DBRS Morningstar Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2015-NXS1

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2015-NXS1 issued by Wells Fargo Commercial Mortgage Trust 2015-NXS1 as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 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 (sf)
-- Class PEX at A (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (high) (sf)
-- Class F at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance since last review, with some minimal performance improvements for various loans on the servicer’s watchlist. Per the June 2023 remittance, 60 of the original 68 loans remain in the pool with an aggregate principal balance of $711.8 million, representing a collateral reduction of 34.2% since issuance. Ten loans, representing 12.8% of the pool, are fully defeased. In addition, 10 loans, representing 21.1% of the current pool balance, are on the servicer’s watchlist and two loans, representing 5.7% of the current pool balance, are currently in special servicing. The smallest loan in special servicing, 9990 Richmond Avenue (2.6% of the current pool balance), became real estate owned in August 2021. The liquidation scenario analyzed for this review resulted in implied losses of more than $14.0 million, an increase of approximately $1.0 million from last review, with projected losses eroding the first-loss Class G certificate by approximately 30.0%.

The pool is concentrated by property type, with office and retail properties comprising of 39.2% and 23.5% of the pool, respectively. The majority of office properties in the transaction maintained healthy credit metrics since the last review with a weighted-average (WA) debt service coverage ratio of 2.09 times (x). In general, the office sector has been challenged, given the low investor appetite for the property type and high vacancy rates in many submarkets as a result of the shift in workplace dynamics. In the analysis for this review, loans backed by office and other properties that were showing declines from issuance or otherwise exhibiting increased risks from issuance were analyzed with stressed scenarios to increase expected losses (ELs) as applicable. As a result, office properties exhibited a WA EL that was 42% greater than the pool average.

The largest loan in special servicing, Hotel Andra (Prospectus ID#13, 3.2% of the pool), is secured by a 119-key boutique hotel in downtown Seattle. The loan has been with the special servicer since April 2020 when the hotel was closed because of the Coronavirus Disease (COVID-19) pandemic and remains more than 90 days delinquent as of June 2023. In July 2021, the hotel was re-opened, and a forbearance agreement was ultimately granted by the special servicer and was recently executed. The terms of the forbearance include a retroactive principal and interest deferral period and a waiver of monthly furniture, fixtures, and equipment (FF&E) reserve deposits. As part of the forbearance agreement, the borrower will also contribute $9.5 million to an FF&E reserve, which will be used to complete various renovations. According to the most recent servicer commentary, the borrower is in compliance with all terms of the forbearance agreement, but the loan continues to report delinquent. A new franchise agreement with Accor S.A. (Accor) was recently approved, and the servicer reports that a property budget has also been approved, with the loan being prepped for a return to the master servicer in the near term.

At issuance in 2015, the property was appraised for $54.8 million with a loan-to-value ratio (LTV) of 69.3%; however, the value fell to a low of $40.0 million as of the first appraisal obtained by the special servicer, dated October 2020. The value has incrementally improved over the years since. As of the most recent appraisal of $50.0 million dated November 2022, the as-is value is nearing the issuance figure, representing an LTV of 76.0%. The value improvements have followed performance improvements for the hotel, which recently reported positive cash flows for the first time since 2019. The property’s rebound has been slowed by challenges within the downtown Seattle area, including increasing crime and homelessness rates that have slowed return to office efforts and affected tourism. According to a March 2022 article by The Guardian, violent crime had risen by 20.0% to a 14-year high throughout 2021 and early 2022. The uptick in homelessness and violent crime became an issue during the pandemic when public housing programs came to a halt, leading to a 50.0% increase in homeless tents citywide, believed to be led primarily by residents affected by drug addiction.

According to the December 2022 STR, Inc. report, growth in revenue per available room (RevPAR) to $137 exceeded the pre-pandemic figure of $129 for the first time in 2022. The recovery of RevPAR figures is a direct result of the dissipating effects of the pandemic, a new franchise agreement secured with Accor, and extensive capital expenditures currently in process to be completed in June 2024. According to the hotel’s website, the renovations affect every room of the hotel, and serve to add a modern touch and premium features to every room.

Given the recent value improvement, the sponsor’s significant investment as part of the forbearance agreement, and the reported RevPAR figures showing performance exceeded pre-pandemic levels in 2022, DBRS Morningstar has an increasingly optimistic view for this asset and, as such, maintained the baseline EL in the analysis for this review.

ENVIRONMENTAL, SOCIAL, 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 at (July 4, 2023) https://www.dbrsmorningstar.com/research/416784.

Classes X-A, X-B, X-E, X-F, and PEX 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 credit ratings are subject to surveillance, which could result in credit 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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

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

The credit 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 (March 16, 2023)/North American CMBS Insight Model v 1.1.0.0 (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].