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

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

-- Class H to C (sf) from CCC (sf)
-- Class J to C (sf) from CCC (sf)
-- Class K to D (sf) from C (sf)

In addition, DBRS has confirmed Class A-3 through Class G, including the notional Class X-1 and Class X-2. The trends on Class A-3 through Class F, including the notional classes, remain Stable. Class G through Class K carry no trends.

The downgrades to Class H and Class J reflect the increased projected losses associated with the one loan in special servicing. The downgrade to Class K is a result of realized losses occurring in the April 2014 remittance report after the 56-64 Broad Street loan (Prospectus ID#106) was liquidated. The trust realized a loss of $2.7 million associated with this loan, and to date, the trust has realized total losses of $31.6 million as a result of 12 loan liquidations.

Since issuance, the transaction has experienced collateral reduction of 14.9% from loan amortization, loan repayments, principal recovered from defaulted loans and realized losses from defaulted loans. As of the April 2014 remittance report, 179 loans remain out of the original 209. The transaction benefits from a small amount of defeasance collateral, as two loans, representing 3.6% of the current pool balance, are fully defeased. In the next 12 months, four loans, representing 1.6% of the current pool balance, are scheduled to mature. Excluding the RiverCenter I & II loan (highlighted in detail below), these loans have a weighted-average exit debt yield of 12.6%. Given the stable credit metrics of these loans, it is likely the majority loans will be able to acquire refinancing capital.

At issuance, DBRS shadow-rated four loans, representing 20.9% of the current pool balance, as investment grade. DBRS has today confirmed that the performance of these loans remains consistent with investment-grade loan characteristics.

According to the April 2014 remittance report, there is one loan in special servicing and 56 loans on the servicer’s watchlist, representing 1.0% and 30.9% of the current pool balance, respectively. The specially serviced loan and one loan on the servicer’s watchlist are highlighted in detail below.

The Towne Center Promenade Shopping Center loan (Prospectus ID #35) is secured by an anchored shopping center in the northwestern Chicago suburb of Deer Park, Illinois. The loan transferred to special servicing in April 2012 for payment default. The property is located within a highly travelled retail hub near the popular Deer Park Town Center; however, the subject itself is not a must-visit destination. The property is currently 90.4% occupied and is anchored by Dick’s Sporting Goods, which maintains a lease for 67% of the NRA through January 2017. The remaining tenancy consists of a mix of small national and local retailers. The property was most recently valued at $15.3 million in August 2013, compared with an issuance value of $22.0 million. The current trust balance is $14.6 million; however, there is in excess of $2.4 million in outstanding advances and fees. As a result, DBRS expects the trust to experience a loss with the resolution of this loan.

The RiverCenter I & II loan (Prospectus ID#4) is secured by two Class A twin office towers in Covington, Kentucky, located across the Ohio River from Cincinnati, Ohio. The loan was added to the servicer’s watchlist in March 2014; however, the property has struggled since December 2011, when the former largest tenant, Omnicare Inc. (Omnicare) (16.8% of the NRA), vacated ahead of its lease expiry. Omnicare continues to pay rent through its lease expiration date of March 2015; however, the loan matures in June 2014, and according to the master servicer, it will be transferred to special servicing at that time as a non-performing matured balloon. The property is currently 55% occupied, with the largest tenant occupying 10.6% of the NRA through January 2016. Of the buildings total NRA of 549,679 sf, 256,681 sf is available for direct lease or sublease on CoStar for rental rates ranging from $13.00 psf NNN to $16.00 psf NNN. According to CoStar, there are only eight Class A office buildings in the Covington/Newport submarket and the subject contains 43% of all the available space. DBRS plans to contact the special servicer when the loan transfers to special servicing next month, to garner information regarding the initial resolution strategy.

As part of its review, DBRS analyzed the top 15 loans, the loans on the servicer’s watchlist, the specially serviced loan and shadow-rated loans, which represent 67.3% 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 largest loans in the pool, the loans in special servicing and the loans on the servicer’s watchlist. The April 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.

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 CMBS Surveillance Methodology (November 2012), which can be found on our website under Methodologies.