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Keppel, KBS Forming New REIT to Acquire $800 Million U.S. Office Portfolio

Singapore-based Keppel Corp. has received approval to launch a new REIT on the Singapore Exchange and has reached a deal for that REIT to acquire 11 U.S. office properties from Newport Beach, CA-based KBS Strategic Opportunity REIT, a nontraded REIT.

The properties have not been specifically identified nor has a final purchase price been set. However, KBS currently values the portfolio at $800 million with $400 million in outstanding debt, according to a KBS bondholder filing in Israel.

The initial portfolio will consist of office properties in markets including Seattle, Houston and Denver, according to a Singapore filing by Keppel.

In those markets, KBS Strategic Opportunity REIT currently owns:

  • Bellevue Technology Center — Bellevue, WA — 330,508 square feet — valued at $85.9 million;
  • 1800 West Loop — Houston — 400,101 — $73.6 million;
  • West Loop I & II — Houston — 313,873 — $41.4 million;
  • Westmoor Center — Westminster, CO — 612,890 — $82.4 million;
  • Central Building — Seattle — 191,705 — $35.4 million;
  • Westpark Portfolio — Redmond, WA — 778,472 — $129.9 million; and
  • Plaza Buildings — Bellevue — 490,994 — $199.2 million.

    KBS Strategic Opportunity REIT also owns office properties in Atlanta, Austin, Dallas, Folsom, CA, and Orlando.

    After the Singapore transaction, KBS Strategic Opportunity REIT expects to maintain a 9.5% ownership interest in the SREIT.

    The SREIT will be externally managed by a joint venture between KBS Capital co-founders Keith D. Hall and Peter McMillan III and Keppel Capital Holding. Keppel Capital has agreed to pay $27.5 million for its 50% share in Keppel-KBS US REIT Management Pte. Ltd., which will manage the new SREIT to be named Keppel-KBS US REIT.

    Keppel-KBS US REIT will have an investment strategy of investing, directly or indirectly, in additional commercial properties in key growth markets of the U.S.

    “With growing demand by global investors for U.S. real estate investments in view of the continued stable and sustainable growth of the U.S. economy, this joint venture will provide Keppel with a strategic platform to expand its geographic footprint in the U.S. market,” Keppel said in its Singapore filing.

    KBS Strategic Opportunity REIT expects to use most of the proceeds from the transaction to acquire new properties. Last month, KBS Strategic Opportunity REIT acquired 125 John Carpenter Freeway, an office property consisting of two office buildings totaling 442,039 rentable square feet in Irving, TX for $83.4 million plus closing costs.

    The Singapore transaction is subject to a number of conditions, including the SREIT obtaining the capital necessary to acquire the properties; and that capital may not be raised from U.S. investors. However, Keppel said the sale transaction is anticipated to be completed no later than Dec. 31, 2017.

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