Morningstar DBRS Finalizes Provisional Credit Ratings on Wells Fargo Commercial Mortgage Trust 2025-VTT

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2025-VTT (the Certificates) issued by Wells Fargo Commercial Mortgage Trust 2025-VTT (the Trust or the Issuer):

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (high) (sf)
-- Class HRR at B (sf)

All trends are Stable.

The portfolio consists of six recently delivered Class A market-rate rental apartment buildings located throughout the Charleston metropolitan statistical area. The portfolio totals 1,643 units with a weighted-average (WA) in-place rent of $2,055 and WA unit size of 924 square feet (sf). The sponsor injected considerable investment since 2019 with capital improvements totaling more than $11.7 million, or $7,135 per unit. Upgrades include items such as clubhouse/common area painting, common area and fitness equipment, and cosmetic interior unit upgrades. Per the Issuer, approximately $1.4 million of additional capital for improvements at the properties such as exterior painting, replacement of hallway carpeting and interior unit upgrades on items such as cabinets, painting, and fixtures. The sponsor's primary business plan across the portfolio is to continue to stabilize occupancy while increasing rents.

The sponsor acquired the portfolio assets one at a time through strategic off market transactions between 2019-22. The prior owners were mismanaging the properties and not maximizing potential. Starting in December 2022, the sponsor began increasing rents across its portfolio to market levels. Between December 2022 and December 2023, occupancy decreased 18.0%. However, the portfolio currently has an occupancy of 93.6% as of the January 2025 rent roll. Additionally, rental rates have increased 15.3% on average since December 2022, with some properties experiencing a 20% to 30% increase in rents. The limited seasoning of the portfolio is mitigated by two up-front reserves. The first reserve is a $1.06 million reserve, which will be released to the borrower upon the portfolio exceeding various occupancy hurdles. The second reserve totals $455,596 and is directly tied to the former condominium units at Parker Point, which will be used to pay debt service during the lease-up phase of these units.

Since the acquisitions, the sponsorship injected considerable investment with capital improvements totaling more than $11.7 million, or $7,135 per unit. Upgrades include items such as clubhouse/common area painting, common area and fitness equipment, and cosmetic interior unit upgrades. Per the Issuer, approximately $1.4 million of additional capital was used for improvements at the properties such as exterior painting, replacement of hallway carpeting, and interior unit upgrades on items such as cabinets, painting, and fixtures.

The overall portfolio appraised value is $521.4 million, which equates to a moderate appraised total debt loan-to-value ratio (LTV) of 67.4% (66.0% LTV based on the $532.5 million bulk sale value). The Morningstar DBRS-concluded value of $366.3 million ($222,946 per key) represents a significant 29.7% discount to the appraised value and results in a Morningstar DBRS whole-loan LTV of 96.0%, which is indicative of high-leverage financing; however, the Morningstar DBRS value is based on a capitalization rate (cap rate) of 6.70%, which represents a significant stress over current prevailing market cap rates.

Morningstar DBRS' credit rating on the Certificates addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Distribution Amounts and Interest Distribution Amounts for the rated classes.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the credit ratings do not address Yield Maintenance Premiums.

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

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 Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025): https://dbrs.morningstar.com/research/448962

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

With regard to due diligence services, Morningstar DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of Morningstar DBRS' methodology, Morningstar DBRS used the data file outlined in the independent accountant's report in its analysis to determine the credit ratings referenced herein.

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.

Morningstar DBRS 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://dbrs.morningstar.com/about/methodologies.

North American Commercial Mortgage Servicer Rankings (August 23, 2024):
https://dbrs.morningstar.com/research/438283

Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024):
https://dbrs.morningstar.com/research/439702

Legal Criteria for U.S. Structured Finance (December 3, 2024):
https://dbrs.morningstar.com/research/444064

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