DBRS Downgrades Eight Classes of Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP28

DBRS has today downgraded the ratings for eight classes of Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP28 as follows:

Class A-J from AA to A
Class B from A (high) to BBB (high)
Class C from A (low) to BBB
Class D from BBB (high) to BB
Class E from BBB to BB (low)
Class F from BBB (low) to B
Class G from BB to B (low)
Class H from B to CCC

DBRS has also confirmed the other classes in the transaction as follows:

Class A-1 at AAA
Class A-1A at AAA
Class A-2 at AAA
Class A-3 at AAA
Class A-4 at AAA
Class A-AB at AAA
Class A-M at AAA
Class J at CCC
Class K at CCC
Class L at CCC
Class M at CCC
Class N at CCC
Class O at CCC

The notional classes were also confirmed as follows:

Class X-1 at AAA
Class X-2 at AAA

DBRS also notes that Class O has Interest in Arrears as of the July 2011 remittance report.

All Trends in the transaction are Stable.

The downgrades reflect a decrease in performance for the loans on the servicer’s watchlist, comprising approximately 23.4% of the current pool balance, as well as the liquidation of three loans out of the pool from July 2010 to January 2011 at a weighted-average loss severity of 44.9%, as of the July 2011 remittance report. There are four loans that remain with the special servicer in the pool, comprising 0.96% of the current pool balance. One of those loans, Prospectus ID#137, Holiday Inn Express – South Haven (0.18% of the current pool balance) is set to return to the master servicer as the special servicer has closed a sale and loan assumption for the property, as of April 8, 2011.

At the time of review, there were four shadow-rated loans in the pool comprising a combined 19.38% of the current pool balance, as of the June 2011 remittance report. Prospectus ID#1, Easton Town Center, Prospectus ID#16, Northwest Marketplace-Houston, and Prospectus ID#28, Hotel Sofia, were confirmed at the current shadow rating of BBB (low), as detailed in the discussion for each loan below. The BBB (low) shadow rating for Prospectus ID#2, 3 Penn Center, was removed due to declining credit metrics, as is also detailed below.

Easton Town Center (10.14% of the current pool balance) is secured by 1.3 million sf of a 1.7 million sf outdoor regional mall located in Columbus, Ohio. The collateral includes 860,000 sf of mall shop space, a 135,000 sf AMC movie complex, 224,000 sf of office space and an 87,700 sf Lifetime Fitness center paying ground rent to the sponsor. The mall anchors are Macy’s and Nordstrom. The in-line tenant mix is strong and includes Crate & Barrel, Ann Taylor Loft, Apple, J. Crew, Pottery Barn, Tiffany & Co., and Coach. The trust loan is the $170 million A-1 portion of a $280 million pari-passu A-note. Additional debt includes a $75 million B-note and a $50 million C-note; the whole loan balance of $405 million results in total leverage of $311 psf on this mixed-use asset. Property performance has been strong since issuance, with theYE2010 A-note DSCR at 1.84x with an occupancy of 97%. The whole-loan coverage for the period was 1.27x. These figures compare favorably to those at issuance, when the property was 94% occupied with an A-note DSCR of 1.65x. DBRS has confirmed the BBB (low) shadow rating assigned to this loan to reflect these strong credit metrics.

3 Penn Plaza (7.06% of the current pool balance) is secured by a 782,000 sf office property located in downtown Newark, New Jersey. The property was constructed in 1992 specifically to house the corporate headquarters for the largest tenant at the property, with 99.4% of the NRA, Horizon Blue Cross Blue Shield of New Jersey (Blue Cross), an investment grade tenant. Although the tenant’s lease was set to expire within the term, in March 2012, the loan was structured with a full cash flow sweep at closing with an estimated $42 psf to be available for downtime and leasing costs. However, in Q2 2010, the servicer approved a lease modification in conjunction with a sale of the property and an assumption of the loan by the tenant, Blue Cross. As part of the lease modification, the lease term was extended to 2022 and the rental rate was reduced by approximately 40% to a triple net (NNN) rate of $10.92 psf plus $961,000 per year through September 2017. After 2017, the rental rate will increase to $16.00 psf plus $961,000 through the lease expiration in 2022. In accordance with the original loan terms, the balance of the leasing reserve was returned to the original borrower, as Blue Cross had renewed their lease for a ten-year term. The servicer anticipates the DSCR for the loan will be 1.00x at YE2011, when a full year of operation is concluded with the new lease terms in place. The coverage is projected to remain at 1.00x until September 2017, when the servicer projects an improvement to 1.42x, after the rental rate increases as previously mentioned. The loan matures in October 2017. The YE2009 DSCR was 1.61x, an improvement from 1.50x at issuance. For YE2010, the DSCR fell to 1.15x as the new rental rate went into effect in early Q2 2010. As the underlying credit metrics for the loan have declined and the rollover reserve has been released as part of the loan assumption and lease modifications, DBRS has removed the BBB (low) shadow rating on the loan.

