Shares of KBS Strategic Opportunity REIT are not suitable for all investors and an investment in KBS Strategic Opportunity REIT is subject to substantial risks. These risks may include, but are not limited to:
- The possibility of losing your entire investment.
- No guarantees regarding future performance.
- Upon sale or distribution of assets you may receive less than your initial investment.
- Fluctuation of the value of the assets owned by KBS Strategic Opportunity REIT.
- The absence of a public market for shares of KBS Strategic Opportunity REIT.
- A lack of an operating history for KBS Strategic Opportunity REIT.
- Limited transferability and lack of liquidity.
- Reliance on its advisor to select investments and conduct its operations.
- Payment of significant fees to advisor, its affiliates, and participating broker/dealers.
- Potential conflicts of interest.
- Lack of diversification in property holdings until significant funds have been raised.
- Various economic factors that may include changes in interest rates, laws operating expenses, insurance costs and tenant turnover. These factors may result in reduced earnings, reduction in value of notes/loans, delinquency of payments and default on loans owned by the REIT.
- Continued disruptions in the financial markets and deteriorating economic conditions could adversely affect the value of KBS Strategic Opportunity REIT’s investments.
KBS Strategic Opportunity REIT may invest in residential and commercial mortgage backed securities, collateralized debt obligations and other structured debt securities, as well as real estate-related loans. Many of these types of investments have become illiquid and considerably less valuable over the past two years. This reduced liquidity and decrease in value has caused financial hardship for many investors in these assets. KBS Strategic Opportunity REIT can give no assurances that its investments in these assets will be successful.
KBS Strategic Opportunity REIT’s investments will be subject to the risks typically associated with real estate, such as adverse changes in national and local economic and real estate conditions, financial markets or applicable laws, which could adversely affect the REIT’s ability to implement its business strategy and generate returns to its investors. Because of the illiquid nature of many of the REIT’s investments, it may not be able to vary its portfolio in response to such changes.
The debt and equity investments which KBS Strategic Opportunity REIT makes, including B-Notes, mezzanine loans, bridge loans, non-conforming and non-investment grade loans and residential mortgage-backed securities backed by such loans, subordinated loans and subordinated residential and commercial mortgage-backed securities, may involve increased risk of delinquency, foreclosure and loss or failure of the underlying entity, which may result in the decrease in value of an investment in the REIT.
The residential and commercial mortgage-backed securities in which the REIT may invest are subject to the risks of the mortgage securities market as a whole and risks of the securitization process. The REIT’s investments in debt securities and preferred and common equity securities will be subject to the specific risks relating to the particular issuer of the securities and may involve greater risk of loss than secured debt financings.
Construction loans involve a high risk of loss if the REIT is unsuccessful in raising the unfunded portion of the loan or if a borrower otherwise fails to complete the construction of a project. Land loans and pre-development loans involve similarly high risks of loss if construction financing cannot be obtained. The REIT intends to make direct investments in opportunistic real estate, which involves a higher risk of loss than more conservative real estate investment strategies.
KBS Strategic Opportunity REIT’s organizational documents do not restrict it from paying distributions from any source and do not restrict that amount of distributions it may pay from any source, including offering proceeds. Distributions paid from sources other than current or accumulated earnings and profits may constitute a return of capital. A return of capital would reduce the amount the REIT would have for investment which could reduce an investor’s return on their investment. There are no guarantees that KBS Strategic Opportunity REIT will pay distributions.
KBS Capital Advisors (KBS Strategic Opportunity REIT’s advisor) and its affiliates, KBS Strategic Opportunity REIT’s executive officers, some of its directors and other key professionals face conflicts of interest, including significant conflicts created by its advisor’s compensation arrangements with the REIT and other KBS sponsored programs and investors.
KBS Strategic Opportunity REIT expects to use debt in connection with its investments, which increases the risk of loss associated with these investments and could hinder its ability to pay distributions to its stockholders or could decrease the value of its stockholders’ investments if income on, or the value of, the property securing the debt declines.
KBS Strategic Opportunity REIT may make adjustments to its target portfolio, based on real estate market conditions and investment opportunities. The REIT may change its targeted investments and investment guidelines at any time without the consent of its stockholders.
KBS Strategic Opportunity REIT elected to be taxed as a REIT beginning with the taxable year ended December 31, 2010. Should KBS Strategic Opportunity
REIT not qualify as a REIT, it may be subject to adverse tax consequences. Please refer to the prospectus for more detailed information regarding these consequences.
An investment in shares of KBS Strategic Opportunity REIT is complex. Investors should read and understand the prospectus, which contains additional important information.