KBS REIT III: Lawsuits & Liquidation

KBS REIT III Recovery of Investment Losses

The White Law Group continues to investigate potential securities claims involving the liability that brokerage firms may have for recommending KBS REIT III to investors.   

This week, KBS Real Estate Investment Trust III Inc., a publicly registered non-traded real estate investment trust, announced that it has amended its loan agreement with Bank of America, Wells Fargo, and other lenders to, among other items, extend the loan’s maturity date until Nov. 20, 2024. This marks the sixth extension agreement.

This announcement follows on what has been a challenging year for KBS REIT III. In February, the REIT sold an office building in Franklin, Tenn. to contribute to its loan obligations, and in January, the REIT reportedly had to return the keys to an office building in San Francisco. In December of 2023, the REIT reported “substantial doubt” regarding its “ability to continue.”

Declining Share Value 

KBS REIT III saw a significant drop in its estimated net asset value, going from around $1.3 billion in September 2022 to approximately $833 million by December 2023. At the same time, the NAV per share fell from $9.00 to $5.60. 

 KBS REIT III closed its initial public offering on May 29, 2015, and terminated the offering on July 28, 2015, according to its website. 

KBS REIT III Struggles with Debt

According to SEC filings on December 28,2023, the KBS REIT III noted that it had serious concerns about staying operational due to the current lending situation in commercial real estate. According to the SEC filing, the REIT highlighted having over $1.7 billion in debts due within the next year and expect that they might have to let go of some secured properties.

One of the first properties they relinquished is 201 Spear Street, a San Francisco office building spanning about 300,000 square feet. The lender is finalizing the sale of the mortgage loan and property title through an agreement with KBS, expected to close at around $60 million, much less than what the REIT initially paid in 2013. 

The REIT reportedly attributed these moves to challenges in leasing properties, particularly at 201 Spear Street due to issues like crime, homelessness, and the slower return of office workers. Their leasing there dropped from 97% in 2019 to 64% by September 2023. 

Similarly, 60th South Street, an office building in Minneapolis, faced its own hurdles, being only 77% leased as of September 2023. 

Secondary Sales Price – $1 per share

According to Lodas Markets, a secondary market for non-traded investments, KBS REIT III’s shares have recently sold for just $1.00 per share. The original offering price was $10 per share.

Suspended Redemptions 

According to filings with the SEC, the company’s board of directors has suspended “ordinary redemptions” under the company’s share redemption program. The suspension is reportedly a direct result of the ongoing challenges affecting commercial office buildings. The board has also lowered its distribution rate, according to the filing.

KBS REIT III Withdraws Registration for NAV REIT Conversion  

KBS REIT III has been evaluating possible liquidity options for its shareholders for some time now. One possibility was for the REIT to convert to a NAV REIT, where shares would be valued daily or quarterly. But according to SEC filings on July 29, 2022, the company withdrew its pre-effective registration statement for a $2 billion net asset value-based perpetual life offering, which was originally registered in January 2020. 

Potential Lawsuits to Recover Financial Losses    

The trouble with non-traded REITs is that they are complex and inherently risky products. Lack of liquidity is often problematic for many investors.  Investors looking to sell often have difficulty finding a buyer, and can suffer significant losses on the sale.  

Broker dealers are required to inform clients of the risks associated with investment recommendations and to ensure that those recommendations are suitable for the investor in light of the investor’s age, risk tolerance, net worth, and investment experience. Firms that fail to do so, may be held responsible for any losses. 

Free Consultation

If you have suffered losses investing in KBS REIT III, please contact The White Law Group at 888-637-5510 for a free consultation.  

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.