Morningstar DBRS Assigns Provisional Credit Ratings to Wells Fargo Commercial Mortgage Trust 2025-NYCH

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2025-NYCH (the Certificates) to be issued by Wells Fargo Commercial Mortgage Trust 2025-NYCH (NYCH Portfolio Trust):

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

All trends are Stable.

The NYCH Portfolio Trust transaction is secured by the borrower's fee-simple interests in seven hospitality properties across the Manhattan, New York, market. The portfolio totals 1,087 keys and includes three properties that operate under the Hilton brand family and four properties that operate under the IHG brand family. The portfolio only includes one full-service hotel, the Holiday Inn Wall Street (113 keys), while the rest of the properties are limited service (975 keys). The properties within the portfolio were constructed between 2003 and 2009 with a weighted-average (WA) year built of 2008 and a WA year renovated of 2018. The entirety of the portfolio was renovated in 2017, with only the Candlewood Suites getting additional renovations in 2020. While there have been no extensive renovations since, the sponsor has continued to put money into each of the properties on an as-needed basis. From 2022 to 2024, the sponsor put in $3.7 million ($3,388 per key). The loan is currently structured with $5.0 million in reserves that will be used to continue small upgrades throughout the properties as needed but there are no major renovations planned for any one hotel.

The largest properties by Morningstar DBRS Net Cash Flow (NCF) are the Holiday Inn Express Times Square, which accounts for 20.8% of the Morningstar DBRS NCF and 210 keys; the Candlewood Suites Times Square, which represents 19.4% of the Morningstar DBRS NCF and 188 keys; and the Hampton Inn Times Square, which represents 18.4% of the Morningstar DBRS NCF and 184 keys. No other property accounts for more than 15.1% of the NCF. Three of the properties are located within the Times Square neighborhood of Midtown Manhattan, accounting for 582 keys; two properties are located within the Financial District of Manhattan, accounting for 225 keys; one hotel is located within the Chelsea neighborhood, accounting for 144 keys; and the final hotel is located within the Madison Square Garden area of Manhattan, accounting for 136 keys. All of the properties are well located within New York and provide access to a number of demand drivers.

The portfolio has seen a strong recovery since the COVID-19 pandemic, which saw major disruptions to travel both nationally and globally. While the portfolio has not fully recovered in terms of occupancy since the pre-pandemic levels, revenue per available room (RevPAR) has seen a steady return with an increase in the average daily rate (ADR) for a number of the properties. In 2019, the portfolio had a WA occupancy of 96.2% and an ADR of $202.78, which resulted in a RevPAR of $195.15. Portfolio occupancy started to pick back up by 2022 when the WA occupancy was 71.3%, which represents a 69.4% increase over the low of 42.1% in 2020. This trend continued throughout the past few years and occupancy has now reached a WA of 86.2% as of the April 2025 trailing 12-month (T-12) period, which shows a 2.98% increase over the YE2024 occupancy. ADR within the same period has seen a decrease to $227.54 from $229.19, which represents a -0.72% decrease over the YE2024 figure. In total, RevPAR has increased 2.24% in April 2025 from the YE2024 figures, with a T-12 2025 figure of $196.18. Each of the properties has seen an increase in the overall RevPAR when compared with the YE2024 figures. The Morningstar DBRS-concluded occupancy of 85.4% and concluded ADR of $226.39 amount to a RevPAR figure of $13.48, accounting for the above-mentioned decrease. This represents a 0.16% decrease from the March T-12 RevPAR figure of $193.80.

The mortgage loan proceeds of $235.0 million with an additional $45.0 million of sponsor equity will be used to repay $270.0 million of existing debt, fund a capital expenditure reserve, and cover closing costs. The two-year, floating-rate (one-month term Secured Overnight Financing Rate plus 395 basis points (bps)) interest-only mortgage loan has three one-year extension options. The borrower is required to enter into an interest rate cap with a strike price resulting in a debt service coverage ratio that is no less than 1.10 times.

The sponsor for this transaction is Mack Real Estate Group (MREG) and the property will be managed by the Hersha Hospitality Group (Hersha Hospitality). MREG is a New York-based real estate group that was founded in 2013. The group has extensive experience in the New York City market. Hersha Hospitality has experience in managing hotels of the same flags as the collateral.

The approximate As-Is Aggregate appraised value for the portfolio is $407.3 million, which equates to an Issuer Loan-to-Value (LTV) of 57.7%. The Morningstar DBRS-concluded value of $303.9 million represents a 25.4% discount from the appraised value and results in a Morningstar DBRS whole-loan LTV of 77.3%, which is considered to be high leverage financing. The Morningstar DBRS-concluded value is based on a capitalization rate (cap rate) of 8.53%, which is approximately 202 bps higher than the appraised value implied cap rate of 6.51%.

Morningstar DBRS' credit ratings on the Certificates address 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 ratings do 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. 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 (May 16, 2025): https://dbrs.morningstar.com/research/454196

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.

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

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.