DBRS Upgrades Four, Confirms 15 Classes of Bear Stearns, 2004-PWR5

DBRS has today upgraded the ratings of Bear Stearns Commercial Mortgage Securities Trust 2004-PWR5 Classes B through E. The trends for all rated classes of the transaction are Stable. In addition, DBRS has confirmed two shadow ratings, removed two shadow ratings and downgraded two shadow ratings on six of the loans within the pool.

Performance of the pool has been very strong since issuance. 18.4% of the pool is currently defeased and there are only three loans in special servicing, comprising 1.0% of the pool. Three loans mature in 2009 and DBRS assumes they will extend, although DBRS is aware the borrowers are working on alternative financing arrangements. DBRS upgraded Classes B through E based on the current pool performance, and running an additional stress scenario whereby the cash flow for all remaining loans in the pool are assumed to decline by 20%. In addition, DBRS modeled the estimated losses and fees associated with potential upcoming extensions to further stress the pool, all of which are expected to be contained to the unrated Class Q. After performing the stress and liquidation scenarios, DBRS found the upgrades to be very well supported. There are only three loans (12.1% of the pool) that are interest only for the full term, two of which mature this year, all three are top ten loans and benefit from low leverage.

The largest loan, 2941 Fairview Park Drive (6.5% of the pool) is secured by a Class A office building that is located within the ten-building, 2.1 million sf Fairview Business Park in Falls Church, Virginia, with good accessibility to major highways. Built in 2001, the property is of excellent quality and has a very high level of tenant build-out. The tenant roster is also strong. The largest tenant, General Dynamics Corporation (49% of NRA) is considered investment grade and has a lease that extends to November 2018, beyond the loan maturity.

The second largest loan in the pool, The Summit Louisville (5.0% of the pool) is a lifestyle shopping center located in northwest Louisville, Kentucky. Occupancy of the center, as of March 2009, was 94.6%. The loan is interest only for the full seven-year loan term. While performance has improved, the property does face some significant tenant roll in the upcoming years. The property was constructed in 2001; therefore, there are many ten-year leases expiring in 2011 and 2012. Of note in 2009 are the upcoming expiries of The Gap and Old Navy (together 12% NRA, 10% Base Rent). Both leases expire in Q4 2009, and these tenants are likely to request significant rent reductions. Additional anchor tenants include Bed Bath & Beyond, Barnes & Noble, Office Depot, DSW and Ulta Cosmetics. The property is managed and leased by Bayer Properties, LLC, who specialize in lifestyle center management and development.

DBRS confirmed the shadow ratings of New Castle Marketplace (1.1% of the pool) at ‘AAA’ and New Hampshire Tower (0.7% of the pool) at ‘AA (low)’. Due to upcoming maturity, the potential extension, due to the loan size, and fees associated with extending the loans, DBRS has removed the shadow ratings of two loans: Reisterstown Plaza (4.5% of the pool) and Fullerton Metrocenter (2.6% of the pool). Both loans were five-year interest-only loans and both have performed quite well with interest only DSCRs above 2.0x. Lastly, DBRS downgraded two shadow rated loans due to increased vacancy at each of the properties; World Apparel Center (3.3% of the pool) and Palmetto Business Park (1.2% of the pool) were both downgraded to ‘BBB (low)’.

As mentioned above, there are three loans in special servicing, totaling 1.0% of the pool balance. DBRS expects losses associated with these loans to be contained to the unrated Class Q. DBRS current loss estimate is approximately $5.7 million for the pool.

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

The applicable methodologies are CMBS Rating Methodology and CMBS Surveillance, which can be found on our website under Methodologies.

This is a Structured Finance Rating.