PRESALE REPORT FREMF 2020-K106 Mortgage Trust, Series 2020-K106 and Freddie Mac Structured Pass-Through Certificates, Series K-106
MARCH 2020 STRUCTURED FINANCE: CMBS Table of Contents
Capital Structure 3 Transaction Summary 4 Rating Considerations 5 DBRS Morningstar Credit Characteristics 7 Largest Loan Summary 8 DBRS Morningstar Sample 9 Transaction Concentrations 12 Loan Structural Features 13 10x Living at Columbia Town Center 15 Marc San Marcos 20 Belvoir Square 24 Torrente, Park West 205, Marquis Place 28 210 St. Paul 34 The Muse 39 Springhouse Apartment Homes 44 Las Palmas 48 Atler at Brookhaven 51 The Avenue Apartments 56 Rivera Apartments 60 Aperture 64 Polo Glen Apartments 68 88twenty 73 Stratford Green Apartments 77 Transaction Structural Features 81 Methodologies 81 Surveillance 81 Glossary 83 Definitions 83
Carson Applegate Edward Dittmer Vice President Senior Vice President +1 312 332-9445 +1 212 806-3285 [email protected] [email protected]
Kevin Mammoser Erin Stafford Managing Director Managing Director +1 312 332-0136 +1 312 332-3291 [email protected] erin.stafford@ dbrsmorningstar.com Presale Report | FREMF 2020-K106
Capital Structure
FREMF 2020-K106 MORTGAGE TRUST, SERIES 2020-K106
Description Rating Action Balance ($) Subordination (%) DBRS Morningstar Trend Rating
Class A-1 New Rating - Provisional 135,929,000 18.500 AAA (sf) Stable
Class A-2 New Rating - Provisional 852,000,000 18.500 AAA (sf) Stable
Class X1 New Rating - Provisional 987,929,000 - AAA (sf) Stable
Class X2-A New Rating - Provisional 987,929,000 - AAA (sf) Stable
Class XAM New Rating - Provisional 54,548,000 - AA (sf) Stable
Class A-M New Rating - Provisional 54,548,000 14.000 AA (low) (sf) Stable
Class B New Rating - Provisional 48,488,000 10.000 A (low) (sf) Stable
Class X2-B New Rating - Provisional 224,254,542 - BBB (high) (sf) Stable
Class C New Rating - Provisional 30,304,000 7.500 BBB (sf) Stable
Class X3 NR 169,706,542 - NR n/a
Class D NR 90,914,542 0.000 NR n/a
NR = not rated. 1. Classes X2-A, X2-B, C, and D have been privately placed. 2. Classes A-1, A-2, X1, XAM, A-M, and X3 are being conveyed by Freddie Mac into the SPC Trust described below. 3. The Class X1, X2-A XAM, X2-B, and X3 balances are notional. Classes X1, X2-A XAM, X2-B, and X3 are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfa
FREDDIE MAC STRUCTURED PASS-THROUGH CERTIFICATES, SERIES K-106
Description Rating Action Balance ($) Subordination (%) DBRS Morningstar Trend Rating
Class A-1 New Rating - Provisional 135,929,000 18.500 AAA (sf) Stable
Class A-2 New Rating - Provisional 852,000,000 18.500 AAA (sf) Stable
Class X1 New Rating - Provisional 987,929,000 - AAA (sf) Stable
Class XAM New Rating - Provisional 54,548,000 - AA (sf) Stable
Class A-M New Rating - Provisional 54,548,000 14.000 AA (low) (sf) Stable
Class X3 NR 169,706,542 - NR n/a
1. NR = not rated. 2. Classes A-1, A-2, X1, X-AM, and A-M are rated without giving effect to the Freddie Mac guarantee. 3. The Class X1, XAM, and X3 balances are notional. The Class X1, XAM, and X3 balances are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.
March 2020 3 Presale Report | FREMF 2020-K106
Transaction Summary
POOL CHARACTERISTICS
Trust Amount ($) 1,212,183,543 Wtd. Avg. Interest Rate (%) 3.821
Number of Loans 52 Wtd. Avg. Remaining Term 117
Number of Properties 52 Wtd. Avg. Remaining Amortization 250
Average Loan Size ($) 23,311,222 Total DBRS Morningstar Expected 7.5 Amortization2
DBRS Morningstar LTV (%)1 67.6 / 67.6 DBRS Morningstar Balloon LTV (%)1 62.3 / 62.3
Appraised LTV (%)1 67.1 / 67.1 Appraised Balloon LTV (%)1 61.9 / 61.9
Wtd. Avg. DBRS Morningstar DSCR1 1.39 / 1.39 Wtd. Avg. Issuer Term DSCR1 1.50 / 1.50
Top 10 Loan Concentration (%) 45.8 Avg. DBRS Morningstar NCF Variance (%) -7.8
1. The second metric excludes shadow-rated and co-op loans. 2. For certain ARD loans, expected amortization may include amortization expected to occur after the ARD but prior to single/major tenant expiry.
PARTICIPANTS
Depositor Barclays Commercial Mortgage Securities LLC
Mortgage Loan Seller Federal Home Loan Mortgage Corporation (Freddie Mac - 52 loans, 100.0% of pool)
Trustee Wells Fargo Bank, National Association
Master Servicer KeyBank National Association
Special Servicer CWCapital Asset Management LLC
Certificate Administrator and Custodian Wells Fargo Bank, National Association
March 2020 4 Presale Report | FREMF 2020-K106
Rating Considerations
The collateral consists of 52 fixed-rate loans secured by 43 garden-style properties, four mid-rise properties, two high- rise properties, one townhome property, one independent living property, and one MHC. One group of loans, comprising Torrente, Park West 205, and Marquis Place, are cross-collateralized, and DBRS Morningstar’s analysis of this transaction incorporates this group of loans as a single loan, resulting in a modified loan count of 50. Of the 50 loans, 48 have 10-year loan terms and two have 11-year loan terms. Loans with more than a 10-year term are typically part of Freddie Mac’s prestabilization lending program. The transaction employs a sequential-pay pass-through structure. DBRS Morningstar analyzed the conduit pool to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. Measuring the cutoff loan balances against the DBRS Morningstar Stabilized NCF and their respective actual constants results in nine loans, representing 14.4% of the trust balance, with a DBRS Morningstar Term DSCR at or above 1.80x, a threshold indicating a lower likelihood of midterm default.
Classes A-1, A-2, A-M, X1, XAM, and X3 of the FREMF 2020-K106 Mortgage Trust, Series 2020-K106 (FREMF 2020-K106) transaction have been conveyed into a trust by Freddie Mac to issue corresponding classes of Structured Pass-Through Certificates (SPCs) guaranteed by Freddie Mac (see the Transaction Structural Features section for more information). All DBRS Morningstar-rated classes will be subject to its ongoing surveillance, confirmations, upgrades, or downgrades after the date of issuance. DBRS Morningstar assigned the provisional ratings to the FREMF 2020-K106 certificates and the Freddie Mac Structured Pass-Through Certificates, Series K-106 (Freddie Mac SPCs K-106) without giving effect to the Freddie Mac guarantee.
STRENGTHS – The deal has favorable credit metrics, as evidenced by a DBRS Morningstar Issuance LTV and DBRS Morningstar Balloon LTV of 67.6% and 62.3%, respectively. Three loans, comprising 8.3% of the trust balance, have DBRS Morningstar Issuance LTVs greater than 75%, which is a lower proportion than several other recently analyzed Freddie Mac transactions. In addition, the WA DBRS Morningstar Term DSCR is moderate at 1.39x, and 24.3% of the pool has a DBRS Morningstar Term DSCR over 1.75x, which is a higher proportion of several recently analyzed deals. – The pool has strong occupancy metrics, with a WA occupancy rate of 93.6% based on the most recent rent rolls provided to DBRS Morningstar. Furthermore, only seven loans have an occupancy rate below 90.0%. – Twenty-six loans, representing 62.3% of the pool by balance, were for the purpose of acquisition. Acquisition loans are favorable because the sponsor is usually required to contribute a significant amount of cash equity as a part of the transaction. Acquisition financing is also generally based on actual transaction values rather than an appraiser’s estimate of market value. – Loans on Freddie Mac’s balance sheet, which it originates according to the same policies as those for securitization, have an extremely low delinquency rate of 0.05% as of January 1, 2020. This compares favorably with the delinquency rate for CMBS multifamily loans of approximately 0.35% as of January 2020. – As of December 31, 2019, Freddie Mac has securitized 17,668 loans, totaling approximately $308.41 billion in guaranteed issuance balance. To date, Freddie Mac has not realized any credit losses on its guaranteed issuances, although B-piece investors have realized a combined $18.8 million in total losses, representing fewer than 1.0 basis points of total issuance. – The loans in the transaction benefit from experienced and financially strong borrowers compared with typical CMBS multifamily loans. In addition, many of the borrowers are repeat clients of Freddie Mac that have performed as agreed. – Only two loans, 1.8% of the pool, are secured by a nontraditional property type (MHC and independent living).
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CHALLENGES AND CONSIDERATIONS – Eleven loans, representing 12.6% of the pool, are secured by properties in DBRS Morningstar Market Ranks of 1 and 2, which are more rural or tertiary in nature. Furthermore, only three loans, representing 7.4% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 6 or higher, which are typically more urban in nature. – Properties in tertiary and rural markets have higher loss severities than those in urban markets. – Twelve loans, representing 30.5% of the pool, including six of the top 15 loans in the pool, are structured with full-term IO payments. An additional 33 loans, comprising 63.3% of the pool, have remaining partial IO periods ranging from 12 months to 60 months. Only seven loans, representing 6.3% of the pool, amortize over the full loan term. – The IO period, including partial IO terms and the balloon LTV, affects a loan’s POD.
March 2020 6 Presale Report | FREMF 2020-K106
DBRS Morningstar Credit Characteristics
DBRS MORNINGSTAR DSCR
% of the Pool % of the Pool DSCR (Trust Balance) (Trust Balance)1
0.00-0.90 0.0 0.0
0.90-1.00 0.0 0.0
1.00-1.15 12.8 12.8
1.15-1.30 49.5 49.5
1.30-1.45 5.6 5.6
1.45-1.60 6.9 6.9
1.60-1.75 1.0 1.0
>1.75 24.3 24.3
Wtd. Avg. (x) 1.39 1.39
Note: Includes pari passu debt, but excludes subordinate debt. 1. Excludes shadow-rated and co-op loans.
DBRS MORNINGSTAR LTV (%) DBRS MORNINGSTAR BALLOON LTV (%)
% of the Pool % of the Pool % of the Pool (Trust % of the Pool LTV (%) (Trust Balance) (Trust Balance)1 Balloon LTV (%) Balance) (Trust Balance)1
0.0-50.0 0.4 0.4 0.0-50.0 1.6 1.6
50.0-55.0 3.0 3.0 50.0-55.0 5.5 5.5
55.0-60.0 16.9 16.9 55.0-60.0 23.3 23.3
60.0-65.0 16.7 16.7 60.0-65.0 132.7 132.7
65.0-70.0 13.9 13.9 65.0-70.0 36.9 36.9
70.0-75.0 40.9 40.9 70.0-75.0 0.0 0.0
>75.0 8.3 8.3 >75.0 0.0 0.0
Wtd. Avg. (%) 67.6 67.6 Wtd. Avg. (%) 62.3 62.3
Note: Includes pari passu debt, but excludes subordinate debt. Note: Includes pari passu debt, but excludes subordinate debt. 1. Excludes shadow-rated and co-op loans. 1. Excludes shadow-rated and co-op loans.
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Largest Loan Summary
LOAN DETAIL
DBRS DBRS DBRS Morningstar DBRS Trust Morningstar Morningstar Balloon LTV Morningstar Loan Name Balance ($) % of Pool Shadow Rating LTV (%) (%) DSCR (x)
10x Living At Columbia Town Center 98,312,000 8.1 n/a 72.9 65.9 1.18
Marc San Marcos 83,137,000 6.9 n/a 58.8 58.8 1.58
Belvoir Square 61,100,000 5.0 n/a 73.5 66.4 1.25
Torrente, Park West 205 & Marquis Place 58,000,000 4.8 n/a 68.7 61.8 1.18
210 St. Paul 50,000,000 4.1 n/a 55.3 55.3 1.80
The Muse 49,790,000 4.1 n/a 76.6 69.9 1.16
Springhouse Apartment Homes 41,700,000 3.4 n/a 75.4 68.0 1.21
Las Palmas 39,999,000 3.3 n/a 63.5 63.5 1.78
Atler At Brookhaven 37,784,000 3.1 n/a 68.3 61.9 1.13
The Avenue Apartments 35,225,000 2.9 n/a 72.2 65.4 1.10
Rivera Apartments 34,450,000 2.8 n/a 64.4 58.1 1.08
Aperture 32,987,000 2.7 n/a 53.8 53.8 1.87
Polo Glen Apartments 32,889,000 2.7 n/a 59.0 59.0 2.20
88Twenty 31,725,000 2.6 n/a 63.2 63.2 1.82
Stratford Green Apartments 31,570,000 2.6 n/a 70.0 63.3 1.22
PROPERTY DETAIL
DBRS Loan per Morningstar Year SF/Units Maturity Balance Loan Name Property Type City State Built SF/Units ($) per SF/Units ($)
10x Living At Columbia Town Center Multifamily Columbia MD 2001 531 185,145 167,236
Marc San Marcos Multifamily San Marcos CA 2017 416 199,849 199,849
Belvoir Square Multifamily Fort Belvoir VA 2017 282 216,667 195,777
Torrente, Park West 205 & Multifamily Pittsburgh PA 2016 502 115,538 103,916 Marquis Place MSA
210 St. Paul Multifamily Denver CO 2017 81 617,284 617,284
The Muse Multifamily Dallas TX 1966 804 61,928 56,530
Springhouse Apartment Homes Multifamily Newport News VA 1985 432 96,528 86,990
Las Palmas Multifamily Fullerton CA 1990 259 154,436 154,436
Atler At Brookhaven Multifamily Atlanta GA 1985 228 165,719 150,210
The Avenue Apartments Multifamily Lakeland FL 2017 264 133,428 120,980
Rivera Apartments Multifamily San Antonio TX 2017 302 114,073 102,838
Aperture Multifamily San Bruno CA 2019 83 397,434 397,434
Polo Glen Apartments Multifamily Rockledge FL 2008 252 130,512 130,512
88Twenty Multifamily Houston TX 2016 336 94,420 94,420
Stratford Green Apartments Multifamily Bloomingdale IL 1997 192 164,427 148,730
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DBRS Morningstar Sample
DBRS MORNINGSTAR SAMPLE RESULTS
DBRS DBRS DBRS Morningstar Morningstar Prospectus % Morningstar NCF Variance DBRS Morningstar Major Property ID Loan Name of Pool NCF ($) (%) Variance Drivers Quality
1 10x Living At Columbia Town Center 8.1 6,441,938 -5.4 Vacancy, Management Fee, Average + Operating Expenses
2 Marc San Marcos 6.9 5,636,679 -8.0 Management Fee, Vacancy, Above Average Operating Expenses
3 Belvoir Square 5.0 4,258,738 -0.9 Minimal Variance Average +
4 Torrente, Park West 205 & Marquis 4.8 3,682,873 -7.9 Vacancy, Operating Average + Place Expenses
5 210 St. Paul 4.1 3,836,521 -5.8 Operating Expenses Above Average
6 The Muse 4.1 3,438,972 -7.4 Operating Expenses, Average Vacancy
7 Springhouse Apartment Homes 3.4 2,744,080 -4.5 Management Fee, Operating Average Expenses
8 Las Palmas 3.3 2,461,730 -15.3 Ground Lease Expense, Average Vacancy, Management Fee
9 Atler At Brookhaven 3.1 2,435,696 -9.2 Vacancy, Management Fee, Average - Other Income
10 The Avenue Apartments 2.9 2,215,488 -12.0 Vacancy, Operating Average + Expenses
11 Rivera Apartments 2.8 2,040,597 -15.9 Real Estate Taxes, Operating Average + Expenses
12 Aperture 2.7 2,185,219 -5.5 Other Income, Operating Above Average Expenses
13 Polo Glen Apartments 2.7 2,585,297 0.4 Positive Variance Average +
14 88Twenty 2.6 2,064,464 -10.8 Operating Expenses, Average + Management Fee, Vacancy
15 Stratford Green Apartments 2.6 2,157,415 -6.5 Operating Expenses Average
16 The Mile At Coral Gables 2.1 1,505,171 -12.3 Vacancy, Operating Average + Expenses
17 45Eighty Dunwoody 2.1 1,655,416 -4.4 Vacancy; Management Fee Average +
22 Riverwalk Phase I 1.7 1,404,511 -4.0 Vacancy, Operating Average + Expenses
26 Alena 1.6 1,289,076 -4.9 Management Fee, Vacancy, Average Operating Expenses
28 Costa Del Sol 1.4 1,083,607 -8.0 Management Fee Average
31 Riverwalk Phase II 1.3 1,021,485 -6.9 Operating Expenses, Average + Vacancy
39 Tussing Place 0.8 580,977 -22.1 Real Estate Taxes Average
44 Menlo Park Apartments 0.6 431,102 -2.9 Operating Expenses Average
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DBRS MORNINGSTAR SITE INSPECTIONS DBRS Morningstar Sampled Property Quality DBRS Morningstar sampled 25 of the 52 loans in the pool # of % of and performed site inspections on 25 of the 52 properties Loans Sample in the portfolio, representing 70.7% of the pool by allocated Excellent 0 0.0 loan balance. DBRS Morningstar conducted meetings with Above Average 3 19.4 the on-site property manager, leasing agent, or a represen- Average + 13 51.1 tative of the borrowing entity for 70.7% of the pool balance. Average 8 25.1 The resulting DBRS Morningstar property quality scores Average - 1 4.4 are highlighted in the following charts: Below Average 0 0.0 Poor 0 0.0
DBRS MORNINGSTAR CASH FLOW ANALYSIS DBRS Morningstar completed a cash flow analysis review and a cash flow stability and structural review on 25 of the 52 loans, representing 70.7% of the pool by loan balance. For the loans not subject to a cash flow review, DBRS Morningstar applied the average NCF variance of the DBRS Morningstar sample pool.
DBRS Morningstar generally adjusted revenue to be no higher than the most recent T-12 level. In some instances, DBRS Morningstar applied an additional vacancy or concession adjustment to account for new supply coming to the market, lack of operating history, or lack of stabilization. Generally, most expenses reflect the higher of the T-12 historical figure (plus an inflation factor) and the borrower’s budgeted figures. If there was no current bill, DBRS Morningstar inflated real estate taxes and insurance premiums. Capex reflects the greater of the engineer’s inflated estimates and the DBRS Morningstar minimum of $250 per unit for multifamily properties. If a significant upfront capex reserve was established at closing, DBRS Morningstar reduced its recognized costs. In addition, DBRS Morningstar did not consider any upside potential, such as anticipated rental increases or prospective tenant rent. The DBRS Morningstar sample had an average NCF variance of -7.8% and ranged from 0.4% (Polo Glen Apartments) to -22.1% (Tussing Place).
DBRS Morningstar Sampled Property Type
100.0% 100.0
80.0% 80.0
60.0% 60.0
40.0% 40.0
20.0% 20.0
0.0% 0.0 Limited-Service Full-Service Multifamily Office Retail Self-Storage Industrial Unanchored Mixed Manufactured Other Hotel Hotel Retail Use Housing Communities Excellent Above Average Average + Average Average - Below Average Poor Pool (%)
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MODEL ADJUSTMENTS DBRS Morningstar applied a POD and/or LGD adjustment to five loans (210 St. Paul, Riverwalk Phase I, Cobblestone at Eagle Harbor, Green Wood Park Luxury Apartments and Townhomes, and Tussing Place) accounting for a combined 9.1% of the pool by allocated loan balance. Identified model adjustments were as follows: – DBRS Morningstar adjusted the POD and LGD assumptions for 210 St. Paul to reflect an upward cap rate adjustment from the Issuer’s implied cap rate of 4.2% to the DBRS Morningstar adjusted cap rate of 4.5%. The DBRS Morningstar cap rate adjustment resulted in adjusted DBRS Morningstar issuance and maturity LTVs of 55.3% and 55.3%, respectively, which were then applied to the DBRS Morningstar POD and LGD calculations. – DBRS Morningstar adjusted the POD and LGD assumptions for Riverwalk Phase I to reflect an upward cap rate adjustment from the Issuer’s implied cap rate of 4.6% to the DBRS Morningstar adjusted cap rate of 5.0%. The DBRS Morningstar cap rate adjustment resulted in adjusted DBRS Morningstar issuance and maturity LTVs of 71.1% and 64.4%, respectively, which were then applied to the DBRS Morningstar POD and LGD calculations. – DBRS Morningstar adjusted the POD and LGD assumptions for Cobblestone at Eagle Harbor to reflect an upward cap rate adjustment from the Issuer’s implied cap rate of 4.5% to the DBRS Morningstar adjusted cap rate of 5.0%. The DBRS Morningstar cap rate adjustment resulted in adjusted DBRS Morningstar issuance and maturity LTVs of 58.0% and 52.4%, respectively, which were then applied to the DBRS Morningstar POD and LGD calculations. – DBRS Morningstar adjusted the POD and LGD assumptions for Green Wood Park Luxury Apartments and Townhomes to reflect an upward cap rate adjustment from the Issuer’s implied cap rate of 5.2% to the DBRS Morningstar adjusted cap rate of 5.5%. The DBRS Morningstar cap rate adjustment resulted in adjusted DBRS Morningstar issuance and maturity LTVs of 73.6% and 57.8%, respectively, which were then applied to the DBRS Morningstar POD and LGD calculations. – DBRS Morningstar adjusted the POD and LGD assumptions for Tussing Place to reflect an upward cap rate adjustment from the Issuer’s implied cap rate of 4.9% to the DBRS Morningstar adjusted cap rate of 6.0%. The DBRS Morningstar cap rate adjustment resulted in adjusted DBRS Morningstar issuance and maturity LTVs of 73.9% and 58.4%, respectively, which were then applied to the DBRS Morningstar POD and LGD calculations.
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Transaction Concentrations
DBRS Morningstar Property Type Geography
# of % of # of % of Property Type Loans Pool State Properties Pool Office 0 0.0 TX 8 16.5 Retail 0 0.0 CA 5 14.6 Multifamily 51 99.5 FL 6 12.3 Mixed Use 0 0.0 VA 2 8.5 Industrial 0 0.0 MD 1 8.1 Full-Service Hotel 0 0.0 GA 2 5.2 Self-Storage 0 0.0 All Others 28 34.8 Unanchored Retail 0 0.0 Limited-Service Hotel 0 0.0 Manufactured Housing 1 0.5 Other 0 0.0
Loan Size DBRS Morningstar Market Types
# of % of % of Loan Size Loans Pool Market Type # of Loans Pool Very Large 25 75.0 1 2 2.5 (>$20.0 million) 2 9 10.1 Large 14 17.4 3 18 44.2 ($10.0-$20.0 million) 4 13 23.9 Medium 12 7.3 ($5.0-$10.0 million) 5 7 11.9 Small 1 0.2 6 1 4.1 ($2.0-$5.0 million) 7 2 3.3 Very Small 0 0.0 8 0 0.0 (<$2.0 million)
Largest Property Location
Property Name City State 10x Living At Columbia Town Center Columbia MD Marc San Marcos San Marcos CA Belvoir Square Fort Belvoir VA Torrente, Park West 205 & Marquis Place Pittsburgh MSA PA 210 St. Paul Denver CO The Muse Dallas TX Springhouse Apartment Homes Newport News VA Las Palmas Fullerton CA Atler At Brookhaven Atlanta GA The Avenue Apartments Lakeland FL Rivera Apartments San Antonio TX Aperture San Bruno CA Polo Glen Apartments Rockledge FL 88Twenty Houston TX Stratford Green Apartments Bloomingdale IL
March 2020 12 Presale Report | FREMF 2020-K106
Loan Structural Features
Pari Passu Notes: No loans in the trust have pari passu debt.
