Morningstar DBRS Downgrades Credit Ratings on One Class of GSCG Trust 2019-600C

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on one class of Commercial Mortgage-Pass-Through Certificates, Series 2019-600C issued by GSCG Trust 2019-600C as follows:

-- Class A to C (sf) from B (sf)

Morningstar DBRS also confirmed its credit ratings on the following classes:

-- Class B at C (sf)
-- Class C at C (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)
-- Class X at C (sf)

All classes now have a credit rating that generally does not carry a trend in commercial mortgage-backed securities (CMBS).

The credit rating downgrade on Class A reflects Morningstar DBRS' increased loss expectations driven by the continued value decline for the collateral property as exhibited by the October 2024 appraised value provided by the special servicer. The transaction's $240.0 million loan is secured by an office property in San Francisco, and has been in special servicing since March 2023. According to Morningstar DBRS' liquidation analysis based on the most recent appraised value, losses could now be realized as high as the Class A certificate, supporting the credit rating downgrade to C (sf) and credit rating confirmations for the remaining classes. At the prior credit rating action, in July 2024, all classes except the Class A certificate were downgraded to C (sf), and the Class A certificate was downgraded to B (sf), reflective of Morningstar DBRS' liquidated loss expectations based on the previous appraised value, dated February 2024.

Morningstar DBRS' credit ratings are also constrained by ongoing interest shortfalls, which have been accruing for the Class A certificate since the December 2024 remittance and has now reached Morningstar DBRS' maximum tolerance of six remittance periods of consecutive shortfalls for the BB (sf) and B (sf) credit rating categories, further supporting the credit rating downgrade to C (sf). As of the May 2025 remittance, interest shortfalls totaled approximately $10 million, an increase from $3.7 million reported at the last credit rating action. The continued increase in shortfalls is due to the nonrecoverability determination made by the servicer, with the most recent appraised value suggesting all classes will take a loss with the asset's final disposition.

The fixed-rate underlying loan had a loan-term of five years and is secured by a Class A, LEED Gold-certified office building totaling 359,154 square feet (sf) in the North Financial District of San Francisco. WeWork was the largest tenant in place at issuance, with more than 50% of the net rentable area (NRA), on a lease through March 2035. The sponsor at issuance, Ark Capital Advisors, LLC (Ark), is a joint venture among Ivanhoe Cambridge, the Rhone Group, and The We Company. The We Company (WeCo) is the owner of approximately 80% of Ark and is also the parent company of WeWork.

The loan transferred to the special servicer in March 2023 after WeWork halted its rental payments and the default on the March 2023 debt service payment. Following the initial breakdown of lease negotiations with WeWork in late 2023, the borrower advised the servicer no additional equity would be contributed toward scheduled interest payments and eventually agreed to a consensual receiver appointment in November 2023. The loan remains delinquent. In March 2024, the servicer confirmed the WeWork lease had been renegotiated to allow the tenant to downsize to 43,520 sf by March 2025, a nearly 75.0% reduction in space from the original footprint of 186,130 sf. The rental rate was also significantly reduced. For more information regarding the WeWork lease modification, please refer to Morningstar DBRS' press release published on July 17, 2024.

According to the rent roll dated February 2025, the subject was 43.6% leased, compared with the March 2024 figure of 55.0%. The largest tenants include WeWork (25.0% of the NRA; lease expiration dates in February 2025 and December 2030) and Cardinia Real Estate (11.6% of the NRA; lease expiry in May 2025). According to communications with the servicer, Cardinia Real Estate will vacate its space at the conclusion of its lease; when coupled with the March 2025 downsize for WeWork, the property's leased rate is expected to decline to approximately 20%. Outside of Cardinia Real Estate and floors two and three of WeWork there are minimal rollover concerns over the next 12 months with less than 1.0% of NRA having an upcoming lease expiration. In 2024, the borrower was able to secure SunRun (4.1% of the NRA, lease expiry in April 2032) for an entire floor on an eight-year lease. According to the May 2025 reporting, $8.9 million was held across reserves, including $5.6 million in a lockbox reserve and approximately $2.5 million in capital expenditure reserves.

According to the YE2024 financials, the subject reported a debt service coverage ratio (DSCR) of 0.24 times (x) as compared to the YE2023 and YE2022 figures of 0.14x and 1.72x, respectively.

In October 2024, the property was re-appraised at a value of $109 million, reflective of an approximate 12.0% decline from the February 2024 appraised value of $124 million. This marks a continued decline from the April 2023 value of $183 million and the issuance value of $370 million. Morningstar DBRS points to the low in-place occupancy rate and the associated high lease-up costs for the vacant space, combined with the general distress of the San Francisco office market to be driving factors in the property's severe value deterioration since issuance. According to a Q1 2025 Reis report, the North Financial District submarket of San Francisco reported a vacancy rate of 23.1%, which is up from the Q1 2024 rate of 18.1%.

For purposes of this credit rating action, Morningstar DBRS used a liquidation scenario based on the most recent appraised value to determine recoverability. Morningstar DBRS' liquidation scenario was based on the October 2024 appraised value of $109 million and incorporated a liquidation fee, outstanding ASER and advances, interest shortfalls as well as expected additional expenses, which cumulatively totaled approximately $45 million. Morningstar DBRS did give credit to the in-place reserves of approximately $9 million as of the May 2025 reporting. The analysis suggested a loss severity approaching 70%, or $168 million, which could climb as high as the Class A certificate.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196.

Class X is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (February 28, 2025) https://dbrs.morningstar.com/research/448963.

Other methodologies referenced in this transaction are listed at the end of this press release.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

DBRS Limited
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Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025
https://dbrs.morningstar.com/research/448962
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024)
https://dbrs.morningstar.com/research/439702
-- Legal Criteria for U.S. Structured Finance (December 03, 2024)
https://dbrs.morningstar.com/research/444064
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024)
https://dbrs.morningstar.com/research/438283

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279. (July 17, 2023)

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.