Fitch Ratings has downgraded four classes and affirmed 11 classes of Wells Fargo Commercial Mortgage Trust 2017-RB1.

The Rating Outlook of three classes are revised to Negative from Stable and two classes have Negative Outlooks as a result of downgrades of those classes.

RATING ACTIONS

Entity / Debt

Rating

Prior

WFCM 2017-RB1

A-4 95000TBR6

LT

AAAsf

Affirmed

AAAsf

A-5 95000TBS4

LT

AAAsf

Affirmed

AAAsf

A-S 95000TBU9

LT

AAAsf

Affirmed

AAAsf

A-SB 95000TBT2

LT

AAAsf

Affirmed

AAAsf

B 95000TBX3

LT

AA-sf

Affirmed

AA-sf

C 95000TBY1

LT

A-sf

Affirmed

A-sf

D 95000TAC0

LT

BBB-sf

Affirmed

BBB-sf

E 95000TBA3

LT

B-sf

Downgrade

BB-sf

E-1 95000TAE6

LT

BB+sf

Affirmed

BB+sf

Page

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VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

Increased Loss Expectations; Office Performance Concerns: Overall pool loss expectations have increased since Fitch's prior rating action, which is primarily driven by deteriorating performance of two office loans within the Top 15. Fitch's current ratings reflect a base case loss of 5.9%. Fitch has identified five loans (19.6% of the pool) as Fitch Loans of Concern (FLOCs), which includes two loans (7.0%) in special servicing. The downgrades and the Outlook revisions reflect the higher loss expectations for the Center West and 340 Bryant loans. In addition, office loans account for the largest concentration in the pool (15 loans or 53.4% of the pool), two of which are the largest contributors to the loss.

Fitch Loans of Concern: The largest increase in loss since the prior review is the Center West loan (7.3%), which is secured by a leasehold interest on a 351,789-sf CBD office property located in Los Angeles, CA.

Occupancy declined to 36.6% as of the November 2022 rent roll from 43% at YE2021. The decline in occupancy was attributed to two large tenants Merrill Lynch (6.6% of the NRA) and Mar Vista, Inc. (4.7%) vacating the property at their lease expirations in 2022. Previously, occupancy declined to 43% at YE2021 from 52% in 2020 as a result of the rollover of several tenants. Cash flow has been declining with NOI DSCR of 1.13x as of September 2022, as compare to 1.56x at YE2021 and 1.92x at YE2020.

Fitch's modeled loss of approximately 22% reflects a cap rate of 9.75% and a 15% stress to the YE2021 NOI.

The second largest increase in loss is the 340 Bryant loan (2.7%), which is secured by a 62,270 sf, class B office building located in the heart of the SOMA district of San Francisco, CA. The loan transferred to special servicing in September 2022 due to monetary default. The borrower has communicated their intention to transition the title to the lender. The special servicer is proceeding with foreclosure. Property occupancy declined from 100% in 2020 to 23% as of year-end 2021 and into 2022 as a result of WeWork (formerly 76.6% of the NRA) terminating their lease. WeWork has not paid rent since December 2020 and paid a termination fee of approximately $5 million. The sole remaining tenant Logitech (23.4%) has a lease expiring in April 2023 that is not expected to be renewed.

Fitch modeled a loss of 39% which reflects a recovery value of $308 psf.

The largest specially serviced loan is Anaheim Marriott Suites (4.3%), a 351-key full-service hotel located in Garden Grove, CA and is within three-miles of Disneyland and 1.5-miles of the Anaheim Convention Center. The loan transferred to special servicing in June 2020 due to imminent default as a result of the pandemic impact.

Performance has been slowly improving since the pandemic lows. Occupancy improved to 65.4% as of TTM June 2022 from 49% at YE 2021 and 34.7% at YE 2020 but remains well below the pre-pandemic levels of 89.6% at YE 2019. NOI DSCR was reported at 0.41x for YE 2021 compared to -0.39x for YE 2020, and 2.20x at YE 2019.

Fitch's modeled loss of approximately 9% reflects a discount to a recent appraisal, which results in a recovery value of $150,000 per key.

Minimal Change in Credit Enhancement (CE): As of the January 2023 remittance reporting, the pool's aggregate balance has paid down by 14.3% to $546.2 million from $637.6 million at issuance. Three loan (3.5% of pool) are fully defeased. Twelve loans (57.2%) are full term interest only, and the remaining 21 loans (42.8%) are amortizing. Loan maturities include one loan (7.3%) in 2026 and 32 loans (92.7%) in 2027.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Sensitivity factors that lead to downgrades include an increase in pool-level losses from underperforming or specially serviced loans. Downgrades to classes A-2, A-3, A-4, A-5, A-SB, A-S, B, X-A and X-B are not likely due to the position in the capital structure but may occur should interest shortfalls affect these classes. Downgrades to classes C, D and X-D are possible should expected losses for the pool increase significantly and/or one or more large loans incur an outsized loss, which would erode CE. Downgrades to classes E, E-1, E-2 and EF are possible if performance of the FLOCs, including specially serviced loans, fail to stabilize and/or additional loans default or transfer to special servicing. Further downgrade to class F and EF is possible if realized losses are realized.

Fitch has identified both a baseline and a worse-than-expected, adverse stagflation scenario based on fallout from the Russia-Ukraine war whereby growth is sharply lower amid higher inflation and interest rates; even if the adverse scenario should play out, Fitch expects virtually no impact on ratings performance, indicating very few rating or Outlook changes. However, for some transactions with concentrations in underperforming retail exposure, the ratings impact may be mild to modest, indicating some changes on sub-investment grade notes.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Sensitivity factors that lead to upgrades would include stable to improved asset performance, particularly on the FLOCs, coupled with additional paydown and/or defeasance. Upgrades to classes B, C, X-B and X-D would occur with significant improvement in CE and/or defeasance and with the stabilization of performance on the FLOCs; however, adverse selection and increased concentrations could cause this trend to reverse. An upgrade to class D would also take into consideration of these factors but would be limited based on sensitivity to concentrations or the potential for future concentration. Classes would not be upgraded above 'Asf' if interest shortfalls are likely. Upgrades to classes E, F, E-1, E-2 and EF are not likely until the later years in the transaction and only if the performance of the remaining pool is stable and if there is sufficient CE.

Best/Worst Case Rating Scenario

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

Additional information is available on www.fitchratings.com

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