A nontraded real estate investment trust run by Newport Beach-based KBS Realty Advisors has taken a unique track for going public, raising nearly $250 million through a bond offering in Israel.
KBS Strategic Opportunity REIT Inc., an investment fund whose U.S.-based portfolio includes 10 office properties, some developable land, and a pair of apartment complexes, last month completed a public offering of bonds that are registered in Israel.
The 4.25% bonds have a seven-year term, with 20% of the principal payable each year from 2019 to 2023, according to regulatory filings.
The bonds will trade on the Tel-Aviv Stock Exchange, which, unlike its U.S. counterparts, allows companies to make debt-based public offerings.
“It’s an interesting difference,” said Peter McMillan, president of KBS Strategic Opportunity REIT. “We’re happy with the way it worked out.”
The deal is the first-ever bond issuance by a U.S.-based REIT in Israel, as well as one of the largest bond offerings any U.S. company has ever made there, according to McMillan.
The bond offering provides “a sliver of debt” that falls between a typical first mortgage and mezzanine debt, which isn’t often provided in the U.S., McMillan said.
The company became aware of the opportunity after seeing other U.S. real estate companies, particularly those based in New York, access debt in Israel, he said.
KBS Strategic Opportunity REIT kicked off in 2009 and had raised more than $600 million when it stopped selling shares in the U.S. through its initial offering a few years ago. That money was used to buy properties beginning in 2010 that initially were valued at more than $900 million.
The investment fund’s largest property by square footage is Westmoor Center, a six-building office campus in Denver that totals some 613,000 square feet and was valued at about $98.5 million at the end last year.
The Plaza Buildings—a two-building office complex in Bellevue, Wash., that totals nearly 346,000 square feet and is valued at about $220 million—is the fund’s most valuable property, according to regulatory filings.
Its smallest asset is the Burbank Collection, a roughly 40,000-square-foot retail property in Burbank valued at close to $28 million, according to the company’s latest annual report.
The fund’s portfolio had a fair market value at nearly $1.3 billion at the end of last year, according to the annual report.
The fund hasn’t bought properties in nearly two years, but the $250 million raised in Israel should give KBS the ability to make additional purchases, McMillan said.
“We’ve already identified a few opportunities” for potential acquisitions, he said.
Sales on Horizon?
KBS Realty Advisors 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 have bought and sold more than $30 billion worth of offices, industrial buildings, apartments and other real estate assets over the past 13 years on behalf of pension funds and other institutional investors, as well as private investors who buy shares in its numerous nontraded REITS.
The company’s KBS Capital Advisors affiliate, a real estate operating company that serves as the adviser to the KBS nontraded REITs, is headed by Bren, Schreiber, McMillan and Keith Hall.
The company’s two longest running nontraded REITs, formed in 2006 in 2007, could see changes in ownership in the near term, according to regulatory filings.
KBS Real Estate Investment Trust I and KBS Real Estate Investment Trust II each disclosed in filings last month with the Securities and Exchange Commission that they had hired New York-based investment banker Evercore Group “to explore the availability of strategic alternatives.”
Both offerings “will remain 100% focused on managing its properties” while a decision is made on whether to sell the two nontraded REITs, the company said in regulatory filings.
