📊 Investors Hit Pause in 4Q23 per Burns + CRE Daily Fear and Greed Index. See the full report here.

KBS REIT on the Hook to Raise $100M, Extends $600M Loan

The real estate investment trust has agreed to raise $100M by July 15, giving it five months to extend its $613M loan for a fourth time.

KBS REIT on the Hook to Raise $100M, Extends $600M Loan

The real estate investment trust has agreed to raise $100M by July 15, giving it five months to extend its $613M loan for a fourth time.

Together with

Good morning. A California-based REIT has secured its fourth extension on a $613 million loan linked to six office properties. Meanwhile, Marcus & Millichap reported a $10.2M Q4 loss and a shrinking of brokers in 2023.

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The Never-Ending Loan

KBS REIT on the Hook to Raise $100M to Keep $613M Office Portfolio

Marc Deluca of KBS with Sterling Plaza and Preston Commons in Dallas (KBS)

Marc Deluca of KBS with Sterling Plaza and Preston Commons in Dallas (KBS)

KBS REIT might as well trademark the term ‘extend and pretend.’ According to an SEC filing, the real estate investment trust has agreed to raise $100M by July 15, giving it five months to extend its $613M loan for a fourth time.

What happened: Remember that $613M loan set to mature last November? Well, it’s getting yet another sequel, now extended to August 6. With a current balance of $601.3M, this latest extension comes with a catch: KBS must raise at least $100M through new equity, debt, or a mix to recapitalize the deal. This move suggests that a full repayment within the year might not be feasible.

Zoom out: This situation mirrors a broader challenge facing office portfolios across the U.S., where plummeting valuations are mismatching with existing debts. The loan in question is backed by office properties totaling over 3 million square feet, including Texas, California, and Minnesota locations. Beyond these, KBS’s REIT holds a diversified portfolio of 17 properties in various states.

What happens next? KBS is seeking solutions. It has roped in Moelis & Company for investment banking advice on fundraising efforts. Additionally, the company must present a detailed plan for debt repayment by the end of February. KBS’s REIT is gearing up to sell the McEwan Building in Tennessee and has secured a two-year extension for another loan covering four properties.

➥ THE TAKEAWAY

Risk and reward: Despite these plans, KBS acknowledges in its SEC filing that there’s no certainty in its capital raising or debt acquisition timeline. Failure to meet the new extension’s terms could lead to a default, with immediate consequences. To keep the lenders happy, KBS is also dishing out $1.9 million in fees and adding $5 million into the collateral account for property needs.

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✍️ Editor’s Picks

  • Water shortage: A Montana judge’s decision against developer Errol Galt’s plan for 39 homes due to water scarcity could lead to future constraints on building developments in the state.

  • Rest in peace: Welcome Wilson Sr., a key figure in Galveston County’s development, the University of Houston’s progress, and Downtown Houston’s integration, and supporter of U.S. presidents, has passed away at 95.

  • Refinancing: Florida East Coast Realty obtains a $419.6 million loan to refinance an 85-story mixed-use building in Miami’s Brickell, encompassing residential, hotel, and office spaces.

🏘️ MULTIFAMILY

  • Eviction controversy: Englewood apartment residents face eviction despite state rental assistance, leading to claims of harassment against the property manager, Legacy Red.

  • Reentry: Brixton Capital resumes its investment in Denver’s multifamily market, signaling the start of multiple anticipated deals in the region.

  • Occupancy dip: Houston’s multifamily rental market sees a decline in occupancy to 89% in January, a 2.5% drop from 2021, as reported by MRI ApartmentData.

  • Betting on the distress: Seattle-based One Trent launched a fund to acquire distressed multifamily properties, aiming to raise $50 million for up to 10 assets over three years.

  • Development: Everett Frenz plans to construct up to 600 multifamily housing units on a 65-acre site in Germantown, involving a rezoning proposal for multiple buildings.

🏭 Industrial

  • Swelling: Dallas-Fort Worth faces an influx of over 14 million square feet in industrial space on the sublease market, adding to its commercial sector’s challenges.

  • Reshoring: The NAIOP Research Foundation and Newmark forecast a significant surge in industrial real estate development, driven by the reshoring of U.S. manufacturing jobs, potentially exceeding 10% growth in the next decade.

🏬 RETAIL

  • Shifting space: J.C. Penney moves its North Jersey store to a nearby mall, filling a former Lord & Taylor space, reflecting a national trend of repurposing vacant department stores.

  • Just do it: Nike confirms layoffs of about 2% of its total workforce, impacting over 1,600 employees, as part of its previously announced cost-savings strategy.

🏢 OFFICE

  • Policy shift: Deutsche Bank alters its work-from-home guidelines, mandating employees to be in the office on Fridays and Mondays in response to underutilized office spaces.

  • Market test: Ameritus is selling a 220,000-square-foot office building in Northbrook amidst a market facing high vacancies and slow sales, presenting a significant gauge of investor interest.

EARNINGS REPORT

Marcus & Millichap Reports Q4 Loss Amid Commercial Real Estate Challenges

Marcus & Millichap (MMI) reported a significant loss in the fourth quarter of 2023, highlighting the broader struggles in the commercial real estate sector.

By the numbers: The Los Angeles-based firm experienced a stark revenue drop of 37% in the fourth quarter, from $262.4 million in 2022 to $166.2 million in 2023. This decline is coupled with a substantial yearly loss of $34 million and a 50% decrease in annual revenues.

Deal volume: Reflecting broader market trends, Marcus & Millichap’s deal volume fell by 39% compared to the previous year. This drop aligns with a 55% decrease in overall U.S. commercial sales in 2023.

Lack of confidence: The company ended 2023 with 1,783 investment sales and financing professionals, a 6.4% decrease from 2022, indicating a reduction of over 100 staff in sales and debt brokerage. Despite these challenges, the firm is actively recruiting new capital markets specialists and brokers in key cities like New York, Dallas, and Los Angeles.

➥ THE TAKEAWAY

The big picture: Marcus & Millichap’s recent financial struggles underscore how firms deeply rooted in capital markets are particularly vulnerable to the ebb and flow of broader economic and real estate trends. CEO Hessam Nadji pinpointed the challenges in finalizing deals and aligning property valuations as primary contributors to their downturn. M&M remains hopeful for a resurgence in deal activities in the latter half of the year, banking on potential shifts in interest rates and improved credit conditions.

📈 CHART OF THE DAY

Las Vegas hotels set a new high for weekend average daily rates at $747 during the Super Bowl, surpassing previous records and showing significant year-over-year revenue growth.

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