DBRS Morningstar Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2018-C47

DBRS Limited (DBRS Morningstar) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-C47 issued by Wells Fargo Commercial Mortgage Trust 2018-C47 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class X-D at A (sf)
-- Class D at A (low) (sf)
-- Class E-RR at BBB (sf)
-- Class F-RR at BBB (low) (sf)
-- Class G-RR at BB (sf)
-- Class H-RR at B (high) (sf)

DBRS Morningstar also removed Classes G-RR and H-RR from Under Review with Negative Implications, where they were placed on August 6, 2020. Those two classes have Negative trends; all other trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. As of the December 2020 remittance, all 47 loans secured by 106 commercial and multifamily properties remain in the pool with a collateral reduction of 0.7% since issuance. According to the YE2019 financials, the servicer reported a weighted-average debt service coverage ratio (DSCR) of 1.91 times (x) compared to the DBRS Morningstar DSCR at issuance of 1.85x.

The Negative trends for the two lowest rated classes reflect DBRS Morningstar’s concerns with the defaulted loans in the pool. As of the December 2020 remittance, there are two loans in special servicing, including the sixth-largest loan in the pool, Holiday Inn FiDi (Prospectus ID#6, 3.7% of the pool balance), which is a portion of a $137.0 million pari passu whole loan secured by a 492-key limited-service hotel located in the Financial District of Downtown Manhattan, New York. The loan was transferred to special servicing in May 2020 for imminent default at the borrower’s request, and the servicer confirmed in the December 2020 commentary that negotiations regarding a forbearance remained ongoing. The loan was last paid in April 2020.

Although the pre-Coronavirus Disease (COVID-19) pandemic performance was generally healthy, the YE2019 DSCR of 2.11x was down from the issuer’s DSCR of 2.47x and down from the YE2018 figure of 2.31x. The servicer most recently reported a DSCR of -0.71x as of the trailing 12 months ended September 30, 2020. An updated appraisal has been ordered but not finalized; however, given the sharp decline in demand for hotels across the country, with demand falling off particularly sharply in New York where the pandemic’s effects have been exacerbated by many factors including the size of the population and the challenges for social distancing measures that result, the as-is value of the hotel has likely fallen significantly from issuance. Given these factors, as well as the below issuance performance metrics of the two years post-loan closing and pre-pandemic, the risks for this loan are considered significantly higher than the issuance level and as such, the loan was analyzed with a sharp increase to the probability of default to increase the expected loss for this review.

The second-largest loan in special servicing is the 1400 Fifth Avenue (Prospectus ID#26, 1.3% of the pool balance) loan, which is secured by an anchored retail property located in New York and was transferred to special servicing in June 2020 for imminent default. As of the December 2020 remittance, the loan was last paid in March 2020, with the servicer reporting negotiations remain underway for a forbearance request. Due to stay-at-home orders and business closures, several of the property's tenants are currently delinquent on their monthly rents. In addition, the largest tenant, New York Sports Club, which occupied 45.6% of the net rentable area, filed for bankruptcy in September 2020 and has since vacated the property. As of September 2020, the loan reported a DSCR of 0.70x, compared to the YE2019 DSCR of 1.39x. Given the significant challenges facing the sponsor in the sizable vacancy and the extended delinquency for this loan, a liquidation scenario was assumed that implied a loss severity in excess of 12.0%.

According to the December 2020 remittance, 20 loans are on the servicer’s watchlist, representing 29.3% of the current pool balance. The servicer is monitoring these loans for various reasons, including a low DSCR or occupancy figure, tenant rollover risk, and/or pandemic-related forbearance requests. Many of the larger loans on the servicer’s watchlist are backed by lodging properties, including the largest loan on the watchlist in Prospectus ID#1, Starwood Hotel Portfolio (7.4% of the pool) and the second-largest loan on the watchlist in Prospectus ID#5, Virginia Beach Hotel Portfolio (4.8% of the pool). Although both loans are being monitored for low DSCRs, it is noteworthy that neither is being monitored for a coronavirus relief request and both remain current.

ESG CONSIDERATIONS
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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating on Class B as the quantitative results suggested a lower rating. The material deviation is warranted given the uncertain loan level event risk with the loans in special servicing and on the servicer’s watchlist.

Classes X-A, X-B, and X-D are interest-only (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.

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 – Holiday Inn FiDi (3.7% of the pool)
-- Prospectus ID#26 – 1400 Fifth Avenue (1.3% 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 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.

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.

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

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