KBS REIT III Slashes Valuation
Weakened leasing in San Jose, Minneapolis, and Emeryville drives asset writedowns, while debt pressures loom.
February 02, 2026
KBS REIT III Cuts Estimated Share Value to $2.70 as Debt Maturities and Office Market Struggles Intensify
KBS REIT III has lowered its estimated share value to $2.70, down from $3.89 a year ago. The reduction reflects what’s happening on the ground: leasing activity remains slow in key markets, valuations are under pressure, and near-term debt maturities are adding complexity to the path forward.
The firm’s updated valuation is based on a new round of appraisals across its 12-property portfolio. Total asset value dropped by nearly $500 million year-over-year. West Coast properties saw the sharpest declines, with valuations falling more than 24%. Assets in San Jose, Emeryville, and downtown Minneapolis continue to experience lower-than-expected leasing demand, keeping occupancy well below historical levels.
As of September 30, 2025, KBS REIT III’s portfolio totaled roughly 5.6 million square feet, with average leased occupancy at 80%. Leasing performance varied sharply by region. In San Jose, two buildings were only 51% and 72% leased, respectively. Emeryville remained flat at 56%. Minneapolis was stronger at 74%, but leasing momentum there hasn’t been enough to offset market-wide softness.
That said, not all markets are seeing the same drag. Town Center in Plano, Texas posted over 120,000 square feet in new leases during the 12 months ending Q3 2025, pushing leased occupancy from 71% to 81%. Across the broader office market, absorption for Class A buildings improved in the second half of 2025, supported by ongoing return-to-office mandates from large employers and public sector tenants.
Still, the trust is facing pressure on multiple fronts. Roughly $1.26 billion in debt is scheduled to mature over the next 12 months. While two loans have extension options, they come with conditions that may require further paydowns or asset sales. If refinancing proves difficult, the firm may need to sell properties in a market where transaction volume is limited and pricing remains soft. That dynamic also contributed to a $1.20 per share drop in estimated value, driven primarily by changes in real estate valuation inputs like discount and cap rates.
KBS REIT III suspended distributions in mid-2023 and doesn’t expect to resume redemptions or dividend payments until certain loans are repaid or refinanced. The trust has redeemed roughly $789 million in shares since inception but has paused further liquidity events due to loan restrictions and broader market challenges.
Looking Ahead
Management is focused on three key priorities for 2026:
- Reducing debt
- Stabilizing occupancy
- Executing targeted asset sales
The company expects to reassess its estimated share value in December 2026, with current figures intended to support broker-dealer reporting requirements. However, the valuation doesn’t account for potential future costs tied to refinancing, nor does it guarantee that shares could be sold at that price on the open market.
The environment remains uncertain, especially for U.S. office properties. But the data provides a clear signal: KBS REIT III is working to align its balance sheet and portfolio strategy with current market conditions while managing the risk tied to its upcoming maturities.
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