DBRS Confirms Ratings of Wells Fargo Commercial Mortgage Trust 2015-NXS1, Stable Trends

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-NXS1 (the Certificates) issued by Wells Fargo Commercial Mortgage Trust 2015-NXS1 Trust as follows:

-- 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-SB at AAA (sf)
-- Class A-S 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 (low) (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 rating confirmations reflect the current performance of the pool, which is stable from issuance, with cash flows generally in line with the DBRS underwritten (UW) levels. The collateral consists of 68 fixed-rate loans secured by 93 commercial properties. At issuance, the transaction had a DBRS weighted-average (WA) debt service coverage ratio (DSCR) and a DBRS WA debt yield of 1.55 times (x) and 8.8%, respectively. As of the April 2016 remittance, 17 loans (31.4% of the pool) reported partial-year 2015 cash flows (most being Q3 2015), while 45 loans (62.5% of the pool) reported year-end 2015 cash flows. The remainder of the loans (6.1% of the pool) have not yet reported 2015 cash flows. As of the April 2016 remittance reports, all 68 loans remain in the pool, with an aggregate balance of $949 million, representing collateral reduction of approximately 0.6% since issuance as the result of scheduled loan amortization.

The pool is concentrated by property type, as 22 loans (53.0% of the pool) are secured by office properties and 30 loans (26.8% of the pool) are secured by retail properties. Eleven loans (45.2% of the pool) of the largest 15 loans (57.2% of the pool) are secured by one of these two property types. There are two loans in the Top 15, representing 6.5% of the pool, exhibiting NCF declines at YE2015 when compared with the DBRS UW figures, with declines ranging from 14.3% to 73.6%. Both declines appear to be related to artificially low cash flows reported for each – the affected loans, 100 West 57th Street (Prospectus ID#6, 3.8% of the pool) and 45 Waterview Boulevard (Prospectus ID#9, 2.8% of the pool), are highlighted below. Excluding these two loans, the WA amortizing DSCR of the Top 15 loans was 1.72x as of the respective 2015 reporting dates, compared to the DBRS UW figure of 1.53x, reflective of a WA NCF growth over the DBRS UW figure of approximately 12.4%.

The 100 West 57th Street loan is part of a $180 million whole loan, evidenced by four pari passu notes secured by the leased fee interest in the 25,125 square foot (sf) land parcel beneath the Carnegie House, a 21-storey mixed-use residential and retail cooperative building located in Midtown Manhattan, New York. The loan financed the sponsor’s acquisition of the collateral for $286 million, with approximately $124.1 million in equity contributed to close. At closing, a $605,510 holdback reserve was established to cover the cumulative difference between the ground rent and the debt service during the anticipated repayment date (ARD) period, which has a five-year term ending in 2019. The servicer is reporting a YE2015 DSCR for the loan of 0.94x, but that coverage does not give credit to the reserve. Additionally, the YE2015 NCF figure represents a decline of -73.6% from the DBRS UW figure, a factor of the underwriting approach taken by DBRS at issuance, which was based on a look-through analysis of the building’s cash flow, assuming no ground lease. The resulting DBRS UW NCF figure represented a positive variance of +266.2% over the Issuer’s UW NCF figure, which was based on the ground rent payments in the existing ground lease for two tenants in common. For additional information on the DBRS approach and further detail on the ARD and ground lease structures, please see the DBRS Rating Report dated April 29, 2015.

The 45 Waterview Boulevard loan is secured by a 106,680 Class A office property located in Parsippany, New Jersey. The property is currently 100% occupied by DSM Nutritional Products (a subsidiary of Royal DSM) on a triple net (NNN) lease through lease expiration in August 2027. As of year-end 2015 financials, the loan reported a DSCR of 2.21x, compared to the DBRS UW figure of 2.59x; however, DBRS underwrote the gross potential revenue inclusive of rent steps over the loan term, given that the single tenant is considered investment grade and subject to a long-term lease with expiry well beyond the maturity date. The resulting DBRS UW base rental rate was $24.70 psf NNN, compared to the current rental rate of $21.69 psf NNN, which is subject to annual increases of $0.50 through lease expiration.

As of the April 2016 remittance report, there are no loans in special servicing and eight loans on the servicer’s watchlist, representing 6.5% of the pool. According to 2015 financial reporting (both annualized and year-end 2015), these eight loans had a WA DSCR of 1.27x, compared to the DBRS UW figure of 1.32x, reflective of a WA NCF decline of -4.5% compared to DBRS UW figures. Three loans (1.8% of the pool) were flagged as a result of upcoming rollover, while four loans (2.6% of the pool) were flagged for cash flow declines, with coverage ratios reported between 0.91x and 1.09x. The largest loan on the watchlist, Colonnades II (Prospectus ID#16, 2.1% of the pool), is secured by a 126,926 sf Class A office property located in Raleigh, North Carolina. The property is currently 100% occupied by Salix Pharmaceuticals, Inc., which was acquired by Valeant Pharmaceuticals in April 2015. The servicer is monitoring the loan because of the tenant’s early termination option in September 2018, which requires a 12-month notice and a $5.17 million termination fee. According to the servicer, Valeant has recently downsized operations at the subject property, which could be an indication the tenant plans to exercise the option. As of Q3 2015, the loan had an annualized DSCR of 1.53x, compared to the DBRS UW figure of 1.04x.

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

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

The applicable methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance Methodology (December 2015), which can be found on our website under Methodologies.