DBRS Morningstar Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2018-C43

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2018-C43, issued by Wells Fargo Commercial Mortgage Trust 2018-C43 as follows:

-- Class A-2 at AAA (sf)
-- 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 B at AA (sf)
-- Class X-B at A (sf)
-- Class C 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)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. At issuance, the collateral for the trust consisted of 63 fixed-rate loans secured by 132 commercial and multifamily properties with an initial trust balance of $722.4 million. As of the December 2021 remittance, 62 loans remain in the pool, with a collateral reduction of 3.2% as a result of scheduled amortization and the repayment of one small loan. In the last year, six loans, representing 7.1% of the current pool balance, have been defeased.

At issuance, DBRS Morningstar shadow rated the following loans as investment grade: Moffet Towers II-Building 2 (Prospectus ID #1, 7.7% of the current pool balance) and Apple Campus 3 (Prospectus ID #7, 4.3% of the current pool balance). With this review, DBRS Morningstar maintains that the performance of these loans remains consistent with investment-grade characteristics.

As of the December 2021 remittance report, there are two loans in special servicing, representing 3.2% of the current pool balance, including one top 15 loan. Both are distressed because of issues caused by the Coronavirus Disease (COVID-19) pandemic. There are also seven loans, representing 13.6% of the current pool balance, being monitored on the servicer’s watchlist.

Galleria Oaks (Prospectus ID#15, 2.2% of the current pool balance) is the largest loan in special servicing and is secured by an unanchored retail property in Austin, Texas. The loan transferred to the special servicer in April 2020 for a nonmonetary default because of prohibited liens filed against the collateral. The special servicer indicated that the borrower failed to pay vendors, resulting in a mechanics lien being filed. A foreclosure notice was issued to the borrower in April 2021, and most recently, the special servicer reports that a court ordered mediation is underway. The borrower has generally been uncooperative since the loan’s transfer to special servicing, and as of the December 2021 remittance, the loan was last paid in September 2021. An updated appraisal has not been obtained since the loan’s transfer. Given the unknowns regarding the ultimate resolution of the loan and the possibility that property performance remains depressed from issuance, DBRS Morningstar assumed an elevated probability of default (POD) in the analysis for this review, increasing the expected loss for the loan.

The largest loan on the servicer’s watchlist is Southpoint Office Center (Prospectus ID#4, 5.2% of the current pool balance), which is secured by an office property in Bloomington, Minnesota. The loan has remained current, but was added to the watchlist in May 2021. Wells Fargo (formerly 18.2% of the net rentable area) vacated following its lease expiration in October 2020, contributing to a reduction in occupancy to 66.4% as of September 2021, down from 86.4% the year prior. As a result of the decline in occupancy, the debt service coverage ratio has fallen to 0.54 times (x) as of the trailing nine months ended September 30, 2021, down from 1.33x at year end 2020 and 1.82x at issuance. Given the sharp performance decline from issuance, DBRS Morningstar applied a POD penalty in the analysis for this loan as well.

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#4–Southpoint Office Center (5.2% of the pool)
-- Prospectus ID#15–Galleria Oaks (2.2% 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/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.

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

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