Approximately $68.7 Million of Structured Securities Affected
New York, March 23, 2011 -- Moody's Investors Service (Moody's) affirmed the rating of one class of
FREMF 2010-K7, Commercial Mortgage Pass-Through Certificates,
Series 2010-K7 as follows:
Cl. B, Affirmed at A3 (sf); previously on Jun 24,
2010 Definitive Rating Assigned A3 (sf)
RATINGS RATIONALE
The affirmation of Class B is due to key parameters, including Moody's
loan to value (LTV) ratio, Moody's stressed debt service coverage
ratio (DSCR) and the Herfindahl Index (Herf), remaining within acceptable
ranges. Based on our current base expected loss, the credit
enhancement levels for the affirmed class is sufficient to maintain its
current rating. Moody's initially also rated Classes,
A-1, A-2 and X-1. However, on
June 28, 2010, Moody's withdrew the ratings on these classes
as the issuer requested the ratings not be subject to on-going
monitoring or any further assessment by Moody's after the date of issuance.
Moody's rating action reflects a cumulative base expected loss of
1.7% of the current balance. Moody's stressed
scenario loss is 17.8% of the current balance. Moody's
provides a current list of base and stress scenario losses for conduit
and fusion CMBS transactions on moodys.com at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
Depending on the timing of loan payoffs and the severity and timing of
losses from specially serviced loans, the credit enhancement level
for investment grade classes could decline below the current levels.
If future performance materially declines, the expected level of
credit enhancement and the priority in the cash flow waterfall may be
insufficient for the current ratings of these classes.
Moody's analysis reflects a forward-looking view of the likely
range of collateral performance over the medium term. From time
to time, Moody's may, if warranted, change these
expectations. Performance that falls outside an acceptable range
of the key parameters may indicate that the collateral's credit
quality is stronger or weaker than Moody's had anticipated during
the current review. Even so, deviation from the expected
range will not necessarily result in a rating action. There may
be mitigating or offsetting factors to an improvement or decline in collateral
performance, such as increased subordination levels due to amortization
and loan payoffs or a decline in subordination due to realized losses.
Primary sources of assumption uncertainty are the current sluggish macroeconomic
environment and varying performance in the commercial real estate property
markets. However, Moody's expects to see increasing or stabilizing
property values, higher transaction volumes, a slowing in
the pace of loan delinquencies and greater liquidity for commercial real
estate in 2011. The hotel and multifamily sectors are continuing
to show signs of recovery, while recovery in the office and retail
sectors will be tied to recovery of the broader economy. The availability
of debt capital continues to improve with terms returning toward market
norms. Moody's central global macroeconomic scenario reflects an
overall sluggish recovery through 2012, amidst ongoing individual,
corporate and governmental deleveraging, persistent unemployment,
and government budget considerations.
The principal methodology used in this rating was "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Moody's review incorporated the use of the excel-based CMBS
Conduit Model v 2.50 which is used for both conduit and fusion
transactions. Conduit model results at the Aa2 level are driven
by property type, Moody's actual and stressed DSCR,
and Moody's property quality grade (which reflects the capitalization
rate used by Moody's to estimate Moody's value). Conduit
model results at the B2 level are driven by a paydown analysis based on
the individual loan level Moody's LTV ratio. Moody's
Herfindahl score (Herf), a measure of loan level diversity,
is a primary determinant of pool level diversity and has a greater impact
on senior certificates. Other concentrations and correlations may
be considered in our analysis. Based on the model pooled credit
enhancement levels at Aa2 and B2, the remaining conduit classes
are either interpolated between these two data points or determined based
on a multiple or ratio of either of these two data points. For
fusion deals, the credit enhancement for loans with investment-grade
credit estimates is melded with the conduit model credit enhancement into
an overall model result. Fusion loan credit enhancement is based
on the underlying rating of the loan which corresponds to a range of credit
enhancement levels. Actual fusion credit enhancement levels are
selected based on loan level diversity, pool leverage and other
concentrations and correlations within the pool. Negative pooling,
or adding credit enhancement at the underlying rating level, is
incorporated for loans with similar credit estimates in the same transaction.
