DBRS Downgrades Two Classes of Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP26

DBRS Limited (DBRS) downgraded two classes of the Commercial Mortgage Pass-Through Certificates, Series 2007-TOP26 issued by Bear Stearns Commercial Mortgage Trust, Series 2007-TOP26 (the Trust) as follows:

-- Class A-J downgraded to C (sf) from BB (sf)
-- Class B downgraded to C (sf) from CCC (sf)

Additionally, DBRS has confirmed the ratings on the following classes:

-- Class AM at AAA (sf)
-- Class C at C (sf)
-- Class D at C (sf)

All trends are Stable, with the exception of Classes A-J, B, C and D, which have ratings that do not carry trends. Class E was previously downgraded to D (sf) with the March 2018 remittance as a loss was realized to the Trust and, as such, no rating action was made for Class E for this review.

The rating downgrades reflect DBRS’s outlook for the remaining loans in the transaction, particularly for the second largest loan remaining in the pool, Prospectus ID#2 – One AT&T Center (33.0% of the current pool balance). As at the April 2018 remittance, the pool experienced a collateral reduction of 84.8% from issuance, with 15 loans remaining out of the original 237 loans in the transaction. To date, 28 loans have liquidated from the Trust, resulting in a total loss of $91.8 million. Only 12 loans (65.2% of pool) are reporting YE2016 financials, with even less reporting YE2017 financials and based on the most recent year-end figures, the weighted-average (WA) debt service coverage ratio (DSCR) for the pool was 2.31 times with a WA debt yield of 14.2% and WA exit debt yield of 22.6%.

According to the April 2018 remittance, three loans (2.7% of the pool) are on the servicer’s watchlist and five loans (42.3% of the pool), are in special servicing. DBRS expects realized losses associated with the defaulted loans will flow through into Class A-J.

The pool is concentrated by loan size, with the two largest loans cumulatively representing 79.2% of the current pool balance. These loans include Prospectus ID#1 – One Dag Hammarskjold Plaza (46.2% of the pool) and the previously mentioned One AT&T Center loan, which is in special servicing.

At issuance, DBRS shadow-rated the One Dag Hammarskjöld Plaza loan as investment grade. With this review, DBRS has confirmed that the performance of the loan remains consistent with investment-grade characteristics.

The One AT&T Center loan is secured by a 1.5 million square foot Class A office building located in downtown St. Louis, Missouri. This loan was transferred to special servicing in March 2017 for imminent default as the loan was not expected to repay at maturity. The loan could not refinance given performance declines related to the departure of the single tenant, AT&T, which did not exercise its renewal option and fully vacated the property in September 2017 after years of gradual move-outs. A receiver was appointed in July 2017 and the property has been real estate owned since late 2017. According to the May 2017 appraisal, the subject’s value was reported at $11.7 million, which is a drastic decline from the issuance value of $207 million, and well below the current trust exposure of approximately $113.0 million. According to an April 2018 news article published by the “St. Louis Post-Dispatch”, an affiliate of real estate development firm CRG Group has tendered an offer to purchase the building. The article also noted that the building would require significant capital to execute a redevelopment project, with financing contingent on the purchaser’s ability to show solid leasing commitments. DBRS has received confirmation of this proposed purchase from the special servicer and will continue to monitor for developments. The special servicer’s commentary noted that the loan is expected to be resolved by October 2018. In the analysis for this review, DBRS assumed a full loss to the trust for the loan.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- One Dag Hammarskjold Plaza
-- One AT&T Center

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes loan level data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS rated transactions.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.