%. B-Note $0.0 Mezz $0.0 Total Debt $242.4 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $133.0
Structured Finance: CMBS 58 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
USAA OFFICE PORTFOLIO – VARIOUS
PORTFOLIO SUMMARY
Cut-Off Date Loan % of Loan City, Property % of Year Built/ Largest Property Amount 1 Amount State Type SF NRA Renovated Occupancy Tenant
Legacy Corporate I & II $18,843,564 30.2% Plano, TX Office 238,926 27.1% 1999 100.0% USAA
Legacy Corporte III $10,708,911 17.2% Plano, TX Office 145,145 16.5% 2019 100.0% USAA
Crosstown Center I $17,401,980 27.9% Tampa, FL Office 260,869 29.6% 2015 100.0% USAA
Crosstown Center II $15,445,545 24.8% Tampa, FL Office 236,550 26.8% 2018 100.0% USAA
Total/Wtd. Avg. $62,400,000 100.0% Various n/a 881,490 100.0% Various 100.0% n/a
1. Reflects the pari passu portion in the subject transaction.
The properties, which were originally constructed between 1999 and 2019, consist of five suburban office buildings located in two business parks – one in Plano and one in Tampa. The properties in Texas lie within the Legacy submarket of Plano and are made up of Legacy Corporate Center I, II and III. All adjacent to each other off Parkwood Boulevard, these office properties total 384,071 sf. Crosstown Center I and II are located adjacent to each other off Delaney Creek Boulevard in the East Tampa submarket, approximately 8.5 miles east of Tampa’s CBD, and total 497,419 sf. The portfolio is 100% leased to USAA (rated AA+ and Aaa by S&P and Moody’s, respectively) with a WA lease term of 12.4 years. Legacy Corporate Center III as well as Crosstown Center I and II were all custom built for USAA while Legacy Corporate Center I and II were originally built for AT&T Inc. (AT&T) until USAA occupied the corporate center starting in January 2015. USAA is a Texas-based financial services company which offers insurance, investing and banking to people and families who currently serve, or have served, in the U.S. military. The company is currently ranked the #101 Fortune 500 Company with over 33,600 employees nationwide.
TENANT SUMMARY
% of DBRS UW % of Total Total Base Rent DBRS UW Long Term Credit Tenant Property SF NRA PSF Base Rent Lease Expiry Tenant? (Y/N)
USAA Legacy Corporate I & II 238,926 27.1% $23.20 29.1% 12/2029 N
USAA Legacy Corporte III 145,145 16.5% $22.66 25.8% 10/2033 Y
USAA Crosstown Center I 260,869 29.6% $25.08 28.8% 08/2030 N
USAA Crosstown Center II 236,550 26.8% $23.49 16.4% 12/2033 Y
Total/Wtd. Avg. Various 881,490 100.0% $23.75 100.0% Various Various
SPONSORSHIP The subject’s sponsor and carveout guarantor for this transaction is JDM Real Estate Funds, LLC (JDM Real Estate), a Phoenix, Arizona-based full service real estate firm which operates in 17 states across the United States. The firm specializes in the acquisition, development and management of office and retail properties as well as the past ownership of multiple professional sports franchises, including the National Basketball Association’s Phoenix Suns and the Women’s National Basketball Association’s Phoenix Mercury. The company also developed Chase Field, a 48,686-seat baseball stadium located in Phoenix and home to Major League Baseball’s Arizona Diamondbacks. JDM Partners currently owns $2.3 billion in office, commercial, industrial, resort and residential assets, totaling 8.5 million sf. The company did not disclose a total net worth or liquidity, but background checks showed no cases of bankruptcies, foreclosures and/or defaults.
The properties are self-managed by USAA and directly contracts operations. JDM Real Estate is responsible for maintenance of structural elements of the portfolio while USAA is responsible for recurring operating expenses.
Structured Finance: CMBS 59 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
USAA OFFICE PORTFOLIO – VARIOUS
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS conducted a tour on two of the four properties, Crosstown Center I and II, on July 17, 2019, between 10:30 a.m. and 12:30 p.m. Based on the site inspection, DBRS found the portfolio’s overall property quality to be Average (+).
In aggregate, the portfolio is uniform in vintage, construction quality and exterior appearance. Legacy Corporate Center I, II and III in Plano host USAA’s mission-critical software and technology innovation centers while Crosstown Center I and II in Tampa serves as a strategic command center for USAA’s customer service operations.
CROSSTOWN CENTER I AND III
Crosstown Center I and III is composed of two office properties totaling 497,419 sf located 8.3 miles east of downtown Tampa. The two properties that make up the office park are 100% occupied by USAA and share a private drive that connects the office campus to Delaney Creek Boulevard. The immediate surrounding area consists of office buildings to the north and east, retail properties to the west and Selmon Expressway directly south of the property. There are a number of new multifamily complexes scattered throughout the nearby area, but the property manager noted that they were not a major housing source for the company’s workforce and they did not have any corporate contracts. The previous owner of this property sold a parcel of land directly northwest of the property on Delaney Creek Boulevard that is currently under development as a garden-style apartment complex that began construction in May 2019. The property manager expressed the desirability of this location for USAA because of its close proximity to Selmon Expressway and I-75, which allows for an easy commute from Tampa and St. Petersburg from which the company recruits many of its employees. USAA has two other offices in the Tampa area – one office is three miles away and was used to accommodate employees while Crosstown Center II was under construction while the other office is 16 miles from the subject and serves various functions for USAA. The property manager mentioned that the Crosstown Office Campus targets an 85% capacity rate at the property (the property is currently below this figure and hopes to achieve this capacity rate by December 2021) to avoid overcrowding employee space. Both Tampa properties serve as strategic command centers for USAA’s customer service operations and are largely used as call centers with a small portion of each building serving as classrooms to train USAA’s employees in the Tampa market.
The property’s facade has a clean modern look and consists of light-beige concrete with darker tan accents and large glass windows. The property’s landscaping was well maintained and consisted of large palm trees, bushes and flower beds that added to the overall look and feel of the property. Each building has its own six-story parking garage with 1,285 parking spaces connected to its respective building with a bridge. Crosstown Center I has a large cafeteria with various serving
Structured Finance: CMBS 60 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
USAA OFFICE PORTFOLIO – VARIOUS stations, a small medical clinic with a reception area and six patient rooms as well as a 24-hour fitness center with full locker room and laundry facilities, all of which are available to all employees on campus. All employee amenities were new and well maintained, showing very well at the inspection. Security on campus was prevalent with large keycard- enabled turnstiles at every entrance, a sensor that recognizes unauthorized cars in the parking garage and a reception area at the main entrance. The office space was of similar quality as typical Class A office space with cubicles arranged throughout and private offices lining the perimeter of the space. Each floor had its own break room with a kitchenette and eating area, game room with various activities, relaxation areas with massage rooms and nap areas as well as convenience stores offering snacks, personal care items and company apparel for sale. Overall, DBRS found the property to be well maintained at the time of inspection.
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $25,889,861 $22,013,304 -15.0%
Recoveries $6,939,575 $6,939,575 0.0%
Other Income $0 $0 0.0%
Vacancy -$1,285,912 -$1,894,409 47.3%
EGI $31,543,524 $27,058,470 -14.2%
Expenses $7,885,881 $8,021,914 1.7%
NOI $23,657,643 $19,036,556 -19.5%
Capex $176,298 $202,508 14.9%
TI/LC $0 $0 0.0%
NCF $23,481,345 $18,834,048 -19.8%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $18,834,048, representing a -19.8% variance from the Issuer’s NCF of $23,481,345. The primary drivers of the variance include treatment of rent steps and vacancy. DBRS treated two of the four USAA leases as LTCT since they have qualifying rating requirements and leases extending at least three years past loan maturity, thereby straight-lining those rent steps over the entire loan term. The two USAA leases that do not extend three years past loan maturity do not receive LTCT treatment and rent steps are only accepted through January 2020. DBRS estimated a 9.1% economic vacancy loss compared with the Issuer’s estimated vacancy loss of approximately 3.9%. The DBRS estimated vacancy loss was based on a blend of 1% vacancy assumption for the leases with LTCT treatment and 15% vacancy for the remaining leases, which is supported by Reis submarket vacancy rates.
DBRS VIEWPOINT The subject portfolio comprises Class A office space that is 100% occupied by a credit tenant with a WA loan term of 12.4 years. This loan features a cash-flow sweep structure that goes into effect if USAA surrenders, terminates or materially modifies its lease. The properties are well located within their respective markets in close proximity to major interstates and were built-to-suit assets that serve as important locations in USAA’s future business functions. The sponsor contributed significant equity of $133.4 million, 35.4% of the total purchase price, which shows a strong commitment to the portfolio. Overall, the loan exhibits strong metrics, boasting a LTV of 63.8% and a DBRS DSCR of 2.27.
DOWNSIDE RISKS –– The loan is full-term IO. –– The portfolio is 100% leased to a single tenant.
Structured Finance: CMBS 61 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
USAA OFFICE PORTFOLIO – VARIOUS
STABILIZING FACTORS –– JDM Partners is an experienced sponsor with 16 business parks currently in its portfolio, one of which is a USAA facility located in Phoenix in which the sponsor has developed a business relationship with USAA. The sponsor also invested $133.4 million into the acquisition of the portfolio. –– The investment-grade tenant has a Fortune 500 rank of #101 with over $155 billion in assets under management with all four leases expiring after the loans maturity.
Structured Finance: CMBS 62 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Covington Portfolio El Paso, TX
Loan Snapshot Seller GSMC Ownership Interest Fee Simple and Leasehold Trust Balance ($ million) $36.2 Loan psf/Unit $27 Percentage of the Pool 3.4% Loan Maturity/ARD September 2029 COLLATERAL SUMMARY Amortization 30 Years DBRS Property Type Industrial Year Built/Renovated 1969-1996/2012-2016 Issuance DSCR City, State Various Physical Occupancy 97.2% 1.43x Units 1,206,288 Physical Occupancy Date August 2019 Issuance LTV 70.0% Balloon LTV The loan is secured by the borrower’s fee and partial leasehold interest in a portfolio of 63.9% 11 industrial properties totaling 1,206,288 sf located in South Carolina and Texas. The sponsor purchased the South Carolina properties in June 2012 and the Texas properties DBRS Property Type Industrial in February 2016 for purchase prices of $8.7 million and $6.8 million, respectively. Loan DBRS Property Quality proceeds of $36.2 million will be used to refinance approximately $31.6 million of Average existing debt, return $3.1 million of cash equity to the sponsor and cover $498,156 of Debt Stack ($ million) closing costs as well as fund upfront reserves of $350,972 for taxes, $350,000 for TI/ Trust Balance LCs and $195,745 for deferred maintenance. The ten-year loan is structured with an $36.2 initial five-year IO period and amortizes over a 30-year schedule thereafter. Pari Passu $0.0 B-Note $0.0 Mezz $0.0 Total Debt $36.2 Loan Purpose Refinance Equity Contribution/ (Distribution) ($ million) ($3.1)
Structured Finance: CMBS 63 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
COVINGTON PORTFOLIO – EL PASO, TX
The properties were constructed between 1969 and 1996 and range in size from 64,000 sf to 190,000 sf. As of August 2019, the portfolio was 97.2% occupied, with individual properties ranging from 80.5% to 100.0%. At the time of the acquisitions, the South Carolina and Texas properties were approximately 59.0% occupied and 65.3% occupied, respectively. The sponsor was able to bring the portfolio to its current occupancy of 97.2% by investing approximately $3.7 million ($6.00 psf ) in the South Carolina properties and $6.0 million ($11.00 psf ) in the Texas properties. These capital improvements generally consisted of new roofing, flooring and leasing costs across numerous spaces in the portfolio. Additionally, the portfolio’s three largest buildings (6400 Augusta, 6410 Augusta, and 1623 SC-14) were all 100.0% occupied as of an August 2019 rent roll. The properties are predominantly outfitted as warehouses and distribution centers, with only 7.4% of NRA used as office space. Additionally, the portfolio features clear heights ranging from 16 to 25 feet, 167 total dock-high doors and 19 drive-in doors.
PORTFOLIO SUMMARY
Cut-Off Date % of Loan Property % of Property City, State Loan Amount Amount Type SF NRA Occupancy Largest Tenant
6400 Augusta Road Greenville, SC $5,701,789 15.8% Industrial 190,000 15.8% 100.0% Bunzl Retail Services, LLC
Pratt Corruagted 6410 Augusta Road Greenville, SC $5,101,601 14.1% Industrial 170,000 14.1% 100.0% Holdings, Inc.
1623 South Highway 14 Greer, SC $3,661,149 10.1% Industrial 122,000 10.1% 100.0% Ram Board, Inc.
Tianhai Electric North 19 Leigh Fisher Boulevard El Paso, TX $3,641,253 10.1% Industrial 121,337 10.1% 100.0% America, Inc.
Kimberly-Clark Global 1631 South Highway 14 Greer, SC $3,000,942 8.3% Industrial 100,000 8.3% 100.0% Sales, LLC
7 Zane Grey Street El Paso, TX $2,990,228 8.3% Industrial 99,643 8.3% 92.3% MSSL Wiring System, Inc.
US Customs and Border 9 Butterfield Trail Boulevard El Paso, TX $2,865,269 7.9% Industrial 95,479 7.9% 81.0% Protection
5 Zane Grey Street El Paso, TX $2,507,587 6.9% Industrial 83,560 6.9% 96.0% Valeo North America, Inc.
14 Butterfield Trail Boulevard El Paso, TX $2,408,826 6.7% Industrial 80,269 6.7% 100.0% Key Tronic Corporation
1627 South Highway 14 Greer, SC $2,400,753 6.6% Industrial 80,000 6.6% 100.0% Magna Mirrors of America
12 Zane Grey Street El Paso, TX $1,920,603 5.3% Industrial 64,000 5.3% 92.5% Temp Glass, Inc.
Total/Wtd. Avg. Various $36,200,000 100.0% Industrial 1,206,288 100.0% 97.2% Various
The portfolio’s 11 buildings are occupied by 17 tenants, with four vacant spaces totaling 33,959 sf at the El Paso properties. All tenants roll prior to loan maturity with upward of 12.2% of the NRA rolling in five different years. The portfolio benefits from there being no significant concentration of base rent deriving from one tenant, as the largest tenant accounts for approximately 13.7% of total rent. All properties also benefit from locations close to regional airports, as the properties in El Paso are located less than a mile from El Paso International Airport and the structures in South Carolina are located within short driving distance of the Greenville-Spartanburg International Airport. Additionally, tenants are spread across many different industries, including electrical manufacturing, automotive, packaging, consumer products, government agencies and plastics molding. The buildings located in El Paso are subject to individual ground leases with the City of El Paso and have fully extended maturity dates of July, 1, 2065.
