colony american homes 2014-1 · colony american homes 2014-1 page | 3 march 20, 2014 executive...

March 20, 2014

U.S. Structured Finance

Presale Report

Analytical Contacts:

Glenn Costello, Senior Managing Director

[email protected], 646-731-2332

Keith Kockenmeister, Managing Director


Andrew Giudici, Senior Director


Nitin Bhasin, Managing Director


Michele Patterson, Senior Director


Lenny Giltman, Senior Director


Colony American Homes 2014-1

mailto:[email protected]






Colony American Homes 2014-1 Page | 2 March 20, 2014

Executive Summary ..................................................................................................................... 3

Recent Transaction Comparison .................................................................................................. 8

Property Portfolio Metrics .............................................................................................................. 9

Geographic Concentration .......................................................................................................... 9

BPO Values .............................................................................................................................. 9

Lease Terms .......................................................................................................................... 10

Months since Purchase............................................................................................................. 10

Rent ..................................................................................................................................... 11

Transaction Parties .................................................................................................................... 12

Sponsor and Manager Overview ................................................................................................ 12

Colony American Homes ....................................................................................................... 12

Special Servicer ...................................................................................................................... 15

Situs Holdings, LLC .............................................................................................................. 15

KBRA Process and Methodology ................................................................................................... 16

Financial Analysis ....................................................................................................................... 17

Sensitivities and Surveillance ....................................................................................................... 21

Rating Sensitivities ................................................................................................................. 21

Rating Surveillance ................................................................................................................. 21

Appendix I: Legal Analysis .......................................................................................................... 22

Note: The photographs on the cover page were taken from the Colony American Homes website, and are for illustrative purposes only. None of these pictures represent properties in the collateral pool.

Table of Contents


Executive Summary

This presale report summarizes KBRA’s analysis of Colony American Homes 2014-1 (CAH 2014-1), a securitization transaction, collateralized by a $513.6 million loan secured by mortgages on 3,399 income producing single-family homes. The report is based on information available prior to February 1, 2014. The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings.

Notes 1. Issuer Cost Basis includes purchase price (<$540.0 MM, rehab costs $66.9 MM and other costs $23.9

MM). 2. The loan has five components for purposes of calculating interest. Each component is expected to have

a different spread over LIBOR, assuming a range from [115 bps to 280] bps, with an assumed weighted average spread at approximately [159] bps.

3. For the purposes of DSC calculations, an assumed current 1M LIBOR of 0.25% was used.

Transaction Summary

Collateral The collateral for the transaction is a non-recourse, first lien, floating rate mortgage loan (Loan) with a cut-off date principal balance of $513.6 million. The Loan will be originated by JPMorgan Chase Bank on the securitization closing date and funded with the proceeds from the sale of the certificates. The Loan is secured by the borrower’s fee simple interest in 3,399 single-family homes. The Loan has a three year term with two, 12-month extension options and generally amortizes on a monthly basis in an amount equal to one percent per annum of the Loan’s outstanding principal balance on the origination date.

Underlying Properties

The underlying properties consist of 3,399 one to four unit residential properties located in seven states (Arizona, California, Colorado, Georgia, Florida, Nevada and Texas).

Capital Structure

Class of Certificates Initial Class Balance Rated Final Distribution Date KBRA Expected Rating

A $291,000,000 May 2031 AAA(sf)B $42,000,000 May 2031 AA+(sf)C $56,000,000 May 2031 AA-(sf)D $40,500,000 May 2031 A-(sf)E $84,100,000 May 2031 BBB-(sf)

Property Loan Credit MetricsProperty Count 3,399 Loan Balance 513,600,000 Issuer Net Cash Flow ($mm) 29.7Purchase Price ($mm) 540.0 Loan Purpose Refinance KBRA Net Cash Flow ($mm) 24.9Issuer Cost Basis ($mm) 630.8 Interest Rate 1m L+ 159bps Cash Flow Haircut 16%Issuer BPO Value ($mm) 733.7 Loan Term Issuer Debt Yield 5.72%KBRA Adjusted BPO Value ($mm) 642.4 Initial Loan Term 3 years KBRA Debt Yield 4.85%KBRA Value Haircut to BPO 12% Extension Options Two 1-yr options Issuer DSC at Current LIBOR 2.10xAverage BPO Value ($) 215,851 Amortization Type 1% per year KDSC at Current LIBOR 1.76xWA Original Lease Term (months) 12.4 Libor Cap 2.20% Loan to KBRA Adjusted BPO Value 80.0%


Transaction Parties

Borrower: CAH 2014-1 Borrower, LLC

Loan Sponsor: CSFR ColFin American Investors, LLC

Originator and Loan Seller: JPMorgan Chase Bank N.A. will originate the mortgage loan and sell it to the depositor.

Securitization Parties: Colony American Homes Asset, LLC, the depositor, will purchase the Loan from the loan seller and subsequently convey it to Colony American Homes 2014-1 Trust, a New York common law trust and the issuing entity, which will issue the certificates to the depositor in exchange for the Loan pursuant to the trust and servicing agreement. Following the issuance of the certificates, the Loan will be serviced and administered by Midland Loan Services, a Division of PNC Bank, National Association. Situs Holdings, LLC will act as special servicer, Wells Fargo Bank, National Association will act as Certificate Administrator, and Christiana Trust, a division of Wilmington Savings Fund Society, FSB will act as trustee.

Transaction Structure

Colony American Homes 2014-1 is a securitization of single-family rental homes. Six classes of certificates will be issued, five of which are entitled to principal and interest and one of which is a residual class. The basic securitization structure, including payment and loss allocation priorities, is illustrated in the following diagram:

Loan

Certificates

Certificates

Pledge of Properties / Loan

$

$

Loan

$

Certificates

$

JPMorgan Chase Bank(Lender)

CAH 2014-1 Borrower, LLC

CAH Asset, LLC(Depositor)

CAH 2014-1 Trust (Issuer)

CAH Property Management,

LLC

InvestorsPlacement Agents

Distribution of Funds Capital Structure Losses

Class A AAA(sf) $291,000,000Class B AA+(sf) $42,000,000Class C AA-(sf) $56,000,000Class D A-(sf) $40,500,000Class E BBB-(sf) $84,100,000

Principal Interest

Rev

erse

Se

quen

tial

Sequ

entia

l

Sequ

entia

l


Key Credit Considerations +/–

New Asset Class

Large-scale institutional ownership and management of single-family rental homes (SFR) in the U.S. is a new business model. As such, the model is unproven and there is little directly applicable data with respect to the credit performance of a large portfolio of SFR homes. KBRA accounts for this risk by applying relevant elements of its CMBS and RMBS methodologies and by using conservative assumptions with respect to default and liquidation risks, as described herein.

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Manager With Limited Operating History

Colony American Homes (CAH) is 100% owned by Colony Capital, its affiliates, and third party investors (i.e. institutional and accredited investors). Colony Capital is a privately held global real estate investment firm. CAH provides property management services for each home in its portfolio. CAH has internal property managers that work full time overseeing the assets. Field Asset Managers, employed by a CAH affiliate, perform day to day property management services in jurisdictions where CAH has significant assets. CAH also relies on local 3rd party property managers for additional support and market expertise. External property managers are sourced largely through the National Association of Residential Property Managers (NARPM). The manager is experiencing significant growth and plans to fully internalize its property management division. This could negatively impact the management business by straining resources and increasing expenses as it attempts to manage an increasingly larger number of properties. Due to the manager’s limited operating history, combined with the fact that almost all of the properties only recently became stabilized, it is uncertain how effectively Colony can manage, maintain, and lease the properties over an extended period of time.

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Low Debt Service Coverage and Debt Yields Relative to Income-Producing Real Estate

The issuer debt service coverage (DSC) and KBRA debt service coverage (KDSC) 1 for the underlying loan are 2.10x and 1.76x at current LIBOR, respectively. The Issuer’s DSCs at LIBOR cap is much lower at 1.2x, which is significantly lower than the typical KDSCs of multi-family properties in KBRA rated Freddie Mac K-series and CMBS transactions in 2013, which have averaged at approximately 1.50x. Lower DSCs increase the probability of default during the loan term, particularly if cash flows come under stress, all else being equal.

Similar to DSC, the debt yield of the underlying loan is low compared to that of typical securitized multi-family properties. The issuer debt yield (DY) and the KBRA debt yield (KDY)2 for the underlying loan in this transaction is 5.72% and 4.85%, respectively. As a comparison, the KDY of multi-family properties in KBRA rated Freddie Mac K-Series and CMBS transactions has averaged at approximately 8.2%.

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1 Issuer DSC = Issuer net cash flow (NCF) / Amortizing debt service. KDSC = KNCF/ Amortizing debt service. Current 1M LIBOR is assumed to be 0.25%. KNCF is KBRA’s estimate of normalized sustainable property cash flow performance, and generally excludes non-recurring cash flow events. 2 Issuer DY = Issuer NCF / Loan amount. KDY = KNCF / Loan amount.


Structural Risk Mitigants

The Loan will be secured by first priority mortgages on the properties, and a grant of a security interest in all personal property of the borrower. KBRA considers the mortgage structure to be superior to a loan secured solely by an equity pledge because the trust will have a first priority lien and security interest in the SFR properties. Therefore, if the trust were to exercise remedies following a default, it would be able to acquire the properties, as opposed to having its recovery limited to the sponsor’s equity. The utilization of mortgages in this transaction was essential in assigning an ‘AAA’ rating. In addition, to help mitigate the risk of the borrower, guarantors or sponsor filing for bankruptcy, under the loan documents a bankruptcy action involving the borrower, any guarantor, the equity owner of the borrower or the loan sponsor constitutes an event of default. Further, under the sponsor guaranty, the sponsor will also be responsible for the principal amount of the debt upon the occurrence of certain bankruptcy or insolvency-related actions or proceedings involving the borrower or guarantors, up to a capped amount equal to the greater of (a) the lesser of $35.0 million and the outstanding balance of all amounts owed under the loan documents, and (b) 35% of the outstanding principal balance of the loan.

+

Volatile Home Prices

The underlying properties were typically acquired in distressed property sales and are concentrated in regions that experienced high levels of mortgage defaults in recent years. There has been substantial demand for such properties from investors, including institutional investors. As a result, property values have risen rapidly in these regions and this is reflected in the broker price opinion (BPO) values of the CAH 2014-1 portfolio. In KBRA’s view, there is a risk that these markets could cool off and prices could correct, particularly if supply increases rapidly in the event that investors choose to “flip” properties or holders of distressed properties seek to exit their positions.

