DBRS Confirms Ratings of FREMF 2014-K37 Mortgage Trust, Series 2014-K37

DBRS, Inc. (DBRS) has today confirmed the ratings of FREMF 2014-K37 Mortgage Trust, Series 2014-K37 as follows:

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

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction since issuance. The collateral consists of 102 fixed-rate loans secured by 102 multifamily properties. As of the December 2014 remittance report, the pool had a balance of approximately $1.36 billion, representing a collateral reduction of approximately 0.6% since issuance due to scheduled loan amortization.

As of the December 2014 remittance report, there was one loan on the servicer’s watchlist, representing 1.96% of the current pool balance. It is highlighted below.

The Vinings Corner loan (Prospectus ID#12) is secured by a 360 unit garden-style apartment complex located in Smyrna, Georgia. The complex was constructed from 1983 through 1986 and comprises 35 two- and three-story apartment buildings with a unit mix of 110 one-bedroom units and 250 two-bedroom units. The loan was placed on the servicer’s watchlist with the November 2014 remittance because of an insurance loss as a result of a fire, which occurred in August 2014. According to the borrower, the fire was an accidental incident, which began in a plastic container outside one of the units and later spread to the nine adjacent units in the building. All displaced tenants were temporarily moved to other units at the property. The borrower’s total estimate of damages is approximately $1 million between the cost of repairs, rent losses, reconstruction and professional fees. As of December 2014, the borrower and its insurance adjuster had claimed building repairs, lost rents and deductible buy-back losses totaling approximately $100,000. The insurer will also file a recovery claim with the affected tenants’ renter’s insurance policy issuer. At this time, the depositor has not received any funds to place in the Insurance Loss Escrow; however, the loan has a replacement reserve with a current balance of approximately $1.9 million. Although the demolition of the building has been completed, the architect is still awaiting final approval of the plans from Cobb County, where Smyrna is located. This is expected to occur in the next two to four weeks. The borrower estimates that the tenants will be able to resume occupancy by June 2015. As of September 2014 rent roll, the property was 96.5% occupied with an average rental rate of $977 per unit. According to the Reis Q3 2014 submarket report, multifamily properties in Smyrna had a vacancy rate of 4.1% with an average rental rate of $911 per unit.

The DBRS analysis included an in-depth review of the top 15 loans and the loan on the servicer’s watchlist, which represent 37.31% of the current pool balance. Within the top 15 loans, one loan, Z Islander Apartments (Prospectus ID#7, 2.38% of the current pool balance) is secured by a student-housing property, which is considered to be a non-traditional multifamily property type. Loans secured by student-housing properties are more volatile historically, as occupancy drops in the summer months and the construction of new developments can provide additional supply to a given market. To combat low summer occupancy rates and minimal tenant credit history, most landlords require 12-month leases accompanied by parental guarantees. These factors were considered in DBRS’s analysis.

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 largest loans in the pool and loans on the servicer’s watchlist.

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 (January 2015), which can be found on our website under Methodologies.

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.