Structured Finance: CMBS 64 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
COVINGTON PORTFOLIO – EL PASO, TX
TENANT SUMMARY
% of Total % of Total DBRS Base DBRS UW Investment Tenant Property SF NRA Rent PSF Base Rent Lease Expiry Grade? (Y/N)
Pratt Corrugated Holdings, Inc. 6410 Augusta 170,000 14.1% $3.44 13.0% Jan 2021 N
Tianhai Electric 19 Leigh Fisher 121,337 10.1% $3.81 10.3% Nov 2024 N
Bunzl Retail Services 6400 Augusta 108,000 9.0% $3.50 8.4% Sept 2020 N
Kimberly-Clark Global 1631 SC-14 109,831 9.1% $3.55 8.7% March 2022 N
Con Pearl 6400 Augusta 100,000 8.3% $3.60 8.0% Feb 2022 N
Subtotal/Wtd. Avg. Various 609,168 50.5% $3.57 48.3% Various N
Other Tenants Various 514,676 42.7% $3.92 51.7% Various Various
Vacant Space Various 82,444 6.8% n/a n/a n/a n/a
Total/Wtd. Avg. Various 1,206,288 100.0% $3.73 100.0% Various Various
SPONSORSHIP The sponsor is the principal of Covington Group, a real estate investment firm that specializes in acquiring and redeveloping industrial properties. The firm was started in 1981 and has invested over $750 million into developing and acquiring industrial properties. It currently owns and manages over eight million sf of industrial space. The sponsor has reported a net worth of approximately $14.3 million and liquidity of $760,000. The property is managed by Covington SC-TX Portfolio Management, a borrower-affiliated firm, for a contractual rate of 4.0% of EGI.
DBRS ANALYSIS SITE INSPECTION SUMMARY
DBRS toured the interior and exterior of the El Paso buildings on August 22, 2019, at approximately 9:30 a.m. Based on the site inspection and management meeting, DBRS found the property quality to be Average.
The sites are located within the Butterfield Trail Industrial Park less than one mile north of the El Paso Airport. Due to El Paso’s proximity to the U.S./Mexico border, international trade is a primary demand driver in the area. The properties’ position next to the airport provides strong accessibility to I-10 and Loop 375, which are major throughways facilitating
Structured Finance: CMBS 65 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
COVINGTON PORTFOLIO – EL PASO, TX vehicle traffic across the border. Further, the industrial park featured wide roads that are favorable to truck traffic. The properties are also located approximately two miles southeast of a rail yard, thus providing the collateral good access to three fundamental modes of transportation.
9 BUTTERFIELD TRAIL The collateral consists of a 95,479 sf industrial building constructed in 1981. The property is configured with four tenant spaces ranging from 18,180 sf to 33,212 sf, and the sponsor has invested approximately $655,310 ($6.86 psf ) in capital improvements across the property since 2016. The collateral was approximately 80.5% occupied at the time of inspection, as the 18,180 sf space was unoccupied. The building featured 18-foot clear ceiling heights and approximately 17.1% of office and showroom build-out. DBRS was able to tour the U.S. Customs and Border Protection’s and Crescent Electric Supply Company’s space during the inspection. The 33,212 sf U.S. Customs and Border Protection space featured office space at the front, which appeared relatively dated. The warehouse component was broken down into five different rooms with a total of nine docking doors in the back and one docking door at the front, which is the space’s only door with a ramp. The building also featured new roofing and was in good overall condition. The 25,000 sf space consisted of a small showroom and office space at the front and warehouse space in the back. The space was simplistic, featuring a traditional warehouse configuration with shelving and three docking doors. There were minimal signs of deferred maintenance at the time of inspection.
14 BUTTERFIELD TRAIL Originally built in 1986, the collateral consists of an 80,269 sf single-tenant industrial building with approximately 88.8% of warehouse build-out and 21-foot clear ceiling heights. The property was most recently renovated in 2016, and the sponsor has invested approximately $360,503 ($4.49 psf ) in capital improvements and provided a $112,503 TI allowance ($1.40 psf ) to Key Tronic Corporation, which occupies 100.0% of the space. Office build-out comprised approximately 11.2% of the building. The receiving and processing offices were situated along one side of the building, while the shipping and customs offices were situated along the other side. The warehouse space consisted of four rooms designated for receiving, inventory, shipping and repairs. While the repairs room was smaller and consisted of three work stations, the three other rooms all were filled with rows of shelving. The building’s 15 docking doors were along the back of the building, and the building shared a rear parking lot and truck entrance with the adjacent property. Management noted that this is not an issue, as the adjacent property generates very minimal vehicle traffic. Overall, the property was in average condition and well organized for operations.
19 LEIGH FISHER Originally constructed in 1986 and most recently renovated in 2016, the 121,337 sf single-tenant building is 100.0% occupied by Tianhai Electric North America, Inc. (Tianhai). Because the property was 0.0% occupied in 2015 due to its condition, the sponsor invested approximately $989,030 ($8.15 psf ) in capital improvements to restore the building and spent $355,093 ($2.93 psf ) on a TI allowance for Tianhai. The building featured 21-foot clear ceiling heights with office build- out comprising approximately 16.8% of the building. With the exception of separate forklift and quality control rooms on one end, the warehouse component was one continuous space primarily filled with shelving. A small shipping and receiving office was situated along the back of the building next to the 15 docking doors. While the flooring displayed some natural deferred maintenance, the warehouse space was overall in good condition, very organized and displayed strong safety signage throughout.
12 ZANE GREY The collateral consists of a 64,000 sf multitenant industrial building originally constructed in 1986 and most recently renovated in 2016 at a total cost of $523,075 ($8.84 psf ). The building is 92.5% occupied, features 21-foot clear ceiling heights and consists of three tenant spaces. DBRS was able to tour the 33,600 sf space of Temp Glass, Inc., which received a $89,534 ($2.66 psf ) TI allowance in 2017. While most of the space’s office build-out was traditional, the tenant invested its own capital in a separate office component that is modernized and showcases some of its glass products, which are
Structured Finance: CMBS 66 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
COVINGTON PORTFOLIO – EL PASO, TX produced in the warehouse component. The warehouse space was very cluttered with heavy machinery, glass panels in inventory and an array of other materials. There were three accessible docking doors in the warehouse space, but management noted that only one of the dock doors with the space’s lone ramp is actually used. Although the cluttered space had resulting inefficiencies, the building was in an adequate condition at the time of inspection.
7 ZANE GREY Originally constructed in 1983 and most recently renovated in 2016, the collateral consists of a 99,643 sf industrial building that is 92.0% occupied by two tenants. The building featured approximately 8.0% office build-out, 21-foot clear ceiling heights and 24 docking doors across its three spaces. DBRS was able to tour the 42,000 sf space of Capsonic Automotive, which was located in the rear half of the building. An open office space was situated on one side of the building, while the remaining office area was located on the other side in the warehouse next to the space’s 11 docking doors. Besides a corner of the warehouse being used for equipment storage, the space had a standard shelving configuration throughout the remaining area. Roughly 25.0% of the tenant’s warehouse space was not being used, and at the time of the inspection, there were no plans for the empty space. As the sponsor invested approximately $551,162 ($5.53 psf ) in capital improvements across the building and provided the tenant a $154,596 ($3.68 psf ) TI allowance in 2018, the space was in very good condition and most notably featured new roofing and flooring.
5 ZANE GREY Originally constructed in 1983 and having most recently undergone a $543,617 ($6.78 psf ) renovation in 2016, the collateral consisted of an 83,560 sf industrial building that was 96.0% occupied by two tenants. The building was improved with 21-foot clear ceiling heights, 17 docking doors and approximately 6.3% office build-out. DBRS was able to tour the 55,100 sf space of Valeo North America, Inc., which received a $123,190 ($2.24 psf ) TI allowance in 2019. The space had a small open office space at the entrance, which was located on the side of the building. Additionally, there were shipping and receiving offices adjacent to one another near the space’s docking doors. The warehouse space had a balance of traditional shelving and pallets of inventory stacked up on the ground. Overall, flooring and roofing throughout the warehouse appeared dated but in adequate condition for the tenant’s operations.
DBRS NCF SUMMARY
NCF ANALYSIS
2016 2017 2018 T-12 May 2019 Issuer NCF DBRS NCF NCF Variance
GPR $2,600,957 $3,041,306 $3,450,610 $3,863,950 $4,537,635 $4,596,317 1.3%
Recoveries $734,364 $773,547 $1,084,699 $1,200,227 $1,345,259 $1,482,643 10.2%
Other Income $12,463 $2,922 $0 $250 $0 $0 0.0%
Vacancy $0 $0 $0 $0 -$291,703 -$474,582 62.7%
EGI $3,347,784 $3,817,775 $4,535,309 $5,064,427 $5,591,191 $5,604,378 0.2%
Expenses $1,598,621 $1,676,088 $1,791,551 $1,856,658 $2,087,765 $2,159,289 3.4%
NOI $1,749,163 $2,141,687 $2,743,758 $3,207,769 $3,503,426 $3,445,089 -1.7%
Capex $0 $0 $0 $0 $180,943 $205,943 13.8%
TI/LC $0 $0 $0 $0 $225,026 $339,589 50.9%
NCF $1,749,163 $2,141,687 $2,743,758 $3,207,769 $3,097,457 $2,899,556 -6.4%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $2,899,556, representing a -6.4% variance from the Issuer’s NCF. The primary drivers of the variance are TI/ LCs and operating expenses. DBRS used TI assumptions of $0.20 psf per lease year and $0.10 psf per lease year for new
Structured Finance: CMBS 67 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
COVINGTON PORTFOLIO – EL PASO, TX leases and renewals, respectively. DBRS applied the appraiser’s assumptions for LCs. Operating expenses were generally based on the T-12 figures.
DBRS VIEWPOINT The portfolio consists of 11 industrial properties located across three markets and two states. Prior to being purchased by the sponsor in 2012 and 2016 for a total of approximately $15.5 million, the South Carolina and El Paso portfolios were considerably distressed with occupancy levels of 59.0% and 65.3%, respectively. Through a capital improvement project totaling approximately $9.7 million ($8.04 psf ) that covered leasing costs and general structural repairs and replacements across the portfolio, the sponsor has been able to elevate occupancy to 100.0% at the South Carolina properties and 93.8% at the El Paso properties. As the appraiser has concluded the as-is value to be approximately $51.8 million, the sponsor’s total cost basis of approximately $25.1 million demonstrates the value created through the capital improvements and lease-up since acquiring the two portfolios. The ten-year loan is IO for the first five years and has a relatively high DBRS Issuance LTV of 70.0%, representing heightened refinance risk. However, the loan does have a moderate DBRS DSCR of approximately 1.34x and amortizes down to a healthier DBRS Balloon LTV of approximately 63.9%.
DOWNSIDE RISKS –– The portfolio exhibits considerable rollover risk, as all leases across the portfolio will expire by July 2026, which is three years prior to loan maturity. –– The sponsor has low net worth and liquidity-to-loan multiples of 0.40x and 0.02x, respectively.
STABILIZING FACTORS –– The sponsor has successfully executed six new leases and seven renewal leases since 2017. Further, three tenants have expanded across the portfolio. –– The sponsor has invested approximately $3.7 million ($6.00 psf ) in the South Carolina properties and $6.0 million ($11.00 psf ) in the El Paso properties since acquiring the two portfolios in June 2012 and February 2016, respectively. DBRS also increase the POD for this loan to mitigate any risk associated with the sponsor’s loan multiples.
