DBRS Morningstar Downgrades One Class of Morgan Stanley Capital I Trust, Series 2007-TOP25

DBRS, Inc. (DBRS Morningstar) downgraded the rating on one class of the Commercial Mortgage Pass-Through Certificates, Series 2007-TOP25 issued by Morgan Stanley Capital I Trust, Series 2007-TOP25 (the Trust) as follows:

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

DBRS Morningstar also confirmed the ratings on the remaining two classes as follows:

-- Class A-J at BBB (low) (sf)
-- Class C at C (sf)

The trend on Class A-J is Stable while Classes B and C have ratings that do not carry a trend.

The rating downgrade reflects DBRS Morningstar’s updated loss projections for the two loans in special servicing, which cumulatively represent 81.7% of the pool. Both loans are secured by retail assets and are real estate owned (REO) following foreclosure actions executed by the servicer. Both are expected to be resolved with significant losses to the Trust.

As of the January 2021 remittance, there has been collateral reduction of 93.1% since issuance, with realized losses of approximately $98.0 million applied to date through Class D. Principal repayment has paid down the senior bonds and into Class A-J, now the most senior bond remaining in the Trust. There are currently eight of the original 204 loans remaining in the transaction. In addition to the two loans in special servicing, there is one loan, representing 1.9% of the pool on the servicer’s watchlist. Four loans, representing 14.5% of the pool, are scheduled to mature throughout 2021.

The largest loan in special servicing, Shoppes at Park Place (Prospectus ID#3; 65.5% of the pool), is secured by an anchored retail center in Pinellas Park, Florida. The loan initially transferred to the special servicer in January 2017 due to maturity default and the asset has been REO since March 2020. The property is shadow anchored by Target with collateral retailers including Regal Park Place and RPX, American Signature Furniture, Michaels, Marshalls and Petco. The property also has exposure to bankrupt tenants including GNC, GameStop, and Mattress Firm. Additionally, two former junior anchors, Office Depot and Off Broadway Shoes, have permanently closed. The property was appraised at $80.5 million as of March 2020, down marginally from the January 2019 appraised value of $81.5 million. However, it is noteworthy that this valuation does not take into account the impact from the ongoing Coronavirus Disease (COVID-19) pandemic, which has had a significant effect on the performance of the already strained brick-and-mortar retail sector. Given the timing, DBRS Morningstar believes it is likely the as-is value has fallen further amid the pandemic and a stressed haircut was applied to the value in the analysis for this transaction, resulting in a loss severity in excess of 20.0%.

The other loan in special servicing, Romeoville Town Center (Prospectus ID#16; 16.2% of the pool), is secured by a former grocer-anchored retail center in the Chicago suburb of Romeoville, Illinois. The loan initially transferred to the special servicer in March 2014 for imminent default and the property has been REO since February 2019. The property was appraised at $7.2 million as of August 2020, down from the October 2018 appraised value of $9.1 million. In the analysis for this review, a loss severity of approximately 100.0% was assumed, based on the most recent valuation and the likely dim prospects for the ultimate resolution given the lack of leasing activity for the former grocer’s space and the effects of the pandemic that have driven investor demand even lower for transitional retail properties.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

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

The principal methodology is North American CMBS Surveillance Methodology (March 6, 2020), which can be found on dbrsmorningstar.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 dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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