Morningstar DBRS Confirms All Credit Ratings on BSCMS 2007-PWR18

DBRS, Inc. (Morningstar DBRS) confirmed all credit ratings on the 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 C (sf)
-- Class C at C (sf)
-- Class D at C (sf)

These classes have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS). Morningstar DBRS' loss expectations for the outstanding bonds remain largely unchanged from the prior credit rating action. There have been no payoffs or liquidations since that time.

The sole remaining loan, Marriott Houston Westchase (Prospectus ID#6, 100% of the pool) is secured by a 600-key, full-service hotel in Houston, Texas. There has been collateral reduction of 97.2% since issuance, and to date, the pool has incurred losses in excess of $210.0 million. The Class E certificate, which has a current balance of $2.8 million and has already taken losses with previous loan liquidations, is the current junior bond in the transaction. Morningstar DBRS downgraded and subsequently withdrew its credit rating on the class after the bond defaulted. None of the outstanding certificates are receiving interest payments. Given the underlying asset's decline in appraised value since issuance, property condition, and likelihood that the disposition timeline may be extended, Morningstar DBRS projects significant losses associated with this loan that are likely to impact all outstanding classes, supporting the credit rating confirmations.

The loan has been transferred to special servicing and modified twice. The most recent modification was executed in December 2019 and included a second maturity date extension to June 2023, and the establishment of a new capital improvement reserve for brand-mandated upgrades. The loan was never returned to the master servicer following that modification and in April 2020, the borrower requested relief, citing Coronavirus Disease (COVID-19)-related hardship. The servicer noted that the borrower requested a short-term forbearance and access to cash balances and reserve funds controlled by the servicer, while negotiations regarding a third modification remained ongoing. The borrower, however, has never provided a workout proposal and a receiver was appointed in May 2023. A May 2023 servicer site inspection found the property to be in fair condition, with deferred maintenance items found including aging roofs in need of replacement, deteriorating parking lots, and a broken chiller.

The hotel’s performance has been depressed for many years, beginning with the downturn in Houston’s energy markets in 2015, and the property has historically not generated enough income to cover debt service payments. A March 2023 appraisal valued the property at $37.5 million, down from an April 2022 appraised value of $45.3 million and a July 2020 appraised value of $47.5 million. The previous franchise agreement with Marriot ended in 2023, and the terms of the new agreement, or if a renewal was executed, are unknown.

As of the January 2024 remittance, the loan had an outstanding principal balance of $69.9 million, with a total exposure, including outstanding advances, of $72.4 million. Advances have been deemed non-recoverable by the servicer, and none of the outstanding certificates have received any interest in over a year. Morningstar DBRS continues to project significant losses associated with the disposition of this asset, with an expected loss severity nearing 80% based on a 15% haircut to the most recent appraised value.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

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

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

The principal methodology is the North American CMBS Surveillance Methodology (March 16, 2023)
https://dbrs.morningstar.com/research/410912/north-american-cmbs-surveillance-methodology

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is in wind-down with one loan remaining. In such cases, Morningstar DBRS credit ratings are typically based on a recoverability analysis for the remaining loans. Additionally, sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit 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.

DBRS, Inc.
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Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (November 3, 2023)/North American CMBS Insight Model v 1.2.0.0 (https://dbrs.morningstar.com/research/422859)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://dbrs.morningstar.com/research/415687)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://dbrs.morningstar.com/research/420982)

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://dbrs.morningstar.com/research/419592)

Legal Criteria for U.S. Structured Finance (December 7, 2023; https://dbrs.morningstar.com/research/425081)

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