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Refinance Risk and Complexity of Foreclosures and Workouts

Since the institutional ownership and management of SFR homes is a new business model, the continued availability of liquidity and capital for financing such businesses is untested. As is often true with any new or esoteric asset class, dislocations in liquidity could impact such businesses more severely than more established business and asset classes. However, the loan is structured with two, one-year extension options, amortization (although limited), substantial implied equity (70% LTV), and was stressed by KBRA with high default probabilities (90%+ for the ‘AAA’ stress) and extreme home value declines (60% for the ‘AAA’ stress), which produced results commensurate with KBRA’s published ratings definitions.

In addition, due to the customized nature of the loan and the related collateral, a sale of the Loan will not be as easy as the sale of a commercial mortgage loan. If the loan becomes non-performing, substantial workout negotiations and restructuring may be required. A workout could result in a substantial reduction in the interest rate and/or write-down of the principal balance of the loan, which would reduce the amounts available for distribution to the certificates. Further, to the extent the trust seeks recoveries post-default or undertakes a restructuring of the loan, it could also incur additional expenses that are not reimbursable by the borrower and that would ultimately result in losses to the certificates. If the special servicer elects to pursue foreclosure, due to the large number of properties securing the loan, it is likely to be a lengthy and costly process due to the fact that the properties are in different states and different counties within such states and separate actions will need to be brought in each jurisdiction. State laws may also

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limit the special servicer’s ability to accelerate the loan, to enforce the equity pledges, and may limit any deficiency judgment, which could also result in losses to the certificates.

Geographic Concentration

While the pool is more geographically diverse than the first SFR securitization, Invitation Homes 2013-SFR1, the pool is fairly geographically concentrated relative to a typical residential mortgage pool, with 73% of the properties located in just three states, and 30% of the properties in just two metropolitan areas. While this is a natural result of the sponsor focusing on opportunities for investment in regions with distressed home prices, it increases the risk of a substantial impact on performance and values from a regional downturn.

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Limited Portfolio Performance

While all of the properties in the portfolio are occupied, no single property has been leased for more than 25 months, and the average lease has been in place for six months. Short term leases present additional risks to the properties’ cash flow, because in addition to exposing the borrower to the risk of declining market rents, the risk of high turnover at the properties could increase capital expenditures and marketing costs.

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Substantial Hard Equity and Investment In Property Rehabilitation

SFRs that have been unoccupied for long periods or occupied by a borrower in financial distress often suffer from deferred maintenance and occasional vandalism. Colony American Homes has invested on average approximately 12% of the purchase price (approximately $19,700) on rehabilitation. The sponsor’s total cost basis in the portfolio (inclusive of acquisition, closing, rehabilitation, and other costs) is $631 million, which, after closing, will represent a loan-to-basis of 81.4%, or remaining hard equity of $117 million.

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Recent Transaction Comparison

Transaction Name CAH 2014-1 IH 2013-SFR1

Loan Balance ($mm) $513.60 $479.14Interest Rate 1m LIBOR + [159] bps 1m LIBOR + 176 bpsInitial Loan Term 3 years 2 yearsExtension Options Two 1-yr options Three 1-yr optionsTotal Extended Loan Term 5 years 5 yearsAmortization Type 1% per year 1% per yearLibor Cap [2.20]% 2.50%

Property Count 3,399 3,207Purchase Price ($mm) $540 $445Issuer Cost Basis ($mm) $631 $543Issuer BPO Value ($mm) $734 $639KBRA Adjusted BPO Value ($mm) $642 $571KBRA Value Haircut to BPO 12.4% 11.0%Average BPO Value ($) $215,851 $199,205WA Original Lease Term (months) 12.4 15.1Number of States Represented 7 5Top 3 MSA % 41.2% 63.2%Avg square footage 1,807 1,698Median Property Acquisition Date Mar-13 Sep-12Section 8 properties % (by property count) 0% 0%% Occupied 100% 100%

KBRA Vacancy Rate Assumption 10% 10%CapEx $1,250 $1,250Capitalization Rate 10% 10%

Issuer Net Cash Flow ($mm) $29.69 $30.50KBRA Net Cash Flow ($mm) $24.90 $24.10Cash Flow Haircut 16% 21%Issuer Debt Yield 5.7% 6.4%KBRA Debt Yield 4.8% 5.0%Issuer DSC at Current LIBOR 2.10x 2.12xKDSC at Current LIBOR 1.76x 1.68xLoan to KBRA Adjusted BPO Value 80% 84%

Servicer Midland MidlandSpecial Servicer Situs Situs

Class A 39.66% 43.64%Class B 45.39% 49.01%Class C 53.02% 56.38%Class D 58.54% 61.31%Class E 70.00% 68.52%Class F NA 75.02%

Advance to Issuer BPO Value

Loan Information

Property Information (as of cut-off date)

KBRA Key Cash Flow Assumptions

Credit Metrics

Servicer / Special Servicer


Property Portfolio Metrics

Geographic Concentration

The properties are fairly concentrated, with approximately 30% of the pool located in the top two metropolitan areas, and 73% of the pool concentrated in just three states (CA, FL, NV). This concentration reflects the sponsor’s focus on investing in regions with the most attractive investment opportunities. The need for local property knowledge and economies of scale in managing properties in a particular region can be viewed as positive aspects of concentrating on a few regions. However, the risk of being significantly impacted by a local downturn in the economy and/or property markets is elevated. KBRA addresses this risk in its loss analysis as described below in the Financial Analysis section.

BPO Values

The average value of a portfolio property as of the most recent Broker Price Opinion (BPO) is approximately $215.9 thousand. The BPO values range from $55,000 to $850,000. Values are, for the most part, clustered around the mean. However, there is a significant concentration at $300,000, largely from the California markets.

While home price volatility is a risk, to date the portfolio has enjoyed significant home price inflation as evidenced by the BPOs. When considering the change in home prices for recently acquired SFR properties, it is necessary to understand that current prices partly reflect the investment made in the properties by

Geographic Distribution (MSA)MSA Count BPO ($) BPO % of Total

Las Vegas-Paradise, NV 574 109,251,449 14.89%Los Angeles-Long Beach-Santa Ana, CA 296 108,716,290 14.82%Riverside-San Bernardino-Ontario, CA 286 84,187,700 11.47%Phoenix-Mesa-Glendale, AZ 400 70,581,600 9.62%Tampa-St. Petersburg-Clearwater, FL 285 60,356,152 8.23%Atlanta-Sandy Springs-Marietta, GA 339 56,275,644 7.67%Denver-Aurora-Broomfield, CO 189 33,753,000 4.60%Houston-Sugar Land-Baytown, TX 244 30,954,288 4.22%Lakeland-Winter Haven, FL 159 27,948,555 3.81%San Diego-Carlsbad-San Marcos, CA 62 24,594,800 3.35%North Port-Bradenton-Sarasota, FL 85 20,713,000 2.82%Oxnard-Thousand Oaks-Ventura, CA 38 17,365,000 2.37%Orlando-Kissimmee-Sanford, FL 103 17,002,900 2.32%Sacramento--Arden-Arcade--Roseville, CA 75 16,394,100 2.23%Miami-Fort Lauderdale-Pompano Beach, FL 62 16,277,000 2.22%San Francisco-Oakland-Fremont, CA 46 14,716,100 2.01%Vallejo-Fairfield, CA 37 10,438,300 1.42%Dallas-Fort Worth-Arlington, TX 64 7,548,975 1.03%Palm Bay-Melbourne-Titusville, FL 31 3,386,000 0.46%Port St. Lucie, FL 24 3,215,000 0.44%Grand Total 3,399 733,675,853 100%

BPO Range ($) # of Properties % BPO BPO Average BPO50,000-99,999 149 1.74% $12,786,416 $85,815100,000-299,999 2,634 64.66% $474,374,114 $180,096300,000-499,999 537 27.33% $200,484,573 $373,342>500,000 79 6.27% $46,030,750 $582,668


the sponsor. Based solely on the purchase price, without incorporating closing costs or rehabilitation costs, the BPO values represent an average 36% appreciation since purchase. While the sponsor has made significant additional expenditures with respect to closing costs and other costs aside from rehabilitation, the impact of those expenditures on value is not clear. However, in KBRA’s view the amounts spent on rehabilitating the portfolio properties clearly has a material impact on valuation. On average approximately $19,700 per home was spent on rehabilitating the portfolio properties. So giving “dollar for dollar” credit for rehabilitation costs equal to 12.4% of the purchase price, the average increase in the BPO value over the post-refurbishment cost is 21%. Conversely, as the Property Value Composition chart below illustrates, the aggregate purchase price represents approximately 74% of the current BPO value, the refurbishment expenses represent approximately 9%, with the rest attributable to the BPO valuation. When these adjusted numbers are compared to one-year regional home price indices, the numbers are comparable, although the BPOs in some regions are still significantly higher, as illustrated in the chart below right.

Property Value Composition BPO Value over Purchase Price plus Rehab

Source: CoreLogic, KBRA

Lease Terms

Approximately 7.5% of the properties have an original lease term of 11 months, 65.7% of the properties have an original lease term of 12 months and 23.1% of the properties have an original lease term of 13 months. Over 97% of the properties have a remaining term of less than 12 months, with a weighted average remaining lease term of 6.2 months.

Months since Purchase

All of the properties in the pool were acquired during 2012 and 2013, primarily in the first and second quarters of 2013. Properties were rehabilitated and leased mostly during 2012 and 2013.

Month of Purchase

74%

9%

17%

0%10%20%30%40%50%60%70%80%90%

100%

All PropertiesPurchase Price Rehab Cost BPO Value

0%5%

10%15%20%25%30%35%

BPO Value HPI

Original Lease Term Remaining Lease Term

Months BPO % of Total BPO % of Total

<12 7.6% 97.4%12 65.7% 1.3%13-18 25.1% 1.0%>18 1.7% 0.3%Total 100% 100%


Rent

The weighted average monthly rent per unit is $1,586 and is clustered just below that level, with 47% of the portfolio at a contractual rent between $1,000 and $1,500.

There is limited data available on rental rates for single-family homes. RentRange is a data provider that has gathered several years’ worth of SFR rental data for a number of markets. KBRA calculated the weighted average rent for each zip code in the portfolio and compared these results to the zip code level data provided by RentRange. We found that the rates were comparable, as seen in the chart below, with properties in some of the largest regions- Phoenix and Las Vegas exhibiting slightly below market rents, while Los Angeles and Riverside appear slightly above market at 103% and 104% and Atlanta above market at 115% of the RentRange averages respectively.

