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

DBRS Limited (DBRS) confirmed the ratings of the following classes of Affordable Multifamily Commercial Mortgage Pass-Through Certificates, Series 2014-1 (the Certificates) issued by Impact Funding Affordable Multifamily Housing Mortgage Loan Trust 2014-1 (the Trust):

-- 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 B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class X-B at B (high) (sf)
-- Class X-FX2 at B (high) (sf)
-- Class F at B (sf)

All trends are Stable.

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 Trust to back the offered structured pass-through certificates. Classes B, C, D, E, F, X-B and X-FX2 represent the non-guaranteed offered certificates.

The rating confirmations reflect the overall stable performance of the transaction, which closed in November 2014 with 124 fixed-rate loans secured by 118 multifamily properties. As of the October 2018 remittance report, there has been a collateral reduction of 5.5% since issuance, with all original loans remaining in the pool. The collateral properties are Low-Income Housing Tax Credit (LIHTC) developments with generally low leverage metrics, as reflected in the weighted-average (WA) debt yield and loan-to-value of 16.0% and 40.5%, respectively, as based on the most recent cash flows and October 2018 balances. Based on the YE2017 reporting, the WA debt service coverage ratio (DSCR) for the pool was 1.84 times (x), up from the WA DBRS Term DSCR figure derived at issuance of 1.41x. The top 15 loans, which represent 31.0% of the current pool, reported a WA YE2017 DSCR of 1.55x and healthy WA net cash flow growth of 22.5% over the DBRS issuance figures.

There are 16 loans on the servicer’s watchlist, representing 10.6% of the current pool balance. All of these loans are being monitored for cash flow declines since issuance, with coverage ratios ranging between 0.22x and 1.08x for the Q2 2018 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. Although these cash flow declines present additional risk for the respective loans within the transaction, there are mitigating factors in the value of the tax credits sold as part of the LIHTC program, which provide significant incentive for the tax credit investors to fund any cash flow shortfalls (as necessary) at the collateral properties to avoid a credit recapture in the event the borrower defaults on the loan. The largest loan on the watchlist (Serrano Woods – Prospectus ID#7) is being monitored for a low DSCR, driven by expense increases related to repairs and maintenance and payroll costs. According to the servicer, the borrower completed interior maintenance and repairs throughout the first half of 2018, and the increase in payroll costs were driven by additional personnel hours spent at the property. The loan reported a Q2 2018 DSCR figure of 1.08x compared with the DBRS Term DSCR of 1.16x. For additional information on this loan, please see the loan commentary on the DBRS Viewpoint platform, for which information is provided below.

Classes X-A, X-FX1, X-B and X-FX2 are interest-only (IO) certificates that reference a single rated tranche or 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.

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#7 – Serrano Woods (2.1% of the pool)
-- Prospectus ID#25 – Citrus Grove Apartments (1.3% of the pool)
-- Prospectus ID#36 – Lofts at Waco High (1.0% 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 commercial mortgage-backed securities universe as well as deal and loan-level commentary for all DBRS-rated transactions.

Notes:
The principal methodology is North American CMBS Surveillance Methodology, which can be found on dbrs.com under Methodologies & Criteria. 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.