DBRS Morningstar Upgrades Ratings on Two Classes, Confirms All Other Ratings on MF1 2021-FL5, Ltd.

DBRS Limited (DBRS Morningstar) upgraded its ratings on two classes of notes issued by MF1 2021-FL5, Ltd. (the Issuer) as follows:

-- Class B Notes to AAA (sf) from AA (low) (sf)
-- Class C Notes to AA (low) (sf) from A (low) (sf)

DBRS Morningstar also confirmed the ratings on the following classes:

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

All trends are Stable.

The rating upgrades on Classes B and C are reflective of the increased credit support to the bonds as a result of successful loan repayments, resulting in a collateral reduction of 40.2% since issuance. The rating confirmations reflect the overall stable performance of the remaining loans in the pool, which are backed by assets that are still in a period of transition with plans to stabilize and improve the asset value. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update rating report with in-depth analysis and credit metrics for the transaction and business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at [email protected].

According to the July 2023 remittance report, there are 17 floating-rate mortgage loans secured by 34 properties remaining in the pool with a total balance of $711.7 million. At issuance, the trust consisted of 35 floating-rate mortgage loans secured by 49 multifamily and five senior housing properties totaling $1.2 billion, excluding $298.0 million of future funding commitments and $599.1 million of pari passu debt. The trust featured a 90-day, ramp-up acquisition period following the closing date, which was completed in June 2021. The transaction is also structured with a Replenishment Period through the March 2024 Payment Date, whereby the Issuer may acquire the Funded Companion Participation into the trust. As per July 2023 reporting, the Replenishment Account had a balance of $3.0 million.

Since issuance, 18 loans have repaid from the pool (including four loans since the previous DBRS Morningstar rating action in November 2022), which had a former cumulative trust balance of $579.9 million. Majority of the loans have initial maturity dates in early 2024 but have extension options available, subject to performance threshold requirements. In the event the performance thresholds are not met, lenders may agree to extensions if fresh equity is being contributed toward the loan. The Memory Center of Atlanta (Prospectus ID#30, 1.6% of the current pool balance) loan was initially scheduled to mature in July 2023 but the borrower is in the process of finalizing a loan modification that would extend the maturity and implement a cash management structure.

There are no delinquent or specially serviced loans and six loans are on the servicer's watchlist, representing 22.9% of the current trust balance. These loans are primarily being monitored for deferred maintenance items and upcoming maturity. Three loans, representing 22.4% of the current pool balance, have executed loan modifications in January 2022, which included revised maturity dates.

The transaction benefits from a significant concentration of loans backed by multifamily properties, representing 84.7% of the current trust balance, while the remaining loans are secured by senior housing properties. The loans are primarily secured by properties in urban markets with six loans, representing 44.7% of the current trust balance, in locations with DBRS Morningstar Market Ranks of 6, 7, and 8. Nine loans, representing 44.2% of the pool, are secured by properties in suburban locations with DBRS Morningstar Market Ranks of 3, 4, and 5 and two loans, representing 11.1% of the pool, are secured by properties in tertiary markets. In terms of leverage, the pool has a current weighted-average (WA) appraised loan-to-value ratio (LTV) of 68.1% and a WA stabilized LTV ratio of 64.4%. By comparison, these figures were 70.0% and 76.4%, respectively, at issuance. DBRS Morningstar recognizes the current market value of the collateralized properties may have declined given the increased interest rate and widening capitalization rate environments currently facing borrowers and lenders.

As of June 2023, the collateral manager has advanced $51.1 million in loan future funding to 11 individual borrowers to aid in property stabilization efforts. The largest advance, $15.5 million, was made to the borrower of Connection Apartments, which is secured by a 16 three-story, garden-style residential buildings, and a single-story leasing office/clubhouse building. The borrower’s business plan is to complete a capital improvement plan that will consist of renovating, converting, and splitting the units; upgrading the exteriors and amenity areas; replacing the roofs; and curing any deferred maintenance across the properties. An additional $74.5 million of loan funding, allocated to six borrowers, remains outstanding.

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/416784 (July 4, 2023).

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

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023), https://www.dbrsmorningstar.com/research/410912.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit ratings assigned to Classes D, E, F, and G materially deviate from the credit ratings implied by the predictive model. DBRS Morningstar typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider a three-notch or more deviation from the credit rating stress implied by the predictive model to be a significant factor in evaluating the credit ratings. The rationale for the material deviation is that sustainability of loan performance trends is not demonstrated, given the transaction is still early in its life and majority of the assets are still transitioning toward stabilization, which may pose credit concerns as the loans get more seasoned.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model Version 1.1.0.0, https://www.dbrsmorningstar.com/research/410913

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022), https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (September 8, 2022), https://www.dbrsmorningstar.com/research/402499

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023), https://www.dbrsmorningstar.com/research/415687

Legal Criteria for U.S. Structured Finance (December 7, 2022), https://www.dbrsmorningstar.com/research/407008

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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