DBRS Confirms Two Classes of FREMF 2010-K8

DBRS has today confirmed the following classes of the Multifamily Pass-Through Certificates Series 2010-K8 issued by FREMF 2010-K8 Mortgage Trust, Series 2010-K8 (the Trust):

– Class B at A (high) (sf)
– Class X2 at AAA (sf)

All trends are Stable.

The ratings assigned by DBRS to the Class A-1, Class A-2 and Class X1 were finalized as of, and only as of, the date of issuance and have not been subject to ongoing monitoring, upgrades or downgrades or any further assessment by DBRS after the date of issuance. The ratings have been discontinued.

The pool comprises 72 fixed-rate loans secured by multifamily properties located throughout the United States. The transaction closed in September 2010 and updated performance figures were available for 82.24% of the pool, with 67.3% reporting as of YE2010 and the remainder providing a year-to-date (YTD) statement for 2011. As expected for a transaction closing in 2010, the majority of the YE2010 figures were reported in the form of a partial year-end statement. The weighted-average debt service coverage ratio (DSCR) for those loans with updated reporting since issuance is 1.34 times (x), with a weighted-average debt yield of 7.91%. These figures compare well with the weighted-average DSCR of 1.32x and weighted-average debt yield of 9.0%, as calculated for the Trust as a whole by DBRS at issuance.

There are currently five loans on the servicer’s watchlist, comprising 7.46% of the pool balance. All of these loans are reporting updated cash flows as of YE2010, with the exception of Prospectus ID#49, Reidy Creek II (0.77% of the pool), which reported a YTD figure as of June 30, 2011. The weighted-average DSCR for these five loans is 1.15x and all but one of the loans have had stable occupancy figures since issuance.

The largest of these loans is Prospectus ID#8, District on Delaware, with 2.57% of the pool balance. The loan is secured by a 956-bed student housing property in Minneapolis, Minnesota, serving the University of Minnesota. The property was constructed in 2003 and purchased by the borrower in 2010, with a significant amount of cash equity contributed at closing. The loan is on the servicer’s watchlist for the YE2010 DSCR of 1.07x, a decline from the issuer’s underwritten DSCR of 1.39x. Although occupancy has remained flat from issuance at 97%, effective gross income (EGI) has declined by approximately 37% from the underwritten figure. The borrower is an experienced owner-operator of student housing facilities located across the United States, and the property is in above-average condition, with excellent proximity to campus. As such, DBRS anticipates the property cash flow will stabilize in the near term.

The second-largest loan on the servicer’s watchlist is Prospectus ID#11, Montebello Apartments, with 2.31% of the pool. This loan is secured by a 248-unit multifamily property constructed in 1997, located in Kirkland, Washington, just northeast of Seattle. The loan is on the servicer’s watchlist for the YE2010 DSCR of 1.02x, down from the issuer’s underwritten DSCR of 1.26x. The property occupancy has remained stable since issuance, at 93% for YE2010, but EGI has declined by 13% from the issuer’s underwritten figure. The borrower purchased the property in 2010, contributing substantial cash equity at the loan’s closing, and is an experienced owner of multifamily properties located throughout the United States. The property is managed by a third-party firm with a portfolio of more than 8,000 units in Washington. Additionally, the property is in superior condition to competitors located in the immediate vicinity and the borrower has recently invested in capital improvements to the common areas and unit interiors at the property. Given these factors, DBRS anticipates the property cash flow will stabilize in the coming year as Reis projects the overall submarket vacancy to fall from 4.6% at Q2 2011 to 4.1% by the end of 2011.

At issuance, DBRS shadow-rated one loan investment grade: Prospectus ID#40, Rocky Creek Apartments, with 0.91% of the pool balance. That loan has not provided updated financial reporting since issuance.

DBRS continues to monitor this transaction on a monthly basis in the Monthly CMBS Surveillance Report, which can provide more detailed information on the individual loans in the pool.

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

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