DBRS Confirms All Classes of FREMF 2017-K61 Mortgage Trust, Series 2017-K61

DBRS, Inc. (DBRS) confirmed the ratings on the Multifamily Mortgage Pass-Through Certificates, Series 2017-K61 issued by FREMF 2017-K61 Mortgage Trust, Series 2017-K61 as follows:

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

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction since issuance. The pool has generally performed within DBRS issuance projections, with only two loans, representing 1.1% of the pool balance, being monitored by the servicer for financial performance. As of the November 2018 remittance, all original 69 loans, secured by 69 multifamily properties, remain in the pool with a total collateral reduction of 0.5% since issuance. Approximately 95.4% of the pool reported year-end (YE) 2017 financials, and 90.5% of the pool reported partial-year 2018 financials. Based on the YE2017 financials, the pool reported a debt service coverage ratio (DSCR) and debt yield of 1.40 times (x) and 8.2%, respectively, compared with the DBRS Term DSCR and DBRS Debt Yield of 1.42x and 7.6%, respectively. Property locations are generally in favorable markets, with 83.2% of the pool located in suburban (52.4%) or urban (30.7%) locations. There are 46 loans, representing 81.4% of the pool balance, that are structured with interest-only (IO) payments, but only seven of these loans, encompassing 12.2% of the pool balance, are IO for the full term.

As of the November 2018 remittance, five loans, representing 5.6% of the pool balance, were on the servicer’s watchlist, including one loan in the top 15 loans (Prospectus ID#8 – Jefferson Place; 3.1% of the pool balance). Three of the watchlist loans, comprising 4.5% of the pool balance, are being monitored for deferred maintenance, including Jefferson Place. One of the deferred maintenance loans (Prospectus ID#33 – Riverside Palms; 1.2% of the pool balance) had down units due to fire and water damage. However, the September 2018 rent roll showed a majority of the down units were back online, resulting in a strong occupancy of 98.9%. Two loans (Prospectus ID#38 – Stone Valley Alzheimer’s Special Care Center; 1.2% of the pool balance and Prospectus ID#66 – Lincoln Hotel Apartments; 0.2% of the pool balance) are being monitored for financial performance. The occupancy at Stone Valley was affected by leadership staffing positions being vacant for several months; however, the positions have since been filled and occupancy is improving. Performance for Lincoln Hotel Apartments was affected by above-market management and accounting expenses, which continue to be monitored.

DBRS is also monitoring the Greenbrier Apartment Homes loan (Prospectus ID#16; 1.8% of the pool balance) given its recent financial performance. In 2017, the borrower replaced several tenants and incurred numerous turnover-related expenses, resulting in an occupancy and net cash flow decline. The loan was previously on the servicer’s watchlist due to a low YE2017 DSCR but was removed in October 2018, as financial performance had improved as of June 2018. Performance has recently experienced positive momentum; however, DBRS is monitoring the loan as the property stabilizes and seasons.

Classes X1, X2-A, XAM and X2-B are 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#16 – Greenbrier Apartment Homes (1.8% of the pool balance)
Prospectus ID#38 – Stone Valley Alzheimer’s Special Care Center (0.9% of the pool balance)

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 & 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 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.

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