DBRS Confirms All Classes of FREMF 2012-K22 Mortgage Trust, Series 2012-K22

DBRS has today confirmed all classes of FREMF 2012-K22 Mortgage Trust as follows:

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

The trends on all classes are Stable.

The rating confirmations reflect the overall stable performance of the bonds and the underlying collateral. The pool consists of 81 fixed-rate loans secured by 81 multifamily properties. The transaction has experienced collateral reduction of 1.15% since issuance as a result of scheduled amortization, with all original 81 loans remaining in the pool. According to YE2013 reporting, the pool had a year-end weighted-average debt service coverage ratio (DSCR) and weighted-average debt yield of 1.59x and 9.0%, respectively. In comparison, the weighted-average DBRS DSCR and the weighted-average DBRS debt yield at issuance were 1.47 times (x) and 8.0%, respectively.

There are currently two loans on the servicer’s watchlist, representing 2.5% of the current pool balance. The largest loan on the servicer’s watchlist, The Grove at Columbia (Prospectus ID#15, 1.64% of the current pool balance) is secured by a student housing complex in Columbia, Missouri, providing housing for students of the University of Missouri. The property is located approximately one mile south of campus and was added to the servicer’s watchlist due to a drop in occupancy and net cash flow. According to the June 2014 rent roll, the property was 62.3% compared with 99% at YE2012 and 74% at YE2013. While the June 2014 occupancy figure may not be truly reflective of the subject’s leasing status given that many students return home for summer break, the YE2013 DSCR decreased to 1.30x compared with 1.59x at YE2012 as a result of the decline in occupancy. The Q2 2014 DSCR has declined further to 0.75x; however, the loan remains current. The loan is sponsored by an institutional borrower that has a portfolio of approximately 60 student housing properties across the United States and Canada. Among these properties, 33 are within “The Grove” brand, with this brand reporting an average occupancy of 92.1% for the 2014/2015 academic year. While DBRS is awaiting confirmation from the servicer regarding the subject’s individual 2014/2015 academic year occupancy rate, given the experience of the sponsor, the property is expected to stabilize.

The second loan on the servicer’s watchlist is Barrington Place (Prospectus ID#50, 0.83% of the pool balance), formerly known as Cambridge Arms Apartments. This loan is secured by a 694-unit multifamily property in Fayetteville, North Carolina, and was originally added to the servicer’s watchlist after occupancy decreased to 76.5% in January 2014 compared with 93.5% at YE2012. The decrease in occupancy appears to be a product of systemic crime at the property, including murder, assault and drug related offenses. Due to the presence of violent crime at the subject, Fort Bragg, located near the property, has forbidden soldiers from living at the subject. The City of Fayetteville has filed two lawsuits in attempt to cease property operations. To avoid litigation, the borrower installed 24-hour video surveillance cameras, installed night security and improved fencing; however, crime was still prevalent. As a result of the second lawsuit filed by the City of Fayetteville, the loan was briefly transferred to special serving, but has since returned to the master servicer due to additional security measures installed by the borrower. The additional security measures include additional security gates, random apartment checks and additional security personnel. While the loan remains current and the additional security features are expected to remediate criminal activity on-site, the property has developed a poor reputation, and as a result, occupancy continues to suffer. According to the September 2014 rent roll, the property was only 58.9% occupied. DBRS will continue to monitor this loan for future updates in its monthly surveillance report.

The DBRS analysis included an in-depth review of the top 15 loans and the loans on the servicer’s watchlist, which collectively represent 45.3% of the current pool balance.

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 October 2014 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.