Additional Debt: All loans are permitted to obtain additional secured debt, provided exclusively at Freddie Mac’s option, beginning one year after origination.
Subordinate Debt: One loan (Menlo Park Apartments), representing approximately 0.6% of the pool, has a subordinate mortgage loan. No loans have preferred equity.
Leasehold: Two loans (Las Palmas and Tussing Place), representing 4.1% of the pool, have a leasehold structure. In both instances, the ground lease extends far enough in the future to be considered traditionally financeable.
Nonrecourse Carveout Guarantor: All loans in the pool have guarantees of the nonrecourse carveout provisions of the related loan documents.
Ownership Structure: One loan, Polo Glen Apartments, representing 2.7% of the pool, is structured as a Delaware Statutory Trust. DBRS Morningstar modeled this loan with a POD penalty to account for the borrower structure as well as the historical bankruptcy of the main sponsor’s hedge fund. Furthermore, the related borrowers for eight loans (Park West 205, Springhouse Apartment Homes, Las Palmas, Aperture, Stratford Green Apartments, Sunpointe Apartmente, The Union At Cooper Hill Apartments, and Suzann Plaza), collectively representing 17.2% of the pool, are structured as TICs. For each of the eight loans, there are no more than three TICs forming the borrower base, as opposed to a traditional TIC syndication where there could be more than 10 or more unrelated co-borrowers.
RESERVE REQUIREMENT BORROWER STRUCTURE
Type # of Loans % of Pool Type # of Loans % of Pool
Tax Ongoing 52 100.0 SPE with Independent Director 0 0.0 and Nonconsolidation Opinion
Insurance Ongoing 36 76.9 SPE with Independent Director 1 2.7 Only
Capex Ongoing 43 90.3 SPE with Nonconsolidation 7 36.5 Opinion Only
Leasing Costs Ongoing1 0 0.0 SPE Only 41 60.8
1. Percent of office, retail, industrial, and mixed-use assets based on DBRS Morningstar property types.
Interest Only DBRS Morningstar Expected Amoritization
# of % of # of % of Loans Pool Loans Pool Full IO 12 30.5 0.0 12 30.5 Partial IO 33 63.3 0.0-5.0 0 0.0 Amortizing 7 6.3 5.0-10.0 24 54.4 10.0-15.0 8 8.2 15.0-20.0 1 0.7 20.0-25.0 7 6.3 >25.0 0 0.0 Note: For certain ARD loans, expected amortization may include amortization expected to occur after the ARD but prior to single/major tenant expiry.
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Sponsor Strength: DBRS Morningstar considers the DBRS Morningstar Sponsor Strength sponsorship for 46 loans, representing 87.5% of the pool, # of % of as Strong, with three sponsors marked Average (6.8% of Loans Pool the pool), one sponsor marked Weak (2.7% of the pool), Strong 46 87.5 and two sponsors marked Bad/Litigious (3.0% of the pool). Average 3 6.8 Weak 1 2.7 Property Release: Six loans in the trust (Torrente, Park Bad/Litigious 2 3.0 West 205, Marquis Place, Village Green Apartments, Parklands of Chili Apartments, and Green Wood Park Luxury Apartments and Townhomes) contain release provisions.
Property Substitution: No loans in the trust contain substitution conditions.
Terrorism Insurance: Terrorism insurance is required and in place for all loans.
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10x Living at Columbia Town Center Columbia, MD Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 98.3 Loan PSF/Unit ($) 185,145 Percentage of the Pool 8.1 Loan Maturity/ARD January 2030 Amortization 30 Years DBRS Morningstar DSCR (x) COLLATERAL SUMMARY 1.18 DBRS Morningstar Multifamily Year Built/Renovated 2001/2018 DBRS Morningstar LTV (%) Property Type 72.9 City, State Columbia, MD Physical Occupancy (%) 93.2 DBRS Morningstar Balloon LTV (%) Units 531 Physical Occupancy Date November 2019 65.9 DBRS Morningstar Property Type This loan is secured by the borrower’s fee-simple interest in 10x Living at Columbia Multifamily Town Center, a 531-unit multifamily property in Columbia, Maryland. The 10-year DBRS Moringstar fixed-rate loan is IO for the first five years, before amortizing on a 30-year schedule. Property Quality Loan proceeds of approximately $98.3 million, along with almost $35.4 million of cash Average + equity, will be used to purchase the property for $133.7 million, fund tax and insurance Debt Stack ($ Millions) escrows of roughly $918,000, and fund reserves with the remaining $440,000. With an Trust Balance appraised value of $134.8 million, the LTV at issuance is 72.9%, and the loan has an LTV 98.3 at maturity of 65.9% due to the five years of amortization. Pari Passu 0.0 Built in 2001 and renovated in 2018, the mid-rise apartment complex was 93.2% B-Note occupied as of November 2019. There are 531 units spread across 14 buildings on the 0.0 11.8-acre lot, with 931 parking spaces available to tenants. Property wide amenities Mezz include a swimming pool, clubhouse, yoga room, business center, courtyard with 0.0 barbecue area, and package lockers. Unit amenities include stainless-steel appliances, Total Debt 98.3 refrigerator, dishwasher, in-unit washer/dryer, and granite countertops. The unit breakdown consists of 200 one-bedroom units (810 sf ), 253 two-bedroom units Loan Purpose (1,107 sf ), and 78 three-bedroom units (1,403 sf ). The average rental rates are $1,564, Acquisition $1,858, and $2,226 for one-, two-, and three-bedroom units, respectively. Equity Contribution/ (Distribution) ($ Millions) 35.4 The appraiser identified five properties in the immediate area that directly compete with the subject. Based upon the competitive set, the subject property offers slightly below market rents and achieves comparable occupancy levels. The more recently
March 2020 15 Presale Report | FREMF 2020-K106
10X LIVING AT COLUMBIA TOWN CENTER – COLUMBIA, MD
constructed properties in the area in excess of $2,000 per unit, while the properties of older vintage range between $1,800 and $2,000 per unit.
COMPETITIVE SET
Distance Avg. Rental from Subject Year Built/ Occupancy Rate Per Avg. Unit Property Location (Miles) Units Renovated (%) Unit ($) Size (SF)
The Gramercy at Town Columbia, MD 0.6 210 1997/N/A 94.0% 1,906 1,008 Center
The Elms at Montjoy Ellicott City, MD 2.7 286 2006/N/A 92.7% 1,880 1,164
TENm Flats Columbia, MD 0.5 441 2018/N/A 95.0% 2,138 876
The Metropolitan Downtown Columbia, MD 0.5 390 2015/N/A 94.0% 2,121 1,004
Vista Wilde Lake Columbia, MD 1.1 225 2017/N/A 93.8% 2,143 1,042
Total/WA Comp. Set Various, MD Various 1,552 Various 94.0% 2,056 1,003
10x Living at Columbia Columbia, MD n/a 531 2001/2018 93.2% 1,802 1,039 Town Center
Source: Appraisal.
SPONSORSHIP The borrower for this transaction is a single-purpose entity. The key sponsor and guarantor for this transaction has been a successful real estate owner for nearly 18 years. The sponsor’s strategy has been to acquire properties and reposition them within a five-year timeframe. The sponsor has executed this strategy and sold approximately 19 multifamily properties (2,681 units). Additionally, the sponsor is a motivational speaker and New York Times best-selling author.
The property is managed by a third-party management company accepting a fee equal to 2.5% of EGI. The principals of this management company have been involved in the real estate industry for more than 20 years, and their portfolio includes 90 multifamily properties.
March 2020 16 Presale Report | FREMF 2020-K106
10X LIVING AT COLUMBIA TOWN CENTER – COLUMBIA, MD
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on February 2, 2020, at 11:00 a.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average (+).
The collateral consists of a 531-unit, garden-style apartment complex in Columbia, Maryland, approximately 24 miles southeast of the D.C. CBD. The property is less than a quarter mile from Route 29 and approximately eight miles from I-95 providing good access to the greater MSA. The subject is 16 miles west of the Baltimore International Airport, and 19 miles from the Baltimore CBD. The property is also a short 20-minute drive to the Fort Meade Military Base. Located along Swift Stream Place, the property is in a quiet area and the surrounding neighborhood is lightly in-filled and predominately residential in nature.
Originally constructed in 2001, the subject is composed of 14 buildings and was most recently renovated in 2018. The property’s buildings have a white stucco exterior with red brick and large archways leading to the covered, open- air stairwells. Interior corridors features horizonal white siding which appeared dated in contrast with the rest of the property. The club house, leasing office, and several apartment units are in the property’s largest building, which leads to a courtyard surrounding the property’s large inground pool. The property’s 531 units consists of 200 one-bedroom units (805 sf ), 253 two-bedroom units (1,200 sf ), and 78 three-bedroom units (1,568 sf ). DBRS Morningstar toured the model one-bedroom and vacant two- and three-bedroom units. During the recent renovation, the property upgraded the units with a modern appearance with updated gray granite counter tops, white cabinetry, and grey subway tile backsplashes in the kitchen. The remainder of the units include faux wood flooring in the living spaces, modern light fixtures in the living area, and carpeting in the bedrooms.
Property amenities include a clubhouse, fitness center, yoga studio, swimming pool, business center, outdoor grilling area, Amazon package system, and several dog stations throughout for residents. The clubhouse building contains the leasing center, fitness center, and business center. The subject has ample parking with 931 spaces, which are a mix of surface and a large garage parking structure that is centrally located near many of the property’s buildings and has direct walkway access on each floor to various floors of several residential buildings. Overall, DBRS Morningstar found the property to be generally well maintained and in good condition with minimal deferred maintenance evident at the time of inspection.
March 2020 17 Presale Report | FREMF 2020-K106
10X LIVING AT COLUMBIA TOWN CENTER – COLUMBIA, MD
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS Morningstar NCF 2016 T-12 Budget Appraisal Issuer NCF NCF ($) Variance (%)
GPR ($) 11,029,444 11,336,173 11,619,852 11,652,996 11,476,728 11,725,764 2.17
Other Income ($) 656,520 669,812 681,356 672,050 669,812 669,812 0.00
Vacancy & -763,660 -1,017,965 -868,583 -850,669 -857,617 -1,323,216 54.29 Concessions ($)
EGI ($) 10,922,304 10,988,020 11,432,625 11,474,377 11,288,923 11,072,360 -1.92
Expenses ($) 3,678,776 4,268,867 4,171,424 4,221,957 4,323,753 4,478,025 3.57
NOI ($) 7,243,528 6,719,153 7,261,201 7,252,420 6,965,170 6,594,335 -5.32
Capex ($) 0 0 0 106,200 152,397 152,397 0.00
NCF ($) 7,243,528 6,719,153 7,261,201 7,146,220 6,812,773 6,441,938 -5.44
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $6,441,938, representing a -5.4% variance from the Issuer’s NCF.
The major driver of this variance is vacancy. DBRS Morningstar concluded to a vacancy factor of 10.3% in order to achieve an NRI in line with the T-9, ended November 2019, monthly collections at the property.
DBRS MORNINGSTAR VIEWPOINT The subject’s location is convenient for residents thanks to its proximity to BWI Airport, Fort Meade, downtown Baltimore, and Washington, D.C. The property is in the Reis multifamily submarket of Columbia/Howard County that has vacancy at 5.1% as of Q4 2019, which improves to 3.5% when considering the subject property and Reis’ competitive set. The property has had occupancy levels in the low to mid 90%s with the exception of 2018 when the property was wrapping up its renovation and occupancy lowered to 86.6%. However, the property quickly rebounded with a T-12 occupancy of 93.2%, which shows the property’s desirability in the market.
The property was purchased by the current owner in December 2019 by an experienced apartment operator with significant multifamily holdings. The property had been undergoing renovations from 2016 to 2018 and stabilized in March 2019. These upgrades resulted in average premiums of $70.19 as of the November 2019 rent roll, and the sponsor expects that to increase to average premiums of $92.66 across all units once upgrades are completed and leases have fully cycled.
DOWNSIDE RISKS – With an appraised value of $134.8 million, the loan exhibits high leverage financing with an LTV at issuance of 72.9%. – The local economy is highly reliant upon the military bases, and the property has an approximate 20% concentration of military residence, which can pose a risk to the occupancy.
March 2020 18 Presale Report | FREMF 2020-K106
10X LIVING AT COLUMBIA TOWN CENTER – COLUMBIA, MD
STABILIZING FACTORS – The loan has partial amortization and based on a balloon balance has a reduced exit LTV of 65.9%, based on the current appraised value. The ownership has demonstrated a long-term commitment to the asset via a $35.4 million equity contribution to the purchase price, representing 26.4% of the total cost basis. In addition, sponsor has ample experience within the market as well as with multifamily properties with a portfolio of more than 6,000 units. – The subject’s military concentration is relatively low at 20.0%. Furthermore, the subject has a good location with convenient access to I-95, which connects the property with the greater Baltimore and Washington D.C. MSAs. The property is also less than a mile from Howard Community College, the Mall in Columbia, and the Columbia Office Park.
March 2020 19 Presale Report | FREMF 2020-K106
Marc San Marcos San Marcos, CA
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 83.1 Loan PSF/Unit ($) 199,849 Percentage of the Pool 6.9 Loan Maturity/ARD November 2029 Amortization COLLATERAL SUMMARY n/a DBRS Morningstar Mutlifamily Year Built/Renovated 2017/N/A DBRS Morningstar DSCR (x) Property Type 1.58 City, State San Marcos, CA Physical Occupancy (%) 93.8 DBRS Morningstar LTV (%) 58.8 Units 416 Physical Occupancy Date December 2019 DBRS Morningstar Balloon LTV (%) The loan is secured by the borrower’s fee simple interest in Marc San Marcos, a 416-unit, 58.8 Class A, garden-style multifamily complex in San Marcos, California, approximately DBRS Morningstar Property Type 35 miles north of San Diego. Loan proceeds of $83.1 million plus borrower equity of Multifamily $58.4 million went toward acquiring the property in October 2018 for $141.5 million. DBRS Moringstar The 11-year fixed-rate loan is IO for the full term. Property Quality Above Average The property was constructed in 2017 and consists of six buildings totaling 416 units. Debt Stack ($ Millions) Common area amenities include two swimming pools with cabanas and spas, a Trust Balance clubhouse with a business center and conference room, two fitness centers, and a 83.1 resident lounge with a kitchen and dining areas. Unit amenities include stainless- Pari Passu steel appliances (including a dishwasher, stove/range, refrigerator, and microwave), 0.0 quartz countertops, wood laminate cabinetry, wood vinyl plank flooring, an in-unit B-Note washer/dryer, and a private patio/balcony. At the northwest corner of the property is a 0.0 1.1-acre public park called Innovation Park. The park contains a dog park, a children’s Mezz playground, and a pickle ball court. The owner of Marc San Marcos maintained this 0.0 public park for two years, with the city of San Marcos taking over maintenance in Total Debt 83.1 January 2020. Loan Purpose As of the December 31, 2019, rent roll, the property has a physical occupancy rate Acquisition of 93.8% and a 416-unit mix consisting of 51 studio apartments, 161 one-bedrooms, Equity Contribution/ (Distribution) ($ Millions) 192 two-bedrooms, and 12 three-bedrooms. The average monthly rental rates are $1,756 58.4 for a studio, $1,872 for a one-bedroom unit, $2,294 for a two-bedroom unit, and $2,890 for a three-bedroom unit. The property’s average in-place rental rate of $2,082 per unit is above the market compared with the Reis average of $1,676 per unit for the San Marcos submarket.
March 2020 20 Presale Report | FREMF 2020-K106
MARC SAN MARCOS – SAN MARCOS, CA
COMPETITIVE SET
Distance Avg. Rental from Subject Occupancy Rate Per Unit Property Location (Miles) Units Year Built (%) ($)
Palomar Station Apartments San Marcos, CA 1.0 386 2014 94.0 2,100
Crest 850 San Marcos, CA 2.0 108 2013 95.0 2,148
Block C at North City San Marcos, CA 0.3 197 2016 96.0 2,397
Prominence Luxury Apartments San Marcos, CA 0.5 568 2004 98.0 2,098
Preserve at Melrose Vista, CA 4.0 410 2015 96.0 2,230
Avalon Vista Vista, CA 8.0 221 2015 96.0 2,281
Total/Wtd. Avg. Comp. Set Various, State Various 1,890 Various 96.1 2,182
Marc San Marcos San Marcos, CA n/a 416 2017 93.8 2,082
SPONSORSHIP The sponsor is a real estate investment company that specializes in acquiring, developing, rehabilitating, and managing apartment communities throughout the western US. The sponsor was involved in several loans that resulted in discounted payoffs. The loans were all backed by multifamily properties that were hard hit during the 2010 recession and were transferred to special servicers resulting in discounted payoffs. The property manager is a borrower-affiliated company with a contractual management fee of 3.0% of the EGI.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on Thursday, February 13, 2020, at 12:00 p.m. Based on the site inspection, DBRS Morningstar found the property quality to be Above Average.
The property is approximately 35 miles north of the San Diego CBD. It is off of Armorlite Drive and near State Route 78, a major east-west roadway that offers access to I-15 and I-5. The surrounding area consists of more apartment complexes, retail centers, and Palomar College. Per management, the property’s location near San Diego and Los Angeles drove demand and also stated that its proximity to the college draws students. The property exhibited favorable curb appeal relative to surrounding properties, commensurate with its relatively recent vintage.
March 2020 21 Presale Report | FREMF 2020-K106
MARC SAN MARCOS – SAN MARCOS, CA
The collateral consists of six mid-rise apartment buildings totaling 416 residential units spread across 10.62 acres. Per management, the collateral was 94.0% occupied at the time of inspection. The buildings feature a mix of beige, gray, and dark gray exterior tile/walls. The property’s grounds were well-maintained with new concrete roadways and a modern setup for an apartment, and it showed no deferred maintenance. The property featured an on-site management and leasing office that doubled as a resident clubhouse with double-height ceilings, contemporary seating arrangements, and a business center and conference room. The property also has two fitness centers, a resident lounge with a kitchen and dining area, and two outdoor pools that are accessible through the rear of the management office/resident lounge and features cabanas and spas. Residents can also use the dog park at the nearby Innovation Park. Current unit amenities include a private balcony/patio, in-unit washer/dryers, and updated cabinets, countertops, and appliances that are up to—if not exceed—the market comparisons. The units showed exceptionally well at the time of DBRS Morningstar’s inspection. Per management, the property is performing at the top of the market and is able to be a consistent leader because of its strong amenities package and location. Parking is available via a surface lot and an attached garage, with 723 parking spaces at the property. Overall, the property exhibited favorable curb appeal and appeared well-maintained and in good condition.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-7 Morningstar NCF 2017 Annualized Budget Appraisal Issuer NCF NCF ($) Variance (%)
GPR ($) 10,388,840 10,421,825 10,848,693 10,458,600 10,393,896 10,393,344 -0.01
Other Income ($) 196,255 897,185 830,900 800,000 818,300 830,900 1.54
Vacancy & -7,693,962 -802,757 -650,922 -725,827 -667,808 -952,513 42.63 Concessions ($)
EGI ($) 2,891,132 10,516,253 11,028,671 10,532,773 10,544,388 10,271,731 -2.59
Expenses ($) 2,461,185 4,525,036 4,468,522 4,438,004 4,351,185 4,531,052 4.13
NOI ($) 429,947 5,991,217 6,560,149 6,094,769 6,193,203 5,740,679 -7.31
Capex ($) 0 0 0 62,400 65,728 104,000 58.23
NCF ($) 429,947 5,991,217 6,560,149 6,032,369 6,127,475 5,636,679 -8.01
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Property Analysis Criteria. The resulting DBRS Morningstar NCF was $5,636,679, representing a -8.01% variance from the Issuer’s NCF of $6,127,475. The primary drivers of the variance are vacancy and management fee. DBRS Morningstar’s 5.5% vacancy conclusion reflects the NRI for the trailing nine months ended November 2019, which is greater than the Issuer’s vacancy conclusion. DBRS Morningstar concluded a management fee of 3.00% compared with the Issuer’s 2.00%.
DBRS MORNINGSTAR VIEWPOINT DBRS Morningstar expects the property to be a stable performer over the loan term. The property benefits from its recent construction in 2017, stable market, strong amenity package, and proximity to major highways. The property’s amenity package is a draw, with in-unit washers and dryers, two fitness centers, an adjacent public park, and two pools with cabanas. In addition, there are attached garages with some units. According to Reis, the market remains strong, with sustained vacancy rates below 6.0% since 2014 and forecast rent growth of 4.4% in 2020. The property is in northern San Diego County, about 35 miles north of San Diego and nine miles east of the Pacific Ocean, near employment centers in Carlsbad and Rancho Bernardo close to I-15, which provides access to both San Diego and Orange County. The property is near Palomar College and California State University San Marcos, and, although management suggested that there are some student tenants, this is not a student housing property, and the property does not target student residents.
March 2020 22 Presale Report | FREMF 2020-K106
MARC SAN MARCOS – SAN MARCOS, CA
DOWNSIDE RISK – The loan is full-term IO, which increases its default risk at maturity.
STABILIZING FACTOR – The borrower still maintains 41.2% of the total cost basis in this transaction with $58.4 million total cash equity remaining. The loan has an LTV of 58.8%, which would help mitigate risk. In addition, the property was built in 2017 and features both common and unit amenities that are up to or above market standards.
March 2020 23 Presale Report | FREMF 2020-K106
Belvoir Square Fort Belvoir, VA
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 61.1 Loan PSF/Unit ($) 216,667 Percentage of the Pool 5.0 Loan Maturity/ARD January 2030 Amortization COLLATERAL SUMMARY 30 Years DBRS Morningstar Multifamily Year Built/Renovated 2017/N/A DBRS Morningstar DSCR (x) Property Type 1.25 City, State Fort Belvoir, VA Physical Occupancy (%) 95.4 DBRS Morningstar LTV (%) 73.5 Units 282 Physical Occupancy Date December 2019 DBRS Morningstar Balloon LTV (%) This loan is secured by the borrower’s fee-simple interest in Belvoir Square, a five-story 66.4 282-unit midrise apartment building located in Fort Belvoir, Virginia, approximately DBRS Morningstar Property Type 19.3 miles away from the Washington, D.C., CBD. Loan proceeds of $61.1 million, along Multifamily with the borrower’s cash equity of $20.4 million, were used to acquire the property for DBRS Moringstar approximately $81.4 million. The 10-year fixed-rate loan is IO for the initial 60 months Property Quality and then amortizes on a 30-year schedule thereafter. Average + Debt Stack ($ Millions) The midrise multifamily complex was built in 2017 on a 5.81-acre site, and as of the Trust Balance December 2019 rent roll, the multifamily component of the property was 95.4% 61.1 occupied. The collateral is located next to a 8,656-acre military installation that is home Pari Passu to 53 different military and government agencies and employs nearly 20,000 civilian and 0.0 military personnel. It is reported that the property has a 31.0% military concentration, B-Note made up of primarily nondeployable active-duty military. On-site amenities include a 0.0 24/7 fitness center; large lockers for delivery; a business center; bike storage; a game Mezz room; a children’s playroom; a hammock resting area; a club room featuring a fire place, 0.0 flat-screen TVs, free Wi-Fi, and a common area kitchen; and a full-service pet spa. Total Debt 61.1 In-unit amenities comprise stainless-steel appliances, granite countertops, moveable kitchen islands, full-size washers and dryers, walk-in closets, and private balconies Loan Purpose or patios. Acquisition Equity Contribution/ (Distribution) ($ Millions) The unit mix consists of 32 efficiency/studios averaging 601 sf, 172 one bedroom units 20.4 averaging 832 sf, and 78 two-bedroom units averaging 1,902 sf. Additionally, there are six commercial retail spaces, representing 11,023 sf, that were 64.4% occupied as of December 2019. Two spaces, totaling 21.1% of the total NRA, are currently occupied
March 2020 24 Presale Report | FREMF 2020-K106
BELVOIR SQUARE – FORT BELVOIR, VA
and operational; Chase Bank and Jimmy John’s. Two additional spaces, totaling 33.4% of the total NRA, are singed and currently being built out, expecting to be open spring 2020.
