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

DBRS Limited (DBRS) confirmed the 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 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X1 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)

All trends are Stable.

The rating confirmations reflect the overall performance of the transaction, which has remained in line with DBRS’s expectations since issuance. The collateral consists of 105 fixed-rate loans secured by 105 multifamily properties. As of the March 2018 remittance, there has been a collateral reduction of 3.8% since issuance as a result of scheduled amortization. All loans remain in the pool and four loans, representing 3.6% of the pool balance, are fully defeased. The DBRS weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield at issuance were 1.51 times (x) and 9.1%, respectively. Loans representing 96.2% of the current pool balance are reporting year-end 2016 figures, with a WA DSCR and WA debt yield of 1.69x and 11.1%, respectively. The largest 15 loans in the pool collectively represent 42.4% of the transaction balance and based on the year-end 2016 financials, these loans are reporting a WA net cash flow (NCF) growth of 16.8% over the DBRS NCF figures derived at issuance, with a WA DSCR and debt yield of 1.70x and 10.2%, respectively.

There are two loans on the servicer’s watchlist, representing 0.7% of the current pool balance, as of the March 2018 remittance. Both loans are current and have been flagged for various reasons, including declines in financial performance, casualty events or deferred maintenance. The largest loan on the watchlist, Prospectus ID#57 – Jacksonville Townhouse Apartments, represents 0.6% of the current pool balance and was added to the servicer’s watchlist in January 2018 due to fire damage sustained to the property in December 2017. According to the servicer, the initial estimate of the fire damage was $5.0 million and the borrower does not anticipate any issues covering the claim. In addition, the loan is reporting a Q3 2017 annualized DSCR of 1.96x, compared with the DBRS Term DSCR of 1.34x. DBRS is awaiting an update from the servicer regarding the status of the repairs to the property. The loan was analyzed with a stressed cash flow scenario and will be monitored for developments.

At issuance, DBRS assigned an investment-grade shadow rating on one loan, Knickerbocker Plaza (Prospectus ID#2), representing 4.7% of the pool balance, given the desirable property location, strong occupancy, long-term ownership and high DBRS exit debt yield. DBRS confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

Class X1 is an interest-only (IO) certificate that references multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS. DBRS will continue to monitor this transaction with periodic updates provided in the DBRS Viewpoint platform.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#2 – Knickerbocker Plaza
-- Prospectus ID#57 – Jacksonville Townhouse Apartments

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS-rated transactions.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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