DBRS Finalizes Ratings for FREMF 2011-K702 Mortgage Trust

DBRS has today finalized the provisional ratings for the following classes of Multifamily Mortgage Pass-Through Certificates, Series 2011-K702 issued by FREMF 2011-K702 Mortgage Trust, Series 2011-K702. The trends are Stable.

– Class A-1 at AAA (sf)
– Class A-2 at AAA (sf)
– Class B at A (low) (sf)
– Class X1 at AAA (sf)
– Class X2 at AAA (sf)

Freddie Mac guarantees (1) timely payment of interest, (2) payment of related principal on the distribution date following the maturity date of each mortgage loan to the extent such principal would have been distributed to the underlying Class A-1 and A-2 certificates, (3) reimbursement of any realized losses and additional trust fund expenses allocated to the underlying guaranteed certificates and (4) ultimate payment of principal by the assumed final distribution date for the underlying Class A-1 and A-2 certificates.

The ratings assigned by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets without taking into consideration the Freddie Mac guarantee. The ratings for Classes A-1, A-2, X1 and X2 are point-in-time ratings that will be finalized as of the date of issuance and will not be subject to ongoing monitoring, upgrades, downgrades or further assessment by DBRS after the date of issuance. Class B will be monitored by DBRS as long as the classes are outstanding.

The collateral consists of 72 fixed-rate loans secured by 72 multifamily properties. The portfolio has a balance of $1,199,030,697. The pool benefits from prudent underwriting and relatively low leverage, with no loans having a term debt service coverage ratio (DSCR) below 1.15 times (x). The pool is diverse by loan balance compared to typical transactions in 2010 and 2011, with the largest loan representing only 7.0% of the pool and the top ten loans representing 32.0% of the pool.

The transaction has a 100% concentration of seven-year loans, which reduces the scheduled amortization within the pool to 9.1% by maturity. However, Reis is projecting stabilized occupancy figures and increasing rents through 2015 in the vast majority of DBRS sampled markets. Annual projected rent growth typically ranged between 1% and 3% over this period and indicates a relatively high likelihood of increased rental revenue over the course of the collateral’s shorter loan terms. DBRS did not include this upside potential in its underwriting. In addition, six loans, representing 14.5% of the pool, are secured by multifamily properties that have a 100% student concentration. DBRS modeled these loans with a penalty for below-average cash flow stability, which raises the probability of default significantly.

Notes:
All figures are in U.S. dollars unless otherwise noted.

Classes B, C and X2 are privately placed pursuant to Rule 144a.

The applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.