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Wells Fargo Commercial Mortgage Trust 2017-C40 — Moody’s affirms seven classes of WFCM 2017-C40

The loan has amortized 2.1% since securitization and is less than one-month delinquent on its March 2021 payment date.The second largest specially serviced loan is the Hilton Garden Inn Chicago/North Loop Loan ($18.2 million -- 2.6% of the pool), which represents a pari-passu portion of a $30.1 million mortgage loan. The loan is secured by a 191 key full-service hotel located in the CBD of Chicago, Illinois. Read More...

Rating Action: Moody’s affirms seven classes of WFCM 2017-C40Global Credit Research – 25 Mar 2021Approximately $508.2 million of structured securities affectedNew York, March 25, 2021 — Moody’s Investors Service, (“Moody’s”) has affirmed the ratings on seven classes in Wells Fargo Commercial Mortgage Trust 2017-C40 as follows:Cl. A-1, Affirmed Aaa (sf); previously on Oct 12, 2018 Affirmed Aaa (sf)Cl. A-2, Affirmed Aaa (sf); previously on Oct 12, 2018 Affirmed Aaa (sf)Cl. A-3, Affirmed Aaa (sf); previously on Oct 12, 2018 Affirmed Aaa (sf)Cl. A-4, Affirmed Aaa (sf); previously on Oct 12, 2018 Affirmed Aaa (sf)Cl. A-S, Affirmed Aa2 (sf); previously on Oct 12, 2018 Affirmed Aa2 (sf)Cl. A-SB, Affirmed Aaa (sf); previously on Oct 12, 2018 Affirmed Aaa (sf)Cl. X-A*, Affirmed Aaa (sf); previously on Oct 12, 2018 Affirmed Aaa (sf)* Reflects interest-only classesRATINGS RATIONALEThe ratings on the P&I classes were affirmed because the transaction’s key metrics, including Moody’s loan-to-value (LTV) ratio, Moody’s stressed debt service coverage ratio (DSCR) and the transaction’s Herfindahl Index (Herf), are within acceptable ranges.The rating on the IO class, Cl. X-A was affirmed based on the credit quality of the referenced classes.The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world’s economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of commercial real estate from a gradual and unbalanced recovery in US economic activity. Stress on commercial real estate properties will be most directly stemming from declines in hotel occupancies (particularly related to conference or other group attendance) and declines in foot traffic and sales for non-essential items at retail properties.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.Moody’s rating action reflects a base expected loss of 7.2% of the current pooled balance, compared to 4.6% at Moody’s last review. Moody’s base expected loss plus realized losses is now 7.0% of the original pooled balance, compared to 4.6% at the last review. Moody’s provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe performance expectations for a given variable indicate Moody’s forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range can indicate that the collateral’s credit quality is stronger or weaker than Moody’s had previously expected.Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool’s share of defeasance or an improvement in pool performance.Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.METHODOLOGY UNDERLYING THE RATING ACTIONThe principal methodology used in rating all classes except interest-only classes was “Approach to Rating US and Canadian Conduit/Fusion CMBS” published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778. The methodologies used in rating interest-only classes were “Approach to Rating US and Canadian Conduit/Fusion CMBS” published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778 and “Moody’s Approach to Rating Structured Finance Interest-Only (IO) Securities” published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. DEAL PERFORMANCEAs of the March 17, 2021 distribution date, the transaction’s aggregate certificate balance has decreased by 3% to $687.5 million from $705.4 million at securitization. The certificates are collateralized by 65 mortgage loans ranging in size from less than 1% to 9% of the pool, with the top ten loans (excluding defeasance) constituting 50% of the pool. One loan, constituting 4% of the pool, has an investment-grade structured credit assessment.Moody’s uses a variation of Herf to measure the diversity of loan sizes, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 28, compared to a Herf of 29 at Moody’s last review.As of the March 2021 remittance report, loans representing 90% were current or within their grace period on their debt service payments, 5% were beyond their grace period but less than 30 days delinquent and 2% were between 60+ days delinquent.Seventeen loans, constituting 18% of the pool, are on the master servicer’s watchlist, of which one loan, representing 2% of the pool, indicate the borrower has requested relief in relation to coronavirus impact on the property. