KBS gets 5 months to raise $100M for struggling office portfolio

Amend and pretend, again and again. 

A real estate investment trust managed by KBS received yet another extension on a $613 million loan secured by six office buildings. The deal marks the fourth time KBS’s REIT and its lenders have pushed back the loan’s maturity since it expired in early November. As of Feb. 6, its balance was $601.3 million.

The loan will now mature on Aug. 6, although the deal suggests that full repayment may not be in the cards this year. It requires KBS to raise at least $100 million in new equity, debt, or a combination of them to recapitalize the deal. 

The extension “provides a runway to engage with the lenders over a longer-term positioning of those assets,” a KBS spokesperson fsaid.

The mention of a recapitalization points to a problem burdening office portfolios nationwide, where valuations have dipped so far, in many cases, that existing debt loads no longer make sense. 

Two of the properties backing the loan — Sterling Plaza and Preston Commons — are in Dallas, and another, Legacy Town Center, is in Plano. The Texas properties span nearly 1.3 million square feet. Two California properties — Ten Almaden in San Jose and Towers Emeryville — add another 1.1 million square feet. Along with a tower in Minnesota, the portfolio spans just over 3 million square feet. 

While this loan is related to those six buildings, the REIT owns 17 properties across several states, and KBS manages several trusts. This trust will be selling the McEwan Building in Franklin, Tennessee, later this month, and it recently secured a two-year extension on a separate loan facility covering four properties, including the McEwan Building.

KBS has already taken steps toward finding sources of money for the deal. The company engaged Moelis & Company, an investment banking firm, to advise on its REIT’s fundraising efforts. KBS will also have to provide a “reasonably comprehensive” plan for repaying all of the debt by the end of February. 

Despite the plan laid out in KBS’ recent SEC filing, it writes that “there can be no assurance as to the certainty or timing of [the REIT’s] plans to raise capital or additional debt.” Failing to meet that milestone, or any others in the recent extension deal, would constitute a default, with no requirement for the lenders to provide notice or give it time to cure. 

As was the case in the last extension of this loan, KBS’ REIT will have to deposit all of the excess cash flow from the properties into a cash collateral account. It can withdraw funds to pay for tenant improvements, leasing commissions or capital improvements — in other words, to increase the chances they fill up the buildings.

The firm also agreed to pay the lenders $1.9 million in fees and deposit $5 million into the collateral account, generally to pay for improvements and cash flow needs of the properties.

The loan modification took effect on Feb. 6.KBS is a real estate private equity company based in Newport Beach, California. It was founded in 1992 by Peter Bren and Chuck Schreiber. In December, another REIT managed by the company sold an office building in Chicago’s River North neighborhood for $17 million after buying it for $43.5 million in 2017.

Read more

Texas

How KBS saved 3M sf of office — for now

Chicago

Coastal Partners buys River North building from KBS for $17M

Dallas

Iconic Dallas office building sells for $8M at foreclosure auction