DBRS Morningstar Confirms Ratings of Morgan Stanley Capital I Trust, Series 2007-TOP27

DBRS Limited (DBRS Morningstar) confirmed the ratings on the remaining three classes of Commercial Mortgage Pass-Through Certificates, Series 2007-TOP27 issued by Morgan Stanley Capital I Trust, Series 2007-TOP27, as follows:

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

The trend on Class A-J remains Positive and the trends on Classes B and C remain Stable.

The rating confirmations reflect the overall stable performance of the deal as the largest remaining loan in the pool, 360 Park Avenue South (Prospectus ID#1; 98.8% of the pool), continues to report strong performance metrics. In addition, recent developments with the ground lease for the property site suggest things are trending positively in general, as further discussed below.

The subject loan is secured by the fee interest in a Class B office property in Manhattan that is fully leased to an investment-grade tenant and lease guarantor, RELX Group (formerly known as Reed Elsevier). RELX Group was noted to be subleasing approximately 40.0% of its space at issuance and ultimately fully vacated its space in Q3 2016, with the majority of the space having been subleased since that time. The RELX Group lease is scheduled to expire in December 2021, three months before the March 2022 maturity date. CBRE Group, Inc. was engaged to market the space and the borrower had previously advised the servicer of a potential lease to a single tenant that would take a majority of the space. DBRS Morningstar has not received any additional information on the status of that potential lease but notes that the subject property is generally well positioned to transition to a multitenant structure, given the relatively stable submarket metrics.

According to recent news articles, Boston Properties will be purchasing the ground lease of 360 Park Avenue South from the sponsor at a reported price of $300.0 million. This acquisition price increases to an implied figure of $325.0 million, when the operating partnership units offered as part of the transaction are included, which can be converted into Boston Properties common stock. News outlets have also reported that the sponsor is open to the idea of a potential sale of the improvements, and one article published by “The Real Deal” reported an estimated value of $400.0 million for the subject building, which would suggest a value well outside the current principal balance on the loan of just under $203.0 million. The value at issuance in 2007 was $323.0 million. DBRS Morningstar has requested an update from the servicer regarding these developments and implications for the subject loan and the response is pending as of the date of this press release.

Based on the YE2020 financials, the loan reported a debt service coverage ratio (DSCR) of 1.73 times (x), compared with the YE2019 DSCR of 1.71x and YE2018 DSCR of 1.68x. While the exposure at maturity of approximately $422 per square foot is slightly high for a Class B office property and there is the possibility that the in-place occupancy rate could be low at maturity, an online brochure that DBRS Morningstar located in July 2021 noted that the property is expected to be revamped by 2022 with modernized common areas and open floor plans for tenants, suggesting the sponsor’s commitment to the property remains stable.

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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.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 North American CMBS Surveillance Methodology (March 26, 2021), 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 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577