DBRS Morningstar Assigns Provisional Ratings to Arbor Realty Commercial Real Estate Notes 2021-FL3 Ltd.

ENPNewswire-September 16, 2021--DBRS Morningstar Assigns Provisional Ratings to Arbor Realty Commercial Real Estate Notes 2021-FL3 Ltd

(C)2021 ENPublishing - http://www.enpublishing.co.uk

Release date- 15092021 - DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by Arbor Realty Commercial Real Estate Notes 2021-FL3 Ltd. (the Issuer).

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 initial collateral consists of 36 floating-rate mortgage loans and senior participations secured by 50 mostly transitional properties, with an initial cut-off date balance totaling approximately $1.19 billion. Each collateral interest is secured by a mortgage on a multifamily property or a portfolio of multifamily properties. The transaction is a managed vehicle, which includes an 180-day ramp-up acquisition period and 30-month reinvestment period. The ramp-up acquisition period will be used to increase the trust balance by $352.2 million to a total target collateral principal balance of $1.5 billion. DBRS Morningstar assessed the $352.2 million ramp component using a conservative pool construct, and, as a result, the ramp loans have expected losses above the pool WA loan expected loss. During the reinvestment period, so long as the note protection tests are satisfied and no EOD has occurred and is continuing, the collateral manager may direct the reinvestment of principal proceeds to acquire reinvestment collateral interest, including funded companion participations, meeting the eligibility criteria. The eligibility criteria, among other things, has minimum DSCR, LTV, and loan size limitations. In addition, mortgages exclusively secured by multifamily properties are allowed as ramp-up collateral interests, with a small portion of student housing properties (7.5% of total pool balance) allowed during the reinvestment period. Lastly, the eligibility criteria stipulates a rating agency confirmation (RAC) on ramp loans, reinvestment loans, and pari passu participation acquisitions above $500,000 if a portion of the underlying loan is already included in the pool, thereby allowing DBRS Morningstar the ability to review the new collateral interest and any potential impacts to the overall ratings.

For the floating-rate loans, DBRS Morningstar used the one-month Libor index, which is based on the lower of a DBRS Morningstar stressed rate that corresponded to the remaining fully extended term of the loans or the strike price of the interest rate cap with the respective contractual loan spread added to determine a stressed interest rate over the loan term. When the cut-off balances were measured against the DBRS Morningstar As-Is NCF, 21 loans, representing 51.9% of the initial pool balance, had a DBRS Morningstar As-Is DSCR of 1.00x or below, a threshold indicative of default risk. The...

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