10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2006
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number: 333-133652

NNN Healthcare/Office REIT, Inc.

(Exact name of registrant as specified in its charter)

Maryland	20-4738467
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1551 N. Tustin Avenue, Suite 200	92705
Santa Ana, California	(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code:

(714) 667-8252

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
None	None

Securities registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Accelerated filer o     Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

As of February 28, 2007, there were 743,399 shares of common stock of NNN Healthcare/Office REIT, Inc. outstanding.

NNN Healthcare/Office REIT, Inc.
(A Maryland Corporation)

TABLE OF CONTENTS

			Page
PART I
	Item 1.	Business		3
	Item 1A.	Risk Factors		13
	Item 2.	Properties		40
	Item 3.	Legal Proceedings		40
	Item 4.	Submission of Matters to a Vote of Security Holders		40
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		40
	Item 6.	Selected Financial Data		41
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		55
	Item 8.	Financial Statements and Supplementary Data		56
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		56
	Item 9A.	Controls and Procedures		56
	Item 9B.	Other Information		56
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		57
	Item 11.	Executive Compensation		61
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		63
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		64
	Item 14.	Principal Accounting Fees and Services		68
PART IV
	Item 15.	Exhibits, Financial Statement Schedules		69
SIGNATURES				87
EXHIBIT 3.1
EXHIBIT 21.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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PART I

Item 1.   Business.

The use of the words “we,” “us” or “our” refers to NNN Healthcare/Office REIT, Inc. and our subsidiary, NNN Healthcare/Office REIT Holdings, L.P., except where the context otherwise requires.

OUR COMPANY

NNN Healthcare/Office REIT, Inc., a Maryland corporation, was incorporated on April 20, 2006 and intends to provide investors the potential for income and growth through investment in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, healthcare-related facilities and quality commercial office properties that produce current income. We may also invest in real estate related securities. We intend to qualify as a real estate investment trust, or REIT, for federal income tax purposes for our taxable year ended December 31, 2007.

We are conducting a best efforts initial public offering, or our Offering, in which we are offering a minimum of 200,000 shares of our common stock aggregating at least $2,000,000, or the minimum offering, and a maximum of 200,000,000 shares of our common stock for $10.00 per share and 21,052,632 shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, at $9.50 per share, aggregating up to $2,200,000,000, or the maximum offering. Shares purchased by our executive officers and directors, by NNN Capital Corp., or our Dealer Manager, by NNN Healthcare/Office REIT Advisor, LLC, or our Advisor, or by its affiliates did not count towards the minimum offering. As of February 28, 2007, we received and accepted subscriptions in our Offering for 722,689 shares of our common stock, or $7,197,000.

We anticipate that we will conduct substantially all of our operations through NNN Healthcare/Office REIT Holdings, L.P., or our Operating Partnership. We are externally advised by our Advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us, our Advisor and Triple Net Properties, LLC, or Triple Net Properties, the managing member of our Advisor. The Advisory Agreement has a one year term that expires in September 2007 and is subject to successive one-year renewals upon the mutual consent of the parties. Our Advisor supervises and manages our day-to-day operations and will select the properties and securities we acquire, subject to oversight by our board of directors. Our Advisor will also provide marketing, sales and client services on our behalf. Our Advisor is affiliated with us in that we and our Advisor have common officers, some of whom also own an indirect equity interest in our Advisor. Our Advisor engages affiliated entities, including Triple Net Properties Realty, Inc., or Realty, to provide various services to us and our future properties.

In the fourth quarter of 2006, NNN Realty Advisors, Inc., or NNN Realty Advisors, or our Sponsor, acquired all of the outstanding ownership interests of Triple Net Properties, NNN Capital Corp. and Realty. As a result, we consider NNN Realty Advisors to be our Sponsor.

Developments during 2006 and 2007

•  In October 2006, our board of directors approved the acquisitions of: (i) Southpointe Office Parke and Epler Parke I, or the Southpointe property, a portfolio of seven multi-tenant office/medical office buildings located in the Southport community of Indianapolis, Indiana, for a purchase price of $14,800,000 and (ii) Crawfordsville Medical Office Park and Athens Surgery Center, or the Crawfordsville property, situated within the St. Clare Medical Center campus located in Crawfordsville, Indiana, for a purchase price of $6,900,000, contingent upon raising the minimum offering, sufficient financing and other conditions,.

•  In October 2006, our board of directors approved an initial distribution rate of 6.5% per annum to be paid monthly to stockholders of record, contingent upon our acquisition of either the Crawfordsville property or the Southpointe property,.

•  On January 8, 2007, excluding shares purchased by our executive officers and directors, our Dealer Manager and our Advisor and its affiliates, we had received and accepted subscriptions in our Offering

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for 200,846 shares of our common stock, or $2,004,000, thereby exceeding the minimum offering. Having raised the minimum offering, the offering proceeds were released by the escrow agent to us and became available for the acquisition of properties and other purposes disclosed in our Registration Statement on Form S-11(File No. 333-133652, effective September 20, 2006) filed with the Securities and Exchange Commission, or the SEC, or our Offering prospectus.

•  On January 22, 2007, we acquired all of the membership interests of NNN Southpointe, LLC and NNN Crawfordsville, LLC for a total purchase price of $14,800,000 and $6,900,000, respectively, plus closing costs. NNN Southpointe, LLC has a fee simple ownership interest in the Southpointe property. NNN Crawfordsville, LLC has a fee simple ownership interest in the Crawfordsville property. We acquired the membership interests from NNN South Crawford Member, LLC, an indirect wholly-owned subsidiary of our Sponsor.

•  In January 2007, our board of directors approved the acquisitions of: (i) the Gallery Professional Building located in St. Paul, Minnesota for a purchase price of $8,800,000, plus closing costs; and (ii) Lennox Office Park, Building G, located in Memphis, Tennessee for a purchase price of $18,500,000, plus closing costs, contingent upon raising sufficient financing and other conditions.

•  On February 14, 2007, our board of directors approved a 7.25% per annum distribution to be paid to stockholders beginning with our February 2007 monthly distribution which will be paid in March 2007. Distributions are paid monthly.

Our Structure

The following is a summary of our organizational structure as of December 31, 2006:

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Our principal executive offices are located at 1551 N. Tustin Avenue, Suite 200, Santa Ana, California 92705 and the telephone number is (714) 667-8252.

We make our periodic and current reports available on Triple Net Properties’ website at www.1031nnn.com as soon as reasonably practicable after such materials are electronically filed with the Securities and Exchange Commission, or the SEC. They are also available for printing by any stockholder upon request.

CURRENT INVESTMENT OBJECTIVES AND POLICIES

General

Our investment objectives are:

•  to pay regular cash distributions;

•  to preserve, protect and return stockholders’ capital contributions; and

•  to realize growth in the value of our investments upon our ultimate sale of such investments.

We cannot assure stockholders that we will attain these objectives or that our capital will not decrease. Our board of directors may change our investment objectives if it determines it is advisable and in the best interests of our stockholders.

Decisions relating to the purchase or sale of investments will be made by our Advisor, subject to oversight and approval by our board of directors. See Item 10. Directors, Executive Officers and Corporate Governance for a description of the background and experience of our directors and officers as well as the officers of our Advisor.

Business Strategies

We intend to invest in a diversified portfolio of real estate, focusing primarily on investments that produce current income. Our real estate investments will focus on medical office buildings, healthcare-related facilities and quality commercial office properties. We may also invest in real estate related securities. However, we do not presently intend to invest more than 15.0% of our total assets in real estate related securities. Our real estate related securities investments will generally focus on common and preferred stock of public or private real estate companies, collateralized mortgage-backed securities, or CMBS, other forms of mortgage debt and certain other securities, including collateralized debt obligations and foreign securities. We will seek to maximize long-term stockholder value by generating sustainable growth in cash flow and portfolio value. In order to achieve these objectives, we may invest using a number of investment structures which may include direct acquisitions, joint ventures, leveraged investments, issuing securities for property and direct and indirect investments in real estate. In order to maintain our exemption from regulation as an investment company under the Investment Company Act of 1940, we may be required to limit our investments in real estate related securities.

In addition, when and as determined appropriate by our Advisor, the portfolio may also include properties in various stages of development other than those producing current income. These stages would include, without limitation, unimproved land, both with and without entitlements and permits, property to be redeveloped and repositioned, newly constructed properties and properties in lease-up or other stabilization, all of which will have limited or no relevant operating histories and no current income. Our Advisor will make this determination based upon a variety of factors, including the available risk adjusted returns for such properties when compared with other available properties, the appropriate diversification of the portfolio, and our objectives of realizing both current income and capital appreciation upon the ultimate sale of properties.

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For each of our investments, regardless of property type, our Advisor will seek to invest in properties with the following attributes:

•  Quality.  We will seek to acquire properties that are suitable for their intended use with a quality of construction that is capable of sustaining the property’s investment potential for the long-term, assuming funding of budgeted maintenance, repairs and capital improvements.

•  Location.  We will seek to acquire properties that are located in established or otherwise appropriate markets for comparable properties, with access and visibility suitable to meet the needs of its occupants.

•  Market; and Supply and Demand.  We will focus on local or regional markets which have potential for stable and growing property level cash flow over the long-term. These determinations will be based in part on an evaluation of local economic, demographic and regulatory factors affecting the property. For instance, we will favor markets that indicate a growing population and employment base or markets that exhibit potential limitations on additions to supply, such as barriers to new construction. Barriers to new construction include lack of available land and stringent zoning restrictions. In addition, we will generally seek to limit our investments in areas that have limited potential for growth.

•  Predictable Capital Needs.  We will seek to acquire properties where the future expected capital needs can be reasonably projected in a manner that would allow us to meet our objectives of growth in cash flow and preservation of capital and stability.

•  Cash Flow.  We will seek to acquire properties where the current and projected cash flow, including the potential for appreciation in value, would allow us to meet our overall investment objectives. We will evaluate cash flow as well as expected growth and the potential for appreciation.

We will not invest more than 10.0% of the offering proceeds available for investment in unimproved or non-income producing properties or in other investments relating to unimproved or non-income producing properties. A property: (1) not acquired for the purpose of producing rental or other operating income, or (2) with no development or construction in process or planned in good faith to commence within one year will be considered unimproved or non-income producing property for purposes of this limitation.

We are not limited as to the geographic area where we may acquire properties. We are not specifically limited in the number or size of properties we may acquire or on the percentage of our assets that we may invest in a single property or investment. The number and mix of properties we acquire will depend upon real estate and market conditions and other circumstances existing at the time we are acquiring our properties and making our investments and the amount of proceeds we raise in our Offering and potential future offerings.

Acquisition Strategies

Real Property Investments

We intend to invest in a diversified portfolio of properties, focusing primarily on properties that produce current income. We will generally seek investments in medical office buildings, healthcare-related facilities and quality commercial office properties. Healthcare-related facilities include facilities leased to hospitals, long-term acute care centers, surgery centers, specialty medical and diagnostic service providers, laboratories, research firms, pharmaceutical and medical supply manufacturers and health insurance firms. Quality commercial office properties are generally in desirable locations, generally are of high quality construction, may offer personalized tenant amenities and attract high quality tenants.

Our Advisor will generally seek to acquire properties on our behalf of the types described above that will best enable us to meet our investment objectives, taking into account the diversification of our portfolio at the time, relevant real estate and financial factors, the location, income-producing capacity and the prospects for long-range appreciation of a particular property and other considerations. As a result, we may acquire properties other than the types described above. In addition, we may acquire properties that vary from the parameters described above for a particular property type.

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The consideration for each real estate investment must be authorized by a majority of our directors or a duly authorized committee of our board, ordinarily based on the fair market value of the investment. If the majority of our independent directors or a duly authorized committee of our board so determines, or if the investment is to be acquired from an affiliate, the fair market value determination will be supported by an appraisal obtained from a qualified, independent appraiser selected by a majority of our independent directors.

Our investments in real estate generally will take the form of holding fee title or long-term leasehold interests. Our investments may be made either directly through our Operating Partnership or indirectly through investments in joint ventures, limited liability companies, general partnerships or other co-ownership arrangements with the developers of the properties, affiliates of our Advisor or other persons.

In addition, we may purchase properties and lease them back to the sellers of such properties. Our Advisor will use its best efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a “true lease” and so that we will be treated as the owner of the property for federal income tax purposes. However, no assurance can be given that the IRS will not challenge such characterization. In the event that any such sale-leaseback transaction is re-characterized as a financing transaction for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed or significantly reduced.

Our obligation to close a transaction involving the purchase of a real property asset will generally be conditioned upon the delivery and verification of certain documents from the seller or developer, including, where appropriate:

•  plans and specifications;

•  environmental reports (generally a minimum of a Phase I investigation);

•  building condition reports;

•  surveys;

•  evidence of marketable title subject to such liens and encumbrances as are acceptable to our Advisor;

•  audited financial statements covering recent operations of real properties having operating histories unless such statements are not required us to be filed with the SEC, and delivered to stockholders;

•  title insurance policies; and

•  liability insurance policies.

In determining whether to purchase a particular property, we may, in circumstances in which our Advisor deems it appropriate, obtain an option on such property, including land suitable for development. The amount paid for an option, if any, is normally surrendered if the property is not purchased, and is normally credited against the purchase price if the property is purchased. We may also enter into arrangements with the seller or developer of a property whereby the seller or developer agrees that if, during a stated period, the property does not generate a specified cash flow, the seller or developer will pay in cash to our company a sum necessary to reach the specified cash flow level, subject in some cases to negotiated dollar limitations.

We will not purchase or lease properties in which our Sponsor, our Advisor, our directors or any of their affiliates have an interest without a determination by a majority of our disinterested directors and a majority of our disinterested independent directors that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the property to the affiliated seller or lessor, unless there is substantial justification for the excess amount and the excess amount is reasonable. In no event will we acquire any such property at an amount in excess of its current appraised value as determined by an independent expert selected by our disinterested independent directors.

We intend to obtain adequate insurance coverage for all properties in which we invest. However, there are types of losses, generally catastrophic in nature, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders.

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Joint Venture Investments

We may enter into joint ventures, general partnerships and other arrangements with one or more institutions or individuals, including real estate developers, operators, owners, investors and others, some of whom may be affiliates of our Advisor, for the purpose of acquiring real estate. Such joint ventures may be leveraged with debt financing or unleveraged. We may enter into joint ventures to further diversify our investments or to access investments which meet our investment criteria that would otherwise be unavailable to us. In determining whether to invest in a particular joint venture, our Advisor will evaluate the real estate that such joint venture owns or is being formed to own under the same criteria used in the selection of our other properties. However, we will not participate in tenant-in-common syndications or transactions.

Joint ventures with unaffiliated third parties may be structured such that the investment made by us and the co-venturer are on substantially different terms and conditions. For example, while we and a co-venturer may invest an equal amount of capital in an investment, the investment may be structured such that we have a right to priority distributions of cash flow up to a certain target return while the co-venturer may receive a disproportionately greater share of cash flow than we are to receive once such target return has been achieved. This type of investment structure may result in the co-venturer receiving more of the cash flow, including appreciation, of an investment than we would receive.

We may only enter into joint ventures with other NNN Realty Advisors or Triple Net Properties programs, affiliates of our Advisor, or any of our directors for the acquisition of properties if:

•  a majority of our directors, including a majority of our independent directors, approve the transaction as being fair and reasonable to us; and

•  the investment by us and such affiliate are on substantially the same terms and conditions that are no less favorable than those that would be available to unaffiliated third parties.

Our entering into joint ventures with our Advisor or any of its affiliates will result in certain conflicts of interest.

Securities Investments

We may invest in the following types of real estate related securities: (1) equity securities such as common stocks, preferred stocks and convertible preferred securities of public or private real estate companies (including other REITs, real estate operating companies and other real estate companies); (2) debt securities such as CMBS, commercial mortgages, mortgage loan participations and debt securities issued by other real estate companies; and (3) certain other types of securities that may help us reach our diversification and other investment objectives. These other securities may include, but are not limited to, mezzanine loans, bridge loans, various types of collateralized debt obligations and certain non-U.S. dollar denominated securities.

Our Advisor will have substantial discretion with respect to the selection of specific securities investments. Our charter provides that we may not invest in equity securities unless a majority of the directors (including a majority of independent directors) not otherwise interested in the transaction approve such investment as being fair, competitive and commercially reasonable. Consistent with such requirements, in determining the types of real estate related securities investments to make, our Advisor will adhere to a board-approved asset allocation framework consisting primarily of components such as (1) target mix of securities across a range of risk/reward characteristics, (2) exposure limits to individual securities and (3) exposure limits to securities subclasses (such as common equities, mortgage debt and foreign securities). Within this framework, our Advisor will evaluate specific criteria for each prospective real estate related securities investment including:

•  positioning the overall portfolio to achieve an optimal mix of real property and real estate related securities investments;

•  diversification benefits relative to the rest of the securities assets within our portfolio;

•  fundamental securities analysis;

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•  quality and sustainability of underlying property cash flows;

•  broad assessment of macro economic data and regional property level supply and demand dynamics;

•  potential for delivering high current income and attractive risk-adjusted total returns; and

•  additional factors considered important to meeting our investment objectives.

We are not specifically limited in the number or size of our real estate related securities investments, or on the percentage of the net proceeds from our Offering that we may invest in a single real estate related security or pool of real estate related securities. However, we do not presently intend to invest more than 15.0% of our total assets in securities. The specific number and mix of real estate related securities in which we invest will depend upon real estate market conditions, other circumstances existing at the time we are investing in our real estate related securities and the amount of proceeds we raise in our Offering. We will not invest in securities of other issuers for the purpose of exercising control and the first or second mortgages in which we intend to invest will likely not be insured by the Federal Housing Administration or guaranteed by the Veterans Administration or otherwise guaranteed or insured.

Disposition Strategies

We intend to hold each property or real estate related securities investment we acquire for an extended period. However, circumstances might arise which could result in a shortened holding period for certain investments. In general, the holding period for securities assets is expected to be shorter than the holding period for real property assets. An investment in a property or security may be sold before the end of the expected holding period if:

•  diversification benefits exist associated with disposing of the investment and rebalancing our investment portfolio;

•  an opportunity arises to pursue a more attractive investment;

•  in the judgment of our Advisor, the value of the investment might decline;

•  with respect to properties, a major tenant involuntarily liquidates or is in default under its lease;

•  the investment was acquired as part of a portfolio acquisition and does not meet our general acquisition criteria;

•  an opportunity exists to enhance overall investment returns by raising capital through sale of the investment; or

•  in the judgment of our Advisor, the sale of the investment is in our best interests.

The determination of whether a particular property or real estate related securities investment should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing economic conditions, with a view toward maximizing our investment objectives. We cannot assure stockholders that this objective will be realized. The selling price of a property which is net leased will be determined in large part by the amount of rent payable under the lease(s) for such property. If a tenant has a repurchase option at a formula price, we may be limited in realizing any appreciation. In connection with our sales of properties we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. The terms of payment will be affected by custom in the area in which the investment being sold is located and the then-prevailing economic conditions.

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Operating Strategies

Our primary operating strategy is to acquire suitable properties that meet our acquisition standards and to enhance the performance and value of those properties through management strategies designed to address the needs of current and prospective tenants. Our management strategies include:

•  aggressively leasing available space through targeted marketing augmented, where possible, by our Advisor’s local asset and property management offices;

•  controlling operating expenses by centralization of asset and property management, leasing, marketing, financing, accounting, renovation and data processing activities;

•  emphasizing regular maintenance and periodic renovation to meet the needs of tenants and to maximize long-term returns; and

•  financing acquisitions and refinancing properties when favorable terms are available to increase cash flow.

FINANCING POLICIES

We intend to use secured and unsecured debt as a means of providing additional funds for the acquisition of properties and real estate related securities. Our ability to enhance our investment returns and to increase our diversification by acquiring assets using additional funds provided through borrowing could be adversely impacted if banks and other lending institutions reduce the amount of funds available for the types of loans we seek. When interest rates are high or financing is otherwise unavailable on a timely basis, we may purchase certain assets for cash with the intention of obtaining debt financing at a later time.

We anticipate that aggregate borrowings, both secured and unsecured, will not exceed 60.0% of all of our properties’ combined fair market values, as determined at the end of each calendar year beginning with our first full year of operation. For these purposes, the fair market value of each asset will be equal to the purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the fair market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment.

Our charter precludes us from borrowing in excess of 300.0% of the value of our net assets, unless approved by our independent directors and the justification for such excess borrowing is disclosed to our stockholders in our next quarterly report. As a result of the acquisitions of the Crawfordsville property and the Southpointe property, as of January 22, 2007, our leverage exceeds 300.0%. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources for a further discussion. In accordance with our charter, a majority of our directors, including a majority of our independent directors, approved our leverage exceeding 300.0% in connection with the acquisitions. The board of directors determined that the excess leverage was justified because it enabled us to purchase the properties during the initial stages of our Offering, thereby improving our ability to meet our goal of acquiring a diversified portfolio of properties to generate current income for investors and preserve investor capital. We will likely continue to exceed our charter’s leverage guidelines during the early stages of our operations. We will take action to reduce any such excess as soon as practicable. Net assets for purposes of this calculation are defined as our total assets (other than intangibles), valued at cost prior to deducting depreciation, reserves for bad debts and other non-cash reserves, less total liabilities. The preceding calculation is generally expected to approximate 75.0% of the sum of (1) the aggregate cost of our properties before non-cash reserves and depreciation and (2) the aggregate cost of our securities assets.

By operating on a leveraged basis, we will have more funds available for our investments. This will generally allow us to make more investments than would otherwise be possible, potentially resulting in enhanced investment returns and a more diversified portfolio. However, our use of leverage increases the risk of default on loan payments and the resulting foreclosure of a particular asset. In addition, lenders may have recourse to assets other than those specifically securing the repayment of the indebtedness.

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Our Advisor will use its best efforts to obtain financing on the most favorable terms available to us and will refinance assets during the term of a loan only in limited circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing loan, when an existing loan matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment. The benefits of the refinancing may include an increased cash flow resulting from reduced debt service requirements, an increase in distributions from proceeds of the refinancing, and an increase in diversification and assets owned if all or a portion of the refinancing proceeds are reinvested.

Our charter restricts us from borrowing money from any of our directors or from our Advisor and its affiliates unless such loan is approved by a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction, as fair, competitive and commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties.

TAX STATUS

We intend to make an election to be taxed as a REIT, under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, or the Code, and we intend to be taxed as such beginning with our taxable year ended December 31, 2007. We intend to qualify as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90.0% of our ordinary taxable income to stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. Because of our intention to elect REIT status in 2007, we will not benefit from the loss incurred in the year ended December 31, 2006.

DISTRIBUTION POLICY

In order to qualify as a REIT, we are required to distribute at least 90.0% of our annual taxable income to our stockholders. The amount of any cash distributions will be determined by our board of directors and will depend on the amount of distributable funds, current and projected cash requirements, tax considerations, any limitations imposed by the terms of indebtedness we may incur and other factors. If our investments produce sufficient cash flow, we expect to pay distributions to our stockholders on a monthly basis. Because our cash available for distribution in any year may be less than 90.0% of our taxable income for the year, we may be required to borrow money, use proceeds from the issuance of securities or sell assets to pay out enough of our taxable income to satisfy the distribution requirement.

See Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters and Issuer Purchases of Equity Securities — Distributions for a further discussion on distribution rates approved by our board of directors.

COMPETITION

We compete with many other real estate investment entities for the acquisition of medical office buildings, healthcare-related facilities and quality commercial office properties, including financial institutions, institutional pension funds, real estate developers, other REITs, other public and private real estate companies and private real estate investors. During the acquisitions process, we may face competitors who have a comparative advantage in terms of size, capitalization, depth of experience, local knowledge of the marketplace, and extended contacts throughout the region. Any combination of these factors faced during the offering process may result in an increased purchase price which may reduce the number of opportunities available that meet our investment criteria. If the number of opportunities that meet our investment criteria are limited, our ability to increase stockholder value may be adversely impacted.

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We may also face competition in leasing available medical office buildings, healthcare-related facilities and quality commercial office properties to prospective tenants. As a result, we may have to provide rent concessions, incur charges for tenant improvements, offer other inducements, or we may be unable to timely lease vacant space, all of which may have an adverse impact on our results of operations. At the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers.

GOVERNMENT REGULATIONS

Many laws and governmental regulations are applicable to our properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.

Costs of Compliance with the Americans with Disabilities Act.  Under the Americans with Disabilities Act of 1990, or the ADA, all public accommodations must meet federal requirements for access and use by disabled persons. Although we believe that we are in substantial compliance with present requirements of the ADA, none of our properties have been audited, nor have investigations of our properties been conducted to determine compliance. We may incur additional costs in connection with the ADA. Additional federal, state and local laws also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the cost of compliance with the ADA or other legislation. If we incur substantial costs to comply with the ADA or any other legislation, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations and pay distributions could be adversely affected.

Costs of Government Environmental Regulation and Private Litigation.  Environmental laws and regulations hold us liable for the costs of removal or remediation of certain hazardous or toxic substances which may be on our properties. These laws could impose liability without regard to whether we are responsible for the presence or release of the hazardous materials. Government investigations and remediation actions may have substantial costs and the presence of hazardous substances on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances for the cost of removal or remediation of hazardous substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. As the owner and operator of our properties, we may be deemed to have arranged for the disposal or treatment of hazardous or toxic substances.

Use of Hazardous Substances by Some of Our Tenants.  Some of our tenants routinely handle hazardous substances and wastes on our properties as part of their routine operations. Environmental laws and regulations subject these tenants, and potentially us, to liability resulting from such activities. We require our tenants, in their leases, to comply with these environmental laws and regulations and to indemnify us for any related liabilities. We are unaware of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of our properties.

Other Federal, State and Local Regulations.  Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we may incur governmental fines or private damage awards. While we believe that our properties are currently in material compliance with all of these regulatory requirements, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely affect our ability to make distributions to our stockholders. We believe, based in part on engineering reports which are generally obtained at the time we acquire the properties, that all of our properties comply in all material respects with current regulations. However, if we were required to make significant expenditures under applicable regulations, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations and to pay distributions could be adversely affected.

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EMPLOYEES

We have no employees and our company’s executive officers are all employees of affiliates of our Advisor. We cannot determine at this time if or when we might hire any employees, although we do not anticipate hiring any employees for the next twelve months. Our executive officers and key employees of affiliates of our Advisor are compensated by affiliates of our Advisor and will not receive any compensation from us for their services. However, our executive officers and key employees of affiliates of our Advisor will be eligible for awards under our 2006 Incentive Award Plan. As of December 31, 2006, no awards had been granted to our executive officers or our Advisor’s key employees under this plan.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

We internally evaluate all of our properties and interests therein as one industry segment and, accordingly, we do not report segment information.

Item 1A.   Risk Factors.

Investment Risks

There is currently no public market for shares of our common stock. Therefore, it will be difficult for our stockholders to sell their shares and, if our stockholders are able to sell their shares, our stockholders will likely sell them at a substantial discount.

There currently is no public market for shares of our common stock. We do not expect a public market for our stock to develop prior to the listing of our shares on a national securities exchange, which we do not expect to occur in the near future and which may not occur at all. Additionally, our charter contains restrictions on the ownership and transfer of our shares, and these restrictions may inhibit our stockholders’ ability to sell their shares. We have adopted a share repurchase plan, but it is limited in terms of the amount of shares that may be repurchased annually. Our board of directors may also limit, suspend, terminate or amend our share repurchase plan upon 30 days’ notice. Therefore, it will be difficult for our stockholders to sell their shares promptly or at all. If our stockholders are able to sell their shares, our stockholders may only be able to sell them at a substantial discount from the price our stockholders paid. This may be the result, in part, of the fact that, at the time we make our investments, the amount of funds available for investment will be reduced by up to 11.5% of the gross offering proceeds, which will be used to pay selling commissions, the marketing support fee, due diligence expense reimbursements and organizational and offering expenses. We will also be required to use gross offering proceeds to pay acquisition fees, advisory fees and acquisition expenses. Unless our aggregate investments increase in value to compensate for these up front fees and expenses, which may not occur, it is unlikely that our stockholders will be able to sell their shares, whether pursuant to our share repurchase plan or otherwise, without incurring a substantial loss. We cannot assure our stockholders that their shares will ever appreciate in value to equal the price they paid for our shares. Thus, investors should consider the purchase of shares of our common stock as illiquid and a long-term investment, and be prepared to hold our shares for an indefinite length of time.

We have purchased two properties and have only identified two additional properties to acquire with the net proceeds we will receive from the future equity raise and stockholders are therefore unable to evaluate the economic merits of most of our investments prior to purchasing shares of our common stock.

We have purchased two healthcare related-facilities with the net proceeds from our Offering. As of March 2, 2007, we have only identified two additional potential properties to acquire with the net proceeds we will receive from our Offering. Other than these four properties, our stockholders are unable to evaluate the manner in which the net proceeds are invested and the economic merits of our investments prior to purchasing shares of our common stock. Additionally, our stockholders do not have the opportunity to evaluate the transaction terms or other financial or operational data concerning other investment properties or real estate related securities.

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If we are unable to find suitable investments, we may not be able to achieve our investment objectives.

Our stockholders must rely on our Advisor, to evaluate our investment opportunities, and our Advisor may not be able to achieve our investment objectives, may make unwise decisions or may make decisions that are not in our best interest because of conflicts of interest. Further, we cannot assure our stockholders that acquisitions of real estate or real estate related securities made using the proceeds of our Offering will produce a return on our investment or will generate cash flow to enable us to make distributions to our stockholders.

Our stockholders may be unable to sell their shares because their ability to have their shares repurchased pursuant to our share repurchase plan is subject to significant restrictions and limitations.

Even though our share repurchase plan may provide our stockholders with a limited opportunity to sell their shares to us after they have held them for a period of one year, our stockholders should be fully aware that our share repurchase plan contains significant restrictions and limitations. Further, our board may limit, suspend, terminate or amend any provision of the share repurchase plan upon 30 days’ notice. Repurchase of shares, when requested, will generally be made quarterly. Repurchases will be limited to (1) those that could be funded from the net proceeds from the sale of shares under the DRIP in the prior 12 months, and (2) 5.0% of the weighted average number of shares outstanding during the prior calendar year. In addition, our stockholders must present at least 25.0% of their shares for repurchase, and until three years following our Offering, repurchases will be made for less than they paid for their shares. Therefore, in making a decision to purchase shares of our common stock, our stockholders should not assume that they will be able to sell any of their shares back to us pursuant to our share repurchase plan at any particular time or at all.

We are conducting a best efforts offering and if we are unable to raise substantial funds, we will be limited in the number and type of investments we may make, which will result in a less diversified portfolio.

Our Offering is being made on a best efforts basis, whereby our Dealer Manager and the broker-dealers participating in our Offering are only required to use their best efforts to sell our shares and have no firm commitment or obligation to purchase any of the shares. If we are unable to raise substantially more than the minimum offering, we will have limited diversification in terms of the number of investments owned, the geographic regions in which our investments are located and the types of investments that we make. Our stockholders’ investment in our shares will be subject to greater risk to the extent that we lack a diversified portfolio of investments. In such event, the likelihood of our profitability being affected by the poor performance of any single investment will increase.

Our Offering is a fixed price offering and the fixed offering price may not accurately represent the current value of our assets at any particular time. Therefore the purchase price our stockholders paid for shares of our common stock may be higher than the value of our assets per share of our common stock at the time of their purchase.

Our Offering is a fixed price offering, which means that our Offering price for shares of our common stock is fixed and will not vary based on the underlying value of our assets at any time. Our board of directors arbitrarily determined our Offering price in its sole discretion. The fixed offering price for shares of our common stock has not been based on appraisals for any assets we may own nor do we intend to obtain such appraisals. Therefore, the fixed offering price established for shares of our common stock may not accurately represent the current value of our assets per share of our common stock at any particular time and may be higher or lower than the actual value of our assets per share at such time.

Payments to our Advisor related to its subordinated participation interest in our Operating Partnership will reduce cash available for distribution to stockholders.

