DBRS Assigns Provisional Ratings to FREMF 2019-K92 Mortgage Trust, Series 2019-K92

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of Multifamily Mortgage Pass-Through Certificates, Series 2019-K92 to be issued by FREMF 2019-K92 Mortgage Trust, Series 2019-K92:

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

All trends are Stable.

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

The collateral consists of 63 fixed-rate loans secured by 63 multifamily and manufactured housing community (MHC) properties and one assisted-living property. Two loans are cross-collateralized and cross-defaulted. For the purpose of the related presale report, DBRS incorporates these loans as a single portfolio, resulting in a modified loan count of 62; the loan number referenced within the report reflects this total. All loans within the transaction are structured with ten-year loan terms, except four loans structured with 11-year loan terms (Castile Apartments, Double Creek Flats, Myrtle Landing and The Residences at the Crossings Phase II), two loans structured with 10.5-year loan terms (Veve at Castle Hill and Citypark View South) and one loan structured with a 10.25-year loan term (Trailside at Los Olivos). Loans with loan terms longer than ten years are typically part of Freddie Mac’s pre-stabilization lending program. 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 Net Cash Flow and their respective actual constants, no loans had a DBRS Term Debt Service Coverage Ratio (DSCR) below 1.15 times, a threshold indicative of a higher likelihood of mid-term default.

Three loans, representing 13.1% of the pool, exhibit Above Average property quality and nine loans, representing 22.9% of the pool, exhibit Average (+) property quality. Seven of these loans are in the top ten loans. Additionally, only two loans, representing 1.2% of the pool, were assigned Average (-) property quality and no properties were deemed Below Average.

Fifteen loans, representing 15.0% of the pool, are secured by properties located in first- or second-ranked markets which are considered more rural or tertiary in nature, including two of the top 15 loans (Ponte Palmero Retirement Village and Coronado Villas). Furthermore, only four loans, representing 5.9% of the pool, are secured by properties located in sixth-ranked markets, which is typically lighter urban in nature, and no loans are secured by properties located in the highly urbanized seventh and eighth market ranks. Properties located in tertiary and rural markets were analyzed with higher loss severities than those located in urban and suburban markets.

Twelve loans, representing 28.0% of the pool and including six of the top 15 loans in the pool, are structured with full-term interest-only (IO) payments. An additional 44 loans, comprising 69.9% of the pool, have remaining partial-IO periods ranging from 12 months to 72 months. The probability of default (POD) is calculated using a DSCR that includes amortizing debt service. The balloon loan-to-value ratio is also incorporated in the POD. Furthermore, partial-IO loans are penalized in the model.

The pool is concentrated by property type as multifamily properties represent 90.1% of the collateral. Six loans, representing 9.9% of the pool, are secured by non-traditional property types (i.e., MHC, student housing, cooperatives, age-restricted housing and assisted living). Compared with other property types, multifamily properties benefit from staggered lease rollover and generally low expense ratios. 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 28 sampled loans indicates that most markets are displaying strong vacancy and rent growth figures with positive year-over-year trends. Student-housing properties are modeled with higher PODs than traditional multifamily properties and MHCs have historically performed very well, although it is not 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 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. 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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