Structured Finance: CMBS 68 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
U.S. Industrial Portfolio V Various, Various
Loan Snapshot Seller GSMC Ownership Interest Fee Simple Trust Balance ($ million) $32.8 Loan psf/Unit $36 Percentage of the Pool 3.1% Loan Maturity/ARD August 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Industrial Year Built/Renovated Various Issuance DSCR City, State Various Physical Occupancy 100.0% 2.49x SF 3,585,547 Physical Occupancy Date June 2019 Issuance LTV 64.4% Balloon LTV The loan is secured by the borrower’s fee simple interest in U.S. Industrial Portfolio V, 64.4% comprising 30 single-tenant industrial properties totaling 3,585,547 sf located across 15 states. The ten-year loan is IO for the entire term. Loan proceeds of $130.4 million, DBRS Property Type Industrial along with approximately $66.4 million of borrower equity, will be used to finance the DBRS Property Quality $195.3 million purchase price as well as cover $1.3 million in closing costs. Additionally, Average the sponsor will receive a credit of $172,450 from the seller at closing related to the Debt Stack ($ million) Sherwood Food Distributors, LLC’s (Sherwood Foods) Cleveland roof-work reserve Trust Balance and the double net structure of the lease. $32.8 Pari Passu $97.6 B-Note $0.0 Mezz $0.0 Total Debt $130.4 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $66.4
Structured Finance: CMBS 69 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
U.S. INDUSTRIAL PORTFOLIO V – VARIOUS
PORTFOLIO SUMMARY
% of Cut-Off Year Built/ Cut-Off Date Date Loan Property City, State SF Renovated Loan Amount Amount Occupancy Largest Tenant Sherwood Foods Maple Heights. Sherwood Food 345,009 1967 $4,781,939 11.2% 100.0% Cleveland OH Distributors, LLC Owens Corning Foam Owens Corning Tallmadge, OH 222,900 1989/1996 $3,003,277 7.0% 100.0% Insulation, LLC HDT Expeditionary Hunter Defense Tech Florence, KY 260,366 1962/2002 $2,737,248 6.4% 100.0% Systems, Inc. Sterling Jewelers Barberton, OH 134,565 2002/2016 $2,638,311 6.2% 100.0% Sterling Jewelers, Inc. BlueLinx Corporation Brooklyn Park, 136,167 1978/2000 $2,044,691 4.8% 100.0% BlueLinx Corporation Brooklyn Park MN 1964, 1980, Exec Cabinetry SC Simpsonville, SC 205,912 $2,027,102 4.7% 100.0% Executive Cabinetry, LLC 1987, 1993 Techniplas Nashotah, WI 137,206 1964, 1995 $1,978,733 4.6% 100.0% Techniplas, LLC Metalex (Jason Libertyville, IL 155,799 1924/2008 $1,846,818 4.3% 100.0% Metalex Corporation Industries) Nyloncraft Mishawak, IN 185,631 1961/1998 $1,692,916 4.0% 100.0% Nyloncraft, Inc. Dirksen Screw Shelby Township, Dirksen Screw 80,967 1988, 1998 $1,659,937 3.9% 100.0% Shelby MI Products Co. Global Integrated Global Flooring Grand Rapids, MI 121,464 1984 $1,576,391 3.7% 100.0% Flooring Solutions Inc. Maradyne Corporation and Dreison Cleveland, OH 206,471 1955/1967 $1,420,291 3.3% 100.0% DCM Manufacturing, Inc. The Gem City Gem City Dayton, OH 147,847 1941/1950 $1,378,517 3.2% 100.0% Engineering Co. Chemcore Austin Austin, TX 40,662 1982 $1,226,815 2.9% 100.0% Chemcore Industries, Inc. ATG Precision ATG Precision Canton, MI 55,118 1994 $1,165,254 2.7% 100.0% Canton Products, LLC Polartec Cleveland, TN 175,306 1986 $1,121,282 2.6% 100.0% Polartec, LLC Design Cabinetry Designer's Choice Rockledge, FL 92,367 1998 $1,077,310 2.5% 100.0% TGK Cabinetry, LLC LMI Aerospace - St. Charles, MO 91,363 1973/1989 $1,055,323 2.5% 100.0% Leonard’s Metal, Inc. 3030 N. Highway 94 Ascend Custom Extrusions Custom Extrusions Rome, GA 151,693 1960/2005 $1,043,232 2.4% 100.0% LLC and Profile Custom Rome Extrusions, LLC CECO - Indianapolis Indianapolis, IN 66,000 1971 $901,423 2.1% 100.0% Met-Pro Technologies LLC LMI Aerospace - St. Charles, MO 62,712 1966/2000 $901,423 2.1% 100.0% Leonard’s Metal, Inc. 3600 Mueller Cast Aluminum Cast Aluminum Solutions, Batavia, IL 59,719 1988 $831,068 1.9% 100.0% Solutions LLC Pyramyd Air Solon, OH 70,867 1970 $817,876 1.9% 100.0% Pyramyd Air Ltd. Workstream Fairfield, OH 76,893 1973/1988 $778,302 1.8% 100.0% Workstream Inc. Techniks Indianapolis, IN 40,418 2005 $615,606 1.4% 100.0% Techniks Holdings, LLC BlueLinx Corporation North Little Rock, 82,959 1971/2004 $604,613 1.4% 100.0% BlueLinx Corporation Little Rock AR BlueLinx Corporation Long Beach, MS 88,061 1965 $544,152 1.3% 100.0% BlueLinx Corporation Gulfport Chemcore Elk Grove Village, 25,576 1966 $544,152 1.3% 100.0% Chemcore Industries, Inc. Elk Grove IL Total Plastics Total Plastics Wyoming, MI 44,033 1999 $529,861 1.2% 100.0% Resources LLC Design Cabinetry Designer's Choice Rockledge, FL 21,572 1987 $256,136 0.6% 100.0% Barnes Cabinetry, LLC Total/Wtd. Avg. Various 3,585,623 Various $42,800,000 100.0% 100.0% Various
Structured Finance: CMBS 70 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
U.S. INDUSTRIAL PORTFOLIO V – VARIOUS
The portfolio has a wide variety of tenants, from distribution centers to those in the specialized parts, consumer goods, defense and manufacturing industries. Of the 30 properties within the portfolio, 16 serve as the tenants’ corporate headquarters, and a majority of the tenants took occupancy as a result of a sale-leaseback transaction. The portfolio is leased to a total of 22 tenants, only one of which is considered to be investment grade (Owens Corning; 7.0% of the allocated loan amount (ALA)). The largest tenant, Sherwood Foods (11.2% of ALA), has been at its location in Maple Heights, Ohio, since 2005. The 345,009 sf distribution center ships more than 20.0 million pounds of food to Cleveland, Atlanta, Detroit and Miami every week. The second-largest tenant is Techniplas, LLC (Techniplas), occupying 137,2006 sf of its global headquarters in Nashotah Park, Wisconsin. Techniplas’s subsidiary, Nyloncraft, Inc., also has tenancy within the 185,631 sf manufacturing facility located in Mishawaka, Indiana.
SPONSORSHIP The sponsors for the loan are principals of Brennan Investment Group, LLC (BIG). BIG has owned and managed over $4.0 billion in assets, a majority of which have been industrial properties, since 2010. The company reported a net worth greater than $30.0 million and liquidity greater than $5.0 million. The borrowing entity for the loan comprises a joint venture between Sidra Capital (95.0%) and BIG (5.0%).
Property management is provided by a borrower-affiliated company, Brennan Management Group, LLC, for a contractual management fee of 2.0% of EGI. The company manages over 40.0 million sf across 28 states.
DBRS ANALYSIS SITE INSPECTION SUMMARY
DBRS inspected six of the 30 properties in the portfolio, representing 33.9% of the allocated loan amount. The tours included properties in Ohio and Illinois. Based on the site inspections and management meetings held between July 15, 2019, and July 17, 2019, DBRS found the portfolio’s property quality to be Average.
The properties are primarily well located along major thoroughfares in tertiary and suburban markets. The assets generally featured prominent signage and benefited from strong exposure along their respective local thoroughfares. The portfolio’s average year of construction is 1974 with only two properties built after 2000 in 2002 and 2005. All properties were found to be in average condition with limited to moderate amounts of deferred maintenance at the time of DBRS’s inspections. Below are descriptions of the three-largest properties that were toured by DBRS in the portfolio, representing 21.5% of the allocated loan amount.
Structured Finance: CMBS 71 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
U.S. INDUSTRIAL PORTFOLIO V – VARIOUS
SHERWOOD FOODS CLEVELAND — MAPLE HEIGHTS, OHIO — JULY 17, 2019, AT 11:45 A.M. (11.2% OF ALA) The subject is located in Maple Heights, approximately 14.0 miles southeast of the Cleveland CBD and 22.0 miles north of Akron, Ohio. Located approximately 5.0 miles west of I-480 and I-271, the property benefits from strong accessibility to surrounding neighborhoods. The improvements consist of a 345,009 sf distribution center as well as a separate building with office space. The property is mission critical for Sherwood Foods, as it is near the company’s corporate headquarters in Detroit, as well as within a short distance from its largest customers, Marc’s Pharmacy (Marc’s) and Fresh Thyme Farmers Market. Marc’s is a local pharmacy and grocery chain with 65 locations, primarily in Ohio. The immediate surrounding area is made up of smaller industrial properties lining Lee Road South and Rockside Road and a residential neighborhood west of the subject.
Originally constructed in 1967, the property appeared to be generally well maintained at the time of DBRS’s inspection. Slightly outdated signage was prominently displayed at the corner of Granite Road and Lee Road South, ultimately providing good exposure to any driver passing by. On-site management stated that approximately $100,000 of upgrades was budgeted since the acquisition of the portfolio, a majority of which had already been completed by the time of DBRS’s inspection. The list of improvements consists of replacing the exterior fence, repairing sidewalk cracks and repaving the upper parking lot, lower parking lot and the parking lot near the front office. Additionally, as of the time of inspection, there were still weather-related delays on replacing the roof. The capital improvements were expected to be complete by March 2019; however, the project experienced over 130 delayed days. The Sherwood Foods distribution center was moderately busy at the time of inspection with a handful of inbound and outbound trucks visible. According to on-site management, approximately 75 trucks are inbound to the subject facility every day while approximately 60 to 75 trucks are outbound to their customers per day. The property primarily consists of cold-storage space, with 80,000 sf of freezer space and 70,000 sf of refrigerated space, as well as a 40,000 sf dry goods warehouse. The freezer space includes 40,000 sf that the sponsor built in 2017 to accommodate high demand. Overall, the property’s interior and exterior were well maintained and presented well compared with other industrial facilities in the surrounding area.
OWENS CORNING — TALLMADGE, OHIO — JULY 17, 2019, AT 2:00 P.M. (7.0% OF ALA) The subject property is located in Tallmadge, fewer than 6.0 miles east of Akron and approximately 40.0 miles south of the Cleveland CBD. The single-tenant insulation, roofing and composite warehouse/distribution center has good exposure from Southwest Avenue and is located within a tertiary market. DBRS noted that signage was low to the ground, leaving the possibility for limited visibility; however, the main entryway was clearly marked. The immediate surrounding area consists of smaller industrial buildings to the east and west, as well as local and national retailers near downtown Tallmadge, which is only 0.5 miles to the north. The facility is leased to Owens Corning and primarily services the company’s relationship with The Home Depot Inc., which accounts for more than 60.0% of Owens Corning’s sales and maintains a distribution center 30.0 miles north in Solon, Ohio.
Given the mid-afternoon time of day, the property had very limited traffic in and out of the distribution area. The main driveway was unpaved and wide, allowing ample space for large trucks to travel inbound and outbound. According to on-site management, an estimated 30 to 50 trucks are traveling inbound and outbound every day. The exterior of the property was neutral in nature and appeared to be generally well maintained. The subject’s interior storage space featured clean and orderly aisles with ample space for forklifts to maneuver. The property’s location is advantageous for the tenant as an Owens Corning research-and-development facility is located directly across the street and the company built an insulation manufacturing facility nearby. Although neither facility is included in the collateral, they may provide Owens Corning with an incentive to remain in the immediate area. By the end of summer 2019, it is expected that $160,000 to $180,000 will be spent to widen the concrete roadway leading to an elevated storage area. In this outdoor storage area, insulation is wrapped to prevent any damage from the outdoor elements, as it is expected to remain there for about three months. Overall, the property appeared to be in line with comparable properties in the surrounding area and demonstrated strong signs of long-term tenancy.
Structured Finance: CMBS 72 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
U.S. INDUSTRIAL PORTFOLIO V – VARIOUS
DREISON INTERNATIONAL INC. — CLEVELAND, OHIO — JULY 17, 2019, AT 9:30 A.M. (3.3% OF ALA) The single-tenant manufacturing facility is located approximately 10.5 miles southwest of the Cleveland CBD and only 3.0 miles northeast of Cleveland Hopkins International Airport. The property’s immediate area consists of primarily industrial facilities and flex spaces. Dreison International Inc. is located about 1.0 miles south of I-71, providing direct access to the Cleveland area and points beyond. Maradyne Corporation and DCM Manufacturing Inc., the only tenants occupying the property, specialize in the manufacturing of exhaust systems. While DBRS was unable to tour the interior of the property, the exterior demonstrated significant signs of deferred maintenance. Surface parking was available in front of the building off West 160th Street. The main parking area had faded striping and featured several potholes and large cracks. Signage was not prominently displayed, and DBRS found the subject very difficult to locate within the smaller industrial park. Located directly beside the building was a fenced-off area that contained miscellaneous pieces of manufacturing equipment. At the time of inspection, the property appeared to be very desolate with limited traffic. Overall, the property appeared to be of slightly lower quality than other industrial facilities within the immediate area.
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $14,291,882 $14,074,858 -1.5%
Recoveries $246,043 $5,336,288 2068.8%
Other Income $0 $0 0.0%
Vacancy -$842,200 -$1,290,638 53.2%
EGI $13,695,724 $18,120,508 32.3%
Expenses $273,914 $5,393,615 1869.1%
NOI $13,421,810 $12,726,893 -5.2%
Capex $358,562 $452,527 26.2%
TI/LC $622,712 $1,069,963 71.8%
NCF $12,440,535 $11,204,404 -9.9%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $11,204,404, a -9.9% variance from the Issuer’s NCF figure of $12,440,535. The primary drivers of the variance are vacancy, TI/LCs, management fees and replacement reserves. DBRS applied a blended vacancy of 6.6% compared with the Issuer’s vacancy rate of 5.8%. The blended vacancy rate of 6.6% was derived from the maximum of 5.0% or the market’s vacancy for each respective property. TI/LCs were set to the appraiser’s estimate for each property. DBRS concluded a 3.0% management fee, a typical approach for industrial properties of this size. Finally, DBRS concluded $0.15 psf for replacement reserves.
DBRS VIEWPOINT The cross-collateralized portfolio benefits from geographic and tenant diversity as well as its experienced sponsorship team. The portfolio is made up of 30 single-tenant industrial properties located in primarily suburban and tertiary markets across 15 states. The three-largest state concentrations in Ohio, Michigan and Illinois represent 34.6%, 11.5% and 7.5% of the allocated loan amount, respectively. Only one of the portfolio’s 22 tenants, Owens Corning, is considered investment grade, accounting for 7.0% of DBRS Base Rent; however, with its lease expiring in March 2031, DBRS does not consider the company to qualify for LTCT status.
