DBRS Morningstar Confirms Ratings on All Classes of FS Rialto 2021-FL3 Issuer, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2021-FL3 issued by FS Rialto 2021-FL3 Issuer, 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 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.

The initial collateral consisted of 26 floating-rate mortgage assets with an aggregate cut-off date balance of $1.13 billion secured by 68 mostly transitional commercial real estate properties. As of the August 2023 remittance, the transaction consists of 31 loans secured by 55 properties with a cumulative loan balance of $1.13 billion. Twenty-three of these loans (82.8% of the current pool balance) were in the pool at issuance. Since the previous DBRS Morningstar rating action in November 2022, five loans have been added to the trust with a current cumulative trust balance of $165.3 million, four loans with a former cumulative trust balance of $181.6 million have fully repaid, and one portfolio loan had a partial principal repayment of $26.8 million.

The transaction is a managed vehicle, structured with a 24-month Reinvestment Period, with the October 2023 Payment Date. During this period, the Issuer may acquire Reinvestment Collateral Interests, which may include Funded Companion Participations, subject to the Eligibility Criteria and Acquisition Criteria as defined at closing. Additionally, during the Reinvestment Period, the transaction must maintain a cumulative minimum balance of loans secured by multifamily properties of 80.0% of the $1.13 billion transaction balance. As of August 2023, there are no funds in the Reinvestment Account.

In general, borrowers are making progress toward completing the stated business plans at loan closing. Through July 2023, the collateral manager had advanced cumulative loan future funding of $78 million to 21 of the outstanding individual borrowers. The largest advances have been made to the borrowers of Paradise Plaza ($19.8 million) and Nob Hill Apartments ($17.7 million) loans. The loans are secured by a mixed-use property and multifamily property in Miami, Florida and Houston, Texas, respectively. The borrower of the Paradise Plaza loan plans to use up to $21.0 million to fund accretive leasing costs with additional loan future funding of $15.0 million available as a performance-based earnout. The borrower of the Nob Hill Apartments loan has used advanced loan proceeds to fund its planned $23.9 million capital improvement program. An additional $129.1 million of loan future funding allocated to 23 individual borrowers remains available. The largest remaining allocation, $21.7 million, is to the borrower of the Barnsely Resort loan, which was recently added to the trust in August 2023. The loan is secured by a full-service, luxury resort hotel in Adairsville, Georgia, with loan future funding available to fund the borrower’s planned property renovation and expansion plan.

The transaction is concentrated by property type as 25 loans are secured by multifamily properties, representing 81.4% of the pool balance. Remaining asset types include hotel, retail, mixed use, and industrial. At issuance, multifamily loans represented 71.2% of the collateral and mixed-use properties represented 16.1% of the collateral. In terms of property location, the assets are primarily in suburban markets, as 27 loans, representing 81.5% of the pool balance, are secured by properties in markets with a DBRS Morningstar Market Rank of 3, 4, and 5, which DBRS Morningstar considers suburban in nature. There are also three loans, representing 13.9% of the current pool balance, secured by properties in urban markets with a DBRS Morningstar Market Rank of 6 and 8.

As of the August 2023 reporting, there are no delinquent or specially serviced loans and there are five loans on the servicer’s watchlist, representing 17.7% of the current pool balance. Three of these loans were added in August 2023 as a result of declining debt service coverage ratios, primarily related to increases in debt service on the floating-rate loans. No loans have received a forbearance; however, one loan, representing 1.8% of the current cumulative trust balance, received a maturity date extension to August 2024 from August 2023.

ENVIRONMENTAL, SOCIAL, 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 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/416784 (July 4, 2023).

All credit ratings are subject to surveillance, which could result in credit 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 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.

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 credit rating action.

This is a solicited credit rating.

DBRS, Inc.
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Tel. +1 312 332-3429

The credit 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 (August 23, 2023), https://www.dbrsmorningstar.com/research/419592

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023), https://www.dbrsmorningstar.com/research/415687

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.