Northwest Marketplace Houston (1.19% of the current pool balance) is secured by a 183,000 sf retail center located in northwest Houston. The property is located along the Northwest Freeway, just north of Interstate-10 and is anchored by Ross Dress for Less, Office Depot, Old Navy, PetSmart, Famous Footwear, and Pier 1 Imports. The YE2010 DSCR was 1.73x and the property occupancy for the period was 99%, up from 91% at issuance. Although the DSCR has declined slightly from the 2.07x at issuance, the drop can be attributed to a reduction in expense recoveries as base rent collections have remained steady since the property achieved the current occupancy level. The loan has three mid-sized tenants expiring in the next 13 months. Office Depot, with 12% of the NRA expires in June 2012; Old Navy, with 11% of the NRA expires in June 2012; and Regal Furniture, with 6% of the NRA, expires in August 2012. As the property is well-located in a strong submarket with a vacancy rate of 5.3% at Q1 2011 for community shopping centers according to Reis, DBRS does not anticipate the borrower having difficulty re-leasing the space should any of those tenants vacate. DBRS will continue to monitor the loan closely for leasing updates as they are made available. As the loan continues to exhibit strong credit metrics, DBRS has confirmed the BBB (low) shadow rating.

The Sofia Hotel (0.99% of the current pool balance) is secured by a 211-key hotel located in San Diego. The property was constructed in 1926 and is located in the heart of downtown San Diego in the Gaslamp district, with close proximity to all of the major sights in the vicinity. In 2005, the property was designated a historical landmark by the State of California. The hotel was completely renovated in 2006 at a cost of approximately $12.8 million and currently operates as a limited service boutique hotel. The current loan per key is considered reasonable at $78,566 given the property’s strong location and full-service status. Although the subject was not able to escape the effects of the general market difficulty for hotels over the past several years, the YE2010 DSCR of 1.65x and occupancy of 69% are still relatively strong. The property has been experiencing declining room rates since 2008, when they Average Daily Rate (ADR) was at $135.26, down from $159.83 at issuance. Although the ADR had fallen to $106.69 by YE2010, the Revenue per Available Room (RevPAR) stood at $73.62 as compared with $95.90 at issuance due to relatively strong occupancy levels for the year as a whole. At YE2010, the occupancy for the property was 69%, as compared with the underwritten level of 60% at issuance. At the time of the servicer’s site inspection in July 2010, the property was at 77% occupancy with the weeks following having 100% occupancy as several conventions were being held in the property’s vicinity, bringing significant traffic to the submarket. As the subject property continues to be a stable performer in a challenging environment for hotels, DBRS has affirmed the shadow rating of BBB (low).

There are currently 54 loans on the servicer’s watchlist, comprising 23.4% of the current pool balance. With the bulk of those 54 loans reporting YE2010 financials, the weighted-average DSCR was 0.96x. Of those loans, three, comprising a combined 5.80% of the current pool balance, are in the top 15 loans in the transaction: Prospectus ID#5, The Shoppes at Biddeford Crossing; Prospectus ID#8, The Cove Apartments; and Prospectus ID#12, Pavilions at Hartman Heritage.

