Morningstar DBRS Changes Trends on Three Classes of SREIT Trust 2021-FLWR to Positive From Stable, Confirms Credit Ratings on All Classes

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2021-FLWR issued by SREIT Trust 2021-FLWR (the Issuer) as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

Morningstar DBRS changed the trends on Class D, Class E, and Class F to Positive from Stable. All other trends are Stable.

The credit rating confirmations reflect the stable to improving performance of the collateral multifamily portfolio, which benefits from high-quality amenities and luxury interior finishes. The portfolio occupancy rate has hovered around 95.0% since issuance and the average rental rate and net cash flow (NCF) for the annualized trailing nine months (T-9) ended September 30, 2024, are both up by about 25.0% from the Issuer's figures at securitization. Morningstar DBRS also notes the increased credit support that has resulted from property releases to date. These factors support the Positive trends on Classes D, E, and F. Given the proximity to maturity and the volatility in the floating rate underlying loan's debt service coverage ratio, which declined to 1.01 times (x) as of September 2024 because of the changing interest rate environment since securitization, for this review, Morningstar DBRS updated the loan-to-value (LTV) sizing benchmarks, which is described in further detail below.

At issuance, the transaction was collateralized by a portfolio of 16 Class A multifamily assets totaling 5,260 units, spread across 11 metropolitan statistical areas within six states. The borrower used whole loan proceeds of $796.5 million, alongside $385.0 million of sponsor equity, to facilitate the acquisition of the portfolio for approximately $1.09 billion ($216,300 per unit). As of the March 2025 remittance there are 13 properties remaining in the pool with property releases for three of the original collateral properties having been processed since the last credit rating action in April 2024 in Century Ariva, Century Crosstown, and Century 380. The allocated loan amount at issuance for those three properties was $51.9 million, $58.7 million, and $52.3 million, respectively. The trust balance of $625.5 million reflects a collateral reduction of 21.5% since issuance. The loan benefits from experienced sponsorship by Starwood, which owns nearly 350 multifamily properties totaling approximately 88,000 units in the United States.

The loan, structured with a two-year initial term and three one-year extension options, pays interest only through the fully extended maturity date of July 2026. The borrower entered into an interest rate cap agreement at issuance with a strike price of 1.00% and a five-year term, consistent with the fully extended loan maturity. The borrower exercised its second one-year loan extension option along with a new capitalization rate (cap rate) agreement that has a conversion from Libor to the Secured Overnight Financing Rate. The loan has a partial pro rata/sequential-pay structure, which allows for pro rata paydowns across the capital structure for the first 20% of the unpaid principal balance. The borrower can release individual properties subject to customary debt yield and LTV tests. The prepayment premium for the release of individual assets is 105.0% of the allocated loan amount (ALA) on the first 15.0% of the original principal balance and 110.0% of the ALA for the release of individual assets thereafter, which Morningstar DBRS considers to be weaker than a generally credit-neutral standard of 115.0%.

As of the September 2024 reporting, the portfolio had an average occupancy rate of 94.8%, generally in line with the occupancy rate of 95.6% at year-end (YE) 2023 and 96.3% at issuance. The annualized trailing nine-month NCF for the 13 properties remaining in the pool of $45.9 million as of September 2024 reflects an increase of 4.9% from $43.7 million at YE2023 and 9.7% from $41.8 million at YE2022.

Given the relatively short remaining extended loan term, Morningstar DBRS updated the LTV sizing benchmarks to consider a scenario more closely aligned with that of a replacement lender, accounting for both the sustained year-over-year increases in NCF as well as the widening of capitalization (cap) rates largely because of increasing interest rates since issuance. The updated Morningstar DBRS Value of $574.8 million is based on a cap rate of 7.0%, up from the Morningstar DBRS cap rate of 6.25% at issuance, and an 8.0% haircut to the YE2023 NCF. The 8.0% haircut is generally consistent with the haircut to the Issuer's NCF from the Morningstar DBRS NCF derived at issuance. The 75basis point increase in the Morningstar DBRS cap rate is relatively in line with the average cap rate increase as reported by CBRE for the portfolio's respective markets since issuance. The 7.0% cap rate is also generally aligned with comparable properties backing transactions recently assigned credit ratings by Morningstar DBRS. Morningstar DBRS maintained the positive qualitative adjustments to the LTV sizing benchmarks considered at issuance, which total 6.5% to reflect the property's cash flow volatility, property quality, and market fundamentals. The results of the LTV Sizing Benchmark suggest moderate upgrade pressure, supporting the Positive trends on Classes D, E, and F with an implied all-in LTV of 108.8% and an LTV of 88.5% for the Morningstar DBRS rated debt.

The Morningstar DBRS credit ratings assigned to classes D, E, and F are lower than the results implied by the LTV sizing benchmarks. Given the proximity to the final maturity, as well as the general uncertainty in the current interest rate environment, the variances are warranted. With this review, Morningstar DBRS placed Positive trends on all three classes, reflecting the factors as previously described that benefit the transaction and will be monitored over the next 12 months. Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024): https://dbrs.morningstar.com/research/437781

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (February 28, 2025): https://dbrs.morningstar.com/research/448963

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

Morningstar DBRS 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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

DBRS, Inc.
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (February 28, 2025): https://dbrs.morningstar.com/research/448962

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024): https://dbrs.morningstar.com/research/439702
-- Legal Criteria for U.S. Structured Finance (December 03, 2024): https://dbrs.morningstar.com/research/444064

-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025): https://dbrs.morningstar.com/research/450750

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024): https://dbrs.morningstar.com/research/438283

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.