DBRS Morningstar Confirms All Ratings on Wells Fargo Commercial Mortgage Trust 2018-C44

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-C44 issued by Wells Fargo Commercial Mortgage Trust 2018-C44 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class E-RR at BBB (low) (sf)
-- Class F-RR at BB (sf)
-- Class G-RR at B (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the underlying loans in the transaction. At issuance, the trust consisted of 44 fixed-rate loans secured by 55 commercial, hospitality, and multifamily properties with an original balance of $766.7 million. As of the January 2021 remittance report, all of the original loans remain in the pool and there has been nominal collateral reduction of 1.2% since issuance. The pool is somewhat concentrated by property type, with the greatest concentration by loan balance consisting of office assets (12 loans accounting for 35.2% of the current bool balance). Retail assets account for the second-greatest property type concentration, with 13 loans that represent 24.8% of the current pool balance. There are six loans secured by lodging properties, which have been particularly hard-hit by the global Coronavirus Disease (COVID-19) pandemic; however, the concentration is relatively small as these loans make up 12.3% of the current pool balance.

At issuance, an investment-grade shadow rating was assigned to one loan, Prospectus ID#7 – 181 Fremont Street (4.0% of the current pool balance). With this review, DBRS Morningstar confirmed that the performance of this loan remains consistent with the characteristics of an investment-grade loan.

As of the January 2021 remittance period, there were nine loans representing 22.1% of the current pool balance on the servicer’s watchlist, including three of the top 15 loans that combine for 16.5% of the pool. The watchlisted loans are being monitored for a variety of reasons including low debt service coverage ratios (DSCRs), decreases in occupancy from issuance, upcoming lease expirations, and/or requests from the respective borrowers for relief as a result of the coronavirus pandemic.

The largest loan in the pool, Village at Leesburg (8.7% of the pool) is on the watchlist for monitoring after its return from the special servicer, where it was transferred in June 2020 following the borrower’s pandemic-related relief request. The loan is secured by a grocery-anchored retail property in Leesburg, Virginia, approximately 40 miles northwest of Washington, D.C. The grocery anchor is Wegmans, with 26.1% of the net rentable area (NRA) on a lease that runs through July 2034. The second-largest tenant is Cobb Theatres (11.7% of the NRA), whose parent company filed for bankruptcy in April 2020. L.A. Fitness (8.2% of the NRA), Bowlero (3.9% of the NRA), and Atomic Trampoline (3.0% of the NRA) round out the top five tenant roster.

Although the grocery anchor is a desirable draw, particularly given the property’s proximity to a Silver Line subway station that was opened in 2020, the concentration of experiential tenants as the other four tenants in the top five tenants is noteworthy amid the pandemic given the challenges for those businesses with the social distancing guidelines in place. The borrower initially submitted a relief request when the loan was transferred to special servicing, but that was ultimately withdrawn and the loan was returned to the master servicer in November 2020.

There were also three loans in special servicing: Prospectus ID#9 – Prince and Spring Street Portfolio (4.0% of the current pool balance); Prospectus ID#23 - Holiday Inn Express & Suites - Marysville, WA (1.5% of current pool balance); and Prospectus ID#25 – 1442 Lexington Ave (1.5% of current pool balance).

The largest specially serviced loan, Prince and Spring Street Portfolio, is secured by a portfolio of three mixed-use properties with a total of 48 multifamily units and approximately 8,000 square feet of ground-floor retail, all located within three blocks of each other in the Nolita neighborhood of lower Manhattan, New York. The loan’s transfer to special servicing was reflected in the January 2021 remittance, when it was reported as more than 90 days delinquent. Cash flows prior to the pandemic were already stressed, with a YE2019 DSCR of 0.97x, and the loan had been delinquent several times before the transfer to special servicing and according to the special servicer, the borrower has formally requested relief and negotiations are underway regarding a potential loan modification.

The second-largest specially serviced loan, Holiday Inn Express & Suites - Marysville, WA, is secured by a 100-key limited-service hotel in Marysville, Washington (approximately 40 miles north of Seattle). The loan transferred to special servicing in October 2020 because of imminent monetary default resulting from the effects of the coronavirus pandemic. However, it has since been reported that the borrower has withdrawn the relief request and the loan is expected to return to the master servicer in the near term. The loan was paid in December 2020, but the January 2021 remittance showed the January 2021 payment remained outstanding.

Although the effects of the pandemic have introduced and/or exacerbated previously existing risks for these larger loans in special servicing, DBRS Morningstar notes mitigating factors for each that include favorable locations for the collateral properties in the case of the Prince and Spring Street Portfolios and in the historically stable performance for the Holiday Inn Express & Suites – Marysville, WA property and believes the overall risk through the near to medium term remains moderate for both loans.

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 #1 – Village at Leesburg (8.7% of the current pool)
-- Prospectus ID#9 – Prince and Spring Street Portfolio (4.0% of the current 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 at dbrsmorningstar.com/about/methodologies. 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.

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

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