Ratings Issue Brings Goldman Sachs, Citigroup $1.5B CMBS Sale to an End

Goldman and Citigroup announced earlier this week the cancellation of the transaction involving nearly $1.5 billion in commercial mortgage pass-through certificates.

July 29, 2011
By Barbra Murray, Contributing Editor

Goldman Sachs & Co. and Citigroup Global Markets Inc. announced earlier this week the cancellation of the transaction involving GS Mortgage Securities Trust 2011-GC4’s nearly $1.5 billion commercial mortgage pass-through certificates series. The transaction came to a halt when Standard & Poor’s Ratings Services notified Goldman and Citi that it would not be possible for the agency to deliver final ratings at this time.

The GC4 pool consists of 70 conventional fixed-rate loans secured by liens on a group of 130 properties that includes hotel, industrial, manufactured housing, mixed-use, multifamily, office, retail and self-storage assets across 35 states. The top three loans account for an aggregate 28 percent of the pool and are collateralized by the 1.1 million square-foot Park Place Mall in Tucson, Ariz.; the 3,052-bed Copper Beach student-housing portfolio spanning four states; and the 1.4-million-square-foot Parkdale Mall and Parkdale Crossing regional-mall property in Beaumont, Tex.

S&P’s withdrawal of preliminary ratings on GC4 and its inability to produce the final ratings occurred as the result of the initiation of an internal review of its application of conduit/fusion CMBS ratings criteria regarding debt-service coverage ratio calculations. “The review was prompted by the discovery of potentially conflicting methods of calculation ion in use,” S&P explained in a press release. “Because of the early stage of the review, the potential impact on outstanding ratings is uncertain. Until the review is completed, Standard & Poor’s will not assign new ratings to transactions that are based on the conduit/fusion criteria.”

There’s trouble in the CMBS world. “We were rolling in the spring, but there’s been some turmoil in the sovereign debt markets, which has had an echo effect throughout the capital markets around the world; CMBS has been rattled for at least a couple of months ” Dan Fasulo, managing director with Real Capital Analytics, told Commercial Property Executive. Analysts are not exactly anticipating a turnaround in the near future.

“Delinquencies and defaults remain elevated relative to levels seen prior to the recession and the market still has some issues ahead,” Ryan Severino, senior economist with REIS Inc., said to CPE. “Many loans that were five-year term loans are going to be maturing this year and next year. Watching their performance will say a lot about the health of the market. These loans were underwritten at the top of the market with aspirational expectations about the future so actual performance is likely to be disappointing.”