DBRS Confirms All Classes of Impact Funding Affordable Multifamily Housing Mortgage Loan Trust 2014-1 with Stable Trends

DBRS, Inc. (DBRS) has today confirmed the ratings for all classes of Affordable Multifamily Mortgage Loan Pass-Through Certificates, Series 2014-1 (the Certificates) issued by Impact Funding Affordable Multifamily Housing Mortgage Loan Trust 2014-1 (the Trust). The ratings are listed below; all trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-FX1 at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-FX2 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

Classes A-1, A-2, A-3, X-A and X-FX1 represent the Certificates that were purchased and guaranteed by Freddie Mac and deposited into the SPC Trust to back the Offered SPCs. Classes B, C, D, E, F, X-B and X-FX2 represent the non-guaranteed offered certificates.

All Classes are privately placed.

This transaction closed on November 20, 2014, and is comprised of 124 fixed-rate loans secured by 118 multifamily properties. These properties are Low Income Housing Tax Credit (LIHTC) developments. There are six properties secured by two pari passu notes, both of which are held by the Trust, representing 6.0% of the total pool balance. In addition, approximately 80% of the pool has subordinate debt in place. Those subordinate loans typically represent a small percentage of the total debt stack and are typical of the finance structure for a LIHTC development. The trust loans are typically small, with an average loan balance of $1.7 million. The average term length at issuance was 208 months, with 18 fully amortizing loans representing approximately 13.4% of the pool.

The overall pool performance is strong, with weighted-average net cash flow (NCF) growth of +22.89% and +23.12% for the pool from the Issuer and DBRS underwritten NCF figures at YE2014, respectively. The most recent reporting shows a weighted-average debt service coverage ratio (DSCR) of 1.81 times (x) at Q2 2015 (94.1% of the pool reporting) for the overall pool, as compared with the weighted-average DBRS Term DSCR of 1.41x at issuance. The top 15 loans (counting the combined pari passu notes for Citrus Gardens Apartments, Prospectus ID #s 13 and 14, as one loan), represent 30.89% of the pool. For 14 of the top 15 loans with Q2 2015 reporting available, the weighted-average DSCR was 1.36x, with a weighted-average occupancy rate of 98.1%.

As of the October 2015 remittance report, there has been collateral reduction of 1.16%, with all 124 loans remaining in the pool. There are 11 loans (nine properties) on the servicer’s watchlist, representing 6.06% of the transaction. These loans are on the watchlist for a low DSCR at the respective Q2 2015 reporting periods. The declines in cash flow for each respective property were typically expense-driven, with stable occupancy and effective gross income metrics for all but two of the properties. An above-average expense ratio is a characteristic of these property types, with event-driven spikes in individual expense categories causing overall net operating income (NOI) declines. As occupancy levels are typically strong, these are generally balanced over a relatively short term with NOI returning to or near historical levels.

The largest loan on the servicer’s watchlist is Prospectus ID #17, Montague Terrace Apartments, which represents 1.55% of the total pool balance. The collateral property is a 96-unit garden apartment community constructed in 2012 in Stuarts Draft, Virginia, a rural area in the northern part of the state situated approximately 100 miles west of Richmond. The DSCR at YE2014 was 0.92x with an occupancy rate of 89%. The Q2 2015 reporting shows occupancy improved to 98%, but the DSCR fell slightly to 0.90x. The servicer reports that the occupancy declines from late 2014 through Q1 2015 were related to the construction of similar developments in relatively close proximity to the subject property and advises that, as occupancy has since rebounded, cash flows should stabilize over the remainder of 2015.

The second-largest loan on the servicer’s watchlist is Prospectus ID #29, Brookland Artspace Lofts, which represents 1.08% of the pool balance. This loan is secured by a 41-unit property constructed in 2011 in Washington, D.C. The property caters to artists and performers with low incomes and has historically been at or near 100% occupancy since construction. The DSCR fell to 0.57x at Q2 2015 (odd FYE month of October, with Q2 reporting as of April), down from 1.15x at YE2014, due to an occupancy drop to 90% at YE2014 that held through the April 2015 rent roll provided by the servicer. The servicer advises that the property has a waitlist of approximately 100 people and has requested information from the borrower with regard to the source of the sustained occupancy decline at the property. Given the historical performance of the property and the current demand, DBRS expects occupancy to rebound in the near term, bringing cash flows and, accordingly, the DSCR back up.

DBRS will continue to communicate with the servicer regarding the performance of the loans on the watchlist and will closely monitor for developments.

For more information on this rating action, please contact us at info@dbrs.com.

Notes:
All figures are in U.S. dollars unless otherwise noted.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.