DBRS Morningstar Confirms All Classes of FS Rialto 2021-FL3 Issuer, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of notes issued by FS Rialto 2021-FL3 Issuer, 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 remains in line with DBRS Morningstar’s issuance expectations. 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. For access to this report, please click on the link under Related Documents below or contact [email protected].

The initial collateral consisted of 26 floating-rate mortgage assets with an aggregate cut-off date balance of $1.13 billion secured by 68 properties. The aggregate unfunded future funding commitment of the future funding participations as of the cut-off date was approximately $95.1 million. As of the July 2022 remittance, the composition of the transaction remains unchanged since closing, consisting of the same 26 loans with a cumulative trust balance of $1.13 billion.

The transaction is a managed vehicle, structured with a 24-month Reinvestment Period, ending on or about the October 2023 Payment Date. During this period, the Issuer may acquire Reinvestment Collateral Interests, which may include Funded Companion Participations, subject to the Eligibility Criteria and Acquisition Criteria as defined at closing. Additionally, during the Reinvestment Period, the transaction must maintain a cumulative minimum balance of loans secured by multifamily properties of 80.0% of the $1.13 billion transaction balance. As of July 2022, the Reinvestment Account has a zero balance.

In general, borrowers are making progress toward completing the stated business plans at loan closing. Through July 2022, the collateral manager had advanced cumulative loan future funding of $16.9 million to 14 individual borrowers. The largest advances have been made to the borrowers of The Morgan ($2.8 million) and the Highlander Apartments ($2.4 million) loans. The loans are secured by multifamily properties in Austin, Texas, and Everett, Washington, respectively, and the borrowers’ business plan is to complete capital improvements across the properties to increase occupancy and rental rates. An additional $78.2 million of loan future funding allocated to 17 individual borrowers remains outstanding, available to aid in property stabilization efforts. By far, the largest remaining ($34.9 million) allocation is to the borrower of the Paradise Plaza loan, which is secured by a mixed-use property in Miami, Florida. The loan was structured with future funding of $36.0 million to fund $15.0 million of new tenant’s build-out, $5.0 million for leasing costs and up to $15.0 million as an earnout subject to specified tenants achieving sales volume thresholds by year three of the loan term.

As the collateral pool remains unchanged since issuance, the loan size, property type, and property location concentrations remain the same with the largest 10 loans representing 51.6% of the pool balance. Of the 26 loans, 22 are secured by multifamily properties, representing 83.6% of the pool balance. Remaining asset types include industrial, mixed-use, and self-storage, which secure one loan each. In terms of property location, the assets are primarily in suburban markets, as 24 loans, representing 88.9% of the pool balance, are secured by properties in markets with a DBRS Morningstar Market Rank of 3, 4, and 5, which DBRS Morningstar considers suburban in nature. The two remaining loans are secured by properties in urban markets with a DBRS Morningstar Market Rank of 6. Regarding pool-wide leverage, the DBRS Morningstar Weighted-Average (WA) Appraised As-Is Loan-to-Value Ratio (LTV) is 72.5% with a WA Appraised Stabilized LTV of 66.6%.

As of July 2022 reporting, there are no delinquent or specially serviced loans, nor are there any loans on the servicer’s watchlist. Additionally, the collateral manager confirmed that no individual borrowers have requested or received a loan forbearance.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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#2 – Paradise Plaza (6.6% of the pool)
-- Prospectus ID#3 – Norterra Canyon Apartments (5.8% of the pool)
-- Prospectus ID#4 – Tiffany at Maitland West (5.5% of the pool)
-- Prospectus ID#5 – Stacks on Main (5.3% of the pool)
-- Prospectus ID#8 – The Morgan (4.9% 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.

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 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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