Morningstar DBRS Confirms Credit Ratings on All Classes of MF1 2021-FL5, Ltd.

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of notes issued by MF1 2021-FL5, Ltd. as follows:

-- Class A Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)
-- Class B Notes at AAA (sf)
-- Class C Notes at AA (low) (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 credit rating confirmations reflect the favorable collateral composition of the transaction as the trust continues to be primarily secured by the multifamily collateral (12 loans, representing 82.9% of the current pool balance). Historically, loans secured by multifamily properties have exhibited lower default rates and the ability to retain and increase asset value. In conjunction with this press release, Morningstar DBRS 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 info-DBRS@morningstar.com.

As of the August 2024 remittance report, there are 14 floating-rate mortgage loans secured by 29 properties remaining in the pool with a total balance of $619.7 million. At issuance, the trust consisted of 35 floating-rate mortgage loans secured by 49 multifamily properties 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 transaction was also structured with a Replenishment Period that expired with the March 2024 Payment Date. Since issuance, 20 loans with cumulative trust balance of $579.0 million have repaid in full including three loans totaling $90.9 million since the previous Morningstar DBRS credit rating action in August 2023. Majority of the loans have initial maturity dates in early 2025 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 remaining collateral in the transaction beyond the multifamily concentration noted above include three senior housing properties, representing 17.1% of the current trust balance. The loans are primarily secured by properties in urban markets with six loans, representing 51.4% of the current trust balance, in locations with Morningstar DBRS Market Ranks of 6, 7, and 8. Six loans, representing 35.8% of the pool, are secured by properties in suburban locations with Morningstar DBRS Market Ranks of 3, 4, and 5, and two loans, representing 12.8% of the pool, are secured by properties in tertiary markets.

Leverage across the pool has remained stable. As of the August 2024 reporting, the weighted-average (WA) as-is appraised loan-to-value (LTV) ratio is 67.2%, with a WA as-stabilized LTV ratio of 66.5%. In comparison, these figures were 74.5% and 69.2%, respectively, as of July 2023. Morningstar DBRS recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2021 and 2022 and may not reflect the current rising interest rate or widening capitalization rate environments. In the analysis for this review, Morningstar DBRS applied upward LTV adjustments across 13 loans, representing 85.5% of the current trust balance.

As of August 2024, the collateral manager has advanced $61.0 million in loan future funding to nine individual borrowers to aid in property stabilization efforts. The largest advance, $15.6 million, was made to the borrower of SF Multifamily Portfolio II, which is secured by eight three-story multifamily properties in the San Francisco area. The funds were advanced to complete unit interior and property exterior upgrades across the portfolio. According to the collateral manager, the renovation project is 61.5% complete as the borrower has completed unit renovations across 147 units of the planned 239 units. As of the December rent roll, the portfolio was 87.0% occupied.

An additional $184.9 million of loan future funding allocated to six individual borrowers remains available. The largest portion of available funds, $82.4 million, is allocated to the borrower of the LA Multifamily Portfolio III loan, which is secured by a portfolio of 14 properties totaling 251 units in the West LA area of Los Angeles. The loan future funding is available to the borrower to fund interior and exterior upgrades as well as to potentially fund a performance-based earnout. To date the borrower has completed renovations across 62 units while an additional 18 units are under renovation. As of the March 2024 rent roll, the portfolio was 85.7% occupied.

As of the August 2024 remittance, there are 12 loans on the servicer's watchlist, representing 74.1.% of the current trust balance. The loans have generally been flagged for deferred maintenance, upcoming maturity dates and low occupancy rates or cash flow. Our primary concern is the CA Ventures loan, which is secured by a portfolio of three assisted-living and memory-care properties that have struggled to stabilize their operating performance, falling below issuance as-is figures. Additionally, there are two delinquent loans, representing 16.9% of the pool.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

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

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

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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

The credit rating assigned to the Class C through G Notes materially deviates from the credit rating implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit rating would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit rating. The rationale for the material deviation is that the sustainability of loan performance trends has not been demonstrated as the majority of the loans remaining in the transaction are secured by properties that have yet to fully stabilize.

The credit ratings were initiated at the request of the rated entity.

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

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

There are solicited credit ratings.

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://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0, https://dbrs.morningstar.com/research/428797
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024), https://dbrs.morningstar.com/research/435293
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.