DBRS Morningstar Confirms Ratings on MF1 2020-FL4, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the following classes of notes issued by MF1 2020-FL4, Ltd.:

-- 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. To access this report, please click on the link under Related Documents below or contact us at info@dbrsmorningstar.com.

The initial collateral consisted of 22 floating-rate mortgages secured by 29 transitional multifamily properties with a cut-off date balance totaling approximately $783.3 million, excluding approximately $203.7 million of future funding commitments. Most of the loans are in a period of transition with plans to stabilize performance and improve the asset value. The transaction included an 18-month reinvestment period that expired in May 2022, at which point the bonds began to amortize sequentially with loan repayment and scheduled loan amortization. Since the expiration of the reinvestment period, the transaction has paid down by 12.2% as a result of successful loan repayments.

According to the August 2022 remittance report, 29 loans remain in the pool with a current principal balance of $834.1 million. Since issuance, 22 loans with a former cumulative trust balance of $726.8 million have successfully repaid from the pool, while 21 loans with a current cumulative trust balance of $628.9 million have been contributed to the trust.

As part of this review, DBRS Morningstar received updates on the business plans for all loans in the pool. Many borrowers are in the early stages of their respective stabilization plans and, for those further along, progress is generally in line with expectations at issuance and/or contribution. According to the collateral manager, total future funding of $43.7 million had been advanced for 24 loans through July 2022, with an additional $88.9 million of loan future funding allocated to 21 individual loans outstanding.

The transaction is concentrated by property type as 27 loans, representing 93.7% of the outstanding cumulative loan balance, are secured by multifamily properties. The remaining loans, The Brooks of Cibolo (Prospectus ID#50) and Civitas Portfolio (Prospectus ID#36), are both secured by senior housing properties.

As was the case at issuance, the pool remains predominantly composed of loans backed by properties in suburban markets, which are defined as markets with a DBRS Morningstar Market Rank of 3, 4, and 5. As of the August 2022 reporting, the suburban market concentration includes 22 loans, representing 67.8% of the current trust balance, up slightly from 67.5% at issuance. The transaction is also concentrated by loan size, as the 10 largest loans represent 58.0% of the pool. Overall pool leverage has remained relatively consistent from issuance. According to August 2022 reporting, the weighted-average (WA) as-is appraised loan-to-value (LTV) ratio is 69.8% and the WA stabilized appraised LTV is 63.1%. In comparison, these figures were 62.0% and 55.0%, respectively, at issuance.

As of the August 2022 remittance, seven loans, representing 28.4% of the pool, are on the servicer’s watchlist; those loans are primarily being monitored for low cash flows. However, one of the watchlisted loans, The Edison (Prospectus ID#7, 4.1% of the pool), which is secured by a 223-unit mid-rise apartment building in Chicago’s Edgewater neighborhood, is delinquent. The loan continues to be monitored on the servicer’s watchlist for payment default, as the loan is 90 days delinquent as of the August 2022 reporting. According to the collateral manager, the borrower is in active discussions with the servicer to cure the default. Despite the delinquency, the property was 88% occupied and 91% leased as of the May 2022 rent roll. According to the collateral manager, leasing concessions have fully burned off and recent renewals are averaging a 5% increase. In addition, the property’s ground-level retail space is completely leased to two tenants, with leases in line with issuance expectations; however, it is noteworthy that build-out for each of the units has not commenced. According to the servicer-provided financials as of year-end 2021, the property reported a net cash flow of $1.3 million, equating to a debt service coverage ratio of 0.92 times.

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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

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 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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