DBRS Morningstar Confirms Ratings on All Classes of Wells Fargo Commercial Mortgage Trust 2016-NXS6

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2016-NXS6 issued by Wells Fargo Commercial Mortgage Trust 2016-NXS6, as follows:

-- Class A-2 at AAA (sf)
-- 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 (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class X-E at BBB (low) (sf)
-- Class E at BB (high) (sf)
-- Class F to B (high) (sf)
-- Class G to CCC (sf)

The trends on all classes are Stable, with the exception of Class G, which is assigned a rating that does not typically carry trends in commercial mortgage-backed securities (CMBS) ratings. The rating confirmations and Stable trends reflect the overall stable to improved performance of the pool, which has remained in line with DBRS Morningstar’s expectations.

Since DBRS Morningstar’s last rating action, one specially serviced loan, White Marsh Portfolio (Prospectus ID#19; 1.7% of the pool), has been returned to the master servicer. In addition, one loan previously on the servicer’s watchlist, Sixty Soho (Prospectus ID#10; 4.4% of the pool), has been fully defeased, bringing the total pool defeasance to six loans, representing 8.4% of the pool. As of the March 2023 remittance, 46 of the original 50 loans remain in the pool, representing a collateral reduction of 20.4% since issuance.

Per the March 2023 reporting, only one loan, Cassa Times Square (Prospectus ID#6; 5.7% of the pool), is in special servicing. The loan is secured by a mixed-use property consisting of an 86-key boutique hotel along with 8,827 square feet (sf) of retail space in Manhattan, New York. The loan transferred to special servicing in May 2020 and has been delinquent since February 2020. A receiver was appointed in March 2022 to manage property operations. According to the servicer’s most recent update, the property was underperforming relative to the competitive set based on the occupancy, average daily rate, and revenue per available room penetration rates of 81.5%, 93.0%, and 75.8%, respectively, for the trailing three-month period ended January 31, 2023. A YE2022 financial report was received that indicates the operating expenses almost exceed revenues. The special servicer is pursuing foreclosure. As of December 2022, the property was re-appraised at $30.2 million, a decrease from the February 2022 value of $32.4 million, and well below the issuance value of $68.9 million. Given the significant decline in value and the depressed performance, DBRS Morningstar’s analysis includes a liquidation scenario for the subject loan, resulting in a loss severity of nearly 55.0%.

Financial reporting indicates that cash flows and overall performances of the underlying properties in the pool have generally recovered to pre-pandemic levels. Excluding the specially serviced loan, according to the Q3 2022 and YE2022 financials, the top 10 loans in the pool (56.0% of the current pool balance), reported a weighted-average (WA) debt service coverage ratio (DSCR) of 2.20 times (x), which is in line with the issuer’s WA DSCR of 2.12x for the same loans. Six loans—only two of which are in the top 10—representing 9.6% of the pool, are on the servicer’s watchlist. The pool is well diversified by property type, with the four largest concentrations being retail (25.8% of the pool), mixed-use (20.0% of the pool), office (18.3% of the pool), and multifamily properties (18.1% of the pool). All but four of the outstanding loans are scheduled to mature in 2026.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/Governance factors that had a significant or relevant effect on the credit analysis.

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 (May, 17, 2022) at https://www.dbrsmorningstar.com/research/396929 .

Classes X-A, X-B, X-D, and X-E 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.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

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

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.

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@dbrsmorningstar.com.

The rating was initiated at the request of the rated entity. The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action. This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that 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.

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

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

Rating North American CMBS Interest-Only Certificates (19, December, 2022) https://www.dbrsmorningstar.com/research/407577

North American CMBS Insight Model Version 1.1.0.0
https://www.dbrsmorningstar.com/research/404889

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (12, September, 2022) https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (8, September, 2022) https://www.dbrsmorningstar.com/research/402499

Interest Rate Stresses for U.S. Structured Finance Transactions (30, August, 2022) https://www.dbrsmorningstar.com/research/402153

Legal Criteria for U.S. Structured Finance (7, December, 2022)
https://www.dbrsmorningstar.com/research/407008

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