DBRS Morningstar Confirms Ratings on All Classes of Wells Fargo Commercial Mortgage Trust 2015-C31

DBRS Limited (DBRS Morningstar) confirmed its 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 B (high) (sf)
-- Class F at CCC (sf)

All trends are Stable, with the exception of Class F as the rating assigned generally does not carry a trend in commercial mortgage-backed securities (CMBS) ratings.

The rating confirmations reflect the overall stable performance of this transaction, which has remained in line with DBRS Morningstar’s expectations since the last review. The CCC (sf) rating on Class F reflects the ongoing concerns with the only loan in special servicing, Sheraton Lincoln Harbor Hotel (Prospectus ID#2, 7.0% of the current pool balance).

The loan is secured by a 343-key, full-service hotel in Weehawken, New Jersey. The loan transferred to the special servicer in January 2021 because of imminent monetary default and was last paid through February 2021. The sponsor is no longer supporting operations at the hotel and a receiver was appointed in April 2021. The property was listed for sale between 2022 and early 2023 but was ultimately removed from the market since the bids received did not meet expectations. The receiver will continue to operate the property and will market the subject for sale when market conditions are more favorable, although it is uncertain if conditions will improve considering the current economic climate. According to the August 2022 appraisal, the property’s value is $79.0 million, which is a decline from the March 2021 value of $87.4 million and the issuance value of $128.0 million. DBRS Morningstar analyzed this loan with a liquidation scenario, resulting in a loss severity above 35.0%.

As of the June 2023 remittance, 90 of the original 102 loans remain in the trust, with an aggregate balance of $851.5 million, representing a collateral reduction of 13.9% since issuance. Twenty loans, representing 22.8% of the pool, are fully defeased. Seventeen loans, representing 21.7% of the pool, are on the servicer’s watchlist, primarily for declines in occupancy and/or debt service coverage ratios (DSCRs) or deferred maintenance items. Approximately 13.0% of the loans in the pool are backed by office properties and where applicable, these loans were generally stressed to increase the expected loss amounts given their upcoming maturity and the generally increased risks for the office sector in the current environment. This resulted in a weighted-average (WA) expected loss that was approximately 180.0% of the WA pool expected loss. In addition, DBRS Morningstar analyzed loans that were exhibiting elevated risk from issuance with stressed scenarios to increase the expected loss.

The largest loan on the servicer’s watchlist, CityPlace I (Prospectus ID#3, 5.3% of the current pool balance), is secured by a 39-story, Class A office property totaling 884,366 square feet (sf) of space, in downtown Hartford, Connecticut. The loan was added to the servicer’s watchlist in February 2023 because the largest tenant, UnitedHealthcare Services Inc. (42.7% of the net rentable area (NRA)), had a lease scheduled to expire in July 2023. However, per the March 2023 rent roll, the tenant extended its lease through to July 2028. Furthermore, the second- and third-largest tenants, Bank of America, N.A. (7.5% of the NRA) and PriceWaterhouseCoopers LLP (5.3% of the NRA), renewed their leases until July 2024 and January 2030, respectively. DBRS Morningstar has requested for the new rental rates from the servicer. The property is 85.8% occupied with an average rental rate of $18.41 per sf (psf) per the March 2023 rent roll, which is generally in line with the March 2022 occupancy rate of 85.2% but is below the issuance occupancy rate of 94.0%. According to Reis, office properties in the Hartford central business district submarket reported a Q1 2023 average effective rental rate and vacancy rate of $18.02 psf and 25.5%, respectively, compared with the Q1 2022 effective rental rate and vacancy rate of $18.47 psf and 19.0%, respectively.

The loan reported a YE2022 DSCR of 1.48 times (x), compared with a YE2021 DSCR of 1.37x, YE2020 DSCR of 1.15x, and the issuer’s DSCR of 1.87x. Although the net cash flow increased from the 2020 levels, the overall performance of the loan is still below issuance expectations. DBRS Morningstar analyzed this loan with an elevated probability of default and applied a stressed loan-to-value ratio, resulting in an expected loss more than double the pool’s WA expected loss.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.

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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology/North American CMBS Insight Model v 1.1.0.0 (March 16, 2023), https://www.dbrsmorningstar.com/research/410913

Rating North American CMBS Interest-Only Certificates (December 19, 2022), https://www.dbrsmorningstar.com/research/407577

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022), https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (September 8, 2022), https://www.dbrsmorningstar.com/research/402499

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

Legal Criteria for U.S. Structured Finance (December 7, 2022), https://www.dbrsmorningstar.com/research/407008

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