DBRS Confirms Ratings of Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP26

DBRS has today confirmed the ratings of Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP26 (the Trust) as follows:

-- Class A-1A at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class AM at AAA (sf)
-- Class A-J at BB (sf)
-- Class B at B (low) (sf)
-- Class C at CCC (sf)
-- Class D at CCC (sf)
-- Class E at C (sf)
--Class X-1 at AAA (sf)

Classes A-1A, A-3, A-4, A-AB, AM, A-J, B and X-1 have Stable trends. Trends are not assigned for classes rated CCC and below.

The rating confirmations reflect the pool’s continued overall stable performance. The pool has experienced collateral reduction of 22.8% since issuance, with 200 of the original 237 loans still outstanding as of the August 2014 remittance. According to YE2013 reporting, the pool has a weighted-average trust debt service coverage ratio (DSCR) of 1.65 times (x) and a weighted-average debt yield of 10.19%. The pool also benefits from a small amount of defeasance collateral as four loans, representing 0.5% of the current pool balance, are fully defeased.

At issuance, DBRS shadow-rated 15 loans, representing 19.1% 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.

Through the August 2014 reporting period, the transaction has experienced realized losses of $74.9 million as a result of the liquidation of 16 loans and the principal forgiveness of one additional loan. There are currently six loans in special servicing and 58 loans on the servicer’s watchlist, representing 3.4% and 33.0% of the current pool balance, respectively. The largest specially serviced loan and one loan on the servicer’s watchlist are highlighted below.

The largest loan in special servicing is Prospectus ID #9 (Overlook II), representing 1.9% of the current pool balance. This loan is secured by a Class A suburban office property in the Cumberland/Galleria submarket of northwestern Atlanta, and is part of a complex that includes two other buildings, Overlook I and Overlook III. The loan transferred to special servicing in April 2014 due to imminent payment default. The YE2013 DSCR declined to 0.72x, compared with 0.95x at YE2012 and 1.42x at issuance, as a result of the occupancy rate dropping to 65.4%, which was confirmed according to the July 2014 rent roll. The most recent property condition report indicated immediate repair and replacement needs of $563,000, with additional major repairs of $3.8 million to be allocated for chiller replacement, roof replacement, exterior sealing and elevator equipment replacement. The most recent appraisal from May 2014 valued the property at $22.8 million; however, DBRS believes the value to be higher. According to the servicer, the loan is expected to be resolved in the coming months.

The Viad Corporate Center loan, representing 3.4% of the current pool balance, is secured by a Class A office property in the Midtown submarket of Phoenix. The 24-story high-rise was constructed in 1991, originally serving as the national headquarters for the Dial Corporation. The loan transferred to special servicing in March 2009 after the borrower sent a request for relief given a perceived value decline in the subject since the loan's origination. In May 2011, the special servicer processed the sale of the property and a loan assumption that resulted in a $9.0 million principal writedown and a $2.7 million forgiveness on accrued and unpaid interest. The trust has already realized both of these items as a loss. The loan remains on the servicer’s watchlist for a low DSCR, which was 0.24x at YE2013 due to a low occupancy rate of 74.1%, according to the June 2014 rent roll. While the occupancy rate is still lower than the 89% figure reported at issuance, it is an improvement from 62% at YE2013. As a result, the Q1 2014 DSCR improved to 0.49x. The largest tenants at the property are Cavanagh Law Firm (8.0% of the NRA), Stinson Leonard Street, LLP (7.1% of the NRA) and Viad Corporation (5.3% of the NRA), which have lease expirations in 2018, 2023 and 2021, respectively. Rollover is minimal over the next few years, as only eight tenants, collectively occupying 5.7% of the NRA, are scheduled to expire through 2015. The property is performing similarly within its market as, according to Reis, Class A office properties within a five-mile radius of the subject property reported a 24.4% vacancy rate and a gross rental rate of $27.08 psf, as of Q2 2014. The trust’s exposure, at $118 psf (down from $136 psf prior to the principal writedown), is considered moderate.

As part of its review, DBRS analyzed the largest 15 loans, the shadow-rated loans, loans on the servicer’s watchlist and the specially serviced loans, which together comprise approximately 66.8% of the current pool balance.

For additional details on the DBRS viewpoint for this transaction, and for details on the largest loans in the pool, the loans in special servicing and the loans on the servicer’s watchlist, please see the August 2014 Monthly Surveillance Report for this transaction, which will be published shortly.

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

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.

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

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