DBRS Confirms 9, Downgrades 14 and Places 8 Classes Interest in Arrears of BSCMS, Series 2007-TOP26

DBRS has today confirmed Classes A-1 through A-M of the Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP26 transaction, including notional classes X-1 and X-2.

Additionally, DBRS has downgraded Classes A-J through O. The downgrades reflect an increase in the number of specially serviced loans, as well as the increased credit risk associated with Prospectus ID#7, 909 A Street (2.33% of the current pool balance).

There are nine specially serviced loans in the transaction, representing 7.8% of the current pool balance. The largest specially serviced loan is Prospectus ID#6 Viad Corporate Center, representing 3.15% of the current pool balance

The largest loan of concern is the Viad Corporate Center. This loan is secured by a 476,424 sf office building located in Phoenix, Arizona. At issuance, the subject was valued at $105 million, but according to a May 2010 appraisal it is now valued at $43 million. The loan is full interest-only and is scheduled to mature in December 2016. The loan was transferred to special servicing on March 23, 2009 due to imminent default and the borrower’s concern over the perceived diminution in value. The property also faces a significant near-term tenant lease expiration schedule; current occupancy is 78.8%, down from a YE2008 occupancy of 94%. DBRS recognizes that losses associated with this loan may yet be mitigated by the special servicer. The loan is still cash flow positive.

Apart from the Viad Corporate Center, nearly all of the ten largest loans in the transaction have exhibited stable financial performance. Prospectus ID#9, Overlook II (1.53% of current pool balance), is the only top ten loan that is on the servicer watchlist. This loan was added to the servicer watchlist due to a low DSCR, which declined because of a drop in occupancy. The occupancy rate remains at 78.5% as of December 2010, according to CoStar.

Additionally, DBRS has addressed concerns surrounding the 909 A Street loan. The loan remains current and is not on the servicer watchlist, however, recent developments regarding tenancy at the property have perpetuated further concern going forward.

The loan is secured by a Class A, 210,186 sf office building located in Tacoma, Washington. The building is 100% leased to Russell Investment Group and served as the company’s headquarters. Russell Investments recently relocated its headquarters to Seattle and vacated the property. CoStar is listing the property as 100% available. Although the building is 100% vacant, Russell’s remains current on their lease payments. The DBRS concern centers around the borrower's ability to lease the property at similar rental rates, as Russell's lease rate is currently above market. As a result, DBRS perceives the value of the property to have significant volatility going forward.

DBRS further notes that Classes G through O have interest in arrears.

DBRS continues to monitor this transaction on a monthly basis in the Global CMBS Monthly 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.