DBRS Confirms All Classes of FREMF 2012-K18 Mortgage Trust, Series 2012-K18

DBRS Limited (DBRS) has today confirmed all classes of Multifamily Mortgage Pass-Through Certificates Series 2012-K18 issued by FREMF 2012-K18 Mortgage Trust, Series 2012-K18 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 A (sf)

The trends on all classes are Stable.

The rating confirmations reflect the overall stability of the pool’s performance since issuance. The collateral consists of 75 fixed-rate loans secured by 79 multifamily properties. The transaction has experienced 2.9% of collateral reduction since issuance as a result of amortization, with all of the original 75 loans remaining in the pool. According to the most recent year-end financial reporting, the transaction has a weighted-average debt service coverage ratio (DSCR) and weighted-average debt yield of 1.60x and 10.1%, respectively. In comparison, the weighted-average DBRS DSCR and the weighted-average DBRS Debt Yield at issuance were 1.40x and 8.4%, respectively. The largest 15 loans in the pool have experienced weighted-average positive cash flow growth since issuance of 21.9% over DBRS UW figures. The transaction also benefits from defeasance collateral as four loans, representing 3.0% of the current pool balance, are fully defeased.

There are currently six loans on the servicer’s watchlist, representing 7.4% of the pool balance. Two of the loans (3.1%) are on the servicer’s watchlist due to damage from a hailstorm and fire; however, performance at both properties has been increasing year-over-year and DBRS does not expect there to be any residual effects of the damages. One of the other loans on the servicer’s watchlist is highlighted below.

Envision Apartments (Prospectus ID#31, 1.2% of the current pool balance) is secured by a student-housing property located near the University of Akron in Akron, Ohio. The loan was added to the servicer’s watchlist for a low DSCR, which was 1.12x at YE2013 and 1.05x at Q3 2014. According to the servicer, the low DSCR is a result of a high turnover rate and decreasing rental rates. As of the November 2014 rent roll, occupancy improved to 96.7%; however, the average rental rate declined to $538. In comparison, the property was 86.5% occupied in December 2013 with an average rental rate of $665. According to management, new supply in the student-housing space has caused downward pressure on rental rates to maintain occupancy as the subject offers the lowest rental rates compared to its four main competitors.

Beachwood Apartments (Prospectus ID#10, 2.4% of the current pool balance) is secured by a garden-style apartment complex in Anaheim, California. This loan is not on the servicer’s watchlist; however, performance declined significantly, according to the YE2014 OSAR. According to 2014 reporting, the DSCR was 0.78x, due to a decrease in rental revenue as well as increases in utilities and repairs and maintenance expenses. The June 2014 servicer site inspection indicated the borrower had completed approximately $2.3 million in planned upgrades. Upgrades included over $730,000 in completed interior unit renovations with another $1.0 million of planned interior unit upgrades scheduled for the near future. DBRS was aware at issuance that a potential drop in occupancy was possible as units will be taken offline to complete renovations at lease expirations. As of YE2014, the occupancy rate has remained stable from issuance, ranging from between 91.7% and 95.0%. According to Reis, the subject’s rent was below market rents of $1,523 per unit; however, DBRS expects that the borrower will be able to achieve more competitive rates on the newly renovated units, subsequently improving property performance.

The DBRS analysis took into account the largest 15 loans and the loans on the servicer’s watchlist. Combined, these loans account for 51.7% of the current outstanding 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 watchlist loan and the largest 15 loans in the pool. The February 2015 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 related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American Surveillance (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.