KBS Growth & Income REIT – Takes a Hit on Recent Office Building Sale
According to the DI Wire this week, KBS Growth & Income REIT Inc., a publicly registered non-traded REIT, completed the sale of the Institute Property for $17.0 million to an affiliate of Coastal Partners LLC. KBS reportedly purchased the Chicago office building in 2017 for $43.5 million.
Office REITs have taken a hit due to the changing landscape of remote work. With more people working from home, the demand for office space has shifted. Companies are adopting flexible work arrangements, which might mean they need less office space or could opt to downsize their current office footprint. Reduced demand for office space can lead to higher vacancy rates in office properties, potentially impacting the rental income generated by office REITs. If these REITs have a significant investment in office properties, they could experience declining rental income and property values.
Foreclosure in Portland
The REIT reportedly defaulted on a mortgage secured by a portfolio office building located in Portland in December 2022. Its estimated net asset value (NAV) per share of $1.16 as of September 30, 2022. The company previously said that the effect of the Commonwealth Building default is not expected to have an impact on the NAV per share as the company’s valuation of the assets effectively net to zero.
KBS now notes that given the reduced rent and occupancy by the building’s tenants, as well as the market conditions in Portland, Oregon, the Commonwealth Building was valued at less than the outstanding debt of $47.8 million.
KBS Growth & Income REIT Inc reportedly entered the loan agreement, secured by the Commonwealth Building in Portland, Oregon, with the Metropolitan Life Insurance Company for borrowings of up to $51.4 million in January 2018.
Plan of Liquidation
The company reportedly filed a preliminary proxy statement detailing a plan of liquidation, director elections and approval of the auditor on February 13, 2023. The REIT’s board of directors recommends shareholders approve the plan of liquidation as outlined in the proxy. As we have previously reported, KBS Growth and Income has been evaluating strategic options since the fourth quarter of 2018. In August 2020, KBS terminated their distribution reinvestment plan to pursue a liquidation strategy.
KBS Growth and Income REIT- Complex Investment Product
The White Law Group continues to investigate the liability that brokerage firms may have for improperly selling complex investment products like KBS Growth & Income REIT to investors.
Although the selling points of non-traded REITs can be enticing, investors should balance these selling points against the numerous complexities and risks these investments carry.
In some cases, the investment may be heavily subsidized by borrowed funds and include a return of investor principal. This is very different from the dividends investors receive from large corporations that trade on national exchanges, which are typically derived solely from earnings. The other problem with non-traded REITs, of course, is the lack of liquidity.
Unfortunately, high commissions could be a motivating factor for unscrupulous financial advisors to sell a non-traded REIT regardless of whether the investment is in line with the client’s investment objectives and profile. Moreover, the total commissions and expenses make it difficult for the REIT to perform in line with the market.
FINRA Rules for Brokers
FINRA (Financial Industry Regulatory Authority) has rules in place to ensure that broker-dealers and their associated representatives act in the best interests of their customers when recommending investments. These rules are collectively known as the Suitability Rule, and they are designed to protect investors and promote fair and ethical practices in the securities industry.
FINRA Rule 2111, known as the Suitability Rule, outlines the requirements that brokers and broker-dealers must follow when making investment recommendations to customers. Before recommending any investment product or strategy to a customer, the broker-dealer must conduct reasonable diligence to understand the investment’s features, risks, and potential benefits. This means having a reasonable basis for believing that the recommendation is suitable for at least some investors based on its characteristics.
The broker-dealer must have a reasonable basis for believing that the recommended investment is suitable for the specific customer based on their financial situation, investment objectives, risk tolerance, and other relevant factors. The broker must gather essential information from the customer to make an appropriate recommendation.
The broker-dealer must have a reasonable basis for believing that a series of recommended transactions, when taken together, are not excessive and do not result in churning or excessive trading.
Hiring a FINRA Attorney
If you are concerned about an investment in KBS Growth & Income REIT and would like to discuss your litigation options, please call the securities attorneys of The White Law Group at 888-637-5510 for a consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington. The firm represents investors in FINRA arbitration claims throughout the country. For more information on the firm, visit https://whitesecuritieslaw.com.
