DBRS Assigns Provisional Ratings to FREMF 2019-K90 Mortgage Trust, Series 2019-K90

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of Multifamily Mortgage Pass-Through Certificates, Series 2019-K90 to be issued by FREMF 2019-K90 Mortgage Trust, Series 2019-K90:

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

All trends are Stable.

The Class X1, X2-A and XAM balances are notional.

The collateral consists of 56 fixed-rate loans secured by 57 multifamily and manufactured housing community (MHC) properties. All the loans within the transaction are structured with ten-year loan terms with the exception of Inspire and Atwater Apartments, both of which are structured with 11-year loan terms. The transaction is a sequential-pay pass-through structure. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Stabilized NCF and their respective actual constants, none of the loans had a DBRS Term DSCR below 1.15 times (x), a threshold indicative of a higher likelihood of mid-term default.

Three loans, representing 12.9% of the pool, exhibit Above Average property quality and six loans, representing 30.6% of the pool, exhibit Average (+) property quality. Four of these loans are in the top ten loans. Additionally, only three loans, representing 7.6% of the pool, were assigned Average (-) property quality while no properties were deemed Below Average.

Fourteen loans, representing 13.3% of the pool, are secured by properties located in markets ranked one or two which are considered more rural or tertiary in nature, including one of the top 15 loans (The Links at Georgetown). Properties located in tertiary and rural markets were analyzed with significantly higher loss severities than those located in urban and suburban markets.

Nineteen loans, representing 37% of the pool, including five of the top 15 loans in the pool, are structured with full-term interest-only (IO) payments. An additional 31 loans, comprising 59% of the pool, have remaining partial IO periods ranging from 24 months to 84 months. The probability of default (POD) is calculated using amortizing debt service and balloon loan-to-value is also incorporated into the POD. Further, partial IO loans are penalized in the model.

The pool is concentrated by property type, as multifamily properties represent 92.4% of the collateral. Five loans (7.6% of the pool) are secured by non-traditional property types (i.e., MHC, student housing, cooperatives, age-restricted housing and assisted living). Multifamily properties benefit from staggered lease rollover and generally low expense ratios compared with other property types. While revenue is quick to decline in a downturn because of the short-term nature of the leases, it is also quick to respond when the market improves. Analysis performed on the 27 sampled loans indicates that most markets are displaying strong vacancy and rent growth figures, with positive year-over-year trends being established. Student housing properties are modeled with higher PODs than traditional multifamily properties and MHCs have historically performed very well despite not being a core asset class.

Classes X1, X2-A and XAM 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrs.com.

Notes:
The principal methodology is North American CMBS Multi-borrower Rating Methodology, which can be found on www.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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS’s methodology, DBRS used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The rated entity or its related entitiesdid 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

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

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