The appraiser identified six multifamily properties that directly compete with the subject. The subject’s in-place occupancy is in line with the occupancy rates in the competitive set. For more information, please refer to the table below.
COMPETITIVE SET
Property Location Units Year Built/Renovated Occupancy (%)
Cosmopolitan At Lorton Station 9030 Lorton Station Blvd, Lorton, VA 251 2007 97.0
Modern Tempo 5760 Dow Avenue, Alexandra VA 492 2015 95.0
Vista at Laurel Highlands 8141 Mccauley Way, Lorton, VA 300 2012 93.0
Kensington place 2264 York Drive. Woodbridge, VA 315 2015 97.0
Rivergate 13175 Marina Way, Woodbridge, VA 402 2018 92.0
The Parker 2550 Huntington Avenue, Alexandra VA 360 2016 95.0
Total/Wtd. Avg. Comp. Set Various, State 2,120 Various 94.7
Belvoir Square 9142 Richmond Hwy, Fort Belvior, VA 282 2017 95.4
SPONSORSHIP The loan’s key sponsor has over 30 years of experience in the commercial real estate business with ownership interests in 17 multifamily properties, seven commercial spaces, and five land parcels located throughout the United States. As of November 2019, the sponsor’s net worth was approximately $39.8 million and had liquidity of approximately $11.0 million. The sponsor also disclosed five single-asset retail entities that have been foreclosed under the sponsor’s control.
The property will be managed by a borrower-affiliate for 2.5% of EGI.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on February 2, 2020, at 11:00 a.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average (+).
March 2020 25 Presale Report | FREMF 2020-K106
BELVOIR SQUARE – FORT BELVOIR, VA
The collateral consists of a 282-unit garden-style apartment complex in Fort Belvoir, approximately 19.0 miles north of the Washington, D.C., CBD. The property is located two blocks from U.S. Route 1 (Richmond Highway), less than a quarter mile from Fairfax County Parkway, and three miles from I-95, all providing excellent access to the greater MSA. Located along Richmond Highway, the property is located on a highly visible intersection where Richmond Highway intersects Fairfax County Parkway. The immediate surrounding area is a mix of largely retail and some vacant land along the busy thoroughfares and residential housing on the side streets.
Constructed in 2017, the subject includes seven commercial spaces along the ground floor, which is still in lease-up. The property exterior is a mix of white-and-blue paint and red brick. The property surrounds a large interior courtyard, which has an outdoor fitness area, ample seating, and a shared grilling area. The property has 282 units consisting of 32 efficiency units (601 sf ), 172 one-bedroom units (832 sf ), and 78 two-bedroom units (1,168 sf ). DBRS Morningstar toured one model and one vacant one-bedroom unit and two vacant two-bedroom units. The units have a modern appearance with white- granite countertops, wood cabinetry, and movable granite kitchen islands. The units have high ceilings, wood flooring in the living spaces, carpeting in the bedrooms, and patios or balconies. Overall, the units were attractive and showed no signs of deferred maintenance.
Property amenities include a fitness center, a game room, a pet spa, a business center, an indoor communal kitchen and lounge area, an outdoor grilling area, an Amazon package system, and a children’s playroom. The amenities were all attractive and in line with their recent build date. The subject has ample parking with 625 surface spaces available to tenants and guests at no additional charge. Overall, DBRS Morningstar found the property to be generally well maintained and in good condition with minimal deferred maintenance evident at the time of inspection.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS Issuer NCF Morningstar NCF 2017 ($) 2018 ($) T-12 ($) Budget ($) ($) NCF ($) Variance (%)
GPR ($) 6,643,850 6,587,242 6,451,688 6,555,313 6,496,152 6,550,632 0.84
Other Income ($) 148,189 289,151 468,412 865,122 558,726 839,460 50.25
Vacancy & -5,830,893 -2,478,946 -713,084 -421,504 -435,203 -695,680 59.85 Concessions ($)
EGI ($) 961,146 4,397,447 6,207,016 6,998,931 6,619,675 6,694,412 1.13
Expenses ($) 917,999 1,895,388 2,079,797 2,187,271 2,253,255 2,342,641 3.97
NOI ($) 43,147 2,502,059 4,127,219 4,811,660 4,366,420 4,351,771 -0.34
Capex ($) 0 0 0 56,400 67,423 93,032 37.98
NCF ($) 43,147 2,502,059 4,127,219 4,755,260 4,298,997 4,258,738 -0.94
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $4,258,738, representing a -0.94% variance from the Issuer’s NCF.
The variance is minimal and attributed to a 4.0% management fee, as the management company in place is borrower affiliated with a 2.5% contractual fee.
DBRS MORNINGSTAR VIEWPOINT The collateral’s location is convenient for residents due to its location off two major thoroughfares. The property is in the Reis multifamily submarket of Southeast Fairfax County, which has vacancy of 4.3% as of Q4 2019, which improves slightly
March 2020 26 Presale Report | FREMF 2020-K106
BELVOIR SQUARE – FORT BELVOIR, VA
to 4.2% when considering the subject property and Reis’ competitive sets. The property recently stabilized in March 2019 with an occupancy level of 95.4% as of the T-12 ending Month Year. The retail space is still in lease-up as the larger focus was first placed on the multifamily position of the property. At the time of inspection, Jimmy John’s and Chase Bank were open and operational, while Smoothie King and BurgerIM were actively building out their spaces. Two additional spaces totaling over 5,000 sf were still vacant and being actively advertised.
While the subject is in an area that has developable land, there are only 315 units planned to come on line over the next five years per Reis. Management noted that the subject also had superior amenity offers to its competitive set and the surrounding multifamily options. The property is also outperforming the submarket with average rental rates of $1,935, above the submarket average rental rates of $1,732 and the submarket rates for properties of a similar vintage, which command average rental rates of $1,904. This higher rental rate has been achieved while maintaining the property’s 95.4% stabilized occupancy, demonstrating its desirability in the market.
DOWNSIDE RISKS – With an LTV at issuance of 73.5%, the subject loan exhibits high leverage and the loan includes a five-year IO period. – The local economy is highly reliant on the military bases, and the property has a high 31.0% concentration of military residences, which can pose a risk to the occupancy. The property also offers a military discount to attract such tenants. Further, the property has a corporate agreement totaling 11.7% of the units with Madison Hospitality.
STABILIZING FACTORS – The loan has partial amortization and, based on a balloon balance, has a reduced exit LTV of 66.4%, based on the current appraised value. The ownership has demonstrated a long-term commitment to the asset via a $20.4 million equity contribution to the purchase price, representing 25.1% of the total cost basis. In addition, the sponsor is well experienced, having owned over 6,500 multifamily units with a long-term hold-investment strategy. – While the subject’s military concentration is relatively high, the nearby Fort Belvoir is a vast base accommodating 26 different Department of Defense agencies, 19 different Department of the Army agencies, and eight elements of the Army National Guard and U.S. Army Reserve. The majority of tenants at the subject are nondeployable active-duty military personnel. The subject benefits from an excellent location along Baltimore Highway and Fairfax Parkway, which connects the property with the greater Alexandria and Washington, D.C., MSAs . This location and ease of access casts a wide net of potential lessors aside from military personnel.
March 2020 27 Presale Report | FREMF 2020-K106
Torrente, Park West 205, Marquis Place Pittsburgh MSA, PA Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 58.0 Loan PSF/Unit ($) 115,538 Percentage of the Pool 4.8 Loan Maturity/ARD January 2030 Amortization 30 Years DBRS Morningstar DSCR (x) COLLATERAL SUMMARY 1.18 DBRS Morningstar Multifamily Year Built 2016/2018/2013 DBRS Morningstar LTV (%) Property Type 68.7 Pittsburgh MSA, City, State Physical Occupancy (%) 91.0 DBRS Morningstar Balloon PA LTV (%) 61.8 Units 502 Physical Occupancy Date Various DBRS Morningstar Property Type The three cross-collateralized loans are secured by the borrower’s fee interest in three Multifamily garden-style multifamily properties in Pittsburgh, Pennsylvania, metropolitan area. DBRS Moringstar Property Quality The three properties are Marquis Place, Park West 205, and Torrente, which have a Average + combined total of 502 units. The loan proceeds of $58.0 million, in addition to about Debt Stack ($ Millions) $26.4 million of borrower equity, were used to acquire the three properties for a total Trust Balance purchase price of $84.4 million. The fixed-rate 10-year loans are IO for the initial 58.0 five years and amortize over a 30-year schedule thereafter. Pari Passu 0.0 B-Note 0.0 Mezz 0.0 Total Debt 58.0 Loan Purpose Acquisition Equity Contribution/ (Distribution) ($ Millions) 26.4
March 2020 28 Presale Report | FREMF 2020-K106
TORRENTE, PARK WEST 205, MARQUIS PLACE – PITTSBURGH, PA
PORTFOLIO SUMMARY
Cut-Off Date Loan Amount % of Loan Property % of Year Built/ Occupancy Property ($) Amount City, State Type Units NRA Renovated (%)
Torrente 24,370,000 42.0 Upper Saint Clair, PA Multifamily 220 43.8 2016 85.5
Park West 205 20,320,000 35.0 Pittsburgh, PA Multifamily 164 32.6 2018 95.7
Marquis Place 13,310,000 22.9 Murrysville, PA Multifamily 118 23.5 2013 99.2
Subtotal/WA 58,000,000 100.0 Various Multifamily 502 100.0 Various 91.0
Built in 2016, Torrente is a garden-style multifamily complex composed of nine three-story buildings and 220 units. Situated on a 25.4-acre site in Upper Saint Clair, Pennsylvania, the property is 12.0 miles south of the Pittsburgh CBD. The borrower plans to invest $591,000 ($2,686 per unit) in capex focusing on amenity upgrades, unit restorations, signage, exterior curb repairs, and deferred maintenance. The planned amenity upgrades include adding bike racks, a putting green, Amazon lockers, new fitness equipment, a pet park, an outdoor ping pong table, a soccer field, an interior dog wash, and clubroom refurbishments. The current tenants benefit from a variety of amenities that include a fitness center, storage lockers, covered parking, a club room, a swimming pool, and barbecue grills. The unit mix consists of 81 one-bedroom units averaging 824 sf and 139 two-bedroom units averaging 1,015 sf.
Park West 205 is a 164-unit garden style multifamily complex on a 10.1-acre site in Pittsburgh. Built in 2018, upcoming capex plans include a $444,960 ($2,713 per unit) investment in adding smart home tech packages, amenity upgrades, and deferred maintenance. The common amenities include a clubhouse, swimming pool, fire pit, outdoor grilling area, and fitness center. Each unit features stainless-steel appliances, walk-in closets, full size washer/dryer, and balconies. The unit mix consists of 93 one-bedroom units averaging 807 sf and 71 two-bedroom units averaging 1,178 sf.
Marquis Place was built in 2013 on a 20.3-acre site consisting of five three story buildings totaling 118 residential units. The garden-style multifamily complex offers common amenities including a community clubhouse, pool, fitness center, and a small putting green. In-unit amenities include stainless-steel appliances, wood cabinets with stone countertops, full-size washer/dryer. and vinyl plank flooring in the kitchen area. The borrower has plans to invest $685,913 ($5,813 per unit) in capex on amenity upgrades, granite repairs, and exterior curb repairs, among another items, within the next 12 months. There are 54 one-bedroom units, 62 two-bedroom units, and two three-bedroom units.
SPONSORSHIP The sponsor has more than 35 years of experience in real estate investment and management, owning and managing more than 200 apartment communities across the eastern United States. As of June 2019, the sponsor reported a net worth of $40 million and $15 million in liquidity. An LTV of 73.1% and a DSCR of 1.57x is a result of having a portfolio of 166 multifamily and three office buildings.
March 2020 29 Presale Report | FREMF 2020-K106
TORRENTE, PARK WEST 205, MARQUIS PLACE – PITTSBURGH, PA
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY
TORRENTE Based on the DBRS Morningstar site inspection and management meeting conducted on February 21, 2020, at approximately 11:30 a.m., DBRS Morningstar found the property quality to be Average (+).
Torrente is a low-rise residential rental community approximately 13 miles southwest of the Pittsburgh CBD within Upper Saint Clair Township, an affluent area well-known for its nationally recognized school district. More specifically, the property site is situated at the end of Boyce Plaza Road surrounded by woodlands. The immediate neighborhood features primarily institutional and office properties including the neighboring Southwood Psychiatric Hospital and a few office properties near the intersection of Boyce Plaza Road and Boyce Road. A major retail node, which includes Target, Macy’s, Whole Foods Market, Home Depot, and Kohl’s, is a 10-minute drive from the subject on Washington Road, which is a major thoroughfare that intersects with Boyce Road and leads to Pittsburgh.
The property comprises nine similar style three-story apartment buildings, a single-story leasing office and clubhouse building, and four detached garage buildings. Some apartment buildings feature attached ground-level garages and others have underground parking garages. All buildings feature a gabled roof and mix of red brick and light-colored vinyl sidings exterior façade. At the time of the DBRS Morningstar site inspection, the overall property site and building exteriors appeared well-maintained and in good condition. DBRS Morningstar toured the clubhouse and noted the fitness room, community kitchen, and lounge area are in good condition. The outdoor pool was closed for the season. The management plans to add a new dog park and playground in the near future. Additionally, DBRS Morningstar toured one vacant one- bedroom unit, one vacant two-bedroom unit, and the model suite, which is a two-bedroom unit. All units appeared spacious and exhibited functional layouts. The open concept kitchens feature dark wood cabinets, granite countertops, and stainless- steel appliances. Similar materials and color schemes were also used in bathrooms. DBRS Morningstar noted carpet floor in the living rooms and bedrooms and vinyl plank flooring throughout other area of the units. Each unit is equipped with in-suite washer and dryer.
Overall, the property site appeared well-planned and well-landscaped. The interior and exterior of the buildings were well- maintained and in good condition.
March 2020 30 Presale Report | FREMF 2020-K106
TORRENTE, PARK WEST 205, MARQUIS PLACE – PITTSBURGH, PA
PARK WEST 205 Based on the DBRS Morningstar site inspection and management meeting conducted on February 21, 2020, at approximately 1:00 p.m., DBRS Morningstar found the property quality to be Average (+).
Park West 205 comprises four contemporary style rental apartment buildings situated on a narrow manually leveled property site that sits midway of steep hillside slop on the south side of I-376 approximately 9.5 miles west of the Pittsburgh CBD and 11.0 miles southeast of Pittsburgh International Airport. The land uses in the immediate area are a mix of office properties, woodland, and vacant land parcels. Grocery stores and retail properties are generally located on the north side of I-376 within driving distance of the subject.
Built in 2018, the building façades feature a sharp color contrast of deep blue and light-grey, which make the buildings noticeable from a distance. Two of the buildings are four-story rental apartments atop a ground-level parking garage. The other two buildings, one three-story and one four-story, do not have parking garages, however, ample surface parking spaces are available. The leasing office and clubhouse, along with the fitness center, are located on the ground floor of one of the buildings with an adjacent outdoor swimming pool. According to management, a new dog park and a playground will be added in the near future. DBRS Morningstar noted the contemporary style clubhouse was well-furnished and decorated, featuring a game area with bar, a community kitchen with bar, a community dining table, and a lounge area. DBRS Morningstar toured a vacant one-, two-, and three- unit and the two-bedroom model suite. In general, the unit amenities are similar to Torrente and Marquis Place except for laminate kitchen countertops and the lack of a backsplash. However, the management plans to add backsplashes and replace the existing countertop with granite when units turn over. The exposed ductwork in the living rooms and bedrooms adds a loft feel to the interiors. According to the management, the tenants are mostly young adults who recently graduated from colleges or universities and have just started working. As management was actively marketing the property at the time of DBRS Morningstar’s site inspection, the actual occupancy level was not available. According to management, the property does not offer rent concessions or short-term rentals. The average rent has increased $100 to $200 per month since the acquisition but there has been no negative impact on occupancy.
Overall, the entire property appeared in very good condition.
MARQUIS PLACE Based on the DBRS Morningstar site inspection and management meeting conducted on February 21, 2020, at approximately 9:30 a.m., DBRS Morningstar found the property quality to be Average (+).
Marquis Place is a low-rise residential rental community approximately 20 miles east of the Pittsburgh CBD in Murrysville, Pennsylvania. Nestled within a woodland in a picturesque setting, the property site is less than half a mile south of the intersection of School Road South and William Penn Highway (also known as US Route 22), which is a major commercial arterial in Murrysville that merges with I-376 leading to the Pittsburgh CBD. The property is conveniently located within walking distance of shops and restaurants and a few minutes’ drive to various grocery stores.
The property comprises four three-story apartment buildings connected by a ring road and a centrally located single-story building that houses the leasing office and clubhouse with an outdoor pool and putting green. The building style is similar to Torrente, featuring a gabled roof and a mix of red brick and light-colored vinyl sidings exterior façade. Ample parking spaces are available either in the underground garage or along the ring road. DBRS Morningstar toured the clubhouse along with common amenities and noted the fitness room, community kitchen, and lounge area are in good condition although the décor appeared dated. According to management, the clubhouse will be redesigned and renovated in the near future. The outdoor pool was covered for the winter season. Management noted that a new dog park and a playground would be added in the near future. At the time of DBRS Morningstar’s site inspection, the property was fully occupied with the exception of the model suite. DBRS Morningstar toured a one-, two- and three-bedroom unit, as well as the two-bedroom
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TORRENTE, PARK WEST 205, MARQUIS PLACE – PITTSBURGH, PA
model suite. All unit amenities and quality are similar to Torrente including spacious units and functional layouts as well as similar materials and kitchen appliances, although the style of kitchen cabinet is slightly different from Torrente. According to management, since the acquisition, the average rent has increased by approximately $300 per month and the occupancy remained high. The property generally does not offer rent concessions or short-term rental.
Overall, the entire property site appeared well-planned and well-landscaped. The buildings were well-maintained and in good condition.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS Morningstar T-12 October 2019 ($) Issuer NCF ($) NCF ($) NCF Variance (%)
GPR ($) 8,265,730 8,329,996 8,330,380 0.00
Other Income ($) 631,904 727,620 693,829 -4.64
Vacancy & Concessions ($) -1,294,901 -852,394 -945,636 10.94
EGI ($) 7,602,733 8,205,222 8,078,573 -1.54
Expenses ($) 3,075,464 4,087,599 4,264,418 4.33
NOI ($) 4,527,269 4,117,623 3,814,155 -7.37
Capex ($) 0 120,054 131,282 9.35
NCF ($) 4,527,269 3,997,569 3,682,873 -7.87
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. DBRS Morningstar derived separate NCFs for each of these cross-collateralized properties to provide thorough analysis.
The resulting DBRS Morningstar NCF for Torrente was $1,508,212, a variance of approximately -8.0% from the Issuer’s NCF. The main drivers of the variance are vacancy, management fee, and operating expenses. DBRS Morningstar used a vacancy factor of 16.9% to reflect the monthly NRI in line with the trailing six months ended October 2019. DBRS Morningstar applied a management fee equal to 4.0% of the EGI, This is above the appraiser’s concluded management fee of 3.0%, which is the same as the budgeted management fee rate from a borrower affiliate company. Operating expenses were generally based on the appraisal’s estimates since the historical figures reflected non-stabilized property status. The DBRS Morningstar total expense ratio is approximately 55.6% as compared with the Issuer’s concluded expense ratio of 52.9% and the appraiser’s assumption of 49.0%.
The resulting DBRS Morningstar NCF for Park West 205 was $1,339,513, a variance of approximately -8.4% from the Issuer’s NCF. The main drivers of the variance are operating expenses, management fee, and vacancy. Because of the lack of operating history, DBRS Morningstar generally based operating expenses on the T-12 period ending October 2019, inflated by 3.0%. The DBRS Morningstar total expense ratio is approximately 52.9% as compared with the Issuer’s concluded expense ratio of 49.7% and the appraiser’s assumption of 48.0%. DBRS Morningstar applied a management fee equal to 4.0% of the EGI, which is above the appraiser’s concluded management fee of 3.0% and a similar rate budgeted for a borrower affiliate company. DBRS Morningstar used a vacancy factor of 16.9% to reflect the monthly NRI in line with the trailing six months ended October 2019.
The resulting DBRS Morningstar NCF for Marquis Place was $835,148, a variance of approximately -6.7% from the Issuer’s NCF. The main drivers of the variance are operating expenses and management fee. DBRS Morningstar generally based operating expenses on the borrower’s budget inflated by 6.0%. The DBRS Morningstar total expense ratio is approximately
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TORRENTE, PARK WEST 205, MARQUIS PLACE – PITTSBURGH, PA
51.0% as compared with the Issuer’s concluded expense ratio of 47.1% and the appraiser’s assumption of 44.5%. DBRS Morningstar applied a management fee equal to 4.0% of the EGI. This is above the appraiser’s concluded management fee of 3.0%, which is the same as budgeted management fee rate from a borrower affiliate company.
The combined DBRS Morningstar NCF for the portfolio was $3,682,873, a variance of -7.9% from the Issuer’s combined NCF.
DBRS MORNINGSTAR VIEWPOINT The three cross-collateralized loans are secured by three high-quality multifamily properties located in three established communities within the Pittsburgh MSA. Additionally, the properties benefit from stable submarket fundamentals evidenced by Q4 2019 vacancy of 1.2%, 4.5%, and 4.1% for Torrente, Park West 205, and Marquis Place, respectively, and the five-year average vacancy of 2.8%, 4.7%, and 4.4% for Torrente, Park West 205, and Marquis Place, respectively. Marquis Place has demonstrated strong historical occupancy of 95.0%, 96.7%, and 97.6% in 2017, 2018, and T-12 ended October 2019, respectively. As a newly constructed property in 2018, Park West 205 exhibited strong leasing momentum as evidenced by increased occupancy from 61.9% in January 2019 to 95.7% as per the November 15, 2019, rent roll. On the other hand, Torrente appears to be underperforming the market with occupancy of only 85.5% as per the November 15, 2019, rent roll, as well as historical occupancy of 56.5%, 65.4%, and 84.7% from 2017, 2018, and T-12 ended October 2019, respectively. However, the low occupancy was the result of the former owner’s on-site staff changes over the past few years, which inevitably affected leasing efforts. With the experienced and capable new ownership and management taking over, DBRS Morningstar expects the property to achieve stabilized occupancy in the next 12 months. Furthermore, the properties benefit from strong commitment from the new owner, who has invested $26.4 million in these three properties based on the combined purchase price of $84.4 million, and will invest an additional $1.8 million (or an average of $3,671 per unit on consolidated basis) in capital expenditures in the near future to upgrade the properties.
On the consolidated basis, the loan balance of $115,538 per unit is considered high for the Pittsburgh MSA where the median home value is $160,300 according to the 2018 census.
DOWNSIDE RISK – The loan is structured with a five-year IO period and exhibits elevated refinance risk as evidenced by the DBRS Morningstar maturity LTV of 61.8%.
