DBRS Confirms Seven, Downgrades Ten Classes of Morgan Stanley Capital I Trust, Series 2007-TOP25

DBRS has today confirmed Classes A-1 through A-M, including notional class X, at AAA with Stable trends. DBRS has also confirmed Classes L through O and all six shadow ratings.

In addition, DBRS downgraded Classes A-J through K, based on the following: There are 48 loans on the servicer’s watchlist, comprising a combined 22.35% of the current pool balance. The weighted-average DSCR for those loans is 0.57x and the weighted-average debt yield is 3.83%. Losses from the seven delinquent and specially serviced loans are expected to eliminate eight classes, Classes H through P, and erode the majority of Class G. The increase in projected losses from the last review of this deal by DBRS in September 2009 is attributable to a decrease in the property values and an increase in the expenses for the loans that remain in special servicing and have not yet resolved or have transferred since September 2009.

Since the last review, one loan has been liquidated (Prospectus ID#185, 503 W. 150th), contributing a total of $1,077,590 in realized losses to the trust. All of those losses were contained to the unrated Class P certificates. Interest shortfalls are currently outstanding on Classes G through P in excess of $3.0 million.

The majority of the DBRS anticipated losses are associated with Prospectus ID#4, Village Square, 3.93% of the current pool balance. This loan transferred to the special servicer in February 2009 and has remained there for nearly two years; the servicer recently took possession of the property after the foreclosure was finalized. The property is a 237,834 sf shopping center anchored by an 18-screen movie theater located in Las Vegas, with the balance of tenants consisting of local retailers and some office tenants. Based on the August 2010 rent roll, the property’s occupancy has decreased to 50%, compared with 90% at issuance, and the submarket forecasts for retail and office is dismal, with further declines in fundamentals projected for 2011, according to a Q3 2010 report by REIS. The property was originally appraised in March 2009 at a value of $38.5 million. Since that time, another appraisal has been completed, valuing the property at $26.1 million as of July 2010. This figure represents less than half of the current loan balance and is indicative of a significant loss to the trust as part of the liquidation of this asset.

The second-largest loan in special servicing is Prospectus ID#12, Town Square Shopping Center, with 1.48% of the pool balance. This loan is collateralized by a 144,556 sf suburban shopping center in Schererville, Indiana, approximately 30 miles from Chicago. The property suffered a significant loss to occupancy in 2008 when Linens ‘n Things (LNT) filed for bankruptcy, resulting in rent reductions for other tenants at the property as part of cotenancy clauses and some renegotiation of other leases at the property. The property has since secured a replacement tenant in Bed Bath & Beyond, bringing the property to 98% occupied as of July 2010, but the borrower was unable to fund the debt service in the occupancy downturn and the loan transferred to special servicing in March 2010. The special servicer reports that the borrower has requested a loan modification and negotiations are currently underway. DBRS anticipates a relatively significant loss on this asset, given that the May 2010 appraised value of $16.9 million represents approximately 75% of the current outstanding balance.

The largest loan on the servicer’s watchlist is Prospectus ID#2, the Four Seasons Hotel in Beverly Hills, California, with 4.74% of the current pool balance. This loan is on the watchlist for declines in DSCR and occupancy since issuance that results from the general difficulty in the luxury hotel markets across the country. The property is a 285-key upscale hotel comprised primarily of suites, which make up approximately 40% of the available rooms. There is also a full-service spa, two restaurants, and a cocktail lounge. The borrower recently funded a complete renovation of the hotel pool and lounge area, as part of a history of frequent updates to the property to maintain its prestige in this competitive submarket. At Q3 2009, the property occupancy was at 48% and has since rebounded to 65% as of Q3 2010; these gains have been made possible by significantly increasing marketing and slightly reducing the ADR by 7% for the period. DBRS anticipates the asset will continue to stabilize into 2011, but will continue to monitor the loan until the DSCR improves to pre-2009 levels.

As part of its review, DBRS analyzed the six shadow-rated loans, the servicer’s watchlisted loans, the delinquent loans, the specially serviced loans and the top fifteen loans. Combined, these loans represent 77.63% of the pool balance. For further detail on these loans, please refer to the Monthly Global CMBS Surveillance report which can be found at www.dbrs.com.

Notes:
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.