Fitch Affirms FREMF 2011-K704 and Freddie Mac Structured Pass-Through Certificates, Series K-704

CHICAGO--()--Fitch Ratings has affirmed all four classes of FREMF 2011-K704 multifamily mortgage pass-through certificates and the three classes of Freddie Mac structured pass-through certificates, K-704. A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The affirmations of the FREMF 2011-K704 are based on the stable performance of the underlying collateral pool. As of the September 2014 remittance, the pool had one specially serviced loan (2.4% of the pool). The pool's aggregate principal balance has been paid down by 1.6% to $1.18 billion from $1.2 billion at issuance.

Fitch was unable to attain detailed financial information such as OSARs and rent rolls from the servicer via the 17g5 provider. However of the 65 loans within the transaction, 62 (95.4%) reported full year 2013 financials. Based on the full year financial statements, the pool's overall net operating income (NOI) improved 5.4% since last year's reported financials. Fitch has designated two performing loans (1.7%) as Fitch Loans of Concern, out of the six (7.2%) currently on the servicer's watchlist, for issues ranging from deferred maintenance to a yearly increase in operating expenses.

The affirmations of the FREMF K-704 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 2011-K704.

The specially serviced loan (2.4%) is secured by The Retreat at Stonebridge Ranch, a 464-unit, 23-building multifamily property located in McKinney, TX. The property's amenities include a clubhouse, billiards area, swimming pool, heated spa, and fitness center. The loan transferred to the special servicer in February 2012 due to a SEC investigation relating to the sponsors. The property was placed under receivership and plan was submitted to dispose of the sponsors' holdings including The Retreat at Stonebridge Ranch. A number of outstanding legal issues are currently under review in the courts with the next court date scheduled for early October. Upon resolution, the asset will be sold to a third party.

The largest Fitch loan of concern (1%) is secured by Trieste Apartments, a 118-unit garden style apartment complex located in Los Angeles, CA. The amenities of the complex include two pools, spa, gym, business center, and laundry rooms. The subject was built in 1969 and there have been no significant renovations since that time. The servicer commentary indicated that major deferred maintenance items exist at the property for the common areas and in a number of units. In addition, the property's expenses have increased more than 15% since issuance while vacancy increased 600 basis points during 2013 calendar year.

The remaining Fitch loan of concern (0.8%) is secured by Whispering Hills Phase II, a 144-unit building located in Omaha, NE, approximately seven miles northwest of Omaha. The subject was built in 2009 and consists of one and two bedroom units. The community amenities include a clubhouse, business center, indoor basketball court, swimming pool, secured parking garage, and 24 hour fitness center. The property is in transition due to the expansion and opening of the subject's phase III. According to servicer commentary, the attention of the leasing up the new phase pulled resources and marketing from phase II and was a major contributor to occupancy falling to 78% during 2013 from an issuance high of 95%. The sponsor expects the property's occupancy to stabilize during 2014 as the whole complex reaches stabilization.

RATINGS 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 overall portfolio-level metrics. Additional information on rating sensitivity is available in the report 'FREMF 2011-K704 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K704' (Nov 08, 2011), available at www.fitchratings.com.

Fitch has affirmed the following classes:

FREMF 2011-K704 Multifamily Mortgage Pass-Through Certificates

--$60.1 million class A-1 at 'AAAsf'; Outlook Stable;

--$929.5 million class A-2 at 'AAAsf'; Outlook Stable;

--$990.7 million class X1 at 'AAAsf'; Outlook Stable;

--$103.8 million class B at 'BBB+sf'; Outlook Stable.

Fitch does not rate classes C-1, C-2, interest-only class X2, and interest-only class X3.

Freddie Mac Structured Pass-Through Certificates, Series K-704

--$60.1 million class A-1 at 'AAAsf'; Outlook Stable;

--$929.5 million class A-2 at 'AAAsf'; Outlook Stable;

--$989.6 million class X1 at 'AAAsf'; Outlook Stable.

Fitch does not rate interest-only class X3.

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

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);

--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).

A comparison of the transaction's Representations, Warranties, and Enforcement (RW&E) mechanisms to those of typical RW&Es for the asset class is available in the following reports:

--'FREMF 2011-K704 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K704' (Nov. 8, 2011);

--'FREMF 2011-K704 -- Appendix' (Nov. 8, 2011).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961

FREMF 2011-K704 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K704 (US CMBS)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=655461

FREMF 2011-K704 -- Appendix

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=655671

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=899914

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Contacts

Fitch Ratings
Primary Analyst
Jay Bullie
Associate Director
+1 312-368-2079
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1 212-908-0785
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jay Bullie
Associate Director
+1 312-368-2079
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill
Managing Director
+1 212-908-0785
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com