DBRS Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2015-NXS3

DBRS Limited (DBRS) 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-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A 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 X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-FG at B (high) (sf)
-- Class F at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which originally consisted of 56 fixed-rate loans secured by 59 commercial properties with trust balance of $814.5 million. As of the August 2018 remittance, all 56 loans remain in the pool, including one fully defeased loan representing, 2.7% of the pool balance. The collateral has been reduced by 1.7% since issuance due to scheduled amortization. The deal exhibits substantial urban concentration with 17 loans, comprising 37.9% of the pool balance, located in urban markets. Additionally, two loans in the top 15 loans exhibit credit characteristics consistent with investment-grade shadow ratings (11 Madison Avenue – Prospectus ID#6 and The Parking Spot LAX – Prospectus ID#15). The conduit continues to exhibit a strong weighted-average (WA) debt service coverage ratio (DSCR) of 1.84 times (x) and WA debt yield of 10.4% based on the most recent reporting available, compared with the WA DBRS Term DSCR of 1.86x and WA debt yield of 10.2% at issuance. Approximately 93.5% of the pool is reporting year-end 2017 financials.

There are 14 loans, representing 6.9% of the pool, on the servicer’s watchlist; however, nine of those loans are secured by co-operative multifamily properties, which represent 3.2% of the pool balance. DBRS is not concerned with the credit quality of these loans at this time. An additional two loans on the servicer’s watchlist, comprising 0.7% of the pool balance, were flagged for not reporting financials. The pool is concentrated by loan size, with the top ten loans representing 59.9% of the pool balance. Eight loans, representing 17.8% of the pool, are secured by single-tenant properties, including three in the top 15 loans. Fifteen loans, representing 44.2% of the pool, have partial/full term IO periods with seven of those loans, comprising 27.3% of the loan pool, featuring full IO terms.

DBRS is monitoring the status of the largest loan in the pool (One Court Square – Prospectus ID#1), which comprises 10.0% of the pool balance. The subject loan is secured by the fee interest in a 1.4 million square foot (sf) office property located in Long Island City, New York, that is 100.0% leased to Citibank, N.A. (Citi). According to several news sources, Citi notified the sponsor in July 2018 it will be reducing its space from 1.4 million sf to 400,000 sf, which will create a considerable 1.0 million sf of vacant space (71.4% of net rentable area). Citi’s existing lease is scheduled to expire in May 2020 and the sponsor is currently listing the upcoming vacant space for lease. Cash management will commence in December 2018, 18 months prior to lease expiration. DBRS applied a stressed cash flow to the DBRS Term DSCR to reflect the vacancy risk; however, this risk is partially mitigated by the desirable location, property visibility and the 21-month timeline to backfill the vacant space.

At issuance, DBRS shadow-rated two loans, the 11 Madison Avenue loan (Prospectus ID#6, 4.4% of the pool balance) and the Parking Spot LAX loan (Prospectus ID#15, 1.8% of the pool balance), investment grade. DBRS has confirmed that the performance of these two loans remains consistent with investment-grade characteristics.

Classes X-A, X-D, X-E and X-FG are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- One Court Square (Prospectus ID#1)
-- Yosemite Resorts (Prospectus ID#3)
-- 11 Madison Avenue (Prospectus ID#6)
-- The Parking Spot LAX (Prospectus ID#15)
-- 10203 Santa Monica Boulevard (Prospectus ID#19)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS-rated transactions.

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

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.

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. 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.