DBRS Morningstar Confirms Ratings on All Classes of MF1 2022-FL9, LLC.

DBRS, Inc. (DBRS Morningstar) confirmed its credit ratings on all classes of notes issued by MF1 2022-FL9, Ltd. as follows:

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

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance. The underlying pool has not materially changed since issuance, with 44 of the original 45 loans (representing 96.6% of the pool) remaining as of the September 2023 remittance, and in general, those loans continue to perform as expected with business plans progressing. 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 us at [email protected].

The initial collateral consisted of 45 floating-rate mortgage loans secured by 61 transitional multifamily and manufactured housing properties, totaling $1.74 billion (61.3% of the total fully funded balance), excluding $265.8 million (9.4% of the total fully funded balance) of future funding commitments and $830.3 million (29.3% of the total fully funded balance) of pari passu debt. Most loans were in a period of transition with plans to stabilize performance and improve the asset value. The transaction has a maximum funded balance of $1.8 billion and is a managed vehicle with the reinvestment period scheduled to expire with the May 2024 remittance. As of the September 2023 remittance, the pool comprises 47 loans secured by 63 properties with a cumulative trust balance of $1.80 billion. Three new loans, totaling $57.8 million, have been added to the trust and one $30.6 million loan (Aspire at 610) has repaid since the last credit rating action in November 2022.

The transaction is concentrated by property type as 44 loans, representing 92.6% of the current trust balance, are secured by multifamily properties with the remaining three loans (7.4% of the current trust balance) secured by manufactured housing properties. The pool is primarily secured by properties in suburban markets, with 33 loans, representing 64.3% of the pool, assigned a DBRS Morningstar Market Rank of 3, 4, or 5. An additional 11 loans, representing 31.4% of the pool, are secured by properties in urban markets, with a DBRS Morningstar Market Rank of 6, 7, or 8. The remaining loans are backed by properties with a DBRS Morningstar Market Rank of 1 or 2, denoting tertiary markets. These property type and market type concentrations remain generally in line with the pool composition at the November 2022 credit rating action.

Leverage across the pool has remained consistent as of September 2023 reporting when compared with issuance metrics as the current weighted-average (WA) as-is appraised value loan-to-value ratio (LTV) is 71.9%, with a current WA stabilized LTV of 64.4%. In comparison, these figures were 71.8% and 63.3%, respectively, at issuance. DBRS Morningstar recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2022 and may not fully reflect the effects of increased interest rates and/or widening capitalization rates in the current environment.

Through August 2023, the lender had advanced cumulative loan future funding of $147.8 million to 34 of the 41 outstanding individual borrowers. The largest advance, $18.1 million, has been made to the borrower of the Parkview at Collingwood loan, which is secured by a 1,030-unit, high-rise style apartment property in Collingswood, New Jersey. The advanced funds have been used to fund the borrower’s $17.1 million planned capital expenditure (capex) plan across the property. The Q2 2023 collateral manager report noted the borrower had completed 477 unit upgrades with another 10 units in progress. The loan is being monitored on the servicer’s watchlist for cash flow and occupancy concerns. As of June 2023, the property was 72.6% occupied, down from 94.7% at issuance. The drop in occupancy is a combination of factors including tenant evictions and down units as a result of ongoing renovations. Despite the occupancy decline, the collateral manager noted that the average rental rate across the renovated units was $1,549 per unit, which represents a $297 per unit premium over rents at issuance. In comparison, DBRS Morningstar assumed a rent premium of $1,489 per unit when deriving the DBRS Morningstar Stabilized net cash flow figure.

An additional $158.0 million of loan future funding allocated to 38 individual borrowers remains available. The vast majority of available funding ($47.1 million) is allocated to the Virtuoso Living loan, which is secured by a 400-unit, horizontal multifamily development located in Huntsville, Alabama. That loan’s future funding commitment was allocated to assist with the acquisition of the Phase II portion of the property; however, the collateral manager reported that transaction fell through in December 2022. Overall, the property was 96% occupied as of April 2023.

As of the September 2023 remittance, 10 loans, representing 19.0% of the current pool balance, are in special servicing. The largest of those loans, and the only one that is delinquent, is the $41.3 million Sterling Apartments loan (2.3% of the pool). That loan is secured by a Class B high-rise apartment complex totaling 128 units in Fort Lee, New Jersey. The loan transferred to special servicing in April 2023 after being reported 60 days delinquent. The business plan at issuance was to complete a $4.7 million renovation project; however, according to the collateral manager, no unit renovations have been completed to date. As of May 2023, the property was 81.3% occupied, with an average rental rate of $2,277 per unit, representing a 3.3% increase over rents at issuance. According to the collateral manager, the issuer has begun the foreclosure process and the enforcement of remedies against the borrower. At issuance, the property was appraised for $52.0 million on an as-is basis, resulting in an LTV of 79.5%. Given the outstanding default, DBRS Morningstar analyzed the loan with a stressed scenario, which resulted in an expected loss in excess of the pool average.

In September 2023, nine of the 10 loans in the pool sponsored by Tides Equities (Tides) transferred to special servicing. The loan that did not transfer, The Meadows ($26.9 million, 1.5% of the pool), also has a pari passu piece of the A-note securitized in the MF1 2022-FL8, which is also rated by DBRS Morningstar. The loan in that transaction was transferred to special servicing with September 2023 reporting. According to The Real Deal, the principals of the firm noted in June 2023 a capital call would likely be needed from investors in order to fund debt service shortfalls across the portfolio given the rise in floating interest rate debt. All nine loans transferred to special servicing were reported current as of the September 2023 remittance and the collateral manager’s commentary indicates two loans, AYA Las Vegas and Plaza del Lago, have been modified. Both loans received preferred equity capital injections to cover the projected debt service shortfall over the next three years. In the analysis for this review, DBRS Morningstar made a negative adjustment to the sponsor strength across all 10 Tides-sponsored loans, resulting in increased expected losses for those loans that exceeded the pool average.

There are 28 loans on the servicer’s watchlist, representing 70.0% of the current trust balance. The loans have primarily been flagged for below breakeven debt service coverage ratios and upcoming loan maturities. All loans remain current with performance declines expected to be temporary as multifamily units are being taken offline by respective borrowers to complete interior renovations. In the next six months, 10 loans, representing 15.4% of the current trust balance are scheduled to mature. According to the collateral manager, eight of the individual borrowers are expected to exercise loan extension options, while the two remaining borrowers are expected to successfully execute exit strategies.

According to the collateral manager, six loans, representing 21.5% of the current trust balance, have been modified. The modifications have generally allowed borrowers to exercise loan extension options by amending loan terms in exchange for fresh equity deposits and the purchase of a new interest rate cap agreements. The most common amended loan terms include the removal of performance-based tests and changes to the required strike price of a new interest rate cap agreement.

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 the 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 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 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 credit 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, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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

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