STABILIZING FACTOR – Since the acquisition in December 2019, the new ownership/management has increased average rents from $100 to $200 per unit at Park West 205 to approximately $300 per unit at Torrente and Marquis Place while continuing to improve property occupancies, which should improve the property cash flow during the loan term. Additionally, all loans benefit from committed loan sponsor group and experienced in-house management.
March 2020 33 Presale Report | FREMF 2020-K106
210 St. Paul Denver, CO
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 50.0 Loan PSF/Unit ($) 61,7284 Percentage of the Pool 4.1 Loan Maturity/ARD October 2029 Amortization COLLATERAL SUMMARY n/a DBRS Morningstar Multifamily Year Built/Renovated 2018/N/A DBRS Morningstar DSCR (x) Property Type 1.80 City, State Denver, CO Physical Occupancy (%) 86.4 DBRS Morningstar LTV (%) 55.3 Units 81 Physical Occupancy Date December 2019 DBRS Morningstar Balloon LTV (%) This loan is secured by the borrower’s fee-simple interest in 210 St. Paul, an 81-unit 55.3 mid-rise multifamily property with 10,487 sf of ground-floor retail in the southeast DBRS Morningstar Property Type quadrant of Denver. The collateral was developed by the loan sponsor at a reported cost Multifamily basis of $69.2 million. Substantial completion was achieved in November 2018 with DBRS Moringstar stabilized occupancy reportedly achieved in September 2019. The collateral achieved Property Quality occupancy rates of 71.2%, 76.2%, 82.9%, and 91.2% over the November 2019 T-12, T-9, Above Average T-6, and T-3 periods, respectfully. The subject boasts finishes that rival most high-end Debt Stack ($ Millions) condominiums in the area, and it’s in the heart of the Cherry Creek North neighborhood, Trust Balance which is generally considered Denver’s premier retail, art, and dining district. Loan 50.0 proceeds of $50.0 million refinanced $33.8 million of existing debt on the property Pari Passu and returned $12.8 million of cash equity to the borrower, leaving $19.2 million of cash 0.0 equity remaining in the transaction as of loan closing. The 11-year fixed-rate loan is B-Note full-term IO and represents a 52.1% LTV based on the appraiser’s December 2018 value 0.0 estimate of $97.1 million. Mezz 0.0 The collateral comprises a single eight-story building occupying a nearly 0.6-acre site. Total Debt 50.0 The subject’s unit mix includes 34 one-bedroom units averaging 927 sf, 40 two-bedroom units averaging 1,545 sf, and seven, three-bedroom units averaging 2,075 sf. Per the Loan Purpose September 2019 rent roll, the subject’s one-, two-, and three-bedroom units were Refinance achieving average monthly rental rates of $3,057, $6,350, and $9,752, respectfully. Equity Contribution/ (Distribution) ($ Millions) Property-wide amenities include a rooftop deck with a swimming pool, hot tub, private (12.8) cabanas, and barbeque area, a fitness center, a coffee bar, a pet spa, storage lockers, and bike storage. The subject also features 134 garage parking spaces, representing an aggregate parking ratio of 1.65 spaces per unit. The subject’s unit finishes include stainless-steel Bosch kitchen appliances, wine refrigerators, wood cabinetry, in-unit
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210 ST. PAUL – DENVER, CO
washer and dryer units, walk-in closets, heated master bathroom floors, and private balconies. Several units also feature mountain views.
COMPETITIVE SET
Distance from Subject Year Built/ Avg. Rent/ Occupancy Property Location (Miles) Units Renovated Unit ($) (%)
Coda Denver, CO 0.1 182 2016 2,710 87.0
Steele Creek Denver, CO 0.2 219 2015 4,087 92.0
Gables Speer Boulevard Denver, CO 1.8 210 2016 2,005 95.0
The Acoma Denver, CO 2.0 223 2009 3,205 94.0
1000 Speer by Windsor Denver, CO 2.0 224 2015 2,736 95.0
Platform at Union Station Denver, CO 4.0 287 2014 2,662 95.0
The Confluence Denver, CO 4.0 287 2017 3,301 59.0
Union Denver Denver, CO 4.0 579 2017 2,605 62.0
Total/WA Comp. Set Various, State Various 2,211 Various 2,875 80.6
210 St. Paul Denver, CO n/a 81 2018 5,079 86.4
Source: Appraisal, except the subject figures are based on the rent roll dated December 31, 2019.
The appraisal identified eight competitive properties with occupancy rates generally ranging from 59.0% to 95.0% and an average year built of 2015. The collateral is the newest of its identified competitive set and, per management, generally represents the highest-end product of its competitive set with average rents in excess of any identified competitor. Per management, the subject’s primary competitors are Steele Creek because of its price point and proximity and Coda, though management noted that Coda’s finishes are far from the quality of the subject’s. Reis identified 11 comparable properties within a one-mile radius of the collateral, reporting an average vacancy rate and asking rent of 10.1% and $2,845, respectfully, as of Q4 2019. Per Reis, the average comp set vacancy rate has generally declined over the three-year period ended Q4 2019, though the reported 10.1% vacancy comp set vacancy rate reported over Q4 2019 represents an increase over the year-to- date average of 7.9%. Per Reis, the collateral’s Denver-Central submarket averaged 5.8% vacancy over the five-year period ended December 31, 2019. However, submarket vacancy rates are forecast to average 8.0% over the five-year period ending December 31, 2024, and rise as high as 9.3% in 2020 when 1,512 units are estimated for delivery.
SPONSORSHIP The borrower for this transaction is a single-purpose Delaware limited-liability company. The sponsors and nonrecourse carve-out guarantors are founding partners of an investment and management company and repeat Freddie Mac borrowers, having completed 15 transactions totaling more than $500.0 million in securitized debt since 2015. Of the two guarantors, one reported ownership in 27 properties (13 of which are multifamily and are in Colorado), while the other reported ownership interests in 19 properties (11 of which are multifamily and in Colorado). All prior Freddie Mac loans to the borrowers have, to date, paid as agreed.
The property is managed by a borrower-affiliated management company for a contractual rate equal to 2.5% of EGI. The property manager reported management interests in 6,500 units, including 4,000 units in the area.
March 2020 35 Presale Report | FREMF 2020-K106
210 ST. PAUL – DENVER, CO
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of 210 St. Paul on Tuesday, February 18, 2020. Based on the guided management tour, DBRS Morningstar found the property quality to be Above Average.
The property is improved with a 81-unit Class A, luxury, mid-rise multifamily complex featuring 10,487 sf of ground-floor retail and 134 garage parking spaces. The subject is on at the intersection of St. Paul Street and East 2nd Avenue in the Cherry Creek neighborhood of Denver’s southeast quadrant, approximately 4.0 miles southeast of the Downtown Denver CBD. Cherry Creek is generally considered to be the Denver’s premier retail and dining district, anchored by the Cherry Creek Shopping center just a few blocks south of the collateral. As such, the immediate surrounding area is predominantly commercial in nature, offering a dense concentration of luxury retailers and established restaurant offerings within immediate proximity of the collateral. Outside of the immediately surrounding commercial development that comprises the Cherry Creek shopping and dining district, the Cherry Creek North neighborhood is improved with high-end residential housing and only a limited supply of comparable luxury multifamily properties, including the subject’s primary competitor Steele Creek. The collateral exhibited favorable curb appeal at the time of DBRS Morningstar’s inspection, with generally favorable foot traffic generated for the ground-floor retail space.
Per management, the collateral was approximately 95.1% occupied at the time of DBRS Morningstar’s inspection with concessions being offered in the form of one month’s free rent. Management identified the subject’s primary competitors to be Steele Creek because of its price point and proximity and Coda, though management noted that Coda’s finishes are far from the quality of the subject’s. Management was unaware of any directly competitive new supply under construction in the Cherry Creek North neighborhood, though DBRS Morningstar noted a near-complete extension of the subject property being completed by the sponsor for this transaction across East 2nd Avenue from the collateral. Management indicated that the collateral additionally competes in the luxury condominium space given its price point but offers greater convenience compared with home ownership for its multifamily tenants.
The collateral comprises a single eight-story building with a concrete and brick veneer exterior façade accentuated by glass- wrapped balconies and cornering. The subject’s ground-floor is leased to a luxury home-furnishing store (Euromarket Designs, Inc.; a.k.a. CB2). The storefront is wrapped in glass and features entrances along both St. Paul Street and East 2nd Avenue. The residential lobby is accessible along St. Paul Street, though drive-up access and parking is accessible through an alley on the back side of the building that dead ends at a covered brick-paved drop-off area. The subject’s double-height lobby featured modern wood-panel walls with copper accents and a reception/security desk. Property amenities include a rooftop deck with a swimming pool and hot tub area, private cabanas, barbeque areas and mountain views, a tenant lounge
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210 ST. PAUL – DENVER, CO
with several seating arrangements, a coffee bar and a full kitchen, a fitness center, and package lockers in the downstairs mail room. DBRS Morningstar toured two units, both of which generally featured wood-plank flooring throughout all common spaces with carpeted bedrooms, stainless steel Bosch kitchen appliances, wine fridges, private patio areas, white kitchen countertops, upgraded kitchen cabinetry, walk-in closets with built-in storage, in-unit washer and dryers, and master bathrooms equipped with heated marble floors and separate Jacuzzi bathtubs and glass-wrapped showers. Overall, the property showed well and appeared exceptionally well-maintained at the time of DBRS Morningstar’s inspection.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS Morningstar NCF 2016 T-6 Budget Appraisal Issuer NCF NCF ($) Variance (%)
GPR ($) 4,952,567 4,949,987 5,240,636 5,122,739 5,114,232 5,114,232 0.00
Other Income ($) 1,084,099 1,122,241 992,842 983,387 983,387 981,656 -0.18
Vacancy & -712,100 -692,473 -277,032 -307,364 -947,101 -912,647 -3.64 Concessions ($)
EGI ($) 5,324,566 5,379,755 5,956,446 5,798,762 5,150,518 5,183,241 0.64
Expenses ($) 1,415,863 1,276,361 1,023,927 1,039,174 1,053,106 1,298,041 23.26
NOI ($) 3,908,703 4,103,394 4,932,519 4,759,588 4,097,412 3,885,201 -5.18
Capex ($) 26,810 26,810 20,250 24,300 26,799 48,680 81.65
NCF ($) 3,881,893 4,076,584 4,912,269 4,735,288 4,070,612 3,836,521 -5.75
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Property Analysis Criteria. The resulting DBRS Morningstar NCF was $3,836,521, representing a -5.8% variance to the Issuer’s NCF of $4,070,612. The primary drivers of the variance included operating expenses, commercial vacancy, and management fees.
DBRS Morningstar generally estimated operating expenses by inflated the collateral’s T-6 expenses 3.0%. By contrast, the Issuer estimated operating expenses on a blend of the appraiser’s estimate and the borrower’s 2019 budget. DBRS Morningstar estimated a 10.0% commercial vacancy loss at the property, while the Issuer did not estimate any commercial vacancy loss. DBRS Morningstar also applied management fees equal to 3.0% of EGI, while the Issuer estimated management fees equal to 2.2% of EGI.
DBRS MORNINGSTAR VIEWPOINT The collateral is favorably situated in the heart of Denver’s Cherry Creek North neighborhood, near several of Denver’s premier retail and dining destinations. Cherry Creek is generally considered to be one of Denver’s highest-income areas with an average household income of more than $160,000 within a one-mile radius of the collateral per the appraisal. While Reis forecasts more than 1,500 units to be delivered in the collateral’s submarket in 2020 alone, the immediate area is generally built-out with management unaware of any directly competitive new supply under construction in the Cherry Creek North commercial grid where the collateral is located (except for the sponsor’s extension of the subject directly across the street). The collateral benefits from superior interior finishes and amenities, evidenced by the DBRS Morningstar Above Average property quality, but demands significantly higher-than-market rents as a result. Additionally, management indicated that the subject features a concentration of tenants who lease units at the property as second or even third homes, which could increase the subject’s vulnerability to vacancy increases in times of economic downturns. Fortunately, the whole loan balance of $50.0 million represents a relatively low LTV of 52.1% based on the appraised value or 55.3% based on DBRS Morningstar value, which is generally indicative of healthy-leverage financing. Furthermore, the
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210 ST. PAUL – DENVER, CO
DBRS Morningstar NCF represents a favorable DSCR of 1.80x and, holding all else constant, a break-even occupancy of only 52.0%.
DOWNSIDE RISKS – The loan is full-term IO and returns approximately $12.8 million of cash equity to the borrower. – The property only recently stabilized in September 2019 with limited operating history prior to securitization.
STABILIZING FACTORS – The transaction represents low-leverage financing, as evidenced by a relatively low issuance LTV of 52.1% based on the appraised value or 55.3% based on DBRS Morningstar value. Additionally, the borrower retained $19.2 million of cash equity in the asset as of loan closing, evidencing significant sponsor investment to the ongoing performance of the subject. – The subject was reportedly 95.1% occupied at the time of DBRS Morningstar’s inspection in February 2020. Furthermore, the DBRS Morningstar NCF inflates operating expenses over the actuals reported and, holding all else constant, represents a favorably low break-even occupancy of only 52.0%.
March 2020 38 Presale Report | FREMF 2020-K106
The Muse Dallas, TX
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 49.8 Loan PSF/Unit ($) 61,928 Percentage of the Pool 4.1 Loan Maturity/ARD August 2028 Amortization COLLATERAL SUMMARY 30 Years DBRS Morningstar Multifamily Year Built/Renovated 1966/2018 DBRS Morningstar DSCR (x) Property Type 1.16 City, State Dallas, TX Physical Occupancy (%) 90.0 DBRS Morningstar LTV (%) 76.6 Units 804 Physical Occupancy Date December 2019 DBRS Morningstar Balloon LTV (%) This loan is secured by the borrower’s fee simple interest in The Muse, an 804-unit 69.9 garden-style multifamily property approximately 10 miles southwest of the Dallas DBRS Morningstar Property Type CBD. The collateral was originally constructed in 1966 and was renovated in 2018 Multifamily with $8.6 million ($10,801 per unit) in capital improvements from the sponsor. This DBRS Moringstar included exterior and common area improvements worth $5.7 million, with upgrades Property Quality to the office, fitness center, building exteriors, landscaping, security features, and the Average interiors, including new paint, flooring, backsplashes, appliances, and more, worth Debt Stack ($ Millions) $3.0 million ($3,742 per unit). Approximately 500 of the 804 units have been renovated. Trust Balance Loan proceeds of $49.8 million went toward refinancing existing debt of $32.5 million, 49.8 distributing $14.6 million of cash equity to the borrower, and cover closing costs of Pari Passu $2.6 million. The borrower has no remaining cash equity in the collateral. The 10-year 0.0 loan includes a five-year initial IO period and will amortize on a 30-year basis thereafter. B-Note Whole loan proceeds of $49.9 million represent a cutoff date LTV of 76.6%. 0.0 Mezz The property comprises 100 two-story buildings covering a span of almost 44 acres. The 0.0 unit mix consists of 22 efficiency/studio units, 233 one-bedroom units, 369 two-bedroom Total Debt 49.8 units, and 180 three-bedroom units, commanding an average rent of $891 per unit per month across the unit types. There are 68 tenants at the property that used Section 8 Loan Purpose low-income housing vouchers at the property as of June 2018, with these units being Refinance in similar quality to the rest of the property. The renovated units command a rent Equity Contribution/ (Distribution) ($ Millions) premium of $131 per unit per month. Propertywide amenities include a business center (14.6) and a fitness center. As of December 2019, the occupancy at the property is 90.0%.
March 2020 39 Presale Report | FREMF 2020-K106
THE MUSE – DALLAS, TX
COMPETITIVE SET
Avg. Unit Size Property Location Units Year Built Occupancy (%) (SF)
Casa Feliz Apartments Dallas, TX 161 1962 90.0 819
Estrella at Keist (ABP) Dallas, TX 232 1968 84.0 889
Highland Road Village Dallas, TX 332 1968 95.0 940
Park Creek Manor Dallas, TX 332 1964 98.0 792
Westridge Dallas, TX 124 1964 91.0 870
Total/Wtd. Avg. Comp. Set Various, State 1,181 Various 92.6 865
The Muse Dallas, TX 804 1966 90.0 926
Source: Appraisal, except the Subject figures are based on the rent roll dated month December, 2019.
The appraisal identified five competitive properties with occupancy rates ranging from 84% to 98% and an average year built of 1965. The competitive properties are all significantly smaller than the collateral in terms of the number of units, with the most units being 332 compared with the property’s 804. Reis identified 10 comparable multifamily properties within a four-mile radius of the collateral. The Reis-identified comparable properties exhibited an average rent of $925 per unit per month, which is approximately 4% above the average rent at the property.
SPONSORSHIP The sponsor for this transaction is a private real estate investment company that reports ownership interest in 29 multifamily properties totaling 11,432 units all within the Dallas-Fort Worth MSA. The transaction features two guarantors who are repeat Freddie borrowers, closing six transactions for approximately $180 million since 2017, all performing as agreed. The property manager is a borrower-affiliated company that manages 30 multifamily properties totaling 11,725 units for a contractual management fee of 3.5% of the EGI.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on Tuesday, February 18, 2020, at 4:30 p.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average.
The collateral is an 804-unit garden-style multifamily community approximately 10 miles southwest of the Dallas CBD. The property is off West Kiest Boulevard, an offshoot of I-35E, a north-south arterial roadway that provides direct access to the
March 2020 40 Presale Report | FREMF 2020-K106
THE MUSE – DALLAS, TX
Dallas CBD. The surrounding land use consists of single-family residential and some multifamily. Furthermore, bordering the property are the Oak Cliff Nature Preserve and the Briar Gate Park, a public park directly across from the property that has a basketball court and a playground. Per management, location is a demand driver for the property thanks to several nearby industrial warehouses and local businesses, which also draw demand as far as Arlington and Irving. Furthermore, management indicated that the property consists of mostly blue-collar workers, with a 5.0% student concentration because of its proximity to Mountain View College. Even though there have been crime reports in the area, management said that there have been no crime or security related issues at the property after renovation, because of courtesy security officers at the property.
At the time of inspection, management indicated that the collateral was approximately 90% occupied but noted that occupancy in the summer months usually is around 94% to 95%. Management indicated that the property’s primary competitor is Westwood Apartments, which is less than a half mile northwest. Per management, Westwood Apartments has utilities as an additional billed item, while the collateral has utilities included in the total rent, which is a selling factor. Management was unaware of any competitive properties under construction at the time of the DBRS Morningstar inspection.
The collateral features 100 garden-style multifamily buildings with a mix of efficiency, one-bedroom, two-bedroom, and three-bedroom units. Some buildings have interior courtyards with a grass area, with patios leading into the courtyard. The buildings consist of a white brick exterior on the edges of the buildings, with gray painted stone and gray shingled areas surrounding the windows. In between the two stories is a colorful shingled area (orange, blue, red, etc.) that represents which color block the building is in, such as the Cobalt or Vermillion buildings, that helps denote where the building is located within the collateral. Management indicated that approximately 500 units received upgrades to a higher level of finish following the renovations one year ago. The most recent upgrades included changing the flooring to an oak-brown wooden floor, updating kitchen appliances to black appliances, adding mosaic backsplashes, and renovating the exterior and leasing office. The nonrenovated units had a dated look and feel, with worn flooring and outdated kitchens. The renovations provide an improved feel to the property. It has a positive curb appeal; however, walking through the property, DBRS Morningstar observed trash in the grass areas outside the buildings, and management indicated that even though there are maintenance personnel picking up trash throughout the day, it is hard to keep the trash contained. The leasing office had a very modern feel and showed well, with a fitness and business center above the leasing office. Overall, the property buildings showed well for the area; however, there was some litter and areas where the landscaping could have been improved, both of which could give prospective tenants a negative impression.
March 2020 41 Presale Report | FREMF 2020-K106
THE MUSE – DALLAS, TX
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-12 September Morningstar NCF 2017 ($) 2018 ($) 2019 ($) Issuer NCF ($) NCF ($) Variance (%)
GPR ($) 6,182,007 8,591,900 9,196,142 8,594,981 9,300,672 8.21
Other Income ($) 476,194 341,178 630,107 354,232 383,121 8.16
Vacancy & -1,517,600 -1,206,908 -871,590 -552,442 -976,207 76.71 Concessions ($)
EGI ($) 5,140,601 7,726,170 8,954,659 8,396,771 8,707,586 3.70
Expenses ($) 3,718,312 4,752,633 4,915,573 4,480,741 5,066,810 13.08
NOI ($) 1,422,289 2,973,537 4,039,086 3,916,030 3,640,776 -7.03
Capex ($) 0 0 0 201,804 201,804 0.00
NCF ($) 1,422,289 2,973,537 4,039,086 3,714,226 3,438,972 -7.41
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $3,438,972, representing a -7.4% variance from the Issuer’s NCF of $3,714,226. The primary drivers of the variance included the operating expense and vacancy assumptions.
DBRS Morningstar estimated a 8.3% residential vacancy loss compared with the Issuer’s estimated 5.0% residential vacancy loss. DBRS Morningstar’s estimated vacancy resulted in a residential NRI generally in line with the amount for the trailing nine-month period per the rent roll from September 2019. The DBRS Morningstar assumption was additionally supported by an approximate average residential vacancy of 8.0% for the appraiser’s competitive properties. For operating expenses, the second driver of the variance, DBRS Morningstar assumed the expenses at the year-end 2019 level inflated by 3%, while the Issuer generally based operating expenses on the T-12 expenses ended June 2018.
DBRS MORNINGSTAR VIEWPOINT The collateral for this transaction is well located with easy access to the Dallas CBD. The Dallas market has had significant growth in recent times because of corporate expansions in the market, increasing the demand for apartments. The property’s recent renovations of $8.6 million ($10,801 per unit) definitely aided in its appeal, with better finishes and an improved property quality. The renovations were able to help the property achieve rent premiums that averaged $131 on renovated units, exhibiting upside from the sponsor’s investment. The appraiser determined an as-is value that is 103.1% greater than the March 2017 purchase price, indicating the strength of the sponsor’s investment in terms of increasing the property’s value. The tenants at the property tend to be blue-collar workers, which could expose the property to stress during an economic downturn. However, the renovations have made it more attractive than comparables in the area, and unrenovated properties may be more susceptible. The litter that was strewn about the property impaired the curb appeal somewhat, and this may need to be the sponsor’s focus to bring in prospective tenants. With rents below the average of the appraiser’s identified competitive properties, additional renovations could bring upside to the property’s rents. The loan has an issuance LTV of 76.6%, which DBRS Morningstar considers to be high and in a range that is consistent with elevated default risk
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THE MUSE – DALLAS, TX
DOWNSIDE RISKS – The sponsor is cashing out approximately $14.6 million as part of this transaction and has no remaining cash equity in the property. – The loan is partial IO, as it includes an initial five-year IO period. DBRS Morningstar generally considers partial IO loans to exhibit higher default risk than either full-term IO or full-term amortizing loans.
STABILIZING FACTORS – The borrower has completed $8.6 million of capital improvements at the property that have increased the as-is value to be 103.1% greater than the March 2017 purchase price. – The borrower has renovated more than 60% of the property’s units, resulting in an NOI increase of 155% since the borrower acquired the property. This is also mitigated by an IO DSCR of 1.57x.