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody’s ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance.Four loans, constituting 10% of the pool, are currently in special servicing. All the specially serviced loans have transferred to special servicing since March 2020.The largest specially serviced loan is the SAVA Holdings IHG Portfolio Loan ($36.2 million — 5.3% of the pool), which is secured by the fee simple interest in three limited-service hotels totaling 429 keys located across Fort Worth and Plano, Texas. The collateral includes the 174-key Candlewood Suites DFW South, the 143-key Holiday Inn DFW South and the 112-key Staybridge Suites Plano. Each of the properties have franchise agreements that extend into 2032. The Candlewood Suites DFW South accommodates training programs for American Airlines, and 100 of the 174 rooms (57%) have been under contract by American Airlines Group since the hotel’s opening. As of December 2019, the portfolio’s net operating income (NOI) was 28% below the underwritten NOI and has continued to decline in 2020 as a result of the coronavirus pandemic. The loan transferred to special servicing in April 2020 due to the delinquent payments as a result to disruptions in relation to the coronavirus pandemic. In November 2020 the special servicer had approved a six-month forbearance agreement with the borrower. The loan has amortized 2.1% since securitization and is less than one-month delinquent on its March 2021 payment date.The second largest specially serviced loan is the Hilton Garden Inn Chicago/North Loop Loan ($18.2 million — 2.6% of the pool), which represents a pari-passu portion of a $30.1 million mortgage loan. The loan is secured by a 191 key full-service hotel located in the CBD of Chicago, Illinois. Through year-end 2019 the property’s performance had improved from securitization due to an increase in revenue and the 2019 NOI DSCR was 1.89X. However, as a result of the pandemic, the property temporarily closed in late March through April 2020, reopened in May and has closed again in December 2020. The hotel typically caters to corporate business travel and the property’s operations have been significantly impacted by the recent lack of business travel. The loan transferred to special servicing in April 2020 due to imminent monetary default and is last paid through June 2020. The trust counsel has started the foreclosure process.The third largest specially serviced loan is the League City Hotel Portfolio Loan ($10.4 million — 1.5% of the pool), which is secured by a portfolio of two limited-service hotels totaling 164 keys located in League City, Texas, approximately 25-miles southeast of Houston. The collateral includes an 81-key Hampton Inn & Suites Houston/League City and an 83-key Candlewood Suites League City hotel. The portfolio’s NOI was up 18% as of December 2018 when compared to the underwritten NOI, however significantly declined in 2019 and Q1 2020 as both properties were undergoing PIP renovations. The loan transferred to special servicing in April 2020 due to imminent monetary default and is last paid through December 2020. In June 2020, the special servicer had approved a twelve-month forbearance agreement with the borrower however, in November the borrower failed to comply with terms of the agreement and has since requested a more expansive loan modification. The loan has amortized 4.9% since securitization and is last paid through December 2020.The remaining specially serviced loan is secured by a self-storage property located in Melbourne, Florida and makes up less than 1% of the pool.Moody’s has also assumed a high default probability for five poorly performing loans, constituting 5% of the pool, and has estimated an aggregate loss of $20.9 million (an 21% expected loss) from these specially serviced and troubled loans.The credit risk of loans is determined primarily by two factors: 1) Moody’s assessment of the probability of default, which is largely driven by each loan’s DSCR, and 2) Moody’s assessment of the severity of loss upon a default, which is largely driven by each loan’s loan-to-value ratio, referred to as the Moody’s LTV or MLTV. As described in the CMBS methodology used to rate this transaction, we make various adjustments to the MLTV. We adjust the MLTV for each loan using a value that reflects capitalization (cap) rates that are between our sustainable cap rates and market cap rates. We also use an adjusted loan balance that reflects each loan’s amortization profile. The MLTV reported in this publication reflects the MLTV before the adjustments described in the methodology.Moody’s received full year 2019 operating results for 95% of the pool, and full or partial year 2020 operating results for 82% of the pool (excluding specially serviced and defeased loans). Moody’s weighted average conduit LTV is 108%, compared to 109% at Moody’s last review. Moody’s conduit component excludes loans with structured credit assessments, defeased and CTL loans, and specially serviced and troubled loans. Moody’s net cash flow (NCF) reflects a weighted average haircut of 17% to the most recently available net operating income (NOI). Moody’s value reflects a weighted average capitalization rate of 9.7%.Moody’s actual and stressed conduit DSCRs are 1.88X and 1.00X, respectively, compared to 1.82X and 0.99X at the last review. Moody’s actual DSCR is based on Moody’s NCF and the loan’s actual debt service. Moody’s stressed DSCR is based on Moody’s NCF and a 9.25% stress rate the agency applied