0 100 200 300 400 500 600

Mar-12May-12Jul-12

Sep-12Nov-12Jan-13Mar-13May-13Jul-13

Sep-13

# of Properties

Mon

th o

f P

urc

has

e

Contractual Rent # of Properties % Rent WA Rent500-999 563 10.7% $8991,000-1,499 1,796 47.0% $1,2541,500-1,999 692 24.9% $1,7202,000-2,499 259 12.1% $2,219>2,500 89 5.3% $2,848


Portfolio Rent vs. Market Rate

Source: RentRange, KBRA

Transaction Parties

Sponsor and Manager Overview

Colony American Homes

Colony American Homes (CAH) is 100% owned by Colony Capital, its affiliates, and third party investors (i.e. institutional and accredited investors). Colony Capital is a privately held global real estate investment firm. Colony Capital has invested around $54 billion in various investments since inception in 1991 and currently has about $20 billion of real estate assets under management. CAH provides property management services for each home in its portfolio. CAH has internal property managers that work full time overseeing the assets. Field Asset Managers perform day to day property management services in jurisdictions where CAH has significant assets. CAH also relies on local 3rd party property managers for additional support and market expertise. External property managers are sourced largely through the National Association of Residential Property Managers (NARPM). Once an external property manager has been identified, CAH conducts interviews and obtains written questionnaires from the candidates to determine the number of properties currently managed, ability to scale, and in-place processes and procedures. Each property manager is required to have a certain amount of insurance and an active broker’s license. Approved 3rd party property managers are provided with various materials that include CAH’s standards, policies and procedures. CAH asset managers met with property managers in their respective region on a weekly basis to train and update procedures for maintenance, service requests and to refine workflow.

External property managers are monitored daily through CAH asset management teams and regional offices. Monthly progress meetings are held and each property manager is evaluated. CAH utilizes scorecards to gain insight into the performance of each external property manager. Among other things, the scorecards track leasing volumes, occupancy levels, delinquency percentages and turnover rates. CAH uses the scorecards to identify areas of improvement and which property managers should be given

75% 80% 85% 90% 95% 100% 105% 110% 115% 120%

Phoenix, AZ

North Port, FL

Houston, TX

Las Vegas, NV

Denver, CO

San Diego, CA

Los Angeles, CA

Lakeland, FL

Tampa, FL

Riverside, CA

Atlanta, GA

Portfolio Rent/RentRange Index

MS

A


more/less territory. CAH makes short and long term suggestions to improve certain metrics if they are falling below a pre-determined threshold. External property managers that do not meet certain performance statistics are either put on probation or terminated. While there are some benefits associated with 3rd party property managers, there are also additional risks. For example, a sudden replacement of an external property manager could result in a temporary disruption of service. CAH has a number of approved external property managers in each region, which allows them to replace a poor performing manager in a short period of time. When an external property manager is selected for removal, existing property managers continue to provide services for thirty days. This transition allows CAH to get accounts and other open issues resolved, while the new property manager is preparing to take over. Internal property managers have also been identified in each region to quickly replace a distressed property manager. KBRA believes that the replacement of an external property manager may result in higher expenses as a new entity may demand a higher property management fee in order to take over a large number of homes in a distressed scenario. KBRA accounted for this risk by increasing the property management fee to 10%, which is approximately 40% higher than current market rates, which are approximately 6%. External property managers are paid on the basis of gross rent collections and are thus incentivized to maximize rents and improve collections, which ensure that economic interests of CAH and the property managers are aligned. CAH expects to fully internalize the property management function as it continues to grow and develop local market expertise. Internalization of the property management function has already begun for properties located in Arizona, Texas and Georgia. Offices in other states will be established on a monthly basis. CAH expects to complete the internalization process by Q3 2014. While internalizing the property management function should result in operating efficiencies, scale up risk remains.

As of February 28th, CAH owns over 15,600 properties across nine different states. Approximately, 86% of these properties are leased 64% or available for lease 22%. The remaining properties are in the rehabilitation process or have been recently acquired. The portfolio’s 180+ day Move-In-Ready occupancy rate is around 99%. CAH has eight offices in five states. CAH acquires its properties through a number of different channels, including foreclosure auctions, portfolio sales and residential real estate brokers. CAH’s acquisition strategy relies on strong centralized oversight and controls, combined with local market expertise. CAH utilizes a blended investment philosophy which focuses on a minimum yield requirement and long-term asset appreciation. CAH has partnered with local market specialist in order to acquire a high quality portfolio of single family homes in a short period of time. Acquisition partners are selected after an in-depth interview process, which focuses on onsite operational reviews, background checks for key principals and experience acquiring single family properties. Acquisition partners are trained by CAH internal personnel. The training program provides an overview of CAH’s underwriting model and use of rental and valuation comparables to determine an appropriate purchase price. In many cases, acquisition partners are responsible for buying, maintaining and leasing properties. KBRA views this arrangement favorably as it incentives the acquisition partner to purchase quality properties as it is responsible for the ongoing maintenance of the property. Acquisition partners are compensated on a property basis, which ensure economic incentives are aligned. Poor performing partners are eliminated from the program or see a drastic reduction in capital available for investment. While CAH’s partners are intimately involved in the acquisition process, CAH’s internal employees determine which properties can be acquired and maximum purchase prices; a process KBRA views favorably.

CAH has developed a centralized construction management function with 26 employees that focus on the rehabilitation and maintenance functions. CAH relies on general contractors at the local level for core construction activities. CAH utilizes propriety technology to manage multi-state construction projects. CAH invests a significant amount of capital in the rehabilitation process with the goal of reducing ongoing repair and maintenance costs and to maximize the useful life of each property. CAH relies on unit pricing in the


rehabilitation process in order to eliminate uncertainty in project costs. This approach allows CAH to have pricing consistency across various markets and general contractors.

CAH employs a preventive maintenance program to reduce reactive maintenance calls and expenses. Property managers are required to perform at least one home inspection every six months. On average, CAH visits each property around 2.5 times each year to address various service calls. At which time, the property managers perform a detailed inspection of the property to identify areas of improvement. Ongoing repairs and maintenance are outsourced to a variety of specialty contractors. These repairs are typically approved directly by property management, up to a pre-approved delegated authority. Items exceeding the pre-approval limits are approved by CAH. All repairs and maintenance requests originate with a Yardi Work Order. Upon completion of the repair, the Work Order is closed out with a vendor invoice and photo documentation supporting the completion of the repair.

CAH has a direct service line to handle all incoming resident service request calls. The incoming call is directed to the regional office and is answered by a CAH employee during normal business hours. Any rollover calls during business hours and all after hours emergency calls are answered directly by a 3rd party vendor who is responsible for addressing the maintenance request with one of its vendors.

CAH performs a periodic assessment of its rental rates in order to ensure they are in line with the local market. Lease Coordinators utilize market comps and other relevant data to determine property specific rental rates. Rent concessions are not common, but do occur when a property has been on the market for an extended period of time. CAH’s target tenants are families who work in the vicinity and have children who participate in the local school system. Prior single family home owners or renters are also targeted. Individuals interested in a CAH property must fill out an application and meet specific underwriting standards. Key considerations for resident approval include a financial assessment of the tenant (income, bankruptcy, late payments, rental history, credit score, job history,) a criminal background check based on CAH’s criminal guidelines, (criminal record/SOR), and a SDN List check to determine if CAH is prohibited from doing business with applicant. Any deviation from these standards requires CAH management approval.

CAH processes rent payments on-line, via check, or through automated bank account drawings. Around 65% of CAH tenants pay online (ACH, Credit Card and Debit Card), with the remaining 35% paying by check. Online rent payments are processed via CAH’s website, while checks are sent directly to CAH’s Lockbox. Rent is usually collected on the 1st of the month and is considered late if not received by the 3rd. Property managers send out pay or quit notices and contact the tenants if rent is not received on time. Property managers will start the eviction process if rent is not received by a specific date, which is generally two weeks after late notices are distributed. The eviction process is regional and based on statutory requirements. Property managers follow CAH’s eviction policies and procedures, which includes the use of local counsel to facilitate the eviction process.

KBRA met with CAH’s management team in December 2013 at their Scottsdale, Arizona office. During the meeting, we had a detailed discussion about the company’s track record, as well as its business plan and projections. The meeting included a demonstration of their technology platform to better understand how day-to-day management functions are completed, including collection activities, asset management, property acquisition and rehabilitation. CAH has adequate controls in place in order to ensure that payments are processed in a timely manner and the properties are maintained to extremely high standards. CAH has a demonstrated, albeit brief, a track record of acquiring, rehabbing and renting single family residential properties. Since 2012, CAH has been a leader in the single family rental sector, acquiring more than 15,600 homes across nine states. KBRA believes that CAH has the experience and knowledge to manage a diversified pool of residential properties across the U.S. While CAH is a leader in the single family rental sector, its operating history is limited. Many of CAH’s properties have been leased


for less than one-year, so it’s uncertain how successful it will be managing the properties over an extended period of time. Furthermore, CAH may experience operating issues as it internalizes the property management function as many of its properties are currently managed by third parties.

Special Servicer

Situs Holdings, LLC

Situs Holdings, LLC (Situs) is the Special Servicer and is responsible for the servicing and administration of the Loan upon its transfer to special servicing. In October 2011, Helios AMC, LLC acquired The Situs Companies LLC, including its primary servicing subsidiary, Situs Asset Management LLC. Shortly thereafter, the name of Helios AMC, LLC was changed to Situs Holdings, LLC. As of December 31, 2013, Situs had 30 personnel dedicated to the special servicing business unit. Also, as of December 31, 2013, Situs specially services a portfolio which included approximately 324 loans throughout the United States with a then-current face value in excess of $2.25 billion, all of which are commercial or multifamily real estate assets.

KBRA met with Situs’ management to discuss its capabilities and the specific challenges of the SFR market. The Situs management team has substantial experience in commercial mortgage loan workouts. While institutional SFR loans constitute a new asset class, Situs’ comparable experience in the resolution of portfolios of small-balance commercial loans should be applicable in the event that the Loan in this transaction requires special servicing. Since December 2010, Situs is currently or has directly managed approximately 402 small-balance commercial real estate loans with an approximate unpaid principal balance of $488 million. As of March 2014, Situs currently manages approximately 104 small small-balance commercial real estate loans with an approximate unpaid principal balance of $89 million.


