Morningstar DBRS Downgrades Credit Rating of One Class of Wells Fargo Commercial Mortgage Trust 2018-C45; Changes Trend on Class H-RR to Negative from Stable

DBRS, Inc. (Morningstar DBRS) downgraded the credit rating on one class of Commercial Mortgage Pass-Through Certificates, Series 2018-C45 issued by Wells Fargo Commercial Mortgage Trust 2018-C45 as follows:

-- Class H-RR to B (low) (sf) from B (high) (sf)

Morningstar DBRS confirmed the credit ratings on all the remaining classes:

-- 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 (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class X-D at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E-RR at BBB (sf)
-- Class F-RR at BBB (low) (sf)
-- Class G-RR at BB (sf)

Morningstar DBRS changed the trend on Class H-RR to Negative from Stable. All other trends are Stable.

The credit rating downgrade reflects increased loss projections stemming from the only loan in special servicing, Parkway Center (Prospectus ID#3, 6.8% of the pool), secured by a Class B office park in suburban Pittsburgh. Morningstar DBRS' liquidation scenario for this loan, as further discussed below, projects a loss of $12.8 million, significantly eroding credit support to Class H-RR. The Negative trend reflects the potential for further value decline of the specially serviced asset and additional loans Morningstar DBRS has deemed to be at increased risk of default, particularly 5800 North Course Office (Prospectus ID#27, 1.1% of the pool). In total, four loans, all backed by office properties, were analyzed with elevated loan-to-value (LTV) ratios and/or probability of default (PD) penalties, resulting in a weighted-average expected loss that was more than 2 times the pool average.

As of the September 2024 remittance, 44 of the original 49 loans remain in the pool, representing a collateral reduction of 10.0% since issuance. There is one loan, representing 6.8% of the pool, that is in special servicing and seven loans, representing 15.8% of the pool, are on the servicer's watchlist; however, only three of the loans representing 2.3% of the pool, are on the watchlist for performance-related concerns. Additionally, there are six loans, representing 5.7% of the pool, that have been fully defeased.

The only loan in special servicing is Parkway Center (Prospectus ID#3, 6.7% of the current pool balance), which is secured by six Class B office buildings totaling 588,913 square feet (sf) in Pittsburgh. The loan transferred to the special servicer in November 2022 because of imminent default following the lease default of two tenants that have since vacated, Alorica (formerly occupied 6.5% of the net rentable area (NRA), lease expiry in October 2023) and McKesson Corporation (formerly occupied 8.4% of the NRA, lease expired in December 2022), which triggered cash management. The most recent rent roll available is dated September 2023 and indicated an occupancy rate of 64%, down from 86% at issuance. At the last credit rating action, the loan was current and servicer commentary indicated a loan modification agreement was being finalized; however, those negotiations have been unsuccessful. In August 2024, the loan became delinquent and the servicer has engaged legal counsel to begin foreclosure proceedings. An August 2023 appraisal valued the property at $39.4 million, a 41.1% decline in value from the issuance appraised value of $66.6 million. Given the significant value decline, stagnation of modification negotiations, and recent delinquency, Morningstar DBRS analyzed the loan in a liquidation scenario, resulting in a projected loss severity in excess of 30%.

5800 North Course Office is secured by a 78,450 sf Class B suburban office building in Houston that is fully leased to Alltran Financial LP (100% of the NRA, lease expiry in December 2025). Although the tenant continues to make payments, the tenant has not been in occupancy since March 2023. To date, Alltran continues to be listed as the sole tenant and no leasing updates have been provided. The property is located in the Southwest submarket of Houston, which reported a Q2 2024 vacancy rate of 24.5% according to Reis. A May 2023 appraisal valued the property at $7.0 million. In its analysis of this loan, Morningstar DBRS made an upward adjustment to the loan's LTV based on a stress to this value, and also applied an elevated PD adjustment. Unless the borrower is able to backfill the space, which could prove challenging given the high submarket vacancy, the loan may be noncash flowing by the end of next year, and Morningstar DBRS considers this loan at high risk of default. Should the loan transfer to special servicing, Morningstar DBRS' projected losses could increase and additional classes may be downgraded.

The CoolSprings Galleria loan (Prospectus ID#11, 3.0% of the trust balance), was shadow-rated investment grade at issuance. With this review, Morningstar DBRS confirms that the loan's performance remains consistent with the investment-grade rating.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

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 Morningstar DBRS.

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

The principal methodology is North American CMBS Multi-Borrower Rating Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428797.

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

The credit ratings were initiated at the request of the rated entity.

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

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

These are solicited credit ratings.

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

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

DBRS, Inc.
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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://dbrs.morningstar.com/about/methodologies.

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024; https://dbrs.morningstar.com/research/438283
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- North American CMBS Multi-Borrower Rating Methodology/North American CMBS Insight Model v 1.2.0.0 (March 1, 2024), https://dbrs.morningstar.com/research/428797
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.