DBRS Morningstar Confirms all Classes of Wells Fargo Commercial Mortgage Trust 2015-C31

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C31 issued by Wells Fargo Commercial Mortgage Trust 2015-C31 as follows:

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

The trends on Classes E and F are Negative. All other trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance, when the transaction consisted of 102 fixed-rate loans secured by 118 commercial and multifamily properties with an initial trust balance of $988.5 million. As of the June 2021 remittance report, 92 loans remain in the transaction with a current trust balance of $895.5 million, representing a collateral reduction of approximately 9.4% since issuance resulting from amortization and the successful repayment of 10 loans. Six loans, representing 3.6% of the current pool balance, are fully defeased.

The transaction is concentrated by property type as 27 loans, representing 47.1% of the current trust balance, are secured by retail and hospitality properties, with office properties representing the third-highest concentration at 19.6% of the current trust balance.

As of the June 2021 remittance, three loans, representing 8.6% of the pool, are in special servicing. The largest loan in special servicing is Sheraton Lincoln Harbor Hotel (Prospectus ID#2; 6.7% of the pool), was liquidated from the pool in the analysis for this review. The loan is secured by a 358-key full-service hotel in Weehawken, New Jersey. The loan transferred to special servicing in January 2021 for imminent default. The servicer has confirmed the borrower will no longer be funding shortfalls and has expressed a desire to transfer the title to the property to the trust. The collateral hotel’s performance was deteriorating prior to the pandemic, with the YE2019 net cash flow (NCF) down 24.7% compared with at issuance. The March 2021 appraisal obtained by the special servicer estimated an as-is value of $87.4 million, which reflects a 31.7% decrease from the issuance appraisal of $128.0 million. Given the hotel’s challenges prior to the onset of the pandemic and the likelihood that the property will continue to struggle even as travel begins to increase, DBRS Morningstar believes the as-is value could further deteriorate and assumed a conservative haircut to the March 2021 value in the liquidation analysis, which resulted in a loss severity in excess of 25.0%.

As of the June 2021 remittance, 24 loans, representing 35.9% of the pool, are on the servicer’s watchlist. The majority of the watchlisted loans are being monitored for cash flow concerns that have generally been driven by disruptions related to the pandemic. DBRS Morningstar notes concerns associated with the pool’s largest loan, 745 Atlantic Avenue (Prospectus ID#1; 7.8% of the pool), which is secured by a 174,231-square-foot Class A office building in the Boston central business district. According to the servicer’s watchlist commentary, the property’s largest tenant, WeWork, which is in place on a lease representing 75.0% of the net rentable area and expiring in 2029, ceased paying rent in March and has since gone dark. The subject lease does not contain any termination or contraction options and, according to the servicer, the borrower plans to pursue legal remedies related to WeWork’s departure and cessation of payments due under the terms of the lease.

The loan was structured with cash management and a cash trap to be triggered with certain events, including WeWork going dark or ceasing rent payments, and the servicer’s watchlist commentary confirmed cash management is being initiated. The June 2021 loan level reserve report showed only nominal reserves on the loan as leasing reserves and tax and insurance impounds were not required at closing. The cash management provision will trigger the collection of reserves and the borrower does have the option to post an LOC of up to $5.0 million in lieu of the reserve collections. The loan, which funded the acquisition of the property with a sponsor equity contribution of just over $48.0 million to close the transaction, has not been delinquent to date. Given the low physical occupancy rate for the property with the WeWork departure and the uncertainty surrounding the outcome of the borrower’s pursuit of legal remedies against the tenant, the loan was analyzed with a significant probability of default penalty to increase the expected loss in the analysis for this review.

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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 26, 2021), 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].

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