KBRA Process and Methodology

This transaction is collateralized by a single loan that is in turn secured by mortgages on 3,399 income producing single family residences (SFR). KBRA used a hybrid analysis to evaluate the transaction, which incorporated elements of both our CMBS and RMBS methodologies, as the underlying real estate contains commercial and residential characteristics. As the properties generate a cash flow stream from tenant rental payments, CMBS methodologies were used to determine the Loan’s probability of default (PD). To determine loss given default (LGD), KBRA assumed the underlying collateral properties would be liquidated in the residential property market. In determining LGD, KBRA subjected the real estate properties to home price stress scenarios using our RMBS Default and Loss Model.

The first step in our analysis was to derive KBRA’s estimate of sustainable net cash flow (KNCF) for the underlying real estate assets using concepts from our CMBS Property Evaluation Guidelines. KNCF is KBRA’s estimate of normalized sustainable property cash flow performance, and generally excludes non-recurring cash flow events. KBRA value was then derived by using the KNCF divided by a stabilized, long-term capitalization rate. Components of KNCF and KBRA value are key inputs used in our CMBS Multi-Borrower model. The model uses these variables, along with other loan and property specific data, to generate PDs for the underlying mortgages in the manner described in our U.S. CMBS Multi-Borrower Rating Methodology.

When analyzing SFR securitizations, one of the most significant differences from CMBS analysis lies in the disposition of properties if the Loan defaults. Whereas commercial mortgage defaults are typically resolved through loan workouts or sales in the commercial property market, demand for SFR properties that must be liquidated is better assessed by looking to the much larger residential home market consisting of both investors and buyers intending to occupy the property. KBRA therefore applies the home price stress scenarios described in its U.S. RMBS Default and Loss Methodology to this liquidation analysis.

As noted in the Key Credit Considerations above, a particular focus in the analysis of the CAH 2014-1 property portfolio is the rapid home price inflation that has occurred in the housing markets represented in this transaction, particularly for lower-priced properties such as those in the portfolio. KBRA believes this appreciation has been largely investor-driven, and a correction may well occur should investor demand wane, or if large amounts of remaining distressed inventory were to come on the market. To address this risk, KBRA caps the amount of home price inflation above the purchase price when calculating the potential recovery on liquidated homes under various stress scenarios. In addition to the home price stress scenarios and home price inflation cap, KBRA’s LGD analysis applies estimated liquidation costs to the calculation of loss on liquidated properties.

Beyond property-level stress, pool-level credit enhancement penalties for geographic concentration are assigned in accordance with KBRA’s RMBS methodology. These penalties are assigned at each rating level and are based on an analysis of property concentration at the CBSA level, as described more fully in KBRA’s U.S. RMBS Default and Loss Methodology.

https://www.krollbondratings.com/show_report/1






Q4 2013 Multifamily Vacancy Rates Per REIS

MSAAllocated Loan

Amount % of PoolSubmarket Vacancy

Los Angeles-Long Beach-Santa Ana $75,083,336 14.6% 3.71%Riverside-San Bernardino-Ontario $54,321,305 10.6% 4.54%Phoenix-Mesa-Glendale $40,387,636 7.9% 5.12%Las Vegas-Paradise $39,896,174 7.8% 6.25%Atlanta-Sandy Springs-Marietta $37,249,017 7.3% 6.27%Tampa-St. Petersburg-Clearwater $31,247,970 6.1% 4.42%Denver-Aurora-Broomfield $20,545,096 4.0% 4.54%Houston-Sugar Land-Baytown $19,254,823 3.7% 6.12%San Diego-Carlsbad-San Marcos $16,814,741 3.3% 2.07%Sacramento--Arden-Arcade--Roseville $11,476,471 2.2% 3.51%Oxnard-Thousand Oaks-Ventura $11,438,599 2.2% 2.78%Miami-Fort Lauderdale-Pompano Beach $11,394,497 2.2% 4.07%San Francisco-Oakland-Fremont $9,382,661 1.8% 2.94%Orlando-Kissimmee-Sanford $8,576,779 1.7% 5.81%Dallas-Fort Worth-Arlington $5,284,559 1.0% 5.36%Lakeland-Winter Haven $3,654,961 0.7% 5.17%Subtotal $396,008,627 77.1% 4.65%REIS Vacancy Not Available For Zip Code $117,591,373 22.9%Total $513,600,000 100.0% 4.65%

Financial Analysis

The first step in KBRA’s financial analysis was to determine a sustainable net cash flow (KNCF), for each of the underlying properties. The results of the property cash flow analysis are summarized in the following table:

The following highlights the assumptions used to derive KNCF:

• Gross potential rent was based on each property’s contractual rent.

• KBRA applied a 10% vacancy rate to the in-place rental revenue generated by each property. To determine our vacancy assumption, we first looked to multifamily vacancies in each property’s respective market, the weighted average results of which are detailed in the adjacent table. We used multifamily rates to inform our assumptions, as SFRs have a limited vacancy history as an asset class. To account for this, as well as potential credit loss and downtime between tenants, we stressed the weighted average multifamily vacancy rate by approximately a factor of two. As a reference point Colony makes a 7.6% vacancy cost assumption (of gross potential income) during underwriting.

• Operating expenses consisted of real estate tax, property management fees, home owner association (HOA) fees, insurance, repairs and maintenance, maintenance turnover costs and leasing and marketing costs. The majority of the expenses were based on the borrower’s budgeted figures, with

Cash Flow Analysis Issuer KBRA

Item PortfolioPer

Property% of Effective Gross Income Portfolio

Per Property

% of Effective Gross Income

RevenuesGross Potential Rent $56,673,705 $16,674 108.2% $56,673,705 $16,674 111.1%Other Income - - - - - -

Gross Income $56,673,705 $16,674 108.2% $56,673,705 $16,674 111.1%Vacancy / Credit Loss ($4,314,307) ($1,269) (8.2%) ($5,667,371) ($1,667) (11.1%)

Effective Gross Income $52,359,398 $15,404 100.0% $51,006,335 $15,006 100.0%Expenses

Property Management Fee $3,876,258 $1,140 7.4% $5,100,633 $1,501 10.0%HOA Fees $1,162,331 $342 2.2% $1,162,331 $342 2.3%Real Estate Taxes $7,071,228 $2,080 13.5% $7,071,228 $2,080 13.9%Insurance $1,954,264 $575 3.7% $1,954,264 $575 3.8%Repairs and Maintenance $3,025,924 $890 5.8% $3,025,924 $890 5.9%Maintenance Turnover Costs $2,217,575 $652 4.2% $2,217,575 $652 4.3%Leasing and Marketing Costs $1,322,386 $389 2.5% $1,322,386 $389 2.6%

Total Operating Expenses $20,629,966 $6,069 39.4% $21,854,341 $6,430 42.8%Net Operating Income $31,729,432 $9,335 60.6% $29,151,993 $8,577 57.2%

Capex Reserve $2,039,400 $600 3.9% $4,248,750 $1,250 8.3%Net Cash Flow $29,690,032 $8,735 56.7% $24,903,243 $7,327 48.8%


the exception of management fees, which were assumed at 10% of effective gross income (EGI), as well as real estate taxes and insurance, which were based on the actual costs. KBRA typically applies management fees at a rate that equates to 3-5% of EGI for multifamily properties. This rate was stressed for the SFRs as they are geographically disbursed, which makes it more challenging to achieve economies of scale than traditional multifamily assets, which have multiple units at one location. KBRA also looked to data provided by the sponsor.

• KBRA’s resulting net operating income (KNOI) was $29.2 million, which was approximately 8.1% lower than the NOI estimated by the sponsor.

• An annual capital expenditure expense of $1,250 per home was deducted from NOI. A higher amount was used for properties with a pool. In determining this assumption, KBRA consulted a research paper prepared by Zelman Associates, a leading housing research firm, which considered overall maintenance and capital expenditure costs for SFRs. This study projected average annual costs of $2,027 per home. KBRA’s total assumed cost for these items, which include repairs and maintenance, maintenance turnover costs and capital expenditures, equates to approximately $3,000 per home.

• The resulting KNCF was $24.9 million, approximately 16% below the sponsor’s estimated NCF.

Next, KBRA determined stressed income-based values (KBRA Direct Capitalization Values) of the properties. For this, KBRA applied a capitalization rate of 10% to the KNCF for each collateral property. This is at the high end of the range of multifamily capitalization rates noted in KBRA’s Property Evaluation Guidelines, and is, on average, 20% higher than the capitalization rates KBRA assigns to typical multifamily securitizations. The resulting aggregate KBRA direct capitalization value for the collateral assets was $249 million, which is 66% lower than the transaction’s aggregate BPO value.

The results of the property cash flow analysis were key inputs for KBRA’s CMBS Multi-Borrower model, along with each property’s location, allocated loan amount, loan coupon, loan amortization, loan maturity date, and other variables such as lockbox and cash management provisions. The model incorporates the KNCF, KBRA value, rent and occupancy stresses, and other loan, property and economic variables to determine PD using multi-factor regression equations. The PDs are generated at four anchor categories, ‘AAA’, ‘A’, ‘BBB-‘, and ’B-’, and PDs for the remaining categories are extrapolated.

The results of the model at each of the anchor rating categories are presented at the end of the section. The high PDs are attributable to the much higher leverage and lower debt service coverage and debt yields than those found in typical commercial and multifamily mortgage loans.

After calculating the PDs, the next step in Kroll’s analysis is to calculate the liquidation value and the resulting loss. The SFR market benefits from two different buyer bases, the income-yield based investors and the single-family owner-occupant buyers, and as such, the value of the collateral can vary significantly based on the buyer base.

The following graph illustrates several value measures of the portfolio, based on different valuation methods. The four bars on the left, labeled “Residential Home Price Derived Values” all look to the market price of the homes, whereas the two bars on the right, labeled “Income Derived Values” reflect values implied projected income generated by the properties. The disparity between these two views of the property portfolio is central to understanding the necessity of a hybrid approach to SFR analysis. As noted above, the PDs assigned by our CMBS model are based on a view of SFR relative to conventional CMBS. Similarly the “Income Derived Values” utilize the valuation framework in the CMBS model. When considering SFR in a CMBS framework, KBRA only considers the value implied by the potential income stream. In the instance of the “KBRA Direct Capitalization” shown below, the income stream and capitalization rate are subject to stresses which result in a deeply discounted value.


* The income-based market value was calculated based on the issuer’s NCF divided by an

assumed marked capitalization rate of 6.50%. It is our understanding, based on conversations with market participants, that current capitalization rates of wholesale secondary market transactions of income producing SFR portfolios have generally ranged between 5.50% and 7.00%.

** The KBRA Direct Capitalization Value is a stressed income-based value, that was calculated based on KNCF (KBRA’s estimate of sustainable cash flow) divided by KBRA’s stressed capitalization rate of 10.00%.

