DBRS Morningstar Confirms All Classes of Arbor Realty Commercial Real Estate Notes 2019-FL1, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the following classes of notes issued by Arbor Realty Commercial Real Estate Notes 2019-FL1, Ltd. (the Issuer):

-- Class A Senior Secured Floating Rate Notes at AAA (sf)
-- Class A-S Senior Secured Floating Rate Notes at AAA (sf)
-- Class B Secured Floating Rate Notes at AAA (sf)
-- Class C Secured Floating Rate Notes at A (sf)
-- Class D Secured Floating Rate Notes at BBB (sf)
-- Class E Floating Rate Notes at BBB (low) (sf)
-- Class F Floating Rate Notes at BB (low) (sf)
-- Class G Floating Rate Notes at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. In its analysis of the transaction, DBRS Morningstar applied probability of default (POD) adjustments to loans with confirmed issues partially related to the stressed real estate environment caused by the Coronavirus Disease (COVID-19) pandemic. Because of the transitional nature of the underlying collateral, proposed business plans that are necessary to bring the assets to stabilization may be delayed, and, in some cases, borrowers may request relief from the Issuer. DBRS Morningstar has built an additional POD stress into its analysis of this transaction and, based on currently available information, expects the rated classes to be insulated from adverse credit implications at this time, warranting the rating confirmations.

The $650.0 million collateralized loan obligation pool consisted of 28 loans, totaling $520.4 million, at issuance. The transaction features a reinvestment period that is expected to expire in May 2022, then pays sequentially after the reinvestment period ends. The Issuer, Servicer, Mortgage Loan Seller, and Advancing Agent are related parties and nonrated entities. Arbor Realty SR, Inc. (Arbor) holds the unrated 7.4% equity piece as Preferred Shares in the transaction. Amid the pandemic, DBRS Morningstar has made inquiries to Arbor about potential business plan stoppages or delays, as well as foreseeable debt service payment disruptions. All loans are current per the May 2020 remittance report, and it is Arbor’s expectation that all borrowers will continue to make debt service payments even if there are shortfalls.

Per the May 2020 remittance, there are 35 loans, totaling $630.3 million, in the pool. DBRS Morningstar analyzed and modeled the existing loan pool in addition to loans that can be purchased subject to the eligibility criteria during the reinvestment period. The modeled loans represent a small portion of the transaction as the pool is 97.0% funded as of May 2020. The pool is relatively granular in loan size as the largest 15 loans represent 62.7% of the trust balance. Approximately 86.8% of the trust is backed by multifamily properties and there are only two properties (6.9% of the trust balance) secured by two hospitality properties. Only five loans, totaling 15.2% of the trust balance, have DBRS Morningstar Stabilized DSCRs less than 1.00x, indicating low refinance risk for most loans. The pool also exhibits relatively low leverage as there are 17 loans, representing 42.3% of the trust balance, that have stabilized LTVs of less than 70.0% based on appraised values.

According to the ARCREN 2019-FL1 Q1 2020 Quarterly Investor Newsletter, the borrowers for the two hospitality properties, Mr. C. Seaport Hotel (Prospectus ID#5) and The Mondrain Hotel (Prospectus ID#38), have requested short-term payment relief for the loan given the pandemic’s impact on the New York City hospitality industry. The borrowers have considerable equity remaining in the projects and the properties are in desirable Manhattan locations. DBRS Morningstar increased the POD for each loan as part of the analysis given the request for payment relief. Two loans (3.9% of the trust balance) are secured by senior housing properties, which could be at risk for an increase in operating expenses stemming from the coronavirus. Clairborne at Hattiesberg (Prospectus ID#16; 2.3% of the trust balance) is an independent senior living facility in Hattiesburg, Mississippi, and Pennsylvania Garden 6 SNF Portfolio (Prospectus ID#22; 1.5% of the trust balance) is a portfolio of six skilled nursing properties in various regions of Pennsylvania. While DBRS Morningstar has no indication that these properties have been adversely affected, it will monitor properties’ reported operating expenses post-pandemic.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

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

-- Prospectus ID#1 – Boulders at Katy Trail (6.6% of the pool)
-- Prospectus ID#2 – Park at Buckingham (5.9% of the pool)
-- Prospectus ID#36 – The Grand Reserve (5.1% of the pool)
-- Prospectus ID#3 – Preston Hollow II (4.8% of the pool)
-- Prospectus ID#4 – 160 Van Brunt Street (4.8% of the pool)
-- Prospectus ID#5 – Mr. C. Seaport Hotel (4.8% of the pool)
-- Prospectus ID#11 – Westwood Apartments (3.0% of the pool)
-- Prospectus ID#16 – Clairborne at Hattiesberg (2.3% of the pool)
-- Prospectus ID#38 – The Mondrian Hotel (2.1% of the pool)
-- Prospectus ID#22 – Pennsylvania Garden 6 SNF Portfolio (1.5% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions. DBRS Morningstar expects to have the most recent remittance data reflected in DBRS Viewpoint and all loan level commentaries listed above uploaded in the near term.

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

The principal methodology is North American CMBS Surveillance Methodology (March 6, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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

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

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

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

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