DBRS Morningstar Takes Rating Actions on Wells Fargo Commercial Mortgage Trust 2015-C27

DBRS, Inc. (DBRS Morningstar) downgraded the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2015-C27 issued by Wells Fargo Commercial Mortgage Trust 2015-C27 as follows:

-- Class X-B to BBB (low) (sf) from BBB (sf)
-- Class D to BB (high) from BBB (low) (sf)
-- Class X-E to B (high) (sf) from BB (sf)
-- Class E to B (sf) from BB (low) (sf)
-- Class X-F to B (low) (sf) from B (sf)
-- Class F to CCC (sf) from B (low) (sf)

In addition, DBRS Morningstar confirmed the ratings on the remaining classes as follows:

-- 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 (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)

DBRS Morningstar removed Classes F and X-F from Under Review with Negative Implications, where it placed them on August 6, 2020. The trend on Class X-F is Negative. DBRS Morningstar changed the trends on Classes D, E, X-B, and X-E to Negative from Stable, and all remaining trends are Stable. DBRS Morningstar assigned the Interest in Arrears designation for Class F. The Negative trends and rating downgrades reflect the continued performance challenges for the underlying collateral, mainly driven by the impacts of the global Coronavirus Disease (COVID-19) pandemic. Per the November 2020 remittance report, there are five loans representing 10.2% of the pool in special servicing, including the largest loan, Westfield Palm Desert (Prospectus ID#1 – 6.9% of the trust balance). The pool has a significant concentration of retail and hospitality properties, representing 24.6% and 21.3% of the pool balance, respectively. These property types have been the most severely affected by the initial effects of the coronavirus pandemic and, as such, those concentrations suggest increased risks for the pool, particularly at the lower rating categories.

At issuance, the trust consisted of 95 loans secured by 124 commercial and multifamily properties with a total trust balance of $1.047 billion. Per the November 2020 remittance report, there were 84 loans secured by 112 commercial and multifamily properties remaining in the trust with a total trust balance of $903.9 million, representing a 13.7% collateral reduction since issuance. The trust realized a $949,467 loss in June 2019 following the liquidation of the Country Club Apartments loan (Prospectus ID#53), and the losses have been accruing because of the reimbursement of nonrecoverable advances related to the Peoria Multifamily Portfolio loan (Prospectus ID#78 – 0.3% of the trust balance).

Per the November 2020 remittance report, nine loans, representing 9.3% of the trust balance, were fully defeased. The pool is relatively granular, as the 15 largest loans represent 51.4% of the trust balance. Near-term loan maturity risk is minimal, as there is only one loan (Watson & Taylor Self Storage – Prospectus ID#71) that has a loan maturity date prior to December 2024. As previously mentioned, the pool is concentrated by property type, with retail and hospitality properties representing 45.9% of the trust balance. The properties displayed sufficient preceding year-end debt service coverage ratios (DSCRs), with the retail properties exhibiting a weighted-average (WA) DSCR of 2.31 times (x) and hospitality properties exhibiting a WA DSCR of 1.49x. These reported DSCRs reflect operations prior to the coronavirus pandemic. Six loans, representing 8.9% of the trust balance, have sponsorship with negative credit events prior to issuance. DBRS Morningstar increased the probability of default for the loans with sponsorship concerns.

There are five loans in special servicing, including Westfield Palm Desert, which is 90 to 120 days delinquent and is secured by a 572,724-sf portion of a 977,888-sf regional mall in Palm Desert, California. The loan transferred to special servicing in July 2020 for delinquent payments, with the servicer reporting it is proceeding with foreclosure while also negotiating with the borrower for a potential loan modification. The mall anchors include Macy’s, JCPenney, and a former Sears space. The largest collateral tenants include Dick’s Sporting Goods, Tristone Cinemas, and Barnes & Noble. As of March 2020, the subject reported a DSCR of 1.58x, a decline compared with the YE2019 and YE2018 DSCR figures of 1.97x and 2.26x, respectively. Given the cash flow declines from issuance, as well as the dark anchor in Sears and the bankruptcy filing for JCPenney, the risks for this loan significantly increased since issuance, particularly when considering the extended delinquency and possibility of foreclosure. As such, DBRS Morningstar liquidated the loan in the analysis for this review, with a loss severity exceeding 50.0%.

An additional 26 loans, totaling 28.2% of the trust balance, are on the servicer’s watchlist. DBRS Morningstar is closely monitoring the 312 Elm (Prospectus ID#3 – 4.9% of the trust balance) and 312 Plum (Prospectus ID#17 – 1.9% of the trust balance) loans because they are secured by Class A office buildings in downtown Cincinnati that had significant occupancy rate declines since issuance. The sponsor simultaneously acquired the two similar properties in 2015, and both properties have lost their primary tenants since issuance. The sponsor has been unable to improve the occupancy rates for the 312 Elm property and 312 Plum property, which totaled 64.0% and 60.9%, respectively, as of June 2020. Both properties had a below breakeven DSCR for YE2019, but the borrower has been keeping loan payments current. Reis data has indicated that office demand for the Cincinnati central business district will weaken in the near term, primarily as a result of the coronavirus pandemic. The properties could be vulnerable to the sponsor’s adverse selection, and the stabilization process is likely to be lengthy. DBRS Morningstar is also monitoring the upcoming December 2022 lease expiration of Gannett Satellite at the 312 Elm property because The Enquirer, the major local newspaper and part of Gannett Satellite’s portfolio of national news organizations, occupies 28.9% of the net rentable area. When reviewing both loans, DBRS Morningstar enhanced its probability of default assumptions.

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#1 – Westfield Palm Desert (6.9% of the pool)
-- Prospectus ID#3 – 312 Elm (4.9% of the pool)
-- Prospectus ID#4 – Marriott Greensboro (4.4% of the pool)
-- Prospectus ID#14 – Residence Inn Charlotte Southpark (2.2% of the pool)
-- Prospectus ID#16 – Holiday Inn – Cherry Creek (2.0% of the pool)
-- Prospectus ID#17 – 312 Plum (1.9% of the pool) – DBRS Morningstar Hotlist Loan
-- Prospectus ID#49 – Fairfield Inn & Suites – Cincinnati (0.6% 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 North American CMBS Surveillance Methodology (March 6, 2020), 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 696-6293