The non-traded office REIT used nearly all net proceeds to pay down its revolving facility, which now carries $160.4 million secured by two remaining properties amid going concern warnings.

April 08, 2026

KBS Real Estate Investment Trust III, Inc., a Maryland-incorporated non-traded REIT based in Newport Beach, California, disclosed a series of interconnected transactions on April 8, 2026, involving the sale of a major property, a significant loan paydown, and a fifth modification to its portfolio revolving loan facility.

Gateway Tech Center Sale

On March 31, 2026, KBS REIT III sold Gateway Tech Center through an indirect wholly owned subsidiary to an unaffiliated buyer for $50 million. After accounting for credits related to outstanding tenant improvements, lease incentives, prorations, security deposits, and third-party closing costs, the net proceeds totaled approximately $48.1 million. A $0.3 million disposition fee was also payable to KBS Capital Advisors LLC, the REIT’s external advisor.

The proceeds were used to pay down $47.5 million of the outstanding principal on the Modified Portfolio Revolving Loan Facility, with the remaining $0.6 million deposited into a cash management account established under the loan. Following this paydown, the aggregate outstanding principal balance stood at approximately $157.6 million.

Fifth Modification Agreement

On April 2, the REIT entered into a Fifth Modification Agreement with administrative agent U.S. Bank National Association and its lender group, which includes Regions Bank, Citizens Bank, City National Bank, and Associated Bank, National Association. The modification drew down remaining holdbacks: $1.8 million for a tenant improvement draw and $1.0 million to fund a newly established real estate tax escrow account. After these draws, the outstanding principal balance rose to $160.4 million, with no additional holdbacks remaining.

The modification extended the loan’s maturity date to December 15, 2026, with a potential further extension to March 31, 2027, contingent on the satisfaction of certain conditions — some of which are not in the REIT’s sole control. The modification also eliminated the requirement for principal amortization payments during the remaining loan term.

Following the release of Gateway Tech Center from the collateral pool, the loan is now secured by two remaining properties: 515 Congress and 201 17th Street.

Cash Flow and Fee Deferrals

The agreement imposed new restrictions on cash flow. All monthly excess cash flow from the two remaining properties, after principal, interest, and tax escrow payments, will be deposited into the cash management account. Funds may only be used for tenant improvements, leasing commissions, and capital expenditures.

The REIT’s borrowing subsidiaries must also defer payment of all REIT-level expenses and asset management fees allocable to the properties. These deferred expenses may only be paid from net sale proceeds that exceed the minimum release price when either property is sold — and only if no defaults exist under the loan. Any shortfall would remain deferred until all loan obligations are satisfied. KBS Capital Advisors agreed to defer its asset management fees accordingly.

Covenant Changes and Going Concern

The Fifth Modification Agreement revised the debt service coverage ratio requirements, imposed a one-time loan-to-value test, and amended the guarantor’s financial covenants to eliminate net worth and leverage ratio requirements in favor of a less restrictive earnings-to-fixed-charges ratio.

KBS REIT III disclosed substantial doubt about its ability to continue as a going concern, citing upcoming loan maturities, the challenging commercial real estate lending environment, the lack of transaction volume in the U.S. office market, and general market instability. The REIT noted that its loan agreements contain cross-default provisions and that it has pledged the equity of certain subsidiaries as collateral. If unable to satisfy loan terms, the company indicated it may pursue further refinancing, additional asset sales, relinquish properties to lenders, or potentially seek bankruptcy protection.

The disclosure was signed by Jeffrey K. Waldvogel, the REIT’s Chief Financial Officer, Treasurer, and Secretary.