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

DBRS Limited (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-4 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-4, 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 overall performance. The pool has experienced collateral reduction of 26.5% since issuance, with 192 of the original 237 loans still outstanding as of the July 2015 remittance. According to the year-end (YE) 2014 financial reporting, the pool has a weighted-average (WA) trust debt service coverage ratio (DSCR) of 1.90 times (x) and a weighted-average debt yield of 11.3%. The pool also benefits from a small amount of defeasance collateral as ten loans, representing 2.8% of the current pool balance, are fully defeased.

There are currently 13 loans that are shadow-rated as investment grade, combining to represent 17.5% of the current pool balance. DBRS has today confirmed that the performance of these loans remains consistent with investment grade loan characteristics.

According to the July 2015 remittance, the transaction has experienced realized losses of $78.7 million as a result of liquidations of formerly specially serviced loans. There are currently four loans in special servicing and 50 loans on the servicer’s watchlist, representing 1.3% and 24.4% of the current pool balance, respectively. The largest specially serviced loan and one loan on the servicer’s watchlist are highlighted below.

The Inn at Chester Springs (Prospectus ID #42, 0.7% of the current pool balance) is secured by a 216-unit full service hotel in Uwchlan Township, Pennsylvania. This loan transferred to special servicing in January 2014 due to imminent payment default after the borrower stated it would no longer fund operating shortfalls. The property became real estate owned in January 2015 and Prism Hotels has been appointed as receiver. The subject is now known as the Wyndham Garden Exton Valley Forge. Financial performance has deteriorated greatly in recent years as the YE2014 DSCR was -0.02x and the YE2013 was 0.01x compared with at 1.49x at issuance. Performance continues to suffer as a result of decreasing occupancy and daily rates as well as inflated operating expenses. According to the April 2015 Smith Travel Research report, the subject’s T-12 average daily rate (ADR) of $69.72 and T-12 Revenue per available room (RevPAR) of $36.71 are significantly lower than the competitive set’s T-12 ADR of $99.15 and T-12 RevPAR of $61.37. In terms of occupancy, the subject reported a T-12 occupancy rate of 52.7% compared to the competitive set’s T-12 occupancy rate of 61.9%. Strong competition is one driver for the subject’s poor occupancy as a new Hilton Garden Inn recently opened and the Sheraton Great Valley Hotel completed its renovations. In addition, the subject was the preferred hotel for Bridgestone; however, the company has left the market and the subject has been working towards replacing the lost business. According to the April 2014 servicer site inspection, guestrooms and the ballroom ceiling were renovated at a cost of approximately $457,400 in 2013. The property management is currently repairing and replacing elevators, water heaters, HVAC and wiring at an anticipated cost of approximately $585,000. The property was last appraised in June 2014 at $5.4 million, a $13.6 million decrease from the issuance value of $19.0 million. DBRS expects the trust to experience a loss with the resolution of this loan.

Viad Corporate Center, representing 3.6% 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, and originally served as the national headquarters for Dial Corporation. The loan is on the servicer’s watchlist for a low DSCR, which was 0.29x at YE2014; however, performance has improved as the Q1 2015 DSCR was 0.82x. Occupancy has fluctuated recently as the property was 62% occupied at YE2013, which increased to 75.0% at YE2014 and later dropped to 72.9%, according to the May 2015 rent roll. The largest tenants at the property are Dickinson Wright, PLLC (9.6% of the net rentable area (NRA)), Cavanagh Law Firm (8.0% of the NRA) and Stinson Leonard Street, LLP (7.1% of the NRA), which have lease expirations in 2026, 2018 and 2023, respectively. The property is performing similarly within its market as, according to Reis, office properties in the Phoenix submarket reported a vacancy rate of 25.6% and average asking rent of $20.00 psf, as of Q1 2015.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The July 2015 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 North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.