to the loan balance.The loan with a structured credit assessment is the Del Amo Fashion Center Loan ($25.0 million — 3.6% of the pool), which represents a pari-passu portion of a $459.3 senior mortgage. The property is also encumbered by $125.7 million in subordinate debt. The loan is secured by a 1.8 million square foot (SF) component of a 2.5 million SF super-regional mall located in Torrance, California. Since 2014, the sponsor has completed a $423.0 million renovation encompassing all three of the property’s interconnected components. The property is anchored by Sears (non-collateral), Macy’s (non-collateral), J.C. Penney, Nordstrom, and AMC Theatres. Other major tenants include Dick’s Sporting Goods, Burlington Coat Factory, LA Fitness, Dave & Busters, and Marshalls. The property was 87% leased as of December 2020. As of December 2020, collateral occupancy, inline occupancy, and total mall occupancy were 82%, 71% and 87%, respectively. Year-end comparable in-line tenant sales were reported as $577 PSF for 2019, compared to $573 PSF in 2018. Moody’s structured credit assessment and stressed DSCR are baa2 (sca.pd) and 1.20X, respectively.The top three conduit loans represent 22% of the pool balance. The largest loan is the 225 & 233 Park Avenue South Loan ($60.0 million — 8.7% of the pool), which represents a pari-passu portion of a $235.0 million senior mortgage loan secured by two interconnected, Class A office buildings, totaling 675,756 SF, located in New York, New York. The property is also encumbered by $195 million in subordinate debt. The properties are located one block north of Union Square and occupy the entire block between East 18th and East 19th Streets on Park Avenue South. Major tenants at the property include Facebook (39% of the NRA; lease expiration October 2027), Buzzfeed (29%; lease expiration May 2026), and STV, Inc. (20%; lease expiration May 2024) with Facebook and Buzzfeed having invested $60.0 million ($225/sf) and $23.9 million ($123/sf), respectively, of their own money into their spaces. The properties were 99% leased as of August 2020, compared to 98% in March 2018 and at securitization. The 2019 NOI has declined from underwritten levels as the increase in expenses has outweighed the increased revenues. The higher expenses were largely due to higher taxes and general and administrative expenses. The loan is interest-only through its entire term and Moody’s LTV and stressed DSCR are 80% and 1.12X, respectively, the same as at the last reviewThe second largest loan is the Mall of Louisiana Loan ($49.5 million — 7.2% of the pool), which represents a pari-passu portion of a $321.7 million mortgage loan. The loan is secured by a 776,789 SF portion of a 1,593,545 SF enclosed, two-story super-regional mall located in Baton Rouge, Louisiana and sponsored by Brookfield Properties Retail Group. The property is located approximately six miles from downtown Baton Rouge. The mall’s anchors are Dillard’s, Macy’s, J.C. Penney and Sears, all of which are non-collateral. Additional large retailers at the property include AMC Theaters, Dick’s Sporting Goods, and Nordstrom Rack. In 2008, a $100 million expansion occurred that added over 330,000 SF, which included a 125,000 SF lifestyle component, a 140,000 SF power center, and the 15-screen movie theater (65,000 SF) currently occupied by AMC Theatres. The property includes an adjacent lifestyle center attached to the main, two-level enclosed super-regional mall. Notable tenants include Apple and Versona. As of September 2020, the collateral was 89% occupied compared to 93% as of December 2019. Moody’s LTV and stressed DSCR are 125% and 0.84X, respectively, compared to 102% and 0.98X at last review.The third largest loan is the Marketplace at Millcreek Loan ($39.6 million — 5.8% of the pool), which is secured by the fee simple interest in a 401,947 SF, open-air retail center in Buford, Georgia, immediately adjacent to the Mall of Georgia. The largest tenant at the property, Burlington Coat Factory (50,000 SF, 12.4% of NRA) took over the previous Toys R Us space in 2018 with a lease expiration in May 2022. Additional tenants at the property include Bed Bath & Beyond (33,889 SF, 8.4% of NRA), Ross (30,093 SF, 7.5% of NRA), Marshall’s (30,000 SF, 7.5% of NRA). In April 2020, Painted Tree Marketplace (30,000 SF, 7.5% of NRA) backfilled the former Stein Mart space. As of September 2020, the property occupancy and DSCR NOI were 99% and 3.58x. The loan is interest-only through its entire term. Moody’s LTV and stressed DSCR are 89% and 1.10X, respectively, the same as at the last review.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody’s estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.Moody’s did not use any stress scenario simulations in its analysis.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Yoni Lobell Associate Lead Analyst Structured Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Romina Padhi VP – Senior Credit Officer Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY’S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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