DBRS Morningstar Confirms All Ratings on FREMF 2021-K123 Mortgage Trust, Series 2021-K123

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of Multifamily Mortgage Pass-Through Certificates, Series 2021-K123 issued by FREMF 2021-K123 Mortgage Trust, Series 2021-K123:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X1 at AAA (sf)
-- Class X2-A at AAA (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. As of the September 2021 remittance, all of the original 82 fixed-rate loans secured by multifamily properties, manufactured housing communities, and student housing properties remained in the trust, with a collateral reduction of 0.1% since issuance as a result of scheduled amortization. There were 59 loans, representing 81.7% of the pool, that were structured with a Coronavirus Disease (COVID-19) debt service reserve allowing borrowers to request disbursement from the reserve in the amount of a shortfall attributed to the coronavirus upon submission of property financial documents. Borrowers may not qualify for any forbearance option offered by Freddie Mac as long as there are funds in the debt service reserves, which can be released back to the borrower upon written request.

As of September 2021, no loans were delinquent or in special servicing. Only one loan, Brookdale Glen Ellyn (Prospectus ID#11, 4.6% of the trust balance), was placed on the servicer’s watchlist in September 2021 because of an occupancy rate decline. The loan is secured by the fee-simple interest in a 227-unit independent- and assisted-living facility in Glen Ellyn, Illinois. The servicer noted the property’s occupancy rate declined to 75.8% as of June 2021 from 83.3% as of September 2020. DBRS Morningstar believes the ongoing coronavirus pandemic may continue to affect the senior living facility’s occupancy rate.

The pool is relatively granular by loan size as the largest 15 loans represent 48.6% of the trust balance. The overall pool has a weighted-average (WA) DBRS Morningstar Issuance Loan-to-Value ratio (LTV) of 70.9% and a WA DBRS Morningstar maturity LTV of 64.6%. There are 28 loans, representing 34.1% of the total balance, with a DBRS Morningstar Issuance LTV of 67.1% or less, resulting in decreased probability of default (PODs). Twenty-six loans, representing 44.6% of the total balance, are in DBRS Morningstar Metropolitan Statistical Area (MSA) Groups 2 and 3. Loans in these MSA Groups have historically had lower PODs and loss given default figures and are considered credit positive.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Classes X1 and X2-A are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

The DBRS Morningstar Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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