CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded one class and affirmed 18 classes of Bear Stearns Commercial Mortgage Securities Trust, series 2007-TOP28 (BSCMSI 2007-TOP28). A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The downgrade is due to an increase in expected losses on the specially serviced loans combined with performance deterioration on several performing loans. Fitch modeled losses of 6.0% of the remaining pool; expected losses on the original pool balance total 6.9%, including $31.5 million (1.8% of the original pool balance) in realized losses to date. Fitch has designated 51 loans (31.4%) as Fitch Loans of Concern, which includes two specially serviced assets (4.6%).
As of the July 2014 distribution date, the pool's aggregate principal balance has been reduced by 15% to $1.5 billion from $1.76 billion at issuance. Per the servicer reporting, two loans (3.6% of the pool) are defeased. Interest shortfalls are currently affecting classes H through P.
Over 50% of the pool consists of retail properties, including eight of the Top 15 loans and the largest loan in the pool, representing 11.4% of the collateral. While updated rent rolls were provided by the servicer, recent sales information was available on only two of the eight retail properties in the top 15.
The largest contributor to expected losses is the Cole Retail Portfolio (2.1% of the pool), which is secured by six single-tenant retail properties located in CA, IL, RI, TX and NJ (2). The loan is on the servicer watchlist due to decreased DSCR as of year-end 2013. The servicer reported DSCR dropped to 0.81x as of year-end 2013 from 1.59x as of year-end 2012. Current rent rolls or tenant sales information was not available for the properties. Fitch determined the property located in Houston, TX is dark, with the former tenant, Academy Sports, on a lease through May 2015. The Rite Aid in Mantua, NJ was under a lease scheduled to expire in June 2014. Per Rite Aid's website, the location is still open.
The second largest contributor to expected losses is the specially-serviced RiverCenter I & II loan (3.7% of the pool), which is secured by a leasehold interest in two adjacent office buildings totaling 550,000 sf. The loan was transferred to the special servicer after the borrower indicated they would not be able to repay the loan at maturity in June 2014. The properties, which are located outside Cincinnati in Covington, KY, have seen an overall decline in performance over the last few years. As of December 2013 occupancy was reported at 70%, down from 88% at year-end 2012. Physical occupancy is estimated to be lower, at approximately 50%, based on a Cincinnati Business Journal article from 2011 that reported OmniCare, the primary tenant with 18% of the net rentable area (NRA), is still making lease payments but has fully vacated the building. The OmniCare lease expires in February 2016. Further, the second largest tenant (10% of NRA) recently renewed its lease at 15% lower than its current rent. Market conditions in the region remain challenged, with submarket Class B/C vacancy reported at 17.4% per REIS.
The next largest contributor to expected losses is the Pavilions at Hartman Heritage loan (1.6%), which is secured by a 220,000 sf retail property, built in 2003, located in Independence, MO, in the Kansas City MSA. As of year-end 2013 occupancy was 65.1%, down from 70% at year-end 2012, and significantly lower than the 92% occupancy at origination. The DSCR as of year-end 2013 was 1.25x, flat with the 1.25x reported at year-end 2012. The interest only loan matures in August 2017. While the property saw an over 60% improvement in property cash flow between year-end 2012 and 2011, the property is still performing significantly below expectations at issuance when occupancy was 92% and the DSCR was 2.06x.
The ratings on the senior classes A-3 through A-J are expected to remain stable as these classes will benefit from increased credit enhancement as the pool continues to pay down. The Rating Outlook on Class B is revised to Negative from Stable due to the increase in expected losses. The Rating Outlook on Class C remains Negative as this class is subject to downgrade should performance declines continue. The distressed classes are subject to further downgrade if realized losses exceed current expectations.
Fitch downgrades the following class and revises Recovery Estimates (REs) as indicated:
--$28.6 million class D to 'CCCsf' from 'Bsf'; RE 60%.
Fitch affirms the following classes:
--$43.3 million class A-3 at 'AAAsf'; Outlook Stable;
--$51.4 million class A-AB at 'AAAsf'; Outlook Stable;
--$841.7 million class A-4 at 'AAAsf'; Outlook Stable;
--$117.2 million class A-1A at 'AAAsf'; Outlook Stable;
--$176.1 million class A-M at 'AAAsf'; Outlook Stable;
--$114.5 million class A-J at 'BBBsf'; Outlook Stable;
--$30.8 million class B at 'BBsf'; Outlook to Negative from Stable;
--$15.4 million class C at 'BBsf'; Outlook Negative;
--$22 million class E at 'CCCsf'; RE 0%;
--$17.6 million class F at 'CCsf'; RE 0%;
--$19.8 million class G at 'CCsf'; RE 0%;
--$15.4 million class H at 'Csf'; RE 0%;
--$2.2 million class J at 'Csf'; RE 0%;
--$1.4 million class K at 'Dsf'; RE 0%;
--$0 class L at 'Dsf'; RE 0%;
--$0 class M at 'Dsf'; RE 0%;
--$0 class N at 'Dsf'; RE 0%;
--$0 class O at 'Dsf'; RE 0%.
The class A-1 and A-2 certificates have paid in full. Fitch does not rate the class P certificates. Fitch previously withdrew the ratings on the interest-only class X-1 and X-2 certificates.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 11, 2013 report, 'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria', which is available at 'www.fitchratings.com' under the following headers:
Structured Finance >> CMBS >> Criteria Reports
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (May 20, 2014);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 11, 2013).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria