DBRS Morningstar Downgrades Three Classes, Changes Trends to Negative on Three Classes of Wells Fargo Commercial Mortgage Trust 2015-C28

DBRS Limited (DBRS Morningstar) downgraded three classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C28 issued by Wells Fargo Commercial Mortgage Trust 2015-C28 as follows:

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

Classes F and X-F were removed from Under Review with Negative Implications where they had been placed on August 6, 2020. In addition, DBRS Morningstar discontinued its rating on the notional Class X-F as that class references Class F, which is now rated CCC (sf).

DBRS Morningstar also confirmed the remaining classes as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class D at BBB (low) (sf)

The trends on Classes D, E, and X-E were changed to Negative from Stable. All other trends are Stable.

The rating downgrades and Negative trends reflect the increased risk of loss from some of the loans in the trust, including some that are in special servicing.

As of the February 2021 remittance, 86 of the original 99 loans remain in the pool, with scheduled amortization resulting in collateral reduction of 12.1% since issuance. Five loans, representing 6.5% of the current pool balance, are in special servicing, including the 11th-largest loan in the pool, Brickyard Square (Prospectus ID#11; 2.3% of the pool balance), which is secured by a retail center located in Epping, New Hampshire, approximately 60 miles north of Boston. The loan was transferred to special servicing in June 2020 for imminent default and, as of the February 2021 remittance, is over 120 days delinquent. The servicer’s commentary for the other pari passu loan held in the WFCM 2015-C29 transaction (not rated by DBRS Morningstar) notes an ongoing review of the borrower’s Coronavirus Disease (COVID-19) relief request.

As of an August 2020 appraisal, the property was valued at $47.6 million, compared with the issuance appraised value of $50.5 million. Given the relatively moderate decline in value, the risk of a significant loss for this loan is generally low, but the property’s exposure to a theater tenant in O’Neil Cinemas, as well as the extended delinquency, are suggestive of an increased risk of default from issuance. The loan was analyzed with a probability of default (PD) penalty to increase the expected loss and will be monitored for further developments.

The second-largest loan in special servicing is Courtyard Marriott Harrisburg (Prospectus ID#17; 1.6% of the pool), which is secured by a 128-key full-service hotel located in Swatara Township, Pennsylvania, approximately five miles from downtown Harrisburg, the state capital. The loan transferred to special servicing in November 2020 and is 90 to 120 days delinquent as of the February 2021 remittance. Although the property reported cash flow declines prior to the pandemic, the loan was still well above water. However, according to the servicer, the borrower wants to deed the property back to the lender. An updated appraisal has not been obtained by the special servicer to date. Given the declines in performance from issuance and the hurdles for the property amid the pandemic, DBRS Morningstar assumed a significant haircut to the issuance value as part of a liquidation scenario, which resulted in a loss severity in excess of 65.0%.

According to the February 2021 remittance, 18 loans, representing 10.1% of the current pool balance, are on the servicer’s watchlist. The largest loan on the watchlist, Milestone Portfolio (Prospectus ID#8; 2.5% of the pool), is secured by a portfolio that consists of two single-tenant industrial facilities and a big-box retail property and is on the watchlist because the largest tenant, Wagner Industries Inc., has an upcoming lease expiry in October 2021. The servicer is monitoring the other watchlisted loans for various reasons, including a low DSCR or occupancy figure, tenant rollover risk, and/or pandemic-related forbearance requests.

One top 15 loan not on the servicer’s watchlist or in special servicing is, however, on the DBRS Morningstar Hotlist: 3 Beaver Valley Road (Prospectus ID #6; 4.2% of the pool), which is secured by an office property in Wilmington, Delaware. The collateral property was previously 100.0% leased to two tenants, Farmers Insurance (Farmers; 80.1% of NRA, expiring December 2024) and Solenis (19.9% of NRA, expiring January 2025). However, Solenis recently exercised a termination option and relocated, and Farmers, which operates a subsidiary’s business out of the subject location, also announced plans to downsize in early 2020.

Farmers has a contraction option, effective in January 2022, that allows the tenant to relinquish space equal to 20.1% of the NRA with a 12-month notice requirement. The loss of Solenis and the contraction of Farmers suggests an availability rate of approximately 40.0% of the NRA of the property. However, a Commercial Café listing updated on March 6, 2021, listed 222,952 sf of available space, or about 85.0% of the NRA, suggesting Farmers has relinquished more than the expected square footage. DBRS Morningstar has requested that the servicer confirm the availability of space at the property and is awaiting the response. Given the significantly increased risks from issuance in the downsizing of Farmers and the loss of Solenis, without a backfill to date, a PD penalty was applied to increase the expected loss in the analysis for this review.

ESG CONSIDERATIONS
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-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 #6 – 3 Beaver Valley Road (4.2% of the pool)
-- Prospectus ID #11 – Brickyard Square (2.3% 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 the 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.

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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