Press Release

DBRS Morningstar Confirms All Classes of FREMF 2020-K738 Mortgage Trust, Series 2020-K738

CMBS
May 03, 2021

DBRS, Inc. (DBRS Morningstar) confirmed all ratings to the following classes of Multifamily Mortgage Pass-Through Certificates, Series 2020-K738 issued by FREMF 2020-K738 Mortgage Trust, Series 2020-K738:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X1 at AAA (sf)
-- Class X2-A at AAA (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. The transaction closed in May 2020 with the trust comprising 25 loans secured by 25 multifamily properties with a total trust balance of $953.8 million at issuance. Per the April 2021 remittance report, 24 loans secured by 24 multifamily properties remained in the trust, as the smallest loan in the pool at issuance fully repaid in September 2020. There were no loans on the servicer’s watchlist or in special servicing as of the April 2021 remittance report. The underlying collateral has been performing within DBRS Morningstar’s expectations and has withstood the additional economic stress caused by the Coronavirus Disease (COVID-19) pandemic.

The loans exhibited relatively low leverage at issuance with a weighted average loan-to-value ratio of 63.9%. The loans in the transaction benefit from experienced and financially strong borrowers compared with typical CMBS multifamily loans. Additionally, many of the borrowers are repeat clients of Freddie Mac that have performed as agreed. Underlying collateral analysis is prudent, as DBRS Morningstar’s assumptions at issuance were generally in line with the Issuer’s.

The pool exhibits elevated geographic, sponsor, and loan size concentration risk. Five loans, totaling 35.5% of the trust balance, are secured by properties in the Denver metropolitan statistical area. In addition, five loans, representing 30.5% of the trust balance, have the same sponsor, IMT Capital REIT V LLC. The pool is also concentrated by loan size as the largest five loans represent 44.4% of the trust balance. DBRS Morningstar applied additional stresses at issuance to reflect the geographic and loan size concentration risk.

Ten loans, representing 44.8% of the trust balance, are secured by properties with student housing exposure ranging from 0.4% to 40.0% of the respective tenant rosters at issuance. At issuance, DBRS Morningstar applied an additional probability of default stress for properties with student housing concentration exceeding 30.0% to account for the additional risk. In addition, there are 14 loans, totaling 59.9% of the trust balance, that feature full interest-only (IO) terms.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Classes X1 and X2-A 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 Morningstar.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.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.

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

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

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 696-6293

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.