DBRS Upgrades One Class, Downgrades Two Classes, Discontinues One Class and Confirms 11 Others of Bear Stearns Commercial Mortgage Securities Trust 2004-PWR5

DBRS has today upgraded the rating of one class of Bear Stearns Commercial Mortgage Securities Trust 2004-PWR5, as follows:

-- Class E to AAA (sf) from AA (sf)

DBRS has also downgraded the ratings of two classes, as follows:

-- Class N to C (sf) from CCC (sf)
-- Class P to C (sf) from CCC (sf)

Finally, DBRS has confirmed the ratings of the following classes:

-- Class C at AAA (sf)
-- Class D at AAA (sf)
-- Class F at A (sf)
-- Class G at BBB (high) (sf)
-- Class H at BBB (low) (sf)
-- Class J at BB (high) (sf)
-- Class K at BB (sf)
-- Class L at B (sf)
-- Class M at CCC (sf)
-- Class X-1 at AAA (sf)

In addition to the above noted ratings actions, DBRS has also discontinued Class B, as it was fully repaid with the October 2014 remittance. All trends are Stable, with the exception of Classes M, N, and P, which carry no trends.

The upgrade to Class E reflects the increased credit support to the bond as a result of loan repayment and continued amortization. In the last twelve months, 84 loans have repaid from the trust, contributing $603.8 million in repaid principal to the senior bonds. Two loans, representing 46.7% of the current pool balance, are fully defeased, and an additional two loans, representing 24.8% of the current pool balance, are scheduled to mature by the end of the year. DBRS recognizes the likelihood of continued repayment for some loans remaining in the pool, as well as the propensity for adverse selection as the pool becomes more concentrated and interest shortfalls should loans continue to default at maturity. There are currently four loans in special servicing, representing 11.3% of the current pool balance, and all are non-performing matured balloon loans. Three of the four loans have reported updated appraised values indicating a weighted-average property value decline of 52.4%. The downgrades to Classes N and P reflect the elevated probability that these loans will experience a loss of principal based on the current estimated property value. Since issuance, the pool has experienced collateral reduction of 91.1%, with 15 of the original 130 loans still outstanding as of the October 2014 remittance report. The pool reported a weighted-average DSCR and weighted-average debt yield of 1.91x and 13.2%, respectively.

As of the October 2014 remittance, there are four loans in special servicing and one loan on the servicer’s watchlist, representing 11.3% and 0.4% of the current pool balance, respectively. The two largest loans in special servicing are highlighted below.

Dash Pointe Metropolitan Market (Prospectus ID#68, 3.3% of the current pool balance) is secured by a 33,255 sf portion of an anchored retail property in Federal Way, Washington. The collateral is the grocery anchor space, which was previously occupied by Metropolitan Market, a local chain. The loan transferred to special servicing as a result of imminent maturity default in September 2014, as its original scheduled maturity date was September 1, 2014. The property is fully leased to Metropolitan Market through June 2024; however, the tenant vacated in 2010 and the collateral has been dark ever since. The tenant continues to pay rent and the lease carries a personal guaranty by the Metropolitan Market’s founder. A July 2014 appraisal valued the property at $3.7 million, compared to $7.2 million at issuance, putting the property just above water. Despite the vacancy, the borrower kept the loan current and only just stopped remitting debt service payments when the loan transferred to special servicing.

Pottsburg Plaza (Prospectus ID#69, 3.2% of the current pool balance) is secured by a 35,905 sf neighborhood retail center in Jacksonville, Florida. The subject is anchored by a 13,905 sf Walgreens, whose lease expires in 2056; however, the tenant has a termination option in 2016. The property is only 52% occupied and transferred to special servicing in May 2014 as a result of failing to refinance ahead of the May 1, 2014, maturity date. The borrower’s requests to modify the loan were denied by the special servicer and the borrower has reportedly consented to foreclosure and appointment of a receiver. The YE2013 DSCR was reported to be 0.66x, which is in line with the YE2012 DSCR of 0.65x. Despite the historical low occupancy and cash flow coverage, the borrower kept the loan current until its transfer to special servicing.

At issuance, DBRS shadow-rated one loan, representing 5.9% 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.

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 October 2014 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 related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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.