Our Advisor holds a subordinated participation interest in our Operating Partnership, pursuant to which it may be entitled to receive a distribution upon the occurrence of certain events, namely upon dispositions of our assets, the termination or non-renewal of the Advisory Agreement, other than for cause, or the listing of

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our common stock on a national securities exchange. The distribution payable to our Advisor will equal 15.0% of the net proceeds from the sales of properties only after we have made distributions to our stockholders of the total amount raised from our stockholders (less amounts paid to repurchase shares through our share repurchase plan) plus an annual 8.0% cumulative, non-compounded return on average invested capital. Any distributions to our Advisor by our Operating Partnership upon dispositions of our assets and such other events will reduce cash available for distribution to our stockholders.

Risks Relating to Our Business

We presently intend to effect a liquidity event by September 2013, within seven years from the date of our Offering prospectus; however, there can be no assurance that we will effect a liquidity event within such time or at all; if we do not effect a liquidity event, it will be very difficult for our stockholders to have liquidity for their investment in shares of our common stock.

On a limited basis, our stockholders may be able to sell shares through our share repurchase plan. However, in the future we may also consider various forms of liquidity events, including but not limited to (1) listing of shares of our common stock on a national securities exchange; (2) our sale or merger in a transaction that provides our stockholders with a combination of cash and/or exchange securities of a publicly traded company; and (3) the sale of all or substantially all of our real property for cash or other consideration. We presently intend to effect a liquidity event by September 20, 2013, which is seven years from the effective date of our Offering prospectus. However, we cannot assure our stockholders that we will effect a liquidity event within such time or at all. If we do not effect a liquidity event, it will be very difficult for our stockholders to have liquidity for their investment in shares of our common stock other than limited liquidity through our share repurchase plan.

Because a portion of the offering price from the sale of shares will be used to pay expenses and fees, the full offering price paid by our stockholders will not be invested in real estate investments. As a result, our stockholders will only receive a full return of their invested capital if we either (1) sell our assets or our company for a sufficient amount in excess of the original purchase price of our assets, or (2) the market value of our company after we list shares of our common stock on a national securities exchange is substantially in excess of the original purchase price of our assets.

We have limited prior operating history and there is no assurance that we will be able to successfully achieve our investment objectives.

We have limited prior operating history and we may not be able to achieve our investment objectives. As a result, an investment in shares of our common stock may entail more risks than the shares of our common stock of a REIT with a substantial operating history.

We may suffer from delays in locating suitable investments, which could reduce our ability to make distributions to our stockholders and reduce their return on their investment.

We have purchased two properties and have identified two additional property acquisitions and have not identified any additional probable investments. There may be a substantial period of time before the proceeds of our Offering are invested in suitable investments. Because we are conducting our Offering on a best efforts basis over time, our ability to commit to purchase specific assets will also depend, in part, on the amount of proceeds we have received at a given time. If we are delayed or unable to find any additional suitable investments, we may not be able to achieve our investment objectives or make distributions to our stockholders.

The availability and timing of cash distributions to our stockholders is uncertain.

We expect to make monthly distributions to our stockholders. However, we bear all expenses incurred in our operations, which are deducted from cash funds generated by operations prior to computing the amount of cash distributions to our stockholders. In addition, our board of directors, in its discretion, may retain any portion of such funds for working capital. We cannot assure our stockholders that sufficient cash will be

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available to make distributions to them or that the amount of distributions will increase over time. Should we fail for any reason to distribute at least 90.0% of our REIT taxable income, we would not qualify for the favorable tax treatment accorded to REITs.

We may not have sufficient cash available from operations to pay distributions, and, therefore, distributions may include a return of capital.

Distributions payable to stockholders may include a return of capital, rather than a return on capital. We intend to pay regular cash distributions to stockholders, typically on a monthly basis. The actual amount and timing of distributions will be determined by our board of directors in its discretion and typically will depend on the amount of funds available for distribution, which will depend on items such as current and projected cash requirements and tax considerations. As a result, our distribution rate and payment frequency may vary from time to time. During the early stages of our operations, we may not have sufficient cash available from operations to pay distributions. Therefore, we may need to use proceeds from our Offering or borrow funds to make cash distributions in order to maintain our status as a REIT, which may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. Further, if the aggregate amount of cash distributed in any given year exceeds the amount of our REIT taxable income generated during the year, the excess amount will be deemed a return of capital.

We are uncertain of our sources of debt or equity for funding our future capital needs. If we cannot obtain funding on acceptable terms, our ability to make necessary capital improvements to our properties may be impaired or delayed.

The gross proceeds of our Offering will be used to buy a diversified portfolio of real estate and real estate related securities and to pay various fees and expenses. In addition, to qualify as a REIT, we generally must distribute to our stockholders at least 90.0% of our taxable income each year, excluding capital gains. Because of this distribution requirement, it is not likely that we will be able to fund a significant portion of our future capital needs from retained earnings. We have not identified any sources of debt or equity for future funding, and such sources of funding may not be available to us on favorable terms or at all. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, pay other expenses or expand our business.

We may structure acquisitions of property in exchange for limited partnership units in our Operating Partnership on terms that could limit our liquidity or our flexibility.

We may acquire properties by issuing limited partnership units in our Operating Partnership in exchange for a property owner contributing property to the partnership. If we enter into such transactions, in order to induce the contributors of such properties to accept units in our Operating Partnership, rather than cash, in exchange for their properties, it may be necessary for us to provide them additional incentives. For instance, our Operating Partnership’s partnership agreement provides that any holder of units may exchange limited partnership units on a one-for-one basis for shares of our common stock, or, at our option, cash equal to the value of an equivalent number of our shares. We may, however, enter into additional contractual arrangements with contributors of property under which we would agree to repurchase a contributor’s units for shares of our common stock or cash, at the option of the contributor, at set times. If the contributor required us to repurchase units for cash pursuant to such a provision, it would limit our liquidity and thus our ability to use cash to make other investments, satisfy other obligations or to make distributions to our stockholders. Moreover, if we were required to repurchase units for cash at a time when we did not have sufficient cash to fund the repurchase, we might be required to sell one or more properties to raise funds to satisfy this obligation. Furthermore, we might agree that if distributions the contributor received as a limited partner in our Operating Partnership did not provide the contributor with a defined return, then upon redemption of the contributor’s units we would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to our Operating Partnership, we might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the

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contributor’s units for cash or shares. Such an agreement would prevent us from selling those properties, even if market conditions made such a sale favorable to us.

Our success will be dependent on the performance of our Advisor.

Our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of our Advisor in identifying and acquiring investments, the determination of any financing arrangements, the asset management of our investments and operation of our day-to-day activities. Our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in our Offering prospectus or other periodic filings made with the SEC. We will rely entirely on the management ability of our Advisor, subject to the oversight of our board of directors. If our Advisor suffers or is distracted by adverse financial or operational problems in connection with its operations unrelated to us, our Advisor may be unable to allocate time and/or resources to our operations. If our Advisor is unable to allocate sufficient resources to oversee and perform our operations for any reason, we may be unable to achieve our investment objectives or to pay distributions to our stockholders. In addition, our success depends to a significant degree upon the continued contributions of our Advisor’s officers and certain of the officers of our Sponsor, who will manage our Advisor, including Scott D. Peters and Andrea R. Biller, each of whom would be difficult to replace. We do not have key man life insurance on any of our Sponsor’s key personnel. If our Advisor or our Sponsor were to lose the benefit of the experience, efforts and abilities of one or more of these individuals, our operating results could suffer.

Our results of operations, our ability to pay distributions to our stockholders and our ability to dispose of our investments are subject to general economic and regulatory factors we cannot control or predict.

Our results of operations are subject to the risks of a national economic slowdown or disruption, other changes in national or local economic conditions or changes in tax, real estate, environmental or zoning laws. The following factors may affect income from our properties, our ability to dispose of properties, and yields from our properties:

•  poor economic times may result in defaults by tenants of our properties and borrowers. We may also be required to provide rent concessions or reduced rental rates to maintain or increase occupancy levels;

•  job transfers and layoffs may cause vacancies to increase and a lack of future population and job growth may make it difficult to maintain or increase occupancy levels;

•  increases in supply of competing properties or decreases in demand for our properties may impact our ability to maintain or increase occupancy levels;

•  changes in interest rates and availability of debt financing could render the sale of properties difficult or unattractive;

•  periods of high interest rates may reduce cash flow from leveraged properties; and

•  increased insurance premiums, real estate taxes or energy or other expenses may reduce funds available for distribution or, to the extent such increases are passed through to tenants, may lead to tenant defaults. Also, any such increased expenses may make it difficult to increase rents to tenants on turnover, which may limit our ability to increase our returns.

Some or all of the foregoing factors may affect the returns we receive from our investments, our results of operations, our ability to pay distributions to our stockholders or our ability to dispose of our investments.

Our Advisor and its affiliates have no obligation to defer or forgive fees or loans or advance any funds to us, which could reduce our ability to make investments or pay distributions.

In the past, our Sponsor, or its affiliates have, in certain circumstances, deferred or forgiven fees and loans payable by programs sponsored or managed by our Sponsor. Our Advisor and its affiliates, including our Sponsor, have no obligation to defer or forgive fees owed by us to our Advisor or its affiliates or to advance any funds to us. As a result, we may have less cash available to make investments or pay distributions.

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The ongoing SEC investigation of Triple Net Properties could adversely impact our Advisor’s ability to perform its duties to us.

On September 16, 2004, Triple Net Properties learned that the SEC is conducting an investigation referred to as “In the matter of Triple Net Properties, LLC.” The SEC has requested information from Triple Net Properties, relating to disclosure in certain public and private securities offerings sponsored by Triple Net Properties and its affiliates during 1998 through 2004, or the Triple Net securities offerings. The SEC also has requested information from NNN Capital Corp., the dealer manager for the Triple Net securities offerings and the Dealer Manager for our Offering. The SEC has requested financial and other information regarding the Triple Net securities offerings and the disclosures included in the related offering documents from each of Triple Net Properties and NNN Capital Corp.

Triple Net Properties and NNN Capital Corp., are engaged in settlement negotiations with the SEC staff regarding this matter. The settlement negotiations are continuing, and any settlement negotiated with the SEC staff must be approved by the Commission. Since the matter is not concluded, it remains subject to risk that the SEC may seek additional remedies, including substantial fines and injunctive relief that, if obtained, could materially adversely affect our Advisor’s ability to conduct our Offering. Additionally, any resolution of this matter that reflects negatively on the reputation of Triple Net Properties or NNN Capital Corp., could materially and adversely affect the willingness of potential investors to invest in our Offering. The matters that are subject of this investigation could also give rise to claims against Triple Net Properties by investors in its programs. As this time, Triple Net Properties cannot assess the outcome of the investigation by the SEC. The SEC investigation could adversely impact our Advisor’s ability to perform its duties to us, because our Advisor is controlled by Triple Net Properties.

Risks Related to Conflicts of Interest

We will be subject to conflicts of interest arising out of relationships among us, our officers, our Advisor and its affiliates, including the material conflicts discussed below. The Conflicts of Interest section of our Offering prospectus provides a more detailed discussion of these conflicts of interest.

We will compete with our Sponsor’s other programs for investment opportunities. As a result, our Advisor may not cause us to invest in favorable investment opportunities, which may reduce our returns on our investments.

Our Sponsor, NNN Realty Advisors, or its affiliates have sponsored existing programs with investment objectives and strategies similar to ours, and may sponsor other similar programs in the future. As a result, we may be buying properties at the same time as one or more of our Sponsor’s other programs managed or advised by affiliates of our Advisor. Officers and employees of our Advisor may face conflicts of interest in allocating investment opportunities between us and these other programs. For instance, our Advisor may select properties for us that provide lower returns to us than properties that its affiliates select to be purchased by another one of our Sponsor’s program. We cannot be sure that officers and employees acting for or on behalf of our Advisor and on behalf of managers of our Sponsor’s other programs will act in our best interests when deciding whether to allocate any particular investment to us. We are subject to the risk that as a result of the conflicts of interest between us, our Advisor and other entities or programs managed by its affiliates, our Advisor may not cause us to invest in favorable investment opportunities that our Advisor locates when it would be in our best interest to make such investments. As a result, we may invest in less favorable investments, which may reduce our returns on our investments and ability to pay distributions.

The conflicts of interest faced by our officers and our non-independent director may cause us not to be managed solely in the best interests of our stockholders, which may adversely affect our results of operations and the value of their investment.

Some of our officers and our non-independent director are officers of our Advisor, our Sponsor, which manages our Advisor, and other affiliated entities which will receive fees in connection with our Offering and operations. Scott D. Peters is our Chief Executive Officer and Chairman of the Board and also serves as the

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Chief Executive Officer of our Advisor, the Chief Executive Officer of Triple Net Properties, and the Chief Executive Officer and a director of our Sponsor. As of December 31, 2006, Mr. Peters has less than 1.0% of our Sponsor’s outstanding common stock and he has de minimis ownership in several other Triple Net Properties programs. Shannon K S Johnson is our Chief Financial Officer and also serves as a Financial Reporting Manager of Triple Net Properties. Ms. Johnson has no equity ownership in our Sponsor or any Triple Net Properties programs. Andrea R. Biller is our Executive Vice President and Secretary and also serves as the Executive Vice President of our Advisor, General Counsel and Executive Vice President of Triple Net Properties, and General Counsel, Executive Vice President and Secretary of our Sponsor. Ms. Biller has less than 1.0% of our Sponsor’s outstanding common stock and she has de minimis ownership in several Triple Net Properties programs. Danny Prosky is our Vice President — Acquisitions and also serves as the Managing Director — Health Care Properties of Triple Net Properties. Mr. Prosky has no equity ownership in our Sponsor or any Triple Net Properties programs. In addition, each of Mr. Peters, Ms. Johnson, Ms. Biller and Mr. Prosky holds options to purchase a de minimis amount of our Sponsor’s outstanding common stock. As of March 2, 2007, each of Mr. Peters and Ms. Biller own 15.0% membership interests in NNN Healthcare/Office Management, LLC, which owns 25.0% of the membership interest of our Advisor.

Some of the Triple Net Properties programs in which our officers and non-independent director have invested and to which they provide services, have investment objectives similar to our investment objectives. These individuals have legal and fiduciary obligations to these entities which are similar to those they owe to us and our stockholders. As a result, they may have conflicts of interest in allocating their time and resources between our business and these other activities. During times of intense activity in other programs, the time they devote to our business may decline and be less than we require. If our officers and non-independent director, for any reason, are not able to provide sufficient resources to manage our business, our business will suffer and this may adversely affect our results of operations and the value of their investment.

If we enter into joint ventures with affiliates, we may face conflicts of interest or disagreements with our joint venture partners that will not be resolved as quickly or on terms as advantageous to us as would be the case if the joint venture had been negotiated at arm’s length with an independent joint venture partner.

In the event that we enter into a joint venture with any other program sponsored or advised by our Sponsor or one of its affiliates, we may face certain additional risks and potential conflicts of interest. For example, securities issued by the other Triple Net Properties programs may never have an active trading market. Therefore, if we were to become listed on a national securities exchange, we may no longer have similar goals and objectives with respect to the resale of properties in the future. Joint ventures between us and other NNN Realty Advisors programs will not have the benefit of arm’s length negotiation of the type normally conducted between unrelated co-venturers. Under these joint venture agreements, none of the co-venturers may have the power to control the venture, and an impasse could be reached regarding matters pertaining to the joint venture, including the timing of a liquidation, which might have a negative impact on the joint venture and decrease returns to our stockholders.

Our Advisor will face conflicts of interest relating to its compensation structure, which could result in actions that are not necessarily in the long-term best interests of our stockholders.

Under the Advisory Agreement between us, our Operating Partnership, our Advisor and Triple Net Properties and pursuant to the subordinated participation interest our Advisor holds in our Operating Partnership, our Advisor is entitled to fees and distributions that are structured in a manner intended to provide incentives to our Advisor to perform in our best interests and in the best interests of our stockholders. The fees our Advisor is entitled to include, acquisition fees, asset management fees, property management fees and disposition fees. The distributions our Advisor may become entitled to receive would be payable upon distribution of net sales proceeds to our stockholders, the listing of our shares or the termination of the Advisory Agreement, other than for cause. However, because our Advisor does not maintain a significant equity interest in us and is entitled to receive substantial minimum compensation regardless of performance, our Advisor’s interests are not wholly aligned with those of our stockholders. In that regard, our Advisor

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receives an asset management fee with respect to the ongoing operation and management of properties based on the amount of our initial investment and not the performance of those investments, which could result in our Advisor not having adequate incentive to manage our portfolio to provide profitable operations during the period we hold our investments. On the other hand, our Advisor could be motivated to recommend riskier or more speculative investments in order to increase the fees payable to our Advisor or for us to generate the specified levels of performance or net sales proceeds that would entitle our Advisor to fees or distributions.

The distribution payable to our Advisor upon termination of the Advisory Agreement may influence decisions about terminating our Advisor or our acquisition or disposition of investments.

Our Advisor’s entitlement to fees upon the sale of our assets and to participate in net sales proceeds could result in our Advisor recommending sales of our investments at the earliest possible time at which sales of investments would produce the level of return which would entitle our Advisor to compensation relating to such sales, even if continued ownership of those investments might be in the best long-term interest of our stockholders. The subordinated participation interest may require our Operating Partnership to make a distribution to our Advisor upon termination of the Advisory Agreement, other than for cause, if our Advisor meets the performance thresholds included in our Operating Partnership agreement. This distribution will not be paid if we terminate the Advisory Agreement after the listing of our shares. To avoid making this distribution, our independent directors may decide against terminating the Advisory Agreement prior to our listing of our shares even if, but for the requirement to make this distribution, termination of the Advisory Agreement would be in the best interest of our stockholders. In addition, the requirement to make this distribution could cause our independent directors to make different investment or disposition decisions than they would otherwise make, in order to satisfy our obligation to the terminated Advisor.

We have and may continue to acquire assets from, or dispose of assets to, affiliates of our Advisor, which could result in us entering into transactions on less favorable terms than we would receive from a third party or that negatively affect the public’s perception of us.

We may acquire assets from affiliates of our Advisor. Further, we may also dispose of assets to affiliates of our Advisor. Affiliates of our Advisor may make substantial profits in connection with such transactions and may owe fiduciary and/or other duties to the selling or purchasing entity in these transactions, and conflicts of interest between us and the selling or purchasing entities could exist in such transactions. Because our independent directors would rely on our Advisor in identifying and evaluating any such transaction, these conflicts could result in transactions based on terms that are less favorable to us than we would receive from a third party. Also, the existence of conflicts, regardless of how they are resolved, might negatively affect the public’s perception of us.

The fees we pay our Advisor under the Advisory Agreement and the distributions payable to our Advisor under our Operating Partnership agreement were not determined on an arm’s-length basis and therefore may not be on the same terms as those we could negotiate with an unrelated party.

Our independent directors relied on information and recommendations provided by our Advisor to determine the fees and distributions payable to our Advisor and its affiliates under the Advisory Agreement and pursuant to the subordinated participation interest in our Operating Partnership. As a result, these fees and distributions cannot be viewed as having been determined on an arm’s-length basis and we cannot assure our stockholders that an unaffiliated party would not be willing and able to provide to us the same services at a lower price.

Risks Associated with Our Organizational Structure

We may issue preferred stock or other classes of common stock, which issuance could adversely affect the holders of our common stock issued pursuant to our Offering.

Investors in our Offering do not have preemptive rights to any shares issued by us in the future. We may issue, without stockholder approval, preferred stock or other classes of common stock with rights that could

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dilute the value of our stockholder shares of our common stock. Our charter authorizes us to issue 1,200,000,000 shares of capital stock, of which 1,000,000,000 shares of capital stock are designated as common stock and 200,000,000 shares of capital stock are designated as preferred stock. Our board of directors may increase the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series without stockholder approval. If we ever created and issued preferred stock with a distribution preference over our common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount our common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock or a separate class or series of common stock may render more difficult or tend to discourage:

•  a merger, offer or proxy contest;

•  assumption of control by a holder of large block of our securities; or

•  removal of incumbent management.

The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may have benefited our stockholders.

Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.8% of the value of our then outstanding capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.8% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock. This restriction may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. This ownership restriction may also prohibit business combinations that would have otherwise been approved by our board of directors and our stockholders. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease their ability to sell their shares of our common stock.

Our board of directors may change our investment objectives without seeking stockholder approval.

Our charter permits our board of directors to change our investment objectives without seeking stockholder approval. Although our board has fiduciary duties to our stockholders and intends only to change our investment objectives when our board determines that a change is in the best interests of our stockholders, a change in our investment objectives could reduce our payment of cash distributions to our stockholders or cause a decline in the value of our investments.

Maryland law and our organizational documents limit our stockholders’ rights to bring claims against our officers and directors.

Maryland law provides that a director will not have any liability as a director so long as he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interest, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter provides that, subject to the applicable limitations set forth therein or under Maryland law, no director or officer will be liable to us or our stockholders for monetary damages. Our charter also provides that we will generally indemnify our directors, our officers, our Advisor and its affiliates for losses they may incur by reason of their service in those capacities unless (1) their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, (2) they actually received an improper personal benefit in money, property or services, or (3) in the case of any criminal proceeding, they had reasonable cause to believe the act or omission was unlawful. Moreover, we have entered into separate indemnification agreements with each of our directors and some of our executive officers. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law. In addition, we may be obligated to fund the

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defense costs incurred by these persons in some cases. However, our charter does provide that we may not indemnify or hold harmless our directors, our Advisor and its affiliates unless they have determined that the course of conduct that caused the loss or liability was in our best interests, they were acting on our behalf or performing services for us, the liability was not the result of negligence or misconduct by our non-independent directors, our Advisor and its affiliates or gross negligence or willful misconduct by our independent directors, and the indemnification is recoverable only out of our net assets or the proceeds of insurance and not from our stockholders.

Certain provisions of Maryland law could restrict a change in control even if a change in control were in our stockholders’ interests.

Certain provisions of the Maryland General Corporation Law applicable to us prohibit business combinations with:

•  any person who beneficially owns 10.0% or more of the voting power of our common stock, which we refer to as an interested stockholder;

•  an affiliate of ours who, at any time within the two-year period prior to the date in question, was an interested stockholder; or

•  an affiliate of an interested stockholder.

These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder. Thereafter, any business combination with the interested stockholder must be recommended by our board of directors and approved by the affirmative vote of at least 80.0% of the votes entitled to be cast by holders of our outstanding shares of our common stock and two-thirds of the votes entitled to be cast by holders of shares of our common stock other than shares held by the interested stockholder. These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders’ interest. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that someone becomes an interested stockholder.

Our stockholders’ investment return may be reduced if we are required to register as an investment company under the Investment Company Act.

We are not registered as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. If for any reason, we were required to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:

•  limitations on capital structure;

•  restrictions on specified investments;

•  prohibitions on transactions with affiliates; and

•  compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.

We intend to operate in such a manner that we will not be subject to regulation under the Investment Company Act. In order to maintain our exemption from regulation under the Investment Company Act, we must comply with technical and complex rules and regulations.

Specifically, in order to maintain our exemption from regulation as an investment company under the Investment Company Act, we intend to engage primarily in the business of investing in interests in real estate and to make these investments within one year after our Offering ends. If we are unable to invest a significant portion of the proceeds of our Offering in properties within one year of the termination of our Offering, we may avoid being required to register as an investment company under the Investment Company Act by temporarily investing any unused proceeds in government securities with low returns. Investments in

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government securities likely would reduce the cash available for distribution to investors and possibly lower their returns.

In order to avoid coming within the application of the Investment Company Act, either as a company engaged primarily in investing in interests in real estate or under another exemption from the Investment Company Act, our Advisor may be required to impose limitations on our investment activities. In particular, our Advisor may limit the percentage of our assets that fall into certain categories specified in the Investment Company Act, which could result in us holding assets we otherwise might desire to sell and selling assets we otherwise might wish to retain. In addition, we may have to acquire additional assets that we might not otherwise have acquired or be forced to forgo investment opportunities that we would otherwise want to acquire and that could be important to our investment strategy. In particular, our Advisor will monitor our investments in real estate related securities to ensure continued compliance with one or more exemptions from investment company status under the Investment Company Act and, depending on the particular characteristics of those investments and our overall portfolio, our Advisor may be required to limit the percentage of our assets represented by real estate related securities.

If we were required to register as an investment company, our ability to enter into certain transactions would be restricted by the Investment Company Act. Furthermore, the costs associated with registration as an investment company and compliance with such restrictions could be substantial. In addition, registration under and compliance with the Investment Company Act would require a substantial amount of time on the part of our Advisor and its affiliates, thereby decreasing the time they spend actively managing our investments. If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

Risks Related to Investments in Real Estate

Changes in national, regional or local economic, demographic or real estate market conditions may adversely affect our results of operations and our ability to pay distributions to our stockholders or reduce the value of their investment.

We will be subject to risks generally incident to the ownership of real property, including changes in national, regional or local economic, demographic or real estate market conditions. We are unable to predict future changes in national, regional or local economic, demographic or real estate market conditions. For example, a recession or rise in interest rates could make it more difficult for us to lease real properties or dispose of them. In addition, rising interest rates could also make alternative interest-bearing and other investments more attractive and therefore potentially lower the relative value of our existing real estate investments. These conditions, or others we cannot predict, may adversely affect our results of operations, our ability to pay distributions to our stockholders or reduce the value of their investment.

If we acquire real estate at a time when the real estate market is experiencing substantial influxes of capital investment and competition for income producing properties, the real estate investments we make may not appreciate or may decrease in value.

The real estate market is currently experiencing a substantial influx of capital from investors. This substantial flow of capital, combined with significant competition for income producing real estate, may result in inflated purchase prices for such assets. To the extent we purchase real estate in such an environment, we are subject to the risk that if the real estate market ceases to attract the same level of capital investment in the future as it is currently attracting, or if the number of companies seeking to acquire such assets decreases, the value of our investment may not appreciate or may decrease significantly below the amount we paid for such investment.

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Competition with third parties in acquiring properties and other investments may reduce our profitability and our stockholders may experience a lower return on their investment.

We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, pension funds, other REITs, real estate limited partnerships, and foreign investors, many of which have greater resources than we do. Many of these entities may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments may increase. As such, competition with third parties would result in increased demand for these assets and therefore increased prices paid for them. If we pay higher prices for properties and other investments, our profitability will be reduced and our stockholders may experience a lower return on their investment.

Some or all of our properties may incur vacancies, which may result in reduced revenue and resale value, a reduction in cash available for distribution and a diminished return on investment.

Some or all of our properties may incur vacancies either by a default of tenants under their leases or the expiration or termination of tenant leases. If vacancies continue for a long period of time, we may suffer reduced revenues resulting in less cash distributions to our stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.

We are dependent on tenants for our revenue, and lease terminations could reduce our distributions to our stockholders.

The successful performance of our real estate investments is materially dependent on the financial stability of our tenants. Lease payment defaults by tenants would cause us to lose the revenue associated with such leases and could cause us to reduce the amount of distributions to our stockholders. If the property is subject to a mortgage, a default by a significant tenant on its lease payments to us may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet mortgage payments. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. Further, we cannot assure our stockholders that we will be able to re-lease the property for the rent previously received, if at all, or that lease terminations will not cause us to sell the property at a loss.

Long-term leases may not result in fair market lease rates over time; therefore, our income and our distributions to our stockholders could be lower than if we did not enter into long-term leases.

We may enter into long-term leases with tenants of certain of our properties. Our long-term leases would likely provide for rent to increase over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases the rent under our long-term leases is less than then-current market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our income and distributions to our stockholders could be lower than if we did not enter into in long-term leases.

We may incur additional costs in acquiring or re-leasing properties which could adversely affect the cash available for distribution to our stockholders

We may invest in properties designed or built primarily for a particular tenant of a specific type of use known as a single-user facility. If the tenant fails to renew its lease or defaults on its lease obligations, we may not be able to readily market a single-user facility to a new tenant without making substantial capital improvements or incurring other significant re-leasing costs. We also may incur significant litigation costs in enforcing our rights as a landlord against the defaulting tenant. These consequences could adversely affect our revenues and reduce the cash available for distribution to our stockholders.

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We may be unable to secure funds for future tenant or other capital improvements, which could limit our ability to attract or replace tenants and decrease stockholders’ return on investment.

When tenants do not renew their leases or otherwise vacate their space, it is common that, in order to attract replacement tenants, we will be required to expend substantial funds for tenant improvements and leasing commissions related to the vacated space. Such tenant improvements may require us to incur substantial capital expenditures. If we have not established capital reserves for such tenant or other capital improvements, we will have to obtain financing from other sources and we have not identified any sources for such financing. We may also have future financing needs for other capital improvements to refurbish or renovate our properties. If we need to secure financing sources for tenant improvements or other capital improvements in the future, but are unable to secure such financing or are unable to secure financing on terms we feel are acceptable, we may be unable to make tenant and other capital improvements or we may be required to defer such improvements. If this happens, it may cause one or more of our properties to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential tenants being attracted to the property or existing tenants not renewing their leases. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, pay other expenses or pay distributions to our stockholders.

Uninsured losses relating to real estate and lender requirements to obtain insurance may reduce stockholders’ returns.

There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. If any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses, we could suffer reduced earnings that would result in less cash to be distributed to our stockholders. In cases where we are required by mortgage lenders to obtain casualty loss insurance for catastrophic events or terrorism, such insurance may not be available, or may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase and could have a material adverse effect on the net income from the property, and, thus, the cash available for distribution to our stockholders.

Terrorist attacks and other acts of violence or war may affect the markets in which we operate and have a material adverse effect on our financial condition, results of operations and ability to pay distributions to our stockholders.

Terrorist attacks may negatively affect our operations and our stockholders’ investment. We may acquire real estate assets located in areas that are susceptible to attack. These attacks may directly impact the value of our assets through damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Further, certain losses resulting from these types of events are uninsurable or not insurable at reasonable costs.

More generally, any terrorist attack, other act of violence or war, including armed conflicts, could result in increased volatility in, or damage to, the United States and worldwide financial markets and economy, all of which could adversely affect our tenants’ ability to pay rent on their leases or our ability to borrow money or issue capital stock at acceptable prices and have a material adverse effect on our financial condition, results of operations and ability to pay distributions to stockholders.

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Dramatic increases in insurance rates could adversely affect our cash flow and our ability to make distributions to our stockholders.

Due to recent natural disasters resulting in massive property destruction, prices for property insurance coverage have been increasing dramatically. We cannot assure that we will be able to obtain insurance premiums at reasonable rates on our future properties. As a result, our cash flow could be adversely impacted by increased premiums which could adversely affect our ability to make distributions to our stockholders.

Delays in the acquisition, development and construction of real properties may have adverse effects on our results of operations and returns to our stockholders.

Delays we encounter in the selection, acquisition and development of real properties could adversely affect stockholders’ returns. Where properties are acquired prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, stockholders could suffer delays in the receipt of cash distributions attributable to those particular real properties. Delays in completion of construction could give tenants the right to terminate preconstruction leases for space at a newly developed project. We may incur additional risks when we make periodic progress payments or other advances to builders prior to completion of construction. Each of those factors could result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. Furthermore, the price we agree to for a real property will be based on our projections of rental income and expenses and estimates of the fair market value of real property upon completion of construction. If our projections are inaccurate, we may pay too much for a property.

Uncertain market conditions relating to the future disposition of properties could cause us to sell our properties at a loss in the future.

We intend to hold our various real estate investments until such time as our Advisor determines that a sale or other disposition appears to be advantageous to achieve our investment objectives. Our Advisor, subject to the oversight of our board of directors, may exercise its discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time. We generally intend to hold properties for an extended period of time, and we cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our properties, we cannot assure stockholders that we will be able to sell our properties at a profit in the future. Additionally, we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Accordingly, the extent to which our stockholders will receive cash distributions and realize potential appreciation on our real estate investments will, among other things, be dependent upon fluctuating market conditions.

We face possible liability for environmental cleanup costs and damages for contamination related to properties we acquire, which could substantially increase our costs and reduce our liquidity and cash distributions to our stockholders.

Because we intend to own and operate real estate, we will be subject to various federal, state and local environmental laws, ordinances and regulations. Under these laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real estate for personal injury or property damage associated with exposure to released hazardous

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substances. In addition, new or more stringent laws or stricter interpretations of existing laws could change the cost of compliance or liabilities and restrictions arising out of such laws. The cost of defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated property, or of paying personal injury claims could be substantial, which would reduce our liquidity and cash available for distribution to our stockholders. In addition, the presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially impair our ability to use, lease or sell a property, or to use the property as collateral for borrowing.

