DBRS Downgrades Six and Confirms Seven Classes of Morgan Stanley Capital I Trust, Series 2007-TOP27

DBRS has today confirmed seven classes of Morgan Stanley Capital I Trust, Series 2007-TOP27 as follows:

-- Classes A-3, A-AB, A-4, A-1A, A-M, A-MFL and X at AAA (sf)

In addition, DBRS has also downgraded six classes of Morgan Stanley Capital I Trust, Series 2007-TOP27 as follows:

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

The trends for Classes A-3 through C are Stable.

The downgrades are a result of increased loss projections following the transfer of 791 Park of Commerce (Prospectus ID#21, 1.4% of the current pool balance) to special servicing, as well as value declines for the assets securing two other loans in special servicing.

Grand Mart Chicago (Prospectus ID#50, 0.7% of the current pool balance) was originally secured by three standalone grocery stores in the Chicago area that became vacant before the loan transferred to special servicing in March 2009. The properties became real estate owned (REO) in December 2010, shortly after the servicer declared the loan non-recoverable for future advances. The value of the assets declined considerably as the properties sat vacant, unmaintained and exposed to the elements for a number of years. At least one of the properties was the target of repeated vandalism and theft. Two of the three assets have been sold, and a cash sale for the remaining property is currently being negotiated. An appraisal for this property reported a value of just $585,000, indicating a majority of the asset value is tied to the land it sits upon. The lack of proceeds generated from these sales, combined with the accumulated outstanding advances and the interest that has accrued since the loan’s non-recoverable determination indicate that the realized loss attributed to this loan is likely to exceed 100% of the outstanding principal balance.

Springfield Hotel Portfolio (Prospectus ID#13, 1.8% of the current pool balance) is secured by two neighboring hotels located in Springfield, Illinois. The collateral includes a 288-room Crowne Plaza, built on 13 acres of land and an adjacent 140-room Holiday Inn Express, built on three acres of land. The loan was scheduled to mature in April 2012 and was subsequently transferred to special servicing when the borrower notified the servicer that it was unable to refinance. Both assets are now REO. According to the servicer, the combined YE2012 debt service coverage ratio was 1.11 times. A July 2013 appraisal valued the properties at $18.9 million, representing a significant decline from the December 2012 appraisal, which valued the properties at $37.5 million. In its October 2013 report on the properties, Smith Travel Research indicated that the Crowne Plaza asset is performing either in line with or slightly above its competitive set, while the Holiday Inn Express is performing just below its competitive set in the categories of occupancy, average daily rate and revenue per available room for the trailing 12 months ending in October 2013. The DBRS loss expectation for this loan has increased as a result of the significant value decline for the portfolio.

791 Park of Commerce (Prospectus ID#21, 1.4% of the current pool balance) is secured by an office property in Boca Raton, Florida, and transferred to special servicing in March 2013. The borrower failed to post a letter of credit that was due when the largest tenant, representing 64% of the net rentable area, did not notify property management of plans to renew its lease 24 months prior to its December 2014 expiration. The tenant has since vacated the property, but reportedly continues to pay rent according to its lease terms. Although the borrower had previously funded shortfalls in an attempt to keep the loan current, the loan is now delinquent. A May 2013 appraisal valued the property at $14.1 million, down from $37.5 million at issuance. The updated appraisal reflects a value, on a per square foot (psf) basis, of $102. This is below the average sale price for comparable office properties in the submarket that have traded in the last 24 months, which was reported by CoStar to be $148 psf.

There is one other loan in special servicing as well as 45 loans on the watch list, representing 17.4% of the current pool balance. Many of the Top 15 loans are represented by quality assets that have continued to perform well over time. On a weighted-average basis, performing loans in the Top 15 have experienced a 15.2% cash flow improvement over the DBRS UW NCF at issuance. In addition to the above rating actions, DBRS has also today confirmed the investment-grade shadow ratings of twelve loans, representing 10.6% of the current pool balance.

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 remaining loans in the pool. The December 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.

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

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