Morningstar DBRS Updates Credit Ratings for Wells Fargo Commercial Mortgage Trust 2016-C33
Credit rating agencies are closely monitoring the commercial mortgage-backed securities (CMBS) market as economic pressures impact property valuations. In a recent series of actions, Morningstar DBRS provided critical updates to the credit ratings and trends for the Wells Fargo Commercial Mortgage Trust 2016-C33.
Credit Rating Confirmations and Trend Shifts
Morningstar DBRS confirmed the credit ratings for all classes of Commercial Mortgage Pass-Through Certificates within the Series 2016-C33. While many ratings remained steady, the agency shifted the outlook for several specific classes from “Stable” to “Negative.”
The confirmed ratings are as follows:
- AAA (sf): Class A-3, Class A-4, Class A-SB, Class A-S and Class X-A
- AA (low) (sf): Class B
- A (sf): Class X-B
- A (low) (sf): Class C
- BBB (low) (sf): Class D and Class X-D
- BB (sf): Class X-E
- BB (low) (sf): Class E
- B (sf): Class X-F
- B (low) (sf): Class F
The agency specifically changed the trends to Negative for Class X-D, Class D, Class X-E, Class E, Class X-F, and Class F. Ratings for all other classes remain Stable.
Drivers of Increased Risk
The shift to a Negative trend reflects an increase in projected losses. Morningstar DBRS cited two primary drivers for this adjustment:
1. Special Servicing and Value Decline
Increased loss projections are largely driven by loans currently in special servicing. In one instance, an updated appraisal for a collateral property indicated a further decline in value since the previous rating action. Morningstar DBRS liquidated two of the three loans in special servicing during its analysis, resulting in cumulative projected losses of $12.2 million.
These losses are expected to erode the non-rated Class G balance by approximately 40.0%, which significantly reduces the credit support available to the lowest-rated principal bonds in the transaction.
2. Office Property Concentration
The pool faces heightened risk due to a sizeable concentration of loans secured by office properties, which produce up 26.7% of the pool balance. A notable point of concern is the Brier Creek Corporate Center I &. II (Prospectus ID#7), which represents 3.8% of the pool and is currently on the servicer’s watchlist.
- Six classes of Wells Fargo 2016-C33 certificates now have a “Negative” trend.
- Projected losses of $12.2 million are impacting the non-rated Class G balance.
- Office properties represent a significant 26.7% of the total pool balance.
- The Brier Creek Corporate Center I & II is a primary loan of concern on the servicer’s watchlist.
Summary and Outlook
The recent actions by Morningstar DBRS highlight the ongoing volatility in the commercial real estate sector, particularly within office assets. As collateral values decline and losses materialize in special servicing, the credit support for junior tranches is diminishing, leading to a more cautious outlook for the lowest-rated certificates in the Series 2016-C33 trust.