Our real estate investments may be concentrated in medical office or other healthcare-related facilities, making us more vulnerable economically than if our investments were diversified.

As a REIT, we will invest primarily in real estate. Within the real estate industry, we intend primarily to acquire or selectively develop and own medical office buildings, healthcare-related facilities and quality commercial office properties. We are subject to risks inherent in concentrating investments in real estate. These risks resulting from a lack of diversification become even greater as a result of our business strategy to invest to a substantial degree in healthcare-related facilities.

A downturn in the commercial real estate industry generally could significantly adversely affect the value of our properties. A downturn in the healthcare industry could negatively affect our lessees’ ability to make lease payments to us and our ability to make distributions to our stockholders. These adverse effects could be more pronounced than if we diversified our investments outside of real estate or if our portfolio did not include a substantial concentration in medical office buildings and healthcare-related facilities.

Certain of our properties may not have efficient alternative uses, so the loss of a tenant may cause us not to be able to find a replacement or cause us to spend considerable capital to adapt the property to an alternative use.

Some of the properties we will seek to acquire are specialized medical facilities. If we or our tenants terminate the leases for these properties or our tenants lose their regulatory authority to operate such properties, we may not be able to locate suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to adapt the properties to other uses. Any loss of revenues or additional capital expenditures required as a result may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Our future medical office buildings, healthcare-related facilities and tenants may be unable to compete successfully.

Our future medical office buildings and healthcare-related facilities often face competition from nearby hospitals and other medical office buildings that provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, and others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of support are not available to our buildings.

Similarly, our tenants face competition from other medical practices in nearby hospitals and other medical facilities. Our tenants’ failure to compete successfully with these other practices could adversely affect their ability to make rental payments, which could adversely affect our rental revenues. Further, from time to time and for reasons beyond our control, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. This could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues.

Any reduction in rental revenues resulting from the inability of our medical office buildings and healthcare-related facilities and our tenants to compete successfully may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

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Our costs associated with complying with the Americans with Disabilities Act may reduce our cash available for distributions.

Our properties may be subject to the Americans with Disabilities Act of 1990, as amended, or the ADA. Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The ADA has separate compliance requirements for public accommodations and commercial facilities that generally require that buildings and services be made accessible and available to people with disabilities. The ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We will attempt to acquire properties that comply with the ADA or place the burden on the seller or other third party, such as a tenant, to ensure compliance with the ADA. However, we cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for ADA compliance may reduce cash available for distributions and the amount of distributions to our stockholders.

Our real properties will be subject to property taxes that may increase in the future, which could adversely affect our cash flow.

Our real properties are subject to real and personal property taxes that may increase as tax rates change and as the real properties are assessed or reassessed by taxing authorities. We anticipate that certain of our leases will generally provide that the property taxes or increases therein, are charged to the tenants as an expense related to the real properties that they occupy while other leases will generally provide that we are responsible for such taxes. In any case, as the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable government authorities. If real property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if otherwise stated under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the real property and the real property may be subject to a tax sale. In addition, we will generally be responsible for real property taxes related to any vacant space.

Costs of complying with governmental laws and regulations related to environmental protection and human health and safety may be high.

All real property investments and the operations conducted in connection with such investments are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.

Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such real property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous substances, or the failure to properly remediate those substances, may adversely affect our ability to sell, rent or pledge such real property as collateral for future borrowings. Environmental laws also may impose restrictions on the manner in which real property may be used or businesses may be operated. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our real properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our real properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance. In connection with the acquisition and ownership of our real properties, we may be exposed to such costs in connection with such regulations. The cost of defending against environmental claims, of any damages or fines we must pay, of

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compliance with environmental regulatory requirements or of remediating any contaminated real property could materially and adversely affect our business, lower the value of our assets or results of operations and, consequently, lower the amounts available for distribution to our stockholders.

Risks Relating to the Healthcare Industry

Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us.

Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers and health maintenance organizations, among others. Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. In addition, the failure of any of our tenants to comply with various laws and regulations could jeopardize their ability to continue participating in Medicare, Medicaid and other government sponsored payment programs.

The healthcare industry continues to face various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. It is possible that our tenants will continue to experience a shift in payor mix away from fee-for-service payors, resulting in an increase in the percentage of revenues attributable to managed care payors, and general industry trends that include pressures to control healthcare costs. Pressures to control healthcare costs and a shift away from traditional health insurance reimbursement to managed care plans have resulted in an increase in the number of patients whose healthcare coverage is provided under managed care plans, such as health maintenance organizations and preferred provider organizations. These changes could have a material adverse effect on the financial condition of some or all of our tenants. The financial impact on our tenants could restrict their ability to make rent payments to us, which would have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We face increasing competition for the acquisition of medical office buildings and other healthcare-related facilities, which may impede our ability to make future acquisitions or may increase the cost of these acquisitions.

We compete with many other entities engaged in real estate investment activities for acquisitions of medical office buildings and healthcare-related facilities, including national, regional and local operators, acquirers and developers of healthcare real estate properties. The competition for healthcare real estate properties may significantly increase the price we must pay for medical office buildings and healthcare-related facilities or other assets we seek to acquire and our competitors may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive because they may have greater resources, may be willing to pay more for the properties or may have a more compatible operating philosophy. In particular, larger healthcare real estate REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. This competition will result in increased demand for these assets and therefore increased prices paid for them. Because of an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices if we purchase single properties in comparison with portfolio acquisitions. If we pay higher prices for medical office buildings, healthcare-related facilities and quality commercial office properties, our business, financial condition and results of operations and our ability to make distributions to our stockholders may be materially and adversely affected.

The healthcare industry is heavily regulated, and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us.

The healthcare industry is heavily regulated by federal, state and local governmental bodies. Our tenants generally will be subject to laws and regulations covering, among other things, licensure, certification for

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participation in government programs, and relationships with physicians and other referral sources. Changes in these laws and regulations could negatively affect the ability of our tenants to make lease payments to us and our ability to make distributions to our stockholders.

Many of our medical properties and their tenants may require a license or certificate of need, or CON, to operate. Failure to obtain a license or CON, or loss of a required license or CON would prevent a facility from operating in the manner intended by the tenant. These events could materially adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of healthcare-related facilities, by requiring a CON or other similar approval. State CON laws are not uniform throughout the United States and are subject to change. We cannot predict the impact of state CON laws on our development of facilities or the operations of our tenants.

In addition, state CON laws often materially impact the ability of competitors to enter into the marketplace of our facilities. The repeal of CON laws could allow competitors to freely operate in previously closed markets. This could negatively affect our tenants’ abilities to make rent payments to us.

In limited circumstances, loss of state licensure or certification or closure of a facility could ultimately result in loss of authority to operate the facility and require new CON authorization to re-institute operations. As a result, a portion of the value of the facility may be reduced, which would adversely impact our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Tenants of our medical office buildings and healthcare-related facilities will be subject to fraud and abuse laws, the violation of which by a tenant may jeopardize the tenant’s ability to make rent payments to us.

There are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from or are in a position to make referrals in connection with government-sponsored healthcare programs, including the Medicare and Medicaid programs. Our lease arrangements with certain tenants may also be subject to these fraud and abuse laws.

These laws include:

•  the Federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral of any item or service reimbursed by Medicare or Medicaid;

•  the Federal Physician Self-Referral Prohibition, which, subject to specific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under Medicare or Medicaid programs to an entity with which the physician, or an immediate family member, has a financial relationship;

•  the False Claims Act, which prohibits any person from knowingly presenting false or fraudulent claims for payment to the federal government, including claims paid by the Medicare and Medicaid programs; and

•  the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services to impose monetary penalties for certain fraudulent acts.

Each of these laws includes criminal and/or civil penalties for violations that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid payments and/or exclusion from the Medicare and Medicaid programs. Certain laws, such as the False Claims Act, allow for individuals to bring whistleblower actions on behalf of the government for violations thereof. Additionally, states in which the facilities are located may have similar fraud and abuse laws. Investigation by a federal or state governmental body for violation of fraud and abuse laws or imposition of any of these penalties upon one of our tenants could jeopardize that tenant’s ability to operate or to make rent payments, which may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

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Adverse trends in healthcare provider operations may negatively affect our lease revenues and our ability to make distributions to our stockholders.

The healthcare industry is currently experiencing:

•  changes in the demand for and methods of delivering healthcare services;

•  changes in third party reimbursement policies;

•  significant unused capacity in certain areas, which has created substantial competition for patients among healthcare providers in those areas;

•  continuing pressure by private and governmental payors to reduce payments to providers of services; and

•  increased scrutiny of billing, referral and other practices by federal and state authorities.

These factors may adversely affect the economic performance of some or all of our tenants and, in turn, our lease revenues and our ability to make distributions to our stockholders.

Tenants of our medical office buildings and healthcare-related facilities may be subject to significant legal actions that could subject them to increased operating costs and substantial uninsured liabilities, which may affect their ability to pay their rent payments to us.

As is typical in the healthcare industry, certain types of tenants of our medical office buildings and healthcare-related facilities may often become subject to claims that their services have resulted in patient injury or other adverse effects. Many of these tenants may have experienced an increasing trend in the frequency and severity of professional liability and general liability insurance claims and litigation asserted against them. The insurance coverage maintained by these tenants may not cover all claims made against them nor continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages arising from professional liability and general liability claims and/or litigation may not, in certain cases, be available to these tenants due to state law prohibitions or limitations of availability. As a result, these types of tenants of our medical office buildings and healthcare-related facilities operating in these states may be liable for punitive damage awards that are either not covered or are in excess of their insurance policy limits. We also believe that there has been, and will continue to be, an increase in governmental investigations of certain healthcare providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Insurance is not available to cover such losses. Any adverse determination in a legal proceeding or governmental investigation, whether currently asserted or arising in the future, could have a material adverse effect on a tenant’s financial condition. If a tenant is unable to obtain or maintain insurance coverage, if judgments are obtained in excess of the insurance coverage, if a tenant is required to pay uninsured punitive damages, or if a tenant is subject to an uninsurable government enforcement action, the tenant could be exposed to substantial additional liabilities, which may affect the tenant’s ability to pay rent, which in turn could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Risks Related to Investments in Real Estate Related Securities

We do not have substantial experience in acquiring mortgage loans or investing in real estate related securities, which may result in our real estate related securities investments failing to produce returns or incurring losses.

None of our officers or the management personnel of our Advisor have any substantial experience in acquiring mortgage loans or investing in the real estate related securities in which we may invest. We may make such investments to the extent that our Advisor, in consultation with our board of directors, determines that it is advantageous for us to do so. Our and our Advisor’s lack of expertise in making real estate related securities investments may result in our real estate related securities investments failing to produce returns or incurring losses, either of which would reduce our ability to make distributions to our stockholders.

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Real estate related equity securities in which we may invest are subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in subordinated real estate securities.

We may invest in common and preferred stock of both publicly traded and private real estate companies, which involves a higher degree of risk than debt securities due to a variety of factors, including that such investments are subordinate to creditors and are not secured by the issuer’s property. Our investments in real estate related equity securities will involve special risks relating to the particular issuer of the equity securities, including the financial condition and business outlook of the issuer. Issuers of real estate related common equity securities generally invest in real estate or real estate related assets and are subject to the inherent risks associated with real estate related investments, including risks relating to rising interest rates.

The mortgage loans in which we may invest and the mortgage loans underlying the mortgage-backed securities in which we may invest may be impacted by unfavorable real estate market conditions, which could decrease their value.

If we make investments in mortgage loans or mortgage-backed securities, we will be at risk of loss on those investments, including losses as a result of defaults on mortgage loans. These losses may be caused by many conditions beyond our control, including economic conditions affecting real estate values, tenant defaults and lease expirations, interest rate levels and the other economic and liability risks associated with real estate. If we acquire property by foreclosure following defaults under our mortgage loan investments, we will have the economic and liability risks as the owner described above. We do not know whether the values of the property securing any of our real estate securities investments will remain at the levels existing on the dates we initially make the related investment. If the values of the underlying properties drop, our risk will increase and the values of our interests may decrease.

Delays in liquidating defaulted mortgage loan investments could reduce our investment returns.

If there are defaults under our mortgage loan investments, we may not be able to foreclose on or obtain a suitable remedy with respect to such investments. Specifically, we may not be able to repossess and sell the underlying properties quickly which could reduce the value of our investment. For example, an action to foreclose on a property securing a mortgage loan is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the defendant raises defenses or counterclaims. Additionally, in the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan.

The collateralized mortgage-backed securities in which we may invest are subject to several types of risks.

CMBS are bonds which evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, the mortgage-backed securities we invest in are subject to all the risks of the underlying mortgage loans.

In a rising interest rate environment, the value of CMBS may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of CMBS may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities markets as a whole. In addition, CMBS are subject to the credit risk associated with the performance of the underlying mortgage properties. In certain instances, third party guarantees or other forms of credit support can reduce the credit risk.

CMBS are also subject to several risks created through the securitization process. Subordinate CMBS are paid interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes a large percentage of delinquent loans, there is a risk that interest payment on subordinate CMBS will not be fully paid. Subordinate securities of CMBS are also subject to greater credit risk than those CMBS that are more highly rated.

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The mezzanine loans in which we may invest would involve greater risks of loss than senior loans secured by income-producing real properties.

We may invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real property or loans secured by a pledge of the ownership interests of either the entity owning the real property or the entity that owns the interest in the entity owning the real property. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan to value ratios than conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal.

We expect a portion of our real estate related securities investments to be illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

We may purchase real estate related securities in connection with privately negotiated transactions which are not registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower’s default.

Interest rate and related risks may cause the value of our real estate related securities investments to be reduced.

Interest rate risk is the risk that fixed income securities such as preferred and debt securities, and to a lesser extent dividend paying common stocks, will decline in value because of changes in market interest rates. Generally, when market interest rates rise, the market value of such securities will decline, and vice versa. Our investment in such securities means that the net asset value and market price of the common shares may tend to decline if market interest rates rise.

During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a below-market interest rate, increase the security’s duration and reduce the value of the security. This is known as extension risk. During periods of declining interest rates, an issuer may be able to exercise an option to prepay principal earlier than scheduled, which is generally known as call or prepayment risk. If this occurs, we may be forced to reinvest in lower yielding securities. This is known as reinvestment risk. Preferred and debt securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity. An issuer may redeem an obligation if the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. These risks may reduce the value of our real estate related securities investments.

If we liquidate prior to the maturity of our real estate securities investments, we may be forced to sell those investments on unfavorable terms or at a loss.

Our board of directors may choose to effect a liquidity event in which we liquidate our assets, including our real estate related securities investments. If we liquidate those investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at loss. For instance, if we are required to liquidate mortgage loans at a time when prevailing interest rates are higher than the interest rates of such mortgage loans, we would likely sell such loans at a discount to their stated principal values.

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Risks Associated with Debt Financing

We have and intend to incur mortgage indebtedness and other borrowings, which may increase our business risks, could hinder our ability to make distributions and could decrease the value of our stockholders’ investments.

We have and intend to continue to finance a portion of the purchase price of our investments in real estate and real estate related securities by borrowing funds. We anticipate that, after an initial phase of our operations when we may employ greater amounts of leverage to enable us to purchase properties more quickly and therefore generate distributions for our stockholders sooner, our overall leverage will not exceed 60.0% of the combined fair market value of our assets. Under our charter, we have a limitation on borrowing which precludes us from borrowing in excess of 300.0% of the value of our net assets, without the approval of a majority of our independent directors. As a result of the acquisitions of the Crawfordsville property and the Southpointe property, as of January 22, 2007, our leverage exceeds 300.0%. The board of directors approved the excess leverage and determined that it was justified because it enabled us to purchase the properties during the initial stages of our Offering, thereby improving our ability to meet our goal of acquiring a diversified portfolio of properties to generate current income for investors and preserve investor capital. We will likely continue to exceed our charter’s leverage guidelines during the early stages of our operations.

Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation or other non-case reserves, less total liabilities. Generally speaking, the preceding calculation is expected to approximate 75.0% of the sum of (a) the aggregate cost of our real property investments before non-cash reserves and depreciation and (b) the aggregate cost of our investments in real estate related securities. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real properties or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0% of our annual REIT taxable income to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes.

High debt levels will cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders’ investments. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgage contains cross collateralization or cross default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected.

Higher mortgage rates may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make to our stockholders.

Since June 2004, the Federal Reserve Board has significantly increased short-term interest rates. The Federal Reserve Board has also made public statements implying it may continue increasing interest rates in the near future. If mortgage debt is unavailable on reasonable terms as a result of increased interest rates or other factors, we may not be able to finance the initial purchase of properties. In addition, if we place

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mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or could result in the foreclosure of such properties. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing securities or by borrowing more money.

Increases in interest rates could increase the amount of our debt payments and therefore negatively impact our operating results.

Interest we pay on our debt obligations will reduce cash available for distributions. If we incur variable rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to make distributions to our stockholders. If we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

When providing financing, a lender may impose restrictions on us that affect our ability to incur additional debt and affect our distribution and operating policies. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage, or replace our Advisor. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.

If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to refinance or sell properties on favorable terms, and to make distributions to our stockholders.

Some of our financing arrangements may require us to make a lump-sum or balloon payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the particular property. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the particular property at a price sufficient to make the balloon payment. The refinancing or sale could affect the rate of return to our stockholders and the projected time of disposition of our assets. In an environment of increasing mortgage rates, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt if mortgage rates are higher at a time a balloon payment is due. In addition, payments of principal and interest made to service our debts, including balloon payments, may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT. Any of these results would have a significant, negative impact on our stockholders’ investments.

Risks Associated with Joint Ventures

The terms of joint venture agreements or other joint ownership arrangements into which we may enter could impair our operating flexibility and our results of operations.

In connection with the purchase of real estate, we may enter into joint ventures with third parties, including affiliates of our Advisor. We may also purchase or develop properties in co-ownership arrangements with the sellers of the properties, developers or other persons. These structures involve participation in the investment by other parties whose interests and rights may not be the same as ours. Our joint venture partners may have rights to take some actions over which we have no control and may take actions contrary to our

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interests. Joint ownership of an investment in real estate may involve risks not associated with direct ownership of real estate, including the following:

•  a venture partner may at any time have economic or other business interests or goals which become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in a joint venture or the timing of the termination and liquidation of the venture;

•  a venture partner might become bankrupt and such proceedings could have an adverse impact on the operation of the partnership or joint venture;

•  actions taken by a venture partner might have the result of subjecting the property to liabilities in excess of those contemplated; and

•  a venture partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT.

Under certain joint venture arrangements, neither venture partner may have the power to control the venture, and an impasse could be reached, which might adversely affect the joint venture and decrease potential returns to our stockholders. If we have a right of first refusal or buy/sell right to buy out a venture partner, we may be unable to finance such a buy-out or we may be forced to exercise those rights at a time when it would not otherwise be in our best interest to do so. If our interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to purchase an interest of a venture partner subject to the buy/sell right, in which case we may be forced to sell our interest when we would otherwise prefer to retain our interest. In addition, we may not be able to sell our interest in a joint venture on a timely basis or on acceptable terms if we desire to exit the venture for any reason, particularly if our interest is subject to a right of first refusal of our venture partner.

We may structure our joint venture relationships in a manner which may limit the amount we participate in the cash flow or appreciation of an investment.

We may enter into joint venture agreements, the economic terms of which may provide for the distribution of income to us otherwise than in direct proportion to our ownership interest in the joint venture. For example, while we and a co-venturer may invest an equal amount of capital in an investment, the investment may be structured such that we have a right to priority distributions of cash flow up to a certain target return while the co-venturer may receive a disproportionately greater share of cash flow than we are to receive once such target return has been achieved. This type of investment structure may result in the co-venturer receiving more of the cash flow, including appreciation, of an investment than we would receive. If we do not accurately judge the appreciation prospects of a particular investment or structure the venture appropriately, we may incur losses on joint venture investments or have limited participation in the profits of a joint venture investment, either of which could reduce our ability to make cash distributions to our stockholders.

Federal Income Tax Risks

Failure to qualify as a REIT for federal income tax purposes would subject us to federal income tax on our taxable income at regular corporate rates, which would substantially reduce our ability to make distributions to our stockholders.

We intend to qualify as a REIT for federal income tax purposes commencing with the taxable year ended December 31, 2007, but as of March 2, 2007, we are not qualified as a REIT. Our qualification as a REIT will depend on our ability to meet various requirements set forth in the Internal Revenue Code concerning, among other things, the ownership of our outstanding common stock, the nature of our assets, the sources of our income and the amount of our distributions to our stockholders. The REIT qualification requirements are extremely complex, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we will be successful in operating so as to qualify as a REIT. At any time new laws, interpretations or court decisions may change the federal tax laws relating to, or the

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federal income tax consequences of, qualification as a REIT. It is possible that future economic, market, legal, tax or other considerations may cause our board of directors to revoke our REIT election, which it may do without stockholder approval.

Although we have not requested, and do not expect to request, a ruling from the Internal Revenue Service, or IRS, that we qualify as a REIT, we have received an opinion of our counsel that, based on certain assumptions and representations, we will so qualify. Our stockholders should be aware, however, that opinions of counsel are not binding on the IRS or any court. The REIT qualification opinion only represents the view of our counsel based on its review and analysis of existing law and therefore could be subject to modification or withdrawal based on future legislative, judicial or administrative changes to the federal income tax laws, any of which could be applied retroactively. The validity of the opinion of our counsel and of our qualification as a REIT will depend on our continuing ability to meet the various REIT requirements described herein.

If we were to fail to qualify as a REIT for any taxable year, we would be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we lose our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to our stockholders because of the additional tax liability. In addition, distributions to our stockholders would no longer be deductible in computing our taxable income, and we would no longer be required to make distributions. To the extent that distributions had been made in anticipation of our qualifying as a REIT, we might be required to borrow funds or liquidate some investments in order to pay the applicable corporate income tax. In addition, although we intend to operate in a manner intended to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our board of directors to recommend that we revoke our REIT election.

As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and would substantially reduce our ability to make distributions to our stockholders.

To qualify as a REIT and to avoid the payment of federal income and excise taxes and maintain our REIT status, we may be forced to borrow funds, use proceeds from the issuance of securities (including our Offering), or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations.

To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90.0% of our real estate investment trust taxable income, determined without regard to the deduction for distributions paid and by excluding net capital gains. We will be subject to federal income tax on our undistributed taxable income and net capital gain and to a 4.0% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85.0% of our ordinary income, (2) 95.0% of our capital gain net income and (3) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on acquisitions of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities (including our Offering) or sell assets in order to distribute enough of our taxable income to maintain our REIT status and to avoid the payment of federal income and excise taxes.

If our Operating Partnership fails to maintain its status as a partnership for federal income tax purposes, its income would be subject to taxation and our REIT status would be terminated.

We intend to maintain the status of our Operating Partnership as a partnership for federal income tax purposes. However, if the IRS were to successfully challenge the status of our Operating Partnership as a partnership, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that our Operating Partnership could make to us. This would also result in our losing REIT status and becoming subject to a corporate level tax on our own income. This would substantially reduce our cash available to pay distributions and the return on our stockholders’ investment. In addition, if any of the entities through which our Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership for federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing

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distributions to our Operating Partnership. Such a recharacterization of our Operating Partnership or an underlying property owner could also threaten our ability to maintain our REIT status.

Our stockholders may have a current tax liability on distributions they elect to reinvest in shares of our common stock.

If our stockholders participate in the DRIP, they will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. As a result, unless our stockholders are a tax-exempt entity, they may have to use funds from other sources to pay their tax liability on the value of the common stock received.

Dividends paid by REITs do not qualify for the reduced tax rates that apply to other corporate dividends.

Tax legislation enacted in 2003 and 2006 generally reduces the maximum tax rate for qualified dividends paid by corporations to individuals to 15.0% through 2010. Dividends paid by REITs, however, generally continue to be taxed at the normal rate applicable to the individual recipient, rather than the 15.0% preferential rate. Although this legislation does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay qualified dividends, which could adversely affect the value of the stock of REITs, including our common stock.

In certain circumstances, we may be subject to federal and state income taxes as a REIT, which would reduce our cash available for distribution to our stockholders.

Even if we qualify and maintain our status as a REIT, we may be subject to federal income taxes or state taxes. For example, net income from a prohibited transaction will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain capital gains we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, our stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly or at the level of the companies through which we indirectly own our assets. Any federal or state taxes we pay will reduce our cash available for distribution to our stockholders.

Distributions to tax-exempt investors may be classified as unrelated business taxable income.

Neither ordinary nor capital gain distributions with respect to our common stock nor gain from the sale of common stock should generally constitute unrelated business taxable income to a tax-exempt investor. However, there are certain exceptions to this rule. In particular:

•  Part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as unrelated business taxable income if shares of our common stock are predominately held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT share ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as unrelated business taxable income;

•  Part of the income and gain recognized by a tax exempt investor with respect to our common stock would constitute unrelated business taxable income if the investor incurs debt in order to acquire the common stock; and

•  Part or all of the income or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7), (9), (17) or (20) of the Internal Revenue Code may be treated as unrelated business taxable income.

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Complying with the REIT requirements may cause us to forego otherwise attractive opportunities.

To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate otherwise attractive investments in order to comply with the REIT tests. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

Changes to federal income tax laws or regulations could adversely affect investors.

In recent years, numerous legislative, judicial and administrative changes have been made to the federal income tax laws applicable to investments in REITs and similar entities. Additional changes to tax laws are likely to continue to occur in the future, and we cannot assure our stockholders that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in shares of our common stock. We urge our stockholders to consult with their own tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

Employee Benefit Plan and IRA Risks

We, and our investors that are employee benefit plans or individual retirement accounts, or IRAs, will be subject to risks relating specifically to our having employee benefit plans and IRAs as stockholders, which risks are discussed below.

If our stockholders fail to meet the fiduciary and other standards under the Employee Retirement Income Security Act of 1974, or ERISA, or the Internal Revenue Code as a result of an investment in our common stock, they could be subject to criminal and civil penalties.

There are special considerations that apply to pension, profit-sharing trusts or IRAs investing in our common stock. If our stockholders are investing the assets of a pension, profit sharing or 401(k) plan, health or welfare plan, or an IRA in us, they should consider:

•  whether their investment is consistent with the applicable provisions of ERISA and the Internal Revenue Code, or any other applicable governing authority in the case of a government plan;

•  whether their investment is made in accordance with the documents and instruments governing their plan or IRA, including their plan’s investment policy;

•  whether their investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;

•  whether their investment will impair the liquidity of the plan or IRA;

•  whether their investment will produce unrelated business taxable income, referred to as UBTI and as defined in Sections 511 through 514 of the Internal Revenue Code, to the plan or IRA; and

•  the need to value the assets of the plan annually in accordance with ERISA and the Internal Revenue Code.

In addition to considering their fiduciary responsibilities under ERISA and the prohibited transaction rules of ERISA and the Internal Revenue Code, trustees or others purchasing shares should consider the effect of the plan asset regulations of the U.S. Department of Labor. To avoid our assets from being considered plan assets under those regulations, our charter prohibits “benefit plan investors” from owning 25.0% or more of our common stock prior to the time that the common stock qualifies as a class of publicly-offered securities, within the meaning of the ERISA plan asset regulations. However, we cannot assure stockholders that those provisions in our charter will be effective in limiting benefit plan investor ownership to less than the 25.0% limit. For example, the limit could be unintentionally exceeded if a benefit plan investor misrepresents its status as a benefit plan. Even if our assets are not considered to be plan assets, a prohibited transaction could

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occur if we or any of our affiliates is a fiduciary (within the meaning of ERISA) with respect to an employee benefit plan or IRA purchasing shares, and, therefore, in the event any such persons are fiduciaries (within the meaning of ERISA) of investors plan or IRA, an investor should not purchase shares unless an administrative or statutory exemption applies to an investor purchase.

Item 2.   Properties.

As of December 31 2006, we have not entered into any leases for our principal executive offices located at 1551 N. Tustin Avenue, Suite 200, Santa Ana, California 92705. We do not have an address separate from our Advisor, Triple Net Properties, or our Sponsor. Since we pay to our Advisor fees for its services, we do not pay rent for the use of its space.

Item 3.   Legal Proceedings.

None.

Item 4.   Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the fourth quarter of 2006.

PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

There is no established public trading market for shares of our common stock.

Stockholders

As of February 28, 2007, we had 252 stockholders of record.

Distributions

We intend to make distributions each taxable year equal to at least 90.0% of our taxable income. One of our primary goals is to pay regular monthly distributions to our stockholders. We expect to calculate our monthly distributions based upon daily record and distribution declaration dates so investors may be entitled to distributions immediately upon purchasing our shares.

Our board of directors approved a 6.5% per annum distribution to be paid to stockholders beginning on January 8, 2007, the date we reached our minimum offering. The first distribution was paid on February 15, 2007 for the period ended January 31, 2007.

On February 14, 2007, our board of directors approved a 7.25% per annum distribution to be paid to stockholders beginning with our February 2007 monthly distribution which will be paid in March 2007. Distributions are paid monthly.

Use of Public Offering Proceeds

On September 20, 2006, we commenced our initial public offering in which we are offering a minimum of 200,000 shares of our common stock aggregating at least $2,000,000, and a maximum of 200,000,000 shares of our common stock for $10.00 per share and 21,052,632 shares of our common stock pursuant to our DRIP, at $9.50 per share, aggregating up to $2,200,000,000. The shares offered have been registered with the SEC on a Registration Statement on Form S-11 (File No. 333-133652) under the Securities Act of 1933, which was declared effective by the SEC on September 20, 2006. The offering will terminate no later than September 20,

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2008. As of December 31, 2006, we had not received subscriptions for the minimum offering and had not received any proceeds from our Offering.

As of December 31, 2006, we had paid no expenses in connection with the sale of shares in our Offering.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

No share repurchases were made for the period from April 28, 2006 (Date of Inception) through December 31, 2006. The share repurchase plan allows for share repurchases by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board of directors. Funds for the repurchase of shares will come exclusively from the proceeds we receive from the sale of shares under the DRIP.

Item 6.   Selected Financial Data.

The following should be read with Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation and our consolidated financial statements and the notes thereto. Our historical results are not necessarily indicative of results for any future period.

The following tables present summarized consolidated financial information including balance sheet information, operating results, and cash flows in a format consistent with our consolidated financial statements under Item 15. Exhibits, Financial Statement Schedules of this annual report on Form 10-K.

	December 31,			April 28, 2006
Selected Financial Data	2006			(Date of Inception)
BALANCE SHEET DATA:
Total assets	$	385,324		$	202,000
Stockholders’ (deficit) equity		(189,046	)		2,000

	Period from
	April 28, 2006
	(Date of Inception)
	through
	December 31,
	2006
STATEMENT OF OPERATIONS DATA:
General and administrative expenses	$	241,771
Loss from continuing operations	$	(241,771	)
Net loss	$	(241,771	)
Loss per common share — basic and diluted(1):
Loss from continuing operations	$	(149.03	)
Net loss	$	(149.03	)
STATEMENT OF CASH FLOW DATA:
Cash flows provided by operating activities	$	—
Cash flows provided by investing activities	$	—
Cash flows provided by financing activities	$	202,000
OTHER DATA:
Distributions declared	$	—
Distributions declared per share(1)	$	—
Funds from operations(2)	$	(241,771	)

(1) Net loss and distributions per share are based upon the weighted-average number of shares of our common stock outstanding. Distributions by us of our current and accumulated earnings and profits for federal income tax purposes are taxable to stockholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the stockholder’s basis in the shares to the extent thereof (a return of capital for tax purposes) and, thereafter, as taxable gain. These

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distributions in excess of earnings and profits will have the effect of deferring taxation of the distributions until the sale of the stockholder’s common stock.

(2)

One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. Funds from operations is not equivalent to our net income or loss as determined under accounting principles generally accepted in the United States of America, or GAAP. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as Funds From Operations, or FFO, which it believes more accurately reflects the operating performance of a REIT such as us.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property but including asset impairment writedowns, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO.

