Morningstar DBRS Assigns Provisional Credit Ratings to FREMF 2024-K164 Mortgage Trust, Series K-164

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to following classes of Multifamily Mortgage Pass-Through Certificates, Series 2024-K164 (the Certificates) to be issued by FREMF 2024-K164 Mortgage Trust, Series 2024- K164 (FREMF 2024-K164):

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-1 at AAA (sf)

All trends are Stable.

Class X-1 balances are notional.

The collateral consists of 64 fixed-rate loans secured by 64 commercial properties, including 32 garden-style multifamily properties, 13 manufactured housing communities, four mid-rise apartment complexes, four high-rise apartment complexes, three age-restricted properties, four student housing properties, two independent living properties, one townhome property, and one assisted living community. Four loans (Cedar Creek Apartments, Magnolia Apartments, Bell Oaks Apartments, and Sunrise Apartments, which collectively represent 1.9% of the trust balance) are cross collateralized. Morningstar DBRS' analysis of this transaction therefore incorporates these four loans as a single loan, resulting in a modified loan count of 61. All figures below and throughout this report reflect the modified loan count. All of the loans in the trust have 10-year loan terms except for one loan (The Element) that has a 11-year loan term. The transaction is a sequential-pay pass-through structure. Morningstar DBRS analyzed the pool to determine the provisional ratings, which reflect the long-term probability of loan default within the term and the pool's liquidity and maturity. When the cut-off date balances were measured against Morningstar DBRS' NCF and their respective current constants, the resulting WA Morningstar DBRS Term DSCR was 1.26x, which is indicative of moderate midterm default risk. There is one loan, 255 Assay, which represents 2.4% of the pool, with a Morningstar DBRS Term DSCR at or below 1.00x, a threshold indicative of a higher likelihood of midterm default. No loans have a Morningstar DBRS Term DSCR at or above 1.75x, a threshold indicative of a lower likelihood of midterm default.

Classes A-1, A-2, A-M, X1, XAM, and X3 of the FREMF 2024-K164 Mortgage Trust, Multifamily Mortgage Pass-Through Certificates, Series 2024-K164 (FREMF 2024-K164) transaction will be conveyed into a trust by Freddie Mac to issue corresponding classes of Structured Pass-Through Certificates (SPCs) that it guarantees (see the Transaction Structural Features section for more information). All Morningstar DBRS-rated classes will be subject to ongoing surveillance, confirmation, upgrades, or downgrades by Morningstar DBRS after the date of issuance. Morningstar DBRS assigned the provisional ratings to the FREMF 2024-K164 Certificates and the Freddie Mac Structured Pass-Through Certificates, Series K-164 (Freddie Mac SPCs K-164) without giving effect to the Freddie Mac guarantee. Please see the Freddie Mac SPCs K-164 Structural and Collateral Term Sheet for more information about the structure of the Freddie Mac SPCs K-164.

Freddie Mac has strong origination practices and the K-Program exhibits strong historical loan performance. Loans on Freddie Mac's balance sheet, which it originates according to the same policies as those it securitizes, had an extremely low delinquency rate of 0.4% as of April 2024. This compared favorably with the delinquency rate of approximately 1.33% for CMBS multifamily loans over the same period. From the inception of its K-Program through April 2024, Freddie Mac had securitized 26,602 loans, totaling approximately $565.8 billion in issuance balance. To date, Freddie Mac has not realized any credit losses on its guaranteed issuances, although B-piece investors have realized a combined $58.95 million in total losses, representing less than 2.0 basis points (0.02%) of total issuance.

The pool exhibits Morningstar DBRS WA Issuance and Balloon LTVs of 61.1% and 58.7%, respectively, both of which are comparable with the recent Freddie Mac transactions rated by Morningstar DBRS. Furthermore, 50 loans, representing 85.5% of the pool balance, exhibit Morningstar DBRS Issuance LTVs below 67.1%, resulting in a decreased POD. Please see the Comparable Transactions table for additional details.

Forty-seven loans, representing 80.9% of the pool balance, had a Morningstar DBRS sponsor strength of Strong, which is credit positive. Sponsors generally represent large, financially capable individuals or companies led by experienced professionals with minimal prior credit issues. In many cases, sponsors are repeat borrowers of Freddie Mac Multifamily Securities and have a proven credit record with no performance issues.

There were eight loans, comprising 33.0% of the pool, that Morningstar DBRS considered to be of Above Average or Average + property quality based on physical attributes and/or a desirable location within their respective markets. Five of these loans (Brooklyn Crossing, Bexley Crossing at Providence, Bexley Village at Concord Mills II, The Element, and RedPoint Apartments) are included in the top 10. Higher-quality properties are more likely to retain existing tenants and attract new ones, resulting in a more stable performance.

The average haircut was -6.4% across the 20 loans that Morningstar DBRS sampled, representing 63.2% of the pool. The sampled average NCF variance is in line with the recent Morningstar DBRS-rated Freddie Mac transactions and generally low when compared with other CMBS multi-borrower transactions.

There are nine loans, representing 26.3% of the pool, in Morningstar DBRS' MSA Group 3, which is the best-performing group in terms of historic CMBS default rates among the top 25 MSAs. The MSA Group 3 historical default rate is considerably lower than the overall CMBS historical default rate.

Given the pool's overall credit metrics, property quality, and Morningstar DBRS MSA Group 3 concentration, the pool has a WA expected loss of 1.4%, which is lower than the expected loss seen in recent Freddie Mac transactions Morningstar DBRS has rated, specifically FREMF 2024-K163, FREMF 2023-K158, FREMF 2022-K152, FREMF 2022-K145, and FREMF 2022-K143, and substantially lower than that of the general multi-borrower CMBS universe.

Morningstar DBRS' credit rating on the Certificates addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Distribution amounts, and/or Interest Distribution amounts for the rated classes.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Static Prepayment Premiums, and/or Yield Maintenance Charges.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) 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 (January 23, 2024) https://dbrs.morningstar.com/research/427030.

Class X1 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 US dollars unless otherwise noted.

The principal methodology is North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)
https://dbrs.morningstar.com/research/428797.

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

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

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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

North American Commercial Mortgage Servicer Rankings (August 23, 2023)
https://dbrs.morningstar.com/research/419592

Legal Criteria for U.S. Structured Finance (April 15, 2024)
https://dbrs.morningstar.com/research/431205

Rating North American CMBS Interest-Only Certificates (June 28, 2024)
https://dbrs.morningstar.com/research/435294

Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024)
https://dbrs.morningstar.com/research/435293

North American CMBS Insight Model v 1.2.0.0
https://dbrs.morningstar.com/research/428797

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.