DBRS Morningstar Confirms Ratings on Arbor Realty Commercial Real Estate Notes 2021-FL1, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of commercial mortgage-backed notes issued by Arbor Realty Commercial Real Estate Notes 2021-FL1, 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. 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.

The transaction closed in March 2021 with the initial collateral pool consisting of 37 floating-rate mortgages and senior participations secured by 64 mostly transitional properties, totaling $635.2 million. Most of the loans 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 July 2021 when the cumulative loan balance totaled $785.0 million.

The transaction includes a 30-month reinvestment period, expiring with the September 2023 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 new mortgage assets and funded companion participations exceeding $1.0 million, among others. Since the last rating action, two loans with a cumulative balance of $75.0 million have been added to the trust. As of the May 2023 reporting, the Principal Collection Account had a balance of $110.5 million available to the collateral manager to purchase additional loan interests into the transaction.

As of the April 2023 remittance report, the transaction consists of 36 loans with a cumulative loan balance of $674.5 million, six of which (19.1% of the current pool balance) were in the pool at issuance. Since issuance, 44 loans with a former cumulative trust balance of $673.9 million have repaid, including 13 loans totaling $249.7 million since the previous DBRS Morningstar rating action in November 2022.

The transaction is concentrated by property type as all loans are secured by multifamily properties and all future reinvestment loan contributions will be secured by multifamily properties as outlined in the eligibility criteria. The transaction is also concentrated by loan size, as the largest 10 loans represent 52.3% of the pool. The loans are primarily secured by properties in suburban markets as 28 loans, representing 79.4% of the pool, are secured by properties in suburban markets, as defined by DBRS Morningstar, with a DBRS Morningstar Market Rank of 3, 4, or 5. An additional six loans, representing 10.0% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 1 and 2, denoting a rural or tertiary market while two loans, representing 10.6% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 7, denoting an urban market. In comparison, in February 2022, properties in suburban markets represented 77.4% of the collateral, properties in rural and tertiary markets represented 14.7% of the collateral, and properties in urban markets represented 7.9% of the collateral.

Leverage across the pool remains relatively consistent from issuance levels as the current weighted-average (WA) as-is appraised value loan-to-value (LTV) ratio is 75.3%, with a current WA stabilized LTV ratio of 69.4%. In comparison, these figures were 72.5% and 69.6%, respectively, at issuance and 80.1% and 71.5%, respectively, as of March 2022. DBRS Morningstar recognizes that select property values may be inflated as the majority of the individual property appraisals were completed in 2021 and 2022 and may not reflect the current rising interest rate or widening capitalization rate environments.

Through December 2022, the lender had advanced cumulative loan future funding of $45.5 million to 31 of the 36 individual borrowers to aid in property stabilization efforts. The largest advance, $12.8 million, has been made to the borrower of the 2 East Oak loan, which is secured by multifamily property in Chicago. Funds were advanced to the borrower to complete its capital improvement, which was originally budgeted at $11.5 million, but was completed for only $7.4 million. Cost savings were used to pay the loan balance down by $3.0 million and contribute $1.5 million into the debt service reserve. An additional $0.8 million of future funding was used to fund debt service shortfalls and $0.7 million was used to purchase units. An additional $46.6 million of loan future funding allocated to 34 individual borrowers remains available. The largest portions of available funds are allocated to the borrowers of the Sterling Point ($4.2 million) and The Quinn South ($4.2 million) loans, which are secured by multifamily properties in Sacramento, California, and Houston, Texas, respectively. The available funds are available to fund the borrowers’ capital improvement plans with loan future funding for The Quinn South also including a potential $0.8 million earnout.

There are no loans on the servicer’s watchlist or in special servicing as of the May 2023 remittance. Additionally, no loans have received a forbearance; however, seven loans, representing 15.6% of the current cumulative trust loan balance have been modified. Loan modification terms have included maturity extensions and the transfer of funds from one reserve to replenish debt service reserves.

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 (May 17, 2022).

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

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

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

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (March 16, 2023)/North American CMBS Insight Model Version 1.1.0.0,
https://www.dbrsmorningstar.com/research/410913

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022),
https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (September 8, 2022),
https://www.dbrsmorningstar.com/research/402499

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022),
https://www.dbrsmorningstar.com/research/402153

Legal Criteria for U.S. Structured Finance (December 7, 2022),
https://www.dbrsmorningstar.com/research/407008

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