Headquartered in Newport Beach, CA, KBS Real Estate Investment Trust II, Inc. (“KBS II”) was formed as a Maryland REIT in July 2007. Pursuant to its public offering, KBS II offered 280 million shares of common stock, of which 200 million shares were registered in its primary offering, and an additional 80 million common shares were registered under the non-traded REIT’s dividend reinvestment plan. KBS II’s initial offering closed on December 31, 2010, with 182,681,633 shares sold, thus raising gross offering proceeds of $1.8 billion.
Many KBS II investors may have been steered into this complex investment by a financial advisor or stockbroker. Unfortunately, KBS II investors may have been uninformed as to the illiquid nature of their investment (as a non-traded REIT, KBS II shares do not trade on a national securities exchange), and now have limited options if they seek liquidity on their investment.
In January 2016, KBS II’s board of directors formed a Special Committee for the purpose of exploring “the availability of strategic alternatives.” Subsequently, the Special Committee determined that it was in the best interest of KBS II stockholders to market some of the non-traded REIT’s assets, and depending on the scope of the asset sales, “thereafter adopt a plan of liquidation that would involve the sale” of remaining KBS II assets.
While KBS II has partially pared down its portfolio of real estate assets in the past 12 months, the non-traded REIT has yet to realize any liquidity event. Indeed, pursuant to its charter, KBS II was required to seek stockholder approval for liquidation in the event that its common shares had not listed on a national securities exchange by March 31, 2018. However, on March 7, 2018, KBS II’s conflicts committee unanimously determined to postpone the approval on any liquidation while the Special Committee continues to explore strategic alternatives.
Unfortunately, for shareholders seeking to exit their KBS II investment position, liquidity options are very limited and disadvantageous. To begin, KBS II has suspended its share redemption program, only allowing for redemption of shares in certain instances, including “upon a stockholder’s death, ‘disqualifying disability’ or ‘determination of incompetence’” (as defined in the share redemption program document).
Furthermore, shareholders may seek immediate liquidity on a limited and fragmented secondary market. Recent secondary market pricing for KBS II shares suggests that investors seeking to sell now may only receive $4.00 – $4.08 per share, thus incurring substantial losses in excess of 50% on their initial investment at $10 per share through the offering, excluding any distributions.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex non-conventional investments, including non-traded REITs and business development companies (BDCs). Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at email@example.com for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, New Jersey and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).