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Wells Fargo Commercial Mtg Tr 2016-LC25 -- Moody's affirms six classes of WFCMT 2016-LC25

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Rating Action: Moody's affirms six classes of WFCMT 2016-LC25Global Credit Research - 16 Mar 2021Approximately $689.1 million of structured securities affected.New York, March 16, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on six classes in Wells Fargo Commercial Mortgage Trust 2016-LC25, Commercial Mortgage Pass-Through Certificates, Series 2016-LC25 ("WFCMT 2016-LC25").Cl. A-2, Affirmed Aaa (sf); previously on Nov 16, 2018 Affirmed Aaa (sf)Cl. A-3, Affirmed Aaa (sf); previously on Nov 16, 2018 Affirmed Aaa (sf)Cl. A-4, Affirmed Aaa (sf); previously on Nov 16, 2018 Affirmed Aaa (sf)Cl. A-SB, Affirmed Aaa (sf); previously on Nov 16, 2018 Affirmed Aaa (sf)Cl. A-S, Affirmed Aa2 (sf); previously on Nov 16, 2018 Affirmed Aa2 (sf)Cl. X-A*, Affirmed Aaa (sf); previously on Nov 16, 2018 Affirmed Aaa (sf)*Reflects Interest-Only ClassRATINGS RATIONALEThe ratings on five principal and interest (P&I) classes were affirmed due to their credit support and 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 one interest-only (IO) class 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 8.4% of the current pooled balance, compared to 5.3% at Moody's last review. Moody's base expected loss plus realized losses is now 8.0% of the original pooled balance, compared to 5.1% 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 February 17, 2021 distribution date, the transaction's aggregate certificate balance has decreased by 5.3% to $904 million from $955 million at securitization. The certificates are collateralized by 79 mortgage loans ranging in size from less than 1% to 5.5% of the pool, with the top ten loans (excluding defeasance) constituting 38.8% of the pool. One loan, constituting 5.5% of the pool, has an investment-grade structured credit assessment. The pool contains 13 low leverage cooperative loans, constituting 6.6% of the pool balance, that were too small to credit assess; however, have Moody's leverage that is consistent with other loans previously assigned an investment grade structured credit assessments.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 42, the same as at Moody's last review.As of the February 17, 2021 remittance report, loans representing 92.7% were current or within their grace period on their debt service payments, 0.9% were 60 days delinquent and 6.4% were greater than 90 days delinquent.Twenty-one loans, constituting 25.3% of the pool, are on the master servicer's watchlist. 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.No loans have been liquidated from the pool since securitization. There are currently three loans in special servicing, constituting 6.4% of the pool. The largest specially serviced exposure is the Shops at Somerset Square Loan ($30.2 million -- 3.3% of the pool), which is secured by a 113,987 square foot (SF) open-air lifestyle shopping center located in Glastonbury, Connecticut, approximately six miles southeast of downtown Hartford. The property comprises of 94,819 SF of retail space and 19,186 SF of office space. The loan was transferred to the special servicer in August 2020 for a payment delinquency. As of March 2020, the property was 77% occupied, a decline from 83% in 2019. The loan is currently 90+ days delinquent. The special servicer is in discussions with the borrower and exploring potential workout strategies, including a cooperative marketing/sale process, and/or a potential deed in lieu.The second specially serviced loan the Gurnee Mills Loan ($23.0 million -- 2.5% of the pool), which represents a pari-passu portion of a $253.3 million mortgage loan. The loan is secured by a 1.7 million SF portion of a 1.9 million SF regional mall located in Gurnee, Illinois, approximately 43 miles northwest of the Chicago central business district (CBD). The anchors include Macy's, Bass Pro Shops, Kohl's (each part of the collateral) and Burlington Coat Factory (non-collateral). There is a vacant collateral anchor box, a former Sears (201,000 SF) which vacated in 2018. The sponsor, Simon Property Group, is considering splitting the former Sears space into three separate boxes and has had discussions with several tenants to lease the smaller spaces. The mall offers shoppers entertainment attractions including two international food courts, multiple themed restaurants, a 19 screen Marcus Cinema (non-collateral and currently open), Serpent Safari's reptile exhibit, Rink Side Sports Family Entertainment Center, and a 30,000 gallon freshwater aquarium and an archery/shooting range in the Bass Pro Shops. As of July 2020, the property was 80% leased, compared to 91% in September 2018. The loan transferred to special servicing in June 2020 due to imminent monetary default as a result of the pandemic, and as of the February 2021 remittance report was last paid through April 2020. The special servicer and borrower entered into a forbearance agreement on December 31, 2020, and the loan is in the process of being returned to the master servicer.The third specially serviced loan is the Best Western Market Center Dallas Loan ($4.8 million -- 0.5% of the pool), which is secured by a 98-key room limited service hotel in Dallas, Texas. The loan transferred to special servicing in August 2020 in relation to the coronavirus outbreak. The loan is currently 90+ days delinquent. Moody's has estimated an aggregate loss of $21 million (a 36% expected loss on average) from these specially serviced loans.Moody's estimates an aggregate $21.1 million loss for the specially serviced loans (36% expected loss on average).