Fitch Affirms FREMF 2012-K23 & Freddie Mac Structured Pass-Through Certificates, Series K-023
KEY RATING DRIVERS
The affirmations are based on the continued strong performance of the underlying collateral pool. As of the November 2015 remittance, the pool had no delinquent or specially serviced loans. The pool's aggregate principal balance has been paid down by 2% to $1.34 billion from $1.37 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 5.8% from YE 2013 and 20.6% since issuance. Five loans (4.91%), one of which is considered a Fitch Loan of Concern, are on the master servicer's watchlist primarily due to deferred maintenance issues and lack of updated reporting. Two loans (1.92%) are fully defeased.
The affirmations of the Freddie K-023 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-K23.
The largest loan of the pool (5.24%) is secured by Highland Village Townhomes, a 1,098-unit complex located in Halethorpe, MD. The subject is located 15 miles north of Fort George G. Meade, a top employer in the Baltimore-Towson metropolitan statistical area (MSA). The subject benefits from the recent renovations to the interior finishes along with replacement of appliances within the individual units. The apartment complex amenities include two playgrounds, a laundry facility, and a privately operated YMCA.
The second largest loan (4.41%) is secured by Archstone Legacy Place, a 285-unit mid-rise apartment complex situated on 9.49 acres approximately 12 miles southwest of downtown Boston. The two midrise buildings, built in 2009, are in excellent physical condition and located next to a MBTA commuter rail that accesses the region's employment centers. The common amenities include a 304 space parking garage, fitness center, clubroom, business center, outdoor heated pool with cabana, and picnic area with barbeque grills. Residents can access the upscale lifestyle center on the adjacent site, Legacy Place, for grocery shopping, retail, and restaurant options.
The Fitch Loan of Concern (1.2%) is secured by The Grove at Clarksville, a 506-unit six apartment complex located in Clarksville, TN. Performance of the loan has steadily declined since issuance with the full-year 2014 debt service coverage ratio listed at 1.54x from 2.68x at issuance. Occupancy at the property was listed 62% as of June 2015 which dropped from 72% at year-end 2014. The sponsor indicated that several new initiatives were under way to increase occupancy during the second half of the year. The property was utilizing online advertising, working with the housing department of Fort Campbell, and awaiting the start of fall semester at Austin Peay State University. The last servicer note stated that efforts were generating increased traffic and the property's occupancy was at 76% as of September.
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 strong asset performance could warrant an upgrade in the future. The Rating Outlooks for all remaining classes remain Stable. 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 and revised Rating Outlooks as indicated:
FREMF 2012-K23 Multifamily Mortgage Pass-Through Certificates
--$174.9 million class A-1 at 'AAAsf'; Outlook Stable;
--$944.9 million class A-2 at 'AAAsf'; Outlook Stable;
--$1.120 billion class X1 at 'AAAsf'; Outlook Stable;
--$1.120 billion class X2-A at 'AAAsf'; Outlook Stable;
--$85.6 million class B at 'A-sf'; Outlook to Positive from Stable;
--$34.2 million class C at 'BBBsf'; Outlook Stable.
Freddie Mac Structured Pass-Through Certificates, Series K-023
--$174.9 million class A-1 at 'AAAsf'; Outlook Stable;
--$944.9 million class A-2 at 'AAAsf'; Outlook Stable;
--$1.120 billion class X1 at 'AAAsf'; Outlook Stable.
Of FREMF 2012-K23, Fitch does not rate the $222.6 million interest-only class X2-B, the $222.6 million interest-only class X3, and the $102.7 million class D. Of the Freddie Mac structured pass-through certificates, series K-023, Fitch does not rate the $222.6 million interest-only class X3.
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