DBRS Downgrades Three Classes of Bear Stearns 2007-TOP26

DBRS has today downgraded the following classes of the Bear Stearns Commercial Mortgage Securities Trust, Series 2007-Top26 transaction and removed the Interest in Arrears as follows:

Class O from C to D
Class N from C to D
Class M from C to D

DBRS has also confirmed five other classes in the transaction and removed the Interest in Arrears on four of those classes:

Class G at C
Class H at C
Class J at C
Class K at C
Class L at C with Interest in Arrears

.The downgrade is the result of realized losses that resulted from one loan that was liquidated out of the trust and one loan that was modified in June 2011.

Prospectus ID#6, Viad Corporate Center, is secured by a 476,528 sf Class A office property located in the Uptown submarket in Phoenix, just north of McDowell Road on Central Avenue. The 24-story high-rise was constructed in 1991, originally serving as the national headquarters for the Dial Corporation. The property includes several retail units, auditorium and conference facilities, a fitness center, and a performing arts theater. The subject is located across the street from the Phoenix Art Museum and is a prominent fixture in the Central Avenue business district. The loan transferred to the special servicer in March 2009 when the 95% managing member in the borrowing entity cited difficulty making the scheduled interest payments on the loan and refused to contribute further equity into the property given the perceived value loss of approximately $60 million since issuance when the property was valued at $105.6 million. The May 2010 appraisal obtained by the special servicer valued the property at $43 million (a figure which represented an as-is value; the same firm concluded a stabilized value of $57.3 million for the subject property in May 2010), indicating the concern over value decline was substantiated. The property's performance has remained relatively stable since issuance. The YE2008 occupancy was at 93% and the DSCR was reportedly 1.25x, according to the special servicer. At YE2009, occupancy had fallen to 82% but the DSCR remained relatively healthy at 1.19x. Occupancy has remained near 80% throughout 2010 and into Q1 2011 when it was reported at 79%; the DSCR for Q1 2011 was reported by the special servicer at 1.12x. In May 2011, the special servicer processed a sale of the property and loan assumption that resulted in a $9 million principal write down of the outstanding $65 million balance on the loan. As part of the transaction, the new borrower is to establish a capital reserve in the amount of $8 million to fund tenant improvements, leasing commissions, and capital repairs.

The realized loss of $9 million as part of the loan assumption and modification was applied to the trust as part of the June 13, 2011 remittance report. DBRS anticipates additional losses as the special servicer fees and recoveries are collected in the coming months and added to the loss on this loan; the cumulative loss amount on this loan is estimated to be approximately $11.75 million, according to the special servicer. As such, the remaining loss figure should be contained to the Class M and L certificates, which had a respective balance of $231,383 and $5,265,000, as of the June 13, 2011 remittance report. These developments are in line with projections for this loan at the time of the December 2010 review of this transaction by DBRS, when Classes M and L were downgraded to C as part of a downgrade of 14 total classes in the transaction. As the full loss amount is realized for this loan, DBRS will review any affected classes for downgrades and trend changes.

The remainder of the realized loss applied to the certificates as part of the June 13, 2011 remittance report is due to the liquidation of Prospectus ID#167, Boulevard Walk, at a loss of $764,354 to the trust. This loan was secured by a 32,000 sf retail property in Tucker, Georgia, a suburb located approximately 20 miles northeast of Atlanta. The loan transferred to the special servicer in January 2010 for payment default resulting from an occupancy decline at the property to 53% in Q4 2009. The loan was liquidated in May 2011 as part of a note sale by the special servicer after negotiations with the borrower for a discounted payoff were not successful.

The unrated Class P certificates experienced a loss of $9.2 million as part of the liquidation of Prospectus ID#31 at the time of the January 2011 remittance report. The remaining balance of that class, as of the June 2011 remittance report, was eliminated as a part of the realized losses applied for the two loans previously discussed.

Since the time of the last review of this transaction in December 2010, three loans have transferred to special servicing: Prospectus ID#95, Fidelity National Title; Prospectus ID#127, High Pointe Center; and Prospectus ID#206, Freeport Henry. These loans cumulatively comprise 0.53% of the pool balance, as of the June 13, 2011 remittance report. As part of the continued surveillance on this transaction by DBRS, these loans and the other loans currently in special servicing will be monitored for developments.

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

The applicable methodology is CMBS Rating Methodology and CMBS North American Surveillance Methodology, which can be found on our website under Methodologies.