KBS’ deal to sell Union Bank Plaza to Joel Schreiber delayed for 9th time

KBS’ deal to sell the 40-story Union Bank Plaza in Downtown L.A. to troubled investor Joel Schreiber has been delayed for the ninth time.

KBS and Schreiber pushed the closing date to March 8, according to a recent Securities and Exchange Commission filing from a KBS entity. The deal was originally supposed to close in October.

Schreiber’s Waterbridge Capital went into contract to purchase the 701,000-square-foot office tower at 445 South Figueroa Street in July for $155 million from KBS Real Estate Investment II. It was KBS’s third attempt to sell the office building after its first two deals fell apart.

But Waterbridge has been unable to close on the property and has secured one extension after another. It is unclear why the deal has not closed. Newmark’s Kevin Shannon, who is brokering the deal, has not commented. KBS and a Waterbridge representative also declined to comment. 

KBS’s decision to sell the building to Schreiber came as a surprise to industry observers.

Schreiber, who gained a fair bit of fame for being the initial investor in WeWork, was already facing a foreclosure on his nearby Broadway Trade Center in Downtown L.A. from his lender Starwood Capital. Schreiber was also battling other lawsuits, including one from Goldman Sachs that alleged he over pledged his WeWork stock in order to secure a loan from the investment bank. 

Schreiber himself admitted in a 2018 deposition that he faced general liquidity issues and had less than $1 million in liquidity.  

But somehow Schreiber had cobbled enough money to put down a $7.5 million deposit on the Union Bank Plaza building. 

The property was supposed to sell to RC Acquisitions for $280 million in 2017, but RC backed out. In early 2022, Long Beach-based Harbor Associates emerged as a buyer, but the deal collapsed in June.

The KBS REIT has been working to sell off its properties as part of a plan to liquidate the public entity. Union Bank Plaza is the last building it has left, according to SEC filings. 

Schreiber’s extensions are not all bad news. Schreiber received a $13 million credit from KBS that can be used towards the purchase of the building if he closes before March 8. 

Schreiber and KBS have another incentive to close quickly. Califonia’s new transfer tax law goes into effect April 1, adding a 5.5 percent tax to all residential and commercial sales over $10 million. On Union Bank Plaza, that would come out to $8.53 million. Transfer taxes in California are usually burdened on the seller, though the city has not yet disclosed how the tax will be implemented.

The filing said that Schreiber could lose his deposit if the sale is not completed. KBS added that “there can be no assurance” that the deal will close, filings show. 

The Union Bank Plaza was built in 1967 and was formerly home to the Union Bank. KBS purchased the property in 2010 and announced a $20 million renovation in 2019. The company upgraded the retail level and an outdoor seating area. MUFG Union Bank is one of the building’s main tenants occupying about 30 percent of the space. 

The property was 43 percent vacant at the end of September, according to a KBS quarterly report, higher than the average availability rate of about 29 percent reported across Downtown L.A. in the fourth quarter, according to CBRE.

High vacancy rates, coupled with rising interest rates, have led office borrowers to default on a number of loans connected to Downtown L.A. towers, as owners have struggled to keep up with debt service payments. 

Last month, Brookfield disclosed it had defaulted on two loan packages totaling $784 million connected to its Gas Company Tower and 777 Tower, which were 27 and 29 percent vacant, respectively, at the end of September.