Class A-1 at
Class A-2 at
Class X1 at
Class X2-A at
All trends are Stable.
The Class X1 and X2-A balances are notional.
The collateral consists of 47 fixed-rate loans secured by 47 multifamily properties. Two loans (The Solow Townhouses and 265 East 66th loan and the Rivers Bend loan) are associated with the same sponsorship and are both located in
Four loans, representing 28.8% of the pool balance, are in areas identified with DBRS
The transaction exhibits favorable credit metrics as evidenced by a weighted-average (WA) DBRS Morningstar Issuance and Balloon Loan-to-Value (LTV) Ratio of 68.5% and 65.0%, respectively. These metrics are comparable or better than recent FREMF transactions rated by DBRS Morningstar, including FREMF 2020-K118 with a WA DBRS Morningstar Issuance and Balloon LTV of 69.4% and 63.4%, respectively, and FREMF 2020-K117, with a WA DBRS Morningstar Issuance and Balloon LTV of 70.0% and 62.6%, respectively. Additionally, the transaction's WA DBRS Morningstar Term DSCR of 1.89x is slightly higher than that of FREMF 2020-K738 at 1.86x. This is because 15 loans, representing 52.8% of the cut-off date loan balance, are structured with full-term interest-only (IO) periods, which is lower relative to FREMF 2020-K738 at 59.8%.This DSCR cushion provided by the full-term IO structure could prove beneficial, given current economic conditions and the uncertainty surrounding the ultimate impact of the Coronavirus Disease (COVID-19) pandemic on the economy, though it does come at a cost of not deleveraging the loans modestly over time. Six loans, representing 21.1% of the pool by pool balance, exhibit issuance LTVs of less than 59.3%, a threshold historically indicative of relatively low-leverage financing and generally associated with below-average default frequency.
The loans benefit from strong origination practices. Loans on
The loans in the transactions benefit from experienced and financially strong borrowers compared with typical CMBS multifamily loans, with all 47 loans receiving Strong DBRS Morningstar sponsor strength scores. Additionally, many of the borrowers are repeat clients of
The pool has a WA expected loss of 1.81%, which is below the WA expected loss of 2.38%, 2.29%, 2.66%, 2.53%, and 2.86% exhibited by FREMF 2020-K738, FREMF 2020-K118, FREMF 2020-K117, FREMF 2020-K115, and FREMF 2020-K114, respectively, which were previously rated by DBRS Morningstar.
The underlying collateral analysis is prudent, as an average DBRS Morningstar NCF variance of -6.9% on the sampled loans underscores. In general, revenue has been set to levels similar to the recent trailing 12-month amount and lower than a recent annualized rent roll.
The DBRS Morningstar property quality is better than FREMF transactions previously rated by DBRS Morningstar. The Excellent, Above Average, and Average + property quality as a percentage of the pool were 8.2%, 10.3%, and 44.8%, respectively. Properties with better than average property quality tend to attract better tenants and premium rents and are generally more resilient during a downturn.
CORONAVIRUS-RELATED RISKS
In response to the ongoing pandemic,
The pool contains seven loans, representing 16.1% of the pool balance, that were originated prepandemic (from
The pool is concentrated by property type as multifamily properties represent 88.3% of the collateral, which excludes seven loans (11.7% of the pool) that are secured by nontraditional multifamily property types (i.e., manufactured housing community (MHC) and student housing) including University Suites at Centennial, representing 2.6% of the pool balance, which is a student-housing property. Advenir at Polos East, representing 3.5% of the pool balance, is a multifamily property with a student concentration of 30.0%. The remaining 5.6% of the pool consist of MHC properties. Compared with other property types, multifamily assets generally benefit from staggered lease rollover and lower expense ratios. While revenue is quick to decline in a downturn because of the short-term nature of the leases, it is also quick to respond when the market improves. DBRS Morningstar's analysis on the 23 sampled loans indicates that most markets are displaying strong occupancy and rent growth figures with positive year-over-year trends established. Student-housing properties are modeled with higher probabilities of default (PODs) than traditional multifamily properties and MHCs have historically performed very well, despite not being a core asset class.
Fifteen loans, representing 52.8% of the cut-off date pool balance and including six of the top 15 loans, are structured with full-term IO periods. An additional 24 loans, representing 45.4% of the cut-off date pool balance and including seven top 15 loans, are structured with partial-IO periods ranging from 12 months to 48 months. The POD is calculated using a DSCR that includes amortizing debt service. Balloon LTV is also incorporated into the POD. Furthermore, partial-IO loans are penalized in the DBRS Morningstar model.
According to the Exceptions to the Representation and Warranties - 6 (Condition of Mortgage Property), the mortgage loan seller did not perform, or cause to perform, certain customary due diligence for seven loans with respect to the condition of the mortgaged property in connection with the origination of the loans. DBRS Morningstar did not obtain a complete property condition report or physical risk report, as applicable, and/or an in-person inspection of the mortgaged property was not conducted at origination of the loans. Of these seven loans, five loans were either not included in the DBRS Morningstar sample, not inspected by DBRS Morningstar, or generally appeared to be of lower property quality per third-party reports. To mitigate any issues resulting from the absence of the customary due diligence, DBRS Morningstar applied a POD penalty to these five loans:
Individual loan information provided generally included monthly collection reports from
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
Classes X1 and X2-A are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.
All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.
For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.
DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:
Prospectus ID#1 - Solow Rollup (19.3% of the pool)
Prospectus ID#2 - Optima Signature (A-1) (8.2% of the pool)
Prospectus ID#3 - Amberglen West (5.8% of the pool)
Prospectus ID#4 -
Prospectus ID#5 - The Park at
Prospectus ID#6 - Crosstown Walk (4.3% of the pool)
Prospectus ID#7 -
Prospectus ID#8 - Advenir at Polos East (3.5% of the pool)
Prospectus ID#9 -
Prospectus ID#10 - Advenir on Addison (3.2% of the pool)
Prospectus ID#11 - Avenues At Northpointe (3.1% of the pool)
Prospectus ID#12 - University Suites at Centennial (2.6% of the pool)
Prospectus ID#13 - Avenues at Cypress (2.6% of the pool)
Prospectus ID#14 - Park at Rialto (2.6% of the pool)
Prospectus ID#15 -
Prospectus ID#16 - Vantage at Waco (1.9% of the pool)
Prospectus ID#17 - Haven at liberty Hills (1.9% of the pool)
Prospectus ID#18 - Columbus Greens (1.6% of the pool)
Prospectus ID#19 -
Prospectus ID#20 - The Park at
Prospectus ID#22 -
For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.
Notes:
All figures are in
With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar's methodology, DBRS Morningstar used the data file outlined in the independent accountant's report in its analysis to determine the ratings referenced herein.
The principal methodology is the North American CMBS Multi-Borrower Rating Methodology (
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.
The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
Tel. +1 312 696-6293
Ratings
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
05-Nov-20 Multifamily Mortgage Pass-Through Certificates, Series 2020-K739, Class A-1 Provis.-FinalAAA (sf) Stb US
05-Nov-20 Multifamily Mortgage Pass-Through Certificates, Series 2020-K739, Class A-2 Provis.-FinalAAA (sf) Stb US
05-Nov-20 Multifamily Mortgage Pass-Through Certificates, Series 2020-K739, Class X1 Provis.-FinalAAA (sf) Stb US
05-Nov-20 Multifamily Mortgage Pass-Through Certificates, Series 2020-K739, Class X2-A Provis.-FinalAAA (sf) Stb US
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