KBS Real Estate amends, extends loan facility to August 2024

By Wendy Van Sickle

Columbus, Ohio, Feb. 12 – KBS Real Estate Investment Trust III, Inc. extended the loan agreement, initially signed Nov. 3, 2021 with Bank of America, NA as administrative agent, on Feb. 6, according to an 8-K filing with the Securities and Exchange Commission.

The maturity date is now Aug. 6, 2024.The outstanding principal amount at closing of the extension was $601.3 million.

The lenders also waived the requirement for the securing properties to satisfy the minimum required ongoing debt service coverage ratio as of the Dec. 31, 2023, March 31, 2024 and June 30, 2024 test dates and waived the requirement for REIT properties as guarantor to satisfy a net worth covenant for the period between Feb. 6, 2024 and Aug. 6, 2024.

The extension agreement also requires KBS Real Estate to, by Feb. 29, deliver to the agent a reasonably comprehensive plan for KBS Real Estate that includes a comprehensive cash flow analysis and plan for repayment of all indebtedness of KBS Real Estate and its direct and indirect subsidiaries; by March 29, engage an investment bank for purposes of raising not less than $100 million in new equity, debt or a combination of both for purposes of recapitalizing; and, by July 15, to have raised the minimum $100 million in new equity, debt or a combination of both.

With regard to these milestones, KBS Real Estate said it has provided a comprehensive cash flow analysis to the lenders and is working to finalize that plan, inclusive of a plan for repayment of all debt, over the next two weeks.

Additionally, on Feb. 12, KBS Real Estate engaged Moelis & Co. LLC to assist in developing, evaluating and pursuing the initiatives in accordance with the fourth extension agreement. KBS Real Estate will continue to work to meet all the milestones in the fourth extension agreement, though there can be no assurance as to the certainty or timing of KBS Real Estate’s plans to raise capital or additional debt. To the extent each milestone above is not met, it will constitute an immediate default under the loan facility, without any requirement of notice or opportunity to cure.

The fourth extension agreement provides that 100% of excess cash flow from the properties continues to be deposited monthly into a cash collateral account.

Further, the extension agreement provides that, subject to the requirements contained therein, the loan facility coborrowers will be permitted to withdraw funds from the cash sweep collateral account to pay or reimburse the loan facility borrowers for approved tenant improvements, leasing commissions and capital improvements and for operating shortfalls related to the properties to the extent they occur in any month.

Additionally, the extension agreement provides a default will occur under the loan facility if a written demand for payment following a default under the following loans is delivered by U.S. Bank under (a) KBS Real Estate’s unsecured credit facility, (b) the payment guaranty agreement of KBS Real Estate’s modified portfolio revolving loan facility or (c) any other indebtedness of KBS REIT properties III LLC, an indirect wholly owned subsidiary of KBS Real Estate, where the demand made or amount guaranteed is greater than $5 million.

The loan borrowers also agreed to pay the portfolio loan lenders a non-refundable fee of $900,000; to deposit $5 million into the cash sweep collateral account, which will generally be used to fund capital expenditures and operating cash flow needs of the properties, to pay the agent certain fees, commissions and costs incurred by the agent and its counsel in connection with the extension agreement, and to pay the portfolio loan lenders an exit fee in the amount of $1 million, which is due on the earliest to occur of the maturity date, the repayment of the loan in full and the occurrence of a default under the loan.

The REIT is based in Newport Beach, Calif.

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