KBS REIT Selling Houston Office Building at 60% Discount

A real estate investment trust linked to KBS Realty Advisors is set to offload its final office property as it liquidates amid market and financial woes.

California-based KBS Growth & Income REIT is set to sell the Offices at Greenhouse, at 19219 Katy Freeway in West Houston, to New Jersey-based firm Red River Asset Management for $18.3 million, according to an SEC filing. That’s a little over $90 per square foot for the 203,000-square-foot building.

The REIT bought it for $47 million in 2016, over $231 per square foot, a 62 percent difference from its potential sale price. It borrowed $72 million from JP Morgan Chase to acquire the building but has struggled to pay off the debt. It entered into a discounted payoff agreement with the lender on April 11, extending the maturity to May 31. This was the loan’s fourth extension.

Under the new agreement, the REIT can satisfy its outstanding loan obligation of $36 million by paying the net proceeds from the property sale, along with any available cash and deposits.

If the sale closes, it will be New Jersey-based Red River Asset Management’s first Greater Houston property and second Texas office investment, according to its website.

Stream Realty developed the 5-acre property in a joint venture with Wile Interests in 2014, and it was originally planned to be a 12-acre mixed-use project.

The building is 92 percent leased, with Dallas-based engineering firm AECOM occupying 62 percent of the building as its largest tenant, however its lease is set to expire in December, according to the SEC filing. Consulting firm J. Connor Consulting is the second-largest tenant, occupying 15 percent.

KBS Growth & Income REIT was formed in 2015 after raising $80 million. It is one of KBS Realty Advisors’ three trusts, along with KBS Real Estate Investment Trust II and KBS Real Estate Investment Trust III. The latter trust has been rocked by financial instability, experiencing a $350 million decline in the value of its portfolio.

In May, KBS Growth & Income REIT approved a liquidation plan and began offloading its assets. The firm cited COVID-19 and a downturn in the oil markets as events that adversely affected its holdings in Houston, Portland and Chicago. It most recently sold a 16,000-square-foot office building in Chicago’s River North neighborhood for $2.7 million on March 27.