DBRS Morningstar Takes Rating Actions on Wells Fargo Commercial Mortgage Trust 2019-C49

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-C49 issued by Wells Fargo Commercial Mortgage Trust 2019-C49 as follows:

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

With this review, DBRS Morningstar removed Class J-RR from Under Review with Negative Implications where it was placed on August 6, 2020.

Classes G-RR, H-RR, and J-RR have Negative trends. All other trends are Stable.

The Negative trends are largely the result of DBRS Morningstar’s outlook for some of the loans in special servicing, as further discussed below for the largest of these loans. In general, the loans contributing to the increased likelihood of loss to the trust were exhibiting performance declines prior to the onset of the Coronavirus Disease (COVID-19) global pandemic, and those increased risks are now exacerbated amid the effects of the pandemic.

As of the February 2021 remittance, all of the original 64 loans remain in the pool. There are 13 loans, representing 21.0% of the current trust balance, on the servicer’s watchlist. The servicer is monitoring these loans for a variety of reasons, including a low debt service coverage ratio (DSCR) and/or occupancy issues; however, the primary reason for the concentration of loans on the watchlist is the coronavirus-driven stress for lodging and retail properties, with watchlist loans backed by those property types generally reporting a low DSCR.

As of the February 2021 remittance, the pool has four loans, representing 4.3% of the pool in special servicing, including Florissant Marketplace (Prospectus ID#19; 1.6% of the pool), Country Inn & Suites - Orlando (Prospectus ID#31; 1.2% of the pool), 599 Johnson Ave (Prospectus ID#45; 0.8% of the pool), and 659 Broadway (Prospectus ID#46; 0.8% of the pool).

The largest loan in special servicing, Florissant Marketplace, is secured by the borrower’s fee-simple interest in a grocery-anchored retail property in the St. Louis suburb of Florissant, Missouri. In July 2020, the loan transferred to special servicing because of imminent default, and as of the February 2021 remittance, the loan was most recently paid in May 2020. Occupancy fell to 72.5% from 100%, when Gold’s Gym (27.5% of the net rentable area (NRA)) filed for bankruptcy and vacated the property in Q2 2020, ahead of its October 2022 lease expiration. The impact to cash flows was significant, with the servicer reporting a DSCR of 1.46 times (x) for the trailing six months ended June 2020, compared with the YE2019 DSCR of 2.08x.

DBRS Morningstar expects the DSCR to fall to near 1.00x when a full year’s cash flow reflects the loss of Gold’s Gym, as the tenant’s $17.91 psf rental rate was well above the average of $7.82 psf for the remaining tenants at the property. The grocery anchor, Schnucks, represents 48.0% of the NRA on a lease expiring in November 2021, and although the renewal status is unknown, the most recent sales reported as of issuance, for 2018, were quite low at $265 psf. In addition, the loan seller’s summary provided at issuance noted the property manager’s statement that Gold’s Gym was a good co-tenant for Schnucks, so the loss of the complementary tenancy could also be an issue for the renewal. An October 2020 appraisal obtained by the special servicer indicated an as-is value of $8.5 million, down from $17.3 million at issuance. Based on that value, DBRS Morningstar liquidated the loan in the analysis for this review, resulting in a loss severity exceeding 50.0%.

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, 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#19 – Florissant Marketplace (1.6% 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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