KBS Growth & Income REIT – Foreclosure in Portland Updated

Have you suffered investment losses in KBS Growth & Income REIT? If so, the securities attorneys at the White Law Group may be able to help you.  

According to news reports , KBS Growth & Income REIT Inc., a publicly registered non-traded REIT,  was in maturity default following its failure to pay the amount of the debt outstanding on the Commonwealth Building mortgage loan on its February 1, 2023, due date. The company has just reported that the Commonwealth Building, located in Portland, Oregon, was sold at public auction in a foreclosure sale to a buyer affiliated with Metropolitan Life Insurance Company on July 26, 2023. 

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. 

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. 

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 aid 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. 

The REIT reportedly raised approximately $94 million in common stock proceeds in an offering period from 2015 through 2019.  

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.