CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed six classes of Freddie Mac multifamily mortgage certificates and affirmed three classes of Freddie Mac structured pass-through certificates series K-023. A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The affirmations of Freddie Mac 2012-K23 are based on the stable performance of the underlying collateral pool, an increase in defeasance, and stable to increasing credit enhancement through principal amortization.
As of the September 2016 remittance, the pool had no delinquent or specially serviced loans. The pool's aggregate principal balance has been paid down by 3% to $1.33 billion from $1.37 billion at issuance. Seventy-three loans (96.1% of the pool) reported full-year 2015 financial statements. Based on the financials, the pool's overall net operating income (NOI) improved 4.5% from YE 2014 and 23.6% since issuance. Four loans (2.5%), two of which are considered a Fitch Loan of Concern (1.5%), are on the master servicer's watchlist due to occupancy issues and weak net operating income (NOI). Three loans (3.61%) are fully defeased. The pool is entirely comprised of loans with a 10-year term and a final maturity in 2022. Ten of the 76 loans are classified as student housing, comprising of 8.7% of the pool. Fifty-nine loans (79.8%) were structured with a partial interest-only period, nine of which (13.1%) have yet to begin amortizing.
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 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 property has exhibited steadily improving performance since issuance with the occupancy at 95% and the debt service coverage ratio (DSCR) at 2.20x (times) compared to 91% and 1.45x at issuance.
The largest Fitch Loan of Concern (1.19%) is secured by The Grove at Clarksville, a 560-unit complex located in Clarksville, TN. The subject is located two miles northeast of Austin Peay State University and 15 miles southeast of Fort Campbell, KY. Due to the proximity of these two institutions, the property has a large concentration of college students and military personnel. The subject's end of year 2015 occupancy fell to 66% from 89% at issuance after major repairs were undertaken to remedy building flashing issues and to repair damaged units. As of July 2016, occupancy was 69% and the DSCR was 0.64x. Management expects occupancy to rebound during the second half of the year as a shuttle service to the Austin Peay University campus and a new management team improve the attractiveness of the property for the student population.
The second Fitch Loan of Concern (0.32%) is secured by 86 Second Avenue, a 15-unit low-rise building with first floor retail situated in the East Village of New York City. As of December 2015, the loan's DSCR fell to 1.19x and the occupancy to 78% after three of four retail tenants defaulted on their leases. Per the servicer commentary, the sponsor is currently renovating the retail suites and is in negotiations with prospective tenants. Fitch will continue to the monitor the progress of renovations and leasing.
The Rating Outlook for Class B remains Positive based on stable pool performance, greater defeasance and continued deleveraging of the pool through loan amortization. Future upgrades to Class B are possible with continued stable performance and additional increases in credit enhancement. The Rating Outlook remains Stable for the remaining rated classes. If performance deteriorates, negative rating actions are possible.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch has affirmed the following classes:
FREMF 2012-K23 Multifamily Mortgage Pass-Through Certificates
--$157.8 million class A-1 at 'AAAsf'; Outlook Stable;
--$944.9 million class A-2 at 'AAAsf'; Outlook Stable;
--$1.103 billion class X1 at 'AAAsf'; Outlook Stable;
--$1.103 billion class X2-A at 'AAAsf'; Outlook Stable;
--$85.6 million class B at 'A-sf''; Outlook Positive;
--$34.2 million class C at 'BBBsf'; Outlook Stable.
Freddie Mac Structured Pass-Through Certificates, Series K-023
--$157.8 million class A-1 at 'AAAsf'; Outlook Stable;
--$944.9 million class A-2 at 'AAAsf'; Outlook Stable;
--$1.103 billion class X1 at 'AAAsf'; Outlook Stable.
Of FREMF 2012-K023, 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 K023, Fitch does not rate the $222.6 million interest-only class X3.
Additional information is available at www.fitchratings.com .
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)
FREMF 2012-K23 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-023 -- Appendix
Dodd-Frank Rating Information Disclosure Form
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