DBRS Morningstar Confirms Ratings on VMC Finance 2021-FL4 LLC

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of notes issued by VMC Finance 2021-FL4 LLC 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 (low) (sf)
-- Class G Notes at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s issuance expectations. 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 info@dbrsmorningstar.com.

At issuance, the collateral consisted of 23 floating-rate mortgages secured by 29 mostly transitional commercial real estate properties totalling approximately $927.9 million, excluding approximately $92.3 million of future funding commitments. The transaction is static and is structured with a 36-month Permitted Funded Companion Participation Acquisition Period ending with the May 2024 Payment Date whereby the Issuer can contribute funded participations of loans into the Trust. Most loans are in a period of transition with plans to stabilize and improve asset value.

As of the April 2022 remittance, a total of 18 loans secured by 20 properties remained in the trust with an aggregate principal balance of $754.3 million. Five loans, which had a cumulative trust balance of $184.0 million, have successfully repaid from the pool. The current Cash Reinvestment Account had a balance of $7.7 million as of the April 2022 remittance.

Most borrowers are progressing toward completing the stated business plans; through April 2022, the collateral manager had advanced $37.0 million in loan future funding to 17 individual borrowers since the transaction closed in May 2021. The majority of this amount has been released to the borrowers of the Dolce Living at Royal Palm Apartments loan ($5.4 million) to fund capital improvements and operating reserves and the River Forum loan ($5.0 million) to fund capital improvements and leasing costs. An additional $26.6 million of loan future funding allocated to 15 borrowers to further aid in property stabilization efforts remains outstanding. The majority of this potential funding is allocated to the borrowers of the Columbus Center loan ($9.1 million) to fund capital improvements and leasing costs and the City Parkway loan ($7.5 million) to fund leasing costs.

The collateral pool is concentrated by property type as 10 loans, representing 57.0% of the cumulative loan balance, are secured by office properties and seven loans, representing 38.3% of the cumulative loan balance, are secured by multifamily properties. By geographical concentration, the collateral is most heavily concentrated in California, Florida, and Texas, with loans representing 24.7%, 23.2%, and 20.6% of the cumulative loan balance, respectively. Three loans, representing 17.0% of the cumulative trust balance, are in urban markets with DBRS Morningstar Market Ranks of 6, 7, and 8. These markets have historically shown greater liquidity and demand. There are seven loans, representing 36.0% of the cumulative loan balance, secured by properties in markets with a DBRS Morningstar Market Rank of 3 or 4, which are suburban in nature and have historically had higher probability of default levels when compared with properties in urban markets.

As of April 2022 reporting, all loans remained current, and there were two loans on the servicer’s watchlist, representing 9.3% of the pool balance. The larger of the two loans, River Forum (Prospectus ID#9, 6.2% of the pool), is being monitored for occupancy declines; occupancy fell to 65.2% as of December 2021 from 68.6% at issuance. The loan is structured with more than $6.0 million of future funding to fund accretive leasing costs; however, there is significant rollover risk at the property, as tenants occupying nearly 25% of net rentable area combined are scheduled to roll in 2022, which could result in further occupancy declines. The other loan being monitored on the servicer’s watchlist, The Wakefield (Prospectus ID#18, 3.2% of the pool), is being monitored for low cash flow, which DBRS Morningstar expected at issuance as the borrower’s business plan is to complete capital improvements and lease vacant space at market rental rates at this office property in Oakland, California.

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/373262.

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

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – Brookwood Portfolio (11.2% of the pool)
-- Prospectus ID#3 – Columbus Center (8.1% of the pool)
-- Prospectus ID#4 – One Financial Plaza (7.6% of the pool)
-- Prospectus ID#5 – Stewart Creek Apartments (7.6% of the pool)
-- Prospectus ID#9 – River Forum (6.2% of the pool)

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com.

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

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 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@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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