U.S. Court dismisses class action bid against KBS REIT

A nontraded real estate investment trust that saw a sharp decrease in its valuation this year won a legal victory last Monday when a federal judge in Florida dismissed a potential class action against the REIT, KBS Real Estate Investment Trust Inc. In May, investors led by plaintiff George Stewart sued KBS REIT I, as it's known, alleging that KBS made misrepresentations about the product, including its investment objectives, the dividend payment policy and the value of its investments. On July 20, the plaintiffs filed a notice of voluntary dismissal in U.S. District Court in Fort Myers, Fla. Judge John E. Steele presided. A lawyer for the plaintiffs, Kenneth Gilman, didn't return a phone call seeking comment. “KBS is pleased that the plaintiffs have withdrawn their pending class action,” Chuck Schreiber, chief executive of KBS Capital Advisors, wrote in an e-mail. “We believe the attempted class action was baseless and was withdrawn because of the strength of KBS' motion to dismiss establishing the lack of merit in the case, as well as KBS' rejection of settlement overtures prior to the case being withdrawn.” Investors in the REIT were notified in March that its value would be cut to $5.16 a share, from $7.32, a drop of 29%. The REIT's offering price was $10 a share. It also said it was stopping distributions to investors.

VALUATION DECLINES

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 is substantial, having raised $1.7 billion in equity in its initial offering, according to an investor presentation that 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's dismissal, a broker-dealer that had suspended the sale of KBS products lifted that ban and last Wednesday put KBS products back on the firm's platform. The independent broker-dealer, Summit Brokerage Services Inc., sent an announcement to its affiliated representatives and financial advisers last Wednesday afternoon, he said. Summit executive vice president Steve Jacobs confirmed that the firm's reps are once again permitted to sell KBS products. “Obviously, we'll continue to watch and monitor the situation” with KBS, he said. Alternative investments such as nontraded REITs aren't a major part of the firm's sales and “are a small part of what we do,” Mr. Jacobs said. [email protected] Twitter: @bdnewsguy