DBRS Morningstar Confirms All Classes of CFK Trust 2019-FAX

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-FAX issued by CFK Trust 2019-FAX as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-A at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations.

The loan is secured by the Fairfax Multifamily Portfolio, which consists of three Class B+ multifamily properties totaling 870 units, in Fairfax and Herndon, Virginia. The portfolio benefits from major highway access, including Interstates 66 and 495, and public transportation, offering access to Washington, D.C., and throughout Virginia. The previous owner invested more than $22.8 million in capital improvements and renovated 248 of the 870 units in the portfolio. The loan is sponsored by Tomas Rosenthal, the chief executive officer of Hampshire Properties Ltd., a New York-based privately held real estate investment firm specializing in value-add opportunities. At acquisition, the sponsor budgeted an additional $11.0 million, or $12,800 per unit, for future renovations and upgrades, suggesting potential upside in rental revenues.

The $82 million trust loan consists of two senior notes and two junior notes. In addition to the trust loan, five senior notes comprise a $70 million non-trust pari passu companion loan, a $25 million senior mezzanine loan, and a $20 million junior mezzanine loan, which are held outside the trust. The loan is interest only (IO) throughout its 10-year loan term and matures in January 2029.

According to the September 2022 rent roll, the weighted-average portfolio occupancy was 95.6%, relatively in line with prior years. The three properties, Ellipse at Fairfax Corner, Windsor at Fair Lakes, and Townes at Herndon Center, account for 46.3%, 28.2%, and 24.8% of the portfolio, respectively. Ellipse at Fairfax Corner and Townes at Herndon Center were both 96.3% occupied, and Windsor at Fair Lakes was 94.8% occupied. The average effective monthly rental rate for one-bedroom, two-bedroom, and three-bedroom units across the portfolio were $1,645, $2,220, and $2,301, respectively. According to Reis, the Western Fairfax County submarket reported one-, two-, and three-bedroom average effective monthly rental rates of $1,833, $2,115, and $2,380, respectively. As of September 2022, the sponsor had partially or fully renovated 303 units, with partially completed units reportedly achieving rental premiums ranging from $75 to $100 per unit, and completed units ranging from $175 to $275 per unit. As of April 2023, the replacement reserve balance was $5.9 million, compared with $6.1 million in April 2022, suggesting renovations are ongoing. DBRS Morningstar has inquired about the status of the renovations but has not received a response as of the time of this writing.

The annualized net cash flow (NCF) for the trailing nine-month period ended September 30, 2022, was $13.4 million, compared with $12.6 million at YE2021 and the DBRS Morningstar derived NCF of $11.4 million. The cash flow increase is attributable to improvements in rental revenue and other income. The DBRS Morningstar value of $180.4 million represents a 28.3% haircut to the issuance appraised value of $251.5 million, and implies a loan-to-value ratio of 84.2% on the whole loan and 109.2% including the mezzanine debt.

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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.

Class X-A is an IO certificate that references 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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023;
https://www.dbrsmorningstar.com/research/410191)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022; https://www.dbrsmorningstar.com/research/402153)

Legal Criteria for U.S. Structured Finance (December 7, 2022;
https://www.dbrsmorningstar.com/research/407008)

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