KBS seeing lending volumes normalize as office market moves past pandemic

The company anticipates lending volume of about $1.5bn in 2021.

KBS has seen its lending activity move to a more normal level as the US emerges from the covid-19 pandemic.

The Newport Beach, California-based real estate investment trust anticipates about $1.5 billion of loan transaction volume this year. “While this is about an average year for us, last year wasn’t too quiet – we completed about $1 billion of lending volume in 2020 despite the pandemic,” Rob Durand, executive vice president of finance, told Real Estate Capital USA.

KBS, with an AuM of about $7.6 billion, has been an active buyer this year, making a handful of high-profile acquisitions for its client portfolios. Transactions include the acquisition of Sorrento Towers, a 296,327-square-foot, class A office building in San Diego for $146 million. The company also acquired One Town Center in Boca Raton, Florida, a 1991 vintage, class A 10-story property, for about $99.5 million.

Although lenders have been more hesitant in the office sector than industrial or multifamily, KBS found that a focus on high-quality properties in urban-suburban markets with multiple transportation access points has helped debt providers to get comfortable with potential risks, Durand said. About 95 percent of the firm’s portfolio is in the office sector, with small allocations to multifamily and industrial.

“In general, lenders are looking to invest the capital they have available. We are really benefiting from the strength and depth of our lending relationships. While there is caution in the market for office lending in general, the strength of our portfolio and our history of operational results has benefited us,” Durand said.

Return to office

While the Delta variant has slowed a return to offices, Durand said KBS has continued to sign new leases and encouraged naysayers to look at overall leasing activity in the sector, particularly from technology companies.

“There is a renewed sense of faith that people will return to the office and, if you read the headlines, tech companies are leasing up large amounts of space,” Durand said. “There will be some remote work and some work from home but employers and companies in general want the strongest workforce. They also want that camaraderie of being in the office, where employees can grow, be recognized and be promoted.”

As KBS is working to expand an existing syndicated bank loan, Durand noted that the firm is continuing to see solid performance for its office assets. The company has been working with new and existing lenders on all of its financings.

“I think that during the pandemic, some lenders and borrowers took an opportunity to expand their lending relationships, either out of necessity or because it proved to be a good time to do so. We are focusing on a few new lending relationships as well as our existing lenders, who have stepped up as well,” Durand said.


The firm is having conversations with its lenders on the language around the transition to SOFR as the December 31 sunset for the use of LIBOR approaches, with Durand explaining that the firm has been scouring its portfolio to review any relevant language.

“We are seeing some lenders gravitate toward the Bloomberg BSBY index or SOFR, depending on the deal and the lender. There is some flexibility toward either,” Durand said. “Of late, we are seeing BSBY gain more acceptance.”

The question around BSBY is an interesting one, with Durand noting that the index might be a slightly more useful benchmark for commercial real estate loans asi it more directly mirrors the attributes of LIBOR. That said, the BSBY rate is not managed by the Federal Reserve and doesn’t have the same current depth of use that SOFR does.

“There is a sense that BSBY more accurately reflects the banks’ cost of funds and, unlike SOFR, has a credit component to it,” Durand said. “BSBY’s one-month rate is more like the old LIBOR one-month rate and could fit more similarly into existing systems that use LIBOR.”