DBRS expects cash flow to remain stable over the loan term. No leases expire prior to the July 2029 maturity date; however, there is significant lease rollover in the years immediately following maturity. Leases on 543,228 sf spread across five
Structured Finance: CMBS 73 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
U.S. INDUSTRIAL PORTFOLIO V – VARIOUS properties expire in 2030, and leases on 850,172 sf spread across six properties expire in 2031, collectively comprising 38.9% of the portfolio’s NRA. This adds an element of refinance risk as lenders may be wary of roll so soon in a term. One positive factor is that 16 properties are used as their tenants’ corporate or global headquarters, demonstrating a strong sign of long-term tenancy beyond the loan term. Many of the properties benefit from their location near local interstates in well-trafficked areas, and each property inspected appeared to be in good physical condition.
DOWNSIDE RISKS –– The loan is IO for the full term, which presents an elevated refinance risk at loan maturity.
STABILIZING FACTORS –– This loan features a 64.4% LTV, and the borrower will contribute approximately $66.4 million of cash equity (Sidra Capital contributing 95.0% and BIG contributing 5.0%) to purchase the portfolio, indicating a strong commitment to the performance of the portfolio.
Structured Finance: CMBS 74 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Capitol Commons Lansing, MI
Loan Snapshot Seller CREFI Ownership Interest Fee Simple Trust Balance ($ million) $32.5 Loan psf/Unit $114 Percentage of the Pool 3.1% Loan Maturity/ARD September 2029 COLLATERAL SUMMARY Amortization 22 Years DBRS Property Type Office Year Built/Renovated 1988/ 2016-2018
Issuance DSCR City, State Lansing, MI Physical Occupancy 100.0% 1.60x SF 185,494 Physical Occupancy Date September 2019 Issuance LTV 68.9% Balloon LTV The loan is secured by the borrower’s leasehold interest in Capitol Commons, a 185,494 44.8% sf Class B office building located in downtown Lansing, Michigan. The property DBRS Property Type was built for the State of Michigan, and it has been occupied by the tenant since Office construction in 1988. Loan proceeds of $32.5 million were used to refinance $31.4 DBRS Property Quality million of existing debt, return a small portion of equity to the sponsor and cover Average closing costs and $193,880 in upfront reserves. The ten-year loan is structured with a Debt Stack ($ million) 22-year amortization schedule in addition to a full cash flow sweep that will occur 24 Trust Balance months before the State of Michigan’s lease expires in June 2029. JPMorgan Chase & $32.5 Co. (rated AA (low) with a Stable trend by DBRS) previously securitized the property Pari Passu in JPM 2006-CB16. The borrower never missed a payment; however, it was in special $0.0 servicing from October 2013 to February 2016 due to failed negotiations associated B-Note with rent and interest rate reductions. $0.0 Mezz TENANT SUMMARY $0.0 Total Debt % of DBRS % of Total Investment Total Base DBRS Lease Grade? $32.5 Tenant SF NRA Rent PSF Base Rent Expiry (Y/N) Loan Purpose State of Michigan 185,494 100.0% 27.43 100% 6/2029 Y Refinance Equity Contribution/ Total/Wtd. Avg. 185,494 100.0% 27.4% 100% 6/2029 Y (Distribution) ($ million) $(0.4)
Structured Finance: CMBS 75 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
CAPITOL COMMONS – LANSING, MI
The seven-story property is adjacent to the State of Michigan government campus, which includes the state capitol building and additional administrative buildings. Floors 1 to 7 of the building are occupied by five State of Michigan government agencies: the Michigan Department of Health and Human Services (MDHHS); the Michigan Civil Service Commission (MSCS); the Office of the State Employer (OSE); the Michigan Department of Technology, Management & Budget (DTMB); and the Michigan Commission for the Blind. MDHHS occupies Floors 5 to 7 in addition to portions of the fourth floor and lower levels. MSCS occupies the entire second floor and portions of the third and first floors and lower level. DTMB occupies a portion of the third floor. The lease is guaranteed by the City of Lansing, an investment- grade-rated entity.
The property most recently underwent renovations between 2016 and 2018. During the renovation, the tenant and landlord invested a combined $4.0 million to modernize the building’s light and HVAC systems in addition to improving common areas and tenant suites. In 2019, the tenant renewed the lease for an additional ten-year-term period with no free rent or TIs. The rental rate decreased to $27.43 psf from $35.86 psf in the previous lease but calls for 2.0% annual rent increases through the entire ten-year period. Moreover, under the renewed leased, the tenant gave up its early lease termination rights.
SPONSORSHIP Co-sponsors Joel Ferguson and Sam Eyde have both garnered extensive experience developing commercial, residential, office and other types of real estate within the State of Michigan. Sam Eyde founded Eyde Management, a real estate development firm headquartered in East Lansing, Michigan. Since the company’s creation in 1968, its portfolio has amassed nearly 1.0 million sf of real estate occupied by tenants that include the federal and state governments, Fortune 500 companies and national retail chains. Joel Ferguson is the co-founder of First Housing Corporation, a real estate development firm that has accomplished 31 developments across the State of Michigan. The two sponsors, Ferguson and Eyde, possess a combined net worth of over $100.0 million.
DBRS ANALYSIS SITE INSPECTION SUMMARY
Based on the DBRS site inspection and management meeting conducted on August 22, 2019, DBRS found the property quality to be Average.
The collateral is located at the northeast corner of West Kalamazoo Street and South Pine Street, an arterial road intersection in the government office square of Lansing. The property has convenient access to I-496, an auxiliary highway
Structured Finance: CMBS 76 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
CAPITOL COMMONS – LANSING, MI that connects Michigan’s capitol to other major highways throughout the state. The immediate area around the subject consists of government-owned office properties to the north and east, and a residential neighborhood of single-family homes and garden apartment complexes to the south and west. Competitive office properties in the immediate area are of similar vintage and quality and are generally occupied and owned by the State of Michigan, as the Michigan State Capitol Building is just 0.4 miles northeast of the property. Public transportation is available via multiple bus routes utilizing two bus stops in front of the building on West Kalamazoo Street and South Pine Street.
The subject’s exterior facade is made up of a dark tinted glass curtain wall and light-gray concrete that give the look of a typical office property of a 1980s vintage. The large glass windows offer a nice view of the capitol square from the interior of the building. While the exterior appeared to be in good physical condition, fading and discoloration of the concrete was apparent, with management noting that cosmetic renovations to the facade would be done in stages, expected to be completed by spring of 2020. The property’s landscaping was well maintained, consisting of small trees, bushes and flowerbeds that added to the overall look of the property. A paved drive wraps around the building, connecting street entrances on West Kalamazoo Street and South Pine Street to a 200-space gated surface parking lot to the south of the building and a subterranean loading dock ramp to the west of the building. The road around the property offered ample space for large trucks to access the loading dock, which has access to the basement of the office building. All paved surfaces and curbs appeared to be good condition at the time of inspection with no major cracks or holes noted.
The entrance and lobby area are made up of a security desk, lounge area and convenience store that were in good condition, reflecting the completed renovations in July 2019. A spacious stairwell in the lobby connects to the building’s basement, which is made up of large conference rooms that are shared among the various departments, small glassed meeting rooms and the building’s mail room, which is connected to the loading dock. The basement’s conference rooms were visually appealing with mounted projectors, display screens and portable tables and can be divided to different-sized rooms to accommodate various-sized groups. MDHSS occupies Floors 5 to 7 (52.0% of the NRA), MCSC occupies Floors 1 to 3 (38.0% of the NRA), DTMB occupies the third floor (4.0% of the NRA), OSE occupies a portion of the fourth floor (6.0% of the NRA) and the Michigan Commission for the Blind occupies less than 1.0% of the NRA. All the floors are set up in a similar layout with cubicles taking up most of the open floor space with private offices and medium-sized conference rooms lining the interior portion of each floor. Recent capital upgrades of $4.0 million by the sponsor to electrical, lighting, common areas and conference rooms, along with the State of Michigan’s investment of $2.1 million for new cubicles, office furniture, and artwork, give the space a fresh, clean look. Different departments are generally separated by glass doors in a way that is practical and efficiently uses the space.
Overall, the property was well maintained with recent capex bringing this 1980s vintage office property in line with Class B office standards.
Structured Finance: CMBS 77 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
CAPITOL COMMONS – LANSING, MI
DBRS NCF SUMMARY
NCF ANALYSIS
2016 2017 2018 T-12 June 2019 Issuer NCF DBRS NCF NCF Variance
GPR $5,007,340 $5,132,523 $5,260,841 $5,326,626 $5,588,008 $5,087,942 -8.9%
Recoveries $0 $0 $0 $0 $361,713 $361,713 0.0%
Other Income $3,570 $28,520 $837 $0 $0 $0 0.0%
Vacancy $0 $0 $0 $0 -$297,486 -$544,965 83.2%
EGI $5,010,910 $5,161,043 $5,261,678 $5,326,626 $5,652,235 $4,904,689 -13.2%
Expenses $1,337,660 $1,373,517 $1,404,447 $1,421,482 $1,894,715 $1,872,288 -1.2%
NOI $3,673,249 $3,787,527 $3,857,231 $3,905,144 $3,757,521 $3,032,401 -19.3%
Capex $0 $0 $0 $0 $50,083 $53,793 7.4%
TI/LC $0 $0 $0 $0 $231,868 $237,541 2.4%
NCF $3,673,249 $3,787,527 $3,857,231 $3,905,144 $3,475,570 $2,978,608 -14.3%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $2,978,608, a variance of -14.3% from the Issuer’s NCF. The main drivers for the NCF variance are rent- step treatment and vacancy loss. Although the State of Michigan is an investment-grade tenant, DBRS does not consider it to be LTCT and did not give credit to the average rent over the loan term. The lender applied a 5.0% vacancy loss, and DBRS utilized a 10.0% vacancy loss that contemplates the collateral’s historical occupancy and Reis Q2 2019 submarket vacancy of 17.8%.
DBRS VIEWPOINT The collateral benefits from its location, its longer-term lease to an investment-grade tenant and its sponsor-invested capital. The subject has been occupied by the State of Michigan since it was purpose-built for it in 1988. The sponsor invested $4.0 million to improve the electrical, lighting, common areas and conference rooms. Furthermore, over the past three years, the State of Michigan has invested approximately $2.1 million into the property and recently extended its lease through June 2029. In connection with the recently signed lease, the rental rate was reduced to better match market rates, while the State of Michigan gave up the right to terminate the lease with 60 days’ notice. The property is located next to the main State of Michigan Government Campus with many of the surrounding office properties owned by the State of Michigan. The fact that office building is not state-owned is favorable for government tenants since capital improvements at the property do not need to be approved by a state budget. The property is supported by local sponsorship in Sam Eyde and Joel Ferguson who are experienced in development and management within the Lansing market and even developed a built-to-suite office property down the street from the subject for the State of Michigan. Additionally, the subject property offers 200 surface parking spots, which may seem low at a 1.08 parking ratio but is unique to government office properties in the market where employees pay for monthly parking passes.
DOWNSIDE RISKS –– The subject exhibits single-tenant risk with the tenant rolling in year ten of the loan. Loans secured by single-tenant properties have been found to have higher loss severities in the event of default.
STABILIZING FACTORS –– The tenant and sponsor have shown commitment to the property with a combined $4.0 million of capital upgrades invested into the property since 2016. Furthermore, the location, being adjacent to the government campus, and 100.0% occupancy by state agencies since 1988 offset tenant rollover risk.
Structured Finance: CMBS 78 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Powered Shell Portfolio - Manassas Manassas, VA
Loan Snapshot Seller GSMC Ownership Interest Fee Simple Trust Balance ($ million) $32.3 Loan psf/Unit $115 Percentage of the Pool 3.0% Loan Maturity/ARD July 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Industrial Years Built 2017-2019 Issuance DSCR City, State Manassas, VA Physical Occupancy 100.0% 2.61x SF 728,460 Physical Occupancy Date August 2019 Issuance LTV 55.9% Balloon LTV The loan is secured by the borrower’s fee simple interest in the Power Shell Portfolio 55.9% - Manassas, a four-property portfolio that covers 728,460 sf of data center space in Manassas, Virginia. Loan proceeds of $83.8 million, along with approximately $62.5 DBRS Property Type Industrial million of borrower equity, will be used to acquire the properties for approximately DBRS Property Quality $144.8 million and cover $1.4 million in closing costs. This transaction contains Average + approximately $32.3 million of A-note proceeds in the trust. The ten-year loan is Debt Stack ($ million) interest only and has a maturity date of July 7, 2029. The loan is structured with a Trust Balance trigger period that commences if the tenant defaults or if the DSCR falls below 1.20x $32.3 for two consecutive calendar quarters. Pari Passu $51.5 B-Note $0.0 Mezz $0.0 Total Debt $83.8 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ million) $62.5
Structured Finance: CMBS 79 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
POWERED SHELL PORTFOLIO - MANASSAS – MANASSAS, VIRGINIA
PORTFOLIO SUMMARY
% of Cut-Off Date Loan Property % of Year Built/ Largest Property Loan Amount Amount City, State Type SF NRA Renovated Occupancy Tenant
Manassas DC-18 $15,592,337 30.2% Manassas, VA Industrial 215,650 29.6% 2017 100.0% Vadata, Inc.
Manassas DC-19 $10,690,166 20.7% Manassas, VA Industrial 148,580 20.4% 2017 100.0% Vadata, Inc.
Manassas DC-20 $14,603,168 28.3% Manassas, VA Industrial 215,650 29.6% 2017 100.0% Vadata, Inc.
Manassas DC-23 $10,664,329 20.7% Manassas, VA Industrial 148,580 20.4% 2019 100.0% Vadata, Inc.
