Morningstar DBRS Confirms Credit Ratings on All Classes of Arbor Realty Commercial Real Estate Notes 2021-FL3, Ltd.

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of notes issued by Arbor Realty Commercial Real Estate Notes 2021-FL3, Ltd. as follows:

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

All trends are Stable.

The credit rating confirmations reflect the transaction's favorable collateral composition, as the trust continues to be solely secured by multifamily collateral, and the increased credit support provided to the bonds as a result of collateral reduction. Morningstar DBRS previously reviewed the transaction in May 2025, which resulted in upgrades across the Class B through G Notes, stemming from increased collateral reduction totaling 37.0% since issuance. Since then, three additional loans totaling $124.8 million have repaid in full, resulting in an overall collateral reduction of 45.3% as of the June 2025 reporting. In addition, the majority of individual borrowers are progressing with the stated business plans to increase property cash flow asset value. While select loans have exhibited performance concerns, Morningstar DBRS expects the lender and the borrowers of these loans to negotiate loan modifications to maturity extensions, if necessary. Any loan modifications would likely require additional equity infusions from borrowers in the form of principal curtailments, the purchase of new interest rate-cap agreements, or deposits into existing reserve accounts.

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 June 2025 remittance, the transaction had an outstanding balance of $820.0 million with 29 loans secured by 38 properties remaining in the trust. Of the original 36 loans from the transaction closing in October 2021, nine loans, representing 30.9% of the current pool balance, remain in the trust. 

Leverage across the pool has decreased since issuance as the current weighted-average (WA) as-is appraised, loan-to-value (LTV) ratio is 70.6%, with a current WA stabilized LTV ratio of 56.9%. In comparison, these figures were 84.4% and 72.2%, respectively, since issuance. Morningstar DBRS recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2022 and may not reflect the current rising interest rate or widening capitalization (cap) rate environments. In the analysis for this review, Morningstar DBRS applied LTV adjustments to 14 loans, representing 61.8% of the current pool balance, generally reflective of higher cap rate assumptions compared with the implied cap rates based on the appraisals.

As of June 2025 reporting, three loans, representing 14.1% of the current trust balance, are in special servicing. The largest loan is special servicing, South Pointe Apartments (Prospectus ID#70; 7.1% of the current trust balance), is secured by a 252-unit multifamily property in Naranja, Florida. The loan transferred to special servicing in April 2025 for maturity default. According to the Q1 2025 collateral manager report, the borrower is looking to exercise its 12-month extension option; however, the loan will require a modification as the extension option requires the loan to have a minimum debt service coverage ratio (DSCR) of 1.25 times (x). It appears a modification is likely as the collateral manager is working with the borrower to resolve the past due maturity date. As of the trailing 12-month period ended February 28, 2025, the property generated a net cash flow (NCF) of $3.3 million, equating to a 0.65x DSCR and a 5.7% a debt yield. According to the February 2025 rent roll, the property was 92.1% occupied at an average rental rate of $2,035 per unit. In its analysis, Morningstar DBRS applied an increased LTV ratio and applied a probability of default adjustments to the loan, resulting in an expected loss in excess of the WA loss figure for the pool.

The second-largest loan in special servicing, The Landings at Brittany Acres (Prospectus ID#64; 3.9% of the current trust balance), is secured by is secured by a multifamily property in Bridgeton, Missouri. According to the collateral manager's Q1 2025 update, the loan was modified In December 2024, which extended loan maturity through December 2027 and reduced the interest rate spread from 3.60% to 2.75%. The modification also required a principal payment of $0.5 million and the purchase of a rate cap with a 3.0% strike rate for a three-year term. According to the January 2025 rent roll the property 91.8% occupied and 95.4% pre-leased. As of the trailing 12-month period ended January 31, 2025, the property generated a NCF of $2.1 million, equating to a 0.95x DSCR and a 6.7% debt yield. In its analysis, Morningstar DBRS applied an increased LTV ratio and a probability of default adjustments to the loan, resulting in an expected loss in excess of the WA loss figure for the pool.

The third-largest loan in special servicing, Casa Blanca & Casa Valencia (Prospectus ID#28; 3.1% of the current pool balance), is secured by a multifamily property in Dallas. The loan transferred to special servicing in October 2024 for imminent default. The loan was modified in February 2025, whereby the borrower made a $1.0 million deposit to be used to pay past-due debt service, fund the renovation reserve, and fund the interest rate cap reserve. The borrower is also required to make two additional $0.4 million deposits to the renovation reserve by March 2025 and June 2025, respectively. As part of the modification, the loan was extended from March 2026 to August 2027 and the borrower purchased a new 12-month interest rate cap agreement with a 5.00% strike rate through the current maturity date. The Casa Blanca property was 32.0% occupied as of February 2025, while the Casa Valencia property remains closed after sustaining significant crime. According to the collateral manager the borrower is in the process of obtaining bids for the renovation of the property. An updated appraisal completed in March 2025 valued the collateral at $21.6 million, down from $24.6 million at June 2024. The current LTV is elevated at 118.1%, suggesting the credit risk of the loan has increased materially from closing. The projected as-stabilized value of $27.7 million implies an elevated LTV of 92.1%. In its analysis, Morningstar DBRS applied an increased LTV and probability of default adjustments to the loan, resulting in an expected loss in excess of the WA loss figure for the pool.

While the servicer did not report any loans on the servicer's watchlist as of the June 2025 reporting, the transaction had an elevated amount of loan modifications. Through June 2025, 24 of the outstanding loans, representing 87.6% of the current trust balance, have been modified. The terms of the individual loan modifications vary and have included the waiver of performance-based tests to exercise maturity extensions, the requirement to purchase new interest rate cap agreements, changes to interest rate structures and reallocations of loan future funding dollars. Loan modifications have often required additional equity commitments from borrowers in the form of upfront principal curtailments, deposits into reserve accounts, and/or increased loan payments guarantees.

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 (May 16, 2025) at https://dbrs.morningstar.com/research/454196.

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 (February 28, 2025), https://dbrs.morningstar.com/research/448963.

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

The credit ratings assigned to Classes F and G materially deviate from the credit ratings 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 ratings 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 ratings. The rationale for the material deviations is uncertain loan level event risk given the concentration of loans in special servicing as well as the concentration of borrowers that are behind the respective business plans to increase property cash flow and asset value.

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.

These are solicited credit ratings.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-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 (April 9, 2025)/North American CMBS Insight Model v 1.3.0.0, https://dbrs.morningstar.com/research/451739
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064
-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025), https://dbrs.morningstar.com/research/450750
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

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