KBS takes $51M write-down on WeWork-occupied SF office tower 

Building’s pending sale for reported $60M is less than half what KBS paid for it

KBS takes $51M write down on WeWork-leased SF office tower
KBS Realty Advisors' Marc DeLuca; 201 Spear Street (KBS Realty Advisors, Getty)

A REIT tied to KBS Realty Advisors has taken a $51 million write-down on an 18-story San Francisco waterfront office building, according to a recent filing with the Securities and Exchange Commission. 

The write-down amounts to 85 percent of the purchase price for the asset in a pending deal. 

The property is a roughly 300,000-square-foot office building at 201 Spear Street in the South Financial District. It sits near the Embarcadero BART Station and the Salesforce Transit Center.

The filing did not reveal the previous or write-down price of the property on the REIT’s books. The entity that owns the building, KBS Real Estate Investment Trust III, asked the appraisal firm Kroll to review the value for 15 of the 17 properties in its portfolio. As a result of the review, the REIT dropped the estimated underlying value of its shares from $9 to $5.60. 

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However, KBS is reportedly in the process of selling the property to Strada Investment Group. According to a previous report from the San Francisco Chronicle, Strada is buying the asset with the backing of an unidentified pension fund. The deal is expected to close at around $60 million, or $200 per square foot. The purchase price is less than half the $121 million that KBS paid for the property in 2013. 

It’s also less than half of a $125 million mortgage from PGIM Real Estate and Prudential Insurance on the property. The REIT secured the loans — which consist of two separate notes valued at $62.5 million each — in December 2018, property records show. 

In the SEC filing, KBS attributes the drop in the asset’s value to “increased tenant turnover” and a longer lease-up period for the vacant space in the property. It also blames rising interest rates, work-from-home arrangements and a slowdown in the economy for the decline in the asset’s valuation. 

According to the Chronicle, occupancy in the property dropped to 65 percent in March. Its anchor tenant, co-working firm WeWork, declared bankruptcy last month, raising questions about its tenure in the property. Shortly after declaring bankruptcy, WeWork announced that it was exiting its leases at seven locations in the Bay Area. Earlier this month, the firm said that it was renegotiating its lease at 201 Spear Street. The firm’s space accounts for 31 percent of the office tower.   

KBS Realty Advisors CEO Marc DeLuca recently spoke to TRD. In the interview, he spoke about valuations in the office market. “Part of the problem is that nobody knows what a building’s worth right now,” he said. “The lack of trades is something unprecedented.”

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