However, unlike our CMBS analysis, which generally utilizes income-based valuations to determine loss estimates, KBRA’s SFR analysis reflects the ability to dispose of the portfolio properties in the broader market for single-family homes. KBRA does not view the expected value declines of homes liquidated in the context of an SFR securitization as substantially different from that of other distressed home liquidations, such as in RMBS. Therefore, to determine the loss estimates for SFR pools, each defaulted property is assumed to be sold at a distressed price reflecting KBRA’s RMBS methodology for stressing home prices. Note that the property values that are subjected to the home price stress are already discounted from the most recent BPO value, as show in the “KBRA Adjusted BPO value” bar in the above chart. This discount reflects KBRA’s decision to cap the level of home price appreciation at the national level given the individual property acquisition dates. This yielded a portfolio weighted average cap rate (WAVG Cap) of 7.1% over the purchase price plus rehabilitation cost. The 7.1% WAVG cap is based on the Corelogic national home price increase between the individual property acquisition date and November 2013 timeframe. Imposing the cap reduced the average increase in the BPO value from approximately 21% to approximately 6%. This yields an aggregate “KBRA Value” of $642 million versus the most recent BPO value of $734 million.

At the ‘AAA’ level, the home price stress curve reaches a trough level of 50% of the initial adjusted BPO value 48 months into the projection, and remains at the trough level for 24 months, before rising again. A substantial portion of the portfolio is subjected to home price declines near the trough level, as the bulk of the defaults occur at loan maturity. Geographic concentration penalties were also applied, reflecting the highly concentrated nature of the portfolio. This set of stresses (including the BPO cap) yielded an advance rate at the ‘AAA’ level that equals 45% of the unadjusted BPO values and a loss equal to 55% of the unadjusted BPO value. Given the 92% default rate, this implies a loss severity of 60%. The loss

$540

$631

$734

$642

$457

$249

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Sponsor'sPurchase Price

Sponsor's CostBasis

Broker PriceOpinion

KBRA AdjustedBPO Value

Income-BasedMarket Value *

KBRA DirectCapitalization

Value **

Por

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Valuation Method

Portfolio Value, Based on Various Analysis Methods

Residential Home Price Derived Values Income Derived Values


expectations on the pool for each anchor category are shown below, as a percentage of the unadjusted BPO value.

Category Modeled PD Modeled Loss (% BPO)

AAA 92% 55%A 84% 42%BBB- 62% 29%B- 40% 18%


Sensitivities and Surveillance

Rating Sensitivities

The ratings assigned to Colony American Homes 2014-1 will be monitored through the life of the transaction. If home prices exhibit a sustained trend (either higher or lower), KBRA will consider making rating changes. KBRA emphasizes that home price changes alone are not sufficient to warrant a rating action. Clear evidence of stress on the property pool net cash flow must also be observed.

The table below illustrates the potential for a KBRA downgrade of each rated class under a number of home price scenarios. ‘Stable’ means a downgrade is unlikely. ‘Moderate’ means a potential transition of up to one rating category is possible. ‘Severe’ indicates a multi-category downgrade is possible. In addition to providing insight into the risk of rating migration, the table also indicates which scenarios may cause particular classes to default. Any scenario that indicates ‘Default’ for a class means that KBRA’s loss projection indicated a principal write down under that scenario. The basis for the potential migration actions indicated below is consideration of the degree to which a particular class could tolerate additional stress beyond the home price change indicated.

We note that rating changes could occur for a variety of reasons. For example, national or regional economic stress could impact net cash flow independent of a specific level of home price decline. Single-Family Rental is a new asset class and the impact of home price changes on ultimate performance remains to be seen. However should the pool have to be liquidated in the home price environment indicated, these sensitivities provide a guide to the potential outcomes.

Rating Surveillance

KBRA views the assignment of an initial rating to a securitization as the beginning of a process that generally continues until the payment in full or other redemption of the security. KBRA considers ongoing transaction surveillance as critical in order to preserve the accuracy and integrity of issued ratings, as well as a useful method for obtaining information on loan pool, servicer, and transaction performance that can be considered in connection with new rating analyses.

KBRA views the assignment of an initial rating to a securitization as the beginning of a process that generally continues until the payment in full or other redemption of the security. KBRA considers ongoing transaction surveillance as critical in order to preserve the accuracy and integrity of issued ratings, as well as a useful method for obtaining information on loan pool, servicer, and transaction performance that can be considered in connection with new rating analyses.

The Colony American Homes 2014-1 transaction will be monitored in a manner consistent with the analysis described in the KBRA Process and Methodology and Financial analysis described herein.

Class and RatingA B C D E

Home Price Change AAA(sf) AA+(sf) AA-(sf) A-(sf) BBB-(sf)

-5% Stable Stable Stable Stable Stable-10% Stable Stable Stable Stable Stable-20% Stable Stable Stable Moderate Moderate-30% Moderate Moderate Moderate Severe Severe-40% Severe Severe Severe Default Default-50% Severe Default Default Default Default


Appendix I: Legal Analysis

Loan Summary

General Origination Date: The loan is expected to be originated on the securitization closing date on or about April 10, 2014, contemporaneously with the issuance of the certificates.

Original Principal Balance: $513,600,000

Loan Collateral: 3,399 one-to-four single family residential properties, together with the personal property of the borrower.

Borrower: A Delaware limited liability company that is a special purpose entity controlled by Colony American Homes, Inc.

Term Term: Three years with two, 12-month extension options

Maturity Date: May 2017 (May 2019 if all extension options are exercised)

Extension Options: Two, 12-month extension options exercisable by written notice at least 20 days prior to the expiration date of the then current loan term.

Loan Components

On or prior to the securitization closing date, the mortgage loan will be divided into five components for purposes of calculating interest and other amounts payable on the mortgage loan. Each loan component will correspond to a class of principal balance certificates. On the securitization closing date, each loan component will have a principal balance equal to the initial certificate balance of the corresponding class of certificates. The following table sets forth the loan components and corresponding certificates:

Loan Component Initial Principal Balance Corresponding Certificate

Component A $291,000,000 Class A

Component B $42,000,000 Class B

Component C $56,000,000 Class C

Component D $40,500,000 Class D

Component E $84,100,000 Class E

Debt Service Interest Rate: Each loan component will accrue interest at a variable per annum rate equal to the sum of (a) the greater of one-month LIBOR and 0.25% plus (b) the applicable spread for such component which will be determined upon pricing of the certificates. Interest is calculated using an actual/360 basis.

Amortization: On each payment date commencing in June 2014, the borrower is required to pay the monthly amortization amount which is equal to 1/12 of 1.0% of the original principal balance of the loan. However, the monthly amortization amount will be reduced by (a) the amount by which any Release Amount (defined below) exceeded the allocated loan amount for the related property, and (b) any voluntary prepayments that are not made in connection with the transfer of a property, in each case, to the extent that such amounts were not previously applied to reduce any


monthly amortization amount.

Payment Date: 9th calendar day of the month (or if the 9th day is not a business day, on the immediately preceding business day) commencing in May 2014.

Monthly Debt Service: Interest accrued during the related accrual period plus the monthly amortization amount, with a balloon payment due at maturity.

Grace Period: None for either monthly debt service payment or the maturity balloon payment.

Events of Default

Standard Events of Default: The loan agreement contains certain events of default that are generally consistent with those found in commercial loan agreements and include, among others, the following:

▪ failure to pay monthly debt service or the balloon payment at maturity;

▪ failure to maintain required insurance;

▪ if any representation, warranty or certification made by the borrower, any guarantor, any borrower taxable REIT subsidiary, the equity owner of the borrower or the loan sponsor (each, a “Relevant Party”) was false or misleading in any material and adverse respect when made;

▪ bankruptcy or insolvency of any Relevant Party;

▪ transfers of property or equity interests not expressly permitted under the loan documents; or

▪ if the borrower terminates the management agreement without the lender’s consent and does not simultaneously enter into a replacement agreement, or if there is a default by the borrower under the management agreement beyond any applicable cure period that permits the manager to terminate the agreement (unless within 30 days a replacement agreement is entered into).

Other Events of Default: Under the terms of the loan agreement, the following also constitute events of default: (a) if, with respect to a Disqualified Property (defined below) the borrower fails to either pay the applicable release amount, substitute another property, or deposit 100% of the allocated loan amount into a reserve account; (b) if the borrower fails to maintain an interest rate cap agreement; (c) if the borrower fails to confirm that prospective tenants are not listed on certain government lists of blocked or sanctioned persons, or failure by the borrower to notify the Office of Foreign Assets Control within five business days of obtaining knowledge that such tenant is on any such government list and promptly taking actions required by OFAC with respect to such tenant; (d) if final judgments of $2.5 million or more are rendered against the borrower, any borrower taxable REIT subsidiary, or any guarantor, are not covered by insurance or indemnity, and are not discharged or paid within 60 days after the date on which the right to appeal expired or was extinguished; or (e) if the sponsor or any replacement guarantor fails to maintain net assets of at least $150.0 million (exclusive of any ownership interest in the borrower).

Remedies Upon an Event of Default: Following an event of default, the lender can declare the loan immediately due and payable. In addition, interest and to the extent


permitted by law, any other amounts due under the mortgage loan will accrue interest at an annual default rate equal to the lesser of (a) the interest rate on the mortgage loan plus 3.00% and (b) the maximum amount allowed by law. Further, during an event of default, the lender is permitted to apply any collections from the properties and any amounts on deposit in the reserve accounts to the payment of the amounts due under the loan documents in such order and priority as the lender may determine in its sole discretion.

Cash Management

The loan documents provide for in place cash management. As long as no event of default is occurring, cash flow from the properties will be distributed on a monthly basis from the lender-controlled collection account as illustrated below. The borrower must direct tenants to deposit rents directly into the rent deposit account; however, in the event the borrower or manager receives any rents, all such rents must be deposited to the collection account within three business days. The borrower is required to cause all rents on deposit in the rent deposit account to be deposited into the collection account, which will be under the sole control of the lender, every second business day. Although the lender controls the rent deposit account, so long as no event of default has occurred, the borrower and manager are permitted to take money from that account in order to pay rent refunds to lessees.

A “Low Debt Yield Period” commences if the debt yield falls below 85% of the origination date debt yield and ends when the debt yield is restored to at least 85% of the origination debt yield for two consecutive calendar quarters. The diagram below illustrates the general disbursement waterfall for cash flow received from the properties:


(1) Funds will be applied first, to the payment of interest on the loan components in sequential (alphabetical) order, and then to pay principal to each component in alphabetical order in each case, until the balance of the related component has been reduced to zero.