March 2020 43 Presale Report | FREMF 2020-K106
Springhouse Apartment Homes Newport News, VA
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 41.7 Loan PSF/Unit ($) 96,528 Percentage of the Pool 3.4 Loan Maturity/ARD January 2030 Amortization COLLATERAL SUMMARY 30 Years DBRS Morningstar Multifamily Year Built/Renovated 1985/2020 DBRS Morningstar DSCR (x) Property Type 1.21 City, State Newport News, VA Physical Occupancy (%) 91.9 DBRS Morningstar LTV (%) 75.4 Units 432 Physical Occupancy Date January 2020 DBRS Morningstar Balloon LTV (%) The loan is secured by the borrower’s fee-simple interest in a 432-unit garden-style 68.0 multifamily complex in Newport News, Virginia. The 10-year fixed-rate loan is IO DBRS Morningstar Property Type for the first five years before it amortizes over a 30-year schedule. Loan proceeds Multifamily of approximately $41.7 million and borrower equity of $12.4 million facilitated the DBRS Moringstar $54.1 million acquisition of the property. Built in 1985 and renovated from 2017 to 2020, Property Quality the 23-building complex was 91.9% occupied as of January 2020. Average Debt Stack ($ Millions) The property is on a 28.83-acre site. Propertywide amenities include a community pool, Trust Balance tennis court, playground, fitness center, dog park, clubhouse lounge, and an outdoor 41.7 lounge area. The unit breakdown consists of 192 one-bedroom units (563 sf ) and Pari Passu 240 two-bedroom units (1,067 sf ), which are generally similar in size to comparable 0.0 properties in the surrounding area. The prior owners invested over $3.8 million into B-Note the property from 2017 until the sponsor purchased the property. Improvements 0.0 included painting and siding, roofing, LED lighting, parking lot repairs, HVAC, pool Mezz structure, and interior unit renovations for 228 units, consisting of updated dark-wood 0.0 cabinetry, black or stainless-steel appliances, and some combination of newer flooring Total Debt 41.7 and updated hardware. The sponsor plans to spend an additional $4.5 million, of which $2.6 million will be allocated to complete in-unit renovations of the remaining 204 units. Loan Purpose These “platinum” labeled units, which the sponsor expects will achieve $200 rent Acquisition premiums, will feature stainless-steel appliances, granite countertops, backsplashes, Equity Contribution/ (Distribution) ($ Millions) new carpeting, new vinyl and wood flooring, and updated hardware. According to the 12.4 January 2020 rent roll, the average rent per unit was $988 per month, which is slightly higher than the Reis Q4 2019 submarket average of $976 but less than the appraiser’s comparable average of $1,069.
March 2020 44 Presale Report | FREMF 2020-K106
SPRINGHOUSE APARTMENT HOMES – NEWPORT NEWS, VA
The appraisal identified five multifamily properties in the local market that directly compete with the subject. For more information, please refer to the table below.
COMPETITIVE SET
Distance Avg. Rental Avg. Unit from Subject Year Built/ Occupancy Rate Per Size Property Location (Miles) Units Renovated (%) Unit ($)* (SF)*
Woodscape Apartments Newport News, VA 2.1 296 1976/N/A 97.0 1,075 1,035
Chelsea at Lee Hall Newport News, VA 6.8 223 1974/N/A 98.0 1,011 1,033
Chesapeake Bay Apartments Newport News, VA 4.8 300 1987/N/A 99.0 1,166 825
River Mews Newport News, VA 4.1 645 1985/N/A 96.0 1,009 1,010
Forest Lake at Oyster Point Newport News, VA 4.0 296 1988/N/A 96.0 1,138 1,022
Total/WA. Comp. Set Newport News, VA Various 1,760 Various 96.9 1,069 988
Springhouse Apartment Homes Newport News, VA n/a 432 1985/2020 91.9 988 733
*Source: Appraisal (December 2019), except the subject figures are based on the rent roll dated January 31, 2020.
SPONSORSHIP The borrower is a two-member TIC. One is a private firm focused on stable income-producing multifamily assets in emerging U.S. markets and the other is a firm that specializes in multifamily acquisitions, property management, and construction. Both have founders and teams with extensive experience in all real estate asset types with a current portfolio of more than 386 residential and commercial properties nationwide with a reported value of more than $8 billion.
The two sponsors have had minor credit issues or litigation in the past, but both have been vetted by Freddie Mac. Both parties are repeat Freddie Mac sponsors and all loans have paid as agreed. Additionally, the two firms partnered on six deals before and the combined sponsors and guarantors have adequate net worth and liquidity measures.
Property management is provided by a borrower-controlled company for a contractual management fee of 3.0% EGI. The company oversees the management of 70,000 multifamily units across 20 states.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on Tuesday, February 25, 2020, at 12:00 p.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average.
March 2020 45 Presale Report | FREMF 2020-K106
SPRINGHOUSE APARTMENT HOMES – NEWPORT NEWS, VA
Located on Springhouse Way in the Newport News submarket in the Norfolk/Virginia Beach/Hampton Roads MSA, the property can be accessed from Jefferson Avenue/Route 143, a primary commercial thoroughfare in Newport News. Jefferson Avenue has an interchange with I-64 two miles south of the property and the Newport News/Williamsburg National Airport is located 1.2 miles to the west.
Jefferson Avenue offers a variety of retail and commercial uses just south of the property including the Patrick Henry Mall, Jefferson Commons power center, and Yoder Plaza Center, which feature a plethora of retail and restaurants including Costco, Walmart, Sam’s Club, Best Buy, Trader Joe’s, Buffalo Wild Wings, and a number of auto dealerships. The MSA has a strong military and shipbuilding presence including Naval Station Norfolk, Joint Base Langley-Eustis, and a NATO command. The area has also been a growing hub for data centers and other industries.
There are a number of multifamily and single-family residential properties in the surrounding area. However, management indicated that the newer mid-rise apartment developments south of Jefferson Commons such as Radius and Tech Center do not compete directly with the subject, given its garden-style layout.
There was no visible deferred maintenance at the time of DBRS Morningstar’s visit, but management indicated that the area was prone to heavy rainfall given its coastal location, which poses a risk to budgeting repairs and maintenance. Management also indicated that the tennis court would be converted to an outdoor lounge area with fire pits and pickleball, and one item on management’s wishlist was to upgrade all exterior windows, which would bolster curb appeal of the property.
On the day of the site inspection, the property was 89.4% occupied, according to management, slightly lower than the January 2020 rent roll. The sponsor plans to rename the 228 already renovated units as “middle tier” units and to renovate the remaining 204 “classic” units into “platinum” units. At the time of the site visit, there was only one remaining classic unit left that just vacated to be converted to the new platinum style. DBRS Morningstar saw the one remaining classic unit, one middle tier unit renovated by the old owner, and a model unit that featured the platinum tier. The middle tier unit had a spacious living room with a fireplace, black appliances, dark wood cabinetry, and new carpeting. The model platinum unit seen had new wood flooring, stainless-steel appliances, white wood cabinetry, and grey granite countertops with a kitchen island style layout.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
T-12 DBRS NCF September Morningstar Variance 2017 ($) 2018 ($) 2019 ($) Appraisal ($) Issuer NCF ($) NCF ($) (%)
GPR ($) 4,710,302 4,930,637 5,077,479 5,259,648 5,147,218 5,147,218 0.00
Other Income ($) 446,206 491,011 552,088 530,496 552,088 552,088 0.00
Vacancy & -872,616 -488,971 -387,830 -401,627 -444,908 -457,569 2.85 Concessions ($)
EGI ($) 4,283,892 4,932,677 5,241,737 5,388,517 5,254,397 5,241,737 -0.24
Expenses ($) 1,924,955 2,190,821 2,091,887 2,202,956 2,272,544 2,389,657 5.15
NOI ($) 2,358,937 2,741,856 3,149,850 3,185,561 2,981,853 2,852,080 -4.35
Capex ($) 0 0 0 108,000 108,000 108,000 0.00
NCF ($) 2,358,937 2,741,856 3,149,850 3,077,561 2,873,853 2,744,080 -4.52
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,744,080, representing a -4.5% variance from the Issuer’s NCF of
March 2020 46 Presale Report | FREMF 2020-K106
SPRINGHOUSE APARTMENT HOMES – NEWPORT NEWS, VA
$2,873,853. The primary drivers of variance were management fees and repairs and maintenance. DBRS Morningstar concluded to 4.0% management fee and repairs and maintenance to a T-12 level inflated by 3%, recognizing the resulting expense ratio of 45.6% is higher than historical figures at the property but slightly below nearby DBRS Viewpoint comparable multifamily properties that were securitized in past Freddie deals, of which can be viewed on DBRS Viewpoint.
DBRS MORNINGSTAR VIEWPOINT The property is well located off Jefferson Avenue with good access to major freeways and thoroughfares in the Newport News submarket, making it an attractive option for professionals working in the area’s offices and military institutions. While the area won’t attract tourists like Williamsburg to the north or Virginia Beach to the south, it offers a good local place to reside. Jefferson Commons and the Patrick Henry Mall located just south of the subject both underwent recent renovations that bolster a strong arsenal of retail and restaurant options benefiting the area. The subject also benefits being 1.2 miles away from the Newport News/Williamsburg International Airport to the east. Property management during the site inspection was confident that the interior platinum unit renovations will garner a premium rent by attracting tenants seeking to live in a comfortable community-style living place.
DOWNSIDE RISKS – The loan is IO for the first five years of the loan term. – The ownership structure is composed of a two-member TIC. – The property has a 26% military concentration.
STABILIZING FACTORS – The loan is mitigated by $12.4 million of cash equity. Additionally, NOI has grown 33.5% from 2017 to the T-12 ended September 30, 2019. – The risk of the TIC structure is mitigated by the fact that the guarantors have interest in each TIC. – The area has been positioned with military commands for years. Together, the nearby Langley Air Force Base/Fort Eustis base provides installation support to more than 9,000 military and civilian personnel and is the headquarters of the U.S. Air Combat Command and the U.S. Army Training and Doctrine Command. A $1.3 trillion omnibus bill was passed in March 2019 that will benefit the MSA as it provides the U.S. Navy an extra $3.4 billion for shipbuilding, supporting the region’s shipyards. There is a high-speed TransAtlantic fiber-optic cable connecting the region to Europe, and an additional cable that was added in 2018 between the region and Brazil. These cables will aid the area in transforming into a data center hub and give it status as a global telecommunications hub on the East Coast providing reliable connectivity options to data centers, which should support demand for housing in the area for years to come.
March 2020 47 Presale Report | FREMF 2020-K106
Las Palmas Fullerton, CA
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 40.0 Loan PSF/Unit ($) 154,436 Percentage of the Pool 3.3 Loan Maturity/ARD January 2030 Amortization COLLATERAL SUMMARY n/a DBRS Morningstar Mutlifamily Year Built/Renovated 1990/N/A DBRS Morningstar DSCR (x) Property Type 1.78 City, State Fullerton, CA Physical Occupancy (%) 96.1 DBRS Morningstar LTV (%) 63.5 Units 259 Physical Occupancy Date December 2019 DBRS Morningstar Balloon LTV (%) The loan is secured by the borrowers’ leashold interest in Las Palmas, a 259-unit, 63.5 Class B, garden-style multifamily complex in Fullerton, California, 31.4 miles east of DBRS Morningstar Property Type Los Angeles. Loan proceeds of $40.0 million went toward refinancing $24.4 million Multifamily in existing debt and distributing $13.3 million in equity to the borrowers. The 10-year DBRS Moringstar fixed-rate loan is IO for the full term. Property Quality Average Constructed in 1990, the property has 26, two-story buildings. Common area amenities Debt Stack ($ Millions) include a swimming pool, spa, barbecue area, clubhouse, fitness center, laundry Trust Balance facility, and business center. Unit amenities include laminate-wood cabinets, Formica 40.0 countertops, in-unit washer/dryer connections and a patio/balcony. Pari Passu ($) 0.0 The borrowers plan to invest $6,094,175 in capital improvements, which will include B-Note interior and exterior renovations, clubhouse and fitness center upgrades, pool and 0.0 common area improvements, and deferred maintenance. This capital improvement Mezz plan will be taking place over the next 24 months. 0.0 Total Debt 40.0 As of the December 31, 2019, rent roll, the property had a physical occupancy rate of 96.1% across a unit mix consisting of 166 one-bedroom apartments and 93 two-bedroom Loan Purpose apartments. The average monthly rental rate of a one-bedroom unit is $1,793, and the Refinance average of a two-bedroom unit is $2,105. The property’s average in-place rental rate Equity Contribution/ (Distribution) ($ Millions) of $1,905 per unit is above the market compared with the Reis submarket average of (13.3) $1,769 per unit.
March 2020 48 Presale Report | FREMF 2020-K106
LAS PALMAS – FULLERTON, CA
COMPETITIVE SET
Distance Avg. Rental from Subject Occupancy Rate Per Unit Property Location (Miles) Units Year Built (%) ($)
Amerige Pointe Apartments Fullerton, CA 1.0 292 2003 96.0 2,500
Uptown Fullerton Fullerton, CA 2.0 421 1971 98.0 2,140
Sedona Apartments Placentia, CA 0.3 240 1989 94.0 2,065
Pinnacle at Fullerton Fullerton, CA 0.5 192 2003 98.0 1,943
City Pointe Apartments Fullerton, CA 4.0 183 2004 97.0 2,200
Wilshire Promenade Fullerton, CA 8.0 149 1991 9,6.0 2268
Total/Wtd. Avg. Comp. Set Various, State Various 1,477 Various 96.6 2,194
Las Palmas Fullerton, CA n/a 259 1990 96.1 1,905
SPONSORSHIP The borrowers are three newly formed, single-purpose, limited liability companies.
The guarantors are repeat Freddie Mac guarantors and have loans that performed as agreed.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on Tuesday, February 18, 2020, at 12:00 p.m. Based on the site inspection. DBRS Morningstar found the property quality to be Average.
The property is approximately 31 miles east of the Los Angeles CBD, on Associated Road, just off State Route 57, a north- south roadway that leads to I-5 and I-10. The surrounding area consists of apartment complexes, retail complexes, and the California State University, Fullerton campus. Per management, the property’s proximity to the university as well as its central location in Orange County are the major demand drivers.
The apartment buildings featured white painted exteriors, which appeared in good condition, and the property overall had average curb appeal. The property is undergoing renovations to most of the units to upgrade both the exteriors and interiors. On the day of the site inspection, the grounds were under construction and workers were repainting the exterior walls.
March 2020 49 Presale Report | FREMF 2020-K106
LAS PALMAS – FULLERTON, CA
An on-site management and leasing office doubles as the resident clubhouse and it features double-height ceilings, a fireplace, and contemporary furniture and seating arrangements. The outdoor pool is accessible through the rear of the clubhouse and has a barbecue area. The interior renovations include an upgraded appliances package and flooring. Parking is available via a surface lot, carport, and attached garage, with 463 parking spaces on the property. The apartment complex also includes an additional laundry facility, even though all units have washers/dryers in them. Per management, the collateral was 93.0% occupied at the time of inspection.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS Morningstar NCF 2017 ($) 2018 ($) T-12 ($) Appraisal ($) Issuer NCF ($) NCF ($) Variance (%)
GPR ($) 5,541,410 5,719,910 5,842,917 6,556,500 5,920,908 5,920,740 0.00
Other Income ($) 344,156 366,661 368,880 413,238 351,063 368,880 5.08
Vacancy & -345,786 -425,362 -349,283 -368,311 -298,553 -433,144 45.08 Concessions ($)
EGI ($) 5,539,780 5,661,209 5,862,514 6,601,427 5,973,418 5,856,476 -1.96
Expenses ($) 2,757,486 2,993,854 3,049,921 3,203,983 3,001,730 3,329,996 10.94
NOI ($) 2,782,294 2,667,355 2,812,593 3,397,444 2,971,688 2,526,480 -14.98
Capex ($) 0 0 0 64,750 63,714 64,750 1.63
NCF ($) 2,782,294 2,667,355 2,812,593 3,332,694 2,907,974 2,461,730 -15.35
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,461,730, representing a -15.35% variance from the Issuer’s NCF of $2,907,974. The primary drivers of the variance were ground lease expense and vacancy. DBRS Morningstar concluded a higher ground lease expense based on an estimate of the average ground rent over the term of the loan. DBRS Morningstar increased the vacancy estimate to derive an NRI in line with the T-12 ended November 2019 amount.
DBRS MORNINGSTAR VIEWPOINT The collateral is generally well-located just off of State Route 57. It is close to major roadways such as I-10 and I-5 and benefits from its proximity to the California State University, Fullerton. Per Reis, asking rents increased by 0.5% during Q4 2019 to an average of $1,769 per unit, which is sixth lowest out of the submarkets in the metropolitan area. During 2020-21, Reis expects asking rents to decrease to 3.9% annually, finishing 2021 at $1,911 per unit. DBRS Morningstar considers the property to exhibit Average property quality based on the collateral’s planned renovations, which make the property well-equipped to remain competitive in the future.
DOWNSIDE RISKS – The loan is IO for the full 10-year loan term.
STABILIZING FACTORS – The property is in a growing market that consistently supports demand for multifamily housing. Per Reis, the area’s unemployment rate is 2.5%, which is 1.0% below the national average and 1.4% below the state average.
March 2020 50 Presale Report | FREMF 2020-K106
Atler at Brookhaven Atlanta, GA
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 37.8 Loan PSF/Unit ($) 165,719 Percentage of the Pool 3.1 Loan Maturity/ARD January 2030 Amortization COLLATERAL SUMMARY 30 Years DBRS Morningstar Multifamily Year Built/Renovated 1985/N/A DBRS Morningstar DSCR (x) Property Type 1.13 City, State Atlanta, GA Physical Occupancy (%) 89.0 DBRS Morningstar LTV (%) 68.3 Units 228 Physical Occupancy Date January 2020 DBRS Morningstar Balloon LTV (%) The loan is secured by the borrower’s fee-simple interest in Atler at Brookhaven, a 61.9 228-unit multifamily complex in Atlanta, 10.0 miles away from the CBD. Loan proceeds DBRS Morningstar Property Type of $37.8 million, in addition to $17.2 million of cash equity, funded the acquisition of Multifamily the collateral for a purchase price of $55.0 million, upfront replacement reserves of DBRS Moringstar $153,079, upfront escrows of $202,856 for taxes, and $58,923 for insurance. The 10-year, Property Quality fixed-rate loan is IO for the first five years before it amortizes over a 30-year schedule. Average - Debt Stack ($ Millions) The 17-floor high-rise apartment complex was constructed in 1985 and subsequently Trust Balance converted to condominiums in 2007. The entire property comprises 240 residential 37.8 units; 228 units are included in the loan security and the other 12 units are owner- Pari Passu ($) occupied. The former owner purchased 222 units in May 2016 and six additional units 0.0 between December 2016 and August 2018. The borrower and current owner plans B-Note to purchase the remaining 12 units from individual unit owners at $175,000 per unit. 0.0 The borrower has control of the condominium board given its ownership of 95.0% of Mezz total units. Since 2016, the previous owner completed $2.8 million ($12,473/unit) in 0.0 capital improvements, which included upgrades to common areas, appliances, lighting, Total Debt 37.8 cabinets, and other in-unit finishes. The borrower plans to complete approximately $4.3 million ($18,829/unit) in additional renovations, including further upgrades to Loan Purpose unit common areas, a reconfiguration of the leasing office, and the addition of amenities Acquisition such as bike storage, a fire pit, and a pet spa. Equity Contribution/ (Distribution) ($ Millions) 17.2 The property was 89.0% occupied as the rent roll dated January 31, 2020. Property wide amenities include an outdoor swimming pool, a fitness center, a dog park, a barbecue area, a leasing office, and a lounge. The unit breakdown consists of 121 one-bedroom units (900 sf ) and 107 two-bedroom units (1,264 sf ), which are generally in line with
March 2020 51 Presale Report | FREMF 2020-K106
ATLER AT BROOKHAVEN – ATLANTA, GA
comparable properties in the surrounding area. In-unit amenities include a fully equipped kitchen, hardwood floors, granite countertops, walk-in closets, in-unit washer/dryers, and private balconies. According to the November 18, 2019, rent roll, the one-bedroom units have an average rent of $1,315 and the two-bedroom units have an average rent of $1,572. The property’s total average in-place rent of $1,436 is above market when compared with the submarket by construction vintage average rental rate of $1,247 per Reis.
COMPETITIVE SET
Distance from Subject Occupancy Avg. Unit Property Location (Miles) Units Year Built (%) Size (SF)
Buckhead 960 Apartments Atlanta, GA 1.5 305 2005 90.0 920
@1377 Brookhaven, GA 1.4 215 2014 94.0 865
ARIUM Brookhaven Brookhaven, GA 0.9 230 2014 95.0 798
TwentyNine24 Atlanta, GA 2.5 353 2009 93.0 1,044
Post Gardens Atlanta, GA 1.7 397 1996 95.0 1,041
AMLI3464 Atlanta, GA 1.4 240 2016 93.0 1,156
Total/Wtd. Avg. Comp. Set Various, State Various 1,740 Various 93.3 982
Atler at Brookhaven Brookhaven, GA n/a 228 1985 89.0 1,063
Source: Appraisal, except the Subject figures are based on the rent roll dated 1/31/2020.
SPONSORSHIP The loan is sponsored by three individuals who are repeat Freddie Mac sponsors and who are well experienced in commercial real estate, specifically multifamily assets. The three sponsors have a reported combined net worth and liquidity that, in DBRS Morningstar’s opinion, produce acceptable ratios relative to the loan amount. One of the sponsors is a principal of one of the largest multifamily management companies in the U.S. His portfolio includes ownership in three multifamily complexes in the state of Georgia. The remaining two sponsors are a married couple with a portfolio that includes ownership in 22 properties.
Property management is provided by a borrower-controlled company for a contractual fee equal to 2.5% of the EGI. Established in 1988, the management company manages more than 30,000 units with 1,000 units in the subject’s immediate area.
March 2020 52 Presale Report | FREMF 2020-K106
ATLER AT BROOKHAVEN – ATLANTA, GA
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY Based on the DBRS Morningstar site inspection and management meeting conducted on February 20, 2020, at approximately 2:00 p.m., DBRS Morningstar found the property quality to be Average (-).
The property is on Peachtree Road Northeast in the city of Brookhaven approximately 10.0 miles northeast of the Atlanta CBD. Land uses in the immediate area along Peachtree Road Northeast include a Kroger-anchored retail plaza to the east followed by various shops and restaurants on both side of Peachtree Road Northeast and a high-rise rental apartment building to the west followed by a garden-style residential condominium complex and various low- to mid- to high-rise residential properties. Properties directly across street to the north include a couple of luxury townhome developments and a low- rise residential condominium complex. Further back from Peachtree Road Northeast on both sides are mature residential neighborhoods consisting primarily of single-family houses. Commercial and institutional properties are generally located on Peachtree Road Northwest. Oglethorpe University is approximately 1.5 miles east of the subject and University of Atlanta is a little more than four miles east. An uptown commercial and residential district known as Buckhead is less than two miles west. The district comprises a number of high-rise office buildings, hotels, and condominiums centered around the intersection of Peachtree Road and Piedmont Road near Georgia State Route 400, Buckhead Station, and Lenox Square. Buckhead is the third-largest commercial center in Atlanta.
