DBRS Morningstar Confirms All Ratings on Wells Fargo Commercial Mortgage Trust 2016-C32

DBRS, Inc. (DBRS Morningstar) confirmed the following ratings of the Commercial Mortgage Pass-Through Certificates, Series 2016-C32 issued by Wells Fargo Commercial Mortgage Trust 2016-C32:

-- Class A-3 at AAA (sf)
-- Class A-3FL at AAA (sf)
-- Class A-3FX 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 (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

Classes X-E, E, X-F, and F have Negative trends. All other classes have Stable trends.

The rating confirmations reflect the steady performance of the underlying collateral as the economic impacts of the Coronavirus Disease (COVID-19) pandemic show signs of recovery.

As of the November 2021 remittance, 107 of the original 112 loans remain in the pool, with a collateral reduction of 11.4% since issuance as a result of loan amortization, a liquidation, and loan repayments. Nine loans, representing 3.5% of the current trust balance, have been fully defeased. There are five loans in special servicing (3.9% of the current pool balance). Since DBRS Morningstar’s last review of this transaction, two specially serviced loans—Northline Industrial (Prospectus ID#12) which was fully paid off and 588 Main Avenue (Prospectus ID#106) which was liquidated in August 2021—resulted in a 4% loss severity. There are also 17 loans (21.5% of the current pool balance) on the servicer’s watchlist. These loans are being monitored for a variety of reasons, including deferred maintenance issues, debt coverage, and performance declines as a result of ongoing difficulties caused by the coronavirus pandemic.

The largest specially serviced loan is the Hampton Inn Suites Ontario loan (1.3% of the current pool balance). The loan, secured by a 91-room limited-service hotel in Ontario, California, transferred to the special servicer in July 2020 as a result of cash flow disruptions resulting from the pandemic. The loan has remained delinquent, although the borrower has indicated a desire to bring the loan current. A 2021 appraisal valued the property in excess of the loan amount. None of the other specially serviced loans account for more than 1.0% of the current pool balance.

The largest watchlisted loan in the pool is the Marriott Melville Long Island (Prospectus ID#2, 6.9% of the pool). The $59.0 million loan is secured by the borrower’s fee-simple interest in a 369-key full-service hotel property in Melville, New York. The loan was added to the servicer’s watchlist as of January 2021 for a low debt service coverage ratio (DSCR) after the drastic decline in the property’s performance from the effects of the pandemic and the required quarantines for out-of-state guests; however, the borrower has not requested relief and the loan remains current. Occupancy was 19% in March 2021, 25% in December 2020, and 63% at issuance. According to the STR, Inc. report for the trailing three-month period ended September 30, 2021, occupancy, average daily rate (ADR), and revenue per available room (RevPAR) increased to 63.7%, $212.63, and $135.55, respectively, since last year’s period. For the same period, the competitive set reported occupancy, ADR, and RevPAR at 68.5%, $173.21, and $118.64, respectively. While the STR, Inc. figures show signs of a rebound, net cash flow through the first half of 2021 was barely in the positive and remained well below breakeven.

Hilton Wilmington/Christiana (Prospectus ID#7, 3.2% of the pool) is a loan secured by the borrower's fee-simple interest in a 266-key full-service hotel property in Newark, Delaware. The loan has been on the servicer’s watchlist since October 2020 for a low DSCR. The borrower requested relief in July 2020 and the servicer granted forbearance, allowing the borrower to use $400,000 of capital reserves to pay the principal and interest due for August through October 2020, deferring capital reserve deposits from June through November 2020, waiving cash management triggers or cash sweep events from April through June 2021, and allowing for an additional $1.0 million debt in the form of a Paycheck Protection Program (PPP) loan. The loan is current as of November 2021.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

DBRS Morningstar did not perform an updated model run as performance was deemed to be generally in line with expectations at the last review. As of the previous actions published on January 29, 2021, a material deviation from the North American CMBS Insight Model was reported on the Class B Notes, in which the rating assigned was higher than the implied results. The material deviation is warranted given the structural features (loan or transaction) and/or provisions in other relevant methodologies, which outweigh the quantitative model output.

Classes X-A, X-D, X-E, and X-F 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#2 – Marriott Melville Long Island (6.9% of the pool)
-- Prospectus ID#7 – Hilton Wilmington/Christiana (3.2% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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