DBRS Morningstar Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2015-NXS2

DBRS Morningstar confirmed the ratings on the Commercial Pass-Through Certificates, Series 2015-NXS2 issued by Wells Fargo Commercial Mortgage Trust 2015-NXS2 as follows:

-- 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 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 Class A-S, B, and C certificates may be exchanged for the Class PEX certificates (and vice versa).

The rating confirmations reflect the overall stable performance of the transaction since issuance. The transaction consists of 62 fixed-rate loans secured by 76 commercial and multifamily properties. According to the March 2020 remittance, the pool has had a collateral reduction of 15.7% since issuance because of scheduled loan amortization and the repayment of two loans, with 61 out of the original 63 loans remaining in the pool and an aggregate outstanding principal balance of $793.0 million. The pool reported a weighted-average (WA) debt service coverage ratio (DSCR) and loan-to-value ratio (LTV) of 1.83x and 68.5%, respectively, compared with the 1.68x DBRS Morningstar WA DSCR at issuance. As of the partial year 2019 financials, the top 15 loans, which collectively represent 56.1% of the pool, reported a WA DSCR and debt yield of 1.54x and 8.7%, respectively.

The pool benefits from a healthy concentration of properties in areas with market ranks of seven and eight (17.8% of the pool balance) and a relatively low concentration of properties in areas with market ranks of one and two, which represent only 12.4% of the pool balance. The former largest loan in the pool, Patriots Park, which previously represented 10.0% of the pool balance, was in special servicing for a nonpermitted equity transfer without the lender’s consent and ultimately repaid in full with the special-servicing fees in the amount of approximately $900,000 billed to the trust. That amount was applied as a loss to the unrated Class G certificates with the October 2019 remittance.

The pool has a notable concentration of loans secured by hotel properties in the top 15, with Embassy Suites Nashville (Prospectus ID #5, 5.2% of the pool balance), Hampton Inn Philadelphia Airport (Prospectus ID #12, 2.1% of the pool balance), and Springhill Suites Napa Valley (Prospectus ID #14, 2.0% of the pool balance). The ongoing Coronavirus Disease (COVID-19) outbreak of 2020 has significantly affected both business and leisure travel around the world, with hotels in the United States reporting immediate effects in drastically reduced room revenues and bookings for future stays. DBRS Morningstar observes that these three largest hotel loans in the pool generally benefit from favorable locations within their respective markets and performance metrics that are in line with or even above the issuance levels, with all three reporting healthy DSCRs as of the most recent reporting periods. However, cash flows for the near to moderate term will likely be drastically lower than historical levels, suggesting the increased risks from issuance through the next year or so will be significant. DBRS Morningstar will monitor these loans closely, with updates to loan level commentary in the DBRS Viewpoint platform provided as new information is received.

As of the March 2020 remittance, there were eight loans comprising 30.5% of the pool with full-term interest-only (IO) terms and 17 loans comprising 35.0% of the poll with partial IO periods remaining. There were eight loans representing 13.6% of the pool balance on the servicer’s watchlist and three specially serviced loans representing 7.8% of the pool. The largest loan on the servicer’s watchlist, 100 West 57th Street (Prospectus ID #4, 5.7% of the pool), is being monitored for the missed November 2019 ARD date. The servicer has advised the borrower does not plan to repay the loan until the renewal of the collateral ground lease has been executed. Two of the loans on the servicer’s watchlist are on the DBRS Morningstar Hotlist in the 1200 Madison Avenue Loan (Prospectus ID #22, 1.5% of the pool) and Fresh Thyme Farmers Market (Prospectus ID #29, 0.9% of the pool). The larger loan, 1200 Madison Avenue, has been monitored for significant occupancy declines, with the property reporting a physical occupancy rate of approximately 44.0% at YE2019.

The largest loan in special servicing, Sea Harbor Office Center, 5.0% of the pool, was transferred in January 2019 as a result of the sponsor’s noncompliance with a lockbox provision tied to the credit rating for the parent company of the property’s largest tenant, Wyndham Vacation Ownership, Inc., which represents 84.6% of the NRA on a lease through October 2025. As of the February 2020 commentary provided by the special servicer, the workout strategy is still in the process of being determined. The loan shows current as of the March 2020 remittance and the sponsor appears to be cooperating with the special servicer, outside of complying with the terms of the lockbox, that is.

For additional information on the specially serviced and watchlist loans, please see the DBRS Viewpoint platform, for which information has been provided, below.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Class(es) X-A, X-E, X-F, X-G are 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#2 – Campbell Technology Park (7.6% of the pool)
-- Prospectus ID#6 – Sea Harbor Office Center (5.0% of the pool)
-- Prospectus ID#10 – Colman Building (2.8% of the pool)
-- Prospectus ID#22 - 1200 Madison Avenue (1.5% of the pool)
-- Prospectus ID#47 – Shopko Green Bay (0.7% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is the North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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