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KBS REIT Hands Back Keys to Office Building in San Francisco

KBS REIT Hands Back Keys to Office Building in San Francisco. Commercial Real Estate, Investment, KBS, Investment, Liquidation, Office, Real Estate, Real Estate Investment Trust, REIT, SEC, Alternative Investment

KBS Real Estate Investment Trust III, Inc., a publicly registered non-traded real estate investment trust, returned the keys to 201 Spear Street, a roughly 300,000-square-foot office building located in San Francisco, back to the lender recently.

This followed the REIT’s default on a $125 million loan secured by the property in November 2023. KBS said in a recent filing that the property was currently valued “at substantially less than the outstanding debt.” According to a third-party due diligence report, the default represents 7% of the REIT’s outstanding debt as of the third quarter of 2023.

Additionally, the REIT acknowledged that it defaulted on a $606.3 million dollar loan that was scheduled to mature in December 2023 and has been extended until February 6th. In order to secure the extension, the REIT made a principal paydown payment of $5 million and, under the extension, 100% of excess cash flow from the properties secured by the loan must be deposited into a cash sweep collateral account for the lender. This loan accounts for roughly 34% of the REIT’s outstanding debts.

The REIT has more than $1.7 billion in debt maturities in the next 12 months and management has indicated that in the “near term it is likely that we will not pay distributions for some amount of time until there is improvement in the debt and capital markets.”

As The DI Wire previously reported, the REIT had indicated “substantial doubt” regarding its “ability to continue as a going concern” with its NAV per share falling from $9.00 in September 2022 to $5.60 in December 2023, a decline of 38%.

Similarly, last year,  The DI Wire reported on KBS Growth & Income REIT Inc., another KBS-backed, publicly registered non-traded real estate investment trust, which lost a Portland office tower to foreclosure. That REIT had also issued a “going concern” warning regarding its portfolio. In August 2020, KBS terminated their distribution reinvestment plan to pursue a liquidation strategy.

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