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 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 B at AA (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance exhibited by the transaction since issuance in 2015. The collateral consists of 68 fixed-rate loans secured by 93 commercial properties. As of the April 2017 remittance, the pool had an aggregate principal balance of approximately $943.0 million, representing a collateral reduction of 1.2% since issuance as a result of scheduled loan amortization.

The pool is primarily concentrated by two property types, as 22 loans, representing 53.0% of the pool, are secured by office properties, and 30 loans, representing 26.8% of the pool, are secured by retail properties. By geographical location, the pool is relatively concentrated, as the largest concentration by state is California with 14 loans (30.1% of the pool), followed by Virginia with one loan (10.1% of the pool), New York with four loans (10.9% of the pool) and Texas with 11 loans (9.9% of the pool). Seven loans (24.9% of the pool) are structured with full interest-only (IO) terms, while an additional 16 loans (34.6% of the pool) have partial IO periods remaining, ranging from 11 month to 36 months.

To date, 48 loans (86.3% of the pool) have reported YE2016 net cash flow (NCF) figures, while 13 loans (10.2% of the pool) have reported partial-year 2016 NCF figures (most being Q3 2016) and seven loans (2.5% of the pool) show YE2015 NCF figures as the most recent set of reported financials. As calculated based on the most recent NCF figures showing for the loans in the pool, the transaction had a weighted-average (WA) amortizing debt service coverage ratio (DSCR) and WA debt yield of 1.70 times (x) and 9.3%, respectively, compared with the DBRS issuance figures of 1.55x and 8.0%, respectively.

Based on the most recent NCF figures (both partial year and YE2016), the top 15 loans (57.4% of the pool) reported a WA amortizing DSCR of 1.80x, compared with the DBRS issuance figure of 1.72x, which is reflective of a WA NCF growth of 7.1%. There are three loans (9.3% of the pool) in the top 15 exhibiting NCF declines as compared with the DBRS issuance figures, with declines ranging from 0.9% to 29.6%. These three loans include 760 & 800 Westchester Avenue (Prospectus ID#7, 3.7% of the pool), 45 Waterview Boulevard (Prospectus ID#9, 2.8% of the pool) and Hotel Valencia (Prospectus ID#10, 2.8% of the pool). While the minor performance declines with the 760 & 800 Westchester Avenue and 45 Waterview Boulevard loans have been driven by increased vacancy and expenses, respectively, Hotel Valencia in San Antonio has struggled to compete with the downturn of the energy markets and the addition of new supply in the market. Detailed commentary for these loans is available on the DBRS IReports platform.

As of the April 2017 remittance, there are four loans (4.8% of the pool) on the servicer’s watchlist. The largest of these loans, Colonades II (Prospectus ID#16, 2.1% of the pool) is a single-tenant, Class A office property located in Raleigh, North Carolina. The property was formerly 100% occupied by Salix Pharmaceuticals, Inc.; however, the property is now dark following the tenant’s acquisition by Valeant Pharmaceuticals in April 2015 and subsequent closure of this location. The smallest two loans (1.8% of the pool) on the servicer’s watchlist were flagged as a result of a decline in performance, which appear to be market and expense driven. Based on the most recent cash flow reporting (both partial year and YE2016), these two loans had a WA DSCR of 1.03x, compared to the DBRS issuance figure of 1.51x, reflective of a 29.5% NCF decline.

At issuance, DBRS shadow-rated both the Patriots Park (Prospectus ID#1, 10.1% of the pool) and 45 Waterview Boulevard (Prospectus ID#9, 2.8% of the current pool balance) loans as investment grade. DBRS confirms that the performance of both loans remains consistent with investment-grade loan characteristics.

The rating assigned to Class F materially deviates from a higher rating implied by the large pool multi-borrower parameters. DBRS considers this to be a methodology deviation when there is a rating differential of three or more notches between the assigned rating and the rating implied by the large pool multi-borrower parameters; in this case, the sustainability of loan performance trends was not demonstrated and, as such, was reflected in the ratings.

DBRS has provided updated loan-level commentary and analysis for larger and/or pivotal watchlisted loans, as well as for the largest 15 loans in the pool, in the DBRS commercial mortgage-backed securities (CMBS) IReports platform. Registration is free. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please register or log in at www.ireports.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.

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

The principal methodologies are the North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on dbrs.com under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.