Moody's uses a variation of Herf to measure diversity of loan size,
where a higher number represents greater diversity. Loan concentration
has an important bearing on potential rating volatility, including
risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 39,
the same as at securitization.
Moody's ratings are determined by a committee process that considers
both quantitative and qualitative factors. Therefore, the
rating outcome may differ from the model output.
The rating action is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
monitors transactions on a monthly basis through two sets of quantitative
tools -- MOST® (Moody's Surveillance Trends) and CMM
(Commercial Mortgage Metrics) on Trepp -- and on a periodic
basis through a comprehensive review. Moody's assigned definitive
ratings summarized in a press release dated June 24, 2010.
Please see the ratings tab on the issuer / entity page on moodys.com
for the last rating action and the ratings history.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
DEAL PERFORMANCE
As of the March 11, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 0.6% to $1.161
billion from $1.168 billion at securitization. The
Certificates are collateralized by 83 mortgage loans ranging in size from
less than 1% to 10% of the pool, with the top ten
loans representing 34% of the pool. The pool contains one
loan with an investment-grade credit estimate that represent 1.5%
of the pool. The deal is 100% comprised of loans secured
by multi-family properties.
To date, the pool has not experienced any losses and there are no
loans currently on the master servicer's watchlist.
Moody's has utilized the same financial statements provided at securitization
with limited updated information. Moody's weighted average
LTV is 97%, essentially the same as at securitization.
Moody's net cash flow reflects a weighted average haircut of 6.4%
to the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 8.8%.
Moody's actual and stressed DSCRs are 1.32X and 0.99X,
respectively, essentially the same as at securitization.
Moody's actual DSCR is based on Moody's net cash flow (NCF)
and the loan's actual debt service. Moody's stressed
DSCR is based on Moody's NCF and a 9.25% stressed
rate applied to the loan balance.
The loan with an investment-grade credit estimate is The Colorado
Apartment Loan ($17.8 million -- 1.5%
of the pool), which is secured by a 76-unit, high-rise
apartment building located in the Upper West of Manhattan on 76th Street
and Broadway. The property has ground-level retail.
At securitization, the property was 98% leased. Moody's
current credit estimate and stressed DSCR are A2 and 1.5X,
the same as at securitization.
The top three performing conduit loans represent 18% of the pool
balance. The largest loan is The Chelsea Centro Loan ($119.8
million -- 10.3% of the pool), which is secured
by a 356-unit, luxury high-rise apartment complex
located on 7th Avenue between 25th Street and 26th Street in the Chelsea
area of Manhattan. Constructed in 2000, the property features
high-end amenities such as concierge service, fitness center,
a sun-deck and a 120-car garage. The building offers
a 80/20 affordable program, where by 80% of units are offered
at market prices and the remaining units leased to tenants earning up
to 80% of the area median income. The 421-Real Estate
Tax Exemption allows the borrower to pay taxes only on the land for the
first 12 years. The exemption is then phased out 20% every
other year starting in 2016. At securitization, the property
was 94% leased. Moody's LTV and stressed DSCR are
94% and 0.92X, respectively, compared to 95%
and 0.91X at securitization.
The second largest loan is the Cityfront Place Loan ($56.7
million -- 4.9% of the pool), which is secured
by a 480-unit, luxury high-rise apartment complex
located in Chicago, Illinois along the Chicago River, between
the Navy Pier and Michigan Avenue. The unit mix ranges from 500
square foot studios up to 1,168 square foot two-bedroom apartments.
Rents range from $1000 per month up to $2,500.
At securitization, the property was 93% leased. Moody's
LTV and stressed DSCR are 107% and 0.86X, respectively,
compared to 108% and 0.85X at securitization.
The third largest loan is the Retreat at Danada Farms Loan ($33.2
million -- 2.9% of the pool), which is secured
by a 295-unit garden-style multi-family complex located
28 miles west of Chicago, Illinois in the suburbs of Wheaton.
The loan is full term interest-only. The property was 95%
leased at securitization. Moody's LTV and stressed DSCR are 99%
and 0.96X, respectively, the same as at securitization.
New York
Juan Acosta
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Affirms One CMBS Class of FREMF 2010-K7
