DBRS Morningstar Confirms All Classes of ACRE Commercial Mortgage 2021-FL4 Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of notes issued by ACRE Commercial Mortgage 2021-FL4 Ltd.:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction and with business plan updates on select loans. To access this report, please click on the link under Related Documents below or contact us at [email protected].

The transaction closed in January 2021 with an initial collateral pool of 23 floating-rate mortgage loans secured by 34 mostly transitional real estate properties with a cut-off-date pool balance of approximately $667.2 million, excluding $77.1 million of future funding commitments. Most loans are in a period of transition with plans to stabilize and improve asset value. The transaction is structured with a Permitted Funded Companion Participation Acquisition Period through the April 2024 Payment Date whereby the Issuer may acquire Funded Companion Participations into the trust.

As of the January 2022 remittance, the pool comprises 17 loans secured by 29 properties with a cumulative trust balance of $522.8 million. Since issuance, six loans have successfully repaid from the pool, resulting in bond amortization of 18.1%. The Permitted Funded Companion Participation Acquisition Account has a current balance of $23.2 million. A total of $52.5 million of loan future funding remains available to the eight borrowers behind the 17 loans currently in the pool. Prior to the subject transaction’s close, the lender had advanced $63.6 million of future funding to nine borrowers and, since closing in January 2021, the issuer has advanced $20.5 million in future funding allowances to those same borrowers.

In general, borrowers are progressing in their stated business plans as they are accessing future funding dollars to complete property capital improvements and fund accretive leasing costs. Of the remaining $52.5 million, $20.0 million is allocated to the Exchange loan, which is secured by a 14-building office property in suburban Charlotte, North Carolina. To date, the borrower has completed a $31.1 million capital improvement plan with the remaining loan future funding expected to be primarily used to fund leasing costs as the property was 66.0% occupied as of October 2021. An additional $18.9 million of future funding is allocated to the RealOp Southeast Portfolio, which is secured by 23 office properties throughout four states in the southeastern United States. Loan future funding continues to be strategically employed to fund capital improvement and leasing costs across the portfolio with additional funds available as a potential earnout to the borrower if debt yield and loan-to-value ratio benchmarks are achieved.

The transaction is currently concentrated with loans secured by office properties, totaling four loans and 49.9% of the outstanding trust balance, including the three largest loans in the transaction. Additionally, the fourth-largest loan, Promenade on the Peninsula, representing 8.6% of the current trust balance, is secured by a mixed-use property with retail and office components. The transaction does benefit from a concentration of nine loans, totaling 23.8% of the current trust balance, being secured by multifamily and self-storage properties, which have generally reported stable cash flows throughout the pandemic.

As of the January 2021 reporting, four loans, representing 25.5% of the pool balance, are on the servicer’s watchlist. Each loan has been flagged for a low debt service coverage ratio (DSCR); however, as these loans are secured by non-stabilized properties, low in-place DSCRs are sometimes expected and not necessarily suggestive of increased risks from issuance. The Exchange and Homewood Suites Redondo Beach loans also have upcoming loan maturities in Q1 2022 and DBRS Morningstar expects both borrowers will exercise their remaining extension options.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. 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.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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