Located on the southside of Peachtree Road Northwest, the 17-story L-shaped subject building features an outdoor reflection pool surrounded by a barbecue and picnic area, playground, and dog park atop of the three-level parkade. An outdoor swimming pool is at the east end of an “L” arm. The building’s dark brown brick façade appeared dull and dated at the DBRS Morningstar site inspection but the owner has budgeted for a cosmetic update of the exterior façade and the outdoor pool area, which should transform the building appearance to attract tenants. DBRS Morningstar noted the ground floor leasing office and club house lounge were well-furnished and decorated reflective of upscale condominium quality. The back of house area including workshops, storage rooms, and a garbage room appeared neglected and exhibited signs of wear and tear. The ground floor elevator lobby and common hallways of the unrenovated floors appeared dated but the hallways on the renovated floors appeared fresh and well-lit. DBRS Morningstar toured a renovated two-bedroom unit, an unrenovated one-bedroom unit, and a penthouse unrenovated one-bedroom unit. The renovated unit appeared modern and bright. The kitchen features white kitchen cabinet contrasted by dark blue-grey backsplash tiles and dark-grey granite countertop. Similar color scheme and materials were also used in the bathroom. Floor materials include carpet in the bedrooms, vinyl plank flooring in the living rooms, and ceramic tile in the kitchens and bathrooms. The unrenovated units appeared dark and dated despite high-quality material used in the kitchen and bathroom including dark green granite countertops and cherry stained heavy oak cabinets. At the time of DBRS Morningstar’s site inspection, unit renovation
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ATLER AT BROOKHAVEN – ATLANTA, GA
was in progress and management expected all unit renovation to be completed within the next two years. The renovation includes new flooring throughout, new painting throughout, new kitchen cabinets and countertops, new ceiling fan with light, and new bathroom fixtures and vanities. The management expects to increase average rent by $200 per month after the renovation. Kitchen appliances will be replaced as needed. Common-area renovations include new flooring and new LED light bulbs with existing light fixture.
At the time of DBRS Morningstar’s site inspection, the property appeared in generally good condition; however, DBRS Morningstar noted some deferred maintenance issues such as leaks in skylights, the penthouse unit windows, and a hallway ceiling. According to management, the roof appeared to be the original and had never been replaced. Management has not budgeted any roof replacement in the coming years but routine repair and maintenance will continue to be carried out.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-12 Jan Morningstar NCF 2017 ($) 2018 ($) 2020 ($) Appraisal ($) Issuer NCF ($) NCF ($) Variance (%)
GPR ($) 3,824,402 3,718,434 3,870,219 4,038,498 3,927,564 3,927,564 0.00
Other Income ($) 721,523 884,650 928,677 929,100 928,677 877,102 -5.55
Vacancy & -805,269 -465,299 -400,100 -343,272 -338,376 -449,094 32.72 Concessions ($)
EGI ($) 3,740,656 4,137,785 4,398,795 4,624,326 4,517,865 4,355,572 -3.59
Expenses ($) 1,770,881 1,569,413 1,586,016 1,797,571 1,789,288 1,871,756 4.61
NOI ($) 1,969,775 2,568,372 2,812,780 2,826,755 2,728,577 2,483,815 -8.97
Capex ($) 0 0 0 62,700 45,600 48,119 5.53
NCF ($) 1,969,775 2,568,372 2,812,780 2,764,055 2,682,977 2,435,696 -9.22
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS NCF was $2,435,696, a -9.2% variance from the Issuer’s NCF of $2,682,977.
The primary drivers of the variance included vacancy, management fee, and other income. DBRS Morningstar applied a 11.0% vacancy factor in order to achieve a monthly NRI level in line with the annualized T-10 ended January 2020. Additionally, DBRS Morningstar applied management fees equal to 3.0% of EGI compared with the Issuer’s 2.5%. Furthermore, DBRS Morningstar based the other income figures on the annualized T-10 ended January 2020, which were generally in line with the historical averages.
DBRS MORNINGSTAR VIEWPOINT The subject is an older property in need of an update. The historical occupancy appears lower than market level as evidenced by physical occupancy of 79.8%, 87.9%, and 89.9% in 2017, 2018, and the T-12 ended October 2019, respectively, compared with Q4 2019 North Dekalb submarket by vintage occupancy of 94.9% and submarket five-year average occupancy of 95.5%. However, the property is well-located within an established neighborhood with limited available land for new development. The property further benefits from strong market fundamentals and favorable demographic profile as evidenced by 3.10% annual population growth, within a one-mile radius, over the past nine years. That is significantly higher than the average annual growth of 0.82% and 1.47% for DeKalb County and Atlanta-Sandy Springs-Roswell MSA, respectively, according to the appraisal compiled demographic data. The 2019 median household income of $105,078 within a one-mile radius is also significantly higher than the county and MSA levels of $63,424 and $66,656, respectively. Additionally, residents within the one-mile radius appear well-educated with 76.8% of them having above-college level education as compared with 44.0%
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ATLER AT BROOKHAVEN – ATLANTA, GA
and 38.5% for the county and MSA levels, respectively. The property management noted that residents at the property comprise primarily high-tech, computer, and medical professionals. After the completion of the upcoming $4.3 million renovation, the property occupancy and cash flow are expected to increase, which in turn should improve loan metrics.
The loan at $165,719 per unit is considered reasonable for a growing market of the one-mile radius of subject that demonstrates a 2019 median home value of $548,624.
DOWNSIDE RISK – The loan is structured with a five-year IO period over the 10-year loan term and exhibits elevated leverage financing as evidenced by the issuance LTV of 68.3%.
STABILIZING FACTOR – The property benefits from committed ownership group, who has invested $17.2 million of cash equity in the deal with additional $4.9 million capital improvement budget in the coming years.
March 2020 55 Presale Report | FREMF 2020-K106
The Avenue Apartments Lakeland, FL
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 35.2 Loan PSF/Unit ($) 133,428 Percentage of the Pool 2.9 Loan Maturity/ARD February 2030 Amortization COLLATERAL SUMMARY 30 Years DBRS Morningstar Multifamily Year Built/Renovated 2017/N/A DBRS Morningstar DSCR (x) Property Type 1.10 City, State Lakeland, FL Physical Occupancy 94.7% DBRS Morningstar LTV (%) 72.2 Units 264 Physical Occupancy Date November, 2019 DBRS Morningstar Balloon LTV (%) This loan is secured by the borrower’s fee simple interest in The Avenue Apartments, 65.4 a 264-unit apartment complex in Lakeland, Florida. The 10-year fixed-rate loan is DBRS Morningstar Property Type IO for the first five years and then amortizes on a 30-year schedule. Loan proceeds Multifamily of approximately $35.2 million, along with almost $14.3 million of cash equity from DBRS Moringstar the borrower, went toward purchasing the property for $49.5 million and funding tax Property Quality and insurance escrows of roughly $300,000. With an appraised value of $48.8 million, Average + the LTV at issuance is 72.2%, and the LTV at maturity drops to 65.4% because of the Debt Stack ($ Millions) five years of amortization. Trust Balance 35.2 Built in 2017, the mid-rise apartment complex was 94.7% physically occupied as of Pari Passu ($) November 2019. There are 264 units spread across six buildings on the 11.9-acre 0.0 lot, with 498 parking spaces available to tenants. Propertywide amenities include a B-Note swimming pool, a clubhouse, a yoga room, a spin studio, a fitness center, a business 0.0 center, a courtyard with barbecue area, a hot tub, a dog park, and detached garages. Mezz Amenities within the units include a refrigerator, a dishwasher, an in-unit washer/ 0.0 dryer, and walk-in closets. The unit breakdown consists of 96 one-bedroom units Total Debt 35.2 (averaging 779 sf ), 144 two-bedroom units (averaging 1,100 sf ), and 24 three-bedroom units (averaging 1,389 sf ). The average rental rates for each unit type are $1,161, $1,433, Loan Purpose and $1,686 for one-, two-, and three-bedroom units, respectively. Acquisition Equity Contribution/ (Distribution) ($ Millions) The appraiser identified six properties in the immediate area that directly compete 14.3 with the collateral. The property’s rental rate and occupancy are in line with the competitive set as seen in the table below. Also, recently built properties similar to the collateral generally achieve higher rents and occupancy.
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THE AVENUE APARTMENTS – LAKELAND, FL
COMPETITIVE SET
Distance Avg. Rental from Subject Year Built/ Occupancy Rate Per Avg. Unit Property Location (Miles) Units Renovated (%) Unit ($) Size (SF)
The Park at Palazzo Lakeland, FL 10.7 332 2007/N/A 89.0% 1,076 1,099
Century Ariva Lakeland, FL 7.3 312 2017/N/A 93.0% 1,560 1,121
Town Center at Lakeside Village Lakeland, FL 5.5 311 2009/N/A 95.0% 1,363 1,045
Preserve at Lakeland Hills Lakeland, FL 12.2 432 2001/2006 93.0% 1,232 1,053
Arbor Glen Lakeland Lakeland, FL 12.3 324 2008/N/A 97.0% 1,374 1,058
Big Oaks Lakeland, FL 11.7 131 2013/N/A 95.0% 1,155 1,022
Total/Wtd. Avg. Comp. Set Lakeland, FL Various 1,842 Various 93.5% 1,301 1,070
The Avenue Apartments Lakeland, FL n/a 264 2017/N/A 94.7% 1,357 1,010
Source: Appraisal, except the Subject figures are based on the rent roll dated 11/5/2019
SPONSORSHIP The sponsor for this transaction is a real estate holding company composed of real estate funds. The collateral will be held in the holding company’s sixth real estate fund, which was recently formed and holds two other assets with a total of 639 units in Texas and Florida. The carve-out guarantor for this transaction is a successful businessman and real estate owner, who currently owns 29 commercial properties. The sponsor and carve-out guarantor are repeat Freddie Mac borrowers, having closed 16 loans in the past that have all performed as agreed.
The management company for this transaction is a borrower-controlled organization that was founded in 1978 and manages 30,000 multifamily units, roughly 5,000 of which are local to Lakeland. The management fee charged at the property is 3.0% of the EGI.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on February 24, 2020, at 12:30 p.m. Based on the inspection, DBRS Morningstar found the property quality to be Average (+).
The collateral consists of a 264-unit, garden-style apartment complex in Lakeland. The gated community lies just off Florida Avenue South, a major thoroughfare in the area providing northbound access to downtown Lakeland. The property
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THE AVENUE APARTMENTS – LAKELAND, FL
is accessible through one eastern access point that offers 24-hour gated security. The property benefits from its close proximity to several small retail centers that feature both local and national brands. However, the property sits far enough away from the main road and retail centers that it can avoid the traffic and noise pollution. Additionally, the collateral benefits from access to downtown Lakeland, the Lakeland Linder International Airport, and Tampa Bay. Clark Lake and Turtle Creek, two small bodies of water, lie on the property’s eastern border, offering water views to multiple tenants.
The property’s buildings have a beige wood exterior with white trim. Because of the recent construction of the property, management has no plans for capital improvements. The leasing office and swimming pool are both near the entrance of the property, with large signage to guide future residents. Through a large archway next to the leasing office, residents can enjoy access to the swimming pool, multiple barbecue grills, and lounge areas. The six buildings at the property create a barrier surrounding this common area space, providing the tenants with a sense of privacy and community. Adjacent to the pool is a large fountain and other landscaping pieces that allow the property to blend with the surrounding environment. A circular parking lot spans the perimeter of the property, with a handful of detached garages spread around the exterior. During the inspection, management said that the detached garages were in high demand and command $150 per month. On the southern end of the property, tenants can enjoy a playground and a dog park. The playground was of decent size and in use during the time of the inspection. The dog park is small and offers few features, given the size and quality of the property; however, there is also a dog bathing station, which is a nice amenity for dog owners. The property was in good condition at the time of the inspection, with no visible deferred maintenance.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-12 Nov 2018 Budget As-Is Morningstar NCF 2018 - Oct 2019 2020 Appraisal Issuer NCF NCF ($) Variance (%)
GPR ($) 4,005,420 4,142,775 4,232,580 4,323,096 4,299,384 4,299,384 0.00
Other Income ($) 377,450 438,135 428,128 444,840 438,135 443,490 1.22
Vacancy & -926,948 -355,649 -207,376 -237,324 -299,142 -512,258 71.24 Concessions ($)
EGI ($) 3,455,922 4,225,261 4,453,332 4,530,612 4,438,377 4,230,616 -4.68
Expenses ($) 1,817,966 2,011,760 1,643,116 1,786,275 1,867,915 1,949,128 4.35
NOI ($) 1,637,956 2,213,501 2,810,216 2,744,337 2,570,461 2,281,488 -11.24
Capex ($) 9,136 9,136 52,800 59,400 52,800 66,000 25.00
NCF ($) 1,628,820 2,204,365 2,757,416 2,684,937 2,517,661 2,215,488 -12.00
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,215,488, representing a -12.0% variance from the Issuer’s NCF.
The major driver of this variance is vacancy. DBRS Morningstar concluded vacancy at 10.8% to achieve an NRI in line with the T-12 ended October 2019 monthly collections at the property. The other driver of this variance is total operating expenses. DBRS Morningstar inflated the T-12 ended October 2019 operating expenses by 3.0%, resulting in an overall expense ratio of 46.1%.
DBRS MORNINGSTAR VIEWPOINT The property’s location is convenient for residents because of its proximity to the Lakeland Linder International Airport, downtown Lakeland, and Tampa Bay. According to Reis, the property is in the Lakeland submarket, which as of Q4 2019 had an average vacancy of 4.2%. Also, within a 10-mile radius, 10 comparable properties demonstrated an average vacancy
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THE AVENUE APARTMENTS – LAKELAND, FL
of 2.6%. The property has held occupancy around 95.0% since stabilizing in 2018, but it dipped closer to 90.0% at the start of 2019 when management sought to replace several tenants who vacated at the end of their lease. The property has an average rental rate of $1,357 per unit, which is similar to the appraiser’s competitive set average of $1,301 per unit. The competitive set also averages occupancy at 93.5%, which is less than the property’s 94.7% as of November 2019. DBRS Morningstar’s concluded vacancy rate of 10.8% is conservative compared with market data, and there could be an increase in cash flow should occupancy stabilize at market levels.
DOWNSIDE RISK – The property is in a secondary market that falls within the DBRS Morningstar Market Rank of 3. Properties in Market Rank 3 have historically had higher PODs and LGDs.
STABILIZING FACTORS – DBRS Morningstar gives properties in Market Rank 3 a conservative POD and LGD adjustment. In addition, the borrower will be contributing $14.3 million of fresh equity to acquire the property, representing 28.8% of the total cost basis.
March 2020 59 Presale Report | FREMF 2020-K106
Rivera Apartments San Antonio, TX
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 34.5 Loan PSF/Unit ($) 114,073 Percentage of the Pool 2.8 Loan Maturity/ARD January 2030 Amortization COLLATERAL SUMMARY 30 Years DBRS Morningstar Multifamily Year Built/Renovated 2017 / N/A DBRS Morningstar DSCR (x) Property Type 1.08 City, State San Antonio, TX Physical Occupancy (%) 90.7 DBRS Morningstar LTV (%) 64.4 Units 302 Physical Occupancy Date November 2019 DBRS Morningstar Balloon LTV (%) The loan is secured by the borrower’s fee simple interest in Rivera Apartments, a 58.1 302-unit mid-rise multifamily complex in San Antonio, approximately 1.5 miles DBRS Morningstar Property Type northeast of the San Antonio CBD. Loan proceeds of $34.5 million, in addition to the Multifamily borrower’s cash equity of approximately $18.5 million, facilitated the acquisition of the DBRS Moringstar property for $52.9 million. The 10-year loan is IO for the initial five years and then Property Quality amortizes thereafter. Average + Debt Stack ($ Millions) The multifamily complex was recently constructed in 2017. As of the November 2019 Trust Balance rent roll, the property was 90.7% occupied. The unit breakdown consists of 40 studios 34.5 that average 471 sf and have rent of $1,045, 190 two-bedroom units that average 676 sf Pari Passu ($) and have rent of $1,309, and 72 three-bedroom units that average 1,185 sf and have rent 0.0 of $1,854. Tenants at the property benefit from many community and unit amenities. B-Note Common amenities include an outdoor swimming pool, outdoor grilling stations, 0.0 a fitness center, a clubhouse featuring an equipped kitchen and dining area, and an Mezz outdoor lounge area with a firepit and kitchen area for hosting. The collateral also 0.0 includes a ground-floor retail component that houses Webster Street Dental, which Total Debt 34.5 has been in occupancy since the property’s construction. Unit amenities entail a fully equipped kitchen with stainless-steel appliances, an in-unit washer/dryer, a private Loan Purpose balcony, and walk-in closets. Acquisition Equity Contribution/ (Distribution) ($ Millions) The property’s average in-place rental rate of $1,404 per unit is below the average 18.5 vintage rental rate of $1,913 per unit across Reis’ Central San Antonio submarket; however, the property is at a premium compared with the submarket overall average of $1,073 per unit, according to Reis’ Q4 2019 data.
March 2020 60 Presale Report | FREMF 2020-K106
RIVERA APARTMENTS – SAN ANTONIO, TX
SPONSORSHIP The main sponsor for this transaction is a Houston-based privately held real estate investment trust. After years of interest in value-add opportunities, the investment company has transitioned to acquiring Class A properties within urban markets. As of November 2019, the sponsor’s real estate owned properties consisted of 11 multifamily properties and two properties under development. The property manager is a third-party company that has more than 30 years of real estate experience. The company holds a portfolio of more than 17,000 multifamily units across four states; however, the collateral is the only one it manages within the San Antonio area. The company operates for a contractual management fee of 2.5% of the EGI.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on February 19, 2020, at approximately 11:45 a.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average (+).
The collateral is in San Antonio, about 1.5 miles northeast of the CBD and less than one mile north of The Alamo. Furthermore, it sits about 8.5 miles south of the San Antonio International Airport. The collateral is at the northeast corner of East Jones Avenue and Broadway Street, two urban streets with heavy traffic during the site inspection, given the mid- afternoon time of day. The immediate area is primarily commercial in nature with several mid-rise multifamily complexes scattered throughout.
Recently built in 2017, the collateral consists of 302 residential units spread across two buildings and an attached parking structure. Amenities offered at the site include an outdoor pool, a large fitness center, a centrally located clubhouse for entertainment purposes, and a fully equipped outdoor kitchen and firepit area for residents and guests to enjoy. At the time of inspection, the property was 85.4% occupied. The leasing center had a modern appearance, with floor-to-ceiling windows allowing for an abundance of natural sunlight. The oversize main desk featured abstract black and white tiles to serve as an accent wall. Upon entering the main entryway off Broadway Street, the leasing office was to the right, while a tenant lounge including a fully equipped kitchen and ample seating options was to the left of the leasing office. The modern furniture, light beige tile flooring, and light-colored walls all contributed to the overall modern aesthetic of the recently renovated clubhouse area. The mid-rise apartment buildings consisted of white and gray exteriors with red brick accents and private balconies with black iron railings. Landscaping that surrounds the base of each residential building was very minimal, consisting of gravel and small shrubs. According to on-site management, updated landscaping will begin near the end of March 2020. The property had prominently displayed signage affixed to the exterior of buildings that was modern and clean as well as bright banners lining Broadway Street advertising available apartments for lease. Overall, the property’s
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RIVERA APARTMENTS – SAN ANTONIO, TX
exterior presented well and appeared to be superior to other comparable properties in the immediate area because of its recent vintage.
Owing to the 2017 construction, there has been little need for additional capital expenditures or renovations. According to on-site management, the only unit renovations that will occur are replacing bathroom mirrors to include a more modern frame, replacing outlets in the bedroom to include USB connections, and installing new smart thermostats. Overall, unit interiors featured white walls, hardwood flooring throughout with the exception of beige carpeting in the bedrooms and walk-in closets, open concept kitchens with stainless-steel appliances, chestnut-colored cabinets, and granite countertops. Select units included a kitchen island for hosting and food preparation. All units have a balcony off the main living area that provides limited privacy from neighbors. In aggregate, the unit interiors appeared modern, indicating its recent vintage. At the time of inspection, management was in the process of renovating all of the common area hallways. These upgrades include the replacement of beige carpeting with vinyl plank flooring, white walls, gray base boards, and new paint for all of the resident’s doorways. DBRS Morningstar believes that the seemingly small changes to the residential hallways will serve as a large improvement to the overall aesthetic of the property’s interior.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-12 Oct 2018- Morningstar NCF 2018 2019 Budget 2020 Appraisal Issuer NCF NCF ($) Variance (%)
GPR ($) 5,422,950 5,110,406 5,175,892 5,144,000 5,058,804 5,058,804 0.00
Other Income ($) 382,516 475,083 513,704 476,500 475,083 475,083 0.00
Vacancy & -1,109,635 -377,109 -403,148 -314,939 -426,986 -684,547 60.32 Concessions ($)
EGI ($) 4,695,832 5,208,380 5,286,448 5,305,561 5,106,901 4,849,340 -5.04
Expenses ($) 3,067,718 3,115,737 2,580,621 2,881,629 2,608,321 2,733,243 4.79
NOI ($) 1,628,114 2,092,643 2,705,827 2,423,932 2,498,580 2,116,097 -15.31
Capex ($) 0 0 60,400 60,400 70,970 75,500 6.38
NCF ($) 1,628,114 2,092,643 2,645,427 2,363,532 2,427,610 2,040,597 -15.94
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,040,597, a variance of -15.9% from the Issuer’s NCF of $2,427,610. The main drivers of the variance are vacancy, real estate taxes, and operating expenses. DBRS Morningstar estimated residential concessions and bad debt to be at the T-12 ended September 2019 amount and set general vacancy to 12.2%. This vacancy estimate reflects a blended rate and considers the seasonality of vacancy represented in the T-12 ended September 2019. Overall, this estimate is greater than the Central San Antonio submarket average for Class A properties of 7.7% as well as the submarket overall vacancy rate of 6.1%. Additionally, properties of a similar vintage in the submarket have an average vacancy of 7.3%. The property is subject to both city and county tax abatements. More specifically, the Bexar County tax abatement ends in 2026, and the city of San Antonio tax abatement ends in 2027, both prior to loan maturity. DBRS Morningstar estimated real estate taxes to be the average of annual taxes, considering the respective abatements over the loan term. Finally, DBRS Morningstar set operating expenses to the T-12 ended September 2019 amount inflated by 3.0%.
DBRS MORNINGSTAR VIEWPOINT The collateral is within an urban market consisting of primarily residential and local and national retail uses with several mid-rise office properties scattered throughout. As of the DBRS Morningstar site inspection, the property was approximately 85.4% occupied, demonstrating below-market occupancy. To account for this, DBRS Morningstar increased
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RIVERA APARTMENTS – SAN ANTONIO, TX
its concluded vacancy to 12.2%. The property’s average unit size of 767 sf is less than the appraiser’s competitive set average of 914 sf. Based on the rent roll as of November 2019, the property exhibits an average rental rate of $1,396 per unit, which is at a premium compared with the Central San Antonio submarket average of $1,073 per unit, but allows for upside potential compared with the submarket by vintage average of $1,913 per unit, according to Q4 2019 Reis data. The collateral’s purchase price of $52.9 million ($175,464 per unit) and appraised value of $53.5 million ($177,152 per unit) represent a discount to the appraiser’s comparable sales, which average $195,963 per unit, demonstrating a stronger likelihood for any future renovations or rental premiums to allow for a higher value in the future.
DOWNSIDE RISK – The loan is IO for the first five years and amortizes thereafter. Furthermore, the loan represents a moderate LTV of 64.4% based on the appraised value of $53.5 million and a loan-to-purchase price of 65.0% based on the purchase price of $52.9 million.
STABILIZING FACTOR – The borrower will have approximately $18.5 million of cash equity remaining in the deal, all of which will be contributed at loan closing, representing 53.8% of the total loan amount and 35.0% of the November 2019 purchase price.
