DBRS Morningstar Confirms Credit Ratings on All Classes of Wells Fargo Commercial Mortgage Trust 2021-C60

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-C60 issued by Wells Fargo Commercial Mortgage Trust 2021-C60 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 AAA (sf)
-- Class X-B at AA (sf)
-- Class C at AA (low) (sf)
-- Class X-D at AA (low) (sf)
-- Class D at A (high) (sf)
-- Class E-RR at A (low) (sf)
-- Class F-RR at BBB (high) (sf)
-- Class G-RR at BBB (sf)
-- Class H-RR at BB (high) (sf)
-- Class J-RR at BB (high) (sf)
-- Class K-RR at BB (low) (sf)
-- Class L-RR at B (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, which generally remains in line with DBRS Morningstar’s expectations since issuance. As of the October 2023 remittance, 60 of the original 61 loans remain outstanding, with a total trust balance of $738.2 million, representing minimal collateral reduction of 1.4% since issuance. Twenty-nine loans representing 60.3% of the pool are interest-only (IO) for the full term, while an additional 11 loans (14.3% of the pool) have partial IO terms remaining. The pool’s property type concentration is relatively diverse, with retail and multifamily being the largest concentrations, representing 28.5% and 22.8%, respectively. There are eight loans, representing 19.7% of the current pool balance, on the servicer’s watchlist, and two small loans in special servicing, representing 1.7% of the pool balance; DBRS Morningstar liquidated one of these loans in its analysis.

Clara Point Apartments (Prospectus ID#40, 0.8% of the pool), is secured by the borrower's fee-simple interest in a 56-unit garden multifamily property in Augusta, Georgia. The loan transferred to special servicing in October 2022 because of payment default and the current workout strategy is foreclosure. Occupancy declined to 71% as of September 2022 from 93% at YE2021 after being affected by damage from a fire, a hurricane, and a hailstorm. The borrower has confirmed that the majority of the repairs have been complete, but several units remain off-line. The property’s April 2023 appraised value of $5.0 million, is well below the issuance value of $8.0 million, and represents a loan-to-value ratio (LTV) of 115.3%. In its analysis for this review, DBRS Morningstar liquidated this loan from the trust with a haircut to the most recent appraisal value, resulting in losses in excess of 40%.

The largest loan in the pool, Velocity Industrial Portfolio (Prospectus ID#1, 8.8% of the current pool balance), is secured by the borrower’s fee-simple interest in Velocity Industrial Portfolio, a two-property, 1.1 million square-foot (sf) industrial portfolio in Lansdale, Pennsylvania. The YE2022 debt service coverage ratio (DSCR) and occupancy were reported to be healthy at 2.46 times (x) and 89.0%, respectively; however, the loan is being monitored on the servicer’s watchlist because of recent and upcoming tenant rollover risk. According to the March 2023 rent roll, occupancy remained relatively flat at 89.0%, after, quickly, one tenant space was backfilled and another renewed, comprising nearly 15.0% of the net rentable area (NRA), with respective lease expirations in July and December 2022. Near-term rollover includes the fourth-largest tenant, Merck Sharp & Dohme Corp., occupying 8.8% of NRA with a scheduled lease expiration in December 2023 and Genesis Engineers LLC occupying 3.3% of NRA with a scheduled lease expiration date in September 2023. The loan was, however, structured with a $4.0 million reserve to mitigate scheduled lease rollover risk. As of the October 2023 reporting, there was $4.7 million held in total reserves. Given the strong historical performance of the property coupled with the generally positive outlook for the industrial sector and significant reserve structures in place, DBRS Morningstar expects the borrower will be able to stabilize operations.

Another loan that DBRS Morningstar is monitoring is the Gramercy Plaza (Prospectus ID#5, 3.7% of the pool), which is secured by the borrower’s fee-simple interest in a 157,008-sf suburban office property in Torrance, California. The full term, IO loan has historically reported strong performance metrics with DSCRs above 3.0x since issuance; however, according to the June 2023 rent roll, occupancy declined to 78% from 91% in December 2022 after the former third-largest tenant, Pioneer Electronics (15.7% of the NRA) vacated at its December 2022 lease expiration. According to the Q2 2023 Reis submarket performance trends for the South Bay office market, the overall vacancy rate has declined mildly over the past couple quarters to 14.9%, while average asking rent has increased slightly to $32.85 per square foot. In addition to the relatively stable submarket metrics, mitigating factors include the October 2023 reserve balance in excess of $4.0 million, Pioneer Electronics was paying below market rent, and the property had a low going-in LTV of 60.4% with no exposure to tenant rollover prior to 2026. Given the general uncertainty around the office sector and the recent increase in vacancy, however, DBRS Morningstar analyzed this loan with a stressed LTV and a probability of default penalty resulting in an expected loss that was more than double the deal average.

At issuance, one loan—The Grace Building (6.8% of the current pool balance)—exhibited credit characteristics consistent with an investment-grade shadow rating of A (sf). With this review, DBRS Morningstar confirms that the characteristics of this loan remain consistent with the investment-grade shadow rating.

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

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 credit 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 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, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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 version 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, 2023; https://www.dbrsmorningstar.com/research/420982)

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

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

Legal Criteria for Canadian Structured Finance (June 20, 2023;
https://www.dbrsmorningstar.com/research/416101)

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