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Monday, 23 October 2017

KBS Realty Goes Direct to Investors with Retail Platform

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Commercial Real Estate Direct Staff Report

KBS Realty Advisors is rejiggering its retail investment-management business.

The Newport Beach, Calif., investment manager, which has some $11 billion of real estate assets under management for both retail and institutional investors, is stepping away from the traditional method of selling non-traded REIT shares and shifting to a direct-sales model.

Since shifting its commingled-fund business to non-traded REITs in 2006, the company has launched six such vehicles, raising a total of some $6 billion of equity capital, which was invested in $14.2 billion of real estate assets.

But the business has evolved. New regulations have made raising fresh capital burdensome, investors are now more comfortable self-directing their investment dollars and they've grown tired of traditionally structured non-traded REITs, which charge what could be viewed as onerous commissions and brokerage fees. That's evidenced by the sharp decline in the amount of capital they've been raising.

"We determined a year ago that the world had changed," explained Peter Bren, president and chairman of KBS. "Technology has changed the business."

So about a year ago, KBS started working with Lew Feldman, founder of law firm Goodwin Procter's California offices and chairman of the board of UCLA's Ziman Center for Real Estate. Feldman also is chief executive of Heritage Capital Ventures, which invests in online financial technologies.

Feldman and KBS worked to put together an easy-to-use interface that would allow for the electronic sale of commercial property investments to investors. Thus was born KBSDirect.com, which Bren likened to the direct stock-trading platforms, such as E-Trade, TD Ameritrade and Scottrade that now dominate equity trading among individual investors.

KBS has launched the site with one offering, its KBS Growth & Income REIT Inc., a non-traded REIT it had launched two years ago and that owns three stabilized office properties. But it's done away with upfront commissions and brokerage fees.

The REIT is close to having four properties, as it recently agreed to pay $43.5 million for 213 West Institute Place, a 157,166-square-foot office property in Chicago that's 91 percent leased. It is seeking to raise $500 million and pursues investments in core-plus properties, meaning those that are well leased, but might have a value-add component.

The company halted its traditional stock offering and is offering shares only to accredited investors, meaning those with a net worth of at least $1 million. Its non-traded REITs were sold to investors of "adequate financial means," meaning they had a net worth of at least $250,000.

In addition, shares in the REIT no longer carry the onerous commissions that traditional non-traded REITs do. That makes sense since they're being sold directly, without the need for intermediaries.

"Across almost every investment sector, online platforms have increased transparency and reduced transaction costs," Bren said. "KBSDirect.com will save time for advisors and investors and opens a simplified, user-friendly, direct investment portal."

But KBS isn't doing away with its 40-person KBS Capital Advisors. Those professionals will market KBSDirect to financial advisers in order to cast a wide net among accredited investors and family offices. KBS Capital also is still marketing shares, through traditional channels, in KBS Strategic Opportunity REIT II Inc., which through June had raised roughly $200 million.

KBSDirect is comparable to certain crowdfunding platforms, in that it's marketing investments in professionally managed commercial properties through an online platform. But it's directed at accredited investors - their status would be verified - and has adopted institutional investment-management practices. For instance, KBS won't get any distribution until investors get their capital back plus a 6 percent annual return. Then it would receive 15 percent of any available cash flow. It will, however, earn a 1 percent asset-management fee.

KBS would be "one of the first institutional-grade sponsors to offer investors and advisers the opportunity to invest directly, through KBS' online portal, in real estate investments similar to those that have been made available to KBS institutional investors for more than 25 years," said Chuck Schreiber, KBS' chief executive.

Investments in KBS Growth are subject to a $10,000 minimum investment, with shares being priced at their net asset value, currently $8.75 apiece, and would be entitled to monthly distributions.

KBS tells prospective investors that they'll have only limited liquidity. The company will redeem shares, but that would be subject to certain restrictions, and would discount shares by 5 percent if redemption takes place within a year. While the company says it won't promise a liquidity event, like traditional non-traded REITs do, it could seek to list its shares. If it doesn't do that by 2026, it could seek shareholder approval to liquidate the company.

KBS will continue its institutional investment-management business, through which it manages a number of separate accounts on behalf of sovereign wealth funds and pension systems. But its commingled-fund business, which since 2006 had been its non-traded REIT business, would be done through KBSDirect.

Comments? E-mail Orest Mandzy, or call him at (267) 247-0112, Ext. 211.



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Additional Info

  • Syndicate to Realpoint: No
  • Sector: Retail
  • Subject: REITS -general (REITS)
  • Company: KBS Realty Advisors
  • Private: No
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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

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