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

DBRS has today confirmed Class B of FREMF 2011-K702 Mortgage Trust, Series 2011-K702 at A (low) (sf). The trend for this class is Stable.

The pool comprises 72 fixed-rate loans and has experienced 1.7% of collateral reduction since issuance. All loans within this transaction are structured with seven-year loan terms. As of the June 2013 remittance, the weighted-average DSCR and Debt Yield are 1.5x and 9.7%, respectively. The pool is diverse with regards to loan size, with the largest 15 loans collectively representing 42% of the current pool balance. Borrower strength also benefits this pool in conventional terms of financial ability and experience, in addition to the fact that Freddie Mac borrowers are generally strong given the low historical loss experience.

The pool is concentrated by property type, with all loans secured by multifamily properties. Six loans, five of which are within the largest 15 loans, representing 14.5% of the current pool balance, are secured by student housing properties. This type of asset generally experiences higher cash flow volatility as a result of seasonality, high turnover rate and higher expense costs. Multifamily properties as a whole, however, benefit from staggered lease rollover and generally low expense ratios compared to non-multifamily property types. While revenue is quick to decline in a downturn, it is also quick to respond when the market improves. The loans secured by non-traditional multifamily asset types are modeled with a below-average cash flow stability penalty, which increases the probability of default.

There are two loans on the servicer watchlist for performance decline. At this time, DBRS does not foresee any immediate danger of default to the loans on the watchlist. DBRS continues to monitor these loans on a monthly basis as part of ongoing surveillance.

The pool continues to perform in line with issuance standards. The June 2013 WA DSCR and WA Debt Yield of 1.5x and 9.7%, respectively, indicate a slight improvement over the issuance WA DSCR and WA Debt Yield of 1.3x and 8.5%, respectively. Additionally, the largest 15 loans in the pool have experienced a weighted-average net cash flow growth of 8.2%.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction, including details on the remaining loans in the pool. The July 2013 Monthly Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

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

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

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