Newport Beach-based commercial real estate investor KBS has opted not to pay off the loan for one of the better-known office buildings in downtown Portland, Ore., citing social unrest, the effects of the pandemic, and other issues.
KBS Growth & Income REIT Inc., one of the firm’s non-traded REITs, bought Portland’s Commonwealth Building in June 2016 for $69 million; two years later, it financed the 14-story property in a $51.4 million loan from Metropolitan Life Insurance Co., which was due to be paid off in February.
The owner recently defaulted on the non-recourse loan, now running $47.4 million for the 224,000-square-foot tower—which was among the first sealed and air-conditioned buildings ever built—and may be forced to turn over the keys.
The company said in regulatory filings that it “may relinquish ownership of the property to the lender in a foreclosure transaction or other alternative to foreclosure in satisfaction of the mortgage.”
Cold Market
Downtown Portland’s office vacancy rate is approaching 30%, with little signs of improvement on the horizon, according to local reports.
The Commonwealth Building was 52% occupied in September, KBS previously disclosed.
The area “is experiencing record high office vacancies due to the impact of the disruptions caused by protests and demonstrations and increased crime in the downtown area and the decreased demand for office space as employees continue to work from home, and it is uncertain when the market will recover,” KBS said in recent regulatory filings.
The building is not far from where many of the city’s long-running and sizeable protests over the murder of George Floyd by police were held.
Portland has also faced increases in crime rates over the past three consecutive years, reports indicate.
“Given the reduced rent and occupancy by the building’s tenants, as well as the market conditions in Portland, Oregon, where the property is located, the Commonwealth Building is currently valued at less than the outstanding debt of $47.4 million,” KBS Chief Financial Officer Jeffrey Waldvogel said in an SEC filing on Feb. 16.
“The company does not anticipate any near-term recovery in value.”
Italian architect Pietro Belluschi designed the office building, which delivered in 1948 and was placed on the National Registry of Historic Places in 1976.
Hotter Markets
KBS has been one of the country’s most active office investors in the past decade via a variety of real estate investment trusts and other vehicles. It continues to be on the hunt for acquisitions in more favorable markets, including Southern California.
“We are tracking 30 markets extremely closely, specifically markets with a strong employee base, good quality of life and school systems,” CEO Marc DeLuca previously told the Business Journal in June. “Orange County is one of those markets.”
