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

DBRS Limited (DBRS) confirmed all classes of the Commercial Mortgage Pass-Through Certificates, Series 2007-TOP28 issued by Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP28 as follows:

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

These classes have ratings that do not carry trends.

The rating confirmations reflect DBRS’s outlook for the remaining loan in the transaction, which has had a collateral reduction of 94.8% since issuance. As of the January 2019 remittance, the remaining loan, secured by a regional mall in Charleston, West Virginia, has a current balance of $91.6 million and is currently in special servicing as the loan sponsor, Forest City Realty Trust, was unable to sell the property or repay the loan as at the September 2017 maturity date. Based on the October 2018 valuation for the property, as well as the foreclosure sale price of $35.0 million when the trust took title of the property earlier this month, DBRS anticipates losses for this loan could flow into Class D, supporting the rating confirmations at C (sf) for the outstanding Certificates.

Since the April 2018 surveillance review of this transaction, four loans have left the trust, representing a paydown of approximately $20.6 million. Three of the loans were paid in full post maturity and the remaining loan was liquidated with a loss of $2.1 million and a loss severity of 34.8% in August 2018, a relatively positive end result considering the October 2017 appraised value of $3.5 million suggested the loss severity could be as high as 71.0%. Although this and the full payoff for the other three loans are improvements over the expectations for those loans at last review, the deterioration of the outlook for the Charleston Town Center loan negates any of the gains in the outlook for the transaction overall.

The Charleston Town Center loan is secured by a 363,000 square foot (sf) portion of a 782,720 sf enclosed mall located in downtown Charleston, West Virginia. Receivership was appointed to CBRE Group, Inc. in mid-January 2018 and recently on January 24, 2019, the property was acquired by the servicer via a foreclosure sale and the property is now real estate owned. The foreclosure sale price was $35.0 million, compared with the October 2018 appraised value of $50.0 million. In early 2017, the property’s non-collateral anchor, Sears, closed and later that year, the sponsor reached an agreement with Macy’s (also non-collateral) to remain in place through 2019. However, the agreement fell through after the loan defaulted and the property went into receivership. Recent news articles indicate that Macy’s is set to close in early 2019, leaving JCPenney as the only anchor and mall occupancy at approximately 50%. In addition, news reports have suggested that the former Sears space was to be redeveloped as a Hilton-branded KM Hotel, with the project to be complete by mid-2020. It is unclear if the recent Macy’s announcement or the foreclosure sale will impact these plans, however.

Given the sharp occupancy declines and projected further declines in cash flows, DBRS expects the value will further decline from the $50.0 million figure estimated with the October 2018 appraisal and as such, assumed a loss in excess of 70% in the analysis for this review. Overall, the DBRS analysis approach for the remaining loan in the pool suggests losses will be contained to the Class D and below Certificates; however, the dire outlook for the Charleston Town Center loan suggests the prospects for principal recovery could diminish over the near to medium term, supporting the rating confirmation for the Class C Certificates. For additional commentary and analysis on the remaining loan in the pool, please see the DBRS Viewpoint platform, for which information is provided below.

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 Charleston Town Center 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 Methodology, 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 note a sensitivity analysis is not performed for CMBS bonds rated ‘CCC’ or lower. The DBRS long-term rating scale definition indicates that ratings of ‘CCC’ or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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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