Reserve The loan documents require the following reserve subaccounts to be established and funded in the amounts and during the times specified.

Rent Deposit Account

First, to the borrower, the rent refund montly distribution amount;Second, to the Security Deposit Account, the amount of any security deposits deposited to the collection account during the preceding calendar month;Third, to the lender, the amount of any mandatory prepayments received from Disqualified Properties;Fourth, to the Tax Subaccount, the applicable monthly deposit;Fifth, to the Insurance Subaccount, the applicable monthly deposit;Sixth, to pay monthly debt service(1);Seventh, to the manager, the management fees (up to a cap of 8% of the gross rents collected during the prior calendar month) and leasing commissions;Eighth, to the Capital Expenditure Subaccount, the applicable monthly deposit;Ninth, to pay any other amounts due to the lender under the loan documents, including trust fund expenses;

Excess Cash will be distributed as follows:

Lender Discretion

No Event of DefaultEvent of Default

Rents & Revenue

Collection Account

Low Debt Yield Period No Low Debt Yield Period

First, to borrower’s operating account, themonthly budgeted amount;Second, to the borrower’s operatingaccount, approved extraordinary expenses;andThird, any remaining funds to the CashCollateral Account.

Borrower’s Operating Account


Subaccounts Tax Subaccount: At origination the borrower will make an initial deposit and on each monthly payment date, the borrower is required to deposit 1/12 of the estimated taxes for the next twelve months.

Insurance Subaccount: If an acceptable blanket policy is not in effect, on each payment date, the borrower will be required to deposit 1/12 of the estimated insurance premiums due for the renewal of coverage.

Capital Expenditure Subaccount: On each payment date, the borrower is required to deposit 1/12 of the product of $600 and the aggregate number of properties into the account to be used for capital expenditures.

Cash Collateral Subaccount: During a Cash Sweep Period, excess cash flow remaining after all required distributions have been made (as illustrated in the diagram above) will be deposited to this subaccount and held as additional collateral for the loan while the Cash Sweep Period is continuing. However, to the extent that a default or an event of default is not occurring and the amount on deposit in the Cash Collateral Account exceeds 1.0% of the outstanding loan balance, the lender will use such excess amount to pay certain costs and expenses related to the ownership, management, and operation of the property to the extent such amounts are not paid by the manager or the borrower.

Disqualified Property & Allocated Loan Amount

Disqualified Property: If a property fails to comply with the property representations and property covenants contained in the loan documents, such property will constitute a “Disqualified Property”. Following the lapse of the applicable cure period, if any, if the property is still a Disqualified Property, then the borrower is required to either:

(1) repay the loan in the amount described in the “Prepayment” section below;

(2) deposit 100% of the Allocated Loan Amount (defined below) for the Disqualified Property into an eligibility reserve account; or

(3) substitute another property for the Disqualified Property as described below in “Substitution”.

If the borrower chooses to deposit 100% of the Allocated Loan Amount into a reserve account and the related property remains a Disqualified Property and is not substituted for, such funds will be released to the borrower upon the sale of the related property and payment of the applicable Release Amount.

Allocated Loan Amount: With respect to each property, the “Allocated Loan Amount” is equal to the portion of the loan made with respect to such property, as set forth on the schedule to the loan agreement, net of the portion of any principal payments or prepayments allocated to reduce the Allocated Loan Amount of such property.

Prepayment Voluntary Prepayment: The borrower is permitted to voluntarily prepay the mortgage loan in whole or in part at any time in a minimum amount of $1.0 million; however, if such prepayment is made prior to the payment date in April 2016, the borrower will be required to pay a spread maintenance premium, calculated as set forth in the loan agreement.


Mandatory Prepayment: The borrower is not required to pay any spread maintenance premium in connection with any prepayment due solely to the application of net insurance proceeds or condemnation awards to prepay the principal balance of the loan.

Prepayment due to Disqualified Property: With respect to a Disqualified Property, if the borrower does not elect to substitute another property or deposit an amount equal to 100% of the Allocated Loan Amount for such Disqualified Property into a reserve subaccount, then the borrower is required to prepay the loan in the amount of the applicable Release Amount (defined below).

Prepayment after Default: If, following the acceleration of the loan, all or any part of the debt is prepaid, the borrower will be required to pay any accrued interest through the end of the related accrual period, any interest shortfalls, and if the prepayment is made prior to the payment date in April 2016, the spread maintenance premium.

Application of Prepayments: Provided no event of default is occurring, prepayments will be applied to the loan components sequentially, in alphabetical order, in each case, until such component has been reduced to zero. During an event of default, the lender is permitted to apply any amounts received under the loan documents to the components as the lender determines in its sole discretion.

Property Releases

Property Releases. The borrower is permitted to release any property from the lien of the mortgage subject to the satisfaction of certain conditions set forth in the loan documents. However, the following conditions do not apply to the release of a Disqualified Property in connection with a substitution or prepayment. The conditions for property releases include, among others, the following:

▪ no event of default is occurring (other than a non-monetary default that will be cured by the release);

▪ unless the purpose of the release is to cure a default with respect to the released property, the property must be sold to an unaffiliated third party in an all cash, arms’-length transaction;

▪ the loan must be prepaid in the amount of the applicable Release Amount; and

▪ if the loan is not prepaid in an amount equal to the greater of the Release Amount and 100% of the net sales proceeds, the post-release debt yield must be at least equal to the greater of the origination debt yield and the pre-release debt yield.

Release Amount. The “Release Amount” is calculated as follows:

(a) 100% of the Allocated Loan Amount for a property that became a Disqualified Property for reasons other than due to a voluntary act or omission by a loan party or its agent that results in a lien on, or transfer of, the affected property (a “Voluntary Act”); and

(b) with respect to a property that became a Disqualified Property due to a Voluntary Act, or in connection with a property release by the borrower, the applicable amount based on the following:


(1) if the sum of the Allocated Loan Amounts for all properties that have been released is less than 10% of the original loan balance, 105% of the Allocated Loan Amount for each property being released;

(2) if the sum of the Allocated Loan Amounts for all properties that were released is equal to at least 10% but less than 15% of the initial loan balance, 110% of the Allocated Loan Amount for each property being released;

(3) if the sum of the Allocated Loan Amounts for all properties that were released is equal to at least 15% but less than 20% of the initial loan balance, 115% of the Allocated Loan Amount for each property being released;

(4) if the sum of the Allocated Loan Amounts for all properties that were released is equal to or greater than 20% of the initial loan balance, 120% of the Allocated Loan Amount for each property being released; and

(5) if the sum of the Allocated Loan Amounts for all properties that were released with respect to a single transfer exceeds $10,000,000, then the Release Amount will be 120% of the Allocated Loan Amounts for such properties.

In addition, if an event of default or low debt yield period is continuing on the property release date, to the extent that the net sale proceeds for the released property are greater than the applicable Release Amount, the amount of such excess will be deposited into the cash collateral account and held as additional security for the loan.

Substitution Subject to the satisfaction of the conditions set forth in the loan documents, the borrower has the option to substitute an eligible property for a Disqualified Property. An “eligible property” is a property that complies with all of the property representations and covenants set forth in the loan documents. The conditions for substitution include, among others, the following:

▪ the substitute property must be a single family residential real property, excluding cooperatives and manufactured housing;

▪ the borrower must obtain a broker price opinion (“BPO”) for the substitute property and such property’s BPO Value (defined below) must be at least equal to the greater of the BPO Value of the affected property as of the closing date and the BPO Value of the affected property as of the substitution date;

▪ the substitute property must have an eligible lease (as defined in the loan documents) with a remaining term at least as long as the remaining term of the lease for the affected property (excluding any extension options) and the in place rents under the lease must be at least equal to the greater of the in place rents for the affected property as of the substitution date or the origination date;

▪ the borrower must deliver to the lender all documentation required under the loan documents with respect to the substitute property, including evidence of insurance, the deed, the lease, the owner’s title insurance policy, substitute mortgage documents, and a title policy or an endorsement to an existing policy;

▪ each substitute property must be located in an MSA where at least one property was located as of the origination date;


▪ the acquisition of the substitute property cannot result in any loan party incurring any indebtedness that is not permitted under the loan agreement;

▪ the aggregate BPO Value of all substituted properties since the origination date cannot exceed 10% of the aggregate BPO Value of all properties as of the origination date; and

▪ if the substitute property is impacted by any existing or pending lien, litigation, or government proceeding that could result in liability for the borrower, then the borrower must deposit sufficient reserves with the lender as security for such liability.

BPO Value: The “BPO Value” is the value of the applicable property contained in the related broker price opinion based on an exterior review of the property on an “as-is” basis and assuming the interiors of the homes were comparable in overall quality to available homes for rent on the Colony American website.

Property Management

Manager: CAH Property Management, LLC, pursuant to a management agreement

Replacement of Manager: The manager can be terminated following an event of default, if the manager is bankrupt or insolvent, or if the manager is in material default under the management agreement beyond the applicable cure period. The manager must be replaced with either a Qualified Manager selected by the borrower, or another property manager chosen by the borrower and approved by the lender (provided that such approval will be conditioned upon the receipt of a no downgrade confirmation from the rating agencies). A “Qualified Manager” means the initial manager; any person or entity under common control with the initial manager or the loan sponsor; or a reputable entity with at least two years’ experience managing at least 250 residential rental properties in each MSA where the properties to be managed are located, who is not the subject of a bankruptcy or similar proceeding, and with respect to whom the borrower has obtained a no downgrade confirmation letter from the rating agencies.

Subordination: The management agreement and management fees are subordinated to the loan documents pursuant to a subordination agreement.

Management Fees: Cannot exceed eight percent of the actual gross rents collected during the related calendar month.

Guarantees Sponsor Guaranty: The sponsor will provide a limited guaranty pursuant to which it will be responsible for the amount of losses incurred by the lender as a result of certain bad acts by a Relevant Party or an affiliate thereof. Such bad acts include, among other things, the following:

▪ fraud or intentional misrepresentation by a Relevant Party or any affiliate;

▪ willful misconduct of a Relevant Party or any affiliate that results in material physical damage or waste to any property;

▪ misapplication, misappropriation, or conversion of collections, insurance proceeds, awards, or proceeds received in connection with the sale of a property in connection with a property release;

▪ failure to deposit any security deposits to the security deposit account maintained by


the lender;

▪ the borrower’s failure to obtain the lender’s consent to any consensual lien on the property or other collateral, transfer of any interest in the borrower or guarantors, or voluntary incurrence of debt, in each case to the extent otherwise prohibited under the loan documents; or

▪ a breach by the borrower or guarantors (each, a “Loan Party”) of the special purpose entity/separateness covenants in the loan agreement if such breach results in the substantive consolidation of such party with an entity that is not a Loan Party.

