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

DBRS Limited (DBRS) confirmed the ratings on the Floating-Rate Notes (the Notes) issued by Arbor Realty Commercial Real Estate Notes 2016-FL1, Ltd. (the Issuer) as follows:

-- 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 overall stable performance of the transaction, which remains in line with DBRS’s expectations at issuance. The pool currently consists of 22 interest-only floating rate-loans totalling $283.6 million secured by multifamily and commercial properties. In July 2018, the pool consisted of 28 loans totalling $298.0 million. The transaction is structured with an initial 36-month replacement period whereby the Issuer can substitute collateral in the pool subject to certain Eligibility Criteria, including Rating Agency Condition by DBRS. As of the January 2019 remittance, there remains $41.5 million in equity that the Issuer can fund by originating additional loans. The transaction pays sequentially after the replacement period ends.

As of the January 2019 remittance, only three of the original 18 loans, representing 13.6% of the current transaction balance, remain in the pool as 35 loans have been added during the replacement period. Sixteen of the 35 additional loans have paid out of the trust to date. All loans have a maximum initial term of two or three years with extension options generally available, subject to criteria.

The loans are predominantly secured by multifamily properties, most of which are located in urban and suburban markets that benefit from greater liquidity and/or are affordable offerings in stable communities. Most properties are currently cash-flowing assets in a period of transition with viable plans and loan structures in place to facilitate stabilization and value growth. All loans are structured with cash management in place at origination and with reserves, including several loans that were structured with an initial debt service and renovation reserve.

The Issuer, Servicer, Mortgage Loan Seller and Advancing Agent are related parties. In addition to recently issued transactions (one in 2013, one in 2014, two in 2015, one in 2016, three in 2017 and one in 2018), 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 unrated 23.0% equity piece as Preferred Shares in the transaction.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – Preston Hollow II (10.9% of the pool)
-- Prospectus ID#2 –160 Van Brunt Street A-2 (10.9% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS rated), as well as loan-level and transaction-level commentary for most DBRS-rated and -monitored transactions.

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

The principal methodology is North American CMBS Surveillance Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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