DBRS Confirms Class B of FREMF 2011-K702 Mortgage Trust, Series 2011-K702

DBRS has today confirmed Class B of the Multifamily Mortgage Pass-Through Certificates Series 2011-K1702 issued by FREMF 2011-K702 Mortgage Trust, Series 2011-K702 (the Trust) at A (low) (sf) with a Stable trend.

The ratings assigned by DBRS to the Class A-1, Class A-2, Class X-1 and Class X-2 Multifamily Mortgage Pass-Through Certificates Series 2011-K702 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 72 fixed-rate loans secured by 72 multifamily properties in 22 states. All loans within this transaction are structured with seven-year loan terms. Two loans, representing 1.3% of the current pool balance, are interest-only for the full loan term. The transaction closed in June 2011, and since issuance, the outstanding principal balance for the pool overall has been reduced by 0.71%. Updated performance figures for YE2011 were available for 71 loans, representing 98.8% of the outstanding pool balance. The weighted-average debt service coverage ratio (DSCR) for those loans reporting updated financials was 1.35 times (x); the weighted-average DBRS Term DSCR was 1.29x for the pool at the time of issuance.

As of the June 2012 remittance, there was one loan on the servicer’s watchlist, representing 1.17% of the current pool balance. Broadstone At The Madison (Prospectus ID#36) is secured by a 90-unit multifamily property in Los Angeles County with a current trust exposure of approximately $154,364 per unit. The property was constructed between 1970 and 1973 and is located one mile east of the Pacific Ocean in Rancho Palos Verdes. The property benefits from proximity to local transportation arteries and freeways, as well as nearby retail centers and parks. This loan was added to the watchlist in April 2012 because of a low DSCR. The YE2011 DSCR was reported to be 1.03x, down from the issuer’s underwritten DSCR of 1.47x and reflective of a 39.3% net cash flow (NCF) decline from the DBRS underwritten figure. The servicer has attributed the decline in cash flow to concessions offered by the borrower. It is reported that tenants are offered two weeks of free rent, amortized over the loan term. The issuer did not underwrite concessions. As of February 2012, the property was 88% occupied.

For the purposes of this review, DBRS modeled the 37 loans included in the original DBRS sample (comprising 68.4% of the pool at issuance) using the original DBRS underwritten NCF figure. For the 35 loans not included in the original DBRS sample, DBRS applied a 2.7% haircut to the issuer’s underwritten NCF. In addition, approximately 31.7% of the pool was assigned a property quality of Above Average or Excellent, and no properties were designated Below Average or Poor. The loan on the servicer’s watchlist is secured by a property with a stable occupancy rate and is being monitored for a low DSCR resulting from concessions granted by the borrower. DBRS did 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 June 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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American Surveillance Methodology (May 2011), which can be found on our website under Methodologies.