Although we had not acquired any real estate properties or real estate related investments as of December 31, 2006, we acquired two healthcare related facilities on January 22, 2007 and intend to purchase additional properties in the future, and are therefore disclosing FFO and intend to disclose FFO in future filings because we consider FFO to be an appropriate supplemental measure of a REIT’s operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. The use of FFO is recommended by the REIT industry as a supplemental performance measure.

Presentation of this information is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income as an indication of our performance. Our FFO reporting complies with NAREIT’s policy described above.

For additional information, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds from Operations, which includes a reconciliation of our GAAP net income available to stockholders to FFO for the period from April 28, 2006 (Date of Inception) through December 31, 2006.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The use of the words “we,” “us” or “our” refers to NNN Healthcare/Office REIT, Inc. and our subsidiary, NNN Healthcare/Office REIT Holdings, L.P., except where the context otherwise requires.

The following discussion should be read in conjunction with our consolidated financial statements and notes appearing elsewhere in this Annual Report on Form 10-K. Such consolidated financial statements and information have been prepared to reflect our financial position as of December 31, 2006 and April 28, 2006 (Date of Inception), together with our results of operations and cash flows for the period from April 28, 2006 (Date of Inception) through December 31, 2006.

Forward-Looking Statements

Historical results and trends should not be taken as indicative of future operations. Our statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of

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1934, as amended, or the Exchange Act. Actual results may differ materially from those included in the forward-looking statements. We intend those forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of us, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “prospects,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically; legislative/regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs; the availability of capital; changes in interest rates; competition in the real estate industry; the supply and demand for operating properties in our proposed market areas; changes in accounting principles generally accepted in the United States of America, or GAAP, policies and guidelines applicable to REITs; the availability of properties to acquire; the availability of financing; our ongoing relationship with NNN Realty Advisors, Inc., or NNN Realty Advisors, or our Sponsor; and litigation, including without limitation, the investigation of Triple Net Properties, LLC, or Triple Net Properties, by the Securities and Exchange Commission, or the SEC. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview and Background

We were incorporated on April 20, 2006 under the laws of the State of Maryland and intend to provide investors the potential for income and growth through investment in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, healthcare-related facilities and quality commercial office properties that produce current income. We may also invest in real estate related securities. We intend to qualify as a REIT for federal income tax purposes for our taxable year ended December 31, 2007.

We are conducting a best efforts initial public offering, or our Offering, in which we are offering a minimum of 200,000 shares of our common stock aggregating at least $2,000,000, or the minimum offering, and a maximum of 200,000,000 shares of our common stock aggregating up to $2,200,000,000, or the maximum offering, for $10.00 per share and 21,052,632 shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, at $9.50 per share. Shares purchased by our executive officers and directors, by NNN Capital Corp., or our Dealer Manager, by NNN Healthcare/Office REIT Advisor, LLC, or our Advisor, or its affiliates did not count towards the minimum offering. On January 8, 2007, excluding shares purchased by our executive officers and directors, our Dealer Manager and our Advisor and its affiliates, we had received and accepted subscriptions in our Offering for 200,846 shares of our common stock, or $2,004,000, thereby exceeding the minimum offering. As of February 28, 2007, we received and accepted subscriptions in our Offering for 722,689 shares of our common stock, or $7,197,000.

We anticipate that we will conduct substantially all of our operations through NNN Healthcare/Office REIT Holdings, L.P., or our Operating Partnership. We are externally advised by our Advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us, our Advisor and Triple Net Properties, the managing member of our Advisor. The Advisory Agreement has a one year term that expires in September 2007, and is subject to successive renewals. Our Advisor supervises and manages our day-to-day operations and will select the properties and securities we acquire, subject to oversight by our board of directors. Our Advisor will also provide marketing, sales and client services on our behalf. Our Advisor is affiliated with us in that we and our Advisor have common officers, some of whom also own an indirect equity interest in our Advisor. Our Advisor engages affiliated entities, including Triple Net Properties Realty, Inc., or Realty, an affiliate of our Advisor, to provide various services to us and our future properties.

In the fourth quarter of 2006, NNN Realty Advisors acquired all of the outstanding ownership interests of Triple Net Properties, NNN Capital Corp. and Realty. As a result, we consider NNN Realty Advisors to be our Sponsor.

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As of December 31, 2006, we had neither purchased nor contracted to purchase any investments.

Business Strategies

We intend to invest in a diversified portfolio of real estate and real estate related securities, focusing primarily on investments that produce current income. Our real estate investments will focus on medical office buildings, healthcare-related facilities and quality commercial office properties. We may also invest in real estate related securities. However, we do not presently intend to invest more than 15.0% of our total assets in real estate related securities. Our real estate related securities investments will generally focus on common and preferred stock of public or private real estate companies, collateralized mortgage-backed securities, other forms of mortgage debt and certain other securities, including collateralized debt obligations and foreign securities. We will seek to maximize long-term stockholder value by generating sustainable growth in cash flow and portfolio value. In order to achieve these objectives, we may invest using a number of investment structures which may include direct acquisitions, joint ventures, leveraged investments, issuing securities for property and direct and indirect investments in real estate. In order to maintain our exemption from regulation as an investment company under the Investment Company Act of 1940, we may be required to limit our investments in real estate related securities.

In addition, when and as determined appropriate by our Advisor, the portfolio may also include properties in various stages of development other than those producing current income. These stages would include, without limitation, unimproved land, both with and without entitlements and permits, property to be redeveloped and repositioned, newly constructed properties and properties in lease-up or other stabilization, all of which will have limited or no relevant operating histories and no current income. Our Advisor will make this determination based upon a variety of factors, including the available risk adjusted returns for such properties when compared with other available properties, the appropriate diversification of the portfolio, and our objectives of realizing both current income and capital appreciation upon the ultimate sale of properties.

For each of our investments, regardless of property type, our Advisor will seek to invest in properties with the following attributes:

•  Quality.  We will seek to acquire properties that are suitable for their intended use with a quality of construction that is capable of sustaining the property’s investment potential for the long-term, assuming funding of budgeted maintenance, repairs and capital improvements.

•  Location.  We will seek to acquire properties that are located in established or otherwise appropriate markets for comparable properties, with access and visibility suitable to meet the needs of its occupants.

•  Market; and Supply and Demand.  We will focus on local or regional markets which have potential for stable and growing property level cash flow over the long-term. These determinations will be based in part on an evaluation of local economic, demographic and regulatory factors affecting the property. For instance, we will favor markets that indicate a growing population and employment base or markets that exhibit potential limitations on additions to supply, such as barriers to new construction. Barriers to new construction include lack of available land and stringent zoning restrictions. In addition, we will generally seek to limit our investments in areas that have limited potential for growth.

•  Predictable Capital Needs.  We will seek to acquire properties where the future expected capital needs can be reasonably projected in a manner that would allow us to meet our objectives of growth in cash flow and preservation of capital and stability.

•  Cash Flow.  We will seek to acquire properties where the current and projected cash flow, including the potential for appreciation in value, would allow us to meet our overall investment objectives. We will evaluate cash flow as well as expected growth and the potential for appreciation.

We will not invest more than 10.0% of the offering proceeds available for investment in unimproved or non-income producing properties or in other investments relating to unimproved or non-income producing property. A property: (1) not acquired for the purpose of producing rental or other operating income, or

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(2) with no development or construction in process or planned in good faith to commence within one year will be considered unimproved or non-income producing property for purposes of this limitation.

We are not limited as to the geographic area where we may acquire properties. We are not specifically limited in the number or size of properties we may acquire or on the percentage of our assets that we may invest in a single property or investment. The number and mix of properties we acquire will depend upon real estate and market conditions and other circumstances existing at the time we are acquiring our properties and making our investments and the amount of proceeds we raise in this and potential future offerings.

Acquisitions in 2007

On January 22, 2007, we acquired all of the membership interests of NNN Southpointe, LLC and NNN Crawfordsville, LLC for a total purchase price of $14,800,000 and $6,900,000, respectively, plus closing costs. NNN Southpointe, LLC has a fee simple ownership interest in Southpointe Office Parke and Epler Parke I, or the Southpointe property. NNN Crawfordsville, LLC has a fee simple ownership interest in Crawfordsville Medical Office Park and Athens Surgery Center, or the Crawfordsville property. We acquired the membership interests from NNN South Crawford Member, LLC, an indirect wholly-owned subsidiary of our Sponsor. See Subsequent Events — Property Acquisitions for a further discussion of the acquisitions.

Proposed Property Acquisitions

In January 2007, our board of directors approved the acquisitions of: (i) the Gallery Professional Building located in St. Paul, Minnesota for a purchase price of $8,800,000, plus closing costs; and (ii) Lennox Office Park, Building G, located in Memphis, Tennessee for a purchase price of $18,500,000, plus closing costs, contingent upon raising sufficient financing and other conditions.

Critical Accounting Policies

We believe that our critical accounting policies are those that require significant judgments and estimates such as those related to revenue recognition, allowance for uncollectible accounts, capitalization of expenditures, depreciation of assets, impairment of real estate, properties held for sale, purchase price allocation, and qualification as a REIT. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.

Revenue Recognition, Tenant Receivables and Allowance for Uncollectible Accounts

In accordance with Statement of Financial Accounting Standards, or SFAS, No. 13, Accounting for Leases, as amended and interpreted, we will recognize base rental income on a straight-line basis over the terms of the respective lease agreements (including rent holidays). Differences between rental income recognized and amounts contractually due under the lease agreements will be credited or charged, as applicable, to rent receivable. Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, will be recognized as revenue in the period in which the related expenses are incurred.

Tenant receivables and unbilled deferred rent receivables will be carried net of the allowances for uncollectible tenant receivables and unbilled deferred rent. An allowance will be maintained for estimated losses resulting from the inability of certain tenants to meet their contractual obligations under their lease agreements. We also will maintain an allowance for deferred rent receivables arising from the straight-lining

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of rents. We will determine the adequacy of this allowance by continually evaluating individual tenant receivables considering the tenant’s financial condition, security deposits, letters of credit, lease guarantees, if applicable, and current economic conditions.

Capitalization of Expenditures and Depreciation of Assets

The cost of operating properties will include the cost of land and completed buildings and related improvements. Expenditures that increase the service life of properties will be capitalized; the cost of maintenance and repairs will be charged to expense as incurred. The cost of building and improvements will be depreciated on a straight-line basis over the estimated useful lives of the buildings and improvements, ranging primarily from 15 to 39 years and the shorter of the lease term or useful life, ranging from one to 10 years for tenant improvements. Furniture, fixtures and equipment will be depreciated over five years. When depreciable property will be retired or disposed of, the related costs and accumulated depreciation will be removed from the accounts and any gain or loss reflected in operations.

Impairment

Our properties will be carried at the lower of historical cost less accumulated depreciation or fair value. We will assess the impairment of a real estate asset when events or changes in circumstances indicate that the net book value may not be recoverable. Indicators we consider important and that we believe could trigger an impairment review include the following:

•  significant negative industry or economic trends;

•  a significant underperformance relative to historical or projected future operating results; and

•  a significant change in the manner in which the asset is used.

In the event that the carrying amount of a property exceeds the sum of the undiscounted cash flows (excluding interest) that would be expected to result from the use and eventual disposition of the property, we would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property. The estimation of expected future net cash flows will be inherently uncertain and will rely on subjective assumptions dependent upon future and current market conditions and events that affect the ultimate value of the property. It will require us to make assumptions related to future rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, occupancy levels, and the estimated proceeds generated from the future sale of the property.

Properties Held for Sale

We will account for our properties held for sale in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, or SFAS No. 144, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and requires that, in a period in which a component of an entity either has been disposed of or is classified as held for sale, the income statements for current and prior periods shall report the results of operations of the component as discontinued operations.

In accordance with SFAS No. 144, at such time as a property is held for sale, such property will be carried at the lower of (i) its carrying amount or (ii) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We will classify operating properties as property held for sale in the period in which all of the following criteria are met:

•  management, having the authority to approve the action, commits to a plan to sell the asset;

•  the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;

•  an active program to locate a buyer and other actions required to complete the plan to sell the asset has been initiated;

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•  the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year;

•  the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and

•  given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn.

Purchase Price Allocation

In accordance with SFAS No. 141, Business Combinations, we, with assistance from independent valuation specialists, will allocate the purchase price of acquired properties to tangible and identified intangible assets based on their respective fair values. The allocation to tangible assets (building and land) will be based upon our determination of the value of the property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered by us will include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property will be allocated to the above or below market value of in-place leases and the value of in-place leases and related tenant relationships.

The value allocable to the above or below market component of the acquired in-place leases will be determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases will be included in the intangible assets and below market lease values will be included in intangible liabilities in our consolidated financial statements and will be amortized to rental income over the weighted average remaining term of the acquired leases with each property.

The total amount of other intangible assets acquired will be further allocated to in-place lease costs and the value of tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics considered by management in allocating these values will include the nature and extent of the credit quality and expectations of lease renewals, among other factors.

These allocations will be subject to change based on continuing valuation analysis, or other evidence, until the allocations are finalized or the stipulated time of one year from the date of acquisition.

Qualification as a REIT

For our taxable year ended December 31, 2007, we intend to elect to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code of 1986, as amended, or the Code, and, upon the election being made, we will be taxed as such beginning with our taxable year ended December 31, 2007. Because of our intention to elect REIT status in 2007, we will not benefit from the loss incurred in the year ended December 31, 2006. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90.0% of our REIT taxable income to stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates starting with that year and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service were to grant us relief under certain statutory provisions. Such an event could have a material adverse effect on our net income and net cash available for distribution to stockholders. However, we believe that we will be organized and will operate in such a manner as to qualify for treatment as a REIT for federal income tax purposes.

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Factors Which May Influence Results of Operations

Rental Income

The amount of rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space, to lease currently available space and space available from unscheduled lease terminations at the existing rental rates. Negative trends in one or more of these factors could adversely affect our rental income in future periods.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and related laws, regulations and standards relating to corporate governance and disclosure requirements applicable to public companies, have increased the costs of compliance with corporate governance, reporting and disclosure practices which are now required of us. These costs may have a material impact on our results of operations and could impact our ability to pay distributions to our stockholders. Furthermore, we expect that these costs will increase in the future due to our continuing implementation of compliance programs mandated by these requirements. Any increased costs may affect our ability to distribute funds to our stockholders.

In addition, these laws, rules and regulations create new legal bases for potential administrative enforcement, civil and criminal proceedings against us in case of non-compliance, thereby increasing the risks of liability and potential sanctions against us. We expect that our efforts to comply with these laws and regulations will continue to involve significant, and potentially increasing costs and, our failure to comply, could result in fees, fines, penalties or administrative remedies against us.

Results of Operations

As of December 31, 2006, we had not raised the minimum offering nor had we acquired any real estate properties or real estate related investments. We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of properties other than those listed in Part I, Item 1A. Risk Factors.

If we fail to raise significant proceeds above our minimum offering, we will not have enough proceeds to invest in a diversified real estate portfolio. Our real estate portfolio would be concentrated in a small number of properties, resulting in increased exposure to local and regional economic downturns and the poor performance of one or more of our properties and, therefore, expose our stockholders to increased risk. In addition, many of our expenses are fixed regardless of the size of our real estate portfolio. Therefore, depending on the amount of offering proceeds we raise, we would expend a larger portion of our income on operating expenses. This would reduce our profitability and, in turn, the amount of net income available for distribution to our stockholders.

For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we had a net loss of approximately $242,000, or $149.03 per share due to general and administrative expenses related to directors’ and officers’ insurance premiums of $68,000, directors’ fees of $55,000, restricted stock compensation of $51,000 and professional and legal fees of $68,000. We expect general and administrative expenses to increase in the future based on a full year of operations as well as increased activity as we make real estate investments. Our results of operations are not indicative of those expected in future periods.

Our organizational, offering and related expenses are initially being paid by our Advisor, our Dealer Manager and their affiliates on our behalf. These organizational, offering and related expenses include all expenses (other than selling commissions and the marketing support fee) to be paid by us in connection with our Offering. As of December 31, 2006, our Advisor or its affiliates have incurred $1,093,000. These expenses will only become our liability to the extent selling commissions, the marketing support fee and due diligence expense reimbursement and other organizational and offering expenses do not exceed 11.5% of the gross proceeds of our Offering. We have no obligation to reimburse our Advisor, our Dealer Manager or their affiliates for any organizational, offering and related expenses unless we raise the minimum offering. As such,

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these expenses are not recorded in our accompanying consolidated financial statements because we had not raised the minimum offering as of December 31, 2006. See Note 4, Related Party Transactions — Offering Stage to our accompanying consolidated financial statements for a further discussion of expenses during our offering stage.

Liquidity and Capital Resources

We are dependent upon the net proceeds to be received from our Offering to conduct our proposed activities. The capital required to purchase real estate and real estate related securities will be obtained from our Offering and from any indebtedness that we may incur. We have been initially capitalized with $2,000 from the sale of 200 shares of our common stock to our Advisor and our Advisor has invested $200,000 in our Operating Partnership for a total of $202,000 in cash as of December 31, 2006.

As such, cash flows from financing activities for the period from April 28, 2006 (Date of Inception) through December 31, 2006, were $202,000. We had no cash flows from operating or investing activities for the period from April 28, 2006 (Date of Inception) through December 31, 2006.

As of December 31, 2006, we had accrued liabilities in the amount of approximately $374,000 for insurance premiums for directors’ and officers’ liability insurance, directors’ fees and other operating expenses. Our sources of funds will primarily be the net proceeds of our Offering, operating cash flows and borrowings. As of December 31, 2006, we had no outstanding debt.

On January 22, 2007, in connection with our acquisition of the 100% membership interests in NNN Southpointe, LLC and NNN Crawfordsville, LLC, we:

•  Entered into an unsecured loan with NNN Realty Advisors, our Sponsor, in the principal amount of $7,500,000. The unsecured loan matures on July 22, 2007, bears interest at a fixed rate of 6.86% per annum and requires monthly interest-only payments beginning on February 1, 2007 for the term of the unsecured loan.

•  Assumed the existing mortgage loan payable on the Southpointe property in the principal amount of $9,146,000. The mortgage loan payable bears interest at a fixed rate of 6.113% per annum and matures on September 1, 2016. Pursuant to our assumption of the mortgage loan payable, we are required to make monthly interest-only payments on the first day of each month through September 1, 2010. Beginning on October 1, 2010, we will be required to make principal and interest payments on the first day of each month until maturity.

•  Assumed the existing mortgage loan payable on the Crawfordsville property in the principal amount of $4,264,000. The mortgage loan payable bears interest at a fixed rate of 6.123% per annum and matures on October 1, 2016. Pursuant to our assumption of the mortgage loan payable, we are required to make monthly interest-only payments on the first day of each month through October 1, 2010. Beginning on November 1, 2010, we will be required to make principal and interest payments on the first day of each month until maturity.

See Subsequent Events — Property Acquisitions for a further discussion.

We anticipate that aggregate borrowings, both secured and unsecured, will not exceed 60.0% of all of our properties’ combined fair market values, as determined at the end of each calendar year beginning with our first full year of operations. For these purposes, the fair market value of each asset will be equal to the purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the fair market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment.

Our charter precludes us from borrowing in excess of 300.0% of the value of our net assets, unless approved by our independent directors and the justification for such excess borrowing is disclosed to our stockholders in our next quarterly report. As a result of the acquisitions of the Crawfordsville property and the Southpointe property, as of January 22, 2007, our leverage exceeds 300.0%. In accordance with our charter, a majority of our directors, including a majority of our independent directors, approved our leverage exceeding

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300.0% in connection with the acquisitions. The board of directors determined that the excess leverage was justified because it enabled us to purchase the properties during the initial stages of our Offering, thereby improving our ability to meet our goal of acquiring a diversified portfolio of properties to generate current income for investors and preserve investor capital. We will likely continue to exceed our charter’s leverage guidelines during the early stages of our operations. We will take action to reduce any such excess as soon as practicable. Net assets for purposes of this calculation are defined as our total assets (other than intangibles), valued at cost prior to deducting depreciation, reserves for bad debts and other non-cash reserves, less total liabilities. The preceding calculation is generally expected to approximate 75.0% of the sum of (1) the aggregate cost of our properties before non-cash reserves and depreciation and (2) the aggregate cost of our securities assets.

Our principal demands for funds will be for acquisitions of real estate and real estate related securities, to pay operating expenses and interest on our outstanding indebtedness and to make distributions to our stockholders. In addition, we will require resources to make certain payments to our Advisor and our Dealer Manager, which during our Offering include payments to our Advisor and its affiliates for reimbursement of certain organizational and offering expenses and to our Dealer Manager and its affiliates for selling commissions, non-accountable marketing support fees and due diligence expense reimbursements.

Generally, cash needs for items other than acquisitions of real estate and real estate related securities will be met from operations, borrowing, and the net proceeds of our Offering, including the proceeds raised through the DRIP. However, there may be a delay between the sale of shares of our common stock and our investments in properties and real estate related securities, which could result in a delay in the benefits to our stockholders, if any, of returns generated from our investment operations. We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months.

Our Advisor will evaluate potential additional investments and will engage in negotiations with real estate sellers, developers, brokers, investment managers, lenders and others on our behalf. Until we invest the proceeds of our Offering in properties and real estate related securities, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments will not earn significant returns, and we cannot predict how long it will take to fully invest the proceeds in properties and real estate related securities. The number of properties we may acquire and other investments we will make will depend upon the number of shares sold and the resulting amount of the net proceeds available for investment.

When we acquire a property, our Advisor will prepare a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan will also set forth the anticipated sources of the necessary capital, which may include a line of credit or other loan established with respect to the investment, operating cash generated by the investment, additional equity investments from us or joint venture partners or, when necessary, capital reserves. Any capital reserve would be established from the gross proceeds of our Offering, proceeds from sales of other investments, operating cash generated by other investments or other cash on hand. In some cases, a lender may require us to establish capital reserves for a particular investment. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs.

Distributions

We have not paid any distributions as of December 31, 2006. The amount of the distributions to our stockholders will be determined by our board of directors and are dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Code.

Our board of directors approved a 6.5% per annum distribution to be paid to stockholders beginning on January 8, 2007, the date we reached our minimum offering. The first distribution was paid on February 15, 2007 for the period ended January 31, 2007.

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On February 14, 2007, our board of directors approved a 7.25% per annum distribution to be paid to stockholders beginning with our February 2007 monthly distribution which will be paid in March 2007. Distributions are paid monthly.

REIT Requirements

In order to qualify as a REIT for federal income tax purposes, we are required to make distributions to our stockholders of at least 90.0% of REIT taxable income. In the event that there is a shortfall in net cash available due to factors including, without limitation, the timing of such distributions or the timing of the collections of receivables, we may seek to obtain capital to pay distributions by means of secured debt financing through one or more third parties. We may also pay distributions from cash from capital transactions including, without limitation, the sale of one or more of our properties.

Commitments and Contingencies

Our organizational, offering and related expenses are initially being paid by our Advisor, our Dealer Manager and their affiliates on our behalf. These organizational, offering and related expenses include all expenses (other than selling commissions and the marketing support fee) to be paid by us in connection with our Offering. As of December 31, 2006, our Advisor or its affiliates have incurred $1,093,000. These expenses will only become our liability to the extent selling commissions, the marketing support fee and due diligence expense reimbursement and other organizational and offering expenses do not exceed 11.5% of the gross proceeds of our Offering. We have no obligation to reimburse our Advisor, our Dealer Manager or their affiliates for any organizational, offering and related expenses unless we raise the minimum offering. As such, these expenses are not recorded in our accompanying consolidated financial statements because we had not raised the minimum offering as of December 31, 2006.

Insurance Coverage

The insurance coverage provided through third-party insurance carriers is subject to coverage limitations. For each type of insurance coverage, should an uninsured or underinsured loss occur, we could lose all or a portion of our investment in, and anticipated cash flows from, one or more of the properties. In addition, there can be no assurance that third-party insurance carriers will be able to maintain reinsurance sufficient to cover any losses that may be incurred. However, management believes that our current insurance coverage is adequate.

Debt Service Requirements

As of December 31, 2006, we had no outstanding debt.

Contractual Obligations

As of December 31, 2006, we had no contractual obligations.

Off-Balance Sheet Arrangements

As of December 31, 2006, we had no off-balance sheet transactions nor do we currently have any such arrangements or obligations.

Inflation

We will be exposed to inflation risk as income from future long-term leases is expected to be the primary source of our cash flows from operations. We expect that there will be provisions in the majority of our tenant leases that would protect us from the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per square foot allowance. However, due to the anticipated long-term nature of the leases, among other factors, the leases may not re-set frequently enough to cover inflation.

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Funds from Operations

One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. Funds from operations is not equivalent to our net income or loss as determined under GAAP. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as Funds From Operations, or FFO, which it believes more accurately reflects the operating performance of a REIT such as us.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property but including asset impairment writedowns, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO.

Although we had not acquired any real estate properties or real estate related investments as of December 31, 2006, we acquired two healthcare related facilities on January 22, 2007 and intend to purchase additional properties in the future, and are therefore disclosing FFO and intend to disclose FFO in future filings because we consider FFO to be an appropriate supplemental measure of a REIT’s operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. The use of FFO is recommended by the REIT industry as a supplemental performance measure.

Presentation of this information is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income as an indication of our performance. Our FFO reporting complies with NAREIT’s policy described above.

The following is the calculation of FFO for the period from April 28, 2006 (Date of Inception) through December 31, 2006:

	Period from April 28, 2006
	(Date of Inception) through
	December 31, 2006
Net loss	$	(241,771	)
Add:
Depreciation and amortization — consolidated properties		—
Depreciation and amortization — unconsolidated properties		—
Less:
Gain on sale of joint venture (net of related income tax)		—
Funds from operations	$	(241,771	)
Weighted average common shares outstanding — basic and diluted		1,622
Gain on the sale of investments included in net loss and FFO	$	—

Subsequent Events

Status of our Offering

As of January 8, 2007, excluding shares purchased by our executive officers and directors, our Dealer Manager and our Advisor and its affiliates, we had received and accepted subscriptions in our Offering for

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200,846 shares of our common stock, or $2,004,000, thereby exceeding the minimum offering. Having raised the minimum offering, the offering proceeds were released by the escrow agent to us and are available for the acquisition of properties and other purposes disclosed in our Registration Statement on Form S-11(File No. 333-133652, effective September 20, 2006) filed with the Securities and Exchange Commission. As of February 28, 2007, we had received and accepted subscriptions in our Offering for 722,689 shares of our common stock, or $7,197,000.

Unsecured Loan

On January 22, 2007, in connection with our acquisition of the 100% membership interests in NNN Southpointe, LLC and NNN Crawfordsville, LLC, we entered into an unsecured loan with NNN Realty Advisors, evidenced by a promissory note in the principal amount of $7,500,000. The unsecured loan matures on July 22, 2007. The unsecured loan bears interest at a fixed rate of 6.86% per annum and requires monthly interest-only payments beginning on February 1, 2007 for the term of the unsecured loan. NNN Realty Advisors is our Sponsor and therefore this loan is deemed a related party loan. The terms of this related party unsecured loan, were approved by our board of directors, including the majority of our independent directors, and deemed fair, competitive and commercially reasonable by our board of directors.

Property Acquisitions

On January 22, 2007, we purchased a 100% membership interest in NNN Southpointe, LLC from NNN South Crawford Member, LLC, an indirect wholly-owned subsidiary of our Sponsor, for a total purchase price of $14,800,000. NNN Southpointe, LLC has a fee simple ownership interest in the Southpointe property located in Indianapolis, Indiana. We primarily financed the purchase price of the property through the assumption of an existing mortgage loan payable of $9,146,000 on the property with LaSalle Bank, National Association, or LaSalle, and approximately $5,115,000 of the proceeds from a $7,500,000 unsecured loan (as described above) from NNN Realty Advisors. The balance was provided by funds raised through our Offering. An acquisition fee of $444,000, or 3.0% of the purchase price, was paid to our Advisor and its affiliates.

The $9,146,000 existing mortgage loan payable on the Southpointe property matures on September 1, 2016 and bears interest at a fixed rate of 6.113% per annum. Pursuant to our assumption of the mortgage loan payable, we are required to make monthly interest-only payments on the first day of each month through September 1, 2010. Beginning on October 1, 2010, we will be required to make principal and interest payments on the first day of each month until maturity. The mortgage loan provides for a default interest rate of an additional 5.0% per annum in an event of default and late charges in an amount equal to the lesser of (a) an additional 3.0% of the amount of any overdue payments or (b) the maximum amount permitted by applicable law, in addition to any default interest payments.

Since we acquired the NNN Southpointe, LLC membership interests from an indirect wholly-owned subsidiary of our Sponsor, an independent appraiser was engaged to value the property, the transaction was approved by the majority of our directors, including a majority of our independent directors and it was determined by a majority of our board of directors, including a majority of our independent directors that the transaction is fair and reasonable to us and at a price no greater than the cost of the investment to our Sponsor or the property’s appraised value.

On January 22, 2007, we purchased a 100% membership interest in NNN Crawfordsville, LLC from NNN South Crawford Member, LLC, for a total purchase price of $6,900,000. NNN Crawfordsville, LLC has a fee simple ownership interest in the Crawfordsville property located in Crawfordsville, Indiana. We primarily financed the purchase price of the property through the assumption of an existing mortgage loan payable of $4,264,000 on the property with LaSalle and approximately $2,385,000 of the proceeds from a $7,500,000 unsecured loan (as described above) from NNN Realty Advisors. The balance was provided by funds raised through our Offering. An acquisition fee of $207,000, or 3.0% of the purchase price, was paid to our Advisor and its affiliates.

The $4,246,000 mortgage loan payable on the Crawfordsville property matures on October 1, 2016 and bears interest at a fixed rate of 6.123% per annum. Pursuant to our assumption of the mortgage loan payable,

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we are required to make monthly interest-only payments on the first day of each month through October 1, 2010. Beginning on November 1, 2010, we will be required to make principal and interest payments on the first day of each month until maturity. The mortgage loan provides for a default interest rate of an additional 5.0% per annum in an event of default and late charges in an amount equal to the lesser of (a) an additional 3.0% of the amount of any overdue payments or (b) the maximum amount permitted by applicable law, in addition to any default interest payments.

Since we acquired the NNN Crawfordsville, LLC membership interests from a subsidiary of our Sponsor, an independent appraiser was engaged to value the property, the transaction was approved by the majority of our directors, including a majority of our independent directors and it was determined by a majority of our board of directors, including a majority of our independent directors that the transaction is fair and reasonable to us and at a price no greater than the cost of the investment to our Sponsor or the property’s appraised value.

As a result of the acquisitions of the Crawfordsville property and the Southpointe property, as of January 22, 2007, our leverage exceeds 300.0%. In accordance with our charter, a majority of our directors, including a majority of our independent directors, approved our leverage exceeding 300.0% in connection with the acquisitions. The board of directors determined that the excess leverage was justified because it enabled us to purchase the property during the initial stages of our Offering, thereby improving our ability to meet our goal of acquiring a diversified portfolio of properties to generate current income for investors and preserve investor capital. We will likely continue to exceed our charter’s leverage guidelines during the early stages of our operations. We will take action to reduce any such excess as soon as practicable. Net assets for purposes of this calculation are defined as our total assets (other than intangibles), valued at cost prior to deducting depreciation, reserves for bad debts and other non-cash reserves, less total liabilities. The preceding calculation is generally expected to approximate 75.0% of the sum of (1) the aggregate cost of our properties before non-cash reserves and depreciation and (2) the aggregate cost of our securities assets.

Potential Property Acquisitions

In January 2007, our board of directors approved the acquisitions of: (i) the Gallery Professional Building located in St. Paul, Minnesota for a purchase price of $8,800,000, plus closing costs; and (ii) Lennox Office Park, Building G, located in Memphis, Tennessee for a purchase price of $18,500,000, plus closing costs, contingent upon raising sufficient financing and other conditions.

Appointment to the Audit Committee

On January 17, 2007, Gary T. Wescombe accepted his appointment to the Audit Committee of our board of directors.

Distributions

Our board of directors approved a 6.5% per annum distribution to be paid to stockholders beginning on January 8, 2007, the date we reached our minimum offering. The first distribution was paid on February 15, 2007 for the period ended January 31, 2007.

On February 14, 2007, our board of directors approved a 7.25% per annum distribution to be paid to stockholders beginning with our February 2007 monthly distribution which will be paid in March 2007. Distributions are paid monthly.

