Pacific Oak REIT Warns of Going Concern Amid $52M Impairments
Pacific Oak Strategic Opportunity REIT Inc. – a publicly registered non-traded real estate investment trust formerly known as KBS Strategic Opportunity REIT Inc. – continues to express “substantial doubt” about its ability to continue as a going concern, according to its latest financials for the quarter ended June 30, 2025. The company’s financial health is being challenged by significant debt maturities and a difficult commercial real estate market.
The company reported that $512.8 million in debt obligations are coming due within the next year. This includes Israeli bonds that may become due and payable if the company falls out of compliance with financial covenants for two consecutive quarters.
The REIT recorded impairment charges on its real estate portfolio in the aggregate of $52 million during the second quarter. This was a direct result of “declines in market conditions and projected cash flows.” This figure is a sharp increase from the $21 million in impairment charges reported at the end of Q2 2024.
During the quarter, the company sold 17 residential homes. Additionally, one strategic opportunistic property was reclassified as “held for sale.” The REIT said its ongoing disposition strategy is focused on raising cash to meet its debt obligations.
The REIT’s portfolio remains highly concentrated in California and Tennessee, which the company noted makes it “particularly susceptible to adverse economic developments” in those region’s real estate markets. As of the end of the quarter, California and Tennessee properties accounted for 11.2% or $113.3 million; and 10.1% or $102.5 million of the company’s total assets, respectively.
The company reported that it is exploring several options to address the liquidity issues and debt maturities, including seeking loan extensions, refinancing, selling properties, or negotiating with bondholders for waivers or amendments to debt covenants.
However, the company stated that “there can be no assurances as to the certainty or timing of management’s plans to be effectively implemented” due to the current commercial real estate lending environment, high interest rates, and overall market challenges. This uncertainty is the basis for the “going concern” warning.
Subsequent to quarterly reporting, the REIT entered into a credit agreement with Whitehawk Capital Partners LP for a loan of $80 million in July 2025. The loan has an annual interest rate of one-month secured overnight financing rate plus 6.5% with a SOFR floor of 3.5% and a maturity date of Dec. 1, 2027, or upon disposition of securitized Park Highlands land – whichever comes first. The December 2027 maturity date may be extended to March 1, 2028, assuming there is no event of default. The loan is secured by undeveloped lands in Park Highlands and Richardson and 210 West 31st Street, a development property. As a result of entering into the loan, the REIT paid all outstanding Series C bonds of 142 million Israeli new shekels ($42.2 million as of July 29, 2025) and was subject to a 5 million Israeli new shekels ($1.5 million as of July 29) early pay interest penalty.
Also in July, the company sold Georgia 400 Center, an office property, for gross sale proceeds of $39.1 million, before closing costs and credits. In connection with the sale, it repaid $39.5 million of the outstanding principal due under the secured mortgage loan. The purchaser was not affiliated with the REIT or its adviser, Pacific Oak Capital Advisors.
As of June 30, the company’s portfolio consisted of eight office complexes (64% occupied), a residential home portfolio of 2,078 homes (92% occupied), one apartment property (90% occupied), a hotel, and several undeveloped land and development properties. The company also confirmed it was compliant with all debt covenants as of its previous report on Dec. 31, 2024.
Earlier this year, AltsWire reported that Michael A. Bender had resigned from his positions of executive vice president, chief financial officer, treasurer, and secretary of the company effective, April 17. Bender had been appointed chief financial officer of the commercial real estate-focused alternative investments programs sponsor, Pacific Oak LLC, in July 2019.
In March 2025, AltsWire reported that Pacific Oak REIT had borrowed $8 million from its advisor. The loan was increased by $2 million on June 26.
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. This REIT was designed to capitalize on the dislocation, lack of liquidity, and government intervention that exists in the commercial real estate markets by acquiring a diverse portfolio of opportunistic investments in discounted debt and distressed equity assets. The REIT seeks to provide stockholders attractive total returns through the purchase of non-performing loans at favorable prices and real estate from distressed sellers.
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