Morningstar DBRS Confirms All Credit Ratings of CFK Trust 2019-FAX

DBRS Limited (Morningstar DBRS) confirmed the credit 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 credit rating confirmations reflect the overall stable performance of the transaction, which remains in line with Morningstar DBRS’ expectations considering the healthy cash flow and occupancy levels.

The loan is secured by the Fairfax Multifamily Portfolio, which consists of three cross-collateralized and cross-defaulted Class B+ multifamily properties totaling 870 units, in Fairfax and Herndon, Virginia. The previous owner invested more than $22.8 million in capital improvements and renovated 248 of the 870 units in the portfolio. At issuance, it was noted that an additional $11.0 million, or $12,800 per unit, was allocated for future renovations and upgrades, suggesting potential upside in rental revenues. In December 2022, The Milestone Group purchased the portfolio and assumed the loan.

The $82.0 million trust loan consists of two senior notes and two junior notes. In addition to the trust loan, five senior notes comprise a $70.0 million nontrust pari passu companion loan, a $25.0 million senior mezzanine loan, and a $20.0 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 2023 rent rolls, the weighted-average (WA) portfolio occupancy was 96.5%, a slight increase from 93.9% at YE2022. At the property level, Windsor at Fair Lakes reported a September 2023 occupancy of 97.2%, while Ellipse at Fairfax Corner and Townes at Herndon Center reported figures of 96.5% and 95.8%, respectively. For the same reporting period, the WA rental rate was $2,165 per unit. According to Reis, properties in the Western Fairfax County submarket reported effective and asking rental rates of $1,928 per unit and $2,012 per unit, respectively. The submarket average vacancy rate increased130 basis points from YE2022 to 5.7%.

According to the most recent financials, the annualized net cash flow (NCF) for the trailing-nine-month period ended September 30, 2023, was $13.7 million (reflecting a debt service coverage ratio (DSCR) of 1.54 times (x)), compared with $14.0 million at YE2022 (a DSCR of 1.58x) and the Morningstar DBRS NCF of $11.4 million. As of February 2024, the replacement reserve balance was $5.6 million, compared with $6.1 million in April 2023 and $11.0 million at issuance, suggesting some renovation work was completed. Morningstar DBRS has requested an update from the servicer.

For this review, Morningstar DBRS maintained the Morningstar DBRS NCF of $11.4 million and a capitalization rate of 6.3% in its analysis, resulting in a Morningstar DBRS value of $180.4 million, which represents a 28.3% haircut from the issuance appraised value and a whole-loan loan-to-value of approximately 110.0%. Positive qualitative adjustments totaling 2.5% were maintained to reflect the low cash flow volatility and healthy market fundamentals.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (January 23, 2024; https://dbrs.morningstar.com/research/427030).

Class X-A is an interest-only (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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

The principal methodology applicable to the credit rating is North American CMBS Surveillance Methodology (March 1, 2024; https://dbrs.morningstar.com/research/428798).

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

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 credit rating was initiated at the request of the rated entity.

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

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

This is a solicited credit rating.

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

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

-- North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799
-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261
-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279 (July 17, 2023).

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