Fitch Rates FREMF 2013-K35 Multifamily Mtge PT Ctfs and Freddie Mac SPC, Series K-035

NEW YORK--()--Fitch Ratings has rated FREMF 2013-K35 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-035 as follows:

FREMF 2013-K35 Multifamily Mortgage Pass-Through Certificates

--$198,538,000 class A-1 'AAAsf'; Outlook Stable;

--$1,079,261,000 class A-2 'AAAsf'; Outlook Stable;

--$1,277,799,000* class X1 'AAAsf'; Outlook Stable;

--$1,277,799,000* class X2-A 'AAAsf'; Outlook Stable;

--$99,470,000 class B 'A-sf'; Outlook Stable;

--$38,257,000 class C 'BBBsf'; Outlook Stable.

Freddie Mac Structured Pass-Through Certificates, Series K-035

--$198,538,000 class A-1 'AAAsf'; Outlook Stable;

--$1,079,261,000 class A-2 'AAAsf'; Outlook Stable;

--$1,277,799,000* class X1 'AAAsf'; Outlook Stable.

*Notional amount and interest-only.

Fitch did not rate the following classes of FREMF 2013-K35: the $252,500,048 interest-only class X2-B, the $252,500,048 interest-only class X3, or the $114,773,048 class D. Fitch did not rate the $252,500,048 class X3 of the Structured Pass-Through Certificates, Series K-035.

The certificates represent the beneficial interests in a pool of 79 commercial mortgages secured by 79 properties. The Freddie Mac Structured Pass-Through Certificates, Series K-035 (Freddie Mac SPC K-035) represents a pass-through interest in the corresponding class of securities issued by FREMF 2013-K35. Each Freddie Mac SPC K-035 security has the same designation as its underlying FREMF 2013-K35 class. All loans were originated by various seller/servicers according to the guidelines of the Freddie Mac Capital Markets Execution (CME) product. The certificates follow a sequential-pay structure.

Fitch reviewed a comprehensive sample of the transaction's collateral, including site inspections on 75.4% of the properties by balance and cash flow analysis of 79.5% of the pool.

The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.13x, a Fitch stressed loan-to value (LTV) of 110.4%, and a Fitch debt yield of 7.8%. Fitch's aggregate net cash flow represents a variance of 6.6% to issuer cash flows.

KEY RATING DRIVERS

Fitch Leverage: The Fitch stressed LTV ratio is 110.4% and is slightly below the average of 2013 Fitch-rated 10-year K-series Freddie Mac deals, which averaged 113.1%. The DSCR, at 1.13x, is slightly above the average of 1.12x for the 2013 Fitch-rated 10-year K-series Freddie Mac deals.

Partial Interest and Interest-Only Loans: 68.5% of the pool has a partial-term interest-only component, and 10.8% of the loans in the pool are full-term interest only. Based on the loans' scheduled maturity balances, the pool is expected to amortize 13.6% over the next 10 years.

Loan Concentration: The top 10 loans constitute 38.7% of the pool, which is slightly higher than that of recent Freddie Mac transactions. The top loan in the pool, The Arium Resort, constitutes 10.3% of the pool. The second largest loan is 4.4% of the pool.

Collateral Substitution: Waterford Place Apartments (#3), representing 4% of the pool, can be substituted during the term of the loan. Fitch increased the volatility score for the property and limited the property quality score to a 'B+' to account for the potential collateral substitution.

Property Type Concentration: Of the pool, 100% is backed by multifamily properties. Two loans (1.4%) are student housing.

Strong Origination Practices: All loans were originated by various sellers/originators according to Freddie Mac CME product guidelines and adhere to the originator best practices identified by Fitch. Freddie Mac multifamily loans had an average delinquency rate of 0.05% as of third-quarter 2013 compared with 6.95% on Fitch-rated CMBS multifamily loans as of the same period. Based on these program attributes, Fitch applies a programmatic credit to Freddie Mac transactions.

Low Mortgage Coupons: The pool's weighted average coupon is 4.1% which is below historical averages. Fitch accounted for increased refinance risk in a higher interest rate environment by reviewing an interest rate sensitivity analysis, which assumes an interest rate floor of 4.5% for multifamily properties for the term risk in conjunction with Fitch's stressed refinance rates, which are 8.5% on a weighted average basis for this transaction.

RATING SENSITIVITIES

Fitch performed two model-based break-even analyses to determine the level of cash flow and value deterioration the pool could withstand prior to $1 of loss being experienced by the 'BBBsf' and 'AAAsf' rated classes. Fitch found that the FREMF 2013-K35 pool could withstand a 47% decline in value (based on appraised values at issuance) and an approximately 10.3% decrease to the most recent actual cash flow prior to experiencing $1 of loss to the 'BBBsf' rated class. Additionally, Fitch found that the pool could withstand a 52.2% decline in value and an approximately 19% decrease in the most recent actual cash flow prior to experiencing $1 of loss to any 'AAAsf' rated class.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report.

The Master Servicer is Keybank National Association, rated 'CMS1' by Fitch. The Special Servicer is Keybank National Association rated 'CSS2+', by Fitch.

The presale report is available at 'www.fitchratings.com.'

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Criteria for Analyzing Multiborrower U.S. Commercial Mortgage Transactions', Aug. 8, 2013;

--'U.S. Commercial Mortgage Servicer Rating Criteria', Feb. 18, 2011;

--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and ReREMIC Criteria', Dec. 18, 2012;

--'Global Structured Finance Rating Criteria', May 24, 2013.

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696969

U.S. Commercial Mortgage Servicer Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=584005

Criteria for Analyzing Multiborrower U.S. Commercial Mortgage Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715757

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=810795

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Contacts

Fitch Ratings
Primary Analyst
Clement Okeke, +1-312-606-2323
Analyst
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Rachel Chung, +1-212-908-0892
Analyst
or
Committee Chairperson
Robert Vrchota, +1-312-368-3336
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Clement Okeke, +1-312-606-2323
Analyst
Fitch Ratings, Inc.
70 W Madison Street
Chicago, IL 60602
or
Secondary Analyst
Rachel Chung, +1-212-908-0892
Analyst
or
Committee Chairperson
Robert Vrchota, +1-312-368-3336
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com