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 methodologyMoody's received full year 2019 operating results for 96% of the pool, and partial year 2020 operating results for 91% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 126%, compared to 123% 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 18% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 10.2%.Moody's actual and stressed conduit DSCRs are 1.30X and 0.89X, respectively, compared to 1.36X and 0.90X 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 9 West 57th Street Loan ($50 million -- 5.5% of the pool), which is secured by a 50-story, Class A office building located on West 57th Street in New York City. The building is located directly south of the Plaza Hotel and provides views of Central Park above the 27th floor. There is 1.52 million SF of office space, 71,704 SF of grade and lower level retail, 25,005 SF of basement storage space and also a 60,000 SF subterranean parking garage (285 spaces). The loan represents a pari-passu portion of a $1.01 billion first mortgage loan. The property is also encumbered with a $186.3 million subordinate B-Note. As of September 2020, the property was 70% leased. Apollo Management Holdings (194,494 SF, 12% of the net rentable area (NRA)) has extended the lease expiring in 2020 on a portion of its space through 2036. Another large tenant, Kohlberg, Kravis, Roberts & Co. (KKR) (196,124 SF, 12% of NRA) vacated the property at lease expiration in 2020. The loan does not benefit from amortization as it provides for interest-only payments for the entire loan term. Moody's structured credit assessment and stressed DSCR are aaa (sca.pd) and 1.31X, respectively, the same as the last review.The top three conduit loans represent 13.7% of the pool balance. The largest loan is the Walmart Shadow Anchored Portfolio ($47.9 million -- 5.3% of the pool), which is secured by 34 Walmart Super Center- shadow-anchored retail centers, dispersed across 14 states in the southeast, mid-west and central regions. The largest collateral tenant, Dollar Tree, leases space at 24 properties which together represent over a quarter of the NRA. Other large tenants include Cato's, Game Stop, and Shoe Show. As of September 2020, the portfolio's weighted average occupancy was 92%, compared to 94% from 2016-2018, and 93% at securitization. The loan represents a pari passu portion of an $86.3 million first mortgage loan. The property is also encumbered with $8.6 million of additional mezzanine debt, held outside of the trust. The loan has amortized by 3.1% since securitization. Moody's LTV and stressed DSCR are 112% and 0.97X, respectively, compared to 116% and 0.94X at Moody's last review.The second largest loan is the Marriott Hilton Head Resort & Spa Loan ($38.9 million -- 4.3% of the pool), which is secured by a 513-key full-service hotel located in Hilton Head, South Carolina. Hotel improvements comprise two buildings situated on a 3.8-acre oceanfront site. The guestroom mix includes, 321 queen/queen rooms, 167 king rooms, 6 suites, and 19 one-bedroom suites. The loan represents a pari passu portion of a $88.7 million first mortgage loan. The borrower had requested payment relief due to hardships related to the coronavirus outbreak, which is being provided in the form of a consent agreement. Per the terms of the consent agreement, the capex reserve payments are deferred from September 2020 through February 2021. The deferred payments are to be repaid from excess cash flow, and regular capex reserve payments recommence in March 2021. Moody's LTV and stressed DSCR are 137% and 0.91X, respectively, compared to 134% and 0.93X at Moody's last review.The third largest loan is the Redwood MHC Portfolio Loan ($37.2 million -- 4.1% of the pool), which is secured by fifteen manufactured housing communities and three recreational vehicle communities located across seven states. The eighteen communities were developed between 1935 and 1994. The manufactured housing properties feature 2,664 pads, the RV communities feature 1,343 pads. As of September 2020, average portfolio occupancy was 74%, compared to 74% in June 2018 and 71% at securitization. The loan represents a pari passu portion of a $93 million first mortgage loan. The loan has amortized by 3.2% since securitization. Moody's LTV and stressed DSCR are 131% and 0.84X, respectively, compared to 136% and 0.81X at Moody's 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. Dariusz Surmacz Vice President - Senior Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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