The Shoppes at Biddeford Crossing (2.67% of the current pool balance) is secured by 385,00 sf retail center anchored by Lowe's and Target. The property is located in Biddeford, Maine, in the southern portion of the state approximately 15 miles from Portland. Lowe's operates on a ground lease and Target is not part of the collateral for the trust loan; other major tenants include T.J. Maxx, PetSmart, Staples, and Best Buy. The property was constructed in 2006 and is comprised of four buildings located just west of Interstate-95 in the southwest portion of the city. At issuance, the property was 98% occupied. In 2008, the property lost Linens 'n' Things (LNT) to bankruptcy; that tenant occupied 7.4% of the collateral NRA at the time of the loan's closing. As a result of the LNT departure, two tenants were able to exercise cotenancy clauses allowing for rent to be reduced to a percentage of sales. One of those tenants, Old Navy, vacated the property in Q2 2010 and the other, Dress Barn, currently occupies 1.9% of the collateral NRA. The YE2010 occupancy of 87% was a decline of 5% from YE2009; the Q1 2011 rent roll shows further decline to 84% occupancy. Although occupancy has fluctuated in the last few years, the DSCR has remained relatively stable, with coverage of 1.09x at YE2009 and 1.08x at YE2010. The servicer reports that the borrower is in active discussions for the former Old Navy space; however, nothing is concrete at this time. The 2010 servicer's site inspection found the property in Good condition and noted that the area immediately surrounding the subject property was slightly underdeveloped, with older single family development surrounded by relatively newer retail development from the last two decades. The current leverage of $116 psf is considered moderate given the property's location and tenant mix. DBRS will continue to monitor the loan closely.

The Cove Apartments (1.73% of the current pool balance) is collateralized by a 650-unit apartment complex located in Phoenix, approximately ten miles west of downtown. It was constructed in 2001 and is well-located with several small retail centers to the south and undeveloped land to the north. The area has been growing due to the development of the new NFL and NHL facilities in the last three years. The property has suffered from the general market difficulty in Phoenix with rising unemployment and an oversaturation of the apartment market, especially in the subject's Maryvale submarket. The property was at 66% occupancy at YE2009, down from 91% at issuance. By YE2010, the occupancy had rebounded to 86%, but the servicer reported the DSCR still suffered because of a drop in the average rental rate to approximately $650 per unit, down from the average rate in 2009 of $707 per unit. The Q1 2011 rent roll shows some recovery has occurred, with the average rental rate at $676 per unit and occupancy steady at 84.5%. The August 2010 servicer's site inspection found the property to be in Good condition and noted that several improvement projects had been recently completed or were nearly complete at the time of the visit. The projects included painting the exterior of all buildings; a resurfacing of the pool; crack sealing for the property's parking area; and the installation of a new numbering system for the apartment units. The property is attractive and well-maintained, with unit interiors appearing modest but well-appointed. This loan has full recourse to the sponsors, who have a significant net worth and 50 years of multifamily experience. The A-note leverage at $44,000 per unit is considered reasonable.

Pavilions at Hartman Heritage (1.40% of the current pool balance) is collateralized by a 225,000 sf power center in Independence, Missouri, approximately 12 miles east of the Kansas City central business district. Although the property is well-located off of Interstate-70, near Independence Center, a large enclosed mall anchored by Macy's, Dillard’s, and Sears, the area has undergone significant build-up over the last 15 years, with two retail centers located directly across from the mall to the north and west. In addition, there are several retail centers located in the immediate vicinity of the Independence Events Center, a 5,800-seat arena constructed in 2009 and located just south of the subject property. The subject was constructed between 2003 and 2004 and was expanded in 2006. At origination, the property was anchored by tenants Stein Mart, Linens 'n Things (LNT), Bassett Furniture and Pier 1 Imports. When LNT filed for bankruptcy and vacated the property in 2008, several large tenants exercised early termination options and left the property. Occupancy has fallen from 92% at issuance to approximately 39% physical occupancy as of YE2010. The remaining tenants include CostPlus World Market, David's Bridal, K&G Fashion Superstore, and Beauty Brands. The borrower is an affiliate of the Inland American Real Estate Trust, Inc., who is considered a strong retail operator; however, with significant supply in the area it could be especially challenging to lease up the property in the current economic environment. DBRS will continue to monitor the loan.

As part of this review, DBRS analyzed the servicer’s watchlist, the delinquent and specially serviced loans, and the top 15 loans in the pool. Combined, these loans represent approximately 64% of the current pool balance.

Note:
All figures are in US dollars unless otherwise noted.

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