DBRS Morningstar Confirms Ratings on All Classes of CFK Trust 2019-FAX

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-FAX issued by CFK Trust 2019-FAX as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-A at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The loan is secured by the Fairfax Multifamily Portfolio, which consists of three multifamily properties totalling 870 units in Fairfax and Herndon, Virginia. The sponsor used loan proceeds as well as its ownership equity of $2.1 million and preferred equity of $36.0 million to acquire the Ellipse at Fairfax Corner asset for $98.0 million ($112,644 per unit), to refinance the short-term bridge loan on the Windsor at Fair Lakes and Townes at Herndon Center properties for $86.1 million, and to fund an upfront replacement reserve of $11.1 million. The whole loan is composed of an $82 million trust loan (two senior notes and two junior notes) and a $70 million nontrust pari passu companion loan (five senior notes) for a total first mortgage of $152 million. In addition to the senior debt, the transaction was structured with a $25 million senior mezzanine loan and a $20 million junior mezzanine loan, which are held outside the trust. The 10-year loan is interest only (IO) for the entire period.

All three properties are well situated near I-66 and I-495, providing direct access to Arlington, Washington, D.C., and other major cities in Virginia. The properties are in good school districts and are close to grocery stores, hospitals, and shopping centres. Fairfax Multifamily Portfolio is in a strong multifamily submarket with rental rates increasing year over year. The submarket, which is popular among young to middle-aged individuals, has had a vacancy rate of less than 6% over the past five years. The portfolio has an average occupancy of 93.5% with the individual properties ranging from 92.8% to 94.4%, which is in line with issuance levels. According to Reis, as of Q1 2021, the collateral’s submarket reports average vacancy of 5.2% with average effective rents of $1,701 per unit. The loan experienced a nominal decline in cash flow in 2020, falling from $12.0 million in 2019 to $11.4 million in 2020. The decline in cash flow was primarily expense driven.

The previous owner invested more than $22.8 million in capital improvements and renovated 248 of the 870 units in the portfolio. The sponsor budgeted an additional $11.0 million, or $12,800 per unit, for future renovations and upgrades, which will increase in-place rents and keep the property competitive. At issuance, the sponsor reportedly had renovated 151 units at the largest of the three collateral properties, Elipse at Fairfax Corner, achieving rental premiums ranging from $56 per unit to $103 per unit. As of May 2021, the replacement reserve reported a balance of $7.4 million, suggesting that renovations are progressing. DBRS Morningstar has inquired about the status of the renovations.

The loan sponsor is Tomas Rosenthal, the chief executive officer of Hampshire Properties Ltd., which is a New York-based privately held real estate investment firm specializing in value-add opportunities. Rosenthal founded the company in 1988 and its current portfolio consists of office buildings, industrial properties, and multifamily complexes across the United States and Canada, valued at approximately $1 billion.

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.

Class X-A is an IOcertificate that references 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 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
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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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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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