Under the sponsor guaranty, the sponsor will also be responsible for the principal amount of the loan upon the occurrence of certain bankruptcy or insolvency-related actions or proceedings involving Loan Parties, up to a capped amount equal to the greater of (a) the lesser of $35.0 million and the outstanding balance of all amounts owed under the loan documents, and (b) 35% of the outstanding principal balance of the loan.

Equity Owner Guaranty: CAH 2014-1 Equity Owner, LLC (“Equity Owner”), which owns 100% of the limited liability company interests in the borrower, will provide a guaranty for the full amount of the debt. The guaranty will be secured by a first priority pledge of Equity Owner’s interests in the borrower. Equity Owner is a bankruptcy remote special purpose entity formed for the specific purpose of holding the specified equity interest and will not have any significant assets other than this equity interest.

No Third Party Environmental Indemnity: The borrower has executed an environmental indemnity in favor of the lender; however, there is no additional third party that is responsible for the borrower’s obligations if liability is triggered under the environmental indemnity. The borrower is the only party that would be available to satisfy any obligations related to a breach of any covenants or other agreements contained in the environmental indemnity.

Interest Rate Cap Agreement

Initial Interest Rate Cap Agreement: The borrower is required to purchase an interest rate cap agreement from a third-party seller pursuant to which the interest rate cap provider will pay the borrower an amount equal to the product of (a) a per annum rate such that the debt service coverage ratio will not be less than 1.20x (“Initial Strike Price”), and (b) a notional amount equal to the principal balance of the mortgage loan. The interest rate cap agreement will be pledged as additional collateral for the loan. The interest rate cap counterparty is required to have a long term unsecured debt rating of at least “A+” (or “A” if it also has a short term rating of at least “A-1”) from S&P; a long term unsecured debt rating of at least “A1” (or “A2” if it also has a short term rating of at least P1) from Moody’s, and if rated by Fitch, a long term unsecured debt rating of at least “A” and a short term debt rating of at least “F-1” or such counterparty is otherwise acceptable to the rating agencies. If the cap counterparty’s ratings fall below the required criteria, the borrower is required to either (a) obtain a replacement cap agreement within 10 business days, or (b) as long as the provider’s long term unsecured debt ratings have not fallen below “BBB+” by S&P or Fitch or “Baa1” by Moody’s (or, if a short term rating, below “A-2” or “F-2” by S&P or Fitch, respectively), require the cap counterparty to post collateral. KBRA has analyzed the credit quality of the expected cap provider for this transaction and


KBRA’s internal credit assessment of the expected cap provider is consistent with a high investment grade rating.

Cap Agreement Required for Loan Extension: Under the terms of the loan documents, in connection with an extension of the term of the loan, the borrower must either extend the existing cap agreement or obtain a replacement cap agreement which, in either case, expires no earlier than the extended loan maturity. The strike price must equal the interest rate at which the DSC as of the calendar quarter immediately preceding the current maturity date is at least equal to 1.20x. If the borrower is unable to either extend the existing cap agreement or obtain a replacement agreement, in each case, under the required terms, then the borrower will not be permitted to extend the loan and will be required to pay the loan in full on its scheduled maturity date.

Transfers of Property & Equity Interests

The loan documents provide that, except in the case of certain expressly permitted transfers, the borrower cannot sell, assign, transfer or dispose of the mortgaged properties in whole or in part or permit a transfer or pledge of direct or indirect equity interests in the borrower (other than to a Qualified Transferee (defined below), without the prior consent of the lender.

A “Qualified Transferee” means either the loan sponsor, or any person or entity (a) with net assets of at least $300.0 million (excluding any interest in the properties and the borrower), (b) that has not been the subject of a bankruptcy proceeding or any governmental or regulatory investigation that resulted in a final, non-appealable conviction for criminal activity involving moral turpitude, (c) that is (or is under common control with a person that is) regularly engaged in the management, ownership or operation of residential rental properties, and (d) with respect to the applicable transfer to such person (other than with respect to certain transfers of direct or indirect interest in the Sponsor), the borrower has obtained a no downgrade confirmation letter from the rating agencies.

Insurance Under the loan agreement, the borrower is required to maintain the following insurance coverage for the properties:

comprehensive “all risk” property insurance, including windstorm, in an amount equal to 100% of the actual replacement cost of the property, with an agreed amount endorsement for improvements;

flood insurance to the extent any property is located in a federally designated special flood hazard area in an amount equal to the maximum amount available under the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, plus any excess amounts as required by the lender;

named storm insurance in an amount equal to the probable maximum loss or scenario expected limit based upon a storm risk analysis on a 475-year event for the entire portfolio at risk;

earthquake insurance in an amount equal to the probable maximum loss or scenario expected limit based upon a seismic risk analysis on a 475-year event for the entire portfolio at risk;


commercial general liability insurance of not less than $1.0 million per occurrence and $2.0 million in the aggregate per location and over $20.0 million in the aggregate, plus umbrella liability insurance in an amount equal to at least $50.0 million per occurrence;

business income or rental loss insurance on an actual loss sustained basis in an amount equal to 100% of the aggregate projected net income for the properties for at least 12 months following the date of the related casualty, with an extended period of indemnity covering continued loss of income until the earlier to occur of either the restoration of income levels to the pre-loss levels or 30 days following the completion of the property restoration;

each of the following, to the extent applicable: owner’s contingent liability insurance, worker’s compensation and auto liability insurance for all owned and non-owned vehicles with minimum limits of $1.0 million per occurrence, and such other insurance as the lender may reasonably request from time to time that is consistent with insurable hazards that are commonly insured against for similar properties.

All insurance must be provided under valid and enforceable policies and will be subject to the lender’s approval as to identity of the insurer, coverage amounts, deductibles, loss payees and insureds. As of the date of origination, the required coverage will be provided under a blanket policy.

Payment of Fees by Borrower

The loan documents require the borrower to pay liquidation fees, workout fees, and special servicing fees, as well as certain customary fees of the servicer, special servicer, trustee, custodian and certificate administrator.

Additional Debt Other than with respect to certain unsecured trade and operational debt incurred in the ordinary course of business, the borrower is not permitted to incur any additional debt under the loan documents. In addition, the amount of any trade and operational debt incurred cannot exceed 3.0% of the original loan balance.

Mortgage Loan Parties

Borrower CAH 2014-1 Borrower, LLC, a Delaware limited liability company. CAH 2014-1 Equity Owner, LLC, a Delaware limited liability company, owns 100% of the equity interests in the Borrower.

Loan Sponsor CFSR ColFin American Investors, LLC, a Delaware limited liability company. The Loan Sponsor is an affiliate of the Manager and owns a 100% membership interest in the Equity Owner, which owns a 100% equity interest in the Borrower. The Loan Sponsor is indirectly owned by Colony American Homes, Inc.

Manager CAH Property Management, LLC, a Delaware limited liability company.

Securitization Structure & Key Transaction Features

General Following the transfer of the Loan, the note and the related collateral to the Issuer, six classes of certificates will be issued. Each class of certificates (other than the Class R certificates) will correspond to the Loan component with the same alphabetical


designation, as described in the “Loan Components” subsection.

The Class A, B, C, D and E certificates will each have a certificate balance and will accrue interest at a variable per annum equal to one-month LIBOR (subject to a 0.25% floor) plus the net component interest rate on the related loan component. The net component interest rate is the per annum rate at which interest would have to accrue on the applicable component, calculated on an actual/360 basis, in order to produce the aggregate amount of interest (net of servicing and trustee fees) that actually accrues on such component during the related interest accrual period. In general, KBRA’s credit ratings address the timely receipt of distributions of interest and the ultimate receipt of principal on the certificates on or before the rated final distribution date.

The Class R certificates, which are residual certificates that do not have a principal balance, a pass-through rate or a rated final distribution date, are not being rated by KBRA.

Distribution Dates

Distributions on the certificates will be made on the 4th business day of each month following the determination date, commencing in May 2014. The determination date is the 13th day of each calendar month (or if the 13th day is not a business day, the immediately preceding business day). Each class of certificates has an assumed final distribution date occurring in May 2017 (or May 2019 if the certificates are fully extended) and a rated final distribution date occurring in May 2031, which is 12 years after the maturity date of the mortgage loan (assuming all extension options are exercised).

Payment Structure

The certificates follow a general sequential-pay structure. Interest will be distributed to the Class A, B, C, D and E certificates, in that order. Principal will be distributed to the certificates (other than the Class R certificates) sequentially, in alphabetical order, beginning with the Class A certificates, in each case, until the principal balance of such class has been reduced to zero.

Control and Consultation Periods

Control Event: Any date on which there are no Class E certificates outstanding with a certificate balance (after applying any applicable estimated portfolio value reduction amounts) that is at least equal to 25% of its initial certificate balance.

Consultation Termination Event: Any date on which there are no Class E certificates outstanding with a certificate balance (without regard to any estimated portfolio value reduction amounts) at least equal to 25% of its initial certificate balance.

Directing Certificateholder

Controlling Class. The controlling class will be the Class E certificates if such certificates have a principal balance (as notionally reduced by any estimated portfolio reduction amounts) equal to at least 25% of its related initial certificate balance. Once the outstanding principal balance of the Class E certificates is less than 25% of the class’ initial balance, there will no Controlling Class and no party will be entitled to exercise any of the rights of the Controlling Class.

Directing Certificateholder. The directing certificateholder is the controlling class certificateholder or representative selected by a majority of the controlling class.

The directing certificateholder will have certain consent and consultation rights with respect to the Loan including, but not limited to, the following:


▪ Prior to a Control Event, the controlling class representative is entitled to:

(1) advise the special servicer with respect to the loan after it is transferred to special servicing;

(2) while the loan is performing, advise the special servicer with respect to any Major Decisions regarding the loan for which the servicer must obtain the special servicer’s consent;

(3) advise the special servicer with respect to any extension of the maturity date being considered; and

(4) remove the special servicer at any time without cause.

▪ If a Control Event exists but a Consultation Termination Event does not, the directing certificate holder will have non-binding consultation rights with respect to Major Decisions.

▪ During a Consultation Termination Event, the directing certificateholder will not have any consultation or consent rights under the PSA.

