DBRS Downgrades Four and Confirms 11 Classes in Bear Stearns Commercial Mortgage Securities Trust 2007-PWR18

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

-- Classes A-M and AM-A to AA (low) (sf) from AAA (sf)
-- Classes A-J and AJ-A to CCC (sf) from B (sf)

Trends have been removed from Classes A-J and AJ-A. DBRS has also confirmed the ratings of Classes A-1A, A-3, A-4, A-AB, X-1 and X-2 at AAA (sf), all with Stable trends; Classes B and C at CCC (sf); and Classes D, E and F at C (sf). Classes B through F have been confirmed with no trends. Interest shortfall to Class E was repaid with the January 2014 remittance, and the Interest in Arrears designation has been removed from that class.

The rationale for the downgrades was driven by DBRS’s increased loss projection for the largest loan in special servicing, Southlake Mall (Prospectus ID#7, 3.8% of the current pool balance), following a decline in the collateral property’s appraised value. The loan is secured by the inline space within a 1.0 million square foot super-regional mall in Morrow, Georgia. At issuance, one anchor space was vacant. Since securitization, a second anchor space, previously occupied by JC Penney, has gone dark. The remaining mall anchors are Sears and Macy’s. As of October 2013, inline occupancy was 89.1%; however, 26.1% of the net rentable area (NRA) is scheduled to roll by July 2014. A number of tenants are paying reduced rents based on co-tenancy clauses that were triggered following the departure of JC Penney. As of May 2013, the property’s appraised value has declined significantly, to $58.0 million from $157.5 million at issuance. DBRS believes the trade price for the asset could fall well below the May 2013 appraised value based on recent comparable property sales in the Atlanta market. As such, a significant loss is expected with the resolution of this loan.

DBRS continues to monitor the post-modification performance of DRA/Colonial Office Portfolio (Prospectus ID#2, 12.1% of the current pool balance). Since the loan was modified, the borrower has released two properties from the collateral: one was located in Austin, Texas and the other was located in Tampa, Florida. Proceeds from the property sales were used to pay down the loan’s outstanding principal trust balance by $35.5 million and fund the Master Account, which has a current balance of $26.8 million. Terms of the modification included the creation of the Master Account, which is to be used for the payment of TI/LC and capital expenditures in order to lease up poorly performing properties within the portfolio. At the time of modification, the portfolio’s average occupancy was approximately 81%. As of September 2013, occupancy has improved to 86%. The loan was returned to the master servicer in May 2013 but remains on the servicer’s watchlist for a low debt service coverage ratio (DSCR), reported to be 0.99 times (x) for YE2012.

DBRS continues to monitor two large loans in the transaction that are on the servicer’s watchlist. Trumbull Marriott (Prospectus ID#16, 1.6% of the current pool balance) is secured by a 323-room full-service Marriott hotel in Trumbull, Connecticut, a one hour’s drive from New York City. The loan has been on the servicer’s watchlist since April 2010 for a low DSCR. The YE2012 DSCR declined to 0.37x from 1.05x at YE2011 and 0.73x at YE2010. According to a November 2013 STR report, the property’s average occupancy for the trailing 12 months was 59.9%. Although the borrower continues to invest money into the property, per the most recent site inspections, the low occupancy rate and stagnant average daily rate and revenue per available room (RevPAR) over the last year indicate limited potential for cash flow growth going forward. Ingram Festival Shopping Center (Prospectus ID#20, 1.5% of the current pool balance) is secured by an anchored retail property in San Antonio, Texas and has been on the servicer’s watchlist since February 2010. The subject was previously anchored by Best Buy, which vacated its space (21.5% of the NRA) after its lease expired in January 2011. JC Penney Home, representing 19.0% of the NRA, recently vacated the property as well following its October 2013 lease expiration, bringing the property’s occupancy down to 67.1%. The asset is located adjacent to Ingram Park Mall, and remaining major tenants include Marshall’s, Michael’s, Old Navy and Barnes & Noble, who recently executed a five-year lease renewal.

Three loans have since been repaid over the last twelve months, including the second largest loan in the pool, which had a maturity balance of $147.4 million. In total, 13 loans have paid out of the pool since issuance, contributing $317.8 million in principal repayment. DBRS maintains an investment-grade shadow rating on one loan in the pool, representing 0.3% of the current pool balance. DBRS has today confirmed this shadow-rating in conjunction with the above rating actions.

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, the loans in special servicing and the loans on the servicer’s watchlist. The January 2014 Monthly 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.