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

CHICAGO--()--Fitch Ratings has upgraded one class of Freddie Mac's FREMF Mortgage Trust series 2010-K9 multifamily mortgage pass-through certificates. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The upgrade of Freddie Mac's FREMF 2010-K9 is based on the increased credit enhancement since issuance, defeasance, and stable performance of the underlying collateral pool.

Fitch modelled losses of 1.8% of the remaining pool and expected losses based on the original pool balance are 1.6%, of which no losses are realized to date. The transaction currently has seven loans on the servicer watchlist, two of which (3.0%) are designated as Fitch Loans of Concern. The transaction has one specially serviced loan (0.8%). Four loans (4.0%) are fully defeased. The loans' final maturity dates are in 2015 (1.2%), 2017 (8.6%), and 2020 (89.4%).

The pool's aggregate principal balance has been paid down by 9.9% to $1.124 billion from $1.248 billion at issuance. All of the top 15 loans reported full-year 2014 financials. Based on full-year financial statements, the pool's overall net operating income (NOI) improved 2.1% since issuance and 17.8% over 2013 reported financials.

The one specially-serviced loan 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 significant new 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. A number of deferred maintenance issues have been addressed at the property. Per the receiver, pre-leasing for the 2014-15 school year has improved. The special servicer and sponsor continue to work amicably toward a resolution of the loan.

The largest Fitch loan of concern is secured by a 600-bed student housing property, University Village (2.1%). The property, built in 2007, is located in Greensboro, NC, directly adjacent to the University of Carolina-Greensboro campus. The property's occupancy was 90% as of October 2014 which is a slight decrease from 95% at securitization. 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 2014-15 school year. The sponsor anticipates that this trend will continue due to the number of competitive student housing alternatives within the submarket.

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 increased significantly to 99% as of October 2014 from a low 75% at year-end 2013. 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 continued improvement during the next year.

RATING SENSITIVITIES

The Rating Outlook remains Stable for the rated class. Due to stable performance, Fitch does not foresee further positive ratings migration until significant principal paydown or further improved collateral performance occurs. The student housing properties exhibit weaker operating and leverage metrics when compared to broader multifamily composition. Fitch will continue to monitor this concentration as well as the performance of the Fitch loans of concern. If performance deteriorates, negative rating actions are possible.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Fitch has upgraded the following class as indicated:

--$65.5 million class B to 'Asf' from 'A-sf''; Outlook Stable.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Global Structured Finance Rating Criteria (pub. 31 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria (pub. 10 Dec 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=986578

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986578

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
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