Distressed Pacific Oak REIT Restructures Israeli Debt, Must Sell 150 Properties in Six Months
Pacific Oak Strategic Opportunity REIT Inc. has completed a debt arrangement with the Israeli bondholders of its BVI subsidiary, restructuring more than NIS 975 million in outstanding bonds to a single balloon maturity of June 30, 2028, and triggering a mandatory property-sale schedule that will define the distressed nontraded REIT’s path to wind-down.
The arrangement covers Series B and Series D bonds issued by Pacific Oak SOR (BVI) Holdings Ltd., the subsidiary that holds substantially all of the REIT’s assets. The principal amounts of both series are unchanged – NIS 388 million for Series B and NIS 587 million for Series D – but the restructured terms consolidate repayment into a single June 2028 payment at a fixed annual rate of 11.5%, up from 11% during the interim period since August 2025.
The arrangement imposes a structured asset-disposal timeline: the BVI is required to sell at least 150 properties within the first six months following the closing date, then at least 100 properties during each successive three-month period. Failure to meet those thresholds constitutes an event of default.
As part of the arrangement, Pacific Oak and its operating partnership entered into a second loan agreement with the BVI – and agreed, with limited exceptions, not to initiate or support insolvency, bankruptcy, or liquidation proceedings for as long as the arrangement remains in effect.
The completion marks the resolution of a restructuring process that began in August 2025 with a bondholder standstill agreement. In January 2026, Pacific Oak’s board overhauled leadership – installing Brian Ragsdale as president, chief executive officer, and chief financial officer – and brought in Westdale Asset Management to manage assets and R2 Advisors for accounting and financial reporting. In February and March, the board dismissed Ernst & Young as its independent auditor and announced it would stop filing annual and quarterly reports, citing limited cash and dependence on the BVI for funding.
The no-liquidation covenant embedded in the second loan agreement narrows the REIT’s strategic options. While the board had previously indicated it would pursue an orderly wind-down, the arrangement subordinates that process to bondholder oversight through June 2028, with the mandatory quarterly property sales serving as the primary mechanism for debt repayment.
Pacific Oak Strategic Opportunity REIT closed its initial public offering on Nov. 20, 2012. On Oct. 1, 2020, Pacific Oak Strategic Opportunity REIT II shareholders approved the merger into Pacific Oak Strategic Opportunity REIT.
Following a period of significant financial distress, the REIT expressed “substantial doubt” about its ability to continue as a going concern, according to financials for the quarter ended June 30, 2025.
After reviewing the availability of strategic alternatives, the company’s special committee, comprised of all independent directors and first assembled in October 2025, unanimously recommended the move toward liquidation in January 2026, marking a pivotal shift in the REIT’s strategic direction. As part of the wind-down process, Pacific Oak overhauled its management and advisory framework and terminated its advisory agreement with Pacific Oak Capital Advisors LLC.
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