KBRA Downgrades Two Classes of GSMS 2021-RENT; Withdraws All Ratings

KBRA downgrades the ratings of Classes E and F to D (sf) of GSMS 2021-RENT, a CMBS SASB transaction, and is removing them from Watch Downgrade (DN), where they were placed on January 24, 2024. Immediately following the downgrades, the ratings are being withdrawn due to a lack of sufficient and ongoing information to maintain the ratings. Concurrently, the A- (sf) and BBB- (sf) ratings on classes C and D are being withdrawn following the full repayment of the securities, as well as the AAA (sf) rating on the Class X-NCP notional class.

The January 24, 2024 Watch Placements followed the liquidation of the loan which resulted in realized losses for Classes C through F reported on the January 22, 2024 trustee remittance statement. Although the liquidation proceeds were sufficient to repay the outstanding principal of each of the subject classes, with the potential exception of Class F, the realized losses were the result of a reserve holdback by the special servicer, Midland Loan Services, A Division of PNC Bank, National Association. KBRA effectuated the Watch Downgrade to gain further clarity regarding when and if the holdback reserve would be released.

On April 26, 2024, a revised January 2024 remittance statement was posted by the trustee, resulting in the special servicer’s release of $105 million of the holdback, of which the collateral trust received $39.5 million. This resulted in the full payoff of the Class C and D certificates. The remaining holdback amount is approximately $59 million. The funds remain an asset of the trust, however, if, when, and how much of the remaining holdback might become available for certificate holders is unknown at this time. As a result, the ratings of Classes E and F are being downgraded and immediately withdrawn as there is a lack of visibility regarding when and if any future releases of the holdback would occur. Furthermore, certificate administrator remittance reports were not received for three periods following the initial January 2024 remittance report, and it is unknown if such reports along with updates on the status of the holdback will be regularly available in the future.

Contemporaneous with the downgrade and withdrawal of the ratings on the Classes E and F, KBRA is withdrawing its A- (sf) rating on Class C and BBB- (sf) rating on Class D reflecting the full payoff of such classes in the transaction’s restated January 2024 distribution report. The AAA (sf) rating on Class X-FL is being withdrawn pursuant to our Methodology for Rating Interest-Only Certificates in CMBS Transactions, as no investment grade rated principal and interest classes remain outstanding.

The reserve holdback totaling $164 million occurred at the liquidation of the $343.6 million Veritas Multifamily Portfolio loan that collateralized the transaction. The special servicer indicated that the holdback was effectuated to cover potential litigation expenses and judgements that might be incurred by the trust as there were some investors that disagreed with the resolution taken by the special servicer and resulting loss. At this time KBRA is not aware of the commencement of any litigation proceedings.

While holdbacks have occurred from time to time throughout the history of CMBS, the magnitude and impact of the holdback in this specific situation are unique, unprecedented for post-GFC transactions, and unexpected by KBRA in its ongoing surveillance monitoring. KBRA believes this is an atypical situation. The information available to KBRA and the broader market has also been limited. The industry appears to be attempting to improve the reporting of holdbacks on a go-forward basis. KBRA has observed updated language that has been implemented in certain new Single Borrower transactions whereby the party effectuating the holdback must satisfy certain reporting requirements, including providing information to the certificate administrator for delivery to the certificate holders that includes the amount withheld and the general reason for the holdback, and report a periodic status update regarding any significant changes to held back amounts. These requirements should help increase transparency for the market where holdbacks occur.

Rating actions prior to their withdrawal:

Ratings withdrawn:

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