DBRS Morningstar Confirms All Classes and Maintains Negative Trends for Two Classes of Wells Fargo Commercial Mortgage Trust 2018-C47

DBRS Limited (DBRS Morningstar) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-C47 issued by Wells Fargo Commercial Mortgage Trust 2018-C47 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class X-D at A (sf)
-- Class D at A (low) (sf)
-- Class E-RR at BBB (sf)
-- Class F-RR at BBB (low) (sf)
-- Class G-RR at BB (sf)
-- Class H-RR at B (high) (sf)

The trends for Classes G-RR and H-RR remain Negative, which reflect the concerns surrounding select loans showing performance declines from issuance, as further described below. All other trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. According to the December 2021 remittance, all 74 of the original loans remain in the trust, with scheduled amortization resulting in a nominal collateral reduction of 1.3% since issuance. There are three defeased loans, representing 2.4% of the current pool balance. Three loans, representing 5.7% of the current pool balance, are in special servicing, and 18 loans, representing 25.1% of the current pool balance, are on the servicer’s watchlist.

The Negative trends for the two lowest-rated classes reflect DBRS Morningstar’s concerns with the defaulted loans in the pool. Of the three loans in special servicing, the largest is the Holiday Inn FiDi (Prospectus ID#6, 3.7% of the pool balance), which is secured by a limited-service hotel in the Financial District of Downtown Manhattan, New York. The pari passu loan was transferred to special servicing in May 2020 and was last paid through August 2020. The servicer has noted foreclosure as the workout strategy, but the statewide moratorium on foreclosures is in effect until January 15, 2022. DBRS Morningstar notes the STR, Inc. report provided for August 2021 showed that performance is slowly improving and, given the upcoming possibility the foreclosure moratorium expires, these factors could combine to incentivize the sponsor to resume discussions regarding a loan modification, but nothing concrete in that direction has been suggested to date. The special servicer obtained an appraisal as of August 2020 that concluded to an as-is value of $138.6 million, well below the issuance value of $233.0 million but above the combined exposure across the three trusts holding pieces of the loan.

The second-largest loan in special servicing is the 1400 Fifth Avenue (Prospectus ID#26, 1.3% of the pool balance) loan, which is secured by an anchored retail property in New York, and was transferred to special servicing in June 2020 for imminent default. The former largest tenant, New York Sports Club, which occupied 45.6% of the net rentable area, filed for bankruptcy in September 2020 and has since vacated the property. According to the latest servicer reporting, negotiations remain under way for a possible loan modification, but the borrower has been less than responsive, possibly because of the foreclosure moratorium in place for New York state, as previously noted. According to the YE2020 financials, the loan reported a debt service coverage ratio (DSCR) of 0.84 times (x), compared with the YE2019 DSCR of 1.39x. The YE2020 occupancy rate was 52.4%, compared with the YE2019 occupancy rate of 98.0%. The updated appraisal as of April 2021 valued the property at $16.0 million, a 27% decrease from the issuance value but above the trust’s current exposure.

Although the most recent valuations suggest there should be incentive for both sponsors to come to an agreement with the servicer for a loan modification that will buy time for stabilization efforts, significant unknowns remain. There is also the possibility that updated appraisals could find value declines for these properties, which are in a city with above-average susceptibility to disruption amid the Coronavirus Disease (COVID-19) pandemic given the high population density. As such, DBRS Morningstar applied probability of default penalties for both loans in the analysis for this review and maintained the Negative trends on the lowest-rated classes, as outlined above.

At issuance, DBRS Morningstar assigned investment-grade shadow ratings to three loans: Aventura Mall (Prospectus ID#2, 5.3% of pool), Christiana Mall (Prospectus ID#3, 5.3% of pool), and 2747 Park Boulevard (Prospectus ID#8, 2.8% of pool). With this review, DBRS Morningstar confirms that the performance for these loans remains in line with the investment-grade shadow ratings.

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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating on Class C as the quantitative results suggested a lower rating. The material deviation is warranted given the uncertain loan-level event risk, particularly with the loans in special servicing.

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 reference 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 – Holiday Inn FiDi (3.7% of the pool)
-- Prospectus ID#26 – 1400 Fifth Avenue (1.3% of the pool)
-- Prospectus ID#15 – Christenbury Corners (1.9% 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 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.

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 [email protected].

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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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