Total/Wtd. Avg. $51,550,000 100.0% n/a n/a 728,460 100.0% Various 100.0% n/a
The collateral was acquired along with the Power Shell Portfolio – Ashburn, a portfolio of three similar data centers in Ashburn, Virginia. These powered shell buildings are large industrial warehouse spaces that were developed by Corporate Offices Properties Trust (COPT) with open design layouts well suited to data center build-outs. These facilities were built-to-suit by COPT on behalf of Amazon with specifications essential to efficiently access power and fiber optics. The collateral buildings are mission critical to Amazon Web Services (AWS), and a significant amount of the company’s web traffic runs through these facilities.
The data centers offer a power supply of 33.3 megawatts (MW) in DC-19 and DC-23 and 46.5 MW in DC-18 and DC-20 for a total of 159.9 MW. In addition, the centers have a utility redundancy of N+1, meaning that critical systems have at least one backup component in the event of a system failure.
PORTFOLIO SUMMARY
DBRS % of Total UW Base % of Total DBRS Long Term Credit Tenant Property SF NRA Rent PSF UW Base Rent Lease Expiry Tenant? (Y/N)
Vadata, Inc. Manassas DC-18 215,650 29.6% $23.20 29.1% 12/2027 N
Vadata, Inc. Manassas DC-19 148,580 20.4% $22.66 25.8% 04/2027 N
Vadata, Inc. Manassas DC-20 215,650 29.6% $25.08 28.8% 04/2027 N
Vadata, Inc. Manassas DC-23 148,580 20.4% $23.49 16.4% 04/2029 N
Total/Wtd. Avg. n/a 728,460 100.0% $23.71 100.0% n/a n/a
The collateral was built-to-suit for Vadata Inc. (Vadata), a wholly owned subsidiary of Amazon. Vadata is the data center arm of AWS and conducts cloud computing services for the technology giant. Amazon invested approximately $3.9 billion ($3,300 psf ) to construct the Manassas and Ashburn data centers. Nearly $1.5 billion ($1,300 psf ) of Amazon’s investment was spent on installing state-of-the-art HVAC equipment, fiber connectivity, UPS batters and power generators. The remaining $2.4 billion ($2,000 psf ) was dedicated to installing racks, servers and cabling, all of which are personal property of the tenant. The collateral is part of a push by AWS to build nearly two million sf of data center space in Northern Virginia. AWS accounts for more than 10.0% of the company’s overall net sales and has notable clients that include McDonald’s, NASA and Salesforce, among others.
SPONSORSHIP The loan is sponsored by Blackstone Real Estate Investment Trust (BREIT), the New York-based, multinational private equity firm. The Blackstone Group, the sponsor’s parent company, is currently the largest alternative firm in the world with specialties in private equity, credit and hedge fund investment strategies. The sponsor has greater than $159.0 billion in total asset under management as of Q1 2019 and has real estate investments in all asset classes, including office, retail,
Structured Finance: CMBS 80 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
POWERED SHELL PORTFOLIO - MANASSAS – MANASSAS, VIRGINIA hospitality, industrial and residential, among others. BREIT has a global portfolio with assets across the risk spectrum from those that are opportunistic in nature to core/core-plus properties.
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS inspected the exterior of the property on Tuesday, July 16, 2019, at approximately 10:00 a.m. Based on the site inspection and management meeting, DBRS found the property quality to be Average.
DBRS conducted an exterior inspection of the collateral but was unable to tour the interior of the property due to security reasons. The collateral consists for four Tier 3+/4 powered shell data centers in Manassas, Virginia, approximately 28.0 miles southwest of downtown Washington D.C. The immediate surrounding is minimally infilled and largely agricultural in nature. The entrance to collateral is along Bethlehem Road, a quiet rural road that connects with several of the area’s major thoroughfares. I-66, which connects downtown Washington D.C. with its western suburbs, and Virginia State Route 234, which services southwestern Washington D.C. communities, are both accessible within 1.5 miles of the subject. Of note, the Power Shell Portfolio in Ashburn, Virginia, which is also leased to Vadata, is located approximately 18.0 miles north.
Manassas DC-18 and Manassas DC-20 are both 215,650 sf buildings, while Manassas DC-19 and Manassas DC-23 are each 148,580 sf properties. The powered shell data center buildings have white and gray concrete exteriors with blue accents and flat roofs. All of the buildings are windowless and relatively non-descript; these features are typical for data centers because having windows jeopardizes security and increases the need for essential cooling capacity. The facility has a gated entrance along Bethlehem Road and a 24-hour guard booth controlling access to the site. The exteriors displayed minimal deferred maintenance, as they are newly constructed assets. The facilities have surface-level parking lots, and there few signs of cracking and spalling in the asphalt.
Structured Finance: CMBS 81 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
POWERED SHELL PORTFOLIO - MANASSAS – MANASSAS, VIRGINIA
DBRS NCF SUMMARY
NCF ANALYSIS
Issuer NCF DBRS NCF NCF Variance
GPR $8,561,540 $7,567,333 -11.6%
Recoveries $85,615 $1,831,455 2039.2%
Other Income $0 $0 0.0%
Vacancy -$264,099 -$704,909 166.9%
EGI $8,383,057 $8,693,879 3.7%
Expenses $85,615 $1,831,455 2039.2%
NOI $8,297,442 $6,862,424 -17.3%
Capex $42,222 $304,606 621.4%
TI/LC $176,549 $145,692 -17.5%
NCF $8,078,671 $6,412,126 -20.6%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $6,412,126, representing a -20.6% variance from the Issuer’s NCF of $8,078,671. The primary drivers of the variance are the GPR, vacancy and TI/LCs. DBRS is accepting the contractual rent steps through February 2020. By comparison, the Issuer is doing a present value calculation for the rent steps through each of the four lease terms, establishing an approximate $994,000 variance on the rent steps alone. DBRS assumed a 7.5% vacancy rate to the collateral given that it is occupied by a single tenant. Lastly, DBRS applied TIs of $1.00 psf and $0.50 psf for new and renewal leases, respectively, and LCs of 6.0% and 3.0% for new and renewal leases, respectively, across all four properties.
DBRS VIEWPOINT Northern Virginia holds a majority of the data centers in the United States due in part to its strategic geographic location and the strong economic and political pull of the area. State and local governments offer incentives to data centers and rates from the local electric utility, Dominion Power, are more competitive than in other areas. Northern Virginia has established itself as the world’s largest data center hub, with Loudon County colloquially referred to as Data Center Alley. More than 70.0% of the all internet traffic worldwide runs through this region, as the area has low-latency connections to the national fiber network backbone, low-cost local power sources and minimal exposure to potential natural disasters. Large data center operators and users such as Amazon, Google, Microsoft and Facebook continue to drive the market demand by requesting for increased capacity.
Data centers have extraordinarily high upfront construction costs due to their unique and expensive specifications, so it would be difficult to convert to collateral into another usage type. If Vadata were to vacate the facilities, the sponsor would likely search for another prospective data center user to take occupancy of the collateral. Given Amazon’s substantially high upfront investment of approximately $3.9 billion, there is comfort that the tenant is invested in the collateral for the long haul. The portfolio is mission-critical space to Amazon’s web services operations, as AWS’s East Coast cloud computing infrastructure depends upon the operations of these data centers. Amazon, an investment-grade company, has made a strong push into the North Virginia market with plans to invest in nearly two million sf of data center facilities. Therefore, even though the leases all expire prior to the loan’s maturity date, the collateral appears to have long-term tenant stability.
In addition to the investment from Amazon, the available power supply of 159.6 MW for the four buildings is at the high end of the range of power, which reduces the risk of obsolescence over time. Even as computing power increases and reduces the need for space, electricity and power infrastructure are critical inputs for data centers and can be costly to increase.
Structured Finance: CMBS 82 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
POWERED SHELL PORTFOLIO - MANASSAS – MANASSAS, VIRGINIA
DOWNSIDE RISKS –– The loan is full-term IO. –– The portfolio is 100% leased to a single tenant.
STABILIZING FACTORS –– The transaction is relatively low leverage with an LTV of 55.9% based on the appraised value of $150.0 million. –– Amazon, an investment-grade company, guarantees all of Vadata’s leases and has an approximate market capitalization of $851.5 billion.
Structured Finance: CMBS 83 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Millennium Park Plaza Chicago, Ilinois
Loan Snapshot Seller GSMC Ownership Interest Fee Simple Trust Balance ($ million) $30.0 Loan psf/Unit $375 Percentage of the Pool 2.8% Loan Maturity/ARD August 2029 COLLATERAL SUMMARY Amortization n/a DBRS Property Type Multifamily Year Built/Renovated 1982/2015 Issuance DSCR City, State Chicago, IL Physical Occupancy 99.2% 2.01x Units 557 Physical Occupancy Date May 2019 Issuance LTV 68.5% Balloon LTV This loan is secured by the borrower’s fee simple interest in Millennium Park Plaza, a 65.8% 38-story 557-unit multifamily high rise situated just north of Millennium Park along Michigan Avenue in downtown Chicago. The collateral additionally features 85,017 DBRS Property Type Multifamily sf of office/telecommunications (telecom) space that is spread throughout Floors 2 DBRS Property Quality through 7 and 18,450 sf of ground-floor/mezzanine-level retail space. The remaining Average floors house property amenities and residential units, though a select number of Debt Stack ($ million) office/telecom units are spread throughout the residential portion of the building Trust Balance on Floors 8 through 38. The collateral’s residential portion was 99.2% occupied as of $30.0 May 2019 and has reported annual occupancy rates in excess of 97.0% since 2015. As Pari Passu of loan closing, the collateral’s office and retail subsections were approximately 99.0% $180.0 and 75.6% occupied, respectively. The collateral was previously securitized as part of B-Note WBCMT 2005-C20 with an initial trust balance of $140.0 million, which represented $0.0 an issuance LTV of 80.0% based on the property’s then-current appraised value of Mezz $175.0 million. The previous loan was paid in full at maturity in August 2015. Regarding $0.0 the transaction at hand, loan proceeds of $210.0 million refinanced $208.0 million of Total Debt existing debt on the property, covered $1.0 million of closing costs associated with the $210.0 transaction and funded an upfront replacement reserve of $1.0 million to cover ongoing Loan Purpose capital improvement expenses at the property over the course of the loan term. The Refinance ten-year loan is full-term IO and represents an LTV of 65.8% based on the property’s Equity Contribution/ (Distribution) ($ million) June 2019 appraised value of $319.0 million. Of the $210.0 million whole-loan amount, $0.6 $30.0 million will be contributed to the GSMS 2019-GC42 trust. The controlling $70.0 million note was contributed to CGCMT 2019-GC41 and the remaining $110.0 million is to be divided among alternative pari passu notes and contributed as part of future CMBS transactions.
Structured Finance: CMBS 84 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
MILLENNIUM PARK PLAZA – CHICAGO, IL
The collateral was originally constructed in 1982 and underwent renovations between 2005 and 2010, during which time the sponsor gut-renovated all 557 residential units, redesigned the six floors of shared office/telecom space and implemented new modern amenity offerings. Between 2012 and 2017, the sponsor invested an additional $20.0 million into the property to complete redesigning the building lobby, build out a new on-site management/leasing office and add nearly 20,000 sf of ground-floor retail space along the heavily-trafficked Michigan Avenue. The property now features an abundance of common amenities, including a modernized fitness center complete with locker rooms, an indoor pool located on the 38th floor with sprawling views of the surrounding cityscape, a rooftop deck that also provides sweeping views of the surrounding cityscape, a business center, a conference room for on-site office tenants, a tenant lounge and an on-site concierge service. The collateral additionally offers valet parking services via its 200-stall underground parking garage. Per management, residential and office tenants share all common amenities spaces. All residential units feature hardwood floors, full kitchens with modern appliance packages and wood cabinetry. All units are also equipped with Internet and satellite services, which are included in the base rent as amenities. Select units feature dining areas, oversized closets and/or views of Millennium Park. The subject’s unit breakdown consists of 66 studio units averaging 487 sf, 263 one-bedroom units averaging 670 sf, 125 two-bedroom units averaging 983 sf and 103 three-bedroom units averaging 1,218 sf. Per the rent roll dated May 2019, the subject’s studio, one-bedroom, two-bedroom and three-bedroom units achieved average monthly rental rates of $1,609; $1,837; $2,657; and $3,357, respectively.
COMPETITIVE SET
Year Built/ Property Location Distance from Subject Units Renovated Occupancy
200 Squared Chicago, IL 0.6 miles 329 1964/2011 100.0%
420 East Ohio Chicago, IL 1.0 miles 263 1990/2017 95.0%
Lake Shore Plaza Chicago, IL 1.0 miles 567 1986 92.0%
McClurg Court Chicago, IL 0.9 miles 1061 1972/1985 87.9%
Columbus Plaza Chicago, IL 0.5 miles 534 1980 94.4%
Millennium Park Plaza Chicago, IL n/a 557 1982/2015 99.2%
* Per Appraisal.
The appraisal identified five competitive properties within a 1.0-mile radius of the collateral. At the time of DBRS inspection, management indicated that the collateral distinguished itself by offering below-market rents relative to the abundance of surrounding multifamily supply. Per the appraisal, monthly rents across the competitive set averaged $1,789; $1,948; $2,797; and $3,683 for studio, one-bedroom, two-bedroom and three-bedroom units, respectively. Though considerably dated, the collateral’s vintage is generally in line with its identified competitive set, and the subject has benefited from more recent renovations than all but one of the appraisal-identified competitors (420 East Ohio). While the appraisal identified several new residential developments under construction in the downtown Chicago area, the new developments are primarily Class A luxury towers with considerably higher asking rents indicative of divergent renter pools.
