DBRS Upgrades Four Classes and Confirms 11 Others of Bear Stearns Commercial Mortgage Securities Trust 2004-PWR5

DBRS has today upgraded the ratings of four classes of Bear Stearns Commercial Mortgage Securities Trust 2004-PWR5 as follows:

-- Class D to AAA (sf) from AA (sf)
-- Class E to AA (sf) from A (high) (sf)
-- Class F to A (sf) from A (low) (sf)
-- Class G to BBB (high) (sf) from BBB (sf)

Additionally, DBRS has confirmed the ratings on the remaining classes in the transaction, with the exception of Class A-4, which has been discontinued, and Class Q, which DBRS does not rate. All trends are Stable.

The rating upgrades reflect the increased credit enhancement to the bonds as a result of loan repayment and amortization, in addition to the current performance and maturity profile of the remaining loans. Since issuance, there has been collateral reduction of 41.8%, with 99 of the original 130 loans remaining in the pool as of the October 2013 remittance report. The transaction also benefits from defeasance collateral as 11 loans, representing 29.3% of the current pool balance, are fully defeased.

In the next 12 months, 88 loans, representing 87.9% of the current pool balance, are scheduled to mature. Excluding defeasance, these loans have a weighted-average exit debt yield of 14.7%. Likewise, the largest 15 loans in the transaction, excluding defeasance, continue to exhibit stable performance, with a weighted-average debt service coverage ratio and weighted-average exit debt yield of 1.39 times (x) and 11.7%, respectively.

At issuance, DBRS shadow-rated one loan, representing 1.1% of the current pool balance, as investment grade. DBRS has today confirmed that the performance of this individual loan remains consistent with investment-grade loan characteristics.

As part of its review, DBRS analyzed the top 15 loans, the loans in special servicing, the loans on the servicer’s watchlist and the one shadow-rated loan, which comprise approximately 71.8% of the current pool balance. As of the October 2013 remittance, there are two loans in special servicing and ten loans on the servicer’s watchlist, representing 1.2% and 30.5% of the current pool balance, respectively. DBRS considered the current performance of these loans in its analysis, which included assigning an elevated probability of default associated with the latest reported cash flows to the extent it was warranted. One of the specially serviced loans and one of the loans on the servicer’s watchlist, which DBRS determined to be of particular interest, are highlighted below:

The Bank of America-Texas Portfolio loan (Prospectus ID#55) is secured by a portfolio of five Bank of America Corporation (Bank of America) retail bank branches in five distinct towns in the Dallas-Fort Worth metropolitan statistical area (MSA). The loan transferred to special servicing after the borrower informed the servicer it would be unable to repay the loan at maturity in October 2012. The five properties securing the loan were all originally 100% occupied by Bank of America, but the properties in Hillsboro and Paris were vacated when their respective leases expired, which were coterminous with loan maturity. The Bank of America locations in Arlington, Ennis and Stephenville renewed their leases for five years. Individual property sales were initially considered, but the loan documents were not altered, and the properties will be sold as a package. The two vacant properties are in Poor condition, according to the respective 2013 servicer site inspections, as the spaces have been neglected, with the interiors featuring outdated finishes as well deferred maintenance. As a result of the overall condition of the properties and the loss in cash flow, the appraised value decreased to $5.8 million as of September 2013, down from $10.5 million at issuance. DBRS expects a loss with the resolution of this loan; however, the loss is expected to be contained to the unrated Class Q.

The Triangle Plaza loan (Prospectus ID#25) is secured by a retail center in northern Raleigh, North Carolina. The loan was added to the servicer’s watchlist for the upcoming lease expiration of Best Buy, which occupies 50.7% of the net rentable area (NRA) on a lease ending at month-end, January 2014. According to the servicer, Best Buy will vacate its space at lease expiration, decreasing the occupancy rate to 42.2% from 92.9%. Best Buy’s departure from the center is not wholly unexpected as the firm is making a company-wide initiative to move into stores with a smaller footprint. The current space of 45,000 is larger than the new desired format. The loss of Best Buy is mitigated as the borrower has identified a replacement tenant, with a leasing approval request currently with the servicer. The subject also benefits from its location across the street from Triangle Town Center, a regional mall and outdoor lifestyle center that complements the subject property.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction, including details on the largest loans in the pool, specially serviced loans and loans on the servicer’s watchlist. The September 2013 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American Surveillance Methodology (November 2012), which can be found on our website under Methodologies.