Striving to Achieve REIT Investment Performance Through Refinement

KBS REIT II, KBS REIT III Article
October 7, 2018

Striving to Achieve REIT Investment Performance Through Refinement

Developing and executing a real estate investment strategy requires a delicate balance of skill, experience and timing. Newport Beach, CA-based KBS is a real estate investment company that has enjoyed its share of accomplishment over the decades through a process of refining its strategy to align with sound real estate market and management fundamentals. That strategy has sometimes required adjusting the class of real estate acquired for a portfolio, focusing on specific markets or submarkets, as well as the characteristics of a property in relation to its location. But, the efforts of KBS’s disciplined approach and attention to detail has, we believe, resulted in an enviable institutional-grade investment platform that performs to high industry standards.

While all risk can’t be removed entirely from investing in real estate, it can be lessened by turning to a multi-cycle seasoned commercial real estate investment and operating company possessing a strong track record. KBS is a long-time commercial real estate investment firm, founded by Peter Bren and Charles J. Schreiber Jr.

Since 1992, KBS and its affiliated companies have invested or managed $38 billion in real estate assets, totaling more than 157 million square feet across the U.S. on behalf of institutional clients, such as pension plans, endowments, sovereign wealth funds and seven non-traded REITs. The company launched two investment vehicles, called KBS REIT II and KBS REIT III in 2008 and 2010, respectively. The creation of those funds was the result of an investment strategy that refined its approach over time. KBS’s focus for REIT II and REIT III was on acquiring properties and assets with high levels of quality, as well as Class A Central Business District offices featuring a walkable component.

KBS REIT II was initially marketed in April 2008, and eventually held more than 30 assets. KBS REIT II closed its initial public offering offering in March 2011, after raising $1.8 billion in investor equity at the share price of $10.00. Roughly half of the portfolio was liquidated in late 2015, and KBS made an aggregate special dividend of $4.50 per share. Currently, the portfolio holds nine assets, which are in the process of being stabilized.

KBS REIT III was launched in October 2010, and currently holds 29 assets. KBS REIT III closed its initial public offering on May 29, 2015, and terminated the offering on July 28, 2015, having raised $1.7 billion. KBS REIT III’s objective was income, growth and capital preservation. The REIT employed a core strategy and focused on investing in a portfolio of core office properties. KBS is analyzing strategies for the benefit of investors, including a possible liquidation of the portfolio.

Schreiber says the way these two investment vehicles differed from previous KBS funds in that “they focused on buying CBD office assets in markets where people want to live and work.” He also notes, KBS has steered away from making debt investments, because the firm believes debt is not the best investor strategy, given the levels of return for the risk. Schreiber also says KBS’ investment strategies for KBS REIT II and KBS REIT III are less capital-intensive as compared to opportunistic funds.

One key strategy is a refined geographic focus. The markets KBS has honed in on for KBS REIT II and KBS REIT III included key gateway or employment growth areas. These range from New York’s Manhattan, Los Angeles, and the San Francisco Bay Area, to Phoenix, New Orleans, Atlanta, Chicago, Dallas, and the Washington, D.C. area.

Another way KBS attempts to enhance performance is through acquisition. An example of KBS’ investment strategy for KBS REIT II and KBS REIT III is the characteristics of the assets. That means pursuing what it believes are the highest-quality properties.

 

 

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