DBRS Confirms Class B of FREMF 2011-K11 Mortgage Trust, Series 2011-K11

DBRS has today confirmed Class B of the Multifamily Mortgage Pass-Through Certificates Series 2011-K11 issued by FREMF 2011-K11 Mortgage Trust, Series 2011-K11 (the Trust) at A (high) (sf) with a Stable trend.

The ratings assigned by DBRS to the Class A-1, Class A-2 and Class X1 Multifamily Mortgage Pass-Through Certificates Series 2011-K11 were finalized as of, and only as of, the date of issuance and are not subject to ongoing monitoring, upgrades or downgrades or any further assessment by DBRS. The ratings have been discontinued.

The pool comprises 76 fixed-rate loans secured by 79 multifamily properties in 25 states. The transaction closed in March 2011, and since issuance, the outstanding principal balance for the pool overall has been reduced by 0.78%. Updated performance figures were available for 63 of the 76 loans, representing 75.9% of the outstanding pool balance. The weighted-average debt service coverage ratio (DSCR) for those loans reporting updated financials was 1.55 times (x); the issuer underwrote a weighted-average DSCR of 1.43x for the pool.

As of the February 2012 remittance report, there were two loans on the servicer’s watchlist, representing 1.51% of the pool overall. Both loans are being monitored for a low DSCR resulting from an increase in expenditures at the respective properties since issuance.

The largest of the loans on the servicer’s watchlist is Prospectus ID #25 (Pacific Palms Apartments), representing 1.30% of the outstanding pool balance. This loan is secured by a multifamily community in Anaheim, California, with 149 units and a current trust exposure of approximately $103,000 per unit. The property was constructed in 1962 and benefits from proximity to local transportation arteries and freeways, as well as nearby tourist attractions that serve as major employment centers for the area. As part of the loan’s closing, the borrower was required to complete immediate repairs identified by the engineer in the amount of $765,000. The required repairs included leasing office upgrades, sidewalk and asphalt repairs and termite remediation. The borrower was also conducting unit interior upgrades at the time of the loan’s closing, installing new countertops, cabinets and fixtures. DBRS inspected the property at issuance and observed the renovated units, noting that the upgrades increased the overall appeal of the complex significantly.

The loan’s Q3 2011 DSCR was 0.92x, down from the issuer’s underwritten DSCR of 1.48x. The servicer reports that the decline is the result of an increase in repairs and maintenance (R&M) at the property. Capital expenditures for the property upgrades were included in the borrower’s reported R&M figure but could not be itemized for the servicer’s analysis. The property’s occupancy has been steady since the borrower acquired the property in 2010, hovering near 93% from August 2010 to February 2012. The servicer expects the DSCR to improve in the coming year as the renovations at the property have been completed, and expenditures at the property should return to a level that is more in line with the underwritten figures.

For the purposes of this review, DBRS modeled the 39 loans included in the original DBRS sample (comprising 69.7% of the pool at issuance) using the original DBRS underwritten net cash flow (NCF) figure. For the 37 loans not included in the original DBRS sample, DBRS applied a 3.5% haircut to the issuer’s underwritten NCF. In addition, approximately 36% of the pool was assigned a property quality of Above Average or Excellent, with approximately 2.3% of the pool designated Below Average. The two loans on the servicer’s watchlist are secured by properties with stable occupancy rates and are being monitored for DSCRs that are temporarily distressed because of extraordinary expenses related to recently completed maintenance projects. As cash flows are expected to return to historical levels in the near term, DBRS not apply any additional stress to the respective underwritten NCF figures.

For further information on the DBRS viewpoint for this pool, including commentary on the largest loans, please see the March 2012 Monthly Surveillance Report for this transaction, which will be published shortly on the DBRS website at www.dbrs.com.

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

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