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

DBRS, Inc. (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 Class B+ multifamily properties totaling 870 units, located in Fairfax and Herndon, Virginia. 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. 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 non-trust 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 fixed rate trust loan is interest only (IO) for the entire period. The DBRS Morningstar value of $180.4 million represents a 28.3% haircut to the issuance appraised value of $251.5 million, and implies a loan-to-value (LTV) ratio of 84.2% on the whole loan and 109.2% including the mezzanine debt.

As of year-end (YE) 2021, the portfolio has an average occupancy of 97.7% with the individual properties ranging from 95.3% to 100% occupied, which is in line with the average occupancy rate at issuance of 94.6%. According to Reis, as of Q4 2021, the Western Fairfax County submarket reported average vacancy of 3.9% with average effective rents of $1,795 per unit. Reis projected the effective rent in the submarket to increase by 2.7% during 2022 to $1,842 per unit, and by another 2.5% by YE2023. As of the YE2021 financials, the servicer reported the consolidated portfolio net cash flow (NCF) of $12.6 million and debt service coverage ratio (DSCR) of 1.42 times (x), an increase over the YE2020 NCF of $11.4 million and 1.29x, respectively. The YE2021 NCF compares with the DBRS Morningstar NCF of $11.4 million, and the issuer’s NCF of $12.1 million.

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 was reported to have renovated 151 units at the largest of the three collateral properties, Ellipse at Fairfax Corner, achieving rental premiums ranging from $56 per unit to $103 per unit. As of April 2022, the replacement reserve reported a balance of $6.1 million compared to $7.4 million in May 2021, suggesting that renovations are progressing. DBRS Morningstar has again inquired about the status of the renovation program, and as of the date of this press release, a response is pending.

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 X-A is an IO certificate 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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loan 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.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 4, 2022), 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.

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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