Recently Issued Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board, or the FASB, issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN No. 48. This interpretation, among other things, creates a two step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a

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company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. FIN No. 48 specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions, and it has expanded disclosure requirements. FIN No. 48 is effective for fiscal years beginning after December 15, 2006, in which the impact of adoption should be accounted for as a cumulative-effect adjustment to the beginning balance of retained earnings. The adoption of FIN No. 48 as of the beginning of the first quarter of 2007 did not have a material impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement, or SFAS No. 157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. We will adopt SFAS No. 157 on January 1, 2008. We are evaluating SFAS No. 157 and have not yet determined the impact the adoption, if any, will have on our consolidated financial statements.

In September 2006, the SEC released Staff Accounting Bulletin, or SAB, No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Current Year Misstatements, or SAB No. 108, to address diversity in practice regarding consideration of the effects of prior year errors when quantifying misstatements in current year financial statements. The SEC staff concluded that registrants should quantify financial statement errors using both a balance sheet approach and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB No. 108 states that if correcting an error in the current year materially affects the current year’s income statement, the prior period financial statements must be restated. SAB No. 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB No. 108 in the fourth quarter of 2006 did not have a material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS No. 159. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the guidance is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the fiscal year beginning on or before November 15, 2007, provided the provisions of SFAS No. 157 are applied. We will adopt SFAS No. 159 on January 1, 2008. We are evaluating SFAS No. 159 and have not yet determined the impact the adoption, if any, will have on our consolidated financial statements.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.

We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund expansion and refinancing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes. Because we had not commenced real estate operations as of December 31, 2006, we had limited exposure to financial market risks.

In addition to changes in interest rates, the value of our future properties is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.

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Item 8.   Financial Statements and Supplementary Data.

See the index at Item 15. Exhibits, Financial Statement Schedules.

Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A.   Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.  We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission, or the SEC, rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

Following the signatures section of this Annual Report on Form 10-K are certifications of our chief executive officer and chief financial officer required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14(a) and 15d-14(a) under the Exchange Act, or the Section 302 Certification. This portion of our Annual Report on Form 10-K is our disclosure of the results of our controls evaluation referred to in paragraphs (4) and (5) of the Section 302 Certification and should be read in conjunction with the Section 302 Certification for a more complete understanding of the topics presented.

As of December 31, 2006, an evaluation was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, the chief executive officer and the chief financial officer concluded that the design and operation of these disclosure controls and procedures were effective.

(b) Changes in internal control over financial reporting.  There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.  Other Information.

None.

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PART III

Item 10.   Directors, Executive Officers and Corporate Governance.

The following table and biographical descriptions set forth information with respect to our officers and directors as of March 2, 2007.

Name	Age		Position	Term of Office
Scott D. Peters		49	Chief Executive Officer and Chairman of the Board	Since 2006
Shannon K S Johnson		29	Chief Financial Officer	Since 2006
Andrea R. Biller		57	Executive Vice President and Secretary	Since 2006
Danny Prosky		41	Vice President — Acquisitions	Since 2006
W. Bradley Blair, II		63	Independent Director	Since 2006
Maurice J. DeWald		66	Independent Director	Since 2006
Warren D. Fix		68	Independent Director	Since 2006
Gary T. Wescombe		64	Independent Director	Since 2006

There are no family relationships between any directors, executive officers or between any director and executive officer.

Scott D. Peters has served as our Chief Executive Officer since April 2006, Chairman of the Board since July 2006 and as the Chief Executive Officer of NNN Healthcare/Office REIT Advisor, LLC, or our Advisor, since July 2006. He has also served as the Chief Executive Officer, President and a director of NNN Realty Advisors, Inc., or NNN Realty Advisors, or our Sponsor, since its formation in September 2006 and as the Chief Executive Officer of Triple Net Properties, LLC, or Triple Net Properties, since November 2006. From September 2004 to October 2006, Mr. Peters served as the Executive Vice President and Chief Financial Officer of Triple Net Properties and was responsible for all areas of finance, including accounting and financial reporting, as well as a liaison for institutional investors, lenders and investment banks. Since December 2005, Mr. Peters has also served as the Chief Executive Officer and President of G REIT, Inc., having previously served as its Executive Vice President and Chief Financial Officer since September 2004. Mr. Peters has also served as the Executive Vice President and Chief Financial Officer of T REIT, Inc. from September 2004 to December 2006 and the Executive Vice President of NNN Apartment REIT, Inc. since January 2006. From February 1997 to February 2007, Mr. Peters served as Senior Vice President, Chief Financial Officer and a director of Golf Trust of America, Inc., a publicly traded real investment trust. Mr. Peters received his B.B.A. in accounting and finance from Kent State University in Ohio.

Shannon K S Johnson has served as our Chief Financial Officer since August 2006. Ms. Johnson has also served as a Financial Reporting Manager for Triple Net Properties since January 2006 and as the Chief Financial Officer of NNN Apartment REIT, Inc. since April 2006. From June 2002 to January 2006, Ms. Johnson gained public accounting and auditing experience while employed as an auditor with PricewaterhouseCoopers LLP. Prior to joining PricewaterhouseCoopers LLP, from September 1999 to June 2002, Ms. Johnson worked as an auditor with Arthur Andersen LLP, where she worked on the audits of a variety of public and private entities. Ms. Johnson is a Certified Public Accountant and graduated summa cum laude with her Bachelor of Arts in Business-Economics and a minor in Accounting from the University of California, Los Angeles.

Andrea R. Biller has served as our Executive Vice President and Secretary since April 2006 and as the Executive Vice President of our Advisor since July 2006. She has also served as the General Counsel, Executive Vice President and Secretary of NNN Realty Advisors since its formation in September 2006. She has served as General Counsel for Triple Net Properties since March 2003 and as Executive Vice President since January 2007, overseeing all legal functions and coordinating with outside counsel. Ms. Biller has also served as the Secretary and Executive Vice President of G REIT, Inc. since June 2004 and December 2005, respectively, the Secretary of T REIT, Inc. since May 2004 and the Secretary of NNN Apartment REIT, Inc.

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since January 2006. Ms. Biller practiced as a private attorney specializing in securities and corporate law from 1990 to 1995 and 2000 to 2002. She practiced at the SEC from 1995 to 2000, including two years as special counsel for the Division of Corporation Finance. Ms. Biller earned a Bachelor of Arts degree in psychology from Washington University, a Master of Arts degree in psychology from Glassboro State University in New Jersey and a Juris Doctor degree from George Mason University School of Law in Virginia in 1990, where she graduated first with distinction. Ms. Biller is a member of the California, Virginia and the District of Columbia State Bar Associations.

Danny Prosky serves as our Vice President — Acquisitions. He has served as Triple Net Properties’ Managing Director — Health Care Properties since March 2006 and is responsible for all medical property acquisitions, management and dispositions. Mr. Prosky previously worked with Health Care Property Investors, Inc., a healthcare-focused real estate investment trust, or REIT, where he served as the Assistant Vice President — Acquisitions & Dispositions from 2005 to March 2006, and as Assistant Vice President — Asset Management from 1999 to 2005. From 1992 to 1999, he served as the Manager, Financial Operations, Multi-Tenant Facilities for American Health Properties, Inc. Mr. Prosky received a Bachelor of Science degree in finance from the University of Colorado and a Masters of Science degree in management from Boston University.

W. Bradley Blair, II has served as an independent director of our company since September 2006. Mr. Blair has served as the Chief Executive Officer, President and Chairman of the board of directors of Golf Trust of America, Inc. since its initial public offering in 1997. From 1993 until February 1997, Mr. Blair served as Executive Vice President, Chief Operating Officer and General Counsel for The Legends Group. As an officer of The Legends Group, Mr. Blair was responsible for all aspects of operations, including acquisitions, development and marketing. From 1978 to 1993, Mr. Blair was the managing partner at Blair Conaway Bograd & Martin, P.A., a law firm specializing in real estate, finance, taxation and acquisitions. Mr. Blair earned a Bachelor of Science degree in Business from Indiana University and his Juris Doctorate from the University of North Carolina at Chapel Hill Law School.

Maurice J. DeWald has served as an independent director of our company since September 2006. He has served as the Chairman and Chief Executive Officer of Verity Financial Group, Inc., a financial advisory firm, since 1992. Mr. DeWald also serves as a director of Advanced Materials Group, Inc., Integrated Healthcare Holdings, Inc. and Mizuho Corporate Bank of California. Mr. DeWald was an audit partner and managing partner with the international accounting firm KPMG, LLP from 1962 to 1991. Mr. DeWald holds a B.B.A. from the University of Notre Dame in Indiana and is a member of its Mendoza School of Business Advisory Council. Mr. DeWald is a certified public accountant in California.

Warren D. Fix has served as an independent director of our company since September 2006. He serves as the Chief Executive Officer and a director of WCH, Inc., formerly Candlewood Hotel Company, Inc., having served as its Executive Vice-President, Chief Financial Officer and Secretary since 1995. From July 1994 to October 1995, Mr. Fix was a consultant to Doubletree Hotels, primarily developing debt and equity sources of capital for hotel acquisitions and refinancings. Mr. Fix has been a partner in The Contrarian Group, a business management company, from December 1992 to the present. From 1989 to December 1992, Mr. Fix served as President of the Pacific Company, a real estate investment and development company. From 1964 to 1989, Mr. Fix held numerous positions within The Irvine Company, a California-based real estate and development company, including, Chief Financial Officer. Mr. Fix also serves as a director and audit committee chairman of Audio Visual Services Corporation. Mr. Fix is a Certified Public Accountant. Mr. Fix received his B.A. from Claremont McKenna College in California and is a graduate of the UCLA Executive Management Program, the Stanford Financial Management Program and the UCLA Anderson Corporate Director Program.

Gary T. Wescombe has served as an independent director of our company since October 2006. He provides consulting services to various entities in the real estate sector and is a principal of American Oak Properties, LLC. He is also director, chief financial officer and treasurer of the Arnold and Mabel Beckman Foundation, a nonprofit foundation established for the purpose of supporting scientific research. From October 1999 to December 2001, he was a partner in Warmington Wescombe Realty Partners in Costa Mesa, California, where he focused on real estate investments and financing strategies. Prior to retiring in 1999,

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Mr. Wescombe was a Partner with Ernst & Young, LLP (previously Kenneth Leventhal & Company) from 1970 to 1999. In addition, Mr. Wescombe has also served as a director of G REIT, Inc. since December 2001. Mr. Wescombe received a BS degree in accounting and finance from California State University, San Jose in 1965 and is a member of the American Institute of Certified Public Accountants and California Society of Certified Public Accountants.

Our Advisor

Management

The following table sets forth information with respect to our Advisor’s executive officers:

Name	Age		Position
Scott D. Peters		49	Chief Executive Officer
Andrea R. Biller		57	Executive Vice President

For biographical information regarding Mr. Peters and Ms. Biller, see — Directors, Executive Officers and Corporate Governance, above.

Triple Net Properties owns a 75.0% managing member interest in our Advisor. NNN Healthcare/Office Management, LLC owns a 25.0% non-managing member interest in our Advisor. The members of NNN Healthcare/Office Management, LLC include Scott D. Peters, our Chief Executive Officer and Chairman of the Board, our Advisor’s Chief Executive Officer and NNN Realty Advisors’ Chief Executive Officer and director; Andrea R. Biller, our Executive Vice President and Secretary, our Advisor’s Executive Vice President and NNN Realty Advisors’ Executive Vice President, Secretary and General Counsel; and Triple Net Properties for the benefit of other employees who perform services for us. As of March 2, 2007, each of Mr. Peters and Ms. Biller own 15.0% membership interests in NNN Healthcare/Office Management, LLC.

We will rely on our Advisor to manage our day-to-day activities and to implement our investment strategy. We, our Advisor and our Sponsor are parties to an advisory agreement, or the Advisory Agreement, pursuant to which our Advisor performs its duties and responsibilities as our fiduciary.

NNN Realty Advisors and Triple Net Properties

NNN Realty Advisors, headquartered in Santa Ana, California, is a full-service commercial real estate asset management and services firm. NNN Realty Advisors sponsors real estate investment programs to provide investors with the opportunity to engage in tax-deferred exchanges of real property and to invest in other real estate investment vehicles. NNN Realty Advisors raises capital for these programs through an extensive network of broker-dealer relationships. NNN Realty Advisors also structures, acquires, manages and disposes of real estate for these programs, earning fees for each of these services. NNN Realty Advisors is one of the largest sponsors of tenant in common, or TIC, programs marketed as securities and also sponsors and advises public non-traded real estate investment trusts, or REITs, and real estate investment funds. NNN Realty Advisors was formed in September 2006 and is the parent of Triple Net Properties, NNN Capital Corp., or our Dealer Manager, and Triple Net Properties, Realty, Inc., or Realty.

Triple Net Properties offers a diverse line of investment products as well as a full-range of services including asset and property management, brokerage, leasing, analysis and consultation. As of December 31, 2006, Triple Net Properties manages a growing portfolio of over 32.5 million square feet of commercial properties, including more than 6,600 apartment units, with a combined market value of approximately $4.3 billion. Triple Net Properties and its affiliates are currently buying and selling properties throughout the United States, though many recent acquisitions are located in California, Texas and Florida, which the U.S. Census Bureau forecasts to be the top three states for population growth over the next 25 years. Triple Net Properties also acquired commercial real estate properties in Colorado, Arizona, Wisconsin, Missouri, Illinois and Oregon in 2005. Triple Net Properties is also an active seller of real estate, bringing many of its investment programs full cycle.

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Anthony “Tony” W. Thompson is the founder and Chairman of NNN Realty Advisors and owns 25.9% of its outstanding common stock. Mr. Thompson is also the founder of Triple Net Properties, the managing member of our Advisor. Mr. Thompson is a special member of NNN Healthcare/Office Management, LLC and may receive compensation of up to $175,000 annually. Mr. Thompson was the Chairman of Triple Net Properties from its inception in April 1998 to November 2006, was its Chief Executive Officer from inception to October 2006, and was its President from inception until September 2004. He is also the Chairman of Realty, an affiliated real estate brokerage and management company that provides certain real estate brokerage and management services to us, and was its Chief Executive Officer from its inception to July 2006. From 1986 to 1995, he was a 50.0% shareholder, director and an executive officer of TMP Group, Inc., a full-service real investment group. Mr. Thompson is a NASD-registered securities principal and the Chairman of NNN Capital Corp. Mr. Thompson currently serves as the Chairman of the board of directors of each of T REIT, Inc. and G REIT, Inc. Mr. Thompson is also a member of the Sterling College Board of Trustees and various other charitable and civic organizations. He is a graduate of Sterling College with a BS degree in economics.

Committees of Our Board of Directors

Our board of directors may establish committees it deems appropriate to address specific areas in more depth than may be possible at a full board meeting, provided that the majority of the members of each committee are independent directors. Our board of directors has established an audit committee. We do not plan to have a compensation committee because we do not plan to pay any compensation to our officers. However, if in the future we provide any compensation to our officers, we will establish a compensation committee comprised entirely of independent directors to determine the nature and amount of such compensation.

Our audit committee’s primary function is to assist the board of directors in fulfilling its oversight responsibilities by reviewing the financial information to be provided to the stockholders and others, the system of internal controls which management has established, and the audit and financial reporting process. The audit committee is responsible for the selection, evaluation and, when necessary, replacement of our independent registered public accounting firm. Under our audit committee charter, the audit committee will always be comprised solely of independent directors. As of March 2, 2007, the audit committee is comprised of W. Bradley Blair, II, Maurice J. DeWald, Warren D. Fix and Gary T. Wescombe, all of whom are independent directors. Mr. DeWald currently serves as the chairman and has been designated as the audit committee financial expert.

Incentive Stock Plan

Although we currently do not have any employees and do not currently intend to hire any employees, we have adopted an incentive stock plan, which we will use to attract and retain qualified independent directors, any employees we may hire in the future, and consultants providing services to us who are considered essential to our long-term success by offering these individuals an opportunity to participate in our growth through awards in the form of, or based on, our common stock.

The incentive stock plan provides for the granting of awards to participants in the following forms to those independent directors, employees, and consultants selected by the plan administrator for participation in the incentive stock plan:

•  options to purchase shares of our common stock, which may be nonstatutory stock options or incentive stock options under the U.S. tax code,

•  stock appreciation rights, which give the holder the right to receive the difference between the fair market value per share on the date of exercise over the grant price;

•  performance awards, which are payable in cash or stock upon the attainment of specified performance goals;

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•  restricted stock, which is subject to restrictions on transferability and other restrictions set by the committee;

•  restricted stock units, which give the holder the right to receive shares of stock, or the equivalent value in cash or other property, in the future;

•  deferred stock units, which give the holder the right to receive shares of stock, or the equivalent value in cash or other property, at a future time;

•  dividend equivalents, which entitle the participant to payments equal to any dividends paid on the shares of stock underlying an award; and/or

•  other stock based awards in the discretion of the plan administrator, including unrestricted stock grants.

The maximum number of shares of our common stock that may be issued upon the exercise or grant of an award under the incentive stock plan is 2,000,000. In the event of a nonreciprocal corporate transaction that causes the per-share value of our common stock to change, such as a stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend, the share authorization limits of the incentive stock plan will be adjusted proportionately.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics, or the Code of Ethics, which contains general guidelines for conducting our business and is designed to help directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. The Code of Ethics applies to our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, Controller and persons performing similar functions and all members of our board of directors. The Code of Ethics covers topics including, but not limited to, conflicts of interest, confidentiality of information, and compliance with laws and regulations. Stockholders may request a copy of the Code of Ethics, which will be provided without charge, by writing to NNN Healthcare/Office REIT, Inc. at 1551 N. Tustin Avenue, Suite 200, Santa Ana, California 92705, Attention: Secretary.

Indemnification Agreements

We have entered into indemnification agreements with each of our independent directors, non-independent director and officers. Pursuant to the terms of these indemnification agreements, we will indemnify and advance expenses and costs incurred by our directors and officers in connection with any claims, suits or proceedings brought against such directors and officers as a result of his or her service. However, our obligation to indemnify our directors and officers is subject to the limitations set forth in the indemnification agreements and in our charter.

Item 11.   Executive Compensation.

Executive Compensation

We have no employees. Our day-to-day management functions are performed by employees of our Advisor and its affiliates. The individuals who serve as our executive officers do not receive compensation directly from us for services rendered to us, and we do not currently intend to pay any compensation directly to our executive officers. As a result, we do not have, and our board of directors has not considered, a compensation policy or program for our executive officers and has not included a Compensation Discussion and Analysis in this Form 10-K.

Each of our executive officers, including those officers who serve as directors, is employed by our Advisor or its affiliates, and is compensated by these entities for their services to us. We pay these entities fees and reimburse expenses pursuant to our Advisory Agreement.

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Option/SAR Grants in Last Fiscal Year

No option grants were made to officers and directors for the year ended December 31, 2006.

Compensation Committee Interlocks and Insider Participation

There are no interlocks or insider participation as to compensation decisions required to be disclosed pursuant to SEC regulations.

Director Compensation

Pursuant to the terms of our director compensation program, which are contained in our 2006 Independent Directors Compensation Plan, a sub-plan of our 2006 Incentive Plan, our independent directors receive the following forms of compensation:

•  Annual Retainer.  Our independent directors receive an annual retainer of $36,000.

•  Meeting Fees.  Our independent directors receive $1,000 for each board meeting attended in person or by telephone, and $500 for each committee meeting attended in person or by telephone, and an additional $500 to the audit committee chair for each audit committee meeting attended in person or by telephone. If a board meeting is held on the same day as a committee meeting, an additional fee will not be paid for attending the committee meeting.

•  Equity Compensation.  Upon initial election to the board, each independent director receives 5,000 shares of restricted common stock, and an additional 2,500 shares of restricted common stock upon his or her subsequent election each year. The restricted shares will vest as to 20.0% of the shares on the date of grant and on each anniversary thereafter over four years from the date of grant.

•  Other Compensation.  We reimburse our directors for reasonable out-of-pocket expenses incurred in connection with attendance at meetings, including committee meetings, of the board of directors. Independent directors do not receive other benefits from us.

Our non-independent director does not receive any compensation from us.

The following table sets forth the compensation earned by our directors from us in 2006:

									Change in
									Pension
									Value and
	Fees								Nonqualified
	Earned or						Non-Equity		Deferred
	Paid in		Stock		Option		Incentive Plan		Compensation		All Other
Name	Cash ($)		Awards ($)		Awards ($)		Compensation ($)		Earnings ($)		Compensation ($)		Total ($)
(a)	(b)(1)		(c)(2)		(d)		(e)		(f)		(g)		(h)
Scott D. Peters(3)	$	—	$	—	$	—	$	—	$	—	$	—	$	—
W. Bradley Blair, II	$	14,500	$	12,778		—		—		—		—	$	27,278
Maurice J. DeWald	$	15,000	$	12,778		—		—		—		—	$	27,778
Warren D. Fix	$	14,500	$	12,778		—		—		—		—	$	27,278
Gary T. Wescombe	$	10,500	$	12,391		—		—		—		—	$	22,891

(1) Consists of the amounts described below.

		Basic Annual
Director	Role	Retainer ($)		Meeting Fees ($)
Peters	Chairman of the Board	$	—		—
Blair	Member, Audit Committee	$	12,000	$	2,500
DeWald	Chairman, Audit Committee	$	12,000	$	3,000
Fix	Member, Audit Committee	$	12,000	$	2,500
Wescombe	Member, Audit Committee	$	9,000	$	1,500

(2) The amounts in this column represent the proportionate amount of the total fair value of stock awards recognized by the Company in 2006 for financial accounting purposes, disregarding for this purpose the

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estimate of forfeitures related to service-based vesting conditions. The amounts included in the table for each award include the amount recorded as expense in our statement of operations for the period from April 28, 2006 (Date of Inception) through December 31, 2006. The fair values of these awards and the amounts expensed in 2006 were determined in accordance with Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share-Based Payment.

The following table shows the shares of restricted common stock awarded to each independent director during 2006, and the aggregate grant date fair value for each award (computed in accordance with SFAS No. 123(R)).

					Full Grant
			Number of		Date Fair
			Restricted		Value of
Director	Grant Date		Shares (#)		Award ($)
Peters		—		—		—
Blair		9/20/06		5,000	$	50,000
DeWald		9/20/06		5,000	$	50,000
Fix		9/20/06		5,000	$	50,000
Wescombe		10/4/06		5,000	$	50,000

The following table shows the aggregate numbers of nonvested restricted shares of common stock held by each director as of December 31, 2006:

	Nonvested
Director	Restricted Stock
Peters		—
Blair		4,000
DeWald		4,000
Fix		4,000
Wescombe		4,000

(3) Mr. Peters is not an independent director.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

PRINCIPAL STOCKHOLDERS

The following table shows, as of February 28, 2007, the amount of shares of our common stock beneficially owned by (1) any person who is known by us to be the beneficial owner of more than 5.0% of the outstanding shares of our common stock, (2) our directors, (3) our executive officers; and (4) all of our directors and executive officers as a group. The percentage of common stock beneficially owned is based on 743,399 shares of our common stock outstanding as of February 28, 2007. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes securities over which a person has voting or investment power and securities that a person has the right to acquire within 60 days.

	Number of Shares
Name of Beneficial Owners(1)	Beneficially Owned		Percentage
Scott D. Peters(2)		200		*
W. Bradley Blair, II(3)		5,000		*
Maurice J. DeWald(3)		5,000		*
Warren D. Fix(3)		5,000		*
Gary T. Wescombe(3)		5,000		*
All directors and executive officers as a group (8 persons)		23,200		3.1	%

*	Represents less than 1.0% of our outstanding common stock.
(1)	The address of each beneficial owner listed is c/o NNN Healthcare/Office REIT, Inc., 1551 N. Tustin Avenue, Suite 200, Santa Ana, California 92705.

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(2)	Includes 200 shares of our common stock owned by our Advisor. Scott D. Peters is the Chief Executive Officer of our Advisor. Our Advisor also owns 20,000 units of NNN Healthcare/Office REIT Holdings, L.P., or our Operating Partnership.
(3)	Includes vested and non-vested shares of restricted common stock.

Equity Compensation Plan Information

Under the terms of our 2006 Incentive Plan, the aggregate number of shares of our common stock subject to options, restricted shares of common stock, stock purchase rights, stock appreciation rights or other awards, including those issuable under its sub-plan, the 2006 Independent Directors Compensation Plan, will be no more than 2,000,000 shares.

	Number of Securities
	to be Issued Upon		Weighted Average
	Exercise of		Exercise Price of		Number of Securities
	Outstanding Options,		Outstanding Options,		Remaining Available for
Plan Category	Warrants and Rights		Warrants and Rights		Future Issuance
Equity compensation plans approved by security holders(1)		—		—		1,980,000
Equity compensation plans not approved by security holders		—		—		—
Total		—				1,980,000

(1) On September 20, 2006 and October 4, 2006, we granted 15,000 shares and 5,000 shares, respectively, of restricted common stock, as defined in the 2006 Incentive Plan, to our independent directors under the 2006 Independent Directors Compensation Plan. Such shares are not shown in the chart above as they are deemed outstanding shares of our common stock; however such grants reduce the number of securities remaining available for future issuance.

Item 13.   Certain Relationships and Related Transactions, and Director Independence.

Some of our executive officers and our non-independent director are also executive officers and/or holders of direct or indirect interests in our Advisor, NNN Realty Advisors, Triple Net Properties, Realty, or other affiliated entities. Triple Net Properties owns a 75.0% managing member interest in our Advisor. NNN Healthcare/Office Management, LLC owns a 25.0% non-managing member interest in our Advisor. The members of NNN Healthcare/Office Management, LLC include Scott D. Peters, our Chief Executive Officer and Chairman of the Board, our Advisor’s Chief Executive Officer, NNN Realty Advisors’ Chief Executive Officer and director, and Triple Net Properties’ Chief Executive Officer; Andrea R. Biller, our Executive Vice President and Secretary, our Advisor’s Executive Vice President, NNN Realty Advisors’ Executive Vice President, Secretary and General Counsel, and Triple Net Properties’ Executive Vice President and General Counsel; and Triple Net Properties for the benefit of other employees who perform services for us. As of March 2, 2007, each of Mr. Peters and Ms. Biller own 15.0% membership interests in NNN Healthcare/Office Management, LLC. Mr. Thompson, the Chairman of the Board of NNN Realty Advisors, is a special member of NNN Healthcare/Office Management, LLC and may receive compensation of up to $175,000 annually. See Item 1. Business — Our Structure for an organizational chart.

Upon the effectiveness of our best efforts initial public offering, or our Offering, we entered into the Advisory Agreement and a dealer manager agreement, or the Dealer Manager Agreement, with our Dealer Manager. These agreements entitle our Advisor, our Dealer Manager and their affiliates to specified compensation for certain services with regard to our Offering and the investment of funds in real estate assets, among other services, as well as reimbursement of organizational and offering expenses incurred.

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Offering Stage

Selling Commissions

Our Dealer Manager will receive selling commissions up to 7.0% of the gross offering proceeds from the sale of shares of our common stock in our Offering. Our Dealer Manager may re-allow all or a portion of these fees to participating broker-dealers. Our Dealer Manager did not receive selling commissions for the period from April 28, 2006 (Date of Inception) through December 31, 2006. Selling commissions are not recorded in our accompanying consolidated financial statements because such commissions were not our liability since we had not raised the minimum offering as of December 31, 2006. When recorded by us, such commissions will be charged to stockholders’ equity as such amounts are paid to our Dealer Manager from the gross proceeds of our Offering.

Marketing Support Fee and Due Diligence Expense Reimbursement

Our Dealer Manager may receive non-accountable marketing support fees up to 2.5% of the gross offering proceeds from the sale of shares of our common stock in our Offering and may re-allow up to 1.5% of these fees to participating broker-dealers. In addition, we may reimburse our Dealer Manager or its affiliates an additional accountable 0.5% of gross offering proceeds for bona fide due diligence expenses and may re-allow up to 0.5% of these fees to participating broker-dealers. Our Dealer Manager or its affiliates did not receive marketing support fees or due diligence expense reimbursements for the period from April 28, 2006 (Date of Inception) through December 31, 2006. Marketing support fees and due diligence expense reimbursements are not recorded in our accompanying consolidated financial statements because such fees and reimbursements were not our liability since we had not raised the minimum offering as of December 31, 2006. When recorded by us, such fees and reimbursements will be charged to stockholders’ equity as such amounts are reimbursed to our Dealer Manager or its affiliates from the gross proceeds of our Offering.

Other Organizational and Offering Expenses

Our organizational and offering expenses are paid by our Advisor or Triple Net Properties on our behalf. Our Advisor or Triple Net Properties may be reimbursed for actual expenses incurred for up to 1.5% of the gross offering proceeds for the shares sold under our Offering. No reimbursements were made to our Advisor or Triple Net Properties for the period from April 28, 2006 (Date of Inception) through December 31, 2006 for other organizational and offering expenses. Other organizational and offering expenses are not recorded in our accompanying consolidated financial statements because such expenses were not our liability since we had not raised the minimum offering as of December 31, 2006. When recorded by us, organizational expenses will be expensed as incurred and offering expenses will be charged to stockholders’ equity as such amounts are reimbursed to our Advisor or Triple Net Properties from the gross proceeds of our Offering.

Acquisition and Development Stage

Acquisition Fees

Our Advisor or its affiliates will receive, as compensation for services rendered in connection with the investigation, selection and acquisition of properties, an acquisition fee up to 3.0% of the contract purchase price for each property acquired or up to 4.0% of the total development cost of any development property acquired, as applicable. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such fees.

Reimbursement of Acquisition Expenses

Our Advisor or its affiliates will be reimbursed for acquisition expenses related to selecting, evaluating, acquiring and investing in properties, which will not exceed 0.5% of the purchase price of the properties. The reimbursement of acquisition fees and expenses, including real estate commissions paid to unaffiliated parties, will not exceed, in the aggregate, 6.0% of the purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our disinterested independent directors. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such expenses.

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Operational Stage

Asset Management Fee

Our Advisor or its affiliates will be paid a monthly fee for services rendered in connection with the management of our assets equal to one-twelfth of 1.0% of the average invested assets calculated as of the close of business on the last day of each month, subject to our stockholders receiving annualized distributions in an amount equal to 5.0% per annum on average invested capital. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such fees.

Property Management Fees

Our Advisor or its affiliates will be paid a monthly property management fee equal to 4.0% of the gross cash receipts from each property managed. For properties managed by other third parties besides our Advisor or its affiliates, our Advisor or its affiliates will be paid up to 1.0% of the gross cash receipts from the property for a monthly oversight fee. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such fees.

Operating Expenses

Our Advisor or its affiliates will be reimbursed for expenses incurred in rendering its services, subject to certain limitations. Fees and costs reimbursed to our Advisor or its affiliates cannot exceed the greater of: (1) 2.0% of our average invested assets, as defined in the Advisory Agreement, or (2) 25.0% of our net income, as defined in the Advisory Agreement. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, Triple Net Properties incurred $312,000 on our behalf. As of December 31, 2006, we had not reimbursed our Advisor or its affiliates for such expenses.

Liquidity Stage

Disposition Fees

Our Advisor or its affiliates will be paid, for a substantial amount of services relating to a sale of one or more properties, a disposition fee up to the lesser of 1.75% of the contract sales price or 50.0% of a customary competitive real estate commission given the circumstances surrounding the sale, in each case as determined by our board of directors and will not exceed market norms. The amount of disposition fees paid, including real estate commissions paid to unaffiliated parties, will not exceed the lesser of the customary competitive disposition fee or an amount equal to 6.0% of the contract sales price. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such fees.

Subordinated Participation Interest

Subordinated Distribution of Net Sales Proceeds

Upon liquidation of our portfolio, our Advisor will be paid a subordinated distribution of net sales proceeds. The distribution will be equal to 15.0% of the net proceeds from the sales of properties, after subtracting distributions to our stockholders of (1) their initial contributed capital (less amounts paid to repurchase shares pursuant to our share repurchase program) plus (2) an annual cumulative, non-compounded return of 8.0% on average invested capital. Actual amounts depend upon the sales prices of properties upon liquidation. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such distributions.

