DBRS Confirms All Classes of FREMF 2014-K37 Mortgage Trust, Series 2014-K37

DBRS Limited (DBRS) confirmed the ratings on the following classes of Multifamily Mortgage Pass-Through Certificates, Series 2014-K37 issued by FREMF 2014-K37 Mortgage Trust, Series 2014-K37:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X1 at AAA (sf)
-- Class X2-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X2-B at A (high) (sf)
-- Class C at A (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. At issuance, the collateral consisted of 102 fixed-rate loans, secured by 102 multifamily properties with a trust balance of $1.4 billion. As of the September 2018 remittance, all loans remain in the pool with a current outstanding trust balance of $1.3 billion, representing a collateral reduction of 5.2% due to scheduled loan amortization. Loans representing 91.2% of the pool reported YE2017 financials with a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.77 times (x) and 11.7%, respectively, compared with the DBRS Term figures derived at issuance of 1.42x and 8.8%, respectively. Based on the most recent reporting, the top 15 loans in the pool (excluding defeasance) reported a WA DSCR and debt yield of 1.54x and 10.1%, respectively, in comparison with the WA DBRS Term DSCR and debt yield of 1.26x and 8.3%, representing a WA net cash flow (NCF) growth of 22.5% over the DBRS issuance NCF figures. The pool also benefits from defeasance as eight loans (9.0% of the current pool balance) are fully defeased.

As of the September 2018 remittance, there are eight loans (9.1% of the current pool balance) on the servicer’s watchlist and no loans in special servicing. Four loans (4.4% of the current pool balance) were flagged due to declining cash flow performance and one loan (2.2% of the current pool balance) was flagged for deferred maintenance. The remaining three loans (3.9% of the current pool balance) are being monitored due to the borrower’s association (for the subject loans) with Robert Morgan and/or Morgan Management LLC.

According to the servicer, on May 22, 2018, a grand jury returned an indictment alleging that employees of Morgan Management, LLC had been involved in providing false financial information relating to loans in which Robert Morgan and/or Morgan Management, LLC had an ownership interest in the related borrower. Morgan Management, LLC is a property management company based in Pittsford, New York, which owns and operates multifamily properties located across 14 states. DBRS has located articles online noting that the investigation is ongoing as federal prosecutors are continuing to gather information. According to the YE2017 financials, these loans reported a WA DSCR of 1.60x compared with the WA DBRS Term DSCR derived at issuance of 1.29x. In the analysis for these loans, DBRS increased the probability of default to reflect the ongoing legal issues surrounding Robert Morgan and Morgan Management LLC. DBRS will continue to monitor the loans for developments.

Classes X-1, X2-A and X2-B are interest-only (IO) certificates that reference 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:

-- The Reserve at Barry (Prospectus ID #5, 2.7% of the pool)
-- Arbor Oaks at Tyrone (Prospectus ID #46, 0.8% of the pool)
-- Agape at Harbison (Prospectus ID #57, 0.7% of the pool)

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 North American CMBS 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.

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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