DBRS Confirms Ratings of FREMF 2010-K8 Mortgage Trust

DBRS Limited (DBRS) has today confirmed the ratings of FREMF 2010-K8 Mortgage Trust, Series 2010-K8, as follows:

-- Class B at A (high) (sf)
-- Class X2 at AAA (sf)

The trend for Class B is Positive and the trend for Class X2 is Stable. DBRS does not rate the first loss bond, Class C.

The rating confirmations and stable to positive trends reflect the strong performance of the overall pool since issuance. The collateral consists of 71 fixed-rate loans secured by 71 multifamily properties. As of the August 2015 remittance report, there was collateral reduction of approximately 6.7% since issuance. As of the YE2014 reporting period, the pool had a weighted-average (WA) debt service coverage ratio (DSCR) of 1.7 times (x). At issuance, the weighted-average DBRS term DSCR for the pool was 1.32x.

There are seven loans on the servicer’s watchlist, representing 5.0% of the current pool, with no delinquent or specially serviced loans. Most of the loans on the servicer’s watchlist are monitored for a low DSCR, with a weighted-average coverage of approximately 1.0x at YE2014 for the five non-crossed loans. The weighted-average coverage for the three crossed loans in the Village Park Portfolio, (Village Park at Rockborough, Village Park at Cedarbrook and Village Park at Kingsborough, Prospectus ID #’s 18, 19 and 20, respectively) two of which are on the watchlist, was 1.10x at YE2014.

The loans in the Village Park portfolio are secured by properties located in three separate submarkets of Wichita, KS. Rockborough and Cedarbrooke are on the watchlist due to declining DSCR trends, with YE2014 coverages of 1.0x and 1.06x, respectively. At the last DBRS review, Kingsborough was also on the watchlist, but was removed as property condition stabilized and the DSCR improved to 1.34x at YE2014. Both properties remaining on the watchlist have struggled with below underwritten occupancy rates since 2013 and condition issues in minor to moderate deferred maintenance with declining trends for some categories observed at the May 2014 inspections for each. These issues were largely a factor of the mismanagement of the properties by the previous ownership and management company.

All three properties were sold and the trust loans were assumed by 660 East LLC in September 2014. The new ownership began repairs and renovations shortly after close, contributing to some occupancy fluctuations as work was completed. Also contributing to occupancy fluctuations, the new management company has reduced concessions, instituted strict tenant qualification standards and enforced collections as outlined in the terms of the respective leases. As the outstanding projects are completed and the management company has a full year of operations under their belts, occupancy rates are expected to stabilize and property performance is expected to improve. The occupancy rate for the Rockborough and Cedarbrooke assets are 89.8% and 74.1% as of the June 2015 rent roll.

At issuance, Prospectus ID#40, Rocky Creek Apartments, was shadow rated investment grade. The shadow rating was based on the stability of cash flow, the refinance DSCR and the exit debt yield. Based on the YE2014 cash flows, the refinance DSCR is 2.26x and the exit debt yield is 20.5%, with an in-place DSCR of 2.69x and an occupancy rate of 96%. With this review, DBRS confirms the shadow rating on this loan.

For the purposes of this review, DBRS reviewed the performance metrics for the entire pool, focusing on the largest 15 loans, the shadow-rated loan and the loans on the servicer’s watchlist, which together, comprise approximately 59.0% 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 loans on the servicer’s watchlist. The September 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” (June 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.