DBRS Confirms Ten Classes of Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP28

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP28 as follows:

-- Class A-1A at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class AM at AAA (sf)
-- Class X-1 at AAA (sf)
-- Class A-J at A (low) (sf)
-- Class B at BBB (sf)
-- Class C at BBB (low) (sf)
-- Class D at B (high) (sf)
-- Class E at CCC (sf)
-- Class F at CCC (sf)

In addition, DBRS has discontinued and withdrawn the rating for Class G, as the class has defaulted. All trends are Stable, with the exception of Class E and Class F, which have ratings that do not carry trends.

The rating confirmations reflect the overall stability of the pool, which has experienced a collateral reduction of 23.7% since issuance, as a result of scheduled amortization and repayment at maturity, as well as the principal recovered and losses realized at liquidation for disposed loans. As of the March 2016 remittance report, 166 loans remain in the pool out of the original 209 loans. In the last 12 months, ten loans have left the trust, contributing to a principal paydown of $133.3 million. Five of these loans were liquidated from the trust with a combined realized loss of $25.2 million. The largest liquidated during that period was the Town Center Promenade Shopping Center loan (Prospectus ID#35), which has a realized loss total of $3.6 million, for a loss severity of 24.0% on the outstanding trust balance at liquidation. To date, 17 loans have liquidated from the trust, representing an aggregate realized loss to the trust of $57.4 million. One loan, representing 1.1% of the current pool, is scheduled to mature in the next 12 months, while the majority of the remaining loans are scheduled to mature in Q3 2017 and Q4 2017. Nine loans, representing 7.4% of the current pool balance, are fully defeased. Based on the most recent year-end reporting available for the underlying loans, the transaction had a weighted-average (WA) debt service coverage ratio (DSCR) and an exit debt yield of 1.50 times (x) and 10.8%, respectively.

As of the March 2016 remittance report, there were 42 loans on the servicer’s watchlist, representing 17.1% of the pool balance, and one loan in special servicing, representing 0.3% of the pool balance. Excluding the two defeased loans, the Top 15 loans reported a WA amortizing DSCR of 1.42x, as based on the most recent year-end reporting for each loan. However, the WA DSCR figure is slightly depressed due to an artificially low DSCR reported for the second-largest loan (3 Penn Plaza, Prospectus ID #2, 7.1% of the pool), which showed a DSCR of 0.47x at YE2015. These figures appear to be only reflective of the investment-grade single tenant’s (Blue Cross Blue Shield of New Jersey (BCBSNJ)) contractual base rent, and do not include any expense reimbursements. In 2010, BCBSNJ extended its triple net lease (NNN) from April 2012 through September 2022, as part of its acquisition of the property and assumption of the trust loan. As part of the lease extension, the terms were restructured to reflect a rent obligation equal to the debt service requirement on the loan, resulting in a DSCR of 1.00x. The rental rate will reset to market rates at the scheduled maturity of October 2017. DBRS has highlighted the second-largest loan on the servicer’s watchlist, Pavilions at Hartman Heritage, below.

The Pavilions at Hartman Heritage loan is secured by a power center located in Independence, Missouri, approximately 12 miles east of the Kansas City CBD. The loan has been on the watchlist since 2009 for occupancy and cash flow declines since issuance. According to the September 2015 rent roll, the property was 76.0% occupied with an average rental rate of $13.48 per square foot (psf), an increase from 66.0% with an average rental rate of $12.95 psf in September 2014. As of YE2015, REIS reported that buildings built between 2000 and 2009 within the Independence/Raytown submarket were achieving higher rental rates than the subject at $14.89 psf, with a lower vacancy rate of 14.4%. The largest tenants at the subject include Bed Bath & Beyond (14.8% of the net rentable area (NRA), through January 2022), Buy Buy Baby (12.6% of the NRA, through January 2022) and Cost Plus World Market (8.1% of the NRA through January 2022). According to the servicer, Party City (8.9% of the NRA) has recently expanded its space by 9,821 sf, and signed a new lease on a ten-year term. The tenant will pay $13.0 psf, subject to a $1.0 psf contractual increase, on an annual basis. The tenant will also receive a $707,500 ($32.77 psf) TI package.

The Q3 2015 DSCR was 1.17x, up from 1.10x at YE2014; however, the loan remains on the watchlist for upcoming rollover, as four tenants, representing 14.6% of the NRA, have lease expirations within the next 12 months. According to the servicer, the borrower is actively marketing the property, and is reportedly in ongoing lease negotiations with several prospective tenants, representing a cumulative leasing potential of 25,900 sf (11.6% NRA). DBRS has modelled this loan with an elevated probability of default to capture the subject’s current financial performance and in consideration of the increased risk associated with the near-term tenant rollover.

The Boulder Tech Center loan is secured by a Class B office property located in Longmont, Colorado, approximately 35 miles northwest of the Denver CBD. As of YE2014 financials (most recent), the loan had a DSCR of 1.63x, compared to 1.52x at YE2013 and the DBRS UW figure of 1.22x. The loan was transferred to special servicing in September 2015, as the borrower failed to make the required tenant improvement and leasing reserve deposits, as stated in the loan agreement. The property is currently 100% occupied by Crocs, Inc. (Crocs) on a lease through July 2018; however, the tenant provided notice of intent to exercise its early-terminate option and vacate the property effective June 30, 2016. According to the terms of the lease, an early termination fee of approximately $177,000 is due from Crocs. The fee was reportedly paid; however, as the borrower is disputing the tenant’s compliance with the terms of the early termination option, the funds were returned to the tenant by the borrower, according to the special servicer. The special servicer is working with the borrower to resolve these issues, but no clear workout strategy has been determined. DBRS modeled the loan with an increased probability of default, given the likelihood that the property will be vacant at the time of the 2017 maturity date.

At issuance, DBRS shadow-rated three loans, Easton Town Center (Prospectus ID# 1, 12.7% of the current pool), 3 Penn Plaza (Prospectus ID# 2, 7.8% of the current pool) and Northwest Marketplace (Prospectus ID# 16, 1.5% of the current pool). DBRS confirms that the performance of these loans is consistent with investment-grade loan characteristics.

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 North American CMBS Rating Methodology (March 2016) and CMBS North American CMBS Surveillance Methodology (December 2015), which can be found on our website under Methodologies. info@dbrs.com.