DBRS Morningstar Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2015-LC20

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-LC20 issued by Wells Fargo Commercial Mortgage Trust 2015-LC20 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 (sf)
-- Class F at B (low) (sf)

DBRS Morningstar removed Classes E, F, X-E, and X-F from Under Review with Negative Implications, where they were placed on August 6, 2020. These classes have Negative trends because of the increasing risks associated with the specially serviced loans. All other trends are Stable.

As of the February 2021 remittance, the pool’s balance had been reduced to $742.6 million from $829.6 million at issuance, resulting from the payoff of five loans and scheduled amortization. There have been no losses to the trust to date.

Eight loans, representing 19.0% of the pool, are with the special servicer. The largest specially serviced loan is the One Monument Place loan (Prospectus ID#3, 5.2% of the pool), which is secured by a 222,477-square-foot (sf) Class A office building in Fairfax, Virginia. The loan transferred to the special servicer in April 2020 after failing to pay off at maturity. The property has struggled to maintain stable occupancy over the last few years, and a January 2021 rent roll reported 47% vacancy. The largest tenant, Teoco Corporation, a provider of analytic solutions and support to more than 300 financial organizations, uses this space as its corporate headquarters. It occupies 25,724 sf (12% of the gross leasable area (GLA)) on a lease through 2029. The second-largest tenant is Concept Plus LLC, a technology services company, which occupies 13,959 sf (6% of the GLA) on a lease through September 2021. The property was reappraised in 2020 for $29.5 million, implying a 50% value decline since issuance. The special servicer reported that a forbearance was being negotiated and the loan was reported as current in February 2021 after several months of delinquency.

The second-largest specially serviced loan is the University of Delaware Hotel Portfolio loan (Prospectus ID#4, 4.4% of the pool balance), which is secured by two adjacent hotels, an Embassy Suites and a Homewood Suites, that sit across from the University of Delaware campus. The hotels performed well with a combined 2019 net cash flow that was in line with the issuance level. However, in 2020, cash flow plunged to below breakeven levels as the Coronavirus Disease (COVID-19) pandemic led to stay-at-home orders and limitations for on-campus learning. The most recent financials available were for the nine-month period ended September 30, 2020, which reported a cash flow of $181,840 compared with the $3.6 million at issuance. As of February 2021, the University of Delaware reported it has more students attending in person this spring than it had in fall 2020, which is encouraging. Additionally, a 2020 appraisal valued the property above the $32.7 million loan balance at $40 million, implying an 81.8% loan-to-value ratio. The loan is expected to return to the master servicer once a relief agreement has been finalized.

The Hilton Albany loan (Prospectus ID#9, 3.31% of the pool balance) is secured by a 385-room full-service hotel in the central business district of Albany, New York, within walking distance of many government buildings as well as the Albany Capital Center. The hotel reported strong financials for 2019 with a net cash flow of $3.2 million, a debt service coverage ratio (DSCR) of 1.84 times (x), and an occupancy rate of 66%. The most recent financials reported were dated September 2020 and reflected a cash flow below breakeven and an occupancy level down to 26% caused by the ongoing effects of the strict stay-at-home orders. It appears relief negotiations may have stalled and the special servicer is seeking approval to foreclose. This could delay a resolution as an ongoing moratorium on commercial mortgages foreclosures in New York has been in effect throughout the pandemic. An updated appraisal has not yet been reported, and DBRS Morningstar stressed this loan as part of this analysis.

There are 12 loans, representing 16.7% of the pool, on the servicer’s watchlist. These loans are being monitored for various reasons, including low DSCRs or occupancy, tenant rollover risk, and/or pandemic-related forbearance requests. The largest loan on the watchlist is the 18th Street Atrium loan (Prospectus ID#8, 3.6% of the pool), secured by an office building in downtown Denver, is also being monitored on the DBRS Morningstar Hotlist after three tenants, representing 81.6% of the net rentable area (NRA), vacated the property. However, performance is expected to improve as the background check company, Checkr Inc., announced in October 2019 that it had signed an 11-year lease at the subject for approximately 82.6% of the NRA. According to the December 2020 rent roll, the tenant occupies 55,068 sf or 49.2% of the GLA on a lease through 2030. The second-largest loan on the watchlist is the Hampton Inn & Suites – Miami Airport loan (Prospectus ID#11, 2.3% of the pool). Shortly after completing guest room renovations in late 2019, the hotel was faced with pandemic-related travel restrictions, decimating cash flow to below breakeven in 2020. However, the loan has strong sponsorship with Hospitality Operations, Inc., which has kept the loan current. The hotel has continued with some common area improvements that should be complete in March 2021.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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 loan in the transaction:

-- Prospectus ID#9 – Hilton Albany (3.31% 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.

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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