A nontraded real estate investment trust that saw a sharp decrease in its valuation this year won a legal victory Monday when a federal judge in Florida dismissed a potential class action against the REIT, the KBS Real Estate Investment Trust Inc.
In May, investors lead by plaintiff George Stewart sued KBS REIT, alleging that KBS made misrepresentations about the REIT, including its investment objectives, the dividend payment policy and the value of the REIT's investments.
On Friday, the plaintiffs filed a notice of voluntary dismissal in U.S. District Court in Fort Meyers, Fla. John E. Steele was the judge in the matter.
A lawyer for the plaintiffs, Kenneth Gilman, did not return a phone call Tuesday morning to comment.
“KBS is pleased that the plaintiffs have withdrawn their pending class action,” said Chuck Schreiber, CEO of KBS Capital Advisors, in an email to InvestmentNews.
“We believe the attempted class action was baseless and was withdrawn because of the strength of KBS' motion to dismiss establishing the lack of merit in the case, as well as KBS' rejection of settlement overtures prior to the case being withdrawn,” Mr. Schreiber's' email said.
Investors in KBS REIT I were notified in March that the REIT's value would be cut to $5.16 per share, from $7.32, a drop of 29%. The REIT's offering price was $10 per share. It also said it was stopping distributions to investors.
A number of REITs have seen valuations decline this year as the commercial real estate market continues to struggle and debt weighs on their balance sheets.
The REIT, also called KBS REIT I, is substantial, having raised $1.7 billion in equity in its initial offering, according to an investor presentation the company filed with the Securities and Exchange Commission in March. It has $3.4 billion in property assets, and holds loans and other debt of $2.3 billion.
The marketing director for KBS, Jonathan Thomas, said that, as a result of the lawsuit being dismissed, a broker-dealer that had earlier suspended the sale of KBS products lifted that ban and on Wedneday put KBS products back on the firm’s platform.
The independent broker-dealer, Summit Brokerage Services Inc., sent an announcement to its affiliated reps and advisers on Wednesday afternoon, Mr. Thomas said.
An executive with Summit, executive vice president Steve Jacobs, confirmed that KBS reps were once again permitted to sell KBS products.
“Obviously, we’ll continue to watch and monitor the situation” with KBS, he said. He added that alternative investments such as nontraded REITs are not a major portion of the firm’s sales and “are a small part of what we do.”
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