Morningstar DBRS Downgrades Credit Ratings on Two Classes of Wells Fargo Commercial Mortgage Trust 2015-C27, Changes Trends on Two Classes to Stable

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C27 issued by Wells Fargo Commercial Mortgage Trust 2015-C27 as follows:

-- Class C to B (sf) from BB (high) (sf)
-- Class PEX to B (sf) from BB (high) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class B at AA (sf)
-- Class D at C (sf)
-- Class E to C (sf)
-- Class F at C (sf)
-- Class X-B at C (sf)

Morningstar DBRS changed the trends on Classes C and PEX to Stable from Negative. The trend on Class B remains Stable while Classes D, E, F, and X-B have credit ratings that typically do not carry a trend in commercial mortgage-backed securities transactions.

The credit rating downgrades reflect Morningstar DBRS' updated recoverability expectations for the remaining loans in the pool, which is in wind-down with just eight specially serviced loans remaining as of the April 2025 remittance. The largest contributor to the increased liquidated loss projections is the Westfield Palm Desert loan (Prospectus ID#1; 34.6% of the pool), which transferred to special servicing in August 2020 and has experienced precipitous value and performance declines since issuance, discussed further below.

Interest shortfalls have increased to $5.7 million from $4.3 million at the previous credit rating action, with Class E receiving partial interest and the lowest-rated Class F not receiving any interest since the November 2024 payment period. Although shortfalls have been generally contained to Classes E, F, and the nonrated Class G, Class D has also sustained shortfalls for multiple periods over the past 12 months. Additionally, Morningstar DBRS has concerns about the concentration of distressed office loans remaining in the pool (43.7% of the pool) that could ultimately expose the remaining Classes to shorted interest as workout periods could extend for the longer term.

Since the previous credit rating action, 63 loans have fully repaid from the trust. Realized losses remain contained to the nonrated Class G, but have increased by $1.7 million to $8.0 million, as of April 2025, because of advances that have been deemed as nonrecoverable for the 300 East Lombard loan (Prospectus ID#9; 12.7% of the pool). As of the April 2025 remittance, the aggregate principal balance was $180.8 million, representing a collateral reduction of 82.8% since issuance.

Given the concentration of defaulted and underperforming assets, Morningstar DBRS' analysis considered conservative liquidation scenarios for all outstanding loans based on stresses to the most recent appraised values to determine the recoverability of the remaining bonds. Morningstar DBRS' estimated liquidated losses are likely to fully write-down the nonrated Class G as well as Classes E and F, which are rated C (sf), and more than 70.0% of the Class D certificate balance, reflecting a notable erosion of credit support for Class C, thereby supporting the credit rating downgrade to Class C.

The largest loan in the pool is secured by a 572,724-square-foot (sf) portion of The Shops at Palm Desert (formerly Westfield Palm Desert), a regional mall in Palm Desert, California. The $125.0 million whole loan (pari passu with the Morningstar DBRS-rated Morgan Stanley Bank of America Merrill Lynch Trust 2015-C21) transferred to special servicing in August 2020 for payment default. The loan was assumed by Pacific Retail Capital Partners in November 2023, upon which a modification was executed, extending the loan's maturity to March 2027, with two one-year extension options available. The loan will also be cash managed through the extended maturity. While the remittance report has yet to reflect the adjusted maturity date, the loan remains in special servicing and the receiver has been dismissed. Although the property's performance remains well below issuance expectations, the borrower is planning to redevelop the property and has been engaging in discussions with the special servicer and various stakeholders regarding the budget and execution. As of YE2024, the net cash flow was $6.7 million, and the property was 79.7% occupied. In comparison, the issuance figures were $12.7 million and 96.0%, respectively. A February 2025 appraisal valued the property at $68.5 million, which is an improvement from the August 2023 value of $57.4 million, but well below the issuance value of $212.0 million. Despite the increase in value, which Morningstar DBRS believes was driven by the impending redevelopment, Morningstar DBRS expects the property's performance to remain stagnant through the extended term because of the recovery lag that may arise once the redevelopment is in progress. As such, Morningstar DBRS maintained a 25.0% haircut to the February 2025 value, resulting in a total loss of $43.1 million and a loss severity of 69.0%.

The 312 Elm and 312 Plum loans (Prospectus ID#3 and ID#17; collectively 31.1% of the pool) transferred to special servicing in July 2023 for imminent monetary default. Both loans are secured by office properties in downtown Cincinnati, within walking distance of each other, and are sponsored by Rubenstein Properties Fund II, LP. The loans have now surpassed their maturity dates, which were in March 2025, and per the servicer's most recent commentary, the lender is pursuing foreclosure and receivership. Although the borrower planned to sell 312 Plum in 2024 and execute a discounted payoff of the loan, the purchase was ultimately terminated. The properties' performances remain depressed and they have reported below-breakeven debt service coverage ratios, per the most recent financials. The occupancy rate at 312 Elm declined to 44.2% as of YE2024 from 52.0% at September 2023, while the occupancy rate at 312 Plum was 38.0% as of September 2024, unchanged year over year. The 312 Elm property was reappraised in November 2024 for $30.3 million, a 54.8% decline from the issuance appraised value of $67.0 million. Although 312 Plum has not been reappraised since issuance, Morningstar DBRS liquidated both loans based on conservative haircuts to the most recent values to account for the sustained low performances and the significant value deterioration of 312 Elm. The resulting average liquidated value of both loans was $47 per sf, with implied loss severities of 63.5% (312 Elm) and 42.4% (312 Plum).

The 300 East Lombard loan is secured by a Class A office property in the central business district of Baltimore. The loan transferred to special servicing in March 2022 for imminent monetary default and failed to repay at its February 2025 maturity. Although a workout strategy has not been finalized, the receiver continues to stabilize the property. The occupancy rate has declined further to 47.3% as of December 2024 from 52.4%, as of September 2023, with the September 2024 financials reporting a negative cash flow for the trailing nine-months ended September 30, 2024. A September 2024 appraisal revalued the property at $8.7 million, in comparison with the January 2024 and issuance values of $9.1 million and $38.5 million, respectively. As noted during Morningstar DBRS' prior review, a major lease to occupy 20.0% of the net rentable area at the property was expected; however, that lease has yet to materialize. Given Morningstar DBRS' expectation that the borrower will face challenges in selling the property considering the low occupancy rate, a haircut of 20.0% was applied to the September 2024 appraised value in the liquidation scenario, which resulted in a loss severity in excess of 85.0%.

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 factors 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 at (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Class X-B is an interest-only (IO) certificate that references 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 Surveillance Methodology (February 28, 2025), https://dbrs.morningstar.com/research/448963.

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

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 info-DBRS@morningstar.com.

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (April 9, 2025)/North American CMBS Insight Model version 1.3.0.0, https://dbrs.morningstar.com/research/451739

-- 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

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

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

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