DBRS Upgrades One Class of FREMF 2012-K17 Mortgage Trust, Series 2012-K17

DBRS Limited (DBRS) upgraded the following rating of Multifamily Mortgage Pass-Through Certificates Series 2012-K17 issued by FREMF 2012-K17 Mortgage Trust, Series 2012-K17:

-- Class B to AA (high) (sf) from AA (sf)

Additionally, DBRS has confirmed the following classes:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X1 at AAA (sf)
-- Class X2-A at AAA (sf)

All trends remain Stable.

The rating actions reflect the overall strong performance of the transaction since issuance. As of the June 2018 remittance, 71 of the 72 original loans remained in the pool with an aggregate principal balance of $1,143 million, representing a collateral reduction of 10.2% since issuance due to scheduled loan amortization and loan repayment. There are 15 loans, representing 21.4% of the current pool balance, that are fully defeased.

When excluding defeasance collateral, the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) of 2.16 times (x) and a WA debt yield of 13.2% on the senior debt obligation at year-end 2017, compared to the DBRS issuance figures of 1.17x and 6.5%, respectively. DBRS does note that, as of May 2018, Freddie Mac reported supplemental (subordinate) debt for 24 loans (36.8% of the pool balance), with a total balance outstanding of $107.4 million. These loans reported a WA senior note DSCR of 2.03x, with a WA whole loan DSCR of 1.64x. The Freddie Mac K deal program allows for subordinate Freddie Mac debt to be secured and held outside the trust. These loans are made according to established program parameters that require the same minimum combined DSCR and LTV thresholds as required for the senior note included in the K deal.

As of the June 2018 remittance, there are four loans on the servicer’s watchlist, representing 3.9% of the current pool balance. The largest watchlisted loan, Prospectus ID#18 – Mayfair Chateau Manor Apartments (1.6% of the pool balance), is being monitored for depressed cash flows reported throughout 2016 and 2017. The cash flow declines were largely due to an increase in operating expenses and a period of high vacancy that resulted from ongoing renovations. For more information on this loan, please see the Loan Commentary in the DBRS Viewpoint platform, for which information has been provided below. The second-largest watchlisted loan, Prospectus ID#32 – New Floral Gardens IB (1.0% of the pool balance), had a fire in March 2018, with the servicer working to determine the full extent of the damage as of June 2018. All loans on the servicer’s watchlist that are being monitored for a decline in cash flows were analyzed with a stressed scenario for this review.

Classes X1 and X2-A are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation 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.

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 #18, Mayfair Chateau Manor Apartments
-- Prospectus ID #32, New Floral Gardens IB
-- Prospectus ID #53, Stillwater Flats

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.