The collateral is located in The Loop submarket of the greater Chicago metropolitan area. Reis reported an average asking rent and submarket vacancy rate of $2,266 and 7.4%, respectively, for The Loop submarket as of Q1 2019. For properties of similar vintage as the collateral (properties constructed between 1980 and 1989), Reis reported a more favorable asking rent and vacancy rate of $2,322 and 6.3%, respectively. The collateral is somewhat dated for its submarket, as evidenced by only 31.0% of submarket inventory having been constructed before 1989 and 48.0% of submarket inventory having been constructed after 2009 as of Q1 2019. Reis forecasts The Loop will experience an annualized inventory growth rate of 1.6% over the five-year period ending 2023, representing a dramatic shift from the annualized 5.8% growth rate exhibited over the five-year period ending December 2018. Reis estimates absorption to maintain a balanced pace with
Structured Finance: CMBS 85 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
MILLENNIUM PARK PLAZA – CHICAGO, IL new construction throughout The Loop subject over the five-year period ending December 2023, ultimately inducing a decline in submarket vacancy rates with average asking rents forecast to grow an average of 1.3% annually over the same period. As the submarket appears to be predominantly Class A product, the collateral’s Class B/C status makes it uniquely equipped to offer competitive rental rates for tenants who would otherwise be priced out of The Loop submarket.
TENANT SUMMARY
DBRS UW % of Total Gross Rent DBRS UW Tenant SF % of Total NRA PSF Gross Rent Lease Expiry
Ferrero USA Inc 2,785 2.7% 202.50 10.0% 05/2027
Centurylink,Inc. 9,128 8.8% 45.47 7.4% 09/2023
Broadwing Communications 6,000 5.8% 66.00 7.1% 07/2019
Stan's Donuts 2,058 2.0% 171.82 6.3% 05/2027
Nandos Of Michigan Ave LLC 4,055 3.9% 75.22 5.4% 10/2032
Gps Millennium Park LLC Garrett Popcorn 1,540 1.5% 169.79 4.7% 10/2024
Pb Restaurants LLC 1,476 1.4% 134.48 3.5% 12/2024
Angelini & Ori LLC DBA Angelini Ori Abate Law 3,900 3.8% 36.58 2.5% 11/2025
Hat World Inc 809 0.8% 174.84 2.5% 12/2024
Davids Tea(Usa) Inc 777 0.8% 175.05 2.4% 11/2024
Subtotal/Wtd. Avg. 32,528 31.4% 28.16 51.9% Various
Other Tenants 57,083 55.2% 47.35 48.1% Various
Vacant Space 13,856 13.4% n/a n/a n/a
Total/Wtd. Avg. 103,467 100.0% 54.28 100.0% Various
Per the rent roll dated May 31, 2019, the collateral’s retail, office and telecom subsections were approximately 9.4%, 0.3% and 0.0% economically vacant, respectively. The collateral’s office component benefits from a highly granular rent roll, comprising 113 leases with no single tenant accounting for more than 6.0% of total office NRA or 5.4% of total office base rent. Office suites range in size from 100 sf to 3,900 sf with an average suite size of only 570 sf across the property. The collateral’s telecom subsection comprises 14 tenant leases, eight of which entail physically occupied space. The largest telecom tenant, CenturyLink, represents 44.4% of telecom space and 8.8% of the collateral’s non-residential NRA. Retail tenants comprise the majority of the ten largest tenants at the property, accounting for only 17.8% of total NRA but 35.5% of total DBRS Gross Rent. Nearly all of the collateral’s retail tenants feature frontage along Michigan Avenue, providing excellent exposure to the city’s downtown foot traffic. Given the relatively short-term nature of the tenant leases, the collateral exhibits moderate exposure to near-term lease rollover concentrations. In the first five years of the loan term, more than 100 leases, representing 68.2% of the property’s total NRA and 61.2% of the total DBRS Base Rent, are scheduled to roll. The collateral’s retail subsection is particularly vulnerable to lease rollover concentrations, with four leases representing 24.9%/33.4% of the property’s total retail NRA/DBRS Gross Retail Rent scheduled to roll at the end of 2024 and two leases representing 26.2%/41.6% of total retail NRA/DBRS Gross Retail Rent scheduled to roll in May 2027.
SPONSORSHIP The sponsor for this transaction is Donal P. Barry, Sr., of BJB Partners (BJB), a family-owned investment management company specializing in the acquisition, renovation and repositioning of multifamily properties throughout the greater Chicago metropolitan area. As of loan closing, BJB’s portfolio was valued at approximately $1.7 billion and included 80 assets comprising more than 6,000 apartment units; 200,000 sf of retail space; and more than 200,000 sf of office space.
Structured Finance: CMBS 86 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
MILLENNIUM PARK PLAZA – CHICAGO, IL
The sponsor, Donal P. Barry, Sr., reported a net worth and liquidity of $280.7 million and $27.4 million as of January 2019, respectively. Property management services are provided by Millennium Park Living, Inc., an affiliate of BJB, for a contractual rate equal to 3.0% of the collateral’s annual EGI. All management fees are subordinate to the collateral’s debt service payments.
DBRS ANALYSIS SITE INSPECTION SUMMARY DBRS toured the interior and exterior of the property on Tuesday, July 16, 2019, at approximately 10:30 a.m. Based on the site inspection, DBRS found the property quality to be Average.
The collateral consists of a 38-story 557-unit multifamily high rise that is conveniently located on the east side of The Loop in downtown Chicago. The collateral additionally includes 85,017 sf of office/telecom space that is spread throughout Floors 2 through 7 and 18,450 sf of ground-floor/mezzanine-level retail space. The property is situated just south of The Magnificent Mile along Michigan Avenue, which provides excellent visibility and above-average foot-traffic exposure for the subject’s ground-floor retail storefronts. The property additionally benefits from proximity to Millennium Park, which is located directly adjacent to the property’s south and features such attractions as the Jay Pritzker Pavilion (which is known to host free movies and concerts in the summer), McCormick Tribune Plaza (which is converted into an ice-skating rink during the winter season) and the Cloud Gate (which is commonly recognized as Chicago’s infamous Bean). The property’s location provides excellent commutability with several access points to Chicago’s public Chicago Transit Authority (CTA) system located within a few-blocks radius and a CTA bus stop located directly out front of the collateral’s Michigan Avenue lobby entrance. The property’s location also provides a well-rounded variety of retail, dining and entertainment options. Given its location in the heart of downtown Chicago, the collateral’s surrounding area is densely infilled by a number of alternative office and residential high rises with similar ground-floor retail layouts. Relative to immediately surrounding buildings such as Prudential Plaza and Michigan Plaza, the collateral is relatively unpronounced but showed well at the time of DBRS inspection. Per management, Chicago’s East Loop has undergone an influx of new multifamily supply in recent years. However, management indicated that the new supply is predominantly Class A in nature and non-competitive with the collateral given the subject’s generally below-market-rent offerings.
The collateral was originally constructed in 1982 and features a brick and masonry exterior facade with ground-floor retail spaces lining the westernmost base along Michigan Avenue. The ground-floor retail spaces featured well-pronounced signage and appeared well-built-out with a variety of finish qualities at the time of DBRS inspection. The collateral featured a small entry lobby along Michigan Avenue as well, though a separate lobby with access to the subject’s office and residential floors is alternatively accessible along North Beaubien Court to the property’s east. The lobby along
Structured Finance: CMBS 87 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
MILLENNIUM PARK PLAZA – CHICAGO, IL
North Beaubien Court serves as the primary office and retail access point and featured a tenant/guest reception desk with a full-time attendant. The lobby was well finished, featuring modern wood paneling and tasteful steel accents. The collateral’s office spaces were generally spread throughout Floors 2 through 7 and featured a variety of finishes inclusive of either tile, vinyl wood plank or carpeted flooring; custom lighting accents; drop-tile acoustic ceilings; and glass doors. Most tenant suites were relatively small, as management indicated that the property predominantly catered to tenants seeking suites of fewer than 1,000 sf. All office floors featured open kitchen areas for shared use, and the seventh floor additionally featured an executive conference room with two smaller break-out conference rooms available for tenant use. The collateral’s residential units generally began on the eighth floor and spanned upward to the 38th floor, where the subject’s modern fitness center and indoor swimming pool are located. Unit finishes appeared to be consistent throughout the property and generally featured hardwood flooring with tiled flooring in the kitchens, stainless steel appliances and wood cabinetry. Select units featured oversized closets, carpeting in the bedroom areas and/or views of Millennium Park. Additional property amenities include a sundeck with views of Millennium Park and the surrounding cityscape, a business center, on-site laundry facilities and several study rooms. The property also offers valet parking services in an underground parking garage that is accessible from Lower Beaubien Court. Overall, the property was excellently located and appeared relatively well maintained at the time of DBRS inspection.
DBRS NCF SUMMARY
NCF ANALYSIS
NCF 2016 2017 2018 T-12 May 2019 Issuer NCF DBRS NCF Variance
GPR $18,722,175 $19,642,079 $20,836,035 $14,972,622 $15,260,112 $15,260,112 0.0%
Other Income $754,502 $767,780 $939,866 $7,222,056 $7,150,912 $6,371,290 -10.9%
Vacancy & Concessions $0 $0 $0 $0 $0 -$961,387 100.0%
EGI $19,476,677 $20,409,859 $21,775,900 $22,194,678 $22,411,024 $20,670,014 -7.8%
Expenses $5,920,924 $6,198,041 $6,410,039 $6,549,845 $6,752,423 $6,806,564 0.8%
NOI $13,555,753 $14,211,818 $15,365,862 $15,644,833 $15,658,602 $13,863,451 -11.5%
Capex $0 $0 $0 $0 $11,400 $70,290 516.6%
TI/LC $0 $0 $0 $0 $0 $324,995 100.0%
NCF $13,555,753 $14,211,818 $15,365,862 $15,644,833 $15,647,202 $13,468,166 -13.9%
The DBRS NCF is based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $13,468,166, representing a -13.9% variance from the Issuer’s NCF of $15,647,202. The primary drivers of the variance included residential vacancy, commercial vacancy, leasing costs, mark-to-market rent adjustments and replacement reserves.
DBRS estimated a 6.3% residential vacancy loss at the property compared with the Issuer’s estimate of 0.0%. Per Reis, the collateral’s submarket exhibited an average vacancy rate of 7.4% as of Q1 2019, though properties of similar vintage to the collateral exhibited a slightly tighter average vacancy rate of 6.3%. Reis forecasts continued absorption throughout the collateral’s submarket, in addition to a decline in new supply deliveries, to cause submarket vacancy rates to fall as low as 5.2% by YE2023, and the collateral operated in excess of 97.0% occupancy annually over the three-year period ending December 2018. DBRS estimated a blended commercial vacancy rate of 12.8% for the collateral’s retail, office and telecom space compared with the Issuer’s 0.0% vacancy estimate. The DBRS Blended Commercial Vacancy Rate was based on the utilization of a 14.6% office and telecom vacancy rate and a 10.0% retail vacancy rate. The DBRS office/telecom vacancy rate was generally in line with the Reis-reported submarket vacancy rate of 14.6% as of Q1 2019. While the collateral’s office space was approximately 99.2% occupied as of loan closing, Reis reported a relatively high submarket vacancy rate of 22.3% for alternative Class B/C office properties within the East Loop office submarket. The DBRS retail vacancy rate
Structured Finance: CMBS 88 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
MILLENNIUM PARK PLAZA – CHICAGO, IL of 10.0% was generally in line with the collateral’s in-place economic vacancy of 9.4% reported as of loan closing. DBRS applied blended TI/LCs of $0.58 psf, while the Issuer did not estimate any leasing cost deductions. DBRS generally based retail leasing costs on the appraisal and applied new/renewal TIs and LCs of $3.0 and $1.5 psf p.a. and 5.0% and 2.5%, respectively, for all office-space types. DBRS applied total rent markdown adjustments of $238,134, with the largest adjustments attributed to CenturyLink, Broadwing Communications and Ferrero USA Inc. The majority of the DBRS rent-markdown adjustments were concentrated throughout the collateral’s office spaces fewer than 100 sf and telecom spaces, for which DBRS estimated annual market rents of $49.50 psf and $60.00 psf, respectively. DBRS, lastly, estimated total replacement reserves of $170,290 based on a blended cost of $250 per residential unit and $0.30 psf for all retail, office and telecom space. The Issuer estimated total replacement reserves of $111,400.
DBRS VIEWPOINT The collateral is exceptionally well located along Michigan Avenue, which provides superb exposure to the collateral’s ground-floor retail spaces. The collateral’s downtown location additionally provides exceptional commutability to residential and office tenants, as well as proximity to a plethora of downtown retail, dining and entertainment offerings. The collateral’s residential submarket has undergone a significant influx of new supply in recent years, as evidenced by the Reis-reported annualized inventory growth rate of 6.2% over the three-year period ending December 2018. However, per management, much of the new supply added to the collateral’s submarket has been predominantly Class A product that is relatively non-competitive. Though the subject is relatively dated compared with its submarket (as evidenced by 69.0% of inventory having been constructed after 2000), the subject underwent full-gut renovations between 2005 and 2010. Additionally, per management, the subject serves as an average-quality product at a lower price point, which is unique to the submarket and has enabled the subject to maintain strong occupancy figures historically. Per Reis, the collateral’s office submarket exhibited a relatively high average vacancy rate of 14.6% as of Q1 2019, with Class B/C office product reporting an even wider submarket vacancy rate of 22.3% over the same period. However, management indicated that the collateral’s average office suite size of 570 sf is a competitive advantage, as it distinguishes it from traditional office space that is more prevalent in the submarket. This is supported by the fact that, at loan closing, the property’s office space was approximately 99.7% occupied. The loan is moderately leveraged with an issuance LTV of 65.8% based on the property’s June 2019 appraised value of $319.0 million. The transaction represents cash neutral financing with no cash equity being returned to the borrower at loan closing.
DOWNSIDE RISKS –– The loan is full-term IO. –– The collateral exhibits relatively high near-term lease rollover concentrations with more than 100 leases, representing approximately 68.2% of the property’s total NRA and 61.2% of the total DBRS Base Rent, scheduled to roll within the first five years of the loan term. The collateral’s retail subsection is particularly vulnerable to lease rollover concentrations, with four leases representing 24.9%/33.4% of the property’s total retail NRA/DBRS Gross Retail Rent scheduled to roll at the end of 2024 and two leases representing 26.2%/41.6% of total retail NRA/DBRS Gross Retail Rent scheduled to roll in May 2027.
