DBRS Morningstar Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2015-NXS1

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2015-NXS1 issued by Wells Fargo Commercial Mortgage Trust 2015-NXS1 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-S at AAA (sf)
-- Class A-SB 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 (high) (sf)
-- Class F at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction. As of the March 2020 remittance, 64 of the original 68 loans remain in the pool, with collateral reduction of 17.7% since issuance, as a result of scheduled loan amortization and loan repayments. Four loans, representing 7.6% of the pool, are fully defeased.

Based on the most recent year-end reporting, the pool had a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.69x and 9.9%, respectively, compared with the DBRS Morningstar figures derived at issuance of 1.55x and 8.0%, respectively, for the pool overall. In October 2019, the largest loan in the pool at issuance, Patriots Park (9.9% of the original pool balance) repaid after being transferred to special servicing in November 2018 for nonmonetary default. Upon repayment, a realized loss of $0.5 million to cover the special servicer’s fees was applied to the trust.

As of the March 2020 remittance, two loans (0.9% of the pool) were in special servicing, both of which the borrower made current with the February 2020 remittance, with major leases under review. As of the March 2020 remittance, both loans are fewer than 30 days delinquent with a full payoff expected by June 2020. There were nine loans (12.2% of the pool) on the servicer’s watchlist, four of which (5.6% of the pool) were flagged for performance-related reasons. The largest loan on the watchlist, 100 West 57th Street (Prospectus ID#6, 4.5% of the pool), had an anticipated repayment date in November 2019; however, the borrower did not repay at that time and will repay the loan closer to the time of the ground lease expiration in March 2025.

The pool has a notable concentration of loans backed by hotel properties, which represented 11.7% of the pool balance as of the March 2020 remittance. The bulk of the exposure is in three top 10 loans secured by hotels in the Best Western Premier Herald Square (Prospectus ID#8, 3.5% of the pool), Hotel Valencia (Prospectus ID#10, 3.3% of the pool), and Hotel Andra (Prospectus ID#13, 3.0% of the pool) loans. All three loans reported net cash flow declines from issuance as of the most recent year-end reporting periods, with the two larger loans reporting significant declines. These trends are particularly noteworthy given the ongoing Coronavirus Disease (COVID-19) pandemic, which has halted business and leisure travel in the United States and around the world, with hotels reporting sharp declines in occupancy rates that are likely to hold through the near to moderate term. DBRS Morningstar has requested specific information regarding impacts to the larger hotel loans in this and other rated pools and will provide updated commentary on the DBRS Viewpoint platform as it receives relevant updates.

There are two loans on the DBRS Morningstar Hotlist, representing 6.9% of the pool. The larger of the two, 760 & 800 Westchester Avenue (Prospectus ID#7, 4.4% of the pool), is secured by a corporate office campus in Rye Brook, New York, approximately 33 miles northeast of Manhattan. This loan is on the Hotlist given the low YE2019 amortizing DSCR of 1.05x, paired with the property’s submarket, which is quite weak, with vacancy reported at 19.6% as of Q4 2019. The servicer reported the property’s occupancy was 88.0% as of December 2019, up from 83.0% in September 2019; however, DBRS Morningstar is aware of at least one smaller law firm that relocated in early 2020.

The second loan, 9990 Richmond Avenue (Prospectus ID#17, 2.5% of the pool), is secured by two interconnected Class B office properties in the Westchase submarket of Houston. DBRS Mornginstar is also monitoring this loan for a low DSCR, which reported at 0.89x on an amortizing basis as of YE2019 primarily because of the property’s 28.0% vacancy rate in December 2019. Similarly, the property’s submarket is quite soft, with vacancy hovering around 25.0%. This will undoubtedly make backfilling a large vacancy quite difficult over the near to medium term, particularly given the increased stress to the oil and gas markets amid the ongoing coronavirus outbreak.

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.

Classes X-A, X-B, X-E, and X-F 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 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#6 – 100 West 57th Street (4.5% of the pool)
-- Prospectus ID#7 – 760 & 800 Westchester Avenue (4.4% of the pool)
-- Prospectus ID#17 – 9990 Richmond Avenue (2.5% of the pool)
-- Prospectus ID#28 – Quadrangle Corporate Park (1.2% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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 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 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 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 [email protected].

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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