DBRS Morningstar Confirms Ratings on 26 Classes and Upgrades Ratings on Five Classes of Three Freddie Mac-Issued CMBS Transactions

DBRS Limited (DBRS Morningstar) conducted its surveillance review of three Freddie Mac-Issued transactions, which included seven classes from one commercial mortgage-backed security (CMBS) transaction (FREMF 2019-K98 Mortgage Trust, Series 2019-K98), five classes from one Structured Pass-Through Certificate transaction (Freddie Mac Structured Pass-Through Certificates, Series K-098), and 19 classes from one ReREMIC transaction (CFMT 2021-FRR1). The ReRemic is collateralized by the above mentioned Freddie Mac CMBS transaction, as well as five other underlying Freddie Mac CMBS transactions that are not rated by DBRS Morningstar. DBRS Morningstar confirmed its ratings on 26 classes across the three rated transactions and upgraded five classes of the ReREMIC transaction. The rating confirmations reflect the overall stable performance of the transactions, which have generally remained in line with DBRS Morningstar’s expectations. The rating upgrades reflect the increase in credit support for two of the ReREMIC’s underlying transactions as a result of loan payoffs and/or increased defeasance. All trends are Stable.

The full list of ratings on the classes in these transactions can be found at the end of this press release.

The ReREMIC transaction is a resecuritization collateralized by the beneficial interests in six commercial mortgage-backed pass-through certificates from six underlying transactions, including FREMF 2019-K98, which is discussed further below. The remaining underlying deals that are not rated by DBRS Morningstar include FREMF 2015-K45 Mortgage Trust, Series 2015-K45, FREMF 2016-K54 Mortgage Trust, Series 2016-K54, FREMF 2016-K58 Mortgage Trust, Series 2016-K58, FREMF 2019-K99 Mortgage Trust, Series 2019-K99, and FREMF 2016-KW01 Mortgage Trust, Series 2016-KW01. The ratings assigned to the ReREMIC are dependent on the performance of the underlying transactions.

The FREMF 2019-K98 transaction is composed of 59 loans, which remains unchanged from issuance. According to the July 2022 remittance, the pool had a trust balance of $1.44 billion, reflecting a nominal collateral reduction of 0.6% from issuance. Three loans, representing 4.5% of the pool balance, have defeased. In addition, no loans are delinquent or with the special servicer; however, there are six loans, representing 13.2% of the current pool balance, on the servicer’s watchlist for declines in performance or deferred maintenance items.

The largest loan on the servicer’s watchlist, Leeward Apartments (Prospectus ID#2, 5.0% of the pool), is secured by a 296-unit, mid-rise apartment complex in Seattle, Washington. The loan is being monitored on the servicer’s watchlist because of a decline in the debt service coverage ratio (DSCR), with the year-end (YE) 2021 figure reported at 1.08 times (x), compared with the YE2020 DSCR of 1.30x and the DBRS Morningstar DSCR of 1.52x. The decline in performance was mainly due to a drop in the occupancy rate which fell to 87.5% as of YE2020, as well as an increase in operating expenses; however, the borrower expects performance to improve in the near to moderate term, given that occupancy increased to 93.9% in December 2021.

According to the July 2022 remittance, there are 414 loans secured across the five non-rated Freddie Mac CMBS transactions with an aggregate outstanding balance of $7.6 billion. There are no loans in special servicing and 36 loans on the servicer’s watchlist, representing 9.4% of the transactions’ aggregate outstanding balance. The watchlisted loans are being monitored for deferred maintenance issues and/or declines in occupancy and cash flow, resulting in stressed DSCRs. In addition, 95 loans, representing 15.1% of the transactions’ aggregate outstanding balance, have defeased. In evaluating the performance of these transactions, DBRS Morningstar looked for year-over-year changes since the issuance of the ReRemic, including new defeasance, new additions to, or removals from, the servicers’ watchlists, and loan repayments.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Classes that are interest-only (IO) certificates 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.

DBRS Morningstar provides updated analysis and in-depth commentary for these transactions, particularly at issuance, in the DBRS Viewpoint platform.

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 4, 2022), 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

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.

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

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