DBRS Upgrades One Class and Confirms Two Classes of BSCMS 2007-PWR18

DBRS Limited (DBRS) upgraded the rating on the following class of Commercial Mortgage Pass-Through Certificates, Series 2007-PWR18 issued by Bear Stearns Commercial Mortgage Securities Trust 2007-PWR18 as follows:

-- Class B to BBB (sf) from B (sf)

In addition, DBRS confirmed the ratings on the following classes:

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

All trends are Stable, with the exception of Class C and Class D, which have ratings that do not carry trends.

The rating upgrade to Class B reflects the increased credit support to the bonds as a result of the successful repayment of Classes AJ and AJ-A. With those repayments, the Class B certificate is now the most senior class outstanding. At issuance, the transaction consisted of 186 loans with an original balance of $2.5 billion. As of the January 2018 remittance, only one loan remains, with an outstanding balance of $69.9 million. This represents a collateral reduction of 97.2% since issuance as a result of successful loan repayments as well as realized losses and recovered proceeds from loans liquidated from the pool.

Over the past year, eleven loans have been disposed from the trust, representing a paydown of approximately $70.9 million. Nine of the disposed loans paid post maturity, one loan prepaid during the loan term and the remaining loans incurred a loss after being liquidated. In the January 2018 review, DBRS estimated Concord Plaza and Mall would incur a 0% loss severity given a 40% haircut to its issuance appraisal value of $37.0 million; however, the property was valued at $7.1 million (80.8% haircut) in mid-2018 before it paid out, resulting in a $4.7 million loss and 36.4% loss severity.

The remaining loan is Prospectus ID#6 – Marriott Houston Westchase, a 600-room full-service hotel located in Houston, Texas. The loan transferred to special servicing in July 2017 due to imminent default as the loan was not expected to refinance at November 2017 maturity. The special servicer approved a loan modification in June 2018, extending the maturity date to June 2021. As part of the maturity extension, the sponsor paid down the principal balance by $1.8 million (2.5% of the outstanding principal balance at the time). In addition, in 2017, the sponsor completed a $20.0 million improvement project for the hotel, mandated by the franchisor, which consisted of a full renovation for all guestrooms and corridors and a conversion of the hotel bar to the newly dubbed M Club Lounge. The hotel’s performance has been down for several years since the downturn in the energy markets, which led to a general disruption in the local Houston economy and difficulties for commercial real estate, particularly office and hotel properties. The most recently reported debt service coverage ratio (DSCR) is as of the trailing six months ending June 2018, with a coverage of 0.89 times (x), down from the year-end (YE) 2017 DSCR of 0.95x, but still up from the low of 0.49x at YE2016. The 2018 DSCR figure assumes the original debt-service requirement, with no adjustment for the principal paydown. In addition, as revenue per available room (RevPAR) was reported at $82.90 as of the trailing 12 months (T-12) ending September 2018 in the Smith Travel Research report provided to DBRS, indicative of year-over-year RevPAR growth of 7.8%, DBRS expects the DSCR to improve significantly with a full T-12 reporting cycle.

As of the January 2019 remittance, the loan had an outstanding principal balance of $69.9 million, with no outstanding advances or other expenses pulling to the remittance report for this loan. The current exposure of approximately $116,490 per key is considered high given the low DSCR and general market difficulties, supporting the rating confirmations for Classes C and D at C (sf). However, DBRS believes the recent $20.0 million investment into the property, as well as the $1.8 million principal paydown funded last year, have put the Class B certificate holders in a generally good position, with a class balance of $23.3 million as of the January 2019 remittance (exposure of just under $39,000 per key on the remaining asset), supporting the rating upgrade.

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

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the Marriott Houston Westchase loan.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS rated), as well as loan level and transaction level commentary for most DBRS rated and monitored transactions.

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

The principal methodology is North American CMBS Surveillance, which can be found on dbrs.com under Methodologies & Criteria. 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.

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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

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