Why KBS Strategy is Shifting Course

NEWPORT BEACH, CA—Businesses are recognizing the value of their employees and as a result are seeking higher-quality real estate for them, KBS Realty Advisors' founder and CEO Chuck Schreiber tells GlobeSt.com exclusively. In the wake of recent major acquisitions for the firm—including the undisclosed-price Springmaid Beach Resort oceanfront resort in Myrtle Beach, SC, by KBS Strategic Opportunity REIT II and an affiliate of Los Angeles-based Integrated Capital, and the $248-million purchase of the Towers in Emeryville, a three-building, 815,018-square-foot, class-A, waterfront office property in San Francisco by KBS Real Estate Investment Trust III—we sat down with Schreiber to discuss the types of properties the firm is looking to acquire, how this strategy is evolving and how he envisions the market.

GlobeSt.com: What types of properties is your firm looking to acquire?

Schreiber: Historically, KBS has invested in nearly every type of multifamily, commercial property and debt—20% of all our investments have been in debt products. Right now, we're not buying debt. We're buying operating real estate, and in this calendar year, we're focused on high-quality office properties that are either completely stabilized or sub-performing but still quality buildings. We're also buying smaller properties that have some major performance issues. Those issues are typically structural, although, for example, some commercial properties' designs may be challenging from a leasing perspective. It typically takes a lot of personnel time and capital to improve these properties so they can be leased and we can optimize our investment.

GlobeSt.com: How has your acquisition strategy evolved over the years?

Schreiber: We're really gravitating over to high-quality properties. Ten years ago, we would buy a class-B property and try to paint it up and make it an A- property, but we don't do that anymore. We think a high percentage of business owners have a greater recognition of the value of their employees, and most tenants are moving in because they want a better environment for the comfort and satisfaction of their employees. They may have fewer employees today for the volume of work they're doing compared to 10 years ago, but they are paying their employees more money, and these employees are more productive today than they were 10 years ago. I see the perspective of our tenant clients has changed, and I think that will be consistent. The business owner has the perspective of, “If I can do that volume successfully with fewer people, then I can afford to pay them more money, and the employees are happier.” Companies are more successful today than they were three years ago, and they're reaping the benefit of it. The environment in office space is a higher-quality work environment for those employees, and in many cases it includes transportation, amenities and other features. So, the business has changed.

GlobeSt.com: What geographical region are you looking to cover?

Schreiber: We track on 45 different markets, the KBS 45, around the country. We're regionalized, so we have three regional presidents who are responsible for the West, Central and East Coast. Each has 10 to 15 markets they monitor through our internal reporting system, and they update those reports on a monthly basis.

GlobeSt.com: What else should our readers know about your firm?

Schreiber: Our firm is pretty unique in that we have a certain amount of flexibility. We have operated on the perspective that the real estate capital environment is going to change. It used to change yearly, but now it changes monthly. So we've modified our investment strategy depending on the changes in the market. That's the one unique thing about KBS—we will be doing things substantially differently today than we did 10 years ago as the market changes. We believe this maximizes returns to our investors and is a prudent strategy.