Morningstar DBRS Confirms All Credit Ratings on Wells Fargo Commercial Mortgage Trust 2015-NXS3

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all the classes of Commercial Mortgage Pass-Through Certificates, Series 2015-NXS3 issued by Wells Fargo Commercial Mortgage Trust 2015-NXS3 as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class PEX at A (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (high) (sf)
-- Class X-FG at BB (low) (sf)
-- Class X-E at BB (sf)

The credit rating confirmations and Stable trends reflect the continued stable performance of the pool, which remains in line with Morningstar DBRS' expectations since the last credit rating action. Based on the YE2023 financial reporting, the pool exhibited a healthy weighted-average debt service coverage ratio (DSCR) of 2.13 times (x). As of the July 2024 remittance, 48 of the original 56 loans remain in the pool with an aggregate balance of $512.1 million, representing a collateral reduction of 37.1% since issuance as a result of scheduled loan amortization and loan repayment. Eight loans, representing 9.9% of the pool balance, have been fully defeased. Three loans, accounting for 8.2% of the pool, are on the servicer's watchlist, and two loans, representing 4.0% of the pool, are in special servicing. Morningstar DBRS' loss forecast for the specially serviced loans is approximately $12.0 million, which would be fully contained to the unrated Class H.

The largest loan in special servicing is 722 12th Street NW (Prospectus ID#14, 2.9% of the pool), which is secured by a 34,577-square-foot (sf) office property in the East End submarket of Washington, D.C. The loan transferred to special servicing in November 2023 for imminent default following the departure of former tenant Stantec Consulting Services, Inc (previously 30.0% of the NRA), which had a lease expiry in June 2023. As of the March 2024 rent roll, Americans for Tax Reform (48.4% of the NRA, lease expiry in March 2034) is the only remaining tenant at the property. Exacerbating the property's high vacancy is the softening submarket, which, according to Reis, reported an average vacancy rate of 17.2% as of Q2 2024, up from 15.4% in Q2 2023. The average asking rental rate in the submarket was also reported at $63.26 psf, which is well above the rate advertised at the subject. No updated financials have been provided since Q3 2023, when the subject was operating at a 0.85x DSCR. The loan remains delinquent and the servicer is currently dual tracking the loan for foreclosure and modification. According to the servicer commentary, potential modification terms include bifurcating the loan into an A/B note structure. An updated January 2024 appraisal valued the property at $8.6 million, down significantly from $22.3 million at issuance. As a result of the decline in occupancy, the sharp decline in value, and potential for foreclosures as the pool enters its maturity year, Morningstar DBRS' analysis for this loan included a liquidation scenario based on a haircut to the January 2024 appraised value, resulting in a loss severity approaching 65%.

Almost all the loans remaining in the pool have scheduled maturities in Q3 2025. While Morningstar DBRS expects a majority of the non-specially serviced loans will repay from the trust, two loans, 100 East Walton (Prospectus ID#21, 1.8% of the poll) and Vista La Jolla (Prospectus ID#40, 0.8% of the pool) were identified as being at elevated risk of maturity default due to declined performance metrics.

The 100 East Walton loan is secured by a mixed-use retail/office property in Chicago, Illinois. Performance began to decline following the COVID-19 pandemic as tenants vacated, and property occupancy has been below 65% since 2021. There has been very little leasing activity over the past few years and submarket vacancy has been increasing year over year. The Vista La Jolla loan is secured by a 39,950-sf suburban office property in San Diego, California. The property occupancy was reported at 76% as of the March 2024 rent roll, and the DSCR was 0.7x as of YE2023. According to Reis, the submarket has significant availability. Given the declined occupancy and cash flows, slow leasing activity, and submarket concerns with both of these loans, Morningstar DBRS expects the value of the assets to have declined, which may affect the borrowers' ability to refinance as the loans approach their scheduled maturities next year. Morningstar DBRS applied stressed loan-to-value (LTV) ratios and/or probabilities of default to reflect these concerns, resulting in a weighted-average expected loss (EL) that was more than three times the pool average.

At issuance, Morningstar DBRS shadow-rated The Parking Spot LAX (Prospectus ID#15, 2.1% of the pool) as investment grade. With this review, Morningstar DBRS confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

There were no Environmental, Social, or 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 (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Classes X-A, X-D, X-E, and X-FG 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 Surveillance Methodology (March 1, 2024; https://dbrs.morningstar.com/research/428798).

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

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.

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.

-- North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798
-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0 https://dbrs.morningstar.com/research/428797
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024), https://dbrs.morningstar.com/research/435293
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- 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.