Subordinated Distribution Upon Listing

Upon the listing of shares of our common stock on a national securities exchange, our Advisor will be paid a distribution equal to 15.0% of the amount by which (1) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (2) the sum of total amount of capital raised from stockholders (less amounts paid to repurchase shares pursuant to our share repurchase plan) and the

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amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual 8.0% cumulative, non-compounded return on average invested capital through the date of listing. Actual amounts depend upon the market value of shares of our common stock at the time of listing, among other factors. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such distributions.

Subordinated Distribution Upon Termination

Upon termination of the Advisory Agreement, other than a termination by us for cause, our Advisor will be entitled to receive a distribution from our Operating Partnership, in an amount equal to 15.0% of the amount, if any, by which (1) the fair market value of all of the assets of our Operating Partnership as of the date of the termination (determined by appraisal), less any indebtedness secured by such assets, plus the cumulative distributions made to us by our Operating Partnership from our inception through the termination date, exceeds (2) the sum of the total amount of capital raised from stockholders (less amounts paid to redeem shares pursuant to our share repurchase plan) plus an annual 8.0% cumulative, non-compounded return on average invested capital through the termination date. However, our Advisor will not be entitled to this distribution if shares of our common stock have been listed on a national securities exchange prior to the termination of the Advisory Agreement. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such distributions.

Due to Affiliates

As of December 31, 2006, approximately $312,000 was payable to Triple Net Properties, primarily for the reimbursement of insurance premiums.

Certain Conflict Resolution Restrictions and Procedures

In order to reduce or eliminate certain potential conflicts of interest, our charter and the Advisory Agreement contain restrictions and conflict resolution procedures relating to (1) transactions we enter into with our Advisor, our directors or their respective affiliates, (2) certain future offerings and (3) allocation of properties among affiliated entities. Each of the restrictions and procedures that applies to transactions with our Advisor and its affiliates will also apply to any transaction with any entity or real estate program advised, managed or controlled by NNN Realty Advisors and its affiliates. These restrictions and procedures include, among others, the following:

•  Except as otherwise described in our Registration Statement on Form S-11(File No. 333-133652, effective September 20, 2006) filed with the Securities and Exchange Commission, or the SEC, or our Offering prospectus, we will not accept goods or services from our Advisor or its affiliates unless a majority of our directors, including a majority of the independent directors, not otherwise interested in the transactions, approve such transactions as fair, competitive and commercially reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties.

•  We will not purchase or lease any asset (including any property) in which our Advisor, any of our directors or any of their respective affiliates has an interest without a determination by a majority of our directors, including a majority of the independent directors, not otherwise interested in such transaction, that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the property to our Advisor, such director or directors or any such affiliate, unless there is substantial justification for any amount that exceeds such cost and such excess amount is determined to be reasonable. In no event will we acquire any such asset at an amount in excess of its appraised value. We will not sell or lease assets to our Advisor any of our directors or any of their respective affiliates unless a majority of our directors, including a majority of the independent directors, not otherwise interested in the transaction, determine the transaction is fair and reasonable to us, which determination will be supported by an appraisal obtained from a qualified, independent appraiser selected by a majority of our independent directors.

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•  We will not make any loans to our Advisor, any of our directors or any of their respective affiliates. In addition, any loans made to us by our Advisor, our directors or any of their respective affiliates must be approved by a majority of our directors, including a majority of the independent directors, not otherwise interested in the transaction, as fair, competitive and commercially reasonable, and no less favorable to us than comparable loans between unaffiliated parties.

•  Our Advisor and its affiliates shall be entitled to reimbursement, at cost, for actual expenses incurred by them on our behalf or on behalf of joint ventures in which we are a joint venture partner, subject to the limitation on reimbursement of operating expenses to the extent that they exceed the greater of 2.0% of our average invested assets or 25.0% of our net income, as described above.

•  Our Advisory Agreement provides that if Triple Net Properties identifies an opportunity to make an investment in one or more office buildings or other facilities for which greater than 50.0% of the gross leaseable area is leased to, or reasonably expected to be leased to, one or more medical or healthcare-related tenants, either directly or indirectly through an affiliate or in a joint venture or other co-ownership arrangement, for itself or for any other Triple Net Properties program, then Triple Net Properties will provide us with the first opportunity to purchase such investment. Triple Net Properties will provide all necessary information related to such investment to our Advisor, in order to enable our board to determine whether to proceed with such investment. Our Advisor will present the information to our board within three business days of receipt from Triple Net Properties. If our board does not affirmatively authorize our Advisor to proceed with the investment on our behalf within seven days of receipt of such information from our Advisor, then Triple Net Properties may proceed with the investment opportunity for its own account or offer the investment opportunity to any other person or entity.

Item 14.   Principal Accounting Fees and Services.

Deloitte has served as our independent auditors since April 24, 2006 and audited our consolidated financial statements for the period from April 28, 2006 (Date of Inception) through December 31, 2006.

The following table lists the fees for services rendered by our independent auditors for 2006:

Services	2006
Audit Fees(1)	$	59,000
Audit-Related Fees(2)		—
Tax Fees(3)		—
All Other Fees		—
Total	$	59,000

(1)	Audit fees billed in 2006 consisted of the audit of our annual consolidated financial statements, a review of our quarterly consolidated financial statements, and statutory and regulatory audits, consents and other services related to filings with the SEC.
(2)	Audit-related fees consist of financial accounting and reporting consultations.
(3)	Tax services consist of tax compliance and tax planning and advice.

The audit committee preapproves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent auditor, subject to the de minimis exceptions for non-audit services described in Section 10a(i)(1)(b) of the Exchange Act and the rules and regulations of the SEC.

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PART IV

Item 15.   Exhibits, Financial Statement Schedules.

(a)(1) Financial Statements:

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm		70
Consolidated Balance Sheets as of December 31, 2006 and April 28, 2006 (Date of Inception)		71
Consolidated Statement of Operations for the Period from April 28, 2006 (Date of Inception) through December 31, 2006		72
Consolidated Statement of Stockholders’ (Deficit) Equity for the Period from April 28, 2006 (Date of Inception) through December 31, 2006		73
Consolidated Statement of Cash Flows for the Period from April 28, 2006 (Date of Inception) through December 31, 2006		74
Notes to Consolidated Financial Statements		75

(a)(2) Financial Statement Schedules:

All schedules have been omitted as the required information is inapplicable or the information is presented in our consolidated financial statements or related notes.

(a)(3) Exhibits:

The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this annual report.

(b) Exhibits:

See item 15(a)(3) above.

(c) Financial Statement Schedules:

All schedules have been omitted as the required information is inapplicable or the information is presented in our consolidated financial statements or related notes.

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.

The registrant has not sent an annual report or proxy materials to its stockholders. The registrant will furnish each stockholder with an annual report and proxy materials within 120 days following the close of each fiscal year and will furnish copies of such report and proxy materials to the Securities and Exchange Commission when they are sent to stockholders.

69

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

NNN Healthcare/Office REIT, Inc.

We have audited the accompanying consolidated balance sheets of NNN Healthcare/Office REIT, Inc. and subsidiary, a Maryland Corporation, (the “Company”) as of December 31, 2006 and April 28, 2006 (Date of Inception) and the related consolidated statements of operations, stockholders’ (deficit) equity and cash flows for the period from April 28, 2006 (Date of Inception) through December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2006 and April 28, 2006 (Date of Inception), and the results of their operations and their cash flows for the period from April 28, 2006 (Date of Inception) through December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/  Deloitte & Touche, LLP

Los Angeles, California

March 2, 2007

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CONSOLIDATED BALANCE SHEETS

December 31, 2006 and April 28, 2006 (Date of Inception)

	December 31,			April 28, 2006
	2006			(Date of Inception)
ASSETS
Cash	$	202,000		$	202,000
Prepaid expenses		179,878			—
Other assets		3,446			—
Total assets	$	385,324		$	202,000
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ (DEFICIT) EQUITY
Liabilities:
Accrued liabilities	$	61,944		$	—
Due to affiliates		312,426			—
Total liabilities		374,370			—
Commitments and contingencies (Note 3)
Minority interest of limited partner in Operating Partnership		200,000			200,000
Stockholders’ (deficit) equity:
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding		—			—
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 20,200 and 200 shares issued and outstanding as of December 31, 2006 and April 28, 2006, respectively		162			2
Additional paid-in capital		52,563			1,998
Accumulated deficit		(241,771	)		—
Total stockholders’ (deficit) equity		(189,046	)		2,000
Total liabilities, minority interest and stockholders’ (deficit) equity	$	385,324		$	202,000

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENT OF OPERATIONS

For the Period from April 28, 2006 (Date of Inception) through December 31, 2006

Expenses:
General and administrative	$	(241,771	)
Net loss	$	(241,771	)
Net loss per share — basic and diluted	$	(149.03	)
Weighted average number of common shares outstanding — basic and diluted		1,622

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENT OF STOCKHOLDERS’ (DEFICIT) EQUITY

For the Period from April 28, 2006 (Date of Inception) through December 31, 2006

	Common Stock				Additional							Total
	Number of				Paid-In		Preferred		Accumulated			Stockholders’
	Shares		Amount		Capital		Stock		Deficit			(Deficit) Equity
BALANCE — April 28, 2006		—	$	—	$	—	$	—	$	—		$	—
Issuance of common stock		200		2		1,998		—		—			2,000
Issuance of vested and nonvested common stock		20,000		160		39,840		—		—			40,000
Amortization of nonvested common stock compensation		—		—		10,725		—		—			10,725
Net loss		—		—		—		—		(241,771	)		(241,771	)
BALANCE — December 31, 2006		20,200	$	162	$	52,563	$	—	$	(241,771	)	$	(189,046	)

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENT OF CASH FLOWS

For the Period from April 28, 2006 (Date of Inception) through December 31, 2006

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(241,771	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock based compensation		50,725
Changes in operating assets and liabilities:
Prepaid expenses		(179,878	)
Other assets		(3,446	)
Accrued liabilities		61,944
Due to affiliates		312,426
Net cash provided by operating activities		—
		—
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		2,000
Minority interest contributions to Operating Partnership		200,000
Net cash provided by financing activities		202,000
NET CHANGE IN CASH		202,000
CASH — Beginning of period		—
CASH — End of period	$	202,000

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Period from April 28, 2006 (Date of Inception) through December 31, 2006

The use of the words “we,” “us” or “our” refers to NNN Healthcare/Office REIT, Inc. and our subsidiary, NNN Healthcare/Office REIT Holdings, L.P., except where the context otherwise requires.

1.   Organization and Description of Business

NNN Healthcare/Office REIT, Inc., a Maryland corporation, was incorporated on April 20, 2006 and intends to provide investors the potential for income and growth through investment in a diversified portfolio of real estate properties, focusing primarily on medical office buildings, healthcare-related facilities and quality commercial office properties that produce current income. We may also invest in real estate related securities. We intend to qualify as a real estate investment trust, or REIT, for federal income tax purposes for our taxable year ended December 31, 2007.

We are conducting a best efforts initial public offering, or our Offering, in which we are offering a minimum of 200,000 shares of our common stock aggregating at least $2,000,000, or the minimum offering, and a maximum of 200,000,000 shares of our common stock for $10.00 per share and 21,052,632 shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, at $9.50 per share, aggregating up to $2,200,000,000, or the maximum offering. Shares purchased by our executive officers and directors, by NNN Capital Corp., or our Dealer Manager, by NNN Healthcare/Office REIT Advisor, LLC, or our Advisor, or by its affiliates did not count towards the minimum offering. On January 8, 2007, excluding shares purchased by our executive officers and directors, our Dealer Manager and our Advisor and its affiliates, we had received and accepted subscriptions in our Offering for 200,846 shares of our common stock, or $2,004,000, thereby exceeding the minimum offering. See Note 10, Subsequent Events — Status of our Offering for a further discussion.

We anticipate that we will conduct substantially all of our operations through NNN Healthcare/Office REIT Holdings, L.P., or our Operating Partnership. We are externally advised by our Advisor, pursuant to an advisory agreement, or the Advisory Agreement, between us, our Advisor and Triple Net Properties, LLC, or Triple Net Properties, who is the managing member of our Advisor. The Advisory Agreement has a one-year term that expires in September 2007 and is subject to successive one-year renewals upon the mutual consent of the parties. Our Advisor supervises and manages our day-to-day operations and will select the properties and securities we acquire, subject to oversight by our board of directors. Our Advisor will also provide marketing, sales and client services on our behalf. Our Advisor is affiliated with us in that we and our Advisor have common officers, some of whom also own an indirect equity interest in our Advisor. Our Advisor engages affiliated entities, including Triple Net Properties Realty, Inc., or Realty, to provide various services to us and our future properties.

In the fourth quarter of 2006, NNN Realty Advisors, Inc., or NNN Realty Advisors, or our Sponsor, acquired all of the outstanding ownership interests of Triple Net Properties, NNN Capital Corp. and Realty. As a result, we consider NNN Realty Advisors to be our Sponsor.

As of December 31, 2006, we had neither purchased nor contracted to purchase any investments. See Note 10, Subsequent Events — Property Acquisitions for a further discussion on acquisitions.

2.   Summary of Significant Accounting Policies

The summary of significant accounting policies presented below is designed to assist in understanding our consolidated financial statements. Such financial statements and accompanying notes are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Basis of Presentation

Our accompanying consolidated financial statements include our accounts and those of our Operating Partnership. We intend to operate in an umbrella partnership REIT structure in which our Operating Partnership, or wholly-owned subsidiaries of our Operating Partnership, will own substantially all of the properties acquired on our behalf. We are the sole general partner of our Operating Partnership and as of December 31, 2006, we owned a 1.0% general partnership interest therein. Our Advisor is a limited partner and as of December 31, 2006, owned a 99.0% limited partnership interest therein. Our Advisor is also entitled to certain subordinated distribution rights under the partnership agreement for our Operating Partnership. Management expects our ownership percentage in our Operating Partnership to increase significantly as we invest net proceeds from our Offering into our Operating Partnership. As of December 31, 2006, our Operating Partnership has no real estate operations and no assets other than the partners’ initial capital contributions. Because we are the sole general partner of our Operating Partnership and have unilateral control over its management and major operating decisions (even if additional limited partners are admitted to our Operating Partnership), the accounts of our Operating Partnership are consolidated in our consolidated financial statements. All significant intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We believe that our critical accounting policies are those that require significant judgments and estimates. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.

Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily cash. We have cash in financial institutions that is insured by the Federal Deposit Insurance Corporation, or FDIC, up to $100,000 per institution. As of December 31, 2006, we had cash accounts in excess of FDIC insured limits. We believe this risk is not significant.

Restricted Cash Held in Escrow

Restricted funds held in escrow of $1,802,000, including funds received from shares sold to our executive officers and directors, our Dealer Manager, and our Advisor and its affiliates, as of December 31, 2006 are not included in assets and consist of funds received in connection with subscription agreements to purchase shares of our common stock in connection with our Offering. We were required to raise the minimum offering on or before September 20, 2007 (one year following the commencement of our Offering), or, the funds raised, including interest, would have been returned to the subscribers. Therefore, as of December 31, 2006, the funds were held in an escrow account and were not released to or available to us until the minimum offering was raised.

On January 8, 2007, we raised the minimum offering and the funds held in escrow were released to us.

Organizational, Offering and Related Expenses

Our organizational, offering and related expenses are initially being paid by our Advisor, our Dealer Manager and their affiliates on our behalf. These organizational, offering and related expenses include all expenses (other than selling commissions and the marketing support fee) to be paid by us in connection with

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

our Offering. As of December 31, 2006, our Advisor or its affiliates have incurred $1,093,000. These expenses will only become our liability to the extent selling commissions, the marketing support fee and due diligence expense reimbursement and other organizational and offering expenses do not exceed 11.5% of the gross proceeds of our Offering. We have no obligation to reimburse our Advisor, our Dealer Manager or their affiliates for any organizational, offering and related expenses unless we raise the minimum offering. As such, these expenses are not recorded in our accompanying consolidated financial statements since we had not raised the minimum offering as of December 31, 2006. See Note 4, Related Party Transactions — Offering Stage for a further discussion of expenses during our offering stage.

Stock Compensation

We follow Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share-Based Payment, to account for our stock compensation pursuant to our 2006 Incentive Plan and the 2006 Independent Directors Compensation Plan, a sub-plan of our 2006 Incentive Plan. See Note 6, Stockholders’ (Deficit) Equity — 2006 Incentive Plan and Independent Directors Compensation Plan for a further discussion of grants under our 2006 Incentive Plan.

Income Taxes

We intend to make an election to be taxed as a REIT, under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, or the Code, and we intend to be taxed as such beginning with our taxable year ended December 31, 2007. We intend to qualify as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90.0% of our ordinary taxable income to stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. Because of our intention to elect REIT status in 2007, we will not benefit from the loss incurred in the year ended December 31, 2006.

Per Share Data

We report earnings (loss) per share pursuant to SFAS No. 128, Earnings Per Share. Basic earnings (loss) per share attributable for all periods presented are computed by dividing net income (loss) by the weighted average number of shares of our common stock outstanding during the period. Diluted earnings (loss) per share are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. Restricted shares of common stock give rise to potentially dilutive shares of common stock.

For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we recorded a net loss of approximately $242,000. 16,000 shares of restricted common stock were outstanding as of December 31, 2006, but were excluded from the computation of diluted earnings per share because such shares of restricted common stock were anti-dilutive during this period.

Segment Disclosure

We internally evaluate operations as one segment and therefore do not report segment information.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recently Issued Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board, or the FASB, issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN No. 48. This interpretation, among other things, creates a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. FIN No. 48 specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions, and it has expanded disclosure requirements. FIN No. 48 is effective for fiscal years beginning after December 15, 2006, in which the impact of adoption should be accounted for as a cumulative-effect adjustment to the beginning balance of retained earnings. The adoption of FIN No. 48 as of the beginning of the first quarter of 2007 did not have a material impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement, or SFAS No. 157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. We will adopt SFAS No. 157 on January 1, 2008. We are evaluating SFAS No. 157 and have not yet determined the impact the adoption, if any, will have on our consolidated financial statements.

In September 2006, the Securities and Exchange Commission, or the SEC, released Staff Accounting Bulletin, or SAB, No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Current Year Misstatements, or SAB No. 108, to address diversity in practice regarding consideration of the effects of prior year errors when quantifying misstatements in current year financial statements. The SEC staff concluded that registrants should quantify financial statement errors using both a balance sheet approach and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB No. 108 states that if correcting an error in the current year materially affects the current year’s income statement, the prior period financial statements must be restated. SAB No. 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB No. 108 in the fourth quarter of 2006 did not have a material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS No. 159. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the guidance is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the fiscal year beginning on or before November 15, 2007, provided the provisions of SFAS No. 157 are applied. We will adopt SFAS No. 159 on January 1, 2008. We are evaluating SFAS No. 159 and have not yet determined the impact the adoption, if any, will have on our consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.   Commitments and Contingencies

Litigation

We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

4.   Related Party Transactions

Some of our executive officers and our non-independent director are also executive officers and/or holders of a direct or indirect interest in our Advisor, Triple Net Properties, Realty, or other affiliated entities. Upon the effectiveness of our Offering, we entered into the Advisory Agreement and a dealer manager agreement, or the Dealer Manager Agreement, with our Dealer Manager. These agreements entitle our Advisor, our Dealer Manager and their affiliates to specified compensation for certain services with regard to our Offering and the investment of funds in real estate assets, among other services, as well as reimbursement of organizational and offering expenses incurred.

Offering Stage

Selling Commissions

Our Dealer Manager will receive selling commissions up to 7.0% of the gross offering proceeds from the sale of shares of our common stock in our Offering. Our Dealer Manager may re-allow all or a portion of these fees to participating broker-dealers. Our Dealer Manager did not receive selling commissions for the period from April 28, 2006 (Date of Inception) through December 31, 2006. Selling commissions are not recorded in our accompanying consolidated financial statements because such commissions were not our liability since we had not raised the minimum offering as of December 31, 2006. When recorded by us, such commissions will be charged to stockholders’ equity as such amounts are paid to our Dealer Manager from the gross proceeds of our Offering.

Marketing Support Fee and Due Diligence Expense Reimbursement

Our Dealer Manager may receive non-accountable marketing support fees up to 2.5% of the gross offering proceeds from the sale of shares of our common stock in our Offering and may re-allow up to 1.5% of these fees to participating broker-dealers. In addition, we may reimburse our Dealer Manager or its affiliates an additional accountable 0.5% of gross offering proceeds for bona fide due diligence expenses and may re-allow up to 0.5% of these fees to participating broker-dealers. Our Dealer Manager or its affiliates did not receive marketing support fees or due diligence expense reimbursements for the period from April 28, 2006 (Date of Inception) through December 31, 2006. Marketing support fees and due diligence expense reimbursements are not recorded in our accompanying consolidated financial statements because such fees and reimbursements were not our liability since we had not raised the minimum offering as of December 31, 2006. When recorded by us, such fees and reimbursements will be charged to stockholders’ equity as such amounts are reimbursed to our Dealer Manager or its affiliates from the gross proceeds of our Offering.

Other Organizational and Offering Expenses

Our organizational and offering expenses are paid by our Advisor or Triple Net Properties on our behalf. Our Advisor or Triple Net Properties may be reimbursed for actual expenses incurred for up to 1.5% of the gross offering proceeds for the shares sold under our Offering. No reimbursements were made to our Advisor or Triple Net Properties for the period from April 28, 2006 (Date of Inception) through December 31, 2006 for other organizational and offering expenses. Other organizational and offering expenses are not recorded in our accompanying consolidated financial statements because such expenses were not our liability since we had

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

not raised the minimum offering as of December 31, 2006. When recorded by us, organizational expenses will be expensed as incurred and offering expenses will be charged to stockholders’ equity as such amounts are reimbursed to our Advisor or Triple Net Properties from the gross proceeds of our Offering.

Acquisition and Development Stage

Acquisition Fees

Our Advisor or its affiliates will receive, as compensation for services rendered in connection with the investigation, selection and acquisition of properties, an acquisition fee up to 3.0% of the contract purchase price for each property acquired or up to 4.0% of the total development cost of any development property acquired, as applicable. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such fees.

Reimbursement of Acquisition Expenses

Our Advisor or its affiliates will be reimbursed for acquisition expenses related to selecting, evaluating, acquiring and investing in properties, which will not exceed 0.5% of the purchase price of the properties. The reimbursement of acquisition fees and expenses, including real estate commissions paid to unaffiliated parties, will not exceed, in the aggregate, 6.0% of the purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our disinterested independent directors. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such expenses.

Operational Stage

Asset Management Fee

Our Advisor or its affiliates will be paid a monthly fee for services rendered in connection with the management of our assets equal to one-twelfth of 1.0% of the average invested assets calculated as of the close of business on the last day of each month, subject to our stockholders receiving annualized distributions in an amount equal to 5.0% per annum on average invested capital. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such fees.

Property Management Fees

Our Advisor or its affiliates will be paid a monthly property management fee equal to 4.0% of the gross cash receipts from each property managed. For properties managed by other third parties besides our Advisor or its affiliates, our Advisor or its affiliates will be paid up to 1.0% of the gross cash receipts from the property for a monthly oversight fee. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such fees.

Operating Expenses

Our Advisor or its affiliates will be reimbursed for expenses incurred in rendering its services, subject to certain limitations. Fees and costs reimbursed to our Advisor or its affiliates cannot exceed the greater of: (1) 2.0% of our average invested assets, as defined in the Advisory Agreement, or (2) 25.0% of our net income, as defined in the Advisory Agreement. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, Triple Net Properties incurred $312,000 on our behalf. As of December 31, 2006, we had not reimbursed our Advisor or its affiliates for such expenses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Liquidity Stage

Disposition Fees

Our Advisor or its affiliates will be paid, for a substantial amount of services relating to a sale of one or more properties, a disposition fee up to the lesser of 1.75% of the contract sales price or 50.0% of a customary competitive real estate commission given the circumstances surrounding the sale, in each case as determined by our board of directors and will not exceed market norms. The amount of disposition fees paid, including real estate commissions paid to unaffiliated parties, will not exceed the lesser of the customary competitive disposition fee or an amount equal to 6.0% of the contract sales price. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such fees.

Subordinated Participation Interest

Subordinated Distribution of Net Sales Proceeds

Upon liquidation of our portfolio, our Advisor will be paid a subordinated distribution of net sales proceeds. The distribution will be equal to 15.0% of the net proceeds from the sales of properties, after subtracting distributions to our stockholders of (1) their initial contributed capital (less amounts paid to repurchase shares pursuant to our share repurchase program) plus (2) an annual cumulative, non-compounded return of 8.0% on average invested capital. Actual amounts depend upon the sales prices of properties upon liquidation. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such distributions.

Subordinated Distribution Upon Listing

Upon the listing of shares of our common stock on a national securities exchange, our Advisor will be paid a distribution equal to 15.0% of the amount by which (1) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (2) the sum of total amount of capital raised from stockholders (less amounts paid to repurchase shares pursuant to our share repurchase plan) and the amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual 8.0% cumulative, non-compounded return on average invested capital through the date of listing. Actual amounts depend upon the market value of shares of our common stock at the time of listing, among other factors. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such distributions.

Subordinated Distribution Upon Termination

Upon termination of the Advisory Agreement, other than a termination by us for cause, our Advisor will be entitled to receive a distribution from our Operating Partnership in an amount equal to 15.0% of the amount, if any, by which (1) the fair market value of all of the assets of our Operating Partnership as of the date of the termination (determined by appraisal), less any indebtedness secured by such assets, plus the cumulative distributions made to us by our Operating Partnership from our inception through the termination date, exceeds (2) the sum of the total amount of capital raised from stockholders (less amounts paid to redeem shares pursuant to our share repurchase plan) plus an annual 8.0% cumulative, non-compounded return on average invested capital through the termination date. However, our Advisor will not be entitled to this distribution if shares of our common stock have been listed on a national securities exchange prior to the termination of the Advisory Agreement. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such distributions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Due to Affiliates

As of December 31, 2006, approximately $312,000 was payable to Triple Net Properties, primarily for reimbursement of insurance premiums.

5.   Minority Interest

In April 2006, we made an initial capital contribution to our Operating Partnership of $2,000 and our Advisor made an initial capital contribution of $200,000 to our Operating Partnership. We used the proceeds from the sale of shares of our common stock to our Advisor to make such capital contribution to our Operating Partnership. As of December 31, 2006, we owned a 1.0% general partnership interest in our Operating Partnership and our Advisor owned a 99.0% limited partnership interest.

6.   Stockholders’ (Deficit) Equity

Common Stock

In April 2006, our Advisor purchased 200 shares of our common stock for total cash consideration of $2,000 and was admitted as our initial stockholder. On September 20, 2006 and October 4, 2006, we granted 15,000 shares and 5,000 shares, respectively, of restricted common stock to our independent directors. As such, as of December 31, 2006 and April 28, 2006, we had 20,200 and 200 shares, respectively, of our common stock outstanding.

We are offering and selling to the public up to 200,000,000 shares of our $0.01 par value common stock for $10.00 per share and up to 21,052,632 shares of our $0.01 par value common stock to be issued pursuant to the DRIP at $9.50 per share. Our charter authorizes us to issue 1,000,000,000 shares of our common stock.

Common Stock Held in Escrow

In connection with our Offering, we received subscriptions of 200,899 shares of our common stock, or $1,802,000, including shares sold to our executive officers and directors, our Dealer Manager, and our Advisor and its affiliates, at $10.00 per share as of December 31, 2006. On January 8, 2007, we raised the minimum offering and the funds held in escrow were released to us.

Preferred Stock

Our charter authorizes us to issue 200,000,000 shares of our $0.01 par value preferred stock. No shares of preferred stock were issued and outstanding as of December 31, 2006.

Distribution Reinvestment Plan

We adopted the DRIP that allows stockholders to purchase additional shares of our common stock through reinvestment of distributions, subject to certain conditions. We registered and reserved 21,052,632 shares of our common stock for sale pursuant to the DRIP in our Offering. No reinvestment of distributions were made for the period from April 28, 2006 (Date of Inception) through December 31, 2006.

Share Repurchase Plan

Our board of directors has approved a share repurchase plan. On August 24, 2006, we received SEC exemptive relief from rules restricting issuer purchases during distributions. The share repurchase plan allows for share repurchases by us when certain criteria are met. Share repurchases will be made at the sole discretion of our board of directors. Funds for the repurchase of shares will come exclusively from the proceeds we receive from the sale of shares under the DRIP. No share repurchases were made for the period from April 28, 2006 (Date of Inception) through December 31, 2006.

82

NNN Healthcare/Office REIT, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2006 Incentive Plan and Independent Directors Compensation Plan

Under the terms of our 2006 Incentive Plan, the aggregate number of shares of our common stock subject to options, restricted shares of common stock, stock purchase rights, stock appreciation rights or other awards, including those issuable under its sub-plan, the 2006 Independent Directors Compensation Plan, will be no more than 2,000,000 shares.

On September 20, 2006 and October 4, 2006, we granted 15,000 shares and 5,000 shares, respectively, of restricted common stock, as defined in the 2006 Incentive Plan, to our independent directors under the 2006 Independent Directors Compensation Plan, of which 20.0% vested on the grant date and 20.0% will vest on each of the first four anniversaries of the date of grant. The fair value of each share of restricted common stock was estimated at the date of grant at $10.00 per share and is amortized on a straight-line basis. Shares of restricted common stock may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. Such restrictions expire upon vesting. We recognized compensation expense of approximately $51,000 related to the restricted common stock grants for the period from April 28, 2006 (Date of Inception) through December 31, 2006, which is included in general and administrative on our accompanying consolidated statement of operations. Shares of restricted common stock have full voting rights and rights to dividends.

As of December 31, 2006, there was approximately $149,000 of total unrecognized compensation expense, net of estimated forfeitures, related to nonvested restricted shares of common stock. The expense is expected to be realized over a weighted average period of approximately three years and nine months.

As of December 31, 2006, the fair value of the nonvested restricted shares of common stock was $160,000. A summary of the status of our shares of restricted common stock as of December 31, 2006, and changes for the period from April 28, 2006 (Date of Inception) through December 31, 2006, is presented below:

	Restricted			Weighted Average
	Common			Grant Date
	Stock			Fair Value
Balance — April 28, 2006		—
Granted		20,000		$	10.00
Vested		(4,000	)	$	10.00
Forfeited		—			—
Balance — December 31, 2006		16,000		$	10.00
Vested or expected to vest — December 31, 2006		16,000		$	10.00

7.   Subordinated Participation Interest

Pursuant to our Agreement of Limited Partnership approved by our board of directors, upon termination of the Advisory Agreement, other than a termination by us for cause, our Advisor will be entitled to receive a distribution from our Operating Partnership in an amount equal to 15.0% of the amount, if any, by which (1) the fair market value of all of the assets of our Operating Partnership as of the date of the termination (determined by appraisal), less any indebtedness secured by such assets, plus the cumulative distributions made to us by our Operating Partnership from our inception through the termination date, exceeds (2) the sum of the total amount of capital raised from stockholders (less amounts paid to redeem shares pursuant to our share repurchase plan) plus an annual 8.0% cumulative, non-compounded return on average invested capital through the termination date. However, our Advisor will not be entitled to this distribution if shares of our common stock have been listed on a national securities exchange prior to the termination of the Advisory Agreement.

83

NNN Healthcare/Office REIT, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.   General and Administrative Expenses

For the period from April 28, 2006 (Date of Inception) through December 31, 2006, general and administrative expenses of approximately $242,000 consisted of insurance premiums for directors’ and officers’ liability insurance of $68,000, directors’ fees of $55,000, restricted common stock compensation of $51,000 and professional and legal fees of $68,000.

Such expenses are subject to the operating expense reimbursement obligation of our Advisor as discussed in Note 4, Related Party Transactions — Operating Expenses.

9.   Selected Quarterly Financial Data (Unaudited)

Set forth below is the unaudited selected quarterly financial data. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with GAAP, the unaudited selected quarterly financial data when read in conjunction with our consolidated financial statements.

