DBRS Morningstar Confirms All Ratings on Wells Fargo Commercial Mortgage Trust 2016-C33

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-C33 issued by Wells Fargo Commercial Mortgage Trust 2016-C33 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 (low) (sf)
-- Class X-B at A (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)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transactions, which remains in line with DBRS Morningstar expectations since last review.

As of the April 2023 remittance, 67 of the original 79 loans remain in the pool, with an aggregate principal balance of $530.0 million, reflecting a collateral reduction of 25.6% since issuance. Thirteen loans, representing 16.2% of the pool, have fully defeased. There are four loans in special servicing and eight loans on the servicer’s watchlist, representing 10.7% and 12.8% of the pool, respectively. The watchlisted loans are being monitored for low performance, tenant rollover risk, or deferred maintenance items.

The Omni Office Centre loan (Prospectus ID#10; representing 2.7% of the pool) is secured by two suburban Class B office buildings totalling 294,090 square feet (sf) in Southfield, Michigan. The loan transferred to special servicing in August 2022 due to imminent monetary default. The former largest tenant, Blue Cross Blue Shield (BCBS), which previously occupied 40.1% of the net rentable area (NRA), vacated the property in January 2020, ahead of its June 2022 lease expiration. BCBS’s departure triggered a cash flow sweep but, according to the servicer, funds were insufficient to cover the July 2022 payment and the loan defaulted at that time. According to the April 2023 loan-level reserve report, the loan reported $1.5 million in leasing reserves. Based on the servicer’s commentary, the borrower intends to transition the property to the lender and will not be contributing additional capital to the subject.

As per the December 2022 rent roll, the property was 20.9% occupied, a significant decline from the year-end (YE) 2021 occupancy of 61.4%. In addition, tenants representing 14.5% of the NRA have leases that expired/will be expiring in the next 12 months. According to the October 2022 appraisal, the property was valued at $9.5 million, reflecting a 60.4% value decline from the issuance appraised value of $24.0 million. DBRS Morningstar liquidated the loan from the pool in its analysis for this review, resulting in a loss severity in the excess of 50.0%.

The largest watchlisted loan is Brier Creek Corporate Center I & II (Prospectus ID#7, representing 3.8% of the pool). The collateral includes two Class B office buildings totalling 180,995 sf in Raleigh Park, North Carolina. The loan is being monitored for low occupancy following the departure of the two largest tenants, Stock Building Supply and UCB Biosciences, cumulatively occupying 75.0% of NRA, in 2020 and 2021, respectively. The loan is structured with a cash flow sweep in the event either Stock Building Supply or UCB Biosciences fails to extend its lease 12 months prior to its expiration, although it is unlikely any meaningful cash was swept considering the loan has been reporting negative net cash flows since 2021. Occupancy remains depressed at 34.3% as per the September 2022 rent roll, although it is a slight improvement from the YE2021 occupany rate of 25.0%. The top three tenants at the subject are Attindas Hygiene Partners (12.8% of NRA, lease expiring in March 2026), OnRamp Access (6.7% of NRA, lease expiring in January 2025), and ProKidney (4.3% of NRA, lease expiring in July 2027). The servicer noted that the borrower is working on potential leases totalling 10,780 sf, which would increase the occupancy to approximately 40% if executed. According to Reis, office properties located in the Research Triangle Park submarket reported a Q1 2023 vacancy rate of 19.2%, compared with the Q1 2022 vacancy rate of 18.8%. Based on the YE2022 financials, the loan reported a DSCR of -0.29x, compared with the YE2021 DSCR of 0.00x and YE2020 of 1.23x. Given the depressed performance and soft submarket, DBRS Morningstar analyzed this loan with an elevated probability of default in its review, resulting in an expected loss that was more than triple the pool’s average expected loss.

At issuance, DBRS Morningstar shadow rated the 225 Liberty Street loan (Prospectus ID#3, 7.6% of the trust balance) because of the collateral’s high quality, capital improvements invested to the subject, and strong location within the Manhattan submarket. With this review, DBRS Morningstar confirmed that the performance of the loan remains consistent with investment-grade loan characteristics.

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

Classes X-A, X-B, 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.

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.

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 (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

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

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

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

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