April 8, 2019
Along with being a large-scale owner of commercial properties, KBS is also an investment vehicle for both institutions and individuals. However, it’s not a get-rich-quick scheme. Nor does it set out to be one.
In part two of Connect Media’s interview with Chuck Schreiber, the KBS CEO details the firm’s approach to managing risk for its investors.
Q: There is a democratization occurring today where individual investors are seeing the opportunity to invest in commercial properties whether it be on their own, or through a growing number of real estate crowdfunding websites. What would you say to an individual investor who really wants to invest in real estate but avoid a higher-risk investment?
Chuck Schreiber: In today’s market with the ability to gather data on firms, it is possible for people to track the expertise of a real estate advisor. Relationships are important. There is a chance there will be a challenge with every property. The bank wants to know that the expertise exists with that owner to solve any potential problem.
Q: So, knowing and understanding risk is very important to you?
Schreiber: My partner and our chairman, Peter Bren, will say “I’ve been through seven cycles and every one is different.” Part of that is a continual assessment of risk. The reason we know that new development can be risky is because we lived through 1988 to 1992 when the vacancy was so great that people expected it would take 10 to 15 years to fill all the vacancies. We are fortunate to have that kind of track record. Experience is one of our biggest assets when we deal with lenders, institutional investors or individual investors.
Q: Do you approach institutional investors or individual investors differently?
Schreiber: Most institutional investors are well aware of KBS whether they have invested with us or been in the market and know who we are and have experienced our talent and successes. We’ve also bought and sold hundreds of assets with many well-respected institutions. We currently have a portfolio with an institution that’s about $2.3 billion in value and it is focused on cash flow. We look at that not as a single institution or pension fund, but as a large group of retirees. So if you break that down to the retiree who will benefit from our investment, it is comparable to an individual investor investing $25,000 in one of our REITs.
My partner and our chairman, Peter Bren will say “I’ve been through seven cycles and every one is different.” Part of that is a continual assessment of risk.
Q: In the emerging direct-investment space, we are seeing a lot of sponsors seeking to offer the highest and quickest return. How do you respond to that?
Schreiber: We are not involved in double-your-money deals. I don’t know if that is consistently achievable in a short period of time. We are passionate about the investor who is trusting us with their $50,000 or a pension fund investing $500 million for their retirees and embracing our investment criteria and our risk-adjusted strategy of buying and operating real estate. Making promises you may not keep is not good strategy.
Q: Turning to what you’re offering for individual investors, can you talk about your direct-investment efforts?
Schreiber: We are very excited about this and proud to be one of the first large-scale owners to allow individual investors to have direct access to our real estate. For self-directed investors who want to invest cash or make an investment through a self-directed IRA, we formed a user-friendly online platform called KBSDIRECT.com where we provide a great deal of detail on opportunities to invest in a risk-adjusted multi-tenant office portfolio. For an investor to be able to invest $25,000 to $100,000 or more into a $200-million fund of diversified, well-located multi-tenant office properties and potentially generate a 5% to 6% dividend in an alternative investment with growth potential and be able to go online and educate themselves on every detail of those properties and the sponsor, it’s just a great opportunity for investors who are able to do their own due diligence.
Q: What about investors who prefer to work with an adviser?
Schreiber: We are very excited about the rapid growth of the Registered Investment Advisor (RIA) whose interest is aligned with their client with respect to the fee they charge a client for assets under management. RIAs are well aware of stock market volatility and many have taken the time to educate themselves on the alternative investment space including commercial real estate. For the most part they are a very institutional group. They may be venturing into a new product type they have not been involved with previously. They study the alternative investment for a considerable amount of time. RIAs are also under regulatory authority either through the SEC — due to the size of their AUM — or by state regulators. I have a lot of respect for the RIA – it is a growing and a needed business.
Q: What other real estate options are there for individual investors?
Schreiber: Well, an investor can invest in a four-plex with their friend. But this heightens their risk substantially compared to a solid diversified and risk-adjusted institutional-quality investment. There are certainly other options out there such as publicly traded REITs with immediate liquidity, but there can be inherent risk in these types of investments, especially when the stock market takes a big dive. Ultimately the smart investor will not be lured by the promise of high returns but will give considerable due diligence to the sponsor’s approach to risk management. It’s a discipline we hold highly.
Q: What are your closing thoughts?
Schreiber: I am very excited about the growth in profits for companies and I have great respect for the entrepreneurs in America who are providing jobs and are improving their business. Many of them are in our properties. Looking at what has happened in the last five or six years it’s wonderful to see businesses grow. We are blessed to be a part of it. We have some 3,000 tenants. We have an obligation to every tenant to run their building as the best location for them to succeed with their business. We want them to be proud to be there.
Chuck Schreiber is the CEO of KBS, one of the largest office owners in the United States.
Pictured: The Commonwealth Building in downtown Portland features one of the most popular tenant sky-decks in the entire downtown. The property is owned by KBS’ direct-investment fund, KBS Growth & Income REIT.
Disclaimer: All information provided herein is for informational purposes only and should not be relied upon to make an investment decision and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. Readers are recommended to consult with a financial adviser, attorney, accountant, and any other professional that can help you understand and assess the risks associated with any investment opportunity. Private investments are highly illiquid and are not suitable for all investors.