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%.