STABILIZING FACTORS –– The loan represents cash-neutral financing and exhibits a relatively high DBRS Issuance DSCR of 1.72x, which is indicative of decreased default frequency. –– The collateral benefits from a relatively granular rent roll, comprising nearly 140 separate leases with no individual tenant accounting for more than 8.8% of total NRA or 9.1% of total DBRS Gross Rent. On average, each tenant accounts for approximately 0.8% of the property’s total NRA and 0.7% of total DBRS Gross Rent. Furthermore, though the collateral is especially prone to retail lease rollover concentrations, DBRS believes that the collateral’s prominent location along Michigan Avenue in downtown Chicago will continue to be highly conducive to retail business operations and, in turn, will continue to elicit demand from future prospective tenants.
Structured Finance: CMBS 89 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Pharr Town Center Pharr, TX
Loan Snapshot Seller GACC Ownership Interest Fee Simple Trust Balance ($ million) $30.0 Loan psf/Unit $140 Percentage of the Pool 2.8% Loan Maturity/ARD August 2029 COLLATERAL SUMMARY Amortization 30 Years DBRS Property Type Retail Year Built/Renovated 2013/2019 Issuance DSCR City, State Pharr, TX Physical Occupancy 97.3% 1.36x SF 437,815 Physical Occupancy Date June 2019 Issuance LTV 67.1% Balloon LTV This loan is secured by the borrower’s fee-simple interest in Pharr Town Center, 58.6% a 437,815-sf anchored retail shopping center located in Pharr, Texas. Originally constructed in 2013 and recently renovated in 2019, the subject collateral spans five DBRS Property Type Retail single-story buildings situated on a 48.6-acre site. The ten-year loan is IO for the initial DBRS Property Quality 36 months and then amortizes over a 30-year period. Loan proceeds of $70.0 million, Average along with $9.2 million of sponsor equity, refinanced $77.5 million of existing debt and Debt Stack ($ million) funded $1.5 million in closing costs. Trust Balance $30.0 The subject property is leased to numerous prominent retailers, including large fashion Pari Passu outlets, restaurants, home goods stores and a major cinema, among others. As of June $40.0 2019, the subject property was 97.3% occupied by a roster of 30 tenants with just two B-Note vacant units. The average tenancy at the subject is 11.8 years. Rollover within the $0.0 loan term is most concentrated in 2028 when 36.4% of the total NRA is set to expire. Mezz Additionally, approximately 66.3% of the total NRA is scheduled to expire within $0.0 the loan term, including the property’s second-largest tenant, Cinemark USA, Inc. Total Debt (Cinemark), which has been at the subject since it was developed in 2013. Cinemark $70.0 reported sales at the subject property of $16.0 million ($252 psf; $1.0 million per Loan Purpose screen) in 2018, which is more than double its national average of $6.4 million. The Refinance theater has premium features, including leather reclining seats, event space and a bar. Equity Contribution/ (Distribution) ($ million) The tenant originally signed a 15-year lease that is set to expire in December 2028. The $9.2 property’s largest tenant, Academy Sports + Outdoors (Academy Sports), has been in occupancy at the subject since 2016 and has a lease expiration in March 2031. Main Event Entertainment, LP (Main Event) is a large entertainment facility that offers various activities, including bowling, arcade games, laser tag, billiards and miniature golf. The tenant, which is the third largest at the subject, has event and meeting spaces
Structured Finance: CMBS 90 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
PHARR TOWN CENTER – PHARR, TX along with F&B offerings. Other notable tenants at the property include Ross Dress for Less, T.J. Maxx, Buy Buy Baby, Jo-Ann Fabrics and Crafts (Jo-Ann), Sears and Chipotle.
The property expanded in phases after construction and the overall property was completed by 2017. As a result of the sponsor’s capital improvement efforts, the subject property benefits from annual Chapter 380/381 additional income worth $500,900. The state’s local Chapter 380 authorizes the governing body of a municipality to make loans and grants of public money to promote state or local economic development and to stimulate business. This agreement with the municipality commenced in 2015 and extends through December 31, 2029.
TENANT SUMMARY
DBRS Base % of Total DBRS Tenant SF % of Total NRA Rent PSF Base Rent Lease Expiry Total Sales Sales PSF
Academy 71,821 16.4% $17.28 15.0% 3/31/2031 $19,966,238.00 $278.00
Cinemark 63,504 14.5% $15.50 11.9% 12/31/2028 $16,000,000.00 $251.95
Main Event 58,000 13.2% $18.99 13.3% 8/31/2029 $8,990,000.00 $155.00
Ross Dress for Less 28,000 6.4% $18.49 6.1% 1/31/2028 $12,992,000.00 $464.00
Buy Buy Baby 25,056 5.7% $13.99 4.2% 1/31/2028 $5,011,200.00 $200.00
Subtotal/Wtd. Avg. 246,381 56.3% $17.03 50.5% n/a $62,959,438.00 $143.80
Other Tenants 179,602 41.0% $22.82 49.5% various n/a n/a
Vacant Space 11,832 2.7% n/a n/a various n/a n/a
Total/ Wtd. Avg. 437,815 100.0% $18.97 100.0% various n/a n/a
Several tenants have go-dark, co-tenancy and/or termination clauses built into their leases. The property’s go-dark clauses allow the tenants to go dark for a period ranging from 60 days to 180 days prior to the landlord recapturing the space. The tenants with go-dark clauses are Academy Sports, Cost Plus World Market (Cost Plus), Buy Buy Baby, Jo-Ann, Sears, Five Below, Main Event, Ross Dress for Less, Bealls, T.J. Maxx, Chipotle and T-Mobile. In the event that less than four anchor tenants are open for business at the subject for a period of 90 days, Five Below’s minimum rent will decrease to 50.0% of the current minimum rent level. If this period lasts for 18 months, Five Below has the right to terminate its lease. Additionally, T.J. Maxx will be entitled to an alternate minimum rent of 2.0% of gross sales and/or the option to terminate its lease if the property’s occupancy level drops below 50.0% or if less than two of the following tenants are not in place: Academy Sports, Buy Buy Baby, Cost Plus, Ross Dress for Less, Crunch Fitness and/or Bealls.
The subject property is located within the Pharr retail submarket or the McAllen-Edinburg-Mission MSA, which had an overall vacancy rate of 5.0% in Q1 2019, per the appraisal. The appraisal identified six competitive retail properties, only four of which are located within an approximate ten-mile radius of the collateral. For information on how the subject compares with its competitive set, please refer to the table below.
SPONSORSHIP The sponsor and non-recourse carveout guarantor for this transaction is Herbert Lawrence Levine, president of Levcor Inc., a real estate investment firm which specializes in retail assets, including repositioning distressed malls and neighborhood shopping centers. The sponsor has over 30 years of experience as an active market participant involved in the leasing, management and development of over 25 million sf of both office and retail properties. No history of delinquency or any other credit issues were reported by the sponsor.
Structured Finance: CMBS 91 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
PHARR TOWN CENTER – PHARR, TX
DBRS ANALYSIS SITE INSPECTION SUMMARY
Based on the DBRS site inspection and management meeting conducted on July 16, 2019, DBRS found the property quality to be Average.
The subject is well located off U.S. Hwy. 83 along the northeast corner of Center Avenue and Jackson Road. U.S. Hwy. 83 (I-2) is a major east-west thoroughfare that runs east into Harlingen, Texas, and west to McAllen, Texas. Located directly east of the subject is Route 281, a major roadway that leads south into Mexico via the Pharr–Reynosa International Bridge crossing. The U.S. Customs and Border Protection facility sits just north of the border with the border located approximately 10.0 miles south of the subject property. The property’s surrounding area consists of mainly retail developments with a few office and industrial properties. The local retail market is healthy as evidenced by a large number of shopping centers, restaurants, independent shops and national retailers within a 2.0-mile radius of the subject. Las Tiendas is a 143,758-sf shopping center located 1.5 miles southwest of the subject property. The shopping center is anchored by Academy Sports, Ross Dress for Less and Marshalls with key tenants, such as Office Depot and Party City. Other notable retailers in the area include Walmart, Costco, Target, Best Buy, Sam’s Club and Burlington Coat Factory and many fast-food and casual dining restaurants.
The subject is a 437,815-sf power center occupied by a total roster of 30 tenants. The property has two vacant spaces, the largest of which is 8,505 sf while total vacant square footage totals 11,832 sf. The property spans five single-story buildings that were originally built between 2013 and 2017. The exterior of the buildings is composed of tilt walls over concrete frames. The property exhibits above-average curb appeal for its space type as a result of its recent build. The property has three outparcels that includes Chipotle, T-Mobile and Gloria Jean’s Coffees. Parking is provided by a large surface parking lot located in front of tenant spaces. At the time of DBRS’s inspection, the lot was half full, which was typical given the early time of day. The property’s largest tenant and anchor, Academy Sports, is a sports retailer that has over 200 stores across the United States. DBRS toured the interior of Academy Sports and found the space to be well kept with properly stocked shelves. Other anchor tenants include Cinemark, Ross Dress for Less and T.J. Maxx, which are among the five-largest tenants at the property. Cinemark, which has been at the property since it was constructed in 2013, is one of the top-performing stores of its brand and was rather busy at the time of DBRS’s inspection. Other notable tenants at the property include Main Event, Buy Buy Baby, Jo-Ann, Sears and Chipotle, among others. Landscaping was in fair condition with potted plants and mature trees in the parking lot as well as between buildings. Overall, the property was in good condition with no deferred maintenance visible.
Structured Finance: CMBS 92 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
PHARR TOWN CENTER – PHARR, TX
DBRS NCF SUMMARY
NCF ANALYSIS
2018 T-12 May 2019 Issuer NCF DBRS NCF NCF Variance
GPR $5,440,486 $5,510,883 $6,192,455 $6,033,452 -2.6%
Recoveries $2,283,014 $2,349,633 $2,559,037 $2,557,195 -0.1%
Other Income $559,154 $715,744 $638,921 $625,900 -2.0%
Vacancy $0 $0 -$437,575 -$685,690 56.7%
EGI $8,282,654 $8,576,261 $8,952,839 $8,530,857 -4.7%
Expenses $2,827,010 $2,873,627 $2,942,618 $2,980,402 1.3%
NOI $5,455,644 $5,702,634 $6,010,221 $5,550,455 -7.6%
Capex $0 $0 $52,538 $87,563 66.7%
TI/LC $0 $0 $218,908 $496,475 126.8%
NCF $5,455,644 $5,702,634 $5,738,775 $4,966,417 -13.5%
The DBRS NCF was based on the DBRS North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $4,966,417, which represents a -13.5% variance from the Issuer’s NCF. The main drivers of the variance are TI/LCs and vacancy. DBRS concluded TI/LCs based on guidance from the appraiser’s market leasing assumptions, which amounted to $1.13 psf compared with the Issuer’s concluded assumption of $0.50 psf. The Issuer concluded a 5.0% vacancy rate, which is based on its assumption of submarket levels, whereas DBRS used a 8.0% blended vacancy based on 5.0% for the anchor spaces and 10.0% for the in-line and pad-lease spaces.
DBRS VIEWPOINT The collateral benefits from a favorable location off a major interstate within a small, established neighborhood in Pharr. Pharr is considered a good growth area with a vibrant retail sector that is driven by the large influx of shoppers from Mexico who cross the nearby border. The subject has convenient access to major local arteries and demand drivers in the area. The subject’s retail submarket has very strong fundamentals with an average overall vacancy rate of 5.0%, according to the appraisal. As of the June 25, 2019 rent roll, the collateral was 97.3% occupied by 30 national and local tenants, including Academy Sports, Cinemark, Ross Dress for Less and T.J. Maxx. Approximately 66.3% of the total NRA is scheduled to expire within the loan term with rollover most concentrated in 2028 when 36.4% of the total NRA is set to expire. Many of the tenants produce good sales, including Academy Sports, which is the highest-producing store in Texas; Cinemark, which posts sales of approximately $1.0 million a screen; and Ross Dress for Less and T.J. Maxx, which both produce sales of over $400 psf. Additionally, the loan’s 70.0% appraiser LTV is not entirely favorable; however, given that the asset was recently constructed and that it has strong tenancy, it is attractive and fits in well with the surroundings.
DOWNSIDE RISKS –– Several tenants have go-dark and co-tenancy clauses. Tenants with clauses comprise 69.0% of the property’s total NRA and 59.5% of the DBRS Base Rent. Additionally, Sprint has a termination clause in its lease that permits the tenant to terminate in May 2025. –– In the near term, 11% of the property’s NRA will roll by YE2025. Furthermore, while only 20.0% of NRA will roll by 2026, the subject will experience rollover equal to 36.4% of NRA soon after in 2028. Cinemark, the property’s second-largest tenant, is rolling in 2028.
Structured Finance: CMBS 93 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
PHARR TOWN CENTER – PHARR, TX
STABILIZING FACTORS –– The property is very well occupied with an occupancy level of 97.3% as of the June 25, 2019 rent roll. The appraisal has also concluded to a submarket occupancy level of 95.0%, which is reflective of a strong retail market. Although Sprint has a termination option, the tenant is required to provide written notice at least 180 days prior to its intended date of termination. Sprint recently signed a lease at the subject property in May 2018 and has a current lease expiration in 2028. –– The structure of the loan includes a 12-month NCF sweep tied to Cinemark’s lease and an ongoing TI/LC reserve of $0.50 psf with a maximum cap of $1.15 million. When combining the cash flow sweep and the TI/LC reserve, there are no leasing reserve shortfalls during the loan term.
