DBRS Morningstar Confirms all Ratings of Wells Fargo Commercial Mortgage Trust 2016-C33, Trends on Four Classes Remain Negative

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-C33 issued by Wells Fargo Commercial Mortgage Trust 2016-C33 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 X-B at A (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-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)

The trends on Classes E, F, X-E, and X-F remain negative because of material increased risks for three loans in the top 10 loans in the pool, as further discussed below. All other trends are Stable.

The rating confirmations reflect the overall stable performance of the trust, with no losses incurred by the trust to date and a noteworthy amount of collateral reduction and defeasance since issuance. There are six loans currently in special servicing, representing 9.6% of the pool balance, however, and DBRS Morningstar believes losses could be incurred for some of these loans, providing further support for the Negative trends maintained with this review. In addition, DBRS Morningstar is closely monitoring the Brier Creek Corporate Center I & II (Prospectus ID#7, 3.7% of the trust balance) and Omni Officentre (Prospectus ID#10, 2.6% of the trust balance) loans, which are both on the servicer’s watchlist and the DBRS Morningstar Hotlist. DBRS Morningstar’s concerns are driven by the occupancy and rollover risks exhibited for each, factors that will likely be compounded by the pandemic-increased stress on suburban office markets such as those where both collateral properties are located. In addition, the pool is concentrated in loans secured by retail and hotel properties, representing 21.9% and 14.9% of the trust balance, respectively. These property types were generally affected by the Coronavirus Disease (COVID-19) pandemic, which led to performance declines in 2020 and 2021.

At issuance, the trust comprised 79 fixed-rate loans secured by 104 commercial and multifamily properties with a trust balance of $712.2 million. Per the December 2021 remittance, 72 loans secured by 92 properties remain in the trust with a total trust balance of $563.8 million, representing a 20.8% collateral reduction since issuance. Nine loans, representing 12.7% of the trust balance, are fully defeased. Three loans, with a total trust balance of $13.5 million, all secured by secondary hospitality properties, are real estate owned as of December 2021. DBRS Morningstar hypothetically liquidated these loans from the trust and the losses were contained in the unrated Class G.

Per the December 2021 remittance report, there are six loans in special servicing, as previously noted, and an additional 15 loans, totaling 26.3% of the trust balance, on the servicer’s watchlist. The specially serviced loans are all secured by hospitality properties that were generally affected by the pandemic, including the largest of these loans in the DoubleTree Seattle Airport Southcenter (Prospectus ID#5, 4.6% of the trust balance), which is secured by a full-service hotel in Tukwila, Washington, just outside Seattle. The hotel’s demand segmentation is concentrated in commercial and meeting and group guests, which has been slow to recover from the pandemic effects. The property was reappraised in August 2021 for an “as-is” value of $28.8 million, slightly down from the $29.0 million appraised value in December 2020 and well below the issuance appraised value of $42.1 million. The loan has been in special servicer for 18 months and a forbearance agreement has yet to be executed. Servicer advances continue to accue and the total loan exposure is now greater than the “as-is” appraised value. The hotel’s reliance on commercial demand suggests recovery will be slower amid the pandemic, which has had an outsized impact on group and meeting bookings, as well as business travel in general. Should this stress continue, the as-is value could further decline and in turn, increase the loss projections for this loan should the trust take title and liquidate the loan.

The 225 Liberty Street loan (Prospectus ID#3, 7.2% of the trust balance) was shadow-rated investment grade at issuance because of the collateral’s high quality, recent extensive renovation, and strong location within the Manhattan submarket. DBRS Morningstar confirms the loan continues to exhibit investment-grade characteristics with 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, X-D, 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#5 – DoubleTree Seattle Airport Southcenter (4.6% of the pool)
-- Prospectus ID#7 – Brier Creek Corporate Center I & II (3.7% of the pool) – DBRS Hotlist
-- Prospectus ID#10 – Omni Officentre (2.6% of the pool) – DBRS Hotlist

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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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