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

DBRS, Inc. (DBRS) has today confirmed the ratings for all classes of Affordable Multifamily Commercial 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-FX2 at AAA (sf)
-- Class X-B 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 structured pass-through certificate (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.

The rating confirmations reflect the healthy overall performance of the transaction that closed in November 2014, and comprised 124 fixed rate loans secured by 118 multifamily properties. The collateral properties are Low Income Housing Tax Credit developments. The average loan term is long, at 208 months (17.3 years), with generally low leverage metrics as reflected in the current and exit DBRS debt yields of 11.8% and 17.3%, respectively. As of the October 2016 remittance report, there has been a collateral reduction of 2.5%, with all original loans remaining in the pool. Based on the YE2015 reporting, the weighted-average (WA) debt service coverage ratio (DSCR) for the pool was 1.78 times (x), up from the WA DBRS underwritten (UW) figure of 1.41x and the Issuer’s WA UW figure of 1.50x. The improvement in DSCR is reflective of a WA net cash flow growth of 26.9%, over the DBRS UW figures at YE2015.

There are eight loans (seven properties) on the servicer’s watchlist, representing 5.1% of the transaction balance. All of these loans are being monitored for cash flow declines since issuance, with coverage ratios ranging between -0.10x and 1.07x for the Q2 2016 reporting period. Some of the collateral properties on the watchlist have shown occupancy declines since issuance, while others have shown stable revenues with sharp increases in operating expenses. The two largest loans on the watchlist are detailed below.

The Montague Terrace Apartments loan (Prospectus ID #17, 1.6% of the pool) is secured by a 96-unit garden apartment property located in the rural town of Stuarts Draft, Virginia, situated approximately 100 miles west of Richmond. The property was constructed in 2012, and at issuance, had shown historically stable occupancy rates that hovered around 95.0%. Shortly after issuance, however, the property’s occupancy rate was negatively impacted by the construction of competing supply within relatively close proximity. The YE2014 DSCR fell to 0.92x before improving slowly to 1.04x at YE2015, and 1.07x at Q2 2016, with an occupancy rate of 93.0% reported in June 2016. The servicer’s site inspection conducted in August 2016 showed the property in good condition overall, at an occupancy rate of 89.6%, with 10 vacant units available for rent. Given the sustained cash flow declines from issuance, when the DBRS UW DSCR was 1.30x, the loan was modeled with a stressed cash flow to reflect the increased risk.

The Brookland Art Space Lofts loan (Prospectus ID #29, 1.1% of the pool) is secured by a 41-unit loft-style apartment property in Washington, D.C. The property was constructed in 2011 and caters to low income artists and performers. Occupancy rates at the property have been low as compared to historical performance for the past few years, with levels hovering around 80% and causing the DSCR to decline to 0.83x at YE2015 and again to -0.10x at Q2 2016. The servicer reports that the cash flow decline for the first half of 2016 occurred as a result of a combination of lower occupancy rates and higher costs associated with evictions processed during that time. Occupancy rates have partially recovered, with the August 2016 rent roll showing a vacancy rate of 9.8%, with a wait list of 14 people for the four available units. The servicer’s September 2016 site inspection found the property in good condition overall, with no deferred maintenance items observed. As cash flows have been sustained at significantly lower levels since issuance, this loan was also modeled with a stressed cash flow to reflect the increased risk.

For more information on this transaction and supporting data, please log into DBRS CMBS IReports, www.ireports.dbrs.com. DBRS continues to monitor this transaction monthly with periodic updates provided in the DBRS CMBS IReports platform.

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 (March 2016) and CMBS North American Surveillance Methodology (October 2016), which can be found on our website under Methodologies.