The non-traded office REIT has halted all distributions and share redemptions as it navigates a punishing commercial real estate environment and looming loan

March 30, 2026

A Portfolio Under Pressure

KBS Real Estate Investment Trust III, a non-traded real estate investment trust focused on U.S. office properties, painted a stark picture of its financial outlook in its annual report for the fiscal year ended December 31, 2025. The Newport Beach, California-based company acknowledged that management’s plans may not be sufficient to alleviate substantial doubt about its ability to continue as a going concern for at least a year from the date of its financial statements.

As of late March 2026, the company carried approximately $1.3 billion in outstanding debt obligations with a weighted-average remaining term of just 0.5 years. The entirety of the company’s loan maturities and required principal paydowns fall within the next 12 months, creating an acute liquidity challenge against the backdrop of a persistently difficult commercial office real estate market.

The REIT’s portfolio consisted of 12 office properties encompassing roughly 5.6 million rentable square feet as of December 31, 2025, along with an investment in the equity securities of Prime US REIT, a Singapore-listed real estate investment trust. The properties were collectively 77 percent occupied, with a weighted-average remaining lease term of 5.3 years.

The company’s largest single asset, Accenture Tower in Chicago, represented approximately 24 percent of total assets and 24 percent of total annualized base rent. The geographic concentration of the portfolio in Illinois, California, and Texas leaves the REIT particularly vulnerable to adverse economic conditions in those markets.

During fiscal 2025, the company recorded a net loss of $78.8 million, compared to a net loss of $10.9 million in the prior year. Non-cash impairment charges totaling $65.5 million were recognized on three properties — The Almaden in San Jose, Towers at Emeryville, and 60 South Sixth in Minneapolis — reflecting softening market conditions, rising vacancy, and less favorable valuation assumptions across those office submarkets.

Debt Restructuring Dominates Strategy

Since February 2024, KBS REIT III has refinanced, restructured, or extended $1.4 billion of maturing debt. However, these negotiations have come at a cost. In order to secure extensions, the company has been required to reduce loan commitments, make principal paydowns, sell assets, and accept restrictive covenants that significantly limit its operational flexibility.

Six of the company’s debt facilities, representing the entirety of its $1.3 billion in outstanding debt secured by all 12 properties, are subject to cash sweep arrangements. Under these structures, excess monthly cash flow from the securing properties is deposited into lender-controlled accounts, limiting the company’s access to operating cash.

The company’s loan agreements also contain cross-default provisions, meaning a default on one facility could trigger defaults across others. The REIT has pledged the equity of subsidiaries owning several key properties — including Gateway Tech Center, 201 17th Street, 515 Congress, Carillon, and Accenture Tower — as additional collateral in connection with debt restructurings.

Interest expense for 2025 totaled $114.3 million, down from $126.6 million the prior year, primarily due to loan paydowns associated with property sales. However, the company noted that higher interest rate spreads required by lenders during recent refinancings, combined with the expiration of below-market interest rate swaps throughout 2026, are expected to push borrowing costs higher going forward.

Asset Sales and Potential Bankruptcy

The company completed the sale of two properties during 2025 — Sterling Plaza in July and Park Place Village in September — generating combined gross proceeds of approximately $226.5 million and recognizing a gain on sale of $77.4 million. Loan agreements require the sale of three additional properties in 2026 and up to four in 2027.

Following the year-end, the company entered into a purchase and sale agreement for Gateway Tech Center, though it cautioned that completion of that transaction is not certain. The REIT also extended the maturity date of its Modified Portfolio Revolving Loan Facility through a series of short-term amendments, most recently pushing the deadline to as late as April 15, 2026, subject to conditions not entirely within the company’s control.

Management disclosed that if it is unable to meet the terms of its loan agreements, it may relinquish ownership of secured properties to mortgage lenders or seek protection under Chapter 11 of the U.S. Bankruptcy Code to implement a restructuring plan — a step that would itself constitute an event of default under its existing debt.

No Distributions, No Redemptions

The company has not declared any distributions to stockholders since June 2023 and does not expect to resume payments until certain loans are repaid or refinanced. One of the loans containing these restrictions has a current maturity of January 2027 but may be extended. The share redemption program was terminated in March 2024, leaving approximately 148.5 million outstanding shares with no public trading market and no near-term path to liquidity for investors.

The estimated value per share of the company’s common stock was approved at $2.70 as of December 18, 2025, down from $3.89 a year earlier and a steep decline from the peak estimate of $12.02 in December 2018. The company cautioned that this valuation does not reflect a liquidation value, does not account for disposition costs on properties not under contract, and does not incorporate risks related to the going-concern uncertainty.

Outlook Remains Uncertain

The REIT attributed its challenges to a combination of elevated interest rates, persistent inflation, low lending activity in debt markets, and the ongoing impact of remote work on office demand. The greater San Francisco Bay Area, where the company owns several properties, has been particularly affected by slower-than-expected return-to-office trends.

The company’s conflicts committee unanimously determined in August 2025 to postpone a stockholder vote on liquidation, citing the unfavorable market environment for office property sales. The charter requires the committee to revisit the liquidation question at least annually.

KBS REIT III is externally managed by KBS Capital Advisors, which continues to receive asset management fees, though portions of those fees have been deferred or subordinated in connection with debt restructuring agreements. The company has no employees of its own.