Fitch Affirms Freddie Mac 2012-K709 and Freddie Mac Structured Pass-Through Certificates K709
KEY RATING DRIVERS
The affirmations of Freddie Mac 2012-K709 are based on the overall stable performance of the underlying collateral pool. As of the January 2016 remittance, the pool had no delinquent or specially serviced loans.
The pool's aggregate principal balance has been paid down by 3.7% to \\$1.196 billion from \\$1.241 billion at issuance. Thirty-seven of the 54 loans (68.5% of the pool) reported at least partial-year 2015 financials. Based on full-year or annualized financial statements, the pool's overall net operating income (NOI) improved 24.1% since issuance. However, the improvement reflects using annualized estimates and is not directly comparable to issuance.
The largest loan in the transaction (10.8%) is on the servicer's watchlist. Per the servicer's commentary, the drop in the property's NOI is attributable to lagging occupancy and the debt service burden from the mezzanine loan. The loan is considered a Fitch loan of concern. Eleven loans (13.1%) are defeased.
Concentrations in the pool include 8.5% full-term interest-only loans and 65.9% partial-term interest-only, as well as 3.2% collateralized by student housing. The three largest geographic concentrations for the transaction are the New York Newark-Jersey City MSA (13.2%), Houston-The Woodlands-Sugar Land, TX (6.8%), and Seattle-Tacoma-Bellevue, WA (6.5%). The pool's maturity dates are concentrated between 2018 (3.4%) and 2019 (96.6%).
The affirmations of the Freddie Mac K709 certificates are the result of the pass-through nature of the certificates, as they are dependent on the underlying ratings of corresponding classes for FREMF 2012-K709.
The largest loan of the pool and only loan on the servicer watchlist (10.8%) is secured by Atlantic Point Apartments, a 795-unit townhome-style apartment community located in Bellport, NY. The complex incorporates a number of common area amenities which include a clubhouse, business center, tennis courts, basketball court, and media room. The subject experienced a decrease in occupancy during the first half of 2014 and fell to a low of 87% as of YE 2014. The high vacancy and weakness in leasing rates were a factor in the subject's September 2015 debt service coverage ratio (DSCR) falling to 1.25x from 1.68x at issuance. In addition, the property is partially collateralized by a \\$31 million mezzanine loan. Fitch's analysis was based on September 2015 annualized NOI and a stressed cap rate. Fitch will monitor the loan as the sponsor updates the servicer on subject's operation during the first half of 2016.
The second largest loan (5.5%) is secured by The Bennington, a 348-unit high rise apartment complex located in Alexandria, VA. The subject is located four miles southwest of Washington D.C., and is less than a quarter mile from I-395, which is a direct artery into the capital. The subject underwent significant renovations 2008 through 2010 for the apartment units and the common areas are scheduled for minor renovations in the future. The units feature hardwood floor entries, in-unit washer/dryer units, spacious layouts, and large kitchens. The common area amenities feature a complimentary coffee bar, outdoor pool, convenience store, parking garage, and fitness center. The property had an occupancy rate of 95% as of Sept. 2015, which is slightly lower than the submarket average of 98%. NOI for the subject has been stable and trending upward since issuance; however, the reported DSCR has declined due to the loan converting to amortizing from interest-only as of Sept. 2014. Although 400+ units were recently introduced to market during the fourth quarter of 2015, the trend of increasing the subject's effective rental rate should continue through 2018 due to a limited multifamily supply in the submarket.
The third largest loan (4.2%) is secured by a 460-unit garden-style apartment complex located in Vista, CA, approximately 40 miles north of San Diego. The subject was built in 1988 and renovated in 2008. The sponsor purchased the property in 2008 and the complex is managed by an affiliate that has oversight responsibilities for more than 5,742 units in the local market. The subject has a military concentration of 15%, with the personnel assigned to Camp Pendleton training base located nine miles to the north. The community amenities consist of outdoor swimming pools, spas, barbecue areas, fitness center, and common area laundry rooms. The subject is expected to perform strongly over the next few years as the submarket continues to experience muted multifamily development. The complex is considered a high-quality asset, which is the primary factor in the subject being able to command 8%-10% more on a per unit basis than its competitive set.
RATING SENSITIVITIES
The Rating Outlook for all classes remains Stable. Due to the recent issuance of the transaction and stable performance, Fitch does not foresee positive or negative ratings migration until a material economic or asset level event changes the transaction's portfolio-level metrics.
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-K709 Multifamily Mortgage Pass-Through Certificates
--\\$58.4 million class A-1 at 'AAAsf'; Outlook Stable;
--\\$932.3 million class A-2 at 'AAAsf'; Outlook Stable;
--\\$990.7 million class X1 at 'AAAsf'; Outlook Stable;
--\\$990.7 million class X2-A at 'AAAsf'; Outlook Stable;
--\\$80.7 million class B at 'A-sf'; Outlook Stable;
--\\$31 million class C at 'BBBsf'; Outlook Stable.
Fitch does not rate classes D, interest-only class X2-B, and interest-only class X3.
Freddie Mac Structured Pass-Through Certificates, Series K-709
--\\$58.4 million class A-1 at 'AAAsf'; Outlook Stable;
--\\$932.3 million class A-2 at 'AAAsf'; Outlook Stable;
--\\$990.7 million billion class X1 at 'AAAsf'; Outlook Stable.
Fitch does not rate interest-only class X3.
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