DBRS Morningstar Confirms All Classes and Assigns Negative Trends to Four Classes of Wells Fargo Commercial Mortgage Trust 2017-RB1

DBRS Limited (DBRS Morningstar) confirmed all classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-RB1 issued by Wells Fargo Commercial Mortgage Trust 2017-RB1 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 X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E-1 at BB (sf)
-- Class E at BB (low) (sf)
-- Class E-2 at BB (low) (sf)
-- Class F-1 at B (high) (sf)
-- Class EF at B (sf)
-- Class F at B (sf)
-- Class F-2 at B (sf)
-- Class EFG at B (low) (sf)
-- Class G at B (low) (sf)
-- Class G-1 at B (low) (sf)
-- Class G-2 at B (low) (sf)

All trends are Stable, with the exception of Classes G-1 and G-2, and the respective exchangeable Classes EFG and G, which carry Negative trends. With this review, DBRS Morningstar removed Classes F-2, G-1, and G-2 from Under Review with Negative Implications, where they were placed on August 6, 2020.

The Negative trend assignments are reflective of DBRS Morningstar’s concerns surrounding the two loans in special servicing, as discussed below. In general, however, the transaction has performed in line with issuance expectations. As of the January 2021 remittance, the initial trust balance of $638 million has been reduced to $623.4 million, with 36 of the original 37 loans remaining in the pool. The transaction is concentrated by property type as 11 loans, representing 49.7% of the current trust balance, are secured by office collateral. Mixed-use properties back the second-largest concentration of loans, with five loans representing 15.1% of the current trust balance.

As of the January 2021 remittance, 11 loans, representing 17.9% of the pool, are on the servicer’s watchlist, and there are two loans, representing 6.8% of the pool, in special servicing. Seven of the watchlisted loans are being monitored for a variety of issues, such as low debt service coverage ratios (DSCRs), occupancy-related issues, and deferred maintenance. In general, the watchlisted loans exhibiting increased risks from issuance were analyzed with a probability of default (POD) penalty to increase the expected loss for this review. A POD penalty was also applied for the larger loan in special servicing, and the smaller loan in special servicing was liquidated in the analysis for this review.

The larger loan in special servicing is Anaheim Marriot Suites (Prospectus ID#10; 4.1% of the pool). The loan is secured by a 371-key full-service hotel in Garden Grove, California, near two major demand drivers: the Anaheim Convention Center and Disneyland. The loan was transferred to the special servicer in June 2020 for payment default and, as of the January 2021 remittance, was listed as 121-plus days delinquent. The special servicer has confirmed that the borrower has proposed a loan modification to allow for temporary payment relief, which is in discussions as of this review. As of the trailing 12 month (T-12) period ended August 2020 STR, Inc. report, the collateral reported an occupancy rate of 55.3%, an average daily rate of $123.83, and revenue per available room of $68.53. Those figures represented year-over-year declines of 37.6%, 8.1%, and 42.7%, respectively. The servicer most recently reported a T-6 ended June 2020 debt service coverage ratio (DSCR) of -0.21 times (x), down from the year-end (YE) 2019 DSCR of 1.84x and the YE2018 DSCR of 1.79x.

The other loan in special servicing is Art Van Portfolio (Prospectus ID#14; 2.9% of the pool). The collateral is a portfolio of three retail properties and two industrial properties in suburban Detroit and Grand Rapids, Michigan. The portfolio initially served as a distribution, warehouse, and retail facility for a furniture company, Art Van Furniture (Art Van). In March 2020, Art Van filed for Chapter 11 bankruptcy, which was subsequently converted to a Chapter 7 liquidation in April. A private-equity firm acquired three of the collateral property leases and rebranded Art Van Furniture as Loves Furniture. With that development, the loan was brought current through a reinstatement agreement. The two remaining properties in the portfolio were re-leased, but details have not been provided to date.

More recently, however, the newly formed Loves Furniture has filed for Chapter 11 bankruptcy as of December 2020, with the company announcing initial plans to downsize its national footprint to 11 stores from 24. The closure list did not include the subject properties; however, DBRS Morningstar notes that significant challenges remain for the fledgling furniture retailer that could ultimately mean all locations will be closed. The subject loan is delinquent for the November 2020 payment and all payments due thereafter. Although the industrial properties will likely be more attractive for selling and/or re-leasing should Loves Furntiture ultimately fold, the Coronavirus Disease (COVID-19) pandemic brings significant uncertainty that DBRS Morningstar considered for this review. As such, DBRS Morningstar applied a conservative approach that allowed for a significant haircut to the September 2020 appraisal.

At issuance, DBRS Morningstar shadow-rated one loan investment grade, Merrill Lynch Drive (Prospectus ID#13; 3.3% of the pool). With this review, DBRS Morningstar confirms the performance of the loan remains in line with its respective shadow ratings.

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 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 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#10 – Anaheim Mariott Suites (4.1% of the pool)
-- Prospectus ID#14 – Art Van Portfolio (2.9% 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 info@dbrsmorningstar.com.

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 info@dbrsmorningstar.com.

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