Structured Finance: CMBS 94 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Transaction Structural Features
Credit Risk Retention: This transaction is required to satisfy the risk retention requirements of Section 15G of the Securities Exchange Act. Goldman Sachs Mortgage Company (Goldman) is acting as the retaining sponsor, known as the risk retention consultation party, under the credit risk retention rules. The retaining sponsor is expected to purchase an eligible vertical interest (the VRR Interest) on the closing date with an expected initial certificate balance representing approximately 2.3% of all classes of regular certificates. Goldman will be permitted to offset the amount of its required risk retention by the portions of the VRR Interest acquired by Citi Real Estate Funding Inc. and German American Capital Corporation, as originators of one or more of the securitized assets. Additionally, KKR CMBS II Aggregator Type 1 L.P. (the Retaining Third-Party Purchasers), an affiliate of Kohlberg Kravis Roberts & Co. L.P., is expected to purchase the Class F-RR, Class G-RR and Class H-RR certificates (the HRR Certificates), which will constitute an eligible horizontal residual interest, with an aggregate balance representing approximately 2.7% of all classes of regular certificates.
Operating Advisor: This transaction has an operating advisor that will have consultation rights with the special servicer on major decisions during the period when a control termination event has occurred and is continuing (see definitions below in the Directing Holder Rights section). In addition, the operating advisor will be required to review certain operational activities related to specially serviced loans in general and on a platform-level basis. Furthermore, during these periods, the operating advisor will be required to complete an annual report assessing the special servicer’s performance. The report is to be delivered to the rating agencies, the trustee and the certificate administrator, who will be required to make the report available through its website. After the occurrence and continuance of a consultation termination event (see definitions below in the Directing Holder Rights section), if the operating advisor determines the special servicer is not performing its duties as required under the PSA or is otherwise not acting in accordance with the servicing standard, the operating advisor may recommend the replacement of the special servicer. The operating advisor is entitled to a fee of 0.00147% per annum. The operating advisor is also entitled to a $10,000 fee with respect to each major decision on which it is required to consult, but it is only payable to the extent that it is paid by the related borrower. Other expenses incurred by the operating advisor will be payable from funds on deposit in the collection account out of amounts otherwise available to make distributions on the certificates.
Appraisal Reduction/Realized Loss: Any interest that is not advanced on as a part of the appraisal-reduction mechanism will not be recovered as part of the loan waterfall upon realization of the collateral. Interest not advanced on because of an appraisal reduction will likely be permanent interest impairment if the net proceeds of the loan in question do not exceed the outstanding principal (plus fees) at the time of liquidation. The special servicer shall attempt to obtain the appraisal to be used for appraisal-reduction purposes within 30 days of an appraisal-reduction event. The time frame for an appraisal to be used for appraisal-reduction purposes is no less than nine months.
Pari Passu Loan Combinations: Northpoint Tower, 19100 Ridgewood, New Jersey Center of Excellence and 222 Kearny Street will be serviced pursuant to the PSA for this transaction. The Moffett Towers II Buildings 3 & 4 whole-loan combination will be serviced according to the Trust & Servicing Agreement TSA) for the MFTII 2019-B3B4 single-borrower transaction that was rated by DBRS. The Woodlands Mall whole-loan combination will be serviced according to the PSA for the BMARK 2019-B12 transaction. The Diamondback Industrial Portfolio 1 whole-loan combination will be serviced according to the PSA for the GSMS 2019-GC40 transaction. The USAA Office Portfolio, U.S. Industrial Portfolio V, Powered Shell Portfolio – Manassas, Millennium Park Plaza and Powered Shell Portfolio – Ashburn whole-loan combinations will be serviced according to the PSA for the CGCMT 2019-GC41 transaction. The Pharr Town Center whole-loan combination will be serviced according to the PSA for the CD 2019-CD8 transaction. The 30 Hudson Yards whole-loan combination will be serviced according to the TSA for the HY 2019-30HY single-borrower transaction that was rated by DBRS. The Grand Canal Shoppes whole-loan combination will be serviced according to the PSA for the MSC 2019-H7 transaction. The 105 East 17th Street and Midland Office Portfolio whole-loan combinations will initially be
Structured Finance: CMBS 95 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019 serviced according to the PSA for this transaction until such time as each loan’s controlling note is securitized, at which point servicing will then be according to their respective transaction’s PSA.
Directing Holder/Controlling Class Rights: The transaction’s most subordinate bonds are controlled by the most subordinate bondholders. The directing holder will be the controlling-class certificateholder selected by more than 50.0% of the voting rights for the controlling class. The controlling class is the most subordinate of the Class F-RR, Class G-RR and Class H-RR certificates (the Control Eligible Certificates) outstanding with a principal amount (net of appraisal-reduction amounts) that is at least 25.0% of the initial certificate amount of such class. So long as each of the Class F-RR, Class G-RR and Class H-RR certificates has a principal amount (net of appraisal-reduction amounts) that is at least 25.0% of the initial certificate amount of the respective certificates, the directing holder may terminate the special servicer without cause. A control termination event exists when no class of the Control Eligible Certificates has a principal amount (net of appraisal-reduction amounts) that is at least 25.0% of the initial certificate amount. A consultation termination event will occur when no class of Control Eligible Certificates has an outstanding principal balance that is at least 25.0% of its initial principal balance (ignoring any appraisal-reduction amounts). Prior to a consultation termination event but after a control termination event, the special servicer cannot be replaced, except for cause, and is subject to a vote by all bondholders.
Excluded Special Servicer Loan: If the special servicer becomes a borrower party with respect to any mortgage loan, it will be required to resign. The directing holder (prior to the occurrence and continuance of a control termination event) will be entitled to appoint a special servicer that is not a borrower party with respect to such loan. However, if the controlling-class representative or any majority controlling-class certificateholder is a borrower party of such loan, the largest controlling-class certificateholder (by certificate balance) that is not a borrower party will be entitled to appoint the special servicer for such loan. This mechanism is in place to mitigate conflicts of interest that can arise between the special servicer and/or controlling-class representative in their respective roles within the trust and their roles as borrower parties.
Special Servicing Fees: The liquidation or workout fee is 1.0%, subject to a cap of $1.0 million and further subject to a minimum of $25,000 in the aggregate, less any fees collected by the special servicer in connection with a workout. The special servicer fee is 0.25% per year, subject to a minimum of $5,000 for the month. The special servicer for each non-serviced loan combination will accrue a comparable special servicing fee, with respect to each non-serviced loan combination, pursuant to their respective PSAs. With respect to the Moffett Towers II Buildings 3 & 4 mortgage loan, the liquidation and special servicer fees are lower at 0.25% and 0.125%, respectively, of each applicable payment previously mentioned. With respect to the Woodlands Mall and Diamondback Industrial Portfolio 1 mortgage loans, the liquidation and special servicer fees are identical to each applicable payment previously mentioned, but the monthly minimum special servicing fee of $3,500 is lower than what is required in this transaction’s PSA. With respect to the 30 Hudson Yards mortgage loan, the liquidation and special servicer fees are lower at 0.25% and 0.15%, respectively, of each applicable payment previously mentioned. With respect to the Grand Canal Shoppes mortgage loan, the liquidation and special servicer fees are identical to each applicable payment previously mentioned.
Disclosable Special Servicing Fees: During each collection period, the special servicer is required to provide the certificate administrator with an itemized report of all disclosable special servicing fees. These fees are defined as any compensation or remuneration (including, but not limited to, commissions, brokerage fees, rebates and any fee- sharing arrangement) received or retained by the special servicer or any of its affiliates that is paid in connection with the disposition or workout of the trust mortgage loan (or REO property, in the event of default and foreclosure on the subject property).
Structured Finance: CMBS 96 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Rating Agency Confirmations: If the special servicer becomes a borrower party with respect to any mortgage loan, it will be required to resign. The directing holder (prior to the occurrence and continuance of a control termination event) will be entitled to appoint a special servicer that is not a borrower party with respect to such loan. However, if the controlling-class representative or any majority controlling-class certificateholder is a borrower party of such loan, the largest controlling-class certificateholder (by certificate balance) that is not a borrower party will be entitled to appoint the special servicer for such loan. This mechanism is in place to mitigate conflicts of interest that can arise between the special servicer and/or controlling-class representative in their respective roles within the trust and their roles as borrower parties.
Methodologies
The following are the methodologies DBRS applied to assign ratings to this transaction. These methodologies can be found on www.dbrs.com under the heading Methodologies & Criteria. Alternatively, please contact [email protected] or contact the primary analysts whose information is listed in this report. –– North American CMBS Multi-borrower Rating Methodology –– DBRS North American Commercial Real Estate Property Analysis Criteria –– Rating North American CMBS Interest-Only Certificates ––North American CMBS Surveillance Methodology
Operational Risk Reviews
DBRS reviews loan originators, servicers and operating advisors apart from transaction analytics and determines whether they are acceptable parties.
Surveillance
DBRS will perform surveillance subject to North American CMBS Surveillance Methodology.
Structured Finance: CMBS 97 PRESALE REPORT — GSMS 2019-GC42 SEPTEMBER 2019
Notes: All figures are in U.S. dollars unless otherwise noted.
This report is based on information as of September 10, 2019. Subsequent information may result in material changes to the rating assigned herein and/or the contents of this report.
The DBRS group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings GmbH (Frankfurt, Germany)(CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings Limited (England and Wales)(CRA, NRSRO affiliate, DRO affiliate). For more information on regulatory registrations, recognitions and approvals, please see: http://www.dbrs.com/research/highlights.pdf.
© 2019, DBRS. All rights reserved. The information upon which DBRS ratings and other types of credit opinions and reports are based is obtained by DBRS from sources DBRS believes to be reliable. DBRS does not audit the information it receives in connection with the analytical process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS ratings, other types of credit opinions, reports and any other information provided by DBRS are provided “as is” and without representation or warranty of any kind. DBRS hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. Ratings, other types of credit opinions, other analysis and research issued or published by DBRS are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness, investment advice or recommendations to purchase, sell or hold any securities. A report with respect to a DBRS rating or other credit opinion is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS may receive compensation for its ratings and other credit opinions from, among others, issuers, insurers, guarantors and/or underwriters of debt securities. DBRS is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS. ALL DBRS RATINGS AND OTHER TYPES OF CREDIT OPINIONS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT http://www.dbrs.com/about/disclaimer. ADDITIONAL INFORMATION REGARDING DBRS RATINGS AND OTHER TYPES OF CREDIT OPINIONS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON http://www.dbrs.com.
Structured Finance: CMBS 98 Glossary
ADR average daily rate IO interest only P&I principal and interest ARA appraisal reduction amount LC leasing commission POD probability of default ASER appraisal subordinate entitlement reduction LGD loss severity given default PIP property improvement plan BOV broker’s opinion of value LOC letter of credit PILOT property in lieu of taxes
CAM common area maintenance LOI letter of intent PSA pooling and servicing agreement capex capital expenditures LS Hotel limited service hotel psf per square foot CBD central business district LTC loan-to-cost R&M repairs and maintenance CBRE CB Richard Ellis LTCT long-term credit tenant REIT real estate investment trust CMBS commercial mortgage-backed securities LTV loan-to-value REO real estate owned CoStar CoStar Group, Inc. MHC manufactured housing community RevPAR revenue per available room CREFC CRE Finance Council MTM month-to-month sf square foot/square feet DPO discounted payoff MSA metropolitan statistical area STR Smith Travel Research DSCR debt service coverage ratio n.a. not available SPE special-purpose entity EGI effective gross income n/a not applicable TI tenant improvement EOD event of default NCF net cash flow TIC tenants in common F&B food & beverage NNN triple net T-12 trailing 12 months FF&E furniture, fixtures and equipment NOI net operating income UW underwriting FS Hotel full service hotel NRA net rentable area WA weighted average G&A general and administrative NRI net rental income WAC weighted-average coupon GLA gross leasable area NR – PIF not rated – paid in full x times GPR gross potential rent OSAR operating statement analysis report YE year-end HVAC heating, ventilation and air conditioning PCR property condition report YTD year-to-date
Definitions
Capital Expenditure (capex) NNN (triple net) Costs incurred in the improvement of a property that will have a life of more than A lease that requires the tenant to pay operating expenses such as property taxes, one year. insurance and maintenance, in addition to the rent.
DBRS Refi DSCR Net Operating Income (NOI) A measure that divides DBRS stabilized NCF by the product of the loan’s maturity The revenues earned by a property’s ongoing operations less the expenses balance and a stressed refinance debt constant. associated with such operations but before mortgage payments, tenant improvements, replacement reserves and leasing commissions. DBRS Term DSCR A measure that divides DBRS stabilized NCF by the actual debt service payment Net Rentable Area (NRA) The area (sf) for which rent can be charged. NRA includes the tenant’s premises Debt Service Coverage Ratio (DSCR) plus an allocation of the common area directly benefiting the tenant, such as A measure of a mortgaged property’s ability to cover monthly debt service common corridors and restrooms. payments, defined as the ratio of net operating income (NOI) or net cash flow (NCF) to the debt service payments. Revenue Per Available Room (RevPAR) A measure that divides revenue by the number of available rooms, not the number Effective Gross income (EGI) of occupied rooms. It is a measure of how well the hotel has been able to fill rooms Rental revenue minus vacancies plus miscellaneous income. in the off-season, when demand is low even if rates are also low, and how well it fills the rooms and maximizes the rate in the high season, when there is high Issuer UW demand for hotel rooms. Issuer underwritten from Annex A or servicer reports. Tenant Improvements (TIs) Loan-to-Value (LTV) The expense to physically improve the property or space, such as new The ratio between the principal amount of the mortgage balance, at origination improvements or remodelling, paid by the borrower. or thereafter, and the most recent appraised value of the underlying real estate collateral, generally from origination. Weighted Average (WA) Calculation is weighted by the size of each mortgage in the pool. Net Cash Flow (NCF) The revenues earned by a property’s ongoing operations less the expenses associated Weighted-Average Coupon (WAC) with such operations and the capital costs of tenant improvements, leasing commissions The average coupon or interest payment on a set of mortgages, weighted by the and capital expenditures (or reserves). Moreover, NCF is net operating income (NOI) size of each mortgage in the pool. less tenant improvements, leasing commissions and capital expenditures.