DBRS Morningstar Confirms All Ratings of Arbor Realty Commercial Real Estate Notes 2021-FL2, Ltd.

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of commercial mortgage-backed notes issued by Arbor Realty Commercial Real Estate Notes 2021-FL2, Ltd. as follows:

-- 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. 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 June 2021 with the initial collateral pool consisting of 25 floating-rate mortgages and senior participations secured by 50 mostly transitional properties, totalling $653.0 million, including approximately $9.0 million of non-interest-accruing future funding. Most of the loans contributed at issuance were secured by cash flowing assets, with some level of stabilization remaining. The transaction included a 180-day ramp-up acquisition period, which was completed in December 2021 when the cumulative loan balance totalled $815.0 million.

The transaction includes a 30-month reinvestment period, expiring with the December 2023 Payment Date. During this period, reinvested principal proceeds are subject to Eligibility Criteria, which include a rating agency no-downgrade confirmation by DBRS Morningstar for all mortgage assets and funded companion participations exceeding $1.0 million, among others. Since issuance, 12 loans with a cumulative balance of $176.2 million have been added to the trust. As of the March 2022 reporting, the Principal Collection Account had a balance of $35.2 million available to the collateral manager to purchase additional loan interests into the transaction.

As of the March 2022 remittance report, the transaction consisted of 35 loans with a cumulative loan balance of $779.8 million. In general, borrowers are progressing toward completing their stated business plans. As of December 2021, the collateral manager had advanced $18.8 million in reserves to 26 borrowers to aid in property stabilization efforts. An additional $64.1 million of unadvanced future funding allocated to 35 borrowers remained outstanding.

The transaction is concentrated by property type as all loans currently in the transaction are secured by multifamily properties. Future reinvestment loan contributions, however, can be secured by multifamily, industrial, office, self-storage, mixed-use, student housing, or manufactured housing community properties with limitations to certain property types as outlined in the eligibility criteria. The transaction is concentrated by loan size, as the largest 10 loans represent 48.9% of the pool. No loans were on the servicer’s watchlist or in special servicing as of the March 2022 remittance. No loans have received a forbearance; only two loans were modified, including Commuter Portfolio (Prospectus ID#10, 2.1% of the current pool balance), because of a one-time approved transfer of membership interests. In addition, 12 out of the original 24 properties secured in the Commuter Portfolio loan were released with the most recent remittance, bringing the outstanding trust balance to $17.1 million from $32.6 million. The Edgewater Apartments loan (Prospectus ID#32, 0.9% of the current pool balance) was modified to allow the renovation reserve to be disbursed on a rolling basis of approximately $70,000 per disbursement.

Loans contributed during the initial ramp-up and subsequent ongoing reinvestment periods were characterized with higher leverage as the current poolwide weighted-average as-is loan-to-value (LTV) and stabilized LTV ratios are 82.2% and 72.3%, respectively, compared with the issuance figures of 77.6% and 70.8%, respectively. In addition, properties in markets with DBRS Morningstar Market Ranks of 1 and 2 represent 12.8% of the cumulative funded loan balance, an increase from issuance of 2.5% at transaction closing. These markets are tertiary in nature and historically have not benefitted as much as suburban and urban markets in terms of investor demand and liquidity. Loans representing an additional 72.9% of the cumulative funded loan balance are secured by properties in markets DBRS Morningstar considers as suburban in nature. At closing, loans secured by properties in suburban markets represented 80.4% of the cumulative funded loan balance. Although the overall credit risk profile of the transaction has increased slightly from issuance, the risk is mitigated by the experience of Arbor Realty SR, Inc., which is an experienced commercial real estate collateralized loan obligation issuer and collateral manager.

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.

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

-- Prospectus ID#1 – Magnolia and Commons (7.0% of the pool)
-- Prospectus ID#3 – Mission Capital Crossing (5.2% of the pool)
-- Prospectus ID#6 – Imperial Plaza (4.9% of the pool)
-- Prospectus ID#7 – 15 Park Row (4.4% of the pool)
-- Prospectus ID#10 – Commuter Portfolio (2.1% of the pool)

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 North American CMBS Surveillance Methodology (March 4, 2022), 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 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 [email protected].

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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