DBRS Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2016-C37

DBRS Limited (DBRS) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2016-C37 issued by Wells Fargo Commercial Mortgage Trust 2016-C37 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-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class X-EF at BBB (sf)
-- Class F at BBB (low) (sf)
-- Class X-G at BBB (low) (sf)
-- Class G at BB (high) (sf)
-- Class X-H at BB (low) (sf)
-- Class H at B (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. The collateral consists of 63 fixed-rate loans secured by 141 properties, and as of the November 2017 remittance, there has been a collateral reduction of 0.7% as a result of scheduled loan amortization. Loans representing 92.6% and 22.9% of the pool balance reported Q2 2017 and Q3 2017 financials, respectively, and these loans reported a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.89 times (x) and 10.4%, respectively, compared with the DBRS Term DSCR and DBRS Debt Yield of 1.69x and 9.2%, respectively. As of the November 2017 remittance, thirteen of the largest loans in the pool reported updated financials, with a WA Q2 2017 DSCR of 2.01x, which represents a WA cash flow improvement of 14.8% over the DBRS NCF figures derived at issuance. Six loans, representing 25.6% of the pool, were structured with full-term interest-only (IO) payments. An additional 18 loans, representing 30.3% of the pool, have partial IO periods ranging from 18 months to 60 months. Nine of these loans, representing 13.4% of the pool balance, will begin to amortize by YE2017.

As of the November 2017 remittance, there are six loans, representing 13.6% of the pool, being monitored on the servicer’s watchlist. Four of these loans, representing 7.3% of the pool balance, are being monitored for non-performance-related issues limited to relatively minor deferred maintenance. The largest loan on the watchlist, Prospectus ID #5, Franklin Square III, is secured by a retail property located in Gastonia, North Carolina, and is being monitored for the loss of Gander Mountain, which represented 15.8% of the NRA. For details on this and other noteworthy watchlist loans, please see the DBRS Loan Commentary for this deal on the free DBRS Viewpoint platform.

At issuance, DBRS shadow-rated the Hilton Hawaiian Village loan (Prospectus ID#1, 7.0% of the pool balance), Quantum Park loan (Prospectus ID#2, 6.9% of the pool balance) and Potomac Mills loan (Prospectus ID#4, 4.8% of the pool balance) investment grade. With this review, DBRS confirms that the performance of these loans remain consistent with investment-grade characteristics.

Classes X-A, X-B, X-D, X-EF, X-G and X-H are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.

The ratings assigned to Classes B, C and H materially deviate from the higher ratings implied by the quantitative results. 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 results that is a substantial component of a rating methodology. The deviations are warranted given the sustainability of loan performance trends not demonstrated.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS has provided updated loan-level commentary and analysis for larger and pivotal watchlisted loans in the transaction, as well as for the top 15 loans, in the DBRS Viewpoint 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 into DBRS Viewpoint at viewpoint.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 principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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