DBRS Morningstar Confirms All Classes of Arbor Realty Commercial Real Estate Notes 2019-FL2, Ltd.

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of floating-rate notes issued by Arbor Realty Commercial Real Estate Notes 2019-FL2, Ltd. as follows:

-- Class A Senior Secured Floating Rate Notes at AAA (sf)
-- Class A-S Senior Secured Floating Rate Notes at AAA (sf)
-- Class B Secured Floating Rate Notes at AA (low) (sf)
-- Class C Secured Floating Rate Notes at A (low) (sf)
-- Class D Secured Floating Rate Notes at BBB (high) (sf)
-- Class E Secured Floating Rate Notes at BBB (low) (sf)
-- Class F Floating Rate Notes at BB (low) (sf)
-- Class G Floating Rate Notes 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. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update rating report with in-depth analysis and credit metrics for the transaction and 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 is a managed collateralized loan obligation pool with a maximum funded balance of $635.0 million. At issuance, the pool initially consisted of 27 loans totalling $510.9 million, which subsequently ramped up to the maximum balance. The transaction has a 36-month reinvestment period that will expire with the November 2022 Payment Date. Since issuance, 36 loans have been repaid from the pool, including 18 loans with a former trust balance of $318.1 million, which have been repaid since the previous DBRS Morningstar rating action in October 2021. Since October 2021, an additional 13 loans with a cumulative trust balance of $192.4 million have been added to the transaction.

The current composition of the transaction is concentrated by property type with 33 loans secured by multifamily properties (81.2% of the pool), two loans secured by manufactured housing communities (7.1% of the pool balance), and one loan secured by a hotel property (5.8% of the pool balance). In contrast, the pool consisted of 35 loans secured by multifamily properties (91.8% of the pool balance) and two loans secured by manufactured housing communities (6.4% of the pool balance) as of October 2021 reporting. The transaction continues to consist of loans secured by properties concentrated in suburban markets with 27.8% of the pool in DBRS Morningstar Market Rank 5, 19.7% of the pool in DBRS Morningstar Market Rank 4, and 20.5% of the pool in DBRS Morningstar Market Rank 3. Only three loans, representing 15.9% of the pool, are secured by properties in markets that DBRS Morningstar considers to be urban. Loan leverage on a poolwide basis has remained relatively consistent from October 2021 as the current weighted-average as-is appraised loan-to-value ratio (LTV) is 82.7%, compared with 84.0% as of October 2021. The current weighted-average stabilized appraised LTV is 68.7%, compared with 70.0% as of October 2021.

Through March 2022, the collateral manager had advanced $32.9 million in loan future funding to 25 individual borrowers to aid in property stabilization efforts. The largest advance, $6.6 million, was made to the borrower of the Park at Carlyle, which is by 629-unit multifamily property in Birmingham, Alabama. The borrower’s business plan is to complete a capital improvement program for various interior and exterior renovations, with an estimated $4,965 per unit of interior renovations for approximately all units. An additional $41.1 million of loan future funding, allocated to 34 borrowers, remains outstanding. Of this amount, $2.9 million is allocated to the borrower of the Park at Carlyle and $2.5 million is allocated to the borrower of the Reserve at Perkins for further capital improvement costs.

Borrowers continue to progress toward completing the stated business plans; however, several individual borrowers are behind schedule on renovation plans but have achieved rental rates in line with DBRS Morningstar’s stabilized projections from issuance. There are no loans on the servicer’s watchlist; however, one loan, 930 North Boulevard (Prospectus ID#35, 1.7% of the pool), is in special servicing as of the July 2022 remittance. The loan is secured by a 48-unit multifamily property in Oak Park, Illinois. The borrower’s business plan at issuance was focused on a $2.0 million comprehensive renovation plan of the interior and exterior; however, as of March 2022, the subject remains 100% vacant. It was discovered the subject had structural issues, which forced all residents to exit the property. The issues must be addressed before the interior unit renovations can be completed. The noted workout strategy from the servicer is for the loan to be repaid in full as the borrower works to correct the structural issues and complete its original business plan.

ENVIRONMENTAL, SOCIAL, AND 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.

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

-- Prospectus ID#5 – The Solaris (5.3% of the pool)
-- Prospectus ID#66 – Mr. C Seaport Hotel (4.6% of the pool)
-- Prospectus ID#6 – The Park at Callington (4.3% of the pool)
-- Prospectus ID#65 – South Harrison A1 (5.2 % of the pool)
-- Prospectus ID#3 – The Park at Carlyle (5.1% 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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