DBRS Morningstar Confirms Ratings on All Classes of Wells Fargo Commercial Mortgage Trust 2018-C47

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-C47 issued by Wells Fargo Commercial Mortgage Trust 2018-C47 as follows:

-- 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 A (high) (sf)
-- Class C at A (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)

All trends are Stable. The rating confirmations reflect the overall stable performance of this transaction, which has remained in line with DBRS Morningstar’s expectations since the last rating action. As of the July 2023 remittance, 73 of the original 74 loans remain in the trust, with an aggregate balance of $920.9 million, representing a collateral reduction of 3.2% since issuance. The pool benefits from 10 loans that are fully defeased, representing 9.3% of the pool. Eleven loans, representing 9.8% of the pool, are on the servicer’s watchlist being monitored primarily for declines in occupancy rate and/or debt service coverage ratio (DSCR), or deferred maintenance items. Three loans, representing 5.8% of the pool, are in special servicing.

The largest loan in special servicing, Holiday Inn FiDi (Prospectus ID#6; 3.8% of the current pool balance), is secured by a limited-service hotel located in the financial district of downtown Manhattan, New York. The loan, which is pari passu with notes securitized in CGCMT 2018-C6 and CSAIL 2018-C14, was transferred to the special servicer in May 2020 because of pandemic-related hardships. After failed negotiations and the lifting of New York’s moratorium on foreclosures in January 2022, the servicer initiated the receivership process, but proceedings were again halted when the borrower filed for bankruptcy in November 2022. While in bankruptcy, the borrower entered into an agreement with New York City Health + Hospitals in January 2023 to operate the hotel as a migrant family shelter through April 2024. According to a June 2023 Bloomberg publication, the city would pay a premium average daily rate (ADR) of $190 to house the migrants and also guarantees the hotel full occupancy. This nightly rate would be higher than the property’s reported ADR of $170.40 for YE2022.

As per the most recently provided STR, the occupancy rate, ADR, and revenue per available room (RevPAR) were reported to be 83.2%, $170.40, and $141.80, respectively, for the trailing 12-month period ended December 31, 2022. The asset is underperforming its competitive set with a RevPAR penetration index of 89.9%. The most recent appraisal, dated August 2021, valued the property at $146.9 million, a slight uptick from the August 2020 appraised value of $138.6 million but ultimately a 37.0% decline from the issuance appraised value of $233.0 million. The most recent appraisal is still above the whole loan balance of $137.0 million (inclusive of the $50 million B note, which is held in a private placement real estate investment trust). DBRS Morningstar does not view the borrower’s strategy for shifting operations at the property as sufficiently mitigating the asset’s underperformance and delayed workout proceedings. As such, DBRS Morningstar’s analysis includes an elevated probability of default adjustment for the loan, resulting in an expected loss that is approximately 75.0% higher than the pool level expected loss.

The majority of the remaining pool continues to perform in line with expectations. The transaction is concentrated by property type with 37.5% of the loans in the pool backed by retail properties, followed by hotels and office properties with 21.7% and 14.2% of the pool, respectively. In its review, DBRS Morningstar identified increased credit risk for five of the nine loans backed by office properties, and used additional stresses to increase the expected loss amounts given concerns with these assets and the generally decreased investor appetite for this property type. As a result of these stressed scenarios, the office loans in the pool had a weighted-average (WA) expected loss that was approximately 160% greater than the WA pool expected loss.

At issuance, DBRS Morningstar assigned investment-grade shadow ratings to three loans: Aventura Mall (Prospectus ID#2; 5.4% of pool), Christiana Mall (Prospectus ID#3; 5.4% of pool), and 2747 Park Boulevard (Prospectus ID#8; 2.8% of pool). With this review, DBRS Morningstar confirms that the performance of these loans remains in line with the investment-grade shadow ratings.

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

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 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/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

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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