KBS Strategic Opportunity REIT is vying to become the first American real estate investment trust to tap Israeli’s burgeoning corporate bond market, according to sources.
The non-traded REIT, managed by Newport Beach, Calif.-based KBS Capital Advisors, is seeking to raise up to $200 million through a corporate-grade debt offering on the Tel Aviv Stock Exchange.
The REIT’s portfolio of assets, which it values at more than $1.35 billion before debt, consists mostly of office properties around the country as well as residential properties and undeveloped land.
Its New York City properties are most notably 110 William Street – a 32-story, 928,000-square-foot office tower it holds a 60 percent stake in through a joint venture with Savanna – and 424 Bedford Avenue, a 66-unit rental building in South Williamsburg that it co-owns with minority partner East End Capital.
The KBS issuance would be the first by an American REIT on the Israeli bond market, which has become an increasingly popular vehicle for U.S. real estate firms to access affordable, corporate-grade debt through the Tel Aviv Stock Exchange’s unique structure.
The company is set for its “road show” in Israel next month. Company executives will meet with Israeli financial authorities and ratings agencies to vet a possible issuance. The fund’s status as a public, non-traded REIT could work both in and against its favor, according to sources.
While KBS Strategic Opportunity REIT’s finances are easier for ratings agencies and Israeli institutional investors to track due to its REIT status, sources said the company’s bond proceeds are expected to go to REIT investors – rather than to fund further acquisitions or development.
There are also questions around the REIT’s structure, as it is externally managed by KBS Capital Advisors – which charges the fund millions of dollars a year in asset management and administrative expenses, sources said.
Those sort of factors will surely be considered by Israeli ratings agencies like S&P Maalot and Midroog, whose ratings would determine the interest rate on the bonds the REIT would issue, as well as the institutional investors who drive the Israeli debt market.
Representatives for KBS declined to comment.
It appears U.S. REITs are increasingly exploring the possibility of tapping the Tel Aviv Stock Exchange through bond offerings of their own, with sources noting no less than three REITs – both publicly traded and non-traded – that have contemplated such a play.
Thus far, the Israeli bond market has mostly appealed to private, mid-sized real estate management and development firms – overwhelmingly based in and around New York – that usually resort to raising mezzanine debt on a project-by-project basis to fund their operations.
But larger companies like Extell Development and Related Cos. have also raised money in Tel Aviv. The largest successful Israeli debt issuance by a U.S. real estate firm to date was the Moinian Group’s $361 million bond offering earlier this year, while Jeff Sutton’s Wharton Properties sought a $500 million issuance this past fall.