Affiliates of Newport Beach-based real estate investor KBS Realty Advisors continue to be active buyers of big-dollar properties across the country even as one of the company’s most active funds of late has shown a steep drop in its estimated value.
KBS, which made a name for itself investing money for pension funds, also has a series of five non-traded real estate investment trusts that raise money from individual investors.
Billions Raised
The non-traded REITs have raised billions of dollars since 2006. That money, along with debt, has been used to buy skyscrapers in Chicago, Los Angeles and Louisville, Ky., in addition to hundreds of industrial and office buildings, apartments and other commercial properties across the country.
Those deals made KBS—a venture headed up by Charles Schreiber, a former Koll Development Co. executive, and Peter Bren, brother of Irvine Co. chairman Donald Bren—one of the most active commercial real estate investors during the recent downturn.
The “K” in KBS is for late commercial real estate developer Donald Koll, who was involved with the company early on.
KBS’s affiliates remain on the lookout for buys.
A non-traded REIT joined with Foster City-based Legacy Partners last week to announce the completion of a $64.7 million deal to buy an apartment complex in the suburbs of Baltimore.
The 255-unit apartment complex, called The Residence at Waterstone, is located on 25 acres of land and sold for about $254,000 per apartment. The Pikesville, Md.-based complex is 10 years old and is about 96% leased.
The affiliate buying the apartment complex, KBS Legacy Partners Apartment REIT, has raised money from investors at a price of $10 per share, similar to the other four KBS non-traded REIT offerings.
Securities regulations enacted in 2009 directed non-traded REITs like those KBS runs to provide investors updated estimated per-share values of their holdings as a way to give them a better handle on the performance of their investments.
The shares of most of the company’s non-traded REITs have retained values close to their initial offering price of $10.
Prominent Buys
KBS REIT II Inc., which in 2010 paid $655 million for a skyscraper in Chicago and another $208 million for Union Bank Plaza in Los Angeles—two of the most prominent KBS buys the past few years—was recently valued by the company at $10.11 per share.
An exception is found in KBS REIT Inc., which launched fundraising in 2006 and now is showing the effects of the recent commercial real estate downturn, with its value recently estimated at $5.16 per share at the end of March.
For shareholders who invested in the offering at its outset in 2006 and have received dividends during the course of the past few years, their implied value would be about $8.63 per share, the company said in filings with the Securities and Exchange Commission.
Executives of KBS REIT Inc. late last month announced they were suspending those dividend payments to its shareholders in order to put money toward debt that will be maturing soon.
KBS REIT Inc. raised $1.7 billion from investors between 2006 and 2008 and paid about $3 billion for 64 properties plus debt and other investments.
A couple of the company’s largest investments in that KBS REIT offering have faced their share of challenges.
A $144.5 million mezzanine investment in a portfolio of one-time Arden Realty office properties in Southern California in 2008 has been written off, according to regulatory filings. The portfolio’s buyer, Cabi Development, defaulted on loans tied to its $1.6 billion buy in 2009, and subsequent moves last year by investor Winthrop Realty Trust of Boston squeezed KBS out of the deal.
Another $500 million mezzanine loan that KBS REIT Inc. made in 2008 for New York-based Gramercy Capital Corp. to finance a $3.3 billion buy of a portfolio of bank buildings and some small offices also caused a headache last year when Gramercy defaulted on its loans.
Debt Hurdles
KBS took over the portfolio of more than 800 properties via foreclosure, and now is facing its own debt hurdles on the portfolio—more than $78 million in “repo” debt is due over the next year, according to regulatory filings.
“Paying down this repo agreement debt as soon as practicable is now one of the REIT’s main objectives,” KBS Chief Executive Schreiber said in a letter to shareholders.
Occupancy rates for KBS REIT Inc.’s remaining portfolio now stands at about 85%, down from more than 95% in 2008, according to regulatory filings.
