DBRS Morningstar Finalizes Provisional Ratings on FREMF 2019-K98 Mortgage Trust, Series 2019-K98

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Multifamily Mortgage Pass-Through Certificates, Series 2019-K98 (the Certificates) issued by FREMF 2019-K98 Mortgage Trust, Series 2019-K98 (FREMF 2019-K98 or the Issuer):

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

All trends are Stable.

The Class X1 and XAM balances are notional.

The collateral consists of 59 fixed-rate loans secured by 56 multifamily properties, three manufactured housing community (MHC) properties, three independent/assisted-living properties and one student-housing property. All loans within the transaction are structured with ten-year loan terms with the exception of one loan, Leeward Apartments, which is structured with a 10.5-year loan term. Loans with more than a ten-year term 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 Morningstar Stabilized Net Cash Flow and their respective actual constants, 15 loans, representing 34.6% of the trust balance, had a DBRS Morningstar Term Debt Service Coverage Ratio (DSCR) at or above 1.80 times (x), a threshold indicative of a lower likelihood of mid-term default.

The deal has favorable credit metrics as evidenced by DBRS Morningstar Issuance Weighted-Average (WA) Loan-to-Value (LTV) and Balloon WA LTV ratios of 67.2% and 61.9%, respectively. Sixteen loans, comprising 26.1% of the trust balance, have DBRS Morningstar Issuance LTVs of 75.0% or higher. In addition, the WA DBRS Morningstar Term DSCR is reasonable at 1.53x. The loans in the transaction benefit from experienced and financially strong borrowers compared with typical CMBS multifamily loans. In addition, many of the borrowers are repeat clients of Freddie Mac that have performed as agreed. Two loans, representing 7.8% of the pool, exhibit Above Average property quality and six loans, representing 16.0% of the pool, exhibit Average (+) property quality. Four of these loans are in the top 15.

Seventeen loans, representing 20.3% of the pool, are secured by properties located in markets ranked one or two, which are considered more rural or tertiary in nature, including three of the top 15 loans (Village Green Apartments, The Park At Salisbury and The Ironwood). Furthermore, only five loans, representing 3.9% of the pool, are secured by properties located in markets ranked six, which are typically lighter urban in nature. Only one loan (Leeward Apartments), representing 5.3% of the pool, is secured by a property located in a market ranked seven and one loan (1111 Wilshire), comprising 3.9% of the pool, is secured by a property in a market ranked eight. Markets ranked seven and eight are generally denser urban in nature and benefit from greater liquidity, even during times of economic stress. Properties located in tertiary and rural markets were analyzed with higher loss severities than those located in urban markets.

Thirteen loans, representing 32.4% 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 34 loans, comprising 56.1% of the pool, have remaining partial-IO periods ranging from 12 months to 84 months.

The pool is concentrated by property type as multifamily properties represent 95.4% of the collateral. Seven loans, representing 4.6% of the pool, are secured by non-traditional property types (i.e., MHC, student housing, cooperatives, age-restricted housing and assisted living).

Classes X1, XAM and X3 are interest-only (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 Morningstar.

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

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- The Orsini II
-- Leeward Apartments
-- Acclaim At Carriage Hill
-- Peachtree Of Mclean Apartments
-- Gateway Park
-- 1111 Wilshire
-- Waterfront Phase I
--- Deer Crest Apartment Homes
-- The Bentley At Maitland
-- The M At Lakeline
-- The Logan
-- Piedmont At Ivy Meadow
-- The Ironwood
-- The Regent
-- Meridian At Fondren
-- The Regent
-- Meridian at Fondren
-- Promenade At The District
-- Capella Apartment Homes
-- Plantation Oaks Apartments
-- Axio Apartments
-- Summit Ridge Apartment Homes
-- York Place Apartments
-- VNP
-- Phenix At Infinity Park II
-- The Oaks Apartments
-- Laredo House Apartments
-- Keystone Apartments
-- Sheridan Beach Terrace
-- Pacifica Senior Living Vacaville
-- Phenix At Infinity Park I

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 most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.
Notes:
All figures are in U.S. dollars unless otherwise noted.

With regard to due diligence services, DBRS Morningstar 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 Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American CMBS Multi-Borrower Rating 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, 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.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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 Morningstar 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 [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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