DBRS Confirms Ratings on FREMF 2014-K38 Mortgage Trust, Series 2014-K38

DBRS Limited (DBRS) has today confirmed ratings on the following classes of Multifamily Mortgage Pass-Through Certificates, Series 2014-K38 (the Certificates) issued by FREMF 2014-K38 Mortgage Trust, Series 2014-K38.

-- 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)

All trends are Stable. DBRS does not rate the first loss piece, Class D.

The rating confirmations reflect that the current performance of the transaction remains in line with DBRS expectations at issuance in June 2014. The collateral consists of 105 fixed-rate loans secured by 105 multifamily properties. As of the March 2015 remittance, the pool has an aggregate balance of $1,234 million, representing a collateral reduction of approximately 0.5% since issuance, as a result of scheduled loan amortization. The pool is diverse based on loan size, as the largest 15 loans only account for 42.2% of the current pool balance; however, the pool is concentrated by property type, as multifamily properties represent 100% of the pool. To mitigate the elevated concentration risk, DBRS modeled the transaction with an additional probability of default penalty that was applied to the entire pool.

At issuance, DBRS shadow-rated the Knickerbocker Plaza loan (Prospectus ID#2, 4.8% of the current pool balance) as investment grade. DBRS has today confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

As of the March 2015 remittance, there are no loans in special servicing and one loan on the servicer’s watchlist, representing 0.6% of the current pool balance. This loan is highlighted below.

The Regency Woods loan (Prospectus ID#65, 0.6% of the current pool balance) is secured by a 200-unit garden-style complex built in 1985 and located in West Des Moines, Iowa. This loan was added to the servicer’s watchlist in February 2015 as a result of a low debt-service coverage ratio (DSCR), which was 0.98 times (x) at YE2014 compared with the DBRS underwritten DSCR of 1.50x. The decline in performance was caused by an increase in vacancy and operating expenses. According to the January 2015 rent roll, the property was 94% occupied compared with 99% at issuance. The property has an average rental rate of $765 per unit, which is below the submarket average rate of $784 per unit; however, according to the servicer, the average asking rental rate for vacant units is higher at $813 per unit. The YE2014 expense ratio has increased by 13.7% from issuance (57.8% to 70.4%) as a result of an increase in repairs and maintenance, insurance, management and payroll fees. The servicer reports that the increase in repairs and maintenance was a result of seasonal costs and a few larger repair items and, as such, are expected to decrease. The loan remains current.

The DBRS analysis included an in-depth review of the 15 largest loans in the transaction, as well as the loan on the servicer’s watchlist, which collectively represent 42.8 % 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. The April 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 North American CMBS Rating Methodology (March 2015) 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.

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.