DBRS Morningstar Confirms Ratings on ACRES Commercial Realty 2021-FL1

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of notes issued by ACRES Commercial Realty 2021-FL1 (the Issuer) 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. 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 May 2021 with an initial collateral pool of 33 floating-rate mortgage loans secured by 37 mostly transitional real estate properties, with a cut-off pool balance totalling approximately $802.6 million, excluding approximately $50.1 million of future funding commitments. Most loans were in a period of transition with plans to stabilize and improve asset value. The transaction is a sequential- pay structure and does not include a ramp-up acquisition period. The transaction is structured with a Reinvestment Period through the May 2023 Payment Date, whereby the Issuer may acquire Funded Companion Participations and new loan collateral into the trust subject to Eligibility Criteria as defined at issuance.

As of the March 2022 remittance, the pool comprises 35 loans secured by 36 properties with a cumulative trust balance of $741.0 million. Since issuance, 12 loans with a former cumulative trust balance of $350.6 million have been successfully repaid from the pool, and 15 loans with a current cumulative trust balance of $287.6 million have been contributed to the trust. As of the March 2022 remittance, the Reinvestment Account had a balance of $61.6 million. In general, borrowers are progressing toward completion of the stated business plans. Through December 2021 the collateral manager had advanced $21.8 million in loan future funding to 16 individual borrowers to aid in property stabilization efforts. An additional $66.3 million of unadvanced loan future funding allocated to 25 individual borrowers remains outstanding.

The transaction is concentrated by property type as 23 loans are secured by multifamily properties, totalling 71.9% of the current trust balance; six loans are secured by office properties, totalling 20.4% of the current trust balance; and the remaining pool consists of loans secured by hotel, retail, manufactured housing, and self-storage properties. In comparison with transaction closing at May 2021, loans secured by office properties have grown from 12.4% of the trust balance at issuance. Although the remaining property type concentrations remain similar with issuance, loans secured by self-storage properties have decreased to 2.7% of the trust balance from 9.4% of the trust balance at closing. The transaction is also concentrated by loan size, as the largest 10 loans represent 47.2% of the pool.

As of the March 2022 remittance, there are no loans on the servicer’s watchlist, and there is one loan, Stonelake 1-5 (Prospectus ID#19), in special servicing, representing 2.7% of the current trust balance. The loan transferred to special servicing in January 2022 because of imminent maturity default; however, according to the collateral manager, the borrower is co-operating with the service and a resolution is expected to occur in the near term. In addition, the borrowers on two loans, Latham Square and Sawmill Plaza Shopping Center, totalling 7.6% of the current trust balance, executed loan modifications, which extended the respective maturity dates. In both cases, the borrowers were required to sign new floating interest rate cap agreements.

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 this transaction.

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 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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