March 2020 63 Presale Report | FREMF 2020-K106
Aperture San Bruno, CA
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 33.0 Loan PSF/Unit ($) 397,434 Percentage of the Pool 2.7 Loan Maturity/ARD January 2030 Amortization COLLATERAL SUMMARY n/a DBRS Morningstar Multifamily Year Built/Renovated 2019/N/A DBRS Morningstar DSCR (x) Property Type 1.87 City, State San Bruno, CA Physical Occupancy (%) 100.0 DBRS Morningstar LTV (%) 53.8 Units 83 Physical Occupancy Date January 2020 DBRS Morningstar Balloon LTV (%) This loan is secured by the borrower’s fee simple interest in an 83-unit multifamily 53.8 complex in San Bruno, California, approximately 13 miles south of San Francisco. Loan DBRS Morningstar Property Type proceeds of $33.0 million in addition to $27.3 million of borrower equity went toward Multifamily acquiring the property for a purchase price of $60.3 million. The 10-year fixed rate loan DBRS Moringstar is IO throughout the loan term and represents an issuance LTV of 53.8% based on the Property Quality October 2019 appraised value of $61.3 million. Above Average Debt Stack ($ Millions) The garden-style multifamily property, which was built in 2019, was 100.0% occupied Trust Balance as of the January 2020 rent roll. Propertywide amenities include a clubhouse, an 33.0 outdoor courtyard with a barbecue/fireplace, a fitness center, on-site storage units, a Pari Passu ($) bike storage, and electric vehicle charging stations. Additionally, unit amenities include 0.0 in-unit washers/dryers, stainless-steel appliances, quartz countertops, hardwood B-Note plank flooring, storage space, walk-in closets, and some select units feature a private 0.0 patio/balcony. The unit breakdown consists of three studios (averaging 535 sf ), Mezz 40 one-bedroom units (averaging 687 sf ), 32 two-bedroom units (averaging 1,009 sf ), 0.0 and eight three-bedroom units (averaging 1,404 sf ). The collateral is situated above Total Debt 33.0 6,592 sf of ground-floor retail space, which was completely vacant. The space is currently being advertised as five separate suites of varying sizes. Loan Purpose Acquisition There were five identifiable multifamily properties in the local market that are direct Equity Contribution/ (Distribution) ($ Millions) competitors with the collateral. For more information, please refer to the table below: 27.3
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APERTURE – SAN BRUNO, CA
COMPETITIVE SET
Distance from Subject Property Location (miles) Units Year Built Occupancy (%)
Cadence San Francisco, CA 2.5 260 2019 28.0
Acapella Apartments San Bruno, CA 1.4 163 2010 93.0
Avalon San Bruno II San Bruno, CA 1.3 175 2007 96.0
South City Station San Francisco, CA 4.0 360 2007 96.0
Pacific Bay Vistas San Bruno, CA 4.3 308 2014 98.0
Aperture San Bruno, CA n/a 83 2019 100.0
SPONSORSHIP The key sponsor for this transaction is an open-ended fund primarily targeting Class A and B multifamily acquisitions in major western MSAs as well as favorable secondary and tertiary markets. The property manager is a borrower-affiliated company accepting a fee equal to 3.50% of the EGI. The management company’s portfolio includes 23 properties across eight states.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on Thursday, February 27, 2020, at 2:00 p.m. Based on the site inspection, DBRS Morningstar found the property quality to be Above Average.
The property is in San Bruno, off El Camino Real, a major thoroughfare that connects directly to I-280, which provides access to San Francisco, which is 13 miles north. The property is well located within the neighborhood although street- level parking was scarce. Situated among several retail shops, the property is above vacant retail space that is a part of the collateral for this transaction.
The entrance to the property is off San Mateo Avenue and features temporary signage that the property representative indicated would be removed in the coming weeks as the new property management team finalizes its transition. The entrance of the property opens up to a ground-floor lobby featuring a seating area, modern lighting fixtures, and ornate decorations throughout. Furthermore, Amazon lockers for deliveries as well as the leasing office were in the ground-floor lobby. The finishes in the lobby indicated the property’s new vintage and created a great first impression upon entering
March 2020 65 Presale Report | FREMF 2020-K106
APERTURE – SAN BRUNO, CA
the premises. Other common area amenities at the property include a fitness center, an outdoor courtyard with a fireplace and patio furniture, a bike storage, indoor storage units, and a 106-space garage with several spaces featuring an electric vehicle charging station. Each unit is entitled to one parking space within the garage at no additional charge; however, the electric vehicle charging spaces command a premium, according to the property manager. Overall, the property has plenty of amenities with no noticeable deferred maintenance.
DBRS Morningstar inspected the model two-bedroom unit and a three-bedroom townhome-style unit. The two-bedroom unit featured dark-ochre colored wood-plank flooring in the living area before transitioning to white-gray carpeting in the bedrooms and white tile in the bathrooms. The walls were painted a light gray throughout the unit. The two-bedroom unit also featured a stacked washer/dryer unit and a walk-in closet for one of the bedrooms with a private balcony off of the living area. The kitchen featured dark wood cabinetry with stainless-steel appliances and quartz countertops. A kitchen island sits between the living area and kitchen, which separates the two spaces and defines each respective room well. The three-bedroom townhome-style unit featured the same dark-ochre colored-wood plank flooring in the living area before transitioning to the similar white-gray carpeting in the bedrooms. The walls had the same light gray paint throughout the unit. The living area featured large windows that provided ample natural lighting into the unit. The kitchen finishes were consistent with the model two-bedroom unit.
DBRS Morningstar inspected the shell-space ground-floor retail at the property and found it to be in Average condition and awaiting leasing. Per conversations with management, the space is being marketed as five distinct suites although they are open to modifying floorplans to accommodate fewer tenants who are seeking to lease a larger footprint at the property.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-10 Jan 2019 - Morningstar NCF Variance Oct 2019 Budget As Is Appraisal Issuer NCF NCF ($) (%)
GPR ($) 3,758,790 3,760,354 3,773,340 3,771,540 3,771,540 0.00
Other Income ($) 53,094 325,620 387,633 139,206 64,888 -53.39
Vacancy & -2,567,809 -169,216 -188,667 -188,577 -188,577 0.00 Concessions ($)
EGI ($) 1,244,074 3,916,758 3,972,306 3,722,169 3,647,851 -2.00
Expenses ($) 628,771 1,342,662 1,322,041 1,395,034 1,441,882 3.36
NOI ($) 615,303 2,574,096 2,650,265 2,327,135 2,205,969 -5.21
Capex ($) 0 45,650 16,600 15,936 20,750 30.21
NCF ($) 615,303 2,528,446 2,633,665 2,311,199 2,185,219 -5.45
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,185,219, representing a -5.45% variance from the Issuer’s NCF of $2,311,199. The primary drivers of the variance include other income, operating expenses, and management fee assumptions. DBRS Morningstar assumed other income to be generally in line with the T-11 historical ended October 2019. The DBRS Morningstar operating expenses generally reflect the sponsor’s year one budget inflated by 6.0% because of the property’s lack of operating history. Lastly, DBRS Morningstar assumed a management fee of 4.0% of the EGI, greater than the Issuer’s assumption of 3.50%.
March 2020 66 Presale Report | FREMF 2020-K106
APERTURE – SAN BRUNO, CA
DBRS MORNINGSTAR VIEWPOINT The collateral represents a recently stabilized mid-rise multifamily complex in San Bruno, 13 miles south of San Francisco. The area features superb access to San Francisco International Airport as well as several boutique retail shops in the area catering to a wealthier demographic. Per the property manager, San Bruno is one of the safer areas within the San Francisco MSA and is experiencing tremendous growth as affluent young professionals move into the area looking for high-class residential units in the area’s high-rent market. Per Reis, between now and year-end 2021 developers will build 334 market rate units in the submarket, amounting to 5.8% of the new construction coming to San Francisco. The property manager identified several multifamily complexes under construction within five miles of the collateral that will be direct competitors. The property manager cited the building’s attached garage parking and ground-floor retail as the differentiating factors that will attract prospective tenants away from the new complexes under development in an area where parking is extremely scarce. Four of the five properties the appraiser identified reported occupancy rates of 94.0% or higher, with the fifth rapidly approaching stabilization similar to the collateral. The property has competitive amenity offerings although it lacks a pool, which is present at most of its direct competitors. As of the February 2020 site inspection, the property was 98.0% occupied, with the three-bedroom townhome unit DBRS Morningstar inspected under the process of being turned so that it can be re-leased. The multifamily complex will attract a young professional tenant base in the neighborhood who are willing to pay the submarket’s high rents to enjoy higher-end finishes and parking availability.
DOWNSIDE RISKS – The loan is IO throughout the loan term. – The property is recently stabilized and has a limited operating history. – The ground-floor retail units are 100.0% vacant.
STABILIZING FACTORS – The loan represents an issuance and balloon LTV of 53.8%, with the borrower contributing $27.3 million of cash equity at the time of acquisition. The borrower’s cash equity contribution signals a commitment to the property’s success while also featuring an adequate LTV, limiting the risk of balloon default for the borrower. – Although recently stabilized, the property experienced a rapid lease-up, reaching 98% occupancy in February from approximately 30% occupancy when the property opened in May 2019. – The property is directly off of El Camino Real, a primary and heavily trafficked thoroughfare in San Bruno. Furthermore, the property maintains exceptional visibility from the road. It additionally features parking spaces in its garage to facilitate prospective customers looking to shop in the ground-floor retail. Both the Issuer and DBRS Morningstar assumed no income from the ground-floor retail in their analyses.
March 2020 67 Presale Report | FREMF 2020-K106
Polo Glen Apartments Rockledge, FL
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 32.9 Loan PSF/Unit ($) 130,512 Percentage of the Pool 2.7 Loan Maturity/ARD January 2030 Amortization COLLATERAL SUMMARY n/a DBRS Morningstar Multifamily Year Built/Renovated 2008/N/A DBRS Morningstar DSCR (x) Property Type 2.20 City, State Rockledge, FL Physical Occupancy (%) 95.2 DBRS Morningstar LTV (%) 59.0 Units 252 Physical Occupancy Date December 2019 DBRS Morningstar Balloon LTV (%) The loan is secured by the borrower’s fee-simple interest in a 252-unit multifamily 59.0 property in Rockledge, Florida. Loan proceeds of approximately $32.9 million, along DBRS Morningstar Property Type with $22.4 million of borrower equity, will be used to purchase the collateral for Multifamily $55.3 million. The 10-year fixed-rate loan is IO for its entire term. DBRS Moringstar Property Quality Situated on a 19.7-acre site, the multifamily complex was 95.2% occupied as of the Average + December 2019 rent roll. Built in 2008, the subject comprises 18 two- and three- Debt Stack ($ Millions) story apartment buildings. The previous owner spent approximately $1.3 million Trust Balance ($5,320/unit) on capital improvements to the model unit, amenities, and building 32.9 exteriors. The borrower will invest $3.0 million ($11,742/unit) to further enhance the Pari Passu ($) curb appeal, upgrade amenities, and improve apartment finishes. Unit amenities for 0.0 borrower renovated apartments include fully equipped stainless-steel appliances, vinyl B-Note plank flooring, washer/dryer units, storage rooms, and private balconies or patios. 0.0 There are 72 one-bedroom units averaging 805 sf and rental rates of $1,246/month, Mezz 105 two-bedroom units averaging 1,200 sf and rental rates of $1,523/month, and 75 three- 0.0 bedroom units averaging 1,568 sf and rental rates of $1,782/month. Property amenities Total Debt 32.9 include a clubhouse building that features a leasing office, fitness center, club room, and business center. Additional amenities include a heated outdoor swimming pool, Loan Purpose mailbox kiosks, outdoor kitchen/gazebo area, dog park, day care center, playground, Acquisition and onsite lake/pond. Equity Contribution/ (Distribution) ($ Millions) 22.4 The appraisal identified six multifamily properties in the local market that directly compete with the subject. The collateral’s occupancy rate is well above the competitive set average, while the subject maintains an average rental rate roughly in line with the average of the competitive set. Of note, property management cited both the Fountain
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POLO GLEN APARTMENTS – ROCKLEDGE, FL
Villas and Ventura at Turtle Creek Apartments in particular as local competitive properties to the subject. For more information, please refer to the table below.
COMPETITIVE SET
Avg. Rental Rate Per Avg. Unit Property Location Units Year Built Occupancy (%) Unit ($) Size (SF)
Fountain Villas Rockledge, FL 132 2004 95.0 1,535 1,231
Woodhaven Apartments Rockledge, FL 152 1988 92.0 1,162 930
Artistry at Viera Melbourne, FL 259 2018 89.0 1,583 1,070
Highlands at Viera Viera, FL 240 2007 95.0 1,735 1,266
Centre Pointe Melbourne, FL 272 2019 61.0 1,704 1,102
Marisol At Viera Apartments Melbourne, FL 282 2015 94.0 1,453 973
Total/Wtd. Avg. Comp. Set Various 1,337 Various 86.4 1,555 1,091
Polo Glen Apartments Rockledge, FL 252 2008 95.2 1,521 1,197
Source: Appraisal, except the subject figures are based on the rent roll dated December 17, 2019.
SPONSORSHIP The key sponsors for the transaction are two family trusts established for the benefit of the principal’s children. The borrowing entity is controlled by the principal, who has more than 30 years of investment experience. The family trust holds equity positions in public and private companies, as well as real estate. The sponsor’s real estate holdings include 14 multifamily properties totaling 4,434 units across six southern U.S. states. Freddie Mac has previously provided financing on eight of these properties. The sponsor’s principal member was involved in a dispute over an investment fund unrelated to the sponsoring trust that was frozen in 2008 and subsequently wound down. That situation culminated in a bankruptcy of the investment fund’s ownership in October 2019. There is no direct association between the bankruptcy and the ownership of the property in this transaction, aside from the sponsor’s principal member. The property is managed by a third-party entity for a contractual rate of 3.0% of EGI. The company has been in business since 1983 and manages more than 200 properties totaling 82,000 units, including 2,286 units in the local market.
March 2020 69 Presale Report | FREMF 2020-K106
POLO GLEN APARTMENTS – ROCKLEDGE, FL
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on February 26, 2020, at 1:30 p.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average (+).
The collateral consists of a 252-unit, garden-style apartment complex in Rockledge, Florida, approximately 54.0 miles southeast of the Orlando CBD. The subject is 10.5 miles southwest of Cape Canaveral, which is home to the Kennedy Space Center. The collateral is near Florida’s Space Coast, and consequently, the federal government is the largest local employer. The surrounding neighborhood is lightly in-filled and predominately residential in nature. The subject is just east of I-95, a major north-south highway that spans the entirety of the East Coast, and is approximately 2.5 miles west of the Indian River. The corridor between I-95 and the Indian River is primarily in-filled by residential developments and retail establishments. The River Lakes Conservation Area is directly west of I-95, so there is no real estate development in this vast area. The property is situated along Middleburg Lane, a quiet interior roadway primarily lined with single-family and multifamily residences. Management noted that the subject has a high concentration of short-term leases that range from three to nine months in length. Residents typically sign these short-term leases, because they’re building homes or are staying in the area during the winter months.
Constructed in 2008, the subject is composed of 18 residential buildings along with a clubhouse building. The residential buildings have brown and white stucco exteriors with white shutters and pitched roofs. A pond sits at the center of the property grounds surrounded by the subject’s residential buildings. The subject exhibits strong curb appeal with a large, ornate fountain in front of the clubhouse building along the driveway entrance. The sponsor is in the process of renovating 150 apartments at the collateral. Seventy-nine units, representing 31.3% of the total unit count, had been renovated at the time of inspection. The remaining 71 units will be renovated by the sponsor as they turn over. DBRS Morningstar toured the renovated model three-bedroom/two-bathroom unit and a nonrenovated vacant two-bedroom/two-bathroom apartment. The renovated unit showed well with high-end finishes and expansive bedrooms. The model unit featured a spacious master bedroom with a large walk-in closet. Living rooms, kitchens, and hallways all have plank wood flooring, while the bedrooms feature gray carpeting. Kitchens are fully equipped with appliance packages that include dishwashers, ovens, refrigerators, and microwaves. Renovated kitchens have modern finishes featuring stainless-steel appliances, white granite countertops, tile backsplashes, and brushed nickel handles and pulls. By contrast, the nonrenovated kitchens have dated aesthetics featuring black appliances, laminate countertops, and no tile backsplashes. Living rooms are bright and airy with large windows allowing for ample natural light; balcony and patio spaces are adjacent to units’ living rooms. Bathrooms contain stylish vanities and finishes that are similar to the kitchens. All apartments have washer/dryer units, so the collateral doesn’t have a shared laundry facility.
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POLO GLEN APARTMENTS – ROCKLEDGE, FL
Property amenities include a clubhouse, fitness center, swimming pool, business center, outdoor grilling area, playground, dog park, and car care area. The property formerly featured tennis courts, but they were converted into the current dog park by the previous owner in 2016. The clubhouse building contains the leasing center, fitness center, and business center. The fitness center is spacious and features new exercise equipment along with a small spin studio. The heated swimming pool is adjacent to the clubhouse building and features a kitchen and gazebo with grilling stations. The subject has 581 surface and attached garage parking spaces that displayed few visible signs of cracking. Select two- and three-bedroom units have attached garages and are charged a premium for this amenity; the remaining apartments have access to the shared surface parking spots. Overall, DBRS Morningstar found the property to be generally well maintained and in good condition with minimal deferred maintenance evident at the time of inspection.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-12 Oct 2018 Morningstar NCF 2017 2018 - Sep 2019 Appraisal Issuer NCF NCF ($) Variance (%)
GPR ($) 4,268,714 4,532,504 4,618,015 4,579,824 4,600,392 4,600,392 0.00
Other Income ($) 368,671 416,404 444,997 439,748 437,132 441,227 0.94
Vacancy & -185,102 -259,842 -372,591 -295,169 -437,019 -354,968 -18.78 Concessions ($)
EGI ($) 4,452,283 4,689,066 4,690,420 4,724,403 4,600,505 4,686,651 1.87
Expenses ($) 1,794,145 1,916,166 1,886,515 1,878,561 1,947,495 2,024,493 3.95
NOI ($) 2,658,138 2,772,899 2,803,906 2,845,842 2,653,009 2,662,157 0.34
Capex ($) 0 0 69,300 63,000 76,860 76,860 0.00
NCF ($) 2,658,138 2,772,899 2,734,606 2,782,842 2,576,149 2,585,297 0.36
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,585,297, representing a 0.4% variance from the Issuer’s NCF.
DBRS MORNINGSTAR VIEWPOINT The local economy is robust and dominated by the aerospace and defense industries thanks the subject’s proximity to Florida’s Space Coast. Further, Amazon-backed Blue Origin is developing a 750,000-sf rocket assembly plant in Exploration Park for $205 million, while Northrup Grumman and Lockheed Martin are both expanding existing facilities in the area that are expected to add more than 2,000 high-wage jobs. Last year, Boeing also announced that it will move its Space and Launch division to nearby Titusville, Florida. The growth of the aerospace industry will continue to bolster the local economy and boost apartment demand as a result. Despite the expansion in the aerospace industry, only 539 new apartments have been absorbed in the Titusville/Rockledge submarket since 2015. This has created a tight multifamily market with the Reis submarket vacancy at 3.2% as of Q4 2019. Axiometrics forecasts that 3,700 new units will be delivered from 2020 through 2023 in the greater Melbourne market; however, only 513 of those are expected to be in the Titusville/Rockledge submarket, an increase of just 3.4% over the four-year period.
The property was purchased by the current owner in December 2019 by an experienced apartment operator with significant multifamily holdings. The sponsor’s $3.0 million ($11,742/unit) spending plan to upgrade 150 units will help to reposition the collateral and allow for rental rates to be increased. The sponsor projects that renovated units will achieve premiums of approximately $150/month following the modernization work. A large portion of the local multifamily inventory in the Melbourne market is of an older vintage. According to Reis, 32.0% of the market’s inventory was built after 1989. Only
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POLO GLEN APARTMENTS – ROCKLEDGE, FL
6.0% of the multifamily inventory was constructed after 2009, so the subject also benefits from being among the newest apartment products in the market.
DOWNSIDE RISKS – The loan is interest-only for the entirety of its 10-year term. – The local economy is highly reliant upon the aerospace and defense industries, which depend upon funding from the federal government.
STABILIZING FACTORS – The ownership has demonstrated a long-term commitment to the asset via a $22.4 million equity contribution to the purchase price, representing 40.5% of the total cost basis. In addition, the loan is low leverage as evidenced by its 59.0% LTV based on the $55.7 million appraised value. – Major defense contractors have been actively increasing their presence in the local area. Smaller firms have also made recent commitments with new projects. The cruise line and cargo industries also contributes to the economy as a result of the nearby presence of Port Canaveral.
March 2020 72 Presale Report | FREMF 2020-K106
88twenty Houston, TX
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 31.7 Loan PSF/Unit ($) 94,420 Percentage of the Pool 2.6 Loan Maturity/ARD January 2030 Amortization COLLATERAL SUMMARY n/a DBRS Morningstar Multifamily Year Built/Renovated 2016/N/A DBRS Morningstar DSCR (x) Property Type 1.82 City, State Houston, TX Physical Occupancy (%) 89.3 DBRS Morningstar LTV (%) 63.2 Units 336 Physical Occupancy Date November 2019 DBRS Morningstar Balloon LTV (%) The loan is secured by the borrower’s fee-simple interest in a 336-unit garden-style 63.2 multifamily complex in Houston. The 10-year fixed-rate loan is IO for the whole loan DBRS Morningstar Property Type term. Loan proceeds of approximately $31.7 million and borrower equity of $17.1 million Multifamily facilitated the $48.8 million acquisition of the property. Built in 2016, the apartment DBRS Moringstar complex was 89.3% occupied as of November 2019. Property Quality Average + The two-building property is situated on a 4.4-acre site. Propertywide amenities Debt Stack ($ Millions) include a structured parking garage with gated access, a tenant lounge with pool table Trust Balance and kitchen, two fitness center areas, a lobby lounge with a coffee bar, a pool, and two 31.7 outdoor courtyard areas with hammocks, a ping pong table, and lounge chairs. The Pari Passu ($) unit breakdown consists of 79 studio units (614 sf ), 183 one-bedroom units (761 sf ), 0.0 and 74 two-bedroom units (1,217 sf ), which are, on average, smaller than units in B-Note comparable properties. Unit interiors feature stainless-steel appliances, quartz 0.0 countertops, white subway tile backsplashes, wood-style flooring, full-sized washer Mezz and dryer, walk-in closets, and private balconies. Select units feature a gourmet kitchen 0.0 island and countertop seating. During DBRS Morningstar’s property tour, management Total Debt 31.7 indicated that the sponsors will manage the property through an affiliated property management company and will initiate a cost savings plan aimed at reducing turnover, Loan Purpose janitorial, and lawn care costs. Management expects that the new access controlled Acquisition parking gates outlined in the plan will reduce parking expense. Equity Contribution/ (Distribution) ($ Millions) 17.1 The appraisal identified six multifamily properties in the local market that directly compete with the subject. For more information, please refer to the table below.
March 2020 73 Presale Report | FREMF 2020-K106
88TWENTY – HOUSTON, TX
COMPETITIVE SET
Avg. Rental Distance from Year Built/ Occupancy Rate Per Avg. Unit Property Location Subject (Miles) Units Renovated (%) Unit ($) Size (SF)
Everly Houston, TX 0.7 387 2017 91.0 1,539 885
The Fields at Woodlake Square Houston, TX 1.5 256 2013 94.0 1,147 844
Pearl Woodlake Houston, TX 2.1 376 2015 90.0 1,414 936
Tuscany Walk Houston, TX 1.9 139 2017 91.0 1,642 891
2626 Fountain View Houston, TX 2.4 281 2015 96.0 1,522 938
Tate at Tanglewood Houston, TX 2.8 431 2016 94.0 1,584 858
Total/WA. Comp. Set Houston, TX Various 1,870 Various 92.7 1,477 892
88Twenty Houston, TX n/a 336 2016 89.3 1,210 827
Source: Appraisal, except the subject figures are based on the rent roll dated November 25, 2019.
