Pacific Oak REIT Explores Sale Amid 'Difficult Financial Condition'
An investment fund that owns offices and houses across the country is looking for the exit hatch as Israeli bondholders threaten legal action.
Pacific Oak Strategic Opportunity REIT has hired financial advisory firm Robert A. Stanger & Co. to “explore the availability of strategic alternatives” as it navigates a “difficult financial situation,” according to a Nov. 3 filing with the Securities and Exchange Commission.
The nontraded REIT has more than $500M in debt coming due over the next year, much of which is held by investors in bonds the company sold on the Tel Aviv Stock Exchange.
Those investors are seeking the approval of a class-action lawsuit, claiming Pacific Oak Strategic Opportunity REIT misled investors about its liquidity, according to a Sept. 11 filing on TASE obtained and translated into English by Bisnow using both Google and ChatGPT.
The investors allege that, over the past two years, Pacific Oak misrepresented the amount of cash it had on hand, with much of it actually being held by subsidiaries.
As of June 30, the REIT owned 2.8M SF of office space across the country, 64% of which was occupied. Additionally, it owns a portfolio with more than 2,000 residential units and a single 196-key hotel, according to the REIT’s latest quarterly report filed with the SEC.
Pacific Oak disclosed in a June SEC filing that the company has $512.8M in debt coming due within a year, and as a result, it expected to be out of compliance with the debt-to-equity ratio required by its bond financing.
If the company remains out of compliance for two consecutive quarters, $289.2M of debt would immediately become due to Series B and D Israeli bondholders, according to the SEC filing.
“These circumstances raise substantial doubt as to the Company’s ability to continue,” the REIT, which was formerly known as KBS Strategic Opportunity REIT, said in the filing.
In the second quarter, the company reported a net loss of $127M. Pacific Oak Strategic Opportunity REIT posted a $45.9M loss in funds from operations, a measure of REIT cash flow.
It is looking to shed pieces of its portfolio as the company seeks to repay its debts, according to TASE filings.
An Oct. 30 filing lists 16 properties the company plans to put on the market, is in the process of selling or expects to transfer to its lender.
Two on the list, 110 William St. and 210 W. First St., are in Manhattan. At the former, Pacific Oak faced financial struggles following vacancy issues. Some of those struggles have since been resolved after the landlord restructured its debt — zeroing out its equity partner, Savanna — and securing a new tenant to occupy 640K SF of the 930K SF Financial District office building.
At the 500K SF Crown Pointe office complex in the Atlanta suburb of Dunwoody, Pacific Oak has already entered into an agreement to offload the property, according to TASE filings. The REIT's lender agreed to a $38M short sale of the property, despite it having $54.7M of outstanding debt.
The REIT paid $83.4M in 2017 for the two buildings at 1040 and 1050 Crown Pointe Parkway.
Its other properties are spread across the country, including holdings in Austin, Las Vegas and Oakland, California. Various other repayment plans have been pitched to and rejected by the company’s bondholders, according to TASE filings.
Pacific Oak Capital Advisors co-owners Keith Hall and Peter McMillan and Chief Compliance Officer Hans Henselman didn't immediately respond to Bisnow’s calls and emails seeking comment.
