Class A at
Class A-S at
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.
DBRS Morningstar discontinued and withdrew its ratings on the Class A-TS and Class A-CS certificates initially contemplated in the offering documents, as they were removed from the transaction.
The initial collateral consists of 32 floating-rate mortgage loans and senior participations secured by 40 mostly transitional properties, with an initial cut-off date balance totaling approximately
For the floating-rate loans, DBRS Morningstar used the lower of a DBRS Morningstar stressed rate that corresponded to the remaining fully extended term of the loan 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
The sponsor for the transaction,
The transaction’s initial collateral composition consists entirely of multifamily properties, which benefit from staggered lease rollover and generally low expense ratios compared with other property types. While revenue is quick to decline in a downturn because of the short-term nature of the leases, it is also quick to respond when the market improves. The subject pool includes garden-style communities and mid-/high-rise buildings. After closing, as part of the ramp-up and reinvestment period, the collateral manager may acquire loans secured by multifamily properties and student housing properties as long as student housing properties represent less than 5.0% of the total pool. The prior ARCREN 2022-FL1 transaction allowed the collateral manager to additionally acquire only multifamily properties.
Twenty-eight loans, representing 85.5% of the reference date portfolio balance, represent acquisition financing. Acquisition financing generally requires the respective sponsor(s) to contribute material cash equity as a source of funding in conjunction with the mortgage loan, which results in a higher sponsor cost basis in the underlying collateral and aligns the financial interests of both the sponsor and lender.
The initial collateral pool is diversified across 16 states, including
The DBRS Morningstar Business Plan Score (BPS) for the loans DBRS Morningstar analyzed ranged between 1.4 and 3.2, with an average of 2.0. A higher DBRS Morningstar BPS indicates more execution risk in the sponsor’s business plan. DBRS Morningstar considers the anticipated lift at the property from current performance, planned property improvements, sponsor experience, projected time horizon, and overall complexity of the business plan. Compared with past Arbor transactions, the subject has a low average DBRS Morningstar BPS, which is indicative of lower risk.
The loan collateral was generally found to be in good physical condition as evidenced by one loan,
A relatively high concentration of the loan collateral is located in metropolitan statistical area (MSA) Group 3, which generally exhibits lower levels of default and losses. Specifically, there were seven loans, totaling 22.6% of the reference date portfolio balance, whose collateral was located in
DBRS Morningstar analyzed five loans, representing 11.1% of the reference data portfolio balance, with Weak or Bad (Litigious) sponsorship strengths. These loans include Summerlyn & Crescent Oaks, Miramar, San Remo, Catalina, and Stardust. DBRS Morningstar applied a probability of default (POD) penalty to loans analyzed with Weak sponsorship strength.
The transaction is managed and includes both a ramp-up and reinvestment period, which could result in negative credit migration and/or an increased concentration profile over the life of the transaction. The deal’s initial collateral composition is 100.0% multifamily. During the ramp-up period, only loans secured by multifamily properties can be added. Future loans cannot be secured by office, hospitality, industrial, retail, or healthcare facilities. The risk of negative credit migration is also partially offset by eligibility criteria that outline DSCR, LTV, property type, and loan size limitations for ramp and reinvestment assets. Before ramp loans, reinvestment loans, and companion participations above
DBRS Morningstar has analyzed the loans to a stabilized cash flow that is, in some instances, above the in-place cash flow. It is possible that the sponsors will not successfully execute their business plans and that the higher stabilized cash flow will not materialize during the loan term, particularly with the ongoing coronavirus pandemic and its impact on the overall economy. A sponsor’s failure to execute the business plan could result in a term default or the inability to refinance the fully funded loan balance. DBRS Morningstar made relatively conservative stabilization assumptions and, in each instance, considered the business plan to be rational and the loan structure to be sufficient to execute such plans. In addition, DBRS Morningstar analyzed loss severity given default (LGD) based on the DBRS Morningstar As-Is LTV, assuming the loan was fully funded.
All loans in the pool have floating interest rates and are interest only during the initial loan term, as well as during all extension terms, creating interest rate risk and a lacks of principal amortization. DBRS Morningstar stresses interest rates based on the loan terms and applicable floors or caps. The DBRS Morningstar-adjusted DSCR is a model input and drives loan-level PODs and LGDs. All loans have extension options, and to qualify for these options, the loans must meet minimum DSCR and LTV requirements.
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/373262.
All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.
The DBRS Morningstar 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. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.
All figures are in
With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.
The principal methodology is North American CMBS Multi-Borrower Rating Methodology (
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.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at firstname.lastname@example.org.
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Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in USA
CA = Lead Analyst based in
Unsolicited Participating With Access
Unsolicited Participating Without Access
26-May-22Class A Notes Provis.-Final AAA(sf) Stb US
26-May-22Class A-S Notes Provis.-Final AAA(sf) Stb US
26-May-22Class B Notes Provis.-Final AA(low) (sf) Stb US
26-May-22Class C Notes Provis.-Final A(low) (sf) Stb US
26-May-22Class D Notes Provis.-Final BBB(sf) Stb US
26-May-22Class E Notes Provis.-Final BBB(low) (sf) Stb US
26-May-22Class F Notes Provis.-Final BB(low) (sf) Stb US
26-May-22Class G Notes Provis.-Final B(low) (sf) Stb US
26-May-22Class A-CS Notes Disc.-W/drwn Discontinued -- US
26-May-22Class A-TS Notes Disc.-W/drwn Discontinued -- US