The loan is one of the larger investments that KBS and its affiliates have made since the company began an aggressive strategy of buying buildings and loans a few years ago.

Through the investment trusts and other privately run ventures, KBS has raised billions of dollars from institutional and individual investors since 2006. That money’s been used to snap up numerous skyscrapers, office complexes, industrial portfolios and mortgages in the past three years.

The deals have made KBS one of the country’s more active commercial real estate buyers.

The Gramercy loan appears to be the largest investment made by KBS that now is in some form of financial distress, although how much of a negative impact—if any—a foreclosure would have on KBS’ bottom line is unclear.

In KBS REIT’s most recent quarterly report, the company said it believed the carrying value of the mezzanine loan was fully secured by the properties. The fund hasn’t recorded any impairment charges.

The mezzanine loan is secondary to other secured senior loans totaling about $1.7 billion, according to regulatory filings.

Assuming those secured loans are first in line to get paid off in sale, the Gramercy portfolio would need to be worth about 70% of what it was valued at in 2008 for senior secondary lenders to get their money back.

Gramercy and its shareholders, rather than its lenders, are likely to feel the brunt of the givebacks, according to sources.

Most of Gramercy’s main lenders likely “aren’t terribly worried about recovering the value” of their loans, said Michael Knott, an analyst with Green Street Advisors Inc., a Newport Beach-based real estate researcher.

“In general, real estate prices are rising right now,” Knott said. “These (foreclosures) are more likely to be resolved without losses.”

It’s unclear which of the lenders will push for foreclosure.

An undisclosed junior secondary lender has the first opportunity to foreclose on the property, according to KBS’ regulatory filings.

If that lender declines to go that route, then KBS has the next crack at foreclosure and assumes the more senior loans.

“Under such a scenario, we could decide to operate the properties and pay the debt service or, if the values were sufficient, sell some or all of the properties and repay the remaining loans,” KBS said in filings.

Other Properties

KBS and its investment funds have taken over other properties from investors that overextended themselves in the past few years.

Among local properties, in 2009 KBS received a deed-in-lieu of foreclosure for 18301 Von Karman, an Irvine office building near John Wayne Airport that was bought near the peak of the market by Chicago’s Hearn Co.

The building later was sold by KBS to an ownership group headed up by Newport Beach’s Greenlaw Partners.

KBS also invested in a mezzanine loan tied to Irvine’s 2600 Michelson office tower, which once was owned by Los Angeles-based Maguire Properties Inc., now MPG Office Trust Inc.

That building’s now being run by a special servicer after Maguire defaulted on its loans more than a year ago. KBS has written off the value of that loan.