DBRS Finalizes Provisional Ratings on Wells Fargo Commercial Mortgage Trust 2017-RB1

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2017-RB1 (the Certificates), issued by Wells Fargo Commercial Mortgage Trust 2017-RB1:

-- 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 B at AA (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E-1 at BB (sf)
-- Class E-2 at BB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F-1 at B (high) (sf)
-- Class F-2 at B (sf)
-- Class F at B (sf)
-- Class EF at B (sf)
-- Class G-1 at B (low) (sf)
-- Class G-2 at B (low) (sf)
-- Class G at B (low) (sf)
-- Class EFG at B (low) (sf)

All trends are Stable.

Classes X-D, D, E-1, E-2, E, F-1, F-2, F, EF, G-1, G-2, G and EFG have been privately placed.

The Class X-A, X-B and X-D balances are notional. DBRS ratings on interest-only (IO) certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the IO certificates’ position within the transaction payment waterfall when determining the appropriate rating.

The collateral consists of 37 fixed-rate loans secured by 72 commercial and multifamily properties, comprising a total transaction balance of $637,555,685. The transaction is a sequential-pay pass-through structure. The conduit pool was analyzed to determine the ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off loan balances were measured against the stabilized net cash flow (NCF) and their respective actual constants, four loans, representing 10.2% of the total pool, had a DBRS Term debt service coverage ratio (DSCR) below 1.15 times (x), a threshold indicative of a higher likelihood of mid-term default. Additionally, to assess refinance risk, given the current low interest rate environment, DBRS applied its refinance constants to the balloon amounts. This resulted in 15 loans, representing 55.4% of the pool, having refinance DSCRs below 1.00x and 11 loans, representing 46.9% of the pool, with refinance (Refi) DSCRs below 0.90x. These credit metrics are based on whole-loan balances. One of the pool’s loans with a DBRS Refi DSCR below 0.90x, 1166 Avenue of the Americas, representing 4.5% of the transaction balance, has pieces of subordinate mortgage debt outside the trust. Based on A-note balances only, the deal’s weighted-average (WA) DBRS Refi DSCR improves marginally to 0.98x.

Term default risk is moderate, as indicated by the relatively strong WA DBRS Term DSCR of 1.63x. In addition, 20 loans, representing 59.3% of the pool, have a WA DBRS Term DSCR in excess of 1.50x. One loan, Merrill Lynch Drive, has credit characteristics consistent with an “A” shadow rating; however, even when excluding this loan, the deal exhibits a favorable WA DBRS Term DSCR of 1.58x. Eight loans, representing 44.2% of the pool, are located in urban markets that benefit from consistent investor demand and increased liquidity even in times of stress. Urban markets represented in the deal include New York, New York; Cambridge, Massachusetts; Los Angeles, California; Seattle, Washington; San Francisco, California; and New Haven, Connecticut. Only six loans, representing 10.8% of the pool, are located in tertiary/rural markets. Four of the largest 15 loans, representing 23.1% of the DBRS sample, received an Above Average property-quality grade and no loans received Below Average or Poor property-quality grades. Higher-quality properties are more likely to retain existing tenants/guests and more easily attract new tenants/guests, resulting in a more stable performance.

The pool is extremely concentrated based on loan size, with a concentration profile equivalent to that of a pool of 22 equal-sized loans. The largest five and ten loans total 34.8% and 57.0% of the pool, respectively. The pool is also highly concentrated by property type as the office concentration is 54.1%. Six loans, comprising 19.0% of the transaction balance, are secured by properties that are either fully or primarily leased to a single tenant. This includes three of the largest 15 loans: The Davenport, Merrill Lynch Drive and Art Van Portfolio. Loans secured by properties occupied by single tenants have been found to suffer higher loss severities in an event of default. As such, DBRS applied a higher probability of default and cash flow volatility to single-tenant properties compared with multi-tenant properties.

The DBRS sample included 22 of the 37 loans in the pool. Site inspections were performed on 41 of the 72 properties in the portfolio (76.9% of the pool by allocated loan balance). The DBRS sample had an average NCF variance of -11.3% from the Issuer’s NCF and ranged from -24.6% (100 Ashford Center) to +1.5% (Merrill Lynch Drive).

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

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

The principal methodologies are North Amercian CMBS Multi-borrower Rating Methodology, Rating North American CMBS Interest-Only Certificates and DBRS Commercial Real Estate Property Analysis Criteria, which can be found on dbrs.com under Methodologies.

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

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form 15-E) which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not rely on the due diligence services outlined in Form 15-E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.