SPONSORSHIP The borrower is a single-purpose Texas limited partnership. The sponsor is a 25-year old local real estate and investment management company with a current portfolio valued at more than $500 million. The guarantors report adequate net worth and liquidity with no contingent liabilities and ownership interests in 16 multifamily properties (4,787 units) and one retail property in Arkansas, Georgia, Texas, and Massachusetts. No material derogatory credit or litigation issues were noted for the sponsor or borrower.
A borrower-controlled company provides property management for a contractual management fee of 2.5% of EGI. The company oversees the management of 4,381 multifamily units across 15 multifamily properties in three states.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on February 20, 2020, at 10:00am. Based on the site inspection and meeting with management, DBRS Morningstar found the property quality to be Average (+).
The mid-rise wrap-style apartment community is located off Westheimer Road approximately 10 miles west of the Houston CBD. Westheimer Road is a major arterial in West Houston that provides access to Beltway 8/Sam Houston Tollway, Loop 610, and I-69 via Westpark Toll Road. The immediate surrounding land uses are retail and commercial along Westheimer
March 2020 74 Presale Report | FREMF 2020-K106
88TWENTY – HOUSTON, TX
Road. The appraiser notes that multifamily developments in the area are limited and tend to provide transitional uses between residential and commercial/retail development on secondary thoroughfares. Adjacent to the property across Westheimer Road to the south is a retail center anchored by Target.
The interior finishes are like-new (built in 2016) and above average in condition and quality. The model unit that DBRS Morningstar toured featured stainless-steel appliances in the kitchen, manufactured stone countertops, an electric range and self-cleaning oven, ceramic tile backsplashes, a kitchen island, a dishwasher, garbage disposal, private balcony, and walk-in closets. The amenity package was also favorable with a nice clubhouse that had a lounge area and coffee bar, two gyms, a game room with a pool table and bar kitchen, a central pool with outdoor lounging space and hammocks, a courtyard, a business center, barbecue grilling stations, a security gate, and structured parking. Management indicated that 88Twenty was the nicest property in its class within a one mile radius; this was borne out during the site inspection as the adjacent multifamily properties to the north appeared to be Class C or B-, based only on an external inspection. The in-place rent is in line with the submarket average but below that of properties built in 2009 or later (the subject’s vintage), according to the Reis Q4 2019 report. Management indicated that the two closest competitors to the subject were Vargos on the Lake (0.3 miles to the north) and Alta City West (0.5 miles to the west). Although neither property was included in the appraiser’s competitive set, according to management, they are newly built, have similar amenity packages, and similar in-unit finishes to the subject.
Management indicated that the previous property manager had mismanaged the subject and that there had been numerous reports of trash accumulation, bad communication with tenants, and lost packages. Since taking over in December 2019, management has apparently been focused on addressing outstanding issues and the only planned capital improvements are to refresh the landscaping and add Amazon lockers for package deliveries. Management also noted that a number of tenants on the rent roll appeared to have fraudulent identities, which was a priority item to be addressed. According to management, a significant number of tenants were from the nursing or medical professions.
Management noted that, while the surrounding area apparently had an above-average crime rate, there had been no crime within the complex because of the gated access, key fob system, and the recent addition of two retired police officers that live on premises and provide after-hours security.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS T-12 Nov 2018 Morningstar NCF 2017 2018 - Oct 2019 Appraisal Issuer NCF NCF ($) Variance (%)
GPR ($) 6,054,822 5,433,542 4,884,450 4,906,264 4,851,592 4,851,592 0.00
Other Income ($) 210,413 328,530 404,104 404,880 404,104 404,104 0.00
Vacancy & -4,378,641 -1,622,058 -687,903 -551,955 -597,316 -655,045 9.66 Concessions ($)
EGI ($) 1,886,594 4,140,014 4,600,651 4,759,189 4,658,380 4,600,651 -1.24
Expenses ($) 2,747,891 3,364,390 2,935,103 2,290,964 2,288,967 2,452,187 7.13
NOI ($) -861,297 775,624 1,665,548 2,468,225 2,369,413 2,148,464 -9.33
Capex ($) 0 0 0 84,000 53,760 84,000 56.25
NCF ($) -861,297 775,624 1,665,548 2,384,225 2,315,653 2,064,464 -10.85
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,064,464, representing a -10.9% variance from the Issuer’s NCF of
March 2020 75 Presale Report | FREMF 2020-K106
88TWENTY – HOUSTON, TX
$2,315,653. The primary drivers of variance were repairs and maintenance, management fees, and economic vacancy. DBRS Morningstar estimated a 4% minimum management fee. The cleaning/turnover expense, under the repairs and maintenance category, was based on the historical average level of $412 per unit. The resulting DBRS Morningstar expense ratio of 53.3% is in line with comparable DBRS Morningstar rated loans at 52.8%. DBRS Morningstar concluded an economic vacancy of approximately 13.5%, adjusting bad debt and concessions to T-12 levels and estimating residential vacancy at 9.2% such that the DBRS Morningstar net residential income was in line with the T-12 NRI.
DBRS MORNINGSTAR VIEWPOINT The property is well-located off Westheimer Road with good connections to major freeways and thoroughfares in the submarket, making it easily accessible to a number of the area’s employment centers such as the Memorial City District (3.0 miles northwest), the Westchase District (4.0 miles west), and the Energy Corridor (6.0 miles northwest). The property has two Metro bus stops on Westheimer Road just south of the property on Crossview Drive and Fondren Road. Many of the market area’s retail, office, and multifamily properties were primarily developed in the early 1980s, fueled by the oil boom of the 1970s. Real estate project schedules in the area continue to be developed or put on hold by the impact of the oil price swings, but nevertheless the market area features desirable residential, office, and retail districts in the greater Houston area.
DOWNSIDE RISKS – The loan is IO for the entire 10-year loan term. – The property has volatile historical occupancy levels and the latest rent roll occupancy of 89.6% is below the Reis submarket average of 92.5%.
STABILIZING FACTORS – The loan is mitigated by $17.1 million of borrower cash equity and a DBRS Morningstar IO DSCR of 1.82x. – The property was built in 2016 and considered stabilized in December 2018. New management indicated problems with the past management that are supported by online reviews and have plans to address those. The sponsor and new property management firm are based in Houston and manage 1,716 existing units in the Houston area. Over the next five years, inventory growth is expected at 1.2% for the submarket, or 456 units – a slowdown compared with the annualized five-year inventory growth rate of 2.5%.
March 2020 76 Presale Report | FREMF 2020-K106
Stratford Green Apartments Bloomingdale, IL
Loan Snapshot Seller FREMF Ownership Interest Fee Simple Trust Balance ($ Millions) 31.6 Loan PSF/Unit ($) 164,427 Percentage of the Pool 2.6 Loan Maturity/ARD January 2030 Amortization COLLATERAL SUMMARY 30 Years DBRS Morningstar Mutlifamily Year Built/Renovated 1997/2015 DBRS Morningstar DSCR (x) Property Type 1.22 City, State Bloomingdale, IL Physical Occupancy (%) 94.8 DBRS Morningstar LTV (%) 70.0 Units 192 Physical Occupancy Date December 2019 DBRS Morningstar Balloon LTV (%) The loan is secured by the borrower’s fee simple interest in Stratford Garden 63.3 Apartments, a 192-unit, Class B garden-style multifamily complex in Bloomingdale, DBRS Morningstar Property Type Illinois, 30 miles northwest of Chicago. Loan proceeds of $31.6 million were used to Multifamily refinance $21.3 million in existing debt and distribute $9.3 million in equity to the DBRS Moringstar borrower. The 10-year fixed-rate loan is IO for the first five years before it amortizes Property Quality over a 30-year schedule. Average Debt Stack ($ Millions) The property was constructed in 1997 and is composed of 21 buildings that are garden- Trust Balance style apartments with attached garages. The borrower has invested $866,623 in capital 31.6 improvements since acquiring the property in 2015. Unit upgrades included a refresh Pari Passu ($) of appliances, cabinets, countertops, flooring, and lighting. Communal improvements 0.0 included a refresh of furniture in the clubhouse, parking lot/sidewalk repairs, B-Note and deferred maintenance items. The borrower intends complete further capital 0.0 improvements, specifically in 35 units over the next 12 months. The remaining units Mezz are set to be completed as units turn over. 0.0 Total Debt 31.6 Tenants currently benefit from a comprehensive set of communal and unit amenities. Communal amenities include a clubhouse, a dog park, a swimming pool with a sundeck, Loan Purpose and a fitness center. Unit amenities include a standard appliance package, a full-sized Refinance washer/dryer, and a patio or balcony. Equity Contribution/ (Distribution) ($ Millions) (9.3) As of the December 20, 2019, rent roll, the property has a physical occupancy rate of 94.8% and a 192 unit mix consisting of 63 one-bedroom, 108 two-bedroom, and 21 three-bedroom units. The average monthly rental rates are $1,578 for a one-bedroom,
March 2020 77 Presale Report | FREMF 2020-K106
STRATFORD GREEN APARTMENTS – BLOOMINGDALE, IL
$1,873 for a two-bedroom, and $2,214 for a three-bedroom unit. The property’s average in-place rental rate of $1,814 is above market when compared with the Reis average of $1,213 per unit by submarket.
COMPETITIVE SET
Distance Avg. Rental from Subject Year Built/ Occupancy Rate Per Avg. Unit Property Location (Miles) Units Renovated (%) Unit ($) Size (SF)
The Mark Glendale Heights, IL 1.0 296 1991 94.0 1,284 907
The Preserve at Carol Stream Carol Stream, IL 2.0 285 1974 92.0 1,234 906
Windsor Estate Bloomingdale, IL 0.3 342 1991/2015 93.0 1,355 944
Camden at Bloomingdale Bloomingdale, IL 0.5 360 1991 93.0 1,538 960
Savannah Trace Apartments Schaumburg, IL 4.0 368 1986/2017 94.0 1,424 918
Marq On Main Lisle, IL 8.0 202 2019 65.0 1,863 884
Total/WA. Comp. Set Various, State Various 1,853 Various 90.2 1,508 924
Stratford Green Apartments Bloomingdale, IL n/a 192 1997/2015 94.8 1,814 1,234
Source: Appraisal, except the Subject figures are based on the rent roll annualized dated November 13, 2019.
SPONSORSHIP The borrowers are three TICs, all of which are newly formed, single-purpose, limited-liability companies formed in Delaware. The guarantors are repeat Freddie Mac guarantors and have performed as agreed. In total, they have completed 18 transactions since 2013 with a total unpaid principal balance of $357.1 million. However, the majority of these transactions were completed by the TIC entity that only has a 2.9% ownership interest in the collateral.
A Chicago-based borrower-controlled entity provides property management. The firm manages more than 4,100 units across six states with 1,030 units managed in the Chicago market.
DBRS MORNINGSTAR ANALYSIS SITE INSPECTION SUMMARY DBRS Morningstar toured the interior and exterior of the property on March 2, 2020, at 12:00 p.m. Based on the site inspection, DBRS Morningstar found the property quality to be Average.
March 2020 78 Presale Report | FREMF 2020-K106
STRATFORD GREEN APARTMENTS – BLOOMINGDALE, IL
The property is approximately 30 miles northwest of the Chicago CBD. It is located off of Butterfield Road, between Army Trail Road and Schick Road. The surrounding area consists of more apartment complexes, retail centers, a business district, and Stratford Square Mall, a 1.3 million sf mall anchored by Kohl’s and Burlington. Per management, demand for the subject’s location is driven by its proximity to the mall and business centers, as well as its medial location in the northwest suburbs of Chicago. The subject exhibited favorable curb appeal relative to surrounding properties, commensurate with its relatively recent capital improvements.
The collateral consists of 21 three-story townhome-style apartment buildings totaling 192 residential units spread across 12.9 acres. Per management, the collateral was 95.0% occupied at the time of DBRS Morningstar’s inspection. The buildings feature a gray horizontal fiberboard facade accentuated by masonry veneering, red brick, and pitched-shingle roofing. The property’s grounds were well-maintained with new concrete roadways and a suburban neighborhood aesthetic rather than a regular apartment complex. The property features an on-site management and leasing office that doubles as a resident clubhouse with double-height ceilings, modern seating arrangements with fireplaces, and a fitness center. The subject’s outdoor pool is accessible through the rear of the management office/resident lounge and features tanning chair seating, a barbecue area, and a seating area with a fireplace. The subject also has a dog park toward the southwest of the property. The collateral is made up of one-, two-, and three-bedroom units. A total of 122 of the property’s 192 units have been renovated with wood flooring, black appliances, wood cabinets, and upgraded countertops and light fixtures. The remaining units are to be completed at turnover with 35 to be renovated within the next 12 months. The units showed exceptionally well at the time of DBRS Morningstar’s inspection. Parking is available via a surface lot, with 424 parking spaces on the property. Overall, the property exhibited favorable curb appeal and appeared well-maintained and in good condition.
DBRS MORNINGSTAR NCF SUMMARY NCF ANALYSIS
DBRS Morningstar NCF 2017 2018 T-12 Appraisal Issuer NCF NCF ($) Variance (%)
GPR ($) 3,888,626 3,951,572 4,123,281 4,183,563 4,178,424 4,179,456 0.02
Other Income ($) 257,487 231,972 255,109 254,400 271,335 255,109 -5.98
Vacancy & -327,009 -145,471 -180,395 -230,096 -227,735 -229,758 0.89 Concessions ($)
EGI ($) 3,819,104 4,038,073 4,197,995 4,207,867 4,222,024 4,204,807 -0.41
Expenses ($) 1,688,960 1,717,130 1,865,228 1,784,856 1,858,540 1,992,480 7.21
NOI ($) 2,130,144 2,320,943 2,332,767 2,423,011 2,363,485 2,212,327 -6.40
Capex ($) 0 0 0 57,600 54,972 54,912 -0.11
NCF ($) 2,130,144 2,320,943 2,332,767 2,365,411 2,308,513 2,157,415 -6.55
The DBRS Morningstar NCF is based on the DBRS Morningstar North American Commercial Real Property Analysis Criteria. The resulting DBRS Morningstar NCF was $2,157,415, representing a -6.6% variance from the Issuer’s NCF of $2,308,513. The primary driver of the variance is management fee and operating expenses. DBRS Morningstar used a management fee of 4.0% of EGI compared with the Issuer’s assumption of 3.0% of EGI. Operating expenses were based on the T-12 inflated by 3.0%. The DBRS Morningstar expense ratio was 47.4%, which is comparable with the Reis submarket expense ratio of 45.4%.
DBRS MORNINGSTAR VIEWPOINT The collateral is generally well-located just off of Army Trail and Schick Road. It is near major roadways such as North Avenue and I-355. The property benefits from its proximity to a variety of retail, restaurant, and entertainment offerings
March 2020 79 Presale Report | FREMF 2020-K106
STRATFORD GREEN APARTMENTS – BLOOMINGDALE, IL
concentrated in Bloomingdale, Illinois, such as Stratford Square Mall and Bloomingdale Court. Per Reis, asking rents decreased by 1.4% during the fourth quarter of 2019 to an average of $1,213, which is eighth-lowest out of the submarkets in the metro. During 2020 and 2021, asking rents are expected to increase by 2.2% annually and are expected to finish 2021 at $1,268. The subject’s average current rental rates of $1,814 per month are above the appraiser’s competitive set monthly average rate of $1,457. The borrower has invested only $866,623 ($4,514 per unit) since 2015 and plans to invest $700,000 to update 35 units and improve building exteriors and grounds. DBRS Morningstar believes the subject exhibits Average property quality based on the collateral’s relatively recent renovations and strong rental rates, and the property appears well equipped to remain competitive going forward.
DOWNSIDE RISKS – The loan is highly leveraged, as displayed by the 70.0% issuance LTV based on an appraised value of $45.1 million. – The borrower is cashing out $9.3 million of equity as part of this transaction and has only $2.7 million of equity remaining the deal.
STABILIZING FACTORS – The loan has partial amortization and, based on a balloon balance, has a more moderate exit LTV of 63.3%. – The borrower has owned the collateral since 2015 and has invested more than $860,000 to improve the property. The property features fixtures and appliances that are up to or above market standards. The property is 30 miles northwest of the Chicago CBD, with access to three major roadways in Chicago: I-355, I-294, and I-290. Stratford Square Mall is just across the street. Economic vacancy has averaged 5.8% since 2016, supporting the subject’s strong demand.
March 2020 80 Presale Report | FREMF 2020-K106
Transaction Structural Features
Freddie Mac Guarantee: Freddie Mac guarantees the (1) timely payment of interest; (2) payment of related principal on the distribution date following the maturity date of each mortgage loan, to the extent that such principal would have been distributed to the underlying Class A-1, A-2, and A-M certificates; (3) reimbursement of any realized losses and additional trust fund expenses allocated to the guaranteed certificates; and (4) ultimate payment of principal by the assumed final distribution date for the underlying Class A-1, A-2, and A-M certificates. Freddie Mac will not guarantee any other class of Underlying Certificates other than the Underlying Guaranteed Certificates.
Controlling Class Rights: The transaction’s most subordinate bonds represent the controlling class; as of the closing date, the Class D certificate holders represent the controlling class. The Special Servicer may be terminated without cause by the controlling class certificateholder.
No Downgrade Confirmation: This transaction contemplates waivers of Rating Agency Confirmation (RACs). It is the intent of DBRS Morningstar to waive loan-level RACs yet to receive notice upon their occurrence. DBRS Morningstar will review all loan-level changes as a part of its monthly surveillance. DBRS Morningstar will not waive RACs that affect any party involved in the operational risk of the transaction (e.g., replacement of Special Servicer, Master Servicer, etc.).
Methodologies
The following are the methodologies DBRS Morningstar applied to assign ratings to this transaction. These methodologies can be found on www.dbrsmorningstar.com under the heading Methodologies & Criteria. Alternatively, please contact [email protected] or contact the primary analysts whose information is listed in this report.
– North American CMBS Multi-borrower Rating Methodology – DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria – Rating North American CMBS Interest-Only Certificates
Surveillance
DBRS Morningstar will perform surveillance subject to the North American CMBS Surveillance Methodology.
March 2020 81 Presale Report | FREMF 2020-K106
Notes: All figures are in U.S. dollars unless otherwise noted.
This report is based on information as of March 16, 2020. Subsequent information may result in material changes to the rating assigned herein and/or the contents of this report.
The DBRS group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings GmbH (Frankfurt, Germany)(CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings Limited (England and Wales)(CRA, NRSRO affiliate, DRO affiliate). Morningstar Credit Ratings, LLC is a NRSRO affiliate of DBRS, Inc.
For more information on regulatory registrations, recognitions and approvals of the DBRS group of companies and Morningstar Credit Ratings, LLC, please see: http://www.dbrs.com/ research/highlights.pdf.
The DBRS group and Morningstar Credit Ratings, LLC are wholly-owned subsidiaries of Morningstar, Inc.
© 2020 Morningstar. All rights reserved. The information upon which DBRS ratings and other types of credit opinions and reports are based is obtained by DBRS from sources DBRS believes to be reliable. DBRS does not audit the information it receives in connection with the analytical process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS ratings, other types of credit opinions, reports and any other information provided by DBRS are provided “as is” and without representation or warranty of any kind. DBRS hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. No DBRS entity is an investment advisor. DBRS does not provide investment, financial or other advice. Ratings, other types of credit opinions, other analysis and research issued or published by DBRS are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness, investment, financial or other advice or recommendations to purchase, sell or hold any securities. A report with respect to a DBRS rating or other credit opinion is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS may receive compensation for its ratings and other credit opinions from, among others, issuers, insurers, guarantors and/or underwriters of debt securities. DBRS is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS. ALL DBRS RATINGS AND OTHER TYPES OF CREDIT OPINIONS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT http://www.dbrs.com/about/disclaimer. ADDITIONAL INFORMATION REGARDING DBRS RATINGS AND OTHER TYPES OF CREDIT OPINIONS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON http://www.dbrs.com.
March 2020 82 Glossary
ADR average daily rate IO interest only P&I principal and interest ARA appraisal-reduction amount LC leasing commission POD probability of default ASER appraisal subordinate entitlement reduction LGD loss severity given default PIP property improvement plan BOV broker’s opinion of value LOC letter of credit PILOT property in lieu of taxes CAM common area maintenance LOI letter of intent PSA pooling and servicing agreement capex capital expenditures LS Hotel limited-service hotel psf per square foot CBD central business district LTC loan-to-cost R&M repairs and maintenance CBRE CB Richard Ellis LTCT long-term credit tenant REIT real estate investment trust CMBS commercial mortgage-backed securities LTV loan-to-value REO real estate owned CoStar CoStar Group, Inc. MHC manufactured housing community RevPAR revenue per available room CREFC CRE Finance Council MTM month to month sf square foot/square feet DPO discounted payoff MSA metropolitan statistical area STR Smith Travel Research DSCR debt service coverage ratio n.a. not available SPE special-purpose entity EGI effective gross income n/a not applicable TI tenant improvement EOD event of default NCF net cash flow TIC tenants in common F&B food & beverage NNN triple net T-12 trailing 12 months FF&E furniture, fixtures and equipment NOI net operating income UW underwriting FS Hotel full-service hotel NRA net rentable area WA weighted average G&A general and administrative NRI net rental income WAC weighted-average coupon GLA gross leasable area NR – PIF not rated – paid in full x times GPR gross potential rent OSAR operating statement analysis report YE year end HVAC heating, ventilation and air conditioning PCR property condition report YTD year to date
Definitions
Capital Expenditure (Capex) NNN (Triple Net) Costs incurred in the improvement of a property that will have a life of more than A lease that requires the tenant to pay operating expenses such as property taxes, one year. insurance and maintenance, in addition to the rent.
DBRS Morningstar Refi DSCR Net Operating Income (NOI) A measure that divides the DBRS Morningstar stabilized NCF by the product of the The revenues earned by a property’s ongoing operations less the expenses loan’s maturity balance and a stressed refinance debt constant. associated with such operations but before mortgage payments, tenant improvements, replacement reserves and leasing commissions. DBRS Morningstar Term DSCR A measure that divides the DBRS Morningstar stabilized NCF by the actual debt Net Rentable Area (NRA) service payment The area (sf) for which rent can be charged. NRA includes the tenant’s premises plus an allocation of the common area directly benefiting the tenant, such as Debt Service Coverage Ratio (DSCR) common corridors and restrooms. A measure of a mortgaged property’s ability to cover monthly debt service payments, defined as the ratio of net operating income or net cash flow to the debt Revenue Per Available Room (RevPAR) service payments. A measure that divides revenue by the number of available rooms, not the number of occupied rooms. It is a measure of how well the hotel has been able to fill rooms Effective Gross Income (EGI) in the off-season, when demand is low even if rates are also low, and how well it fills Rental revenue minus vacancies plus miscellaneous income. the rooms and maximizes the rate in the high season, when there is high demand for hotel rooms. Issuer UW Issuer underwritten from Annex A or servicer reports. Tenant Improvements (TIs) The expense to physically improve the property or space, such as new Loan-to-Value (LTV) improvements or remodelling, paid by the borrower. The ratio between the principal amount of the mortgage balance, at origination or thereafter, and the most recent appraised value of the underlying real estate Weighted Average (WA) collateral, generally from origination. Calculation is weighted by the size of each mortgage in the pool.
Net Cash Flow (NCF) Weighted-Average Coupon (WAC) The revenues earned by a property’s ongoing operations less the expenses The average coupon or interest payment on a set of mortgages, weighted by the associated with such operations and the capital costs of tenant improvements, leasing size of each mortgage in the pool. commissions and capital expenditures (or reserves). Moreover, NCF is net operating income less tenant improvements, leasing commissions and capital expenditures.