DBRS Downgrades Ten, Confirms 12 Classes of Bear Stearns Commercial Mortgage Securities Trust 2007-PWR18

DBRS has today confirmed the following classes of Bear Stearns Commercial Mortgage Securities Trust 2007-PWR18:

Classes A-1A, A-2, A-3, A-4 A-AB, A-M, AM-A, X-1 and X-2 at AAA (sf)
Classes K, L and M at C (sf)

DBRS has also downgraded the following classes:

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

In addition to the rating actions, DBRS has placed Classes A-M and AM-A on trend Negative. The trend on the remaining classes, excluding Classes F through M, is Stable.

The downgrades and trend changes are a result of the transfer of nine additional loans to special servicing since the last DBRS review in December 2010, in addition to the stagnant performance of loans that have remained in special servicing for a prolonged period of time.

One of the original top ten loans in the pool is in special servicing. The Norfolk Marriott loan (Prospectus ID#8, 2.65% of the current pool balance) transferred to the special servicer in September 2010 due to imminent default. The loan has remained current until recently when it went delinquent; the loan’s current payment status is 30 to 59 days delinquent. Collateral for the loan is a 405-room full-service hotel in Norfolk, Virginia. Built in 1999 and renovated in 2007, the property is well located on the channel and central to downtown. DBRS considers the asset to be of high quality. DBRS has not received a financial statement for YE2010; however, according to an October 2010 report published by Smith Travel Research, Inc., the subject’s T-12 ADR and RevPAR were $110 and $73, respectively. At issuance, the subject’s ADR and RevPAR were reported to be $128 and $100, respectively. Discussions regarding the workout are ongoing, and there has not been an appraisal of the property value since issuance given the loan’s payment status. This loan is scheduled to mature in August 2012, and DBRS will continue to communicate with the servicer regarding the workout strategy. For purposes of this review, DBRS assumed a loss based on a 35% decline to the original appraised value.

The trust has realized over $57 million in losses to date. The greatest contributor to this is the RRI Hotel Portfolio loan (Prospectus ID#5). This loan was originally structured as a $78 million pari-passu piece of a $465 million whole loan. It was secured by 79 Red Roof Inn hotels, located across 24 states and totaling 9,423 rooms. After more than two years in special servicing, the loan was liquidated from the trust in September 2011. The trust realized loss associated with this loan totals $39.6 million, as of the September 2011 remittance.

The total number of loans in special servicing is 19, representing 8.8% of the current pool balance. The average loss severity assumed on loans within special servicing for this review was 50% and totals approximately $72 million. There are 50 loans on the servicer’s watchlist, representing 35.6% of the current pool balance.

Four of the original top ten loans are currently on the servicer’s watchlist. Of particular concern is Southlake Mall (Prospectus ID#7, 2.94% of the current pool balance). Collateral for this loan is 273,997 sf of a one million sf regional mall located in Morrow, Georgia, approximately 15 miles south of the Atlanta CBD. The mall has space for four anchors; however, only two are occupied. One of the spaces was dark at issuance, with the remaining three spaces occupied by Macy’s, Sears and JC Penney. JC Penney has vacated its space following the closure of three of its Atlanta metro stores. Although the anchors are not included as collateral for this loan, the dark spaces may have a negative impact on customer draw, presenting a challenge to the performance of existing tenants. In-line occupancy was 74%, according to a June 2011 rent roll.

DBRS performed a detailed analysis of the top fifteen loans, loans on the servicer’s watchlist, loans in special servicing and the shadow-rated loans as a part of this surveillance review. DBRS has today removed the investment-grade shadow rating for Westridge Square Shopping Centre (Prospectus ID#33, 0.94% of the current pool balance) and now maintains an investment-grade shadow-rating on only one loan, representing 0.21% of the current pool balance, of the four original shadow-rated loans.

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

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