							Period from
							April 28, 2006
	Quarters Ended						(Date of Inception)
	December 31,			September 30,			through
	2006			2006			June 30, 2006
Revenues	$	—		$	—		$	—
Expenses		(192,112	)		(49,659	)		—
Net loss	$	(192,112	)	$	(49,659	)	$	—
Loss per share — basic and diluted	$	(46.10	)	$	(88.84	)	$	—

10.   Subsequent Events

Status of our Offering

As of January 8, 2007, excluding shares purchased by our executives officers and directors, our Dealer Manager and our Advisor and its affiliates, we had received and accepted subscriptions in our Offering for 200,846 shares of our common stock, or $2,004,000, thereby exceeding the minimum offering. Having raised the minimum offering, the offering proceeds were released by the escrow agent to us and are available for the acquisition of properties and other purposes disclosed in our Registration Statement on Form S-11(File No. 333-133652, effective September 20, 2006) filed with the Securities and Exchange Commission. As of February 28, 2007, we had received and accepted subscriptions in our Offering for 722,689 shares of our common stock, or $7,197,000.

Unsecured Loan

On January 22, 2007, in connection with our acquisition of the 100% membership interests in NNN Southpointe, LLC and NNN Crawfordsville, LLC, we entered into an unsecured loan with NNN Realty Advisors evidenced by a promissory note in the principal amount of $7,500,000. The unsecured loan matures on July 22, 2007. The unsecured loan bears interest at a fixed rate of 6.86% per annum and requires monthly interest-only payments beginning on February 1, 2007 for the term of the unsecured loan. NNN Realty Advisors is our Sponsor and therefore this loan is deemed a related party loan. The terms of this related party unsecured loan, were approved by our board of directors, including the majority of our independent directors, and deemed fair, competitive and commercially reasonable by our board of directors.

84

NNN Healthcare/Office REIT, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property Acquisitions

On January 22, 2007, we purchased a 100% membership interest in NNN Southpointe, LLC from NNN South Crawford Member, LLC, an indirect wholly-owned subsidiary of our Sponsor, for a total purchase price of $14,800,000. NNN Southpointe, LLC has a fee simple ownership interest in Southpointe Office Parke and Epler Parke I, or the Southpointe property, located in Indianapolis, Indiana. We primarily financed the purchase price of the property through the assumption of an existing mortgage loan payable of $9,146,000 on the property with LaSalle Bank, National Association, or LaSalle, and approximately $5,115,000 of the proceeds from a $7,500,000 unsecured loan (as described above) from NNN Realty Advisors. The balance was provided by funds raised through our initial public offering. An acquisition fee of $444,000, or 3.0% of the purchase price, was paid to our Advisor and its affiliates.

The $9,146,000 existing mortgage loan payable on the Southpointe property matures on September 1, 2016 and bears interest at a fixed rate of 6.113% per annum. Pursuant to our assumption of the mortgage loan payable, we are required to make monthly interest-only payments on the first day of each month through September 1, 2010. Beginning on October 1, 2010, we will be required to make principal and interest payments on the first day of each month until maturity. The mortgage loan provides for a default interest rate of an additional 5.0% per annum in an event of default and late charges in an amount equal to the lesser of (a) an additional 3.0% of the amount of any overdue payments or (b) the maximum amount permitted by applicable law, in addition to any default interest payments.

Since we acquired the NNN Southpointe, LLC membership interests from an indirect wholly-owned subsidiary of our Sponsor, an independent appraiser was engaged to value the property, the transaction was approved by the majority of our directors, including a majority of our independent directors and it was determined by a majority of our board of directors, including a majority of our independent directors that the transaction is fair and reasonable to us and at a price no greater than the cost of the investment to our Sponsor’s indirect wholly-owned subsidiary or the property’s appraised value.

On January 22, 2007, we purchased a 100% membership interest in NNN Crawfordsville, LLC from NNN South Crawford Member, LLC, for a total purchase price of $6,900,000. NNN Crawfordsville, LLC has a fee simple ownership interest in Crawfordsville Medical Office Park and Athens Surgery Center, or the Crawfordsville property, located in Crawfordsville, Indiana. We primarily financed the purchase price of the property through the assumption of an existing mortgage loan payable of $4,264,000 on the property with LaSalle and approximately $2,385,000 of the proceeds from a $7,500,000 unsecured loan (as described above) from NNN Realty Advisors. The balance was provided by funds raised through our initial public offering. An acquisition fee of $207,000, or 3.0% of the purchase price, was paid to our Advisor and its affiliates

The $4,246,000 mortgage loan payable on the Crawfordsville property matures on October 1, 2016 and bears interest at a fixed rate of 6.123% per annum. Pursuant to our assumption of the mortgage loan payable, we are required to make monthly interest-only payments on the first day of each month through October 1, 2010. Beginning on November 1, 2010, we will be required to make principal and interest payments on the first day of each month until maturity. The mortgage loan provides for a default interest rate of an additional 5.0% per annum in an event of default and late charges in an amount equal to the lesser of (a) an additional 3.0% of the amount of any overdue payments or (b) the maximum amount permitted by applicable law, in addition to any default interest payments.

Since we acquired the NNN Crawfordsville, LLC membership interests from an indirect wholly-owned subsidiary of our Sponsor, an independent appraiser was engaged to value the property, the transaction was approved by the majority of our directors, including a majority of our independent directors and it was determined by a majority of our board of directors, including a majority of our independent directors that the transaction is fair and reasonable to us and at a price no greater than the cost of the investment to our Sponsor’s indirect wholly-owned subsidiary or the property’s appraised value.

85

NNN Healthcare/Office REIT, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As a result of the acquisitions of the Crawfordsville property and the Southpointe property, as of January 22, 2007, our leverage exceeds 300.0%. In accordance with our charter, a majority of our directors, including a majority of our independent directors, approved our leverage exceeding 300.0% in connection with the acquisitions. The board of directors determined that the excess leverage was justified because it enabled us to purchase the property during the initial stages of our Offering, thereby improving our ability to meet our goal of acquiring a diversified portfolio of properties to generate current income for investors and preserve investor capital. We will likely continue to exceed our charter’s leverage guidelines during the early stages of our operations. We will take action to reduce any such excess as soon as practicable. Net assets for purposes of this calculation are defined as our total assets (other than intangibles), valued at cost prior to deducting depreciation, reserves for bad debts and other non-cash reserves, less total liabilities. The preceding calculation is generally expected to approximate 75.0% of the sum of (1) the aggregate cost of our properties before non-cash reserves and depreciation and (2) the aggregate cost of our securities assets.

Proposed Property Acquisitions

In January 2007, our board of directors approved the acquisitions of: (i) the Gallery Professional Building located in St. Paul, Minnesota for a purchase price of $8,800,000, plus closing costs; and (ii) Lennox Office Park, Building G, located in Memphis, Tennessee for a purchase price of $18,500,000, plus closing costs, contingent upon raising sufficient financing and other conditions.

Appointment to the Audit committee

On January 17, 2007, Gary T. Wescombe accepted his appointment to the Audit Committee of our board of directors.

Distribution

Our board of directors approved a 6.5% per annum distribution to be paid to stockholders beginning on January 8, 2007, the date we reached our minimum offering. The first distribution was paid on February 15, 2007 for the period ended January 31, 2007.

On February 14, 2007, our board of directors approved a 7.25% per annum distribution to be paid to stockholders beginning with our February 2007 monthly distribution which will be paid in March 2007. Distributions are paid monthly.

86

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NNN Healthcare/Office REIT, Inc.

(Registrant)

By:  /s/  Scott D. Peters

Scott D. Peters

Chief Executive Officer

(principal executive officer)

Date: March 2, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/  Scott D. Peters Scott D. Peters	Chief Executive Officer (principal executive officer)	March 2, 2007
/s/  Shannon K S Johnson Shannon K S Johnson	Chief Financial Officer (principal financial officer)	March 2, 2007
/s/  Maurice J. DeWald Maurice J. DeWald	Director	March 2, 2007
/s/  W. Bradley Blair, II W. Bradley Blair, II	Director	March 2, 2007
/s/  Warren D. Fix Warren D. Fix	Director	March 2, 2007
/s/  Gary T. Wescombe Gary T. Wescombe	Director	March 2, 2007

87

EXHIBIT INDEX

Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit Index immediately precedes the exhibits.

The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (and are numbered in accordance with Item 601 of Regulation S-K).

1	.1	Dealer Manager Agreement between NNN Healthcare/Office REIT, Inc. and NNN Capital Corp (included as Exhibit 1.1 to our Form 10-Q filed on November 9, 2006 and incorporated herein by reference).
1	.2	Form of Participating Broker-Dealer Agreement (included as Appendix A to Exhibit 1.1)(included to our Form 10-Q filed on November 9, 2006 and incorporated herein by reference).
3	.1*	Third Articles of Amendment and Restatement of NNN Healthcare/Office REIT, Inc.
3	.2	Bylaws of Healthcare/Office REIT, Inc. (included as Exhibit 3.2 to our Registration Statement on Form S-11, filed on April 28, 2006 (File No. 333-133652) and incorporated herein by reference)
4	.1	Form of Subscription Agreement (included as Appendix B to our Prospectus, filed on September 20, 2006 (File No. 333-133652) and incorporated herein by reference)
4	.2	Distribution Reinvestment Plan (included as Appendix C to our Prospectus, filed on September 20, 2006 (File No. 333-133652) and incorporated herein by reference)
4	.3	Share Repurchase Plan (included as to our Prospectus, filed on September 20, 2006 (File No. 333-133652) and incorporated herein by reference)
4	.4	Escrow Agreement (included as Exhibit 4.4 to our Form 10-Q filed on November 9, 2006 and incorporated herein by reference).
10	.1	Advisory Agreement among NNN Healthcare/Office REIT, Inc., NNN Healthcare/Office Holdings, L.P., NNN Healthcare/Office Advisor, LLC and Triple Net Properties, LLC (included as Exhibit 10.1 to our Form 10-Q filed on November 9, 2006 and incorporated herein by reference).
10	.2	Agreement of Limited Partnership of NNN Healthcare/Office Holdings, L.P. (included as Exhibit 10.2 to our Form 10-Q filed on November 9, 2006 and incorporated herein by reference).
10	.3+	NNN Healthcare/Office REIT, Inc. 2006 Incentive Plan (including the 2006 Independent Directors Compensation Plan) (included as Exhibit 10.3 to our Registration Statement on Form S-11, filed on April 28, 2006 (File No. 333-133652) and incorporated herein by reference)
10	.4+	Amendment to the NNN Healthcare/Office REIT, Inc. 2006 Incentive Plan (including the 2006 Independent Directors Compensation Plan) (included as Exhibit 10.4 to our Registration Statement on Form S-11, Amendment No. 6, filed on September 12, 2006 (File No. 333-133652) and incorporated herein by reference)
21	.1*	Subsidiaries of NNN Healthcare/Office REIT, Inc.
31	.1*	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31	.2*	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	.1*	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
32	.2*	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

*	Filed herewith.
+	Compensatory plan or arrangement.

EX-3.1

                                                                     Exhibit 3.1

                        NNN HEALTHCARE/OFFICE REIT, INC.

                   THIRD ARTICLES OF AMENDMENT AND RESTATEMENT


                  FIRST:  NNN Healthcare/Office REIT, Inc., a Maryland
corporation (the "Corporation"), desires to amend and restate its charter as
currently in effect and as hereinafter amended.

                  SECOND:  The following provisions are all the provisions of
the charter currently in effect and as hereinafter amended:

                                    ARTICLE I

                                      NAME

                  The name of the corporation (which is hereinafter called the
"Corporation") is:

                        NNN Healthcare/Office REIT, Inc.

                                   ARTICLE II

                               PURPOSES AND POWERS

                  The purposes for which the Corporation is formed are to engage
in any lawful act or activity (including, without limitation or obligation,
engaging in business as a real estate investment trust under the Internal
Revenue Code of 1986, as amended, or any successor statute (the "Code")) for
which corporations may be organized under the general laws of the State of
Maryland as now or hereafter in force.

                                   ARTICLE III

                  PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT

                  The address of the principal office of the Corporation in the
State of Maryland is c/o CSC -- Lawyers Incorporating Service Company, 11 East
Chase Street, Baltimore, Maryland 21202. The name and address of the resident
agent of the Corporation are CSC -- Lawyers Incorporating Service Company, 11
East Chase Street, Baltimore, Maryland 21202. The resident agent is a Maryland
corporation.

                                   ARTICLE IV

                                   DEFINITIONS

                  As used in the Charter, the following terms shall have the
following meanings unless the context otherwise requires:

                  Acquisition Expenses. The term "Acquisition Expenses" shall
mean any and all expenses incurred by the Corporation, the Advisor, or any
Affiliate of either in connection with the selection, evaluation, acquisition or
development of, and investment in, any Asset, whether or not acquired,
including, without limitation, legal fees and expenses, travel and
communications expenses, costs of appraisals, nonrefundable option payments on
property not acquired, accounting fees and expenses and title insurance
premiums.



                  Acquisition Fee. The term "Acquisition Fee" shall mean any and
all fees and commissions, exclusive of Acquisition Expenses, paid by any Person
to any other Person (including any fees or commissions paid by or to any
Affiliate of the Corporation or the Advisor) in connection with making or
investing in Mortgages or the purchase, development or construction of a
Property, including real estate commissions, selection fees, Development Fees,
Construction Fees, nonrecurring management fees, loan fees, points or any other
fees of a similar nature. Excluded shall be Development Fees and Construction
Fees paid to any Person not affiliated with the Sponsor in connection with the
actual development and construction of a project.

                  Advisor or Advisors. The term "Advisor" or "Advisors" shall
mean the Person or Persons, if any, appointed, employed or contracted with by
the Corporation pursuant to Section 8.1 hereof and responsible for directing or
performing the day-to-day business affairs of the Corporation and the Operating
Partnership, including any Person to whom the Advisor subcontracts all or
substantially all of such functions.

                  Advisory Agreement. The term "Advisory Agreement" shall mean
the agreement between the Corporation, the Operating Partnership and the Advisor
pursuant to which the Advisor will direct or perform the day-to-day business
affairs of the Corporation and the Operating Partnership.

                  Affiliate or Affiliated. The term "Affiliate" or "Affiliated"
shall mean, with respect to any Person, (i) any Person directly or indirectly
owning, controlling or holding, with the power to vote, ten percent or more of
the outstanding voting securities of such other Person; (ii) any Person ten
percent or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held, with the power to vote, by such other
Person; (iii) any Person directly or indirectly controlling, controlled by or
under common control with such other Person; (iv) any executive officer,
director, trustee or general partner of such other Person; and (v) any legal
entity for which such Person acts as an executive officer, director, trustee or
general partner.

                  Aggregate Share Ownership Limit. The term "Aggregate Share
Ownership Limit" shall mean not more than 9.8% in value of the aggregate of the
outstanding Shares.

                  Asset. The term "Asset" shall mean any Property, Mortgage or
other investment (other than investments in bank accounts, money market funds or
other current assets) owned by the Corporation, directly or indirectly through
one or more of its Affiliates, and any other investment made by the Corporation,
directly or indirectly through one or more of its Affiliates.

                  Average Invested Assets. The term "Average Invested Assets"
shall mean, for a specified period, the average of the aggregate book value of
the assets of the Corporation invested, directly or indirectly, in equity
interests in and loans secured by real estate (including, without limitation,
equity interests in REITs, mortgage pools, commercial mortgage-backed securities
and residential mortgage-backed securities), before reserves for depreciation,
bad debts or other non-cash reserves, computed by taking the average of such
values at the end of each month during such period.

                  Beneficial Ownership. The term "Beneficial Ownership" shall
mean ownership of Shares by a Person, whether the interest in Shares is held
directly or indirectly (including by a nominee), and shall include interests
that would be treated as owned through the application of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial
Owner," "Beneficially Owns" and "Beneficially Owned" shall have the correlative
meanings.

                                      -2-



                  Benefit Plan Investor.  The term shall have the meaning
providing in Section 2510.3-101 of the Department of Labor regulations or any
successor regulation thereto.

                  Board or Board of Directors.  The term "Board" or "Board of
Directors" shall mean the Board of Directors of the Corporation.

                  Business Day. The term "Business Day" shall mean any day,
other than a Saturday or Sunday, that is neither a legal holiday nor a day on
which banking institutions in New York City are authorized or required by law,
regulation or executive order to close.

                  Bylaws.  The term "Bylaws" shall mean the Bylaws of the
Corporation, as amended from time to time.

                  Charitable Beneficiary. The term "Charitable Beneficiary"
shall mean one or more beneficiaries of the Charitable Trust as determined
pursuant to Section 6.2.6 hereof, provided that each such organization must be
described in Section 501(c)(3) of the Code and contributions to each such
organization must be eligible for deduction under each of Sections 170(b)(1)(A),
2055 and 2522 of the Code.

                  Charitable Trust.  The term "Charitable Trust" shall mean any
trust provided for in Section 6.2.1 hereof.

                  Charitable Trustee. The term "Charitable Trustee" shall mean
the Person unaffiliated with the Corporation and a Prohibited Owner, that is
appointed by the Corporation to serve as Trustee of the Charitable Trust.

                  Charter.  The term "Charter" shall mean the charter of the
Corporation.

                  Code.  The term "Code" shall have the meaning as provided in
Article II herein.

                  Commencement of the Initial Public Offering. The term
"Commencement of the Initial Public Offering" shall mean the date that the
Securities and Exchange Commission declares effective the registration statement
filed under the Securities Act for the Initial Public Offering.

                  Common Share Ownership Limit. The term "Common Share Ownership
Limit" shall mean not more than 9.8% (in value or in number of Shares, whichever
is more restrictive) of the aggregate of the outstanding Common Shares.

                  Common Shares.  The term "Common Shares" shall have the
meaning as provided in Section 5.1 herein.

                  Competitive Real Estate Commission. The term "Competitive Real
Estate Commission" shall mean a real estate or brokerage commission paid for the
purchase or sale of a Property that is reasonable, customary and competitive in
light of the size, type and location of the Property.

                  Construction Fee. The term "Construction Fee" shall mean a fee
or other remuneration for acting as general contractor and/or construction
manager to construct improvements, supervise and coordinate projects or to
provide major repairs or rehabilitations on a Property.

                  Constructive Ownership. The term "Constructive Ownership"
shall mean ownership of Shares by a Person, whether the interest in Shares is
held directly or indirectly (including by a nominee),

                                      -3-




and shall include interests that would be treated as owned through the
application of Section 318(a) of the Code, as modified by Section 856(d)(5) of
the Code. The terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.

                  Contract Purchase Price. The term "Contract Purchase Price"
shall mean the amount actually paid or allocated in respect of the purchase,
development, construction or improvement of a Property or the amount of funds
advanced with respect to a Mortgage, or the amount actually paid or allocated in
respect of the purchase of other Assets, in each case exclusive of Acquisition
Fees and Acquisition Expenses.

                  Corporation.  The term "Corporation" shall have the meaning as
provided in Article I herein.

                  Dealer Manager.  The term "Dealer Manager" shall mean NNN
Capital Corp., a California corporation and an Affiliate of the Corporation, or
such other Person selected by the Board to act as the dealer manager for an
Offering.

                  Development Fee. The term "Development Fee" shall mean a fee
for the packaging of a Property, including the negotiation and approval of
plans, and any assistance in obtaining zoning and necessary variances and
financing for a specific Property, either initially or at a later date.

                  Director.  The term "Director" shall have the meaning as
provided in Section 7.1 herein.

                  Distributions. The term "Distributions" shall mean any
distributions of money or other property, pursuant to Section 5.5 hereof, by the
Corporation to owners of Shares, including distributions that may constitute a
return of capital for federal income tax purposes.

                  ERISA Investor. Any holder of Shares that is (i) an employee
benefit plan subject to Title I of the Employee Retirement Income Security Act
of 1974, as amended, (ii) a plan as defined in Section 4975(e) of the Code (any
such employee benefit plan or "plan" as described in clause (i) or this clause
(ii) being referred to herein as "Plan"), (iii) a trust which was established
pursuant to a Plan, or a nominee for such trust or Plan, or (iv) an entity whose
underlying assets include assets of a Plan by reason of such Plan's investment
in such entity.

                  Excepted Holder. The term "Excepted Holder" shall mean a
Stockholder for whom an Excepted Holder Limit is created by Article VI hereof or
by the Board of Directors pursuant to Section 6.1.7.

                  Excepted Holder Limit. The term "Excepted Holder Limit" shall
mean, provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board of Directors pursuant to Section 6.1.7 and
subject to adjustment pursuant to Section 6.1.8, the percentage limit
established by the Board of Directors pursuant to Section 6.1.7.

                  Excess Amount.  The term "Excess Amount" shall have the
meaning as provided in Section 8.10 herein.

                  Gross Proceeds. The term "Gross Proceeds" shall mean the
aggregate purchase price of all Shares sold for the account of the Corporation
through an Offering, without deduction for Selling Commissions, volume
discounts, marketing support fees and due diligence expense reimbursement or
Organizational and Offering Expenses. For the purpose of computing Gross
Proceeds, the purchase price of any Share for which reduced Selling Commissions
are paid to the Dealer Manager or a Soliciting

                                      -4-



Dealer (where net proceeds to the Corporation are not reduced) shall be deemed
to be the full amount of the offering price per Share pursuant to the Prospectus
for such Offering without reduction.

                  Indemnitee.  The term "Indemnitee" shall have the meaning as
provided in Section 12.2(c) herein.

                  Independent Appraiser. The term "Independent Appraiser" shall
mean a Person with no material current or prior business or personal
relationship with the Advisor or the Directors and who is engaged to a
substantial extent in the business of rendering opinions regarding the value of
Real Property and/or other Assets of the type held by the Corporation.
Membership in a nationally recognized appraisal society such as the American
Institute of Real Estate Appraisers or the Society of Real Estate Appraisers
shall be conclusive evidence of being engaged to a substantial extent in the
business of rendering opinions regarding the value of Real Property.

                  Independent Director. The term "Independent Director" shall
mean a Director who is not on the date of determination, and within the last two
years from the date of determination has not been, directly or indirectly
associated with the Sponsor or the Advisor by virtue of (i) ownership of an
interest in the Sponsor, the Advisor or any of their Affiliates, other than the
Corporation; (ii) employment by the Sponsor, the Advisor or any of their
Affiliates; (iii) service as an officer or director of the Sponsor, the Advisor
or any of their Affiliates, other than as a Director of the Corporation; (iv)
performance of services, other than as a Director, for the Corporation; (v)
service as a director or trustee of more than three REITs organized by the
Sponsor or advised by the Advisor; or (vi) maintenance of a material business or
professional relationship with the Sponsor, the Advisor or any of their
Affiliates. A business or professional relationship is considered "material" if
the aggregate gross income derived by the Director from the Sponsor, the Advisor
and their Affiliates (excluding fees for serving as a director of the
Corporation or other REIT or real estate program that is organized, advised or
managed by the Advisor or its Affiliates) exceeds five percent of either the
Director's annual gross income during either of the last two years or the
Director's net worth on a fair market value basis. An indirect association with
the Sponsor or the Advisor shall include circumstances in which a Director's
spouse, parent, child, sibling, mother- or father-in-law, son- or
daughter-in-law or brother- or sister-in-law is or has been associated with the
Sponsor, the Advisor, any of their Affiliates or the Corporation.

                  Initial Date.  The term "Initial Date" shall mean the date on
which Shares are first issued in the Corporation's Initial Public Offering.

                  Initial Investment.  The term "Initial Investment" shall mean
that portion of the initial capitalization of the Corporation and the Operating
Partnership contributed by the Sponsor or its Affiliates pursuant to Section
II.A. of the NASAA REIT Guidelines.

                  Initial Public Offering. The term "Initial Public Offering"
shall mean the first Offering pursuant to an effective registration statement
filed under the Securities Act.

                  Invested Capital. The term "Invested Capital" shall mean the
amount calculated by multiplying the total number of Shares purchased by
Stockholders by the issue price at the time of such purchase, reduced by the
portion of any Distribution that is attributable to Net Sales Proceeds and by
any amounts paid by the Corporation to repurchase Shares pursuant to the
Corporation's plan for the repurchase of Shares.

                  Joint Ventures. The term "Joint Ventures" shall mean those
joint venture or partnership arrangements in which the Corporation or any of its
subsidiaries is a co-venturer or general partner established to acquire or hold
Assets.

                                      -5-



                  Leverage. The term "Leverage" shall mean the aggregate amount
of indebtedness of the Corporation for money borrowed (including purchase money
mortgage loans) outstanding at any time, both secured and unsecured.

                  Listing. The listing of the Common Shares on (i) the New York
Stock Exchange, the American Stock Exchange, or the Global Market or the Global
Select Market of the Nasdaq Stock Market (or any successor to such entities), or
(ii) a national securities exchange (or tier or segment thereof) that has
listing standards that the Securities and Exchange Commission has determined by
rule are substantially similar to the listing standards applicable to securities
described in Section 18(b)(1)(A) of the Securities Act. Upon such Listing, the
Common Shares shall be deemed Listed.

                  Market Price. The term "Market Price" on any date shall mean,
with respect to any class or series of outstanding Shares, the Closing Price for
such Shares on such date. The "Closing Price" on any date shall mean the last
sale price for such Shares, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, for such
Shares, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on the
NYSE or, if such Shares are not listed or admitted to trading on the NYSE, as
reported on the principal consolidated transaction reporting system on which
such Shares are listed or admitted to trading or, if such Shares are not listed
or admitted to trading on any national securities exchange, the last quoted
price, or, if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotation system that may then be
in use or, if such Shares are not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market maker
making a market in such Shares selected by the Board of Directors or, in the
event that no trading price is available for such Shares, the fair market value
of Shares, as determined in good faith by the Board of Directors.

                  MGCL.  The term "MGCL" shall mean the Maryland General
Corporation Law, as amended from time to time.

                  Mortgages. The term "Mortgages" shall mean, in connection with
mortgage financing provided, invested in, participated in or purchased by the
Corporation, all of the notes, deeds of trust, security interests or other
evidences of indebtedness or obligations, which are secured or collateralized by
Real Property owned by the borrowers under such notes, deeds of trust, security
interests or other evidences of indebtedness or obligations.

                  NASAA REIT Guidelines. The term "NASAA REIT Guidelines" shall
mean the Statement of Policy Regarding Real Estate Investment Trusts published
by the North American Securities Administrators Association.

                  Net Assets. The term "Net Assets" shall mean the total assets
of the Corporation (other than intangibles) at cost, before deducting
depreciation, reserves for bad debts or other non-cash reserves, less total
liabilities, calculated quarterly by the Corporation on a basis consistently
applied.

                  Net Income. The term "Net Income" shall mean for any period,
the Corporation's total revenues applicable to such period, less the total
expenses applicable to such period other than additions to reserves for
depreciation, bad debts or other similar non-cash reserves and excluding any
gain from the sale of the Assets.

                                      -6-



                  Net Sales Proceeds. The term "Net Sales Proceeds" shall mean
in the case of a transaction described in clause (i)(A) of the definition of
Sale, the proceeds of any such transaction less the amount of selling expenses
incurred by or on behalf of the Corporation, including all real estate
commissions, closing costs and legal fees and expenses. In the case of a
transaction described in clause (i)(B) of the definition of Sale, Net Sales
Proceeds means the proceeds of any such transaction less the amount of selling
expenses incurred by or on behalf of the Corporation, including any legal fees
and expenses and other selling expenses incurred in connection with such
transaction. In the case of a transaction described in clause (i)(C) of the
definition of Sale, Net Sales Proceeds means the proceeds of any such
transaction actually distributed to the Corporation or the Operating Partnership
from the Joint Venture less the amount of any selling expenses, including legal
fees and expenses incurred by or on behalf of the Corporation (other than those
paid by the Joint Venture). In the case of a transaction or series of
transactions described in clause (i)(D) of the definition of Sale, Net Sales
Proceeds means the proceeds of any such transaction (including the aggregate of
all payments under a Mortgage on or in satisfaction thereof other than regularly
scheduled interest payments) less the amount of selling expenses incurred by or
on behalf of the Corporation, including all commissions, closing costs and legal
fees and expenses. In the case of a transaction described in clause (i)(E) of
the definition of Sale, Net Sales Proceeds means the proceeds of any such
transaction less the amount of selling expenses incurred by or on behalf of the
Corporation, including any legal fees and expenses and other selling expenses
incurred in connection with such transaction. In the case of a transaction
described in clause (ii) of the definition of Sale, Net Sales Proceeds means the
proceeds of such transaction or series of transactions less all amounts
generated thereby which are reinvested in one or more Assets within 180 days
thereafter and less the amount of any real estate commissions, closing costs,
and legal fees and expenses and other selling expenses incurred by or allocated
to the Corporation or the Operating Partnership in connection with such
transaction or series of transactions. Net Sales Proceeds shall also include any
amounts that the Corporation determines, in its discretion, to be economically
equivalent to proceeds of a Sale. Net Sales Proceeds shall not include any
reserves established by the Corporation in its sole discretion.

                  NYSE.  The term "NYSE" shall mean the New York Stock Exchange.

                  Offering.  The term "Offering" shall mean any offering and
sale of Shares.

                  Operating Partnership.  The term "Operating Partnership" shall
mean NNN Healthcare/Office REIT Holdings, L.P., a Delaware limited partnership,
through which the Corporation may own Assets.

                  Organizational and Offering Expenses. The term "Organizational
and Offering Expenses" shall mean any and all costs and expenses incurred by and
to be paid from the assets of the Corporation in connection with the formation,
qualification and registration of the Corporation, and the marketing and
distribution of Shares, including, without limitation, total underwriting and
brokerage discounts and commissions (including fees of the underwriters'
attorneys), expenses for printing, engraving, amending, supplementing, mailing
and distributing costs, salaries of employees while engaged in sales activity,
telephone and other telecommunications costs, all advertising and marketing
expenses (including the costs related to investor and broker-dealer sales
meetings), charges of transfer agents, registrars, trustees, escrow holders,
depositories, experts, fees, expenses and taxes related to the filing,
registration and qualification of the sale of the Shares under federal and state
laws, including taxes and fees and accountants' and attorneys' fees.

                  Person. The term "Person" shall mean an individual,
corporation, partnership, estate, trust (including a trust qualified under
Sections 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section 642(c)
of the Code, association, private foundation within the meaning of Section
509(a) of the Code, joint stock

                                      -7-



company or other entity and also includes a group as that term is used for
purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
and a group to which an Excepted Holder Limit applies.

                  Preferred Shares.  The term "Preferred Shares" shall have the
meaning as provided in Section 5.1 herein.

                  Prohibited Owner. The term "Prohibited Owner" shall mean, with
respect to any purported Transfer, any Person who, but for the provisions of
Section 6.1.1, would Beneficially Own or Constructively Own Shares, and if
appropriate in the context, shall also mean any Person who would have been the
record owner of Shares that the Prohibited Owner would have so owned.

                  Property or Properties. The term "Property" or "Properties"
shall mean, as the context requires, any, or all, respectively, of the Real
Property acquired by the Corporation, directly or indirectly through joint
venture arrangements or other partnership or investment interests.

                  Prospectus. The term "Prospectus" shall mean the same as that
term is defined in Section 2(10) of the Securities Act, including a preliminary
prospectus, an offering circular as described in Rule 256 of the General Rules
and Regulations under the Securities Act, or, in the case of an intrastate
offering, any document by whatever name known, utilized for the purpose of
offering and selling Securities to the public.

                  Real Property. The term "Real Property" shall mean land,
rights in land (including leasehold interests), and any buildings, structures,
improvements, furnishings, fixtures and equipment located on or used in
connection with land and rights or interests in land.

                  Reinvestment Plan.  The term "Reinvestment Plan" shall have
the meaning as provided in Section 5.10 herein.

                  REIT. The term "REIT" shall mean a corporation, trust,
association or other legal entity (other than a real estate syndication) that is
engaged primarily in investing in equity interests in real estate (including fee
ownership and leasehold interests) or in loans secured by real estate or both as
defined pursuant to the REIT Provisions of the Code.

                  REIT Provisions of the Code. The term "REIT Provisions of the
Code" shall mean Sections 856 through 860 of the Code and any successor or other
provisions of the Code relating to real estate investment trusts (including
provisions as to the attribution of ownership of beneficial interests therein)
and the regulations promulgated thereunder.

                  Restriction Termination Date. The term "Restriction
Termination Date" shall mean the first day after the Initial Date on which the
Board of Directors determines that it is no longer in the best interests of the
Corporation to attempt to, or continue to, qualify as a REIT or that compliance
with the restrictions and limitations on Beneficial Ownership, Constructive
Ownership and Transfers of Shares set forth herein is no longer required in
order for the Corporation to qualify as a REIT.

