Fitch Affirms FREMF Mortgage Trust Series 2010-K9 Pass-Through Certificates

CHICAGO--()--Fitch Ratings has affirmed one class of Freddie Mac's FREMF Mortgage Trust series 2010-K9 multifamily mortgage pass-through certificates.

KEY RATING DRIVERS

The affirmation of Freddie Mac's FREMF 2010-K9 is based on the stable performance of the underlying collateral pool.

Fitch modeled losses of 3.0% of the remaining pool and expected losses based on the original pool balance are 2.6%. No losses have been realized to date. The transaction currently has four loans on the servicer watchlist (5.1%), two of which (3.8%) are designated Fitch Loans of Concern. The transaction has one specially serviced loan (0.8%). Nine loans (10.4%) are fully defeased. The loans' final maturity dates are in 2017 (8.0%) and 2020 (92%). Concentrations in the pool include 12.7% full-term interest-only and 33.4% partial-term interest-only loans. Student housing and Senior Living comprises 7.7% and 1.3% of the pool, respectively.

The pool's aggregate principal balance has been paid down by 13.1% to $1.085 billion from $1.248 billion at issuance. Of the top 15 loans, 80% reported full-year 2015 financials. Based on full-year financial statements, the pool's overall net operating income (NOI) improved 33.5% since issuance and 3.8% over 2014 reported financials.

The one specially-serviced loan, Campus Habitat (0.8%), is secured by 124-unit (348-bed) student housing complex located in Mt. Pleasant, MI, near the campus of Central Michigan University. The property transferred to special servicing in September 2013 due to monetary default. The subject has suffered from new, superior supply in the submarket along with declining enrollment at Central Michigan University. A receiver was appointed to the property during the first quarter of 2014 to improve the subject's performance. The receiver completed renovations on the clubhouse and a number of other capital improvements. Occupancy was listed at 96% prior to the start of the 2015 - 2016 school year and monthly rental rates were 10% higher than they were in 2014. Fitch's loss estimates were based on a stressed valuation.

The largest Fitch loan of concern is secured by a 600-bed student housing property, University Village (2.1%), which may be impacted by new supply. The property, built in 2007, is located in Greensboro, NC, directly adjacent to the University of Carolina-Greensboro campus. The property's occupancy was 99% as of December 2015, which is a new high from the 2011 low of 79%. The sponsor continues to work in a challenging submarket environment as 2,000 new beds have been added to the market since 2011. A number of concessions were offered during the year to raise occupancy and resulted in revenue declines during the 2014-2015 school year. The sponsor indicated that occupancy gains were attributable to on campus marketing efforts and resident events. The sponsor plans to continue these activities in order to drive top-line rental rate growth while capping short-term expense escalation. Fitch will continue to monitor performance in light of the new supply in the market.

The second Fitch loan of concern is secured by a 104-unit apartment community, Legacy Park Apartments (0.9%), located in Lawrence, MA, approximately 30 miles north of Boston and built in 2009. The property's occupancy had declined to a low of 75% at year-end 2013; however, occupancy increased significantly to 99% as of December 2015. The property was in transition after a change in ownership and management. Performance has rebounded due to aggressive marketing, a decrease in vacancy losses, and property renovations. The sponsor continues to improve operations and anticipates future opportunities to raise rents with the property at full occupancy. As of third quarter 2015, the servicer reported debt service coverage ratio increased to 1.08x from 0.89x as of year-end 2013. Fitch will continue to monitor the stabilizing performance of the asset.

RATING SENSITIVITIES

The Rating Outlook for class B remains Stable due to consistent pool performance since Fitch's last rating action. Continued principal paydown, loan defeasance, and stable asset performance could warrant an upgrade in the future. 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 class:

--$65.5 million class B at 'Asf'; Outlook Stable.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878412

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873395

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005109

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005109

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Jay Bullie, CFA
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, New York
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jay Bullie, CFA
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, New York
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com