KBRA Places All Outstanding Ratings of WFCM 2015-C26 on Watch Downgrade

KBRA places all eight outstanding ratings of WFCM 2015-C26, a CMBS conduit transaction, on Watch Downgrade (DN). The Watch Downgrade placement follows reported realized losses and interest shortfalls following the special servicer’s request to the master servicer for a trust-level holdback which has been reflected in the last three remittance reports. The losses and shortfalls are due to ongoing litigation involving the Aloft Houston by the Galleria loan, and the possibility that the reported losses and shortfalls may increase owing to ongoing litigation.

The special servicer, Midland Loan Services (Midland), initially directed the Master Servicer, Wells Fargo Bank, N.A (now Trimont LLC as successor) to hold back $55.0 million from the WFCM 2015-C26 Trust starting in February 2025. It appears that the holdback amount has now increased beyond the initial reported amount based on an additional $13.1 million of Other Expenses that were indicated in the April 2025 remittance report, bringing the total Other Expenses reported over the last three months to $65.6 million. There is the possibility the master servicer could release the holdback in the coming months, which could reverse some or all of the realized losses and interest shortfalls the transaction experienced during this period.

The Aloft Houston by the Galleria loan (seventh-largest, $32.7 million at the time of securitization) was secured by a 152-key limited-service hotel in Houston. The loan was transferred to the special servicer, Midland, in May 2020 for imminent default. Following the transfer, Midland discovered defective loan documents (failure to provide a required comfort letter involving the property’s franchise agreement) and provided cure notice to the loan seller, Argentic Real Estate Finance LLC (Argentic) in July 2020. In September 2023, a New York court ruled that Argentic was required to repurchase the loan from the trust. In January 2024, Argentic repurchased the loan for $50.6 million (approximately $28.7 million outstanding principal balance + $12.9 million protective advances, accrued interest, and related items + $9.0 million in pre-judgment interest).

Argentic subsequently foreclosed on the property and appealed the court’s decision. The appellate court dismissed Argentic’s appeal and then further denied its attempt to appeal such dismissal. However, in August 2024, Argentic filed a motion requesting a reversal of the dismissal of its appeal. No decision has been reached to date. In a CREFC Reporting Memo made available in March 2025, Midland noted that while it expects a favorable outcome from the court within 90 days, there is uncertainty around the timing and final resolution of the matter.

Additionally, certain investors of the classes impacted by the holdback have alleged wrongdoing by certain transaction parties, which could lead to additional litigation.

As of the April 2025 remittance period, the Trust holds six specially serviced loans ($58.0 million), of which one is a performing matured loan (41.4%), and the others are non-performing matured loans (58.6%).

KBRA will seek to resolve or update the Watch Downgrade status within 90 days. The resolution will be based on monitoring of the afore-described situation, and a further evaluation of the remaining loans. If it appears that a substantial part of the holdback may remain in place for an extended period, the ratings could be lowered to low speculative grade categories of CCC or below.

Details about the ratings placed on Watch Downgrade are as follows:

To access ratings and relevant documents, click here.

Related Publications

Methodologies