REAL LIFE: 2020 Social Unrest Mobs and COVID Deeply Impacted KBS Growth & Income REIT

Posted on 01/18/2022

KBS Growth & Income REIT is a Newport Beach, California real estate investment trust. Revealed in SEC filings, KBS Growth & Income REIT started to sell office properties in the U.S. due to financial stress. On December 6, 2021, KBS Growth & Income REIT, Inc.’s board of directors approved an updated estimated value per share of the REIT’s common stock of $3.38.

In August 2021, the board of directors of the REIT, including all of the independent directors, determined to resume development of a formal plan of liquidation for approval by the board of directors and submission to the stockholders. The REIT currently expects to present a plan of liquidation and send out a proxy for liquidation vote of the stockholders in early 2022. Although the REIT is actively developing a formal plan of liquidation, there can be no assurance of the ultimate timing of the REIT’s liquidation. KBS Growth & Income REIT owns 213 W. Institute Place, a 157,000-square-foot building, and the adjacent parking lot, which it bought in 2017 for US$ 43.5 million. KBS Growth & Income REIT owns a 16,000-square-foot building at 210-216 W. Chicago Ave.

On December 31, 2021 in a letter to stockholders, they wrote, “The decrease in the REIT’s estimated value per share to $3.38 from the previous estimate of $4.90 was primarily due to the net decrease in the appraised values of the real estate properties owned by the REIT, which were significantly impacted by the civil unrest in a certain market where one of the REIT’s properties is located, the ongoing COVID-19 pandemic and the slump in the oil and gas industry, resulting in increased vacancy and expanding capitalization rates across the office marketplace.”

Quoted in the letter, “Changes in the Value of the REIT’s Real Estate Assets
The Offices at Greenhouse, Houston, Texas – Appraised value of $42.9 million, which represents a decrease of $5.6 million, or 11.5%, compared to the prior year’s appraisal of $48.5 million, as of December 2020. The value decrease was primarily due to:

the effect of COVID-19 on the oil and gas markets, which has reverberated through the office capital markets, resulting in increased vacancy and expanding cap rates across the office marketplace;

stagnant leasing velocity in the Houston market during what has been a challenging time given the impact of COVID-19 on office demand, as the market has seen a negative net absorption of 1.6 million square feet year-to-date in 2021;

an upward pressure on concessions and in some cases reduced rental rates, primarily a result of rising construction costs coupled with low office demand; and

AECOM, the largest tenant, having one less year remaining on its lease term and continuing to market for sublease approximately 63,000 square feet of its total 136,000-square-foot leased premises. In addition, tenants World Fuel Services (approximately 9,149 square feet) and NRG (approximately 5,195 square feet) have notified the REIT of their intent to vacate the space upon their respective lease expirations in 2022, all contributing to the significant reduction in value due to project costs and downtime attributable to leasing this space.”

The other property in the letter includes, “Commonwealth, Portland, Oregon – Appraised value of $54.7 million, which represents a decrease of $10.6 million, or 16.2%, compared to the prior year’s appraisal of $65.3 million, as of December 2020. The value decrease was primarily due to:

Portland, Oregon, being disproportionately affected by COVID-19 and combined with social unrest concerns, many downtown businesses have chosen to list their spaces for sublease in order to cut costs in the short term. In addition, some tenants with impending lease expirations are giving back their space and are either relocating out of the area or temporarily working from home as an alternative.

Several tenants including NEEA, the City of Portland, Jack W. Olds & Company, DLR Group, Infogroup, Renewable NW Project and Acorns have all vacated since last year with Citrix Systems having given its notice to vacate in December. These vacancies have brought expected occupancy into the mid-50% range, with little leasing activity to backfill vacated suites.

The increase in vacancy throughout Portland has caused a large decrease in market rents that are expected to decline more than 20% from pre-COVID levels, in addition to an expectation of increased lease concessions. While social unrest has quieted somewhat post-election, the absence of daily downtown population continues to be a drag on market recovery.”


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