Fitch Affirms FREMF 2012-K711 & Freddie Mac Structured Pass-Through Certificates, Series K-711
KEY RATING DRIVERS
The affirmations are based on the improved performance of the underlying collateral pool. As of the September 2015 remittance, the pool had no delinquent or specially serviced loans. The pool's aggregate principal balance has been paid down by 1.9% to $1.37 billion from $1.35 billion at issuance. Seventy-four loans (97.4% of the pool) reported full-year 2014 financial statements. Based on the statements, the pool's overall net operating income (NOI) improved 7.3% since YE 2013 and 19.3% since issuance. Three loans (0.67%), two of which are considered Fitch Loans of Concern, are on the master servicer's watchlist primarily due to lack of reporting information from the sponsors. Four loans (3.41%) are fully defeased.
The affirmations of the Freddie K-711 certificates are the result of the pass-through nature of the certificates, as they are dependent on the underlying ratings of corresponding classes of FREMF 2012-K711.
The largest loan of the pool (5.0%) is secured by Canyon Creek Apartments, a 558-unit 48-building apartment complex located in Bothell, WA. The apartment complex amenities include three pools, a barbeque area, two fitness centers, and a racquetball court. The subject is located less than 10 miles from the offices of two of the region's largest employers, Boeing and Microsoft. The property is exceeding underwritten expectations as NOI increased 11% since issuance due to higher per-unit rental rates.
The Fitch Loan of Concern (0.5%) is secured by Eastern Parkway, a 110-unit six building apartment complex located in Brooklyn, NY. Performance of the loan has steadily declined since issuance with the full-year 2013 debt service coverage ratio listed at 0.96x from 1.32x at issuance. The loan was assumed during the first quarter of 2014 and full-year operations are unavailable for comparison. The sponsor recently notified the servicer of their intention to defease the loan as the reason for not reporting year-end financials. The servicer continues to monitor the property and awaits clarification from the sponsor on the reason for the revenue decrease.
The second Fitch Loan of Concern (0.1%) is secured by 584 West 152nd Street, a 21-unit apartment complex located in New York, NY. The loan was assumed in August 2014 and limited information has been received on the property's performance or maintenance history. The subject's full-year 2014 debt service coverage ratio was 0.81x or half the issuance reported value of 1.62x. As of year-end 2014, the property was fully occupied and the inspection report indicated that the units were well maintained for the tenants. The servicer continues to await further information from the sponsor in regard to weaker operating performance.
RATING SENSITIVITIES
The Rating Outlook for class B is revised to Positive from Stable due to improved pool performance. Continued principal paydown, loan defeasance, and asset performance could warrant an upgrade in the future. All remaining classes maintain Stable Outlooks. Upgrades to these classes are not anticipated but negative ratings migration is possible if the transaction's portfolio-level metrics deteriorate or additional loans experience diminished performance.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has affirmed the following classes as indicated:
FREMF 2012-K711 Multifamily Mortgage Pass-Through Certificates
--$81.3 million class A-1 at 'AAAsf'; Outlook Stable;
--$1.042 billion class A-2 at 'AAAsf'; Outlook Stable;
--$1.141 billion class X1 at 'AAAsf'; Outlook Stable;
--$1.141 billion class X2-A at 'AAAsf'; Outlook Stable;
--$89.7 million class B at 'A-sf'; Outlook to Positive from Stable;
--$34.5 million class C at 'BBBsf'; Outlook Stable.
Freddie Mac Structured Pass-Through Certificates, Series K-711
--$81.3 million class A-1 at 'AAAsf'; Outlook Stable;
--$1.042 billion class A-2 at 'AAAsf'; Outlook Stable;
--$1.141 billion class X1 at 'AAAsf'; Outlook Stable.
Of FREMF 2012-K711, Fitch does not rate the $227.7 million interest-only class X2-B, the $227.7 million interest-only class X3, and the $103.5 million class D. Of the Freddie Mac Structured Pass-Through Certificates, Series K-711, Fitch does not rate the $227.7 million interest-only class X3.
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