DBRS Morningstar Downgrades Two Classes of Wells Fargo Commercial Mortgage Trust 2015-NXS2

DBRS, Inc. (DBRS Morningstar) downgraded two classes of the Commercial Mortgage Pass-Through Certificates, Series 2015-NXS2 issued by Wells Fargo Commercial Mortgage Trust 2015-NXS2 as follows:

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

In addition, DBRS Morningstar confirmed the remaining classes 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-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)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)

All trends are Stable with the exception of Class F, which does not carry a trend because of the CCC (sf) rating. As part of this review, DBRS Morningstar removed Classes F and X-F from Under Review with Negative Implications where it had placed them on August 6, 2020.

The downgrades capture the increased risk of principal losses to the trust as there are nine loans, totaling 19.6% of the trust balance, in special servicing as of the March 2021 remittance report. DBRS Morningstar notes the special servicer is pursuing foreclosure actions for most of the specially serviced loans, which could lead to additional losses to the unrated Class G certificates. The downgrades to Classes F and X-F reflect the lower projected credit enhancement levels following the forecasted losses to the trust in a hypothetical liquidation scenario for some of the specially serviced loans.

At issuance, the trust consisted of 63 fixed-rate loans secured by 77 commercial properties with a trust balance of $914.4 million. Per the March 2021 remittance report, 61 loans secured by 75 commercial properties remain in the trust with a total balance of $760.5 million, representing a 16.8% collateral reduction since issuance. The original largest loan in the pool, Patriots Park, which had represented 10.0% of the pool balance, was in special servicing for a nonpermitted equity transfer, but ultimately repaid in full, although the special servicing fees of approximately $900,000 were applied as a loss to the unrated Class G certificates with the October 2019 remittance.

The trust benefits from nine loans, representing 9.0% of the trust balance, being fully defeased. The pool is relatively granular by loan size as the largest 15 loans comprise 56.9% of the trust balance. The pool also benefits from the relatively high amount of properties located in urban markets with 11 loans, totaling 28.2% of the trust balance, secured by properties with a DBRS Morningstar Market Rank of 6 or greater. Maturity risk is nonexistent in the near term as there is only one loan that has a maturity date before 2025; however, that loan was fully defeased as of the March 2021 reporting. The trust does feature a relatively high number of loans with full interest-only (IO) terms (nine loans totaling 31.8% of the trust balance).

Per the March 2021 remittance report, the pool is exhibiting a moderate level of stress as there are nine loans, representing 19.6% of the trust balance, in special servicing and an additional 15 loans, representing 22.1% of the trust balance, on the servicer’s watchlist. Seven loans, totaling 13.6% of the trust balance, transferred to the special servicer during the Coronavirus Disease (COVID-19) pandemic. The high concentration of specially serviced loans is anticipated to decrease in the near term as the special servicer noted the Embassy Suites Nashville loan (Prospectus ID#5 – 5.3% of the trust balance) is expected to be transferred back to the master servicer after a forbearance agreement was executed in February 2021. DBRS Morningstar also notes the second-largest specially serviced loan, Sea Harbor Office Center (Prospectus ID#6 – 5.3% of the trust balance), continues to be a strong performer despite being in special servicing for over two years. The loan is secured by a mid-rise Class A office building in Orlando that transferred to the special servicer in January 2019 as a result of the sponsor’s noncompliance with a lockbox provision related to the credit rating for the parent company of the property’s largest tenant, Wyndham Vacation Ownership, Inc. (Wyndham Vacation). The property remained 100% occupied as of September 2020 and the property’s net cash flow (NCF) has been well above the issuer’s underwritten NCF since 2016. An online listing on Commercial Café is marketing a floor at the subject property for sublease, indicating Wyndham Vacation may not be utilizing all of its space.

DBRS Morningstar is closely monitoring the 70 Broad Street (Prospectus ID#18 – 1.9% of the trust balance) and Hotel Andra (Prospectus ID#20 – 1.8% of the trust balance) loans as those loans transferred to the special servicer since the last review and the special servicer is pursuing foreclosure of the respective collateral properties. The 70 Broad Street loan is secured by the fee-simple interest in a mixed-use commercial/corporate residential housing property located in Lower Manhattan. The loan transferred to the special servicer in March 2020 after an event of default was triggered due to failure to provide financial information since 2016 and to comply with the cash management provisions. In May 2020, a representative of the borrower reported all in-place leases at issuance had been terminated in April 2017 and the property had been 100% vacant since that time. The special servicer has initiated the foreclosure process and will appoint a receiver to manage the property after taking title. The property was reappraised in July 2020 for a value of $15.6 million, down 31.0% from the appraised value of $22.6 million at issuance. As part of the subject analysis, the loan was liquidated from the trust based on the July 2020 appraised value, resulting in an implied loss severity in excess of 20.0%.

The Hotel Andra loan is a secured by the borrower’s fee-simple interest in a 119-key boutique hotel in downtown Seattle. The loan transferred to special servicing in March 2020 for imminent monetary default at the borrower’s request as performance has been severely affected by the pandemic and the borrower was unable to make its May 2020 debt service payment. The hotel has remained closed since March 2020. Per a February 2021 asset status report, the borrower indicated it does not have the ability to fund the loan shortfalls or contribute additional capital toward the property. The special servicer has received consent to take the necessary steps to appoint Manhattan Hospitality Advisors as receiver of the property and enter into a deed in lieu of foreclosure or initiate foreclosure proceedings. The property was reappraised in October 2020 for $40.0 million, down 27.0% from the issuance value of $54.8 million; however, the appraiser did indicate collateral value upside in the near term as the coronavirus pandemic subsides. The loan was liquidated from the trust as part of the subject analysis based on the October 2020 appraised value, which would yield an implied loss severity in excess of 10.0%.

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-E, and X-F are 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 issuance metrics and all historical surveillance commentary on the DBRS Viewpoint platform.

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. 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 [email protected].

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602
Tel. +1 312 696-6293