Morningstar DBRS Confirms All Credit Ratings on MF1 2024-FL14 LLC
CMBSDBRS, Inc. (Morningstar DBRS) confirmed all credit ratings on the classes of notes issued by MF1 2024-FL14 LLC 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 (high) (sf)
-- Class G at BB (low) (sf)
-- Class H at B (low) (sf)
-- Class F-X at BB (high) (sf)
-- Class G-X at BB (low) (sf)
-- Class H-X at B (low) (sf)
-- Class F-E at BB (high) (sf)
-- Class G-E at BB (low) (sf)
-- Class H-E 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 Morningstar DBRS' expectations since issuance as evidenced by stable performance and leverage metrics. Additionally, the trust continues to be primarily secured by multifamily collateral, which has historically exhibited lower default rates and retained values in times of market downturns compared with other property types. 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 as well as 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.
The initial collateral consisted of 22 floating-rate mortgages secured by 26 mostly transitional properties with a cut-off date balance totaling $966.9 million, excluding $98.2 million of future funding commitments. Most loans were in a period of transition with plans to stabilize performance and improve the underlying assets' values. The managed transaction includes a 24-month reinvestment period, expiring in February 2026.
As of the December 2024 remittance, the pool comprised 28 loans secured by 37 properties with a cumulative trust balance of $1.1 billion. Since Morningstar DBRS' initial credit rating action in February 2024, seven loans, representing 12.5% of the current pool balance, have been added to the trust. Over the same period, one loan with a former cumulative trust balance of $17.5 million was paid in full. Beyond the multifamily concentration noted above, one loan (representing 2.4% of the current trust balance) is secured by a manufactured housing property.
Leverage across the pool has remained unchanged since issuance. The current weighted-average (WA) as-is loan-to-value ratio (LTV) is 66.6% and the current WA stabilized LTV is 66.3%, based on the as-is and stabilized appraised values for the collateral properties. In the analysis for this review, Morningstar DBRS applied LTV adjustments to 11 loans, representing 37.1% of the current trust balance, generally reflective of higher capitalization rate (cap rate) assumptions compared with the implied cap rates based on the appraisals. This was merited either based on an appraiser's cap rate that was low compared with assumptions for similarly located and/or positioned assets placed in recent vintage deals or low compared with market cap rates, which have generally increased since 2022 when interest rate increases began.
As of the December 2024 remittance, there were no loans in special servicing; however, there were 16 loans, representing 57.6% of the current trust balance, on the servicer's watchlist. The majority of these loans have been flagged for occupancy and cash flow concerns; however, Morningstar DBRS notes the majority of the underlying properties are newly built and are in the early stages of the respective business plans. In addition to the $66.1 million unrated equity piece, there is also $81.6 million in classes with below investment-grade credit ratings, with total credit enhancement of 13.3% for the BBB (low) (sf)-rated Class E Note.
Through December 2024, the lender had advanced cumulative loan future funding of $117.3 million to 20 outstanding individual borrowers to aid in property stabilization efforts. The largest advance, $12.7 million, was to the borrower of the Easley & Rock Hill - Powers Portfolio loan, which is secured by a portfolio five multifamily properties totaling 712 units in Easley, South Carolina, and Rock Hill, South Carolina. The advanced funds have been used to fund unit renovations along with exterior upgrades. According to the collateral manager, the sponsor has completed renovations across 179 units with an additional 160 units under way. As of July 2024, the portfolio was 53.5% occupied.
An additional $80.9 million of loan future funding is available, allocated to 17 of the outstanding individual borrowers. The largest portion of available funding ($18.0 million) is allocated to the 1909 Rittenhouse loan, which is secured by a newly built, 216-unit, multifamily property in downtown Philadelphia. The property, which consists of two separate building, also includes 40,884 square feet of retail space. The $22.2 million future funding component was allocated as follows: $8.0 million into an interest shortfall reserve, $10.2 million into a leasing reserve, and $4.0 million into an earn-out reserve. As of August 2024, the residential component was 93.5% occupied.
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 private rating letters 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.
Classes F-X, G-X, and H-X are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO credit rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.
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 (December 13, 2024), https://dbrs.morningstar.com/research/444617.
Other methodologies referenced in this transaction are listed at the end of this press release.
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.
Morningstar DBRS 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.
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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 (December 13, 2024), https://dbrs.morningstar.com/research/444616
-- North American CMBS Insight Model Version 1.2.0.0 (December 13, 2024), https://dbrs.morningstar.com/research/444616
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings, (August 13, 2024), https://dbrs.morningstar.com/research/437781
-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064
For more information on this credit or on this industry, visit http://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
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