DBRS Confirms Ratings on Arbor Realty Commercial Real Estate Notes 2016-FL1, Ltd., Stable Trends

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of secured floating-rate notes issued by Arbor Realty Commercial Real Estate Notes 2016-FL1, Ltd. (the Issuer):

-- Class A Senior Secured Floating-Rate Notes at AAA (sf)
-- Class B Secured Floating-Rate Notes at AA (sf)
-- Class C Secured Floating-Rate Notes at BBB (low) (sf)

All trends are Stable. DBRS does not rate the first loss piece, the Preferred Shares held by the Issuer.

The rating confirmations reflect the fact that the performance of the transaction remains in line with DBRS’s expectations at issuance. The pool currently consists of 23 interest-only floating-rate loans totalling $247.0 million secured by 22 multifamily properties and four commercial properties. In August 2016, the pool consisted of 18 loans totalling $274.5 million secured by 17 multifamily properties and three commercial properties. The transaction features an initial 36-month replacement period whereby the Issuer can substitute collateral in the pool, subject to certain Eligibility Criteria, including DBRS’s Rating Agency Condition. As of the July 2017 remittance, there remains $78.0 million in equity that the Issuer can fund by originating additional loans. The transaction pays sequentially after the replacement period ends.

As of the July 2017 remittance, only ten of the original 18 loans, representing 40.4% of the current transaction balance, remain in the pool as 13 additional loans have been added during the replacement period. All loans have a maximum initial term of three years followed by potential extension options.

The loans are secured predominantly by multifamily properties located primarily in urban and suburban markets, which benefit from greater liquidity or are affordable offerings in stable communities. Most of the properties are current cash-flowing assets in a period of transition with viable plans and a loan structure to stabilize and improve the asset value. All of the loans are structured with cash management in place from origination and are structured with reserves, including several with an initial debt service reserve.

The Issuer, Servicer, Mortgage Loan Seller and Advancing Agent are related parties, a non-rated entity. In addition to recently issued transactions (one in 2013, one in 2014, two in 2015 and one in 2017), Arbor Realty SR, Inc. (Arbor) has a proven track record with several collateralized loan obligation platforms that performed well in 2004, 2005 and 2006. Arbor holds the 23% equity of the Preferred Shares in the transaction.

The rating assigned to Class C materially deviates from the higher rating implied by the Large-Pool Multi-Borrower Parameters. DBRS considers this difference to be a material deviation from the methodology, and in this case, the rating reflects the fact that the structural features (loan or transaction) and/or provisions in other relevant methodologies outweigh the quantitative output, as the transaction is a rotating pool and, hence, the collateral changes over time.

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

The principal methodology is CMBS North American Surveillance (December 2016), which can be found on dbrs.com under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.