KBS REIT II

Third-party investment firm CMG Partners LLC is reportedly offering to pay $3.21 per share of KBS Real Estate Investment Trust II (“KBS II”), a publicly registered non-traded real estate investment trust or REIT. KBS II is urging its stockholders not to sell their shares in the tender offer. In December 2018, KBS II announced an estimated $4.95 per share net asset value (“NAV”) for the REIT’s common stock. An NAV is an estimate of a stock’s value per share, based on the estimated value of a company’s property and assets less the estimated value of its liabilities, divided by the number of shares outstanding.

KBS II has reported paid shareholders $4.50 per share in special distributions from proceeds from its property sales. KBS II shares were sold in the REIT’s public offering for $10.00 a share. KBS II closed its public offering in December 2010 after selling $1.8 billion of shares to the public. Secondary market transactions in KBS II shares have reportedly priced the shares at between $4.00 and $4.06 a share.

Non-traded REITs pose a great deal of risks that are often not readily apparent to retail investors, and may not be adequately explained by the financial advisors and stockbrokers who recommend these complex investments. One significant risk associated with non-traded REITs concerns their high up-front commissions, typically between 7-10%. In addition to high commissions, non-traded REITs like KBS II generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.

Many investors who suffered significant REIT losses in KBS REIT I and KBS REIT II are exploring their options for loss recovery through a Financial Industry Regulatory Authority arbitration claim. KBS REIT I is a non-traded real estate investment trust with a focus on commercial real estate. It has raised around $1.7 billion from investors. Current estimations indicate that investors’ interests in KBS REIT I are worth $5.16 per share. The last change in valuation occurred in late 2009, at which time the investment was valued at $7.32 per share; the new valuation represents a 29 percent decline from that value and a drop of almost 50 percent from the investment’s initial offering price of $10 per share.

Recovery of KBS REIT Losses

In addition, investors of both KBS REIT I and KBS REIT II have been informed that they would not receive any more distributions. Prior to this announcement, KBS REIT I investors were receiving annual distributions of 5.3 percent. Reportedly, KBS REIT I has also suspended redemptions. This means that investors who hold shares in this investment may have trouble selling their investment or could face serious losses by selling on the secondary market. Secondary market buyers are very unlikely to pay for shares of KBS REIT I at the appraised value.

Typically, REITs carry a high commission, which motivates some brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15% percent. Non-traded REITs carry a relatively high dividend or high interest, making them attractive to retired investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors. Arbitration claims have already been filed, or are in the process of being filed, against Ameriprise on behalf of KBS REIT investors who were allegedly led to believe that the REIT was safe, similar to investing in a bond, could be liquidated, provided guaranteed monthly distributions, and that the value of the investment would not fall below the initial purchase price of $10 per share.

Articles Tagged with KBS REIT II

KBS REIT II Subject of Recent Tender Offer at $3.21/Share

Recovery of KBS REIT Losses