DBRS Confirms Ratings of Wells Fargo Commercial Mortgage Trust 2015-NXS3

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-NXS3 (the Certificates) issued by Wells Fargo Commercial Mortgage Trust 2015-NXS3 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-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-E at AAA (sf)
-- Class X-FG at AAA (sf)
-- Class X-H 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 X-D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (sf)

All trends are Stable. The Class A-S, Class B and Class C Certificates may be exchanged for the Class PEX Certificates (and vice versa). DBRS does not rate the first loss piece, Class G.

The rating confirmations reflect the overall stable performance of the transaction, which has experienced a collateral reduction of 0.4% since closing as the result of scheduled loan amortization. At issuance, the pool consisted of 56 fixed-rate loans secured by 59 commercial and multifamily properties. As of the September 2016 remittance, all of the original 56 loans remain in the pool with an aggregate outstanding principal balance of $811.1 million. There are 30 loans, representing 71.4% of the current pool balance, that reported YE2015 financials. These loans reported a weighted-average (WA) debt service coverage ratio (DSCR) of 1.84 times (x) and a WA debt yield of 10.4%. At issuance, the DBRS WA DSCR and debt yield for the pool was 1.69x and 9.2%, respectively. The 12 loans in the top 15 that reported YE2015 financials had a WA DSCR of 1.93x and a WA net cash flow increase of 10.6% over the DBRS underwritten (UW) cash flows.

As of the September 2016 remittance, there are no loans in special servicing and three loans on the servicer’s watchlist, representing 2.2% of the current pool balance. None of the loans on the watchlist are being monitored for significant performance-related concerns. The largest loan on the watchlist, Fresh Market Plaza (Prospectus ID#20, 1.3% of the pool), was flagged for a low DSCR of 0.69x at YE2015; however, rental income is skewed because it does not include a full year of rents from in-place tenants, as four of the five in-line tenants at the subject took occupancy throughout 2015. The two other loans were flagged for a resolved rollover concern and failure to submit financials by the borrower. One loan in the top 15 is highlighted below.

The Cooper’s Crossing loan (Prospectus ID#12, 2.7% of the current pool balance) is secured by a 25-building apartment complex totalling 727 units in Landover Hills, Maryland, built in 1966 and partially renovated between 2000 and 2008. The property was affected by a fire that broke out in one of the buildings in August 2015; however, per the July 2016 inspection report, all repairs have been completed, with no fire damage visible. Additionally, the borrower is undertaking full renovations of all units at the property, with 289 units (39.8% of the total count) completed to date, as buildings are being taken offline one at a time. According to the borrower, the renovated units are being leased quickly and are achieving a rental premium of $140 above standard units. As a result of the fire and ongoing renovations at the property, occupancy decreased to 82.7% as of March 2016 from 90.5% in June 2015 with an average rental rate of $1,193/unit. In comparison, the Landover submarket of suburban Maryland reports an average asking rent for properties of similar vintage of $1,255/unit, according to Reis. The YE2015 amortizing DSCR for the loan is 1.33x, representing a decline from the DBRS UW figure of 1.43x. This decline in cash flows is attributed to the lower occupancy at the property since issuance as a result of the fire and the ongoing renovations at the property. Performance is expected to rebound in the medium term as all units are renovated and occupancy stabilizes.

At issuance, DBRS assigned investment-grade shadow ratings to two loans: 11 Madison Avenue (Prospectus ID#6, 4.3% of the current pool) and The Parking Spot LAX (Prospectus ID#15, 1.9% of the current pool). DBRS has today confirmed that the performance of the loans remains consistent with investment-grade loan characteristics.

The rating assigned to Class F materially deviates from the higher ratings implied by the quantitative model. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative model that is a substantial component of a rating methodology; in this case, the assigned ratings reflect the sustainability of loan performance trends not demonstrated.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report with additional information on the DBRS viewpoint for this transaction, including details on the largest loans in the pool. The September 2016 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

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.

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

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