DBRS Confirms Class B of FREMF 2011-K11 Mortgage Trust, Series 2011-K11

DBRS, Inc. (DBRS) has today confirmed Class B of the Multifamily Mortgage Pass-Through Certificates Series 2011-K11 issued by FREMF 2011-K11 Mortgage Trust, Series 2011-K11 (the Trust) at A (high) (sf) with a Stable trend.

The rating confirmation reflects the continued performance of this transaction. The collateral consists of 76 fixed-rate loans secured by 78 multifamily properties. As of February 2015 remittance, all loans remain in the pool with an aggregate trust balance of $1.2 billion, representing a collateral reduction of approximately 5.1% since issuance due to scheduled loan amortization. The pool currently has a weighted-average debt service coverage ratio (DSCR) of 1.8 times (x) and weighted-average debt yield of 11.6%.

At issuance, DBRS shadow-rated four loans as investment grade: Regency Park Apartments (Prospectus ID#12, 2.0% of the current pool balance), Oasis at Springtree (Prospectus ID#27, 1.3% of the current pool balance), The Woodlands of Odessa (Prospectus ID#48, 0.7% of the current pool balance) and Lake Park Village (Prospectus ID#74, 0.2% of the current pool balance). DBRS has today confirmed that the performance of these loans is consistent with investment-grade loan characteristics.

As of the February 2015 remittance report, there were two loans on the servicer’s watchlist, representing 10.9% of the current pool balance. Both of these loans will be highlighted below.

Truffles Tribeca (Prospectus ID#1, 8.5% of the current pool balance) is secured by a 291-unit, Class A high-rise apartment complex located in New York City, New York. The 11-story building was completed in 2009 and is situated within a desirable neighborhood in Manhattan, along the Hudson River. The loan was placed on the servicer’s watchlist in December 2012 due to damage caused by Hurricane Sandy. The property’s fitness center, club and garage were extensively damaged, while a few ground-level apartment units were left uninhabitable. According to the servicer, all repair work has been completed and there are no remaining items of deferred maintenance outstanding. A servicer site inspection dated December, 2013 found the property to be in Above Average condition and indicated that the borrower planned to replace water heaters and boilers, the lobby decor and the courtyard fixtures by the end of Q2 2015. As of Q3 2014, the property was 96% occupied with an annualized DSCR of 1.8x, compared to 85.0% and 1.5x at YE2013, respectively. DBRS expects that this loan will be removed from the servicer’s watchlist in the near future.

Campus Crossing at Sherwood (Prospectus ID#11, 2.4% of the current pool balance) is secured by a 790-bed student housing community located in Greensboro, North Carolina. The building was originally constructed in two phases in 1972 and 1986, and was renovated by the borrower in 2007 into a garden-style student housing complex to better serve the students of the University of North Carolina at Greensboro (UNCG). The loan was placed on the watchlist in September 2013 as a result of a decline in cash flow. The Q3 2014 annualized DSCR was reported to be 0.77x, with a corresponding occupancy rate of 86.5%. In comparison, the occupancy and DBRS Term DSCR were 97.0% and 1.4x at issuance, respectively. According to borrower reports, the declining performance is a result of both an increasing competition from on- and off-campus student housing operations around UNCG and staffing changes within the complex that took place prior to the leasing period for the 2014–2015 school year. This loan has been modeled with an elevated probability of default to reflect the decline in performance and perceived increased cash flow volatility associated with non-traditional multifamily assets.

The DBRS analysis included an in-depth review of the 15 largest loans in the transaction, as well as the loans on the servicer’s watchlist and loans currently shadow rated due to investment-grade characteristics, which collectively represent 49.5% 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 largest loans in the pool and the loans on the servicer’s watchlist. The March 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 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.