DBRS Morningstar Confirms Ratings of Bear Stearns Commercial Mortgage Securities Trust 2007-PWR18

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2007-PWR18 issued by Bear Stearns Commercial Mortgage Securities Trust 2007-PWR18 as follows:

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

The trend on Class B remains Stable, while Class C and Class D have ratings that do not carry trends. Class D continues to carry an Interest in Arrears designation, as interest shortfalls remain outstanding with the January 2020 remittance.

The rating confirmations reflect the performance outlook of the remaining loan in the pool, Prospectus ID#6 – Marriott Houston Westchase, which has an outstanding balance of $69.9 million as of the January 2020 remittance. At issuance, the transaction consisted of 186 loans with an original balance of $2.5 billion. The pool composition has remained unchanged in the past 12 months with 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.

The remaining loan, Marriott Houston Westchase, is a 600-room full-service hotel located in Houston, Texas. The loan transferred to special servicing in March 2019 due to a request from the Borrower to modify the existing loan documents. As of the January 2020 servicer commentary, the modification request has been completed, which extended the maturity date to June 2023 from June 2021, coupled with the establishment of a new Property Improvement Plan Reserve. The loan previously transferred to special servicing in July 2017 due to imminent default as the borrower stated it would not have been to refinance the loan at the original November 2017 maturity date. The special servicer approved a loan modification in June 2018, extending the maturity date to June 2021, and the loan returned to the master servicer in November 2018. 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, the sponsor completed a $20.0 million improvement project at the subject in 2017, which was mandated by the franchisor and consisted of a full renovation to all guestrooms and corridors, as well as 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 trailing six months ending June 2019 financial statement showed improvement as the debt service coverage ratio (DSCR) was 1.09 times (x) compared with the year-end (YE) 2018 DSCR of 0.74x and YE2017 DSCR of 0.95x. Revenue per available room and the occupancy rate were reported at $83.02 and 69.5%, respectively, as of the trailing 12 months (T-12) ending September 2019 Smith Travel Research report. These results are indicative of year-over-year growth of 0.2% and 3.5%, respectively. DBRS Morningstar expects the DSCR to remain stable with a full T-12 reporting cycle.

As of the January 2020 remittance, the loan had an outstanding principal balance of $69.9 million, with current advances outstanding of $44,047. 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 the remaining classes. DBRS Morningstar considered a stressed cap rate and the in-place annualized Q2 2019 net cash flow, to determine a stressed DBRS Morningstar property value. Based on the DBRS Morningstar stressed value, DBRS Morningstar expects Class B to ultimately be fully repaid when the asset is refinanced or liquidated. Class B has a remaining balance of $23.3 million as of the January 2020 remittance, representative of an exposure of just under $39,000 per key on the collateral.

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

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the remaining loan in the transaction:

-- Prospectus ID#6 – Marriott Houston Westchase

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 Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is the North American CMBS Surveillance Methodology, which can be found on www.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar 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 [email protected].

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