A $345 million acquisition spree by Newport Beach-based KBS Realty Advisors includes a prominent office tower in San Jose and a pair of deals on the other side of the country.
KBS REIT III, a nontraded real estate investment trust overseen by KBS that has raised more than $1.1 billion from investors, said last month that it was under contract to buy 10 Almaden, a 16-story office that’s considered one of downtown San Jose’s premier buildings.
The 309,255-square-foot office is selling for $116.7 million, or about $377 per square foot, according to regulatory filings. The deal is expected to close this month.
Ten Almaden is being sold by Chicago-based Equity Office Management LLC, a private equity-backed landlord with a large national portfolio that has sold properties in Silicon Valley and bought in Orange County’s office market (see related story, page 3).
The building is 26 years old and was renovated in 2010, according to KBS, which said last month that it’s working on getting a mortgage to finance part of the sale.
The building is 89% leased, according to regulatory filings.
The deal adds another notable Silicon Valley property to the portfolio of KBS, which is run by Charles Schreiber, a former Koll Development Co. executive, and Peter Bren, the brother of Irvine Company Chairman Donald Bren.
KBS and its affiliates own three other properties in San Jose, including the 610,000-square-foot Corporate Technology Center, which it bought last year from Equity Office for $239 million. It also owns offices in Palo Alto and San Francisco.
KBS and its affiliated companies have bought and sold more than $30 billion in real estate over the past 12 years on behalf of pension funds and other institutional investors, as well as through five nontraded REITs.
Another nontraded REIT it runs—KBS REIT II—has gotten big returns in the past couple of years by buying and selling well-leased trophy offices across the country and profiting from their appreciation, but the fund buying the San Jose office is trying a different approach.
KBS REIT III is designed to invest in “core commercial real estate properties” that provide value-add opportunities, either because of higher-than-expected vacancy levels or higher near-term lease rollover than more conservative investments, according to the company.
“These characteristics provide us with opportunities to lease space at higher rates, especially in markets with increasing absorption, or to re-lease space in these properties at higher rates,” the company said in a recent filing with the Securities and Exchange Commission.
“Our core property focus in the U.S. office sector has reflected a more value-creating core strategy, and based on the current market outlook, we expect to continue this strategy,” it said.
The San Jose purchase is one of four large deals announced by KBS REIT III since early November. The combined purchase prices for the deals, which encompass nearly 880,000 square feet, total $345.3 million.
The other deals include a property near Sacramento and a pair of office buildings just outside Washington, D.C., in Virginia.
The company just closed on the purchase of a 220,020-square-foot office property in the city of Rocklin for $33.8 million.
The two-building Rocklin Corporate Center is on about 14 acres and about 25 miles from downtown Sacramento, where KBS owns four other offices. It is about 90% leased, according to local news reports.
Sizable Deal
The company also has a sizable deal nearing completion in Arlington, Va., according to regulatory filings.
It is under contract to buy 3003 Washington Blvd., a 10-story office that opened this year about a mile from the Pentagon and that is about 95% leased. The fee ownership of the building is expected to trade hands for $146.8 million; KBS also said it is in negotiations to buy the ground lease for the property.
It is also in negotiations to buy Reston Square, a 139,071-square-foot office a few miles farther out from Washington, D.C., in Reston, Va. The building is 7 years old and 91% leased.
The office is expected to trade hands for $48 million, according to regulatory filings.
