KBS REIT Must Raise $100M To Retain $613M Office Portfolio
KBS Real Estate Investment Trust III agreed to raise $100M by July 15, giving it five months to extend its $613M loan for a fourth time, according to a Securities and Exchange Commission filing.
The loan, originally scheduled to mature Nov. 3, covers six office properties spanning more than 3M SF, mainly in Texas, The Real Deal reported. According to the SEC filing, the loan still had an outstanding balance of $601.3M as of Feb. 6.
Under an extension agreement, Newport Beach, California-based KBS can raise the $100M in new equity, debt or a combination of both in order to recapitalize. The loan has a new maturity date of Aug. 6.
KBS has agreed to provide lenders with a comprehensive cash flow analysis for its REIT as well as a plan for the repayment of all debt by the end of February. It also must engage an investment bank to raise the $100M by March 29, according to the SEC filing, which notes KBS has hired investment bank Moelis & Co. to assist it with fundraising activities.
The extension agreement calls for KBS to pay lenders, led by Bank of America, $1.9M in fees and deposit $5M into the collateral account, TRD reported.
A KBS spokesperson told TRD that the agreement “provides a runway to engage with the lenders over a longer-term positioning of those assets.”
While KBS said it would work toward the milestones outlined in the agreement, the filing states that “there can be no assurance as to the certainty or timing of KBS REIT III’s plans to raise capital or additional debt,” adding that missing any milestone would result in immediate default.
According to the filing, all excess cash flow is to be deposited into a cash collateral account. The REIT can withdraw from the account to cover expenses that would aid in leasing, including tenant improvements, leasing commissions and capital improvements.
The $613M loan backs three office properties totaling about 1.3M SF in the Dallas-Fort Worth metropolitan area, including Sterling Plaza and Preston Commons in Dallas and Legacy Town Center in Plano, TRD reported. It also backs two properties totaling 1.1M SF in California: The Almaden in San Jose and The Towers Emeryville north of Oakland. RBC Plaza in Minneapolis brings the portfolio to over 3M SF.
This isn’t the first time KBS has run into trouble with its REITs' office loans in recent months.
KBS Growth & Income REIT, which is now working toward liquidation, defaulted on a loan in December 2022 for a Portland, Oregon, office property known as the Commonwealth Building, which was less than 52% occupied at the time. In 2023, it surrendered the building through foreclosure.
KBS Growth & Income REIT also sold the 155K SF Institute Place Lofts building in Chicago late last year for $17M at a significant discount to the $43.5M the REIT purchased the building for in 2017, CoStar News reported.
In December, KBS REIT III noted in an SEC filing that the company faced $1.7B in loan maturities in 2024 and that its debt load could impact its solvency. The REIT owns 16 properties across the country, according to its website.
The REIT plans to sell the McEwan Building in Franklin, Tennessee, this month after securing a separate two-year extension on a loan covering four properties, including the McEwan Building, TRD reported.
