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

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of commercial mortgage-backed 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 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 G at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations since issuance. 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. To access this report, please click on the link under Related Documents below or contact us at info@dbrsmorningstar.com.

The transaction closed in September 2021 with the initial collateral consisting of 36 floating-rate mortgages and senior participations secured by 50 mostly transitional properties, with a cut-off balance of $1.2 billion. Most of the loans contributed at issuance were secured by cash flowing assets, with some level of stabilization remaining.

The transaction included a 180-day ramp-up acquisition period, which was completed in January 2022 when the cumulative trust loan balance totalled $1.50 billion. The transaction is also structured with a subsequent reinvestment period, expiring with the March 2024 Payment Date. During this period, reinvested principal proceeds are subject to Eligibility Criteria, which include a rating agency no-downgrade confirmation by DBRS Morningstar for all mortgage assets and funded companion participations exceeding $500,000, among others. Since issuance, 20 loans with a cumulative balance of $313.0 million have been added to the trust.

As of the June 2022 remittance report, the transaction consisted of 56 loans totalling the maximum trust balance of $1.5 billion. In general, borrowers are progressing toward completing their stated business plans. As of March 2022, the collateral manager had advanced $38.2 million in reserves to 41 borrowers to aid in property stabilization efforts. An additional $127.8 million of reserves allocated to 55 borrowers remained outstanding.

The transaction is concentrated by property type as all loans currently in the transaction are secured by multifamily properties. To date, all reinvestment loans have been secured by traditional multifamily assets; however, the Eligibility Criteria does allow for up to 7.5% of the maximum pool balance to be secured by student housing properties. The largest 10 loans represent 33.8% of the pool, and there are no loans in special servicing or on the servicer’s watchlist as of the June 2022 remittance.

Loans contributed during the initial ramp-up and subsequent ongoing reinvestment periods were characterized with similar leverage as the current poolwide weighted-average as-is loan-to-value (LTV) and stabilized LTV ratios are 84.3% and 71.5%, respectively, in comparison with the issuance figures of 84.1% and 71.6%, respectively. In addition, properties in markets with DBRS Morningstar Market Ranks of 1 and 2 represent 18.2% of the pool, compared with 17.3% of the pool at issuance. These markets are tertiary in nature and historically have not benefitted as much as suburban and urban markets in terms of investor demand and liquidity. Loans representing 68.6% of the pool are secured by properties in markets DBRS Morningstar considers as suburban in nature, compared with 65.6% of the pool at issuance.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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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