DBRS Confirms Rating of FREMF 2011 K-702 Mortgage Trust, Series 2011-K702

DBRS Limited (DBRS) has today confirmed the Class B certificates of FREMF 2011-K702 Mortgage Trust, Series 2011-K702 at A (low) (sf) with Stable trend.

The rating confirmation reflects the pool’s continued stable performance, as the transaction has experienced total collateral reduction of 8.0% since issuance as a result of scheduled loan amortization and the pre-payment of two loans. As of the April 2015 remittance, the weighted-average (WA) debt service coverage ratio (DSCR) and exit debt yield are 1.6 times (x) and 10.6%, respectively. The pool benefits from defeasance collateral, as nine loans, representing 13.0% of the pool, are fully defeased.

As of the April 2015 remittance report, there are nine loans on the servicer’s watchlist and no delinquent or specially serviced loans. Three of the loans on the watchlist, representing 4.4% of the pool, are being flagged for items of deferred maintenance. The three largest loans on the watchlist are secured by student housing properties and are all Top 15 loans.

The Seminole Grand loan (Prospectus ID #2, representing 3.9% of the current pool balance) is secured by a 486-unit, 1,554-bed student housing apartment community in Tallahassee, Florida, less than two miles north of Florida State University (FSU). The loan was originally added to the servicer’s watchlist after serious damage was sustained to the clubhouse/leasing office and penthouse unit in 2012. Repairs were completed by October 2013; however, operating expenses remain elevated. According to YE2014 financials, the loan reported a DSCR of 1.09x and an expense ratio of 60.2%. The DBRS underwritten DSCR and expense ratio were 1.32x and 45.3%, respectively. At issuance, students enrolled at FSU, Florida A&M University and Tallahassee Community College totalled 68,000 students. As of fall 2014, enrolment for the three colleges has increased by 6.4% since issuance.

The Palms on University loan (Prospectus ID #7, representing 2.9% of the current pool balance), is secured by a 152-unit, 528-bed student-housing apartment complex located just outside the University of California-Riverside campus in Riverside, California. The loan is on the watchlist for a Q3 2014 DSCR of 1.01x, which is an improvement from the YE2013 DSCR of 0.93x but below the DBRS underwritten DSCR of 1.27x. According to the September 2014 rent roll, the property was 90% occupied with an average rental rate of $697 per bed. In comparison, the in-place average rental rate for 2012 and 2013 were $778 and $701 per bed, respectively. The subject is one of the newest properties in the immediate area, and enrolment at the University of California-Riverside campus has increased 8.5% since 2011.

The Vue On Apache loan (Prospectus ID #6, representing 2.9% of the current pool balance) is secured by a 132-unit, 468-bed student housing apartment complex in Tempe, Arizona, directly west of the Tempe campus of Arizona State University. The loan is on the watchlist for a low DSCR, which was reported to be 0.81x for YE2014. The property was sold in August 2012 and was reportedly mismanaged by the previous owner and operator. Since the new management firm has taken over, the occupancy rate has improved to 96% as of June 2014 from 67% in June 2013. Rental rates at the subject are also recovering, as the average rate per bed was $687 as of September 2014 compared with $665 as of September 2013. The current rental rate still represents a significant drop since issuance, when the average rental rate was $725 per bed. DBRS will continue to closely monitor the performance of these loans.

In addition to the loans highlighted above, there are two other Top 15 loans secured by student housing properties, representing 4.4% of the pool balance. These loans reported WA DSCR of 1.59x and a WA debt yield of 11.05% for YE2014.

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. The April 2015 Monthly CMBS 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 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.