The multi-borrower commercial mortgage-backed securities (CMBS) transaction FREMF 2021-K135, secured by loans originated in conjunction with the Federal Home Loan Mortgage Corp, or Freddie Mac’s, K-Deal program, is coming to market to raise about $1.2 billion in funding.
The pool is comprised of 45 loans on 50 townhomes and multifamily properties. Kroll Bond Rating Agency expects to rate the notes, and estimates that the interest-only index is 58.5%. The properties have a cap rate of 8.2%, and a property score of 3.29.
Garden apartments make up the majority of the pool, accounting for 75.6%. Beyond that, high-rise, mid-rise, townhomes and other properties account for 9.2%, 4.7%, 4.1%, and 6.3% of the pool, respectively.
Some 75% of the loans, or a count of 38, are partial term interest-only (IO) loans, and just six, or 22.9% of the pool are full-term IO loans. Just one loan, accounting for 2.1% of the pool, has an amortizing balloon, according to KBRA.
At the cutoff period, the trust assets had a loan-to-value ration of 68.5%. KBRA expects to assign ‘AAA’ ratings to most of the notes.
The trust will issue 10 classes of multifamily mortgage pass-through certificates, KBRA said. Three of the classes will issue notes entitled to principal and interest payments, while five classes will receive interest only, one class will receive principal payments only, and once class is a residual class, KBRA said. Freddie Mac will purchase and guarantee the first six classes of certificates.
In one positive rating aspect, the pool has a low exposure to non-core multifamily exposure. Four of the underlying loans are secured by nine properties that include assisted living and manufactured housing.
FREMF 2021-K135 is geographically diverse, with the properties located in 27 metropolitan areas. The top five MSAs are Dallas-Fort Worth (9.3%), Stamford (7.9%), Houston (6.6%), New York (6.2%), and Salt Lake City (6.2%).
In one potential credit negative, six of the loans have existing preferred equity with characteristics similar to debt. Further, each of the mortgage loans permits the related borrower to incur additional subordinate, secured debt, and usually beginning 12 months after the first loan was originated.