“Major Decisions” include, but are not limited to, substitutions of collateral; waivers of due on sale or encumbrance clauses; property transfers or transfers of equity in the borrower to the extent lender consent is required; incurrence of additional debt; termination or replacement of the manager, to the extent the lender’s approval is required; foreclosure; any modification of any monetary term of the loan; and the exercise of remedies following a default.


Loss Allocation Realized Losses. Realized losses will be allocated to the certificates (other than the Class R certificates) in reverse alphabetical order, beginning with the Class E certificates, in each case, until the certificate balance of such class is reduced to zero.

Estimated Portfolio Value Reductions. The transaction documents require that upon occurrence of an Estimated Portfolio Value Reduction Event the Special Servicer must obtain independent BPOs for all properties, provided that if the Special Servicer determines in accordance with accepted servicing practices that a BPO is not sufficient with respect to a property, the Special Servicer must order an independent appraisal. An “Estimated Portfolio Value Reduction Event” means the earliest of: (a) 60 days after an uncured payment delinquency (excluding a balloon payment delinquency); (b) 30 days after an uncured delinquency with respect to the balloon payment (or 60 days if a refinancing is expected within 60 days of the Loan maturity date (as evidenced by a refinancing commitment from an acceptable lender indicating that the refinancing will occur within such time period)); (c) 10 days after an uncured failure to pay Borrower reimbursable trust fund expenses; (d) 60 days after any modification resulting in a reduction in monthly payments or a material adverse economic change with respect to the Loan; (e) 60 days after a maturity date extension (excluding an extension related to an expected refinancing); (f) immediately after the occurrence of certain bankruptcy or insolvency events; or (g) immediately after the mortgaged property is acquired by the trust through foreclosure or otherwise.

Generally, the Estimated Portfolio Value Reduction Amount is equal to the excess of (a) the outstanding principal Loan balance plus all accrued and unpaid interest thereon, all unreimbursed administrative and servicing advances and thereon, all taxes and insurance premiums and all other amounts currently due and unpaid with respect to the portfolio and, without duplication, all unpaid trust fund expenses due under the loan agreement, over (b) the sum of 90% of the estimated portfolio value plus any escrows, including for taxes and insurance premiums.

If a new BPO or appraisal was required but not obtained within 45 days of an Estimated Portfolio Value Reduction Amount, the most recently Estimated Portfolio Value Reduction Amount, as adjusted by the special servicer to reflect any decrease in the price of residential housing, will be used for purposes of determining the Estimated Portfolio Value Reduction Amount. If an Estimated Portfolio Value Reduction Amount exists, the amount of the delinquent monthly interest payment that must be advanced will be reduced by the same proportion that the Estimated Portfolio Value Reduction Amount bears to the outstanding principal balance of the Loan, thus reducing the proceeds available to pay interest on the most subordinate class or classes of certificates outstanding. In addition, on each distribution date, the Estimated Portfolio Value Reduction Amount will be applied to reduce the balances of the certificates (other than the Class R certificates) in reverse alphabetical order for purposes of determining the voting rights of the related classes of certificates.

Servicing The transaction contains numerous provisions regarding the servicing and administration of the Loan, some of which are summarized below.

Servicing Standard: The Servicer and the Special Servicer are each obligated to adhere to accepted servicing practices.

Replacement of Special Servicer: The Special Servicer can be terminated without


cause by an appointee of the Controlling Class. Fees: Various fees are required to be paid to the Servicer and Special Servicer, including:

▪ Servicer: The Servicer will receive a fee, payable on a monthly basis, from general collections calculated using a per annum rate of 0.095% and the principal balance of the Loan.

▪ Special Servicer:

Special Servicing Fee: If the Loan is transferred to special servicing, for as long as the Loan remains a specially serviced loan, the Special Servicer will receive a monthly fee calculated using a per annum fee rate of 0.25% and the principal balance of the Loan. The fee will be payable from amounts received on the Loan.

Workout Fee: If the Special Servicer negotiates a written agreement with the Borrower resulting in the termination of the related special servicing loan event, the Special Servicer will be entitled to a workout fee equal to 0.75% of all payments of principal and interest (other than default interest) received under the Loan thereafter, until another special servicing event occurs. However, the workout fee will be reduced by any modification fees paid by or on behalf of the Borrower and retained by the Special Servicer, but only to the extent those fees have not previously been deducted from a workout fee or liquidation fee.

Liquidation Fee: Generally, following the liquidation of any collateral or the Loan, the Special Servicer will receive a liquidation fee equal to 0.75% of net liquidation proceeds, reduced by the amount of any modification fees paid by or on behalf of the borrower and retained by the Special Servicer, but only to the extent those fees have not previously been deducted from a workout fee or liquidation fee. The liquidation fee will be payable from net liquidation proceeds.

During any collection period, the special servicer may be entitled to receive either a liquidation fee or a workout fee, but not both. Under the terms of the loan agreement, the Borrower is responsible for the payment of the special servicing fee, the workout fee, and the liquidation fee. If the Special Servicer is unable to collect any of these fees from the borrower, such fees will be an additional trust fund expense.

Advancing: The transaction imposes customary advancing obligations on the Servicer and Certificate Administrator. The Servicer is required to advance the following: monthly debt service payments (subject to the application of any Estimated Portfolio Value Reduction Amounts and other than the balloon payment or default interest); property protection advances to cover delinquent real estate taxes, insurance premiums, and other similar costs related to the preservation of the first priority lien of the mortgages, and special servicing fees, workout fees, liquidation fees, certificate administrator and trustee fees and other unpaid expenses of the Certificate Administrator, Trustee and Special Servicer. If the Servicer fails to make a required advance, the Certificate Administrator is required to make such advance. In all cases, however, advances are only required to be made if the Servicer or the Certificate Administrator determines that such amounts will be recoverable from subsequent payments or collections on the Loan. The Servicer and the Certificate Administrator, as applicable, are entitled to reimbursement for such advances, together with interest thereon which will accrue from the date on which the advance was made until the date


of reimbursement.

Representations & Warranties

The Loan Seller has made certain limited representations and warranties (“R&Ws”) with respect to the Loan, which are generally consistent with the R&Ws customarily provided by sellers in CMBS single borrower transactions. If it is determined that there has been a material breach of any of the R&Ws or a material document defect with respect to the loan file, certain enforcement mechanisms are available under the loan purchase and sale agreement. Generally, these enforcement mechanisms require the seller to either cure the breach or defect or, if unable to cure, to repurchase its interests in the loan. For more detailed information regarding the R&Ws and enforcement mechanisms available under the transaction documents, please see KBRA’s Colony American Homes 2014-1 Rule 17g-7 Disclosure Report, which is being published contemporaneously with this Pre-Sale Report. For details, please see the Rule 17g-7 Disclosure Report.

Under the loan documents, the borrower also made numerous representations and warranties relating to the loan and the properties (the “Borrower R&Ws”). The Borrower R&Ws address, but are not limited to, the following topics: the ownership of the mortgaged properties and the liens on the related properties; the condition of the properties, certain terms of the loan agreement, including compliance with all of the special purpose entity covenants; and the fulfillment of certain obligations and the accuracy of certain information provided. A breach of a Borrower R&W does not trigger a cure or repurchase obligation by any party; however, if not cured it may constitute an event of default under the loan agreement. The trust has the right to pursue available remedies following an event of default under the loan agreement. Under the terms of the trust and servicing agreement, the Servicer or Special Servicer, as applicable, will evaluate what course of action to take following an event of default under the loan agreement in accordance with accepted servicing practices.

Securitization Parties

Loan Seller JPMorgan Chase Bank, National Association, a national banking association chartered under the laws of the United States, will sell its interests in the Loan to the Depositor.

Depositor Colony American Homes Asset, LLC, a Delaware limited liability company, is the purchaser of the Loan and will convey the Loan to the Issuer in exchange for the certificates.

Issuer Colony American Homes 2014-1 Trust, a New York common law trust, will issue the certificates in exchange for the Loan and related collateral. The Issuer has no officers or directors, and no continuing duties other than holding the Loan and related collateral that backs the certificates. Each of the Trustee, Certificate Administrator, Servicer and Special Servicer are the entities authorized to act on behalf of the Issuer, in accordance with the terms of the trust and servicing agreement.

Servicer Midland Loan Services, a division of PNC Bank, National Association (“Midland”) is the Servicer. As of December 31, 2013, Midland was servicing approximately 30,343 commercial and multifamily mortgage loans with a principal balance of approximately $289 billion.



Special Servicer Situs Holdings, LLC (“Situs”) is the special servicer. As of December 31, 2013, Situs specially serviced a portfolio which included approximately 324 loans throughout the U.S. with a then-current face value in excess of $2.25 billion, all of which are commercial or multifamily real estate assets.

Trustee Christiana Trust, a division of Wilmington Savings Fund Society, FSB, (“Christiana Trust”) a federal savings bank, will act as Trustee. As of September 30, 2013, WSFS Financial Corporation, Christiana Trust’s ultimate parent, had total assets exceeding $4.4 billion.

Certificate Administrator

Wells Fargo Bank, National Association (“Wells Fargo Bank”), a national banking association, will act as Certificate Administrator. As of December 31, 2013, Wells Fargo & Company, Wells Fargo Bank’s parent, had approximately $1.5 trillion in assets.


© Copyright 2014, Kroll Bond Rating Agency, Inc., and/or its licensors and affiliates (together, "KBRA”). All rights reserved. All information contained herein is proprietary to KBRA and is protected by copyright and other intellectual property law, and none of such information may be copied or otherwise reproduced, further transmitted, redistributed, repackaged or resold, in whole or in part, by any person, without KBRA’s prior express written consent. Ratings are licensed by KBRA under these conditions. Misappropriation or misuse of KBRA ratings may cause serious damage to KBRA for which money damages may not constitute a sufficient remedy; KBRA shall have the right to obtain an injunction or other equitable relief in addition to any other remedies. The statements contained in this report are based solely upon the opinions of KBRA and the data and information available to the authors at the time of publication of this report. All information contained herein is obtained by KBRA from sources believed by it to be accurate and reliable; however, KBRA ratings are provided “AS IS”. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any particular purpose of any rating or other opinion or information is given or made by KBRA. Under no circumstances shall KBRA have any liability resulting from the use of any such information, including without limitation, for any indirect, special, consequential, incidental or compensatory damages whatsoever (including without limitation, loss of profits, revenue or goodwill), even if KBRA is advised of the possibility of such damages. The credit ratings, if any, and analysis constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. KBRA receives compensation for its rating activities from issuers, insurers, guarantors and/or underwriters of debt securities for assigning ratings and from subscribers to its website.

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