Morningstar DBRS Confirms Credit Ratings on All Classes of KREF 2021-FL2 Ltd., Maintains Negative Trends on Six Classes

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of notes issued by KREF 2021-FL2 Ltd. 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 (low) (sf)
-- Class F-E BB (low) (sf)
-- Class F-X at BB (low) (sf)
-- Class G at B (low) (sf)
-- Class G-E at B (low) (sf)
-- Class G-X at B (low) (sf)

The trends on the Classes F, G, F-E, F-X, G-E, and G-X remain Negative. The trends on all other classes are Stable.

The Negative trends continue to reflect the increased credit risk given the transaction's exposure to adverse selection. Five of the remaining loans, representing 57.2% of the current trust balance, are secured by office collateral, including the three largest loans in the pool (39.0% of the current trust balance), which have reported declines in occupancy and cash flow year-over-year. As a result of the in-place performance declines and the declining demand for office space in the post-pandemic environment, Morningstar DBRS believes property values have declined from their respective issuance appraisals. As such, Morningstar DBRS analyzed these three loans with increased loan-to-value ratios (LTVs), resulting in individual expected losses that are between 12.5% to 86.9% greater than the pool's weighted-average (WA) expected loss. In aggregate, the WA expected loss for all office loans in the pool was approximately 30.0% greater than the pool's WA expected loss.

The credit rating confirmations reflect the otherwise stable performance and generally positive outlook for the majority of the remaining loans in the pool, which reported updated performance metrics that surpass Morningstar DBRS' projections derived at issuance, as the respective borrowers have generally been able to progress toward the completion of their stated business plans to date. 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.

Over the next 12 months, nine loans, representing 83.6% of the current trust balance, are scheduled to mature. Four of these loans, representing 45.1% of the current trust balance, are secured by office properties, including the largest loan in the pool, Boston South End Life Science Campus (Prospectus ID#4; 14.2% of the pool), which has surpassed its May 2025 maturity date. Per the Q1 2025 collateral report, the borrower will be exercising the loan's second and final 12-month extension option. The second largest loan, Fifth Street Towers (Prospectus ID#31; 12.8% of the pool), has a final maturity date in July 2025; however, given the property's sustained low occupancy and lack of leasing activity, Morningstar DBRS expects the borrower will continue to face challenges in executing exit strategies in the near term and will likely pursue a loan modification to extend the loan maturity. For the majority of the remaining loans that have final maturities scheduled over the next 12 months, the underlying properties have reached stabilization and reported improved cash flow, rental rates and/or occupancy rates relative to issuance levels.

At issuance, the transaction consisted of 20 floating-rate mortgages secured by 29 mostly transitional commercial real estate properties totaling approximately $1.0 billion, excluding approximately $260.5 million of future funding commitments. The Issuer then added additional proceeds into the proposed structure to bring the total transaction structure from $1.0 billion to $1.3 billion. The transaction had a Reinvestment Period that expired with the August 2023 payment date and is now paying sequentially. As of the June 2025 remittance, the pool consists of 11 loans secured by 16 properties with a cumulative trust balance of $940.8 million, representing a collateral reduction of 27.6% since issuance. Since Morningstar DBRS' credit rating action in July 2024, six loans with a former trust balance of $344.8 million were repaid in full, including one loan that was repaid following the May 2025 credit rating action.

Beyond the office concentration noted above, the transaction also comprises four loans, representing 30.0% of the current trust balance, secured by multifamily properties, one loan, representing 8.5% of the pool, secured by a hotel portfolio, and the remaining loan, representing 4.3% of the pool, secured by a mixed-use property. The loans are primarily secured by properties in suburban markets with seven loans, representing 55.0% of the current trust balance, in locations with Morningstar DBRS Market Ranks of 3, 4, and 5. The remaining four loans, representing 45.0% of the pool, are secured by properties in urban markets, with Morningstar DBRS Market Ranks of 6, 7, and 8.

Based on the original as-is appraised values from individual loan closing dates, leverage across the pool has decreased from issuance, with a current WA LTV of 60.6%, down from 68.2% at issuance. Similarly, the projected WA as-stabilized LTV has also decreased to 46.3% from 65.4% at issuance. Morningstar DBRS recognizes that select property values may be inflated as the majority of the individual property appraisals were completed from 2021 through 2023 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 and/or probability of default (POD) adjustments across nine loans, representing 82.9% of the current trust balance.

Through May 2025, the lender advanced a cumulative $131.8 million in loan future funding allocated to six individual borrowers to aid in property stabilization efforts. The largest advance of $65.9 million was made to the borrower of Legacy Central (Prospectus ID#11; 8.9% of the pool), which is secured by a portfolio of four Class A office properties in Plano, Texas. The borrower used loan future funding for various capital improvement projects and toward covering leasing and carry costs. According to the Q1 2025 reporting, the property has stabilized, with occupancy reported at 93.5% and a debt yield of 10.7%. There are nine tenants occupying the property with a WA lease term of 6.5 years and minimal rollover over the next 24 months. The remaining vacant space is being marketed between $23 per square feet (psf) and $25 psf, in line with the property's current base rent. The loan was modified in February 2025, which extended its maturity date to August 2026 and included a $10.0 million paydown and a 5.7% interest rate cap purchase.

An additional $3.2 million of loan future funding allocated to only two individual borrowers remain available. The largest unadvanced portion of $2.9 million is allocated to the borrower of the aforementioned Boston South End Life Science Campus. The loan is secured by two office and laboratory (lab) properties in Boston and the borrower's business plan focuses on covering leasing costs and ongoing capital improvement projects, including the conversion of one of the two properties from a traditional office building to lab space. As of Q1 2025, one of the two properties has become fully vacant following the departure of its largest tenant, previously representing 50.2% of the property's net rentable area, bringing down the aggregate occupancy rate to 47.0%. In its analysis for this review, Morningstar DBRS applied an upward POD adjustment, resulting in a loan-level expected loss 86.9% greater than the pool's WA expected loss.

As of the June 2025 remittance, there are no loans in special servicing. Two loans, Boston South End Life Science Campus and Fifth Street Towers, collectively representing 26.9% of the pool, are being monitored on the servicer's watchlist for upcoming loan maturities. Nine loans, representing 86.4 % of the pool, have been modified. In general, the modifications have allowed borrowers to bifurcate loans, reduce the floating interest rate spread, or exercise or modify loan extension options by amending loan terms. In return, borrowers have been required to make loan curtailment payments, deposit funds into reserves, or purchase new interest rate cap agreements.

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.

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), 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 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 info-DBRS@morningstar.com.

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.

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 17g-7 disclosure report and/or the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

As applicable, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

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

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024),
https://dbrs.morningstar.com/research/438283
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- North American CMBS Multi-Borrower Rating Methodology/ North American CMBS Insight Model v 1.3.0.0 (April 9, 2025), https://dbrs.morningstar.com/research/451739
-- 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

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at (July 17, 2023), https://dbrs.morningstar.com/research/417279.

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