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KBS raises $216M in first phase of Israeli bond offering

Calif.-based real estate firm to become first U.S. REIT to tap Israeli debt market
By Rey Mashayekhi | March 01, 2016 04:35PM

KBS 110 William Street

From left: Peter Bren and 110 William Street in the Financial District

KBS Strategic Opportunity REIT is on the verge of becoming the first U.S. real estate investment trust to successfully issue bonds in Israel. The company closed a roughly $216 million debt tender to Israeli investment funds and financial institutions Tuesday, sources told The Real Deal.

The public, non-traded REIT — managed by Newport Beach, Calif.-based real estate investment firm KBS Capital Advisors – secured the $216 million institutional tender at an interest rate of 4.25 percent, according to sources with knowledge of the deal.

The bond issuance received more than $300 million in demand from Israeli institutional investors, these sources said, with the company’s debt offering now set for a public tender that will allow a broader pool of investors to invest in the REIT.

KBS expects to take in more than $40 million through that public tender, which would push the bond offering up to around $256 million, or roughly 1 billion shekel, in total. That would make the deal one of the larger debt issuances by a U.S. real estate company in Israel, with the record currently held by the Moinian Group’s $361 million offering last May.

While more than a dozen U.S. real estate firms have tapped Israel as a source of affordable, corporate-grade debt – accessed via public bond issuances on the Tel Aviv Stock Exchange – KBS will become the first American REIT to do so.

Victory Consulting Group, led by Gal Amit and Rafael Lipa, is advising KBS on the deal. Israeli financial services firms Poalim IBI and Leumi Partners were the underwriters.

The scope of the issuance exceeded expectations, which ranged from between $100 million to $200 million. KBS intends to use the proceeds to purchase new assets, sources said.

A portfolio of 20 properties valued at $1.5 billion – most notably the REIT’s 110 William Street office building in the Financial District – backed the debt offering, which will now see the company’s bonds traded on the Tel Aviv Stock Exchange.

KBS owns a 60 percent stake in 110 William Street through a joint venture partnership with real estate investment firm Savanna. The companies acquired the 32-story, 928,000-square-foot office building for $261 million in 2014, and KBS now values the property at more than $405 million.