DBRS Confirms All Classes of WFCM 2015-C27

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C27 (the Certificates) issued by Wells Fargo Commercial Mortgage Trust 2015-C27:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-E at AAA (sf)
-- Class X-F at AAA (sf)
-- Class X-G at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class G. The Class PEX certificates are exchangeable for the Classes A-S, B and C certificates (and vice versa). Classes X-E, X-F, X-G, D, E, F and G have been privately placed.

The rating confirmations reflect the overall performance of the transaction. The transaction consists of 95 fixed-rate loans secured by 124 commercial properties. Since issuance, the transaction has experienced collateral reduction of 0.5% as a result of scheduled amortization, with all of the original 95 loans remaining in the pool. At the time of this DBRS review, 85.5% of the pool was reporting 2015 cash flows (with most of them reporting a Q3 figure). The annualized weighted-average (WA) debt service coverage ratio (DSCR) for these loans was 1.63 times (x), with a WA debt yield of 9.8%, compared with DBRS underwritten pool-wide figures of 1.51x and 8.7%, respectively.

The largest loan in the pool is Prospectus ID#1 Westfield Palm Desert, representing 6.0% of the current pool balance. This loan is secured by a 572,724 square foot (sf) portion of a 977,888 sf regional mall located in Palm Desert, California. The property is anchored by national retailers including Macy’s, Sears and JC Penney, all of which are non-collateral. According to the September 2015 rent roll, the collateral was 97.1% occupied at an average rental rate of $17.67 per square foot (psf), representing an increase when compared with issuance occupancy of 95.9%. Major tenant additions to the subject include a 5,500 sf Charlotte Russe and a 21,944 sf Forever 21. Tenants with leases totaling 19.0% of the net rentable area (NRA) are scheduled to expire within the next 12 months; however, the property has historically demonstrated its ability to maintain above-average market occupancy and rental rates. Occupancy at the property has been above 91.0% since 2007. According to CoStar, the subject is located in the Coachella Valley submarket, which reported an average vacancy rate of 12.3% and NNN of $12.76 psf for retail properties. Sales performance at the subject remained consistent with YE2014 reporting, according to the T-12 June 2015 tenant sales report. For the anchor tenants, Macy’s reported $304 psf at T-12 June 2015, a decrease of 1.1% compared with YE2014, while Sears reported flat sales of $156 psf over the same period and JC Penney reported a 7.9% increase from YE2014 to T-12 June 2015 at $182 psf. Overall mall sales increased slightly by 1.4%, from $264 psf at YE2014 to $267 psf at T-12 June 2015.

According to the most recent Q3 2015 financials, the annualized Q3 2015 DSCR was 1.80x, a decrease from the DBRS underwritten DSCR of 2.39x. The property reported a decline in annualized net cash flow of 25.4% when compared with the DBRS underwritten net cash flow figure because of a 15.8% decrease in effective gross income. The decrease was mainly driven by a period of free rent provided to five tenants and a decrease in percentage rent and expense reimbursements; however, these line items are traditionally reported with the year-end figures, which at the time of this review, were not yet provided. DBRS expects the financial performance of the subject to normalize to underwritten levels, as these amounts are reflected in the YE2015 figure.

As of the February 2016 remittance, there are no loans in special servicing and five loans on the servicer’s watchlist, representing 5.9% of the current pool balance. Of the loans on the servicer’s watchlist, four of them individually represent less than 0.5% of the current pool balance.

The largest loan on the servicer’s watchlist is Prospectus ID#2 WP Carey Self Storage Portfolio, representing 4.6% of the current pool balance. This loan is secured by a portfolio of nine self-storage facilities comprising a total of 6,340 self-storage units located across four states. The largest state representation is Florida with 61.3% of the total unit count, followed by Texas at 20.5%, California at 10.1% and Georgia at 8.1%. This loan was placed on the watchlist because of a fire in May 2015 that occurred at one of the facilities located in Jensen Beach, Florida. The Safe & Sound Storage property is the fifth-largest property within the portfolio and comprises 797 units. Forty-eight of these units were destroyed in the fire. The servicer received $714,000 in insurance proceeds related to the fire in January 2016; however, the extent of the damages and the full cost of repairs is unknown at this time. Repairs are expected to take three months to complete upon commencement. According to the September 2015 rent roll, the property was 100.0% occupied with 750 units listed. Physical occupancy, including the destroyed units, would be 94.1%. The Q3 2015 annualized DSCR for this property was 1.85x.

Portfolio occupancy has increased to 92.4% as of September 2015 from 85.8% at issuance. The increase is largely driven by the improvement in occupancy at the Central Storage property (6.3% of the portfolio), where occupancy improved to 86.3%, compared with 62.5% at issuance. The previous owners were mismanaging this property but have since been replaced with the acquisition of the property. The portfolio Q3 2015 annualized amortizing DSCR for this loan was 1.48x, increasing from the DBRS underwritten DSCR of 1.31x.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.