                  Roll-Up Entity. The term "Roll-Up Entity" shall mean a
partnership, real estate investment trust, corporation, trust or similar entity
that would be created or would survive after the successful completion of a
proposed Roll-Up Transaction.

                                      -8-



                  Roll-Up Transaction. The term "Roll-Up Transaction" shall mean
a transaction involving the acquisition, merger, conversion or consolidation
either directly or indirectly of the Corporation and the issuance of securities
of a Roll-Up Entity to the Stockholders. Such term does not include:

                           (a)      a transaction involving securities of the
Corporation that have been for at least twelve months listed on a national
securities exchange; or

                           (b)      a transaction involving the conversion to
corporate, trust or association form of only the Corporation, if, as a
consequence of the transaction, there will be no significant adverse change in
any of the following:

                                (i)    Stockholders' voting rights;

                                (ii)   the term of existence of the Corporation;

                                (iii)  Sponsor or Advisor compensation; or

                                (iv)   the Corporation's investment objectives.

                  Sale or Sales. The term "Sale" or "Sales" shall mean (i) any
transaction or series of transactions whereby: (A) the Corporation or the
Operating Partnership directly or indirectly (except as described in other
subsections of this definition) sells, grants, transfers, conveys, or
relinquishes its ownership of any Property or portion thereof, including the
lease of any Property consisting of a building only, and including any event
with respect to any Property which gives rise to a significant amount of
insurance proceeds or condemnation awards; (B) the Corporation or the Operating
Partnership directly or indirectly (except as described in other subsections of
this definition) sells, grants, transfers, conveys, or relinquishes its
ownership of all or substantially all of the interest of the Corporation or the
Operating Partnership in any Joint Venture in which it is a co-venturer or
partner; (C) any Joint Venture directly or indirectly (except as described in
other subsections of this definition) in which the Corporation or the Operating
Partnership as a co-venturer or partner sells, grants, transfers, conveys, or
relinquishes its ownership of any Property or portion thereof, including any
event with respect to any Property which gives rise to insurance claims or
condemnation awards; (D) the Corporation or the Operating Partnership directly
or indirectly (except as described in other subsections of this definition)
sells, grants, conveys or relinquishes its interest in any Mortgage or portion
thereof (including with respect to any Mortgage, all payments thereunder or in
satisfaction thereof other than regularly scheduled interest payments) of
amounts owed pursuant to such Mortgage and any event which gives rise to a
significant amount of insurance proceeds or similar awards; or (E) the
Corporation or the Operating Partnership directly or indirectly (except as
described in other subsections of this definition) sells, grants, transfers,
conveys, or relinquishes its ownership of any other Asset not previously
described in this definition or any portion thereof, but (ii) not including any
transaction or series of transactions specified in clause (i) (A) through (E)
above in which the proceeds of such transaction or series of transactions are
reinvested by the Corporation in one or more Assets within 180 days thereafter.

                  SDAT.  The term "SDAT" shall have the meaning as provided in
Section 5.4 herein.

                  Securities. The term "Securities" shall mean any of the
following issued by the Corporation, as the text requires: Shares, any other
stock, shares or other evidences of equity or beneficial or other interests,
voting trust certificates, bonds, debentures, notes or other evidences of
indebtedness, secured or unsecured, convertible, subordinated or otherwise, or
in general any instruments commonly known as "securities" or any certificates of
interest, shares or participations in, temporary or interim certificates for,
receipts for, guarantees of, or warrants, options or rights to subscribe to,
purchase or acquire, any of the foregoing.

                                   -9-



                  Securities Act. The term "Securities Act" shall mean the
Securities Act of 1933, as amended from time to time, or any successor statute
thereto. Reference to any provision of the Securities Act shall mean such
provision as in effect from time to time, as the same may be amended, and any
successor provision thereto, as interpreted by any applicable regulations as in
effect from time to time.

                  Selling Commissions. The term "Selling Commissions" shall mean
any and all commissions payable to underwriters, dealer managers or other
broker-dealers in connection with the sale of Shares, including, without
limitation, commissions payable to NNN Capital Corp.

                  Shares.  The term "Shares" shall mean shares of stock of the
Corporation of any class or series, including Common Shares or Preferred Shares.

                  Soliciting Dealers. The term "Soliciting Dealers" shall mean
those broker-dealers that are members of the National Association of Securities
Dealers, Inc., or that are exempt from broker-dealer registration, and that, in
either case, enter into participating broker or other agreements with the Dealer
Manager to sell Shares.

                  Sponsor. The term "Sponsor" shall mean any Person which (i) is
directly or indirectly instrumental in organizing, wholly or in part, the
Corporation; (ii) will control, manage or participate in the management of the
Corporation, and any Affiliate of any such Person; (iii) takes the initiative,
directly or indirectly, in founding or organizing the Corporation, either alone
or in conjunction with one or more other Persons; (iv) receives a material
participation in the Corporation in connection with the founding or organizing
of the business of the Corporation, in consideration of services or property, or
both services and property; (v) has a substantial number of relationships and
contacts with the Corporation; (vi) possesses significant rights to control
Properties; (vii) receives fees for providing services to the Corporation which
are paid on a basis that is not customary in the industry; or (viii) provides
goods or services to the Corporation on a basis which was not negotiated at
arm's-length with the Corporation. "Sponsor" does not include any Person whose
only relationship with the Corporation is that of an independent property
manager and whose only compensation is as such, or wholly independent third
parties such as attorneys, accountants and underwriters whose only compensation
is for professional services.

                  Stockholder List.  The term "Stockholder List" shall have the
meaning as provided in Section 11.5 herein.

                  Stockholders.  The term "Stockholders" shall mean the holders
of record of the Shares as maintained in the books and records of the
Corporation or its transfer agent.

                  Termination Date.  The term "Termination Date" shall mean the
date of termination of the Advisory Agreement.

                  Termination Event. The term "Termination Event" shall mean any
termination of the Advisor as advisor to the Corporation or the Operating
Partnership under the terms of the Advisory Agreement, other than any
termination for "Cause" (as defined in the Advisory Agreement) and other than
any termination of the Advisory Agreement due to the occurrence of a Listing.

                  Total Operating Expenses. The term "Total Operating Expenses"
shall mean all costs and expenses paid or incurred by the Corporation, as
determined under generally accepted accounting

                                      -10-



principles, that are in any way related to the operation of the Corporation or
to corporate business, including advisory fees, but excluding (i) the expenses
of raising capital such as Organizational and Offering Expenses, legal, audit,
accounting, underwriting, brokerage, listing, registration and other fees,
printing and other such expenses and tax incurred in connection with the
issuance, distribution, transfer, registration and Listing of the Shares; (ii)
interest payments; (iii) taxes; (iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves; (v) incentive fees paid in compliance with
the NASAA REIT Guidelines; (vi) Acquisition Fees and Acquisition Expenses; (vii)
disposition fees on the Sale of Property; and (viii) other fees and expenses
connected with the acquisition, disposition, management and ownership of real
estate interests, mortgage loans or other property (including the costs of
foreclosure, insurance premiums, legal services, maintenance, repair, and
improvement of property).

                  Transfer. The term "Transfer" shall mean any issuance, sale,
transfer, gift, assignment, devise or other disposition, as well as any other
event that causes any Person to acquire Beneficial Ownership or Constructive
Ownership, or any agreement to take any such actions or cause any such events,
of Shares or the right to vote or receive dividends on Shares, including (a) the
granting or exercise of any option (or any disposition of any option), (b) any
disposition of any securities or rights convertible into or exchangeable for
Shares or any interest in Shares or any exercise of any such conversion or
exchange right and (c) Transfers of interests in other entities that result in
changes in Beneficial or Constructive Ownership of Shares; in each case, whether
voluntary or involuntary, whether owned of record, Constructively Owned or
Beneficially Owned and whether by operation of law or otherwise. The terms
"Transferring" and "Transferred" shall have the correlative meanings.

                  2%/25% Guidelines.  The term "2%/25% Guidelines" shall have
the meaning as provided in Section 8.10 herein.

                  Unimproved Real Property. The term "Unimproved Real Property"
shall mean Property in which the Corporation has an equity interest that was not
acquired for the purpose of producing rental or other operating income, that has
no development or construction in process and for which no development or
construction is planned, in good faith, to commence within one year.

                                      -11-



                                    ARTICLE V

                                      STOCK

                  Section 5.1 Authorized Shares. The Corporation has authority
to issue 1,200,000,000 Shares, consisting of 1,000,000,000 shares of Common
Stock, $0.01 par value per share ("Common Shares"), and 200,000,000 shares of
Preferred Stock, $0.01 par value per share ("Preferred Shares"). The aggregate
par value of all authorized Shares having par value is $12,000,000. All Shares
shall be fully paid and nonassessable when issued. If Shares of one class are
classified or reclassified into Shares of another class pursuant to this Article
V, the number of authorized Shares of the former class shall be automatically
decreased and the number of Shares of the latter class shall be automatically
increased, in each case by the number of Shares so classified or reclassified,
so that the aggregate number of Shares of all classes that the Corporation has
authority to issue shall not be more than the total number of Shares set forth
in the first sentence of this paragraph. The Board of Directors, with the
approval of a majority of the entire Board and without any action by the
Stockholders, may amend the Charter from time to time to increase or decrease
the aggregate number of Shares or the number of Shares of any class or series
that the Corporation has authority to issue.

                  Section 5.2 Common Shares.

                           Section 5.2.1 Common Shares Subject to Terms of
Preferred Shares. The Common Shares shall be subject to the express terms of any
series of Preferred Shares.

                           Section 5.2.2 Description. Subject to the provisions
of Article VI and except as may otherwise be specified in the terms of any class
or series of Common Shares, each Common Share shall entitle the holder thereof
to one vote per share on all matters upon which Stockholders are entitled to
vote pursuant to Section 11.2 hereof. Shares of a particular class of Common
Shares shall have equal dividend, distribution, liquidation and other rights,
and shall have no preference, cumulative, preemptive, conversion or exchange
rights. The Board may classify or reclassify any unissued Common Shares from
time to time in one or more classes or series of Shares; provided, however, that
the voting rights per Share (other than any publicly held Share) sold in a
private offering shall not exceed the voting rights which bear the same
relationship to the voting rights of a publicly held Share as the consideration
paid to the Corporation for each privately offered Share bears to the book value
of each outstanding publicly held Share.

                           Section 5.2.3 Rights Upon Liquidation. In the event
of any voluntary or involuntary liquidation, dissolution or winding up, or any
distribution of the assets of the Corporation, the aggregate assets available
for distribution to holders of the Common Shares shall be determined in
accordance with applicable law. Each holder of Common Shares of a particular
class shall be entitled to receive, ratably with each other holder of Common
Shares of such class, that portion of such aggregate assets available for
distribution as the number of outstanding Common Shares of such class held by
such holder bears to the total number of outstanding Common Shares of such class
then outstanding.

                           Section 5.2.4 Voting Rights. Except as may be
provided otherwise in the Charter, and subject to the express terms of any
series of Preferred Shares, the holders of the Common Shares shall have the
exclusive right to vote on all matters (as to which a common stockholder shall
be entitled to vote pursuant to applicable law) at all meetings of the
Stockholders.

                  Section 5.3 Preferred Shares. The Board may classify any
unissued Preferred Shares and reclassify any previously classified but unissued
Preferred Shares of any series from time to time, in one or more classes or
series of Shares; provided, however, that the voting rights per Share (other
than any publicly held Share) sold in a private offering shall not exceed the
voting rights which bear the same relationship to the voting rights of a
publicly held Share as the consideration paid to the Corporation for each
privately offered Share bears to the book value of each outstanding publicly
held Share.

                                      -12-



                  Section 5.4 Classified or Reclassified Shares. Prior to
issuance of classified or reclassified Shares of any class or series, the Board
by resolution shall: (a) designate that class or series to distinguish it from
all other classes and series of Shares; (b) specify the number of Shares to be
included in the class or series; (c) set or change, subject to the provisions of
Article VI and subject to the express terms of any class or series of Shares
outstanding at the time, the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption for each class or series;
and (d) cause the Corporation to file articles supplementary with the State
Department of Assessments and Taxation of Maryland ("SDAT"). Any of the terms of
any class or series of Shares set or changed pursuant to clause (c) of this
Section 5.4 may be made dependent upon facts or events ascertainable outside the
Charter (including determinations by the Board or other facts or events within
the control of the Corporation) and may vary among holders thereof, provided
that the manner in which such facts, events or variations shall operate upon the
terms of such class or series of Shares is clearly and expressly set forth in
the articles supplementary or other charter document.

                  Section 5.5 Dividends and Distributions. The Board of
Directors may from time to time authorize the Corporation to declare and pay to
Stockholders such dividends or Distributions, in cash or other assets of the
Corporation or in securities of the Corporation or from any other source as the
Board of Directors in its discretion shall determine. The Board of Directors
shall endeavor to authorize the Corporation to declare and pay such dividends
and Distributions as shall be necessary for the Corporation to qualify as a REIT
under the Code; provided, however, Stockholders shall have no right to any
dividend or Distribution unless and until authorized by the Board and declared
by the Corporation. The exercise of the powers and rights of the Board of
Directors pursuant to this Section 5.5 shall be subject to the provisions of any
class or series of Shares at the time outstanding. The receipt by any Person in
whose name any Shares are registered on the records of the Corporation or by his
or her duly authorized agent shall be a sufficient discharge for all dividends
or Distributions payable or deliverable in respect of such Shares and from all
liability to see to the application thereof. Distributions in kind shall not be
permitted, except for distributions of readily marketable securities,
distributions of beneficial interests in a liquidating trust established for the
dissolution of the Corporation and the liquidation of its assets in accordance
with the terms of the Charter or distributions in which (i) the Board advises
each Stockholder of the risks associated with direct ownership of the property,
(ii) the Board offers each Stockholder the election of receiving such in-kind
distributions, and (iii) in-kind distributions are made only to those
Stockholders that accept such offer.

                  Section 5.6 Charter and Bylaws.  The rights of all
Stockholders and the terms of all Shares are subject to the provisions of the
Charter and the Bylaws.

                  Section 5.7 No Issuance of Share Certificates. Until Listing,
the Corporation shall not issue share certificates. A Stockholder's investment
shall be recorded on the books of the Corporation. To transfer his or her
Shares, a Stockholder shall submit an executed form to the Corporation, which
form shall be provided by the Corporation upon request. Such transfer will also
be recorded on the books of the Corporation. Upon issuance or transfer of
Shares, the Corporation will provide the Stockholder with information concerning
his or her rights with regard to such Shares, as required by the Bylaws and the
MGCL or other applicable law.

                  Section 5.8 Suitability of Stockholders.  Until Listing, the
following provisions shall apply:

                           Section 5.8.1 Investor Suitability Standards. Subject
to suitability standards established by individual states, to become a
Stockholder in the Corporation, if such prospective Stockholder is an individual
(including an individual beneficiary of a purchasing Individual Retirement

                                      -13-



Account), or if the prospective Stockholder is a fiduciary (such as a trustee of
a trust or corporate pension or profit sharing plan, or other tax-exempt
organization, or a custodian under a Uniform Gifts to Minors Act), such
individual or fiduciary, as the case may be, must represent to the Corporation,
among other requirements as the Corporation may require from time to time:

                                    (a)     that such individual (or, in the
case of a fiduciary, that the fiduciary account or the donor who directly or
indirectly supplies the funds to purchase the Shares) has a minimum annual gross
income of $45,000 and a net worth (excluding home, furnishings and automobiles)
of not less than $45,000; or

                                    (b)     that such individual (or, in the
case of a fiduciary, that the fiduciary account or the donor who directly or
indirectly supplies the funds to purchase the Shares) has a net worth (excluding
home, furnishings and automobiles) of not less than $150,000.

                           Section 5.8.2 Determination of Suitability of Sale.
Each Person selling Shares on behalf of the Corporation shall make every
reasonable effort to determine that the purchase of Shares by Stockholders is a
suitable and appropriate investment for such Stockholder. In making this
determination, each Person selling Shares on behalf of the Corporation shall
ascertain that the prospective Stockholder: (a) meets the minimum income and net
worth standards established for the Corporation; (b) can reasonably benefit from
the Corporation based on the prospective Stockholder's overall investment
objectives and portfolio structure; (c) is able to bear the economic risk of the
investment based on the prospective Stockholder's overall financial situation;
and (d) has apparent understanding of (1) the fundamental risks of the
investment; (2) the risk that the Stockholder may lose the entire investment;
(3) the lack of liquidity of the Shares; (4) the restrictions on transferability
of the Shares; and (5) the tax consequences of the investment.

                  Each Person selling Shares on behalf of the Corporation shall
make this determination on the basis of information it has obtained from a
prospective Stockholder. Relevant information for this purpose will include at
least the age, investment objectives, investment experiences, income, net worth,
financial situation, and other investments of the prospective Stockholder, as
well as any other pertinent factors.

                  Each Person selling Shares on behalf of the Corporation shall
maintain records of the information used to determine that an investment in
Shares is suitable and appropriate for a Stockholder. Each Person selling Shares
on behalf of the Corporation shall maintain these records for at least six
years.

                  Section 5.9 Repurchase of Shares. The Board may establish,
from time to time, a program or programs by which the Corporation voluntarily
repurchases Shares from its Stockholders; provided, however, that such
repurchase does not impair the capital or operations of the Corporation. The
Sponsor, Advisor, members of the Board or any Affiliates thereof may not receive
any fees arising out of the repurchase of Shares by the Corporation.

                  Section 5.10 Distribution Reinvestment Plans. The Board may
establish, from time to time, a Distribution reinvestment plan or plans (each, a
"Reinvestment Plan"). Under any such Reinvestment Plan, (i) all material
information regarding Distributions to the Stockholders and the effect of
reinvesting such Distributions, including the tax consequences thereof, shall be
provided to the Stockholders not less often than annually, and (ii) each
Stockholder participating in such Reinvestment Plan shall have a reasonable
opportunity to withdraw from the Reinvestment Plan not less often than annually
after receipt of the information required in clause (i) above.

                                      -14-



                                   ARTICLE VI

                 RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES

                  Section 6.1  Shares.

                           Section 6.1.1  Ownership Limitations.  During the
period commencing on the Initial Date and prior to the Restriction Termination
Date, but subject to Section 6.3:

                                    (a)     Basic Restrictions.

                                            (i)  (1) No Person, other than an
Excepted Holder, shall Beneficially Own or Constructively Own Shares in excess
of the Aggregate Share Ownership Limit, (2) no Person, other than an Excepted
Holder, shall Beneficially Own or Constructively Own Common Shares in excess of
the Common Share Ownership Limit and (3) no Excepted Holder shall Beneficially
Own or Constructively Own Shares in excess of the Excepted Holder Limit for such
Excepted Holder.

                                            (ii)     No Person shall
Beneficially or Constructively Own Shares to the extent that such Beneficial or
Constructive Ownership of Shares would result in the Corporation being "closely
held" within the meaning of Section 856(h) of the Code (without regard to
whether the ownership interest is held during the last half of a taxable year),
or otherwise failing to qualify as a REIT (including, but not limited to,
Beneficial or Constructive Ownership that would result in the Corporation owning
(actually or Constructively) an interest in a tenant that is described in
Section 856(d)(2)(B) of the Code if the income derived by the Corporation from
such tenant would cause the Corporation to fail to satisfy any of the gross
income requirements of Section 856(c) of the Code).

                                            (iii) Any Transfer of Shares that,
if effective, would result in Shares being beneficially owned by less than 100
Persons (determined under the principles of Section 856(a)(5) of the Code) shall
be void ab initio, and the intended transferee shall acquire no rights in such
Shares.

                                    (b)     Transfer in Trust.  If any Transfer
of Shares occurs which, if effective, would result in any Person Beneficially
Owning or Constructively Owning Shares in violation of Section 6.1.1(a)(i) or
(ii),

                                            (i)      then that number of Shares
the Beneficial or Constructive Ownership of which otherwise would cause such
Person to violate Section 6.1.1(a)(i) or (ii) (rounded up to the nearest whole
share) shall be automatically transferred to a Charitable Trust for the benefit
of a Charitable Beneficiary, as described in Section 6.2, effective as of the
close of business on the Business Day prior to the date of such Transfer, and
such Person shall acquire no rights in such Shares; or

                                            (ii)     if the transfer to the
Charitable Trust described in clause (i) of this sentence would not be effective
for any reason to prevent the violation of Section 6.1.1(a)(i) or (ii), then the
Transfer of that number of Shares that otherwise would cause any Person to
violate Section 6.1.1(a)(i) or (ii) shall be void ab initio, and the intended
transferee shall acquire no rights in such Shares.

                           Section 6.1.2  Remedies for Breach.  If the Board of
Directors or its designee (including any duly authorized committee of the Board)
shall at any time determine in good faith that a Transfer or other event has
taken place that results in a violation of Section 6.1.1 or that a Person
intends to acquire or has attempted to acquire Beneficial or Constructive
Ownership of any Shares in violation of Section 6.1.1 (whether or not such
violation is intended), the Board of Directors or its designee shall take such
action as it deems advisable to refuse to give effect to or to prevent such
Transfer or other event,

                                      -15-



including, without limitation, causing the Corporation to redeem Shares,
refusing to give effect to such Transfer on the books of the Corporation or
instituting proceedings to enjoin such Transfer or other event; provided,
however, that any Transfers or attempted Transfers or other events in violation
of Section 6.1.1 shall automatically result in the transfer to the Charitable
Trust described above, and, where applicable, such Transfer (or other event)
shall be void ab initio as provided above irrespective of any action (or
non-action) by the Board of Directors or its designee.

                           Section 6.1.3  Notice of Restricted Transfer.
Any Person who acquires or attempts or intends to acquire Beneficial Ownership
or Constructive Ownership of Shares that will or may violate Section 6.1.1(a),
or any Person who would have owned Shares that resulted in a transfer to the
Charitable Trust pursuant to the provisions of Section 6.1.1(b), shall
immediately give written notice to the Corporation of such event, or in the case
of such a proposed or attempted transaction, give at least 15 days prior written
notice, and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such
Transfer on the Corporation's status as a REIT.

                           Section 6.1.4  Owners Required To Provide
Information. From the Initial Date and prior to the Restriction Termination
Date:

                                    (a)     every owner of more than five
percent (or such lower percentage as required by the Code or the Treasury
Regulations promulgated thereunder) of the outstanding Shares, within 30 days
after the end of each taxable year, shall give written notice to the Corporation
stating the name and address of such owner, the number of Shares and other
Shares Beneficially Owned and a description of the manner in which such Shares
are held. Each such owner shall provide to the Corporation such additional
information as the Corporation may request in order to determine the effect, if
any, of such Beneficial Ownership on the Corporation's status as a REIT and to
ensure compliance with the Aggregate Share Ownership Limit, the Common Share
Ownership Limit and the other restrictions set forth herein; and

                                    (b)     each Person who is a Beneficial or
Constructive Owner of Shares and each Person (including the stockholder of
record) who is holding Shares for a Beneficial or Constructive Owner shall
provide to the Corporation such information as the Corporation may request, in
good faith, in order to determine the Corporation's status as a REIT and to
comply with requirements of any taxing authority or governmental authority or to
determine such compliance.

                           Section 6.1.5  Remedies Not Limited.  Subject to
Section 7.10 hereof, nothing contained in this Section 6.1 shall limit the
authority of the Board of Directors to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders in preserving the Corporation's status as a REIT.

                           Section 6.1.6  Ambiguity.  In the case of an
ambiguity in the application of any of the provisions of this Section 6.1,
Section 6.2 or any definition contained in Article IV, the Board of Directors
shall have the power to determine the application of the provisions of this
Section 6.1 or Section 6.2 with respect to any situation based on the facts
known to it. In the event Section 6.1 or 6.2 requires an action by the Board of
Directors and the Charter fails to provide specific guidance with respect to
such action, the Board of Directors shall have the power to determine the action
to be taken so long as such action is not contrary to the provisions of Article
IV or Sections 6.1 or 6.2. Absent a decision to the contrary by the Board of
Directors (which the Board may make in its sole and absolute discretion), if a
Person would have (but for the remedies set forth in Section 6.1.2) acquired
Beneficial or Constructive Ownership of Shares in violation of Section 6.1.1,
such remedies (as applicable) shall apply first to the Shares which, but for
such remedies, would have been Beneficially Owned or Constructively Owned (but
not actually owned) by such Person, pro rata among the Persons who actually own
such Shares based upon the relative number of the Shares held by each such
Person.

                                      -16-



                           Section 6.1.7  Exceptions.

                                    (a)     Subject to Section 6.1.1(a)(ii), the
Board of Directors, in its sole discretion, may exempt (prospectively or
retroactively) a Person from the Aggregate Share Ownership Limit and the Common
Share Ownership Limit, as the case may be, and may establish or increase an
Excepted Holder Limit for such Person if:

                                            (i)      the Board of Directors
obtains such representations and undertakings from such Person as are reasonably
necessary to ascertain that no individual's Beneficial or Constructive Ownership
of such Shares will violate Section 6.1.1(a)(ii);

                                            (ii)     such Person does not and
represents that it will not own, actually or Constructively, an interest in a
tenant of the Corporation (or a tenant of any entity owned or controlled by the
Corporation) that would cause the Corporation to own, actually or
Constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B)
of the Code) in such tenant and the Board of Directors obtains such
representations and undertakings from such Person as are reasonably necessary to
ascertain this fact (for this purpose, a tenant from whom the Corporation (or an
entity owned or controlled by the Corporation) derives (and is expected to
continue to derive) a sufficiently small amount of revenue such that, in the
opinion of the Board of Directors, rent from such tenant would not adversely
affect the Corporation's ability to qualify as a REIT, shall not be treated as a
tenant of the Corporation); and

                                            (iii) such Person agrees that any
violation or attempted violation of such representations or undertakings (or
other action which is contrary to the restrictions contained in Sections 6.1.1
through 6.1.6) will result in such Shares being automatically transferred to a
Charitable Trust in accordance with Sections 6.1.1(b) and 6.2.

                                    (b)     Prior to granting any exception
pursuant to Section 6.1.7(a), the Board of Directors may require a ruling from
the Internal Revenue Service, or an opinion of counsel, in either case in form
and substance satisfactory to the Board of Directors in its sole discretion, as
it may deem necessary or advisable in order to determine or ensure the
Corporation's status as a REIT. Notwithstanding the receipt of any ruling or
opinion, the Board of Directors may impose such conditions or restrictions as it
deems appropriate in connection with granting such exception.

                                    (c)     Subject to Section 6.1.1(a)(ii), an
underwriter which participates in a public offering or a private placement of
Shares (or securities convertible into or exchangeable for Shares) may
Beneficially Own or Constructively Own Shares (or securities convertible into or
exchangeable for Shares) in excess of the Aggregate Share Ownership Limit, the
Common Share Ownership Limit or both such limits, but only to the extent
necessary to facilitate such public offering or private placement.

                                    (d)     The Board of Directors may only
reduce the Excepted Holder Limit for an Excepted Holder: (1) with the written
consent of such Excepted Holder at any time, or (2) pursuant to the terms and
conditions of the agreements and undertakings entered into with such Excepted
Holder in connection with the establishment of the Excepted Holder Limit for
that Excepted Holder. No Excepted Holder Limit shall be reduced to a percentage
that is less than the Common Share Ownership Limit.

                                      -17-



                           Section 6.1.8  Increase in Aggregate Share Ownership
and Common Share Ownership Limits. Subject to Section 6.1.2(a)(ii), the Board of
Directors may from time to time increase the Common Share Ownership Limit and
the Aggregate Share Ownership Limit for one or more Persons and decrease the
Common Share Ownership Limit and the Aggregate Share Ownership Limit for all
other Persons; provided, however, that the decreased Common Share Ownership
Limit and/or Aggregate Share Ownership Limit will not be effective for any
Person whose percentage ownership in Shares is in excess of such decreased
Common Share Ownership Limit and/or Aggregate Share Ownership Limit until such
time as such Person's percentage of Share equals or falls below the decreased
Common Share Ownership Limit and/or Aggregate Share Ownership Limit, but any
further acquisition of Shares in excess of such percentage ownership of Shares
will be in violation of the Common Share Ownership Limit and/or Aggregate Share
Ownership Limit and, provided further, that the new Common Share Ownership Limit
and/or Aggregate Share Ownership Limit would not allow five or fewer Persons to
Beneficially Own more than 49.9% in value of the outstanding Shares.

                           Section 6.1.9  Legend.  Any certificate representing
Shares shall bear substantially the following legend:

                  The Shares represented by this certificate are subject to
                  restrictions on Beneficial and Constructive Ownership and
                  Transfer for the purpose, among others, of the Corporation's
                  maintenance of its status as a Real Estate Investment Trust (a
                  "REIT") under the Internal Revenue Code of 1986, as amended
                  (the "Code"), and for certain other purposes under the Code
                  and the Employee Retirement Income Security Act of 1974, as
                  amended ("ERISA"). Subject to certain further restrictions and
                  except as expressly provided in the Corporation's Charter, (i)
                  no Person may Beneficially or Constructively Own Common Shares
                  of the Corporation in excess of 9.8% (in value or number of
                  Shares) of the outstanding Common Shares of the Corporation
                  unless such Person is an Excepted Holder (in which case the
                  Excepted Holder Limit shall be applicable); (ii) no Person may
                  Beneficially or Constructively Own Shares of the Corporation
                  in excess of 9.8% of the value of the total outstanding Shares
                  of the Corporation, unless such Person is an Excepted Holder
                  (in which case the Excepted Holder Limit shall be applicable);
                  (iii) no Person may Beneficially or Constructively Own Shares
                  that would result in the Corporation being "closely held"
                  under Section 856(h) of the Code or otherwise cause the
                  Corporation to fail to qualify as a REIT; (iv) no Person may
                  Transfer Shares if such Transfer would result in Shares of the
                  Corporation being owned by fewer than 100 Persons; and (v)
                  Beneficially Own Shares of the Corporation that would result
                  in 25% or more of any class of Shares of the Corporation being
                  Beneficially Owned by one or more ERISA Investors. Any Person
                  who Beneficially or Constructively Owns or attempts to
                  Beneficially or Constructively Own Shares which cause or will
                  cause a Person to Beneficially or Constructively Own Shares in
                  excess or in violation of the above limitations must
                  immediately notify the Corporation. If any of the restrictions
                  on transfer or ownership are violated, the Shares represented
                  hereby will be automatically transferred to a Charitable Trust
                  for the benefit of one or more Charitable Beneficiaries. In
                  addition, the Corporation may redeem Shares upon the terms and
                  conditions specified by the Board of Directors in its sole
                  discretion if the Board of Directors determines that ownership
                  or a Transfer or other event may violate the

                                      -18-



                  restrictions described above. Furthermore, upon the occurrence
                  of certain events, attempted Transfers in violation of the
                  restrictions described above may be void ab initio. All
                  capitalized terms in this legend have the meanings defined in
                  the Corporation's Charter, as the same may be amended from
                  time to time, a copy of which, including the restrictions on
                  transfer and ownership, will be furnished to each holder of
                  Shares of the Corporation on request and without charge.
                  Requests for such a copy may be directed to the Secretary of
                  the Corporation at its principal office.

                           Instead of the foregoing legend, the certificate may
state that the Corporation will furnish a full statement about certain
restrictions on transferability to a stockholder on request and without charge.
In the case of uncertificated Shares, the Corporation will send the holder of
such Shares a written statement of the information otherwise required on
certificates upon request.

                  Section 6.2  Transfer of Shares in Trust.

                           Section 6.2.1  Ownership in Trust.  Upon any
purported Transfer or other event described in Section 6.1.1(b) that would
result in a transfer of Shares to a Charitable Trust, such Shares shall be
deemed to have been transferred to the Charitable Trustee as trustee of a
Charitable Trust for the exclusive benefit of one or more Charitable
Beneficiaries. Such transfer to the Charitable Trustee shall be deemed to be
effective as of the close of business on the Business Day prior to the purported
Transfer or other event that results in the transfer to the Charitable Trust
pursuant to Section 6.1.1(b). The Charitable Trustee shall be appointed by the
Corporation and shall be a Person unaffiliated with the Corporation and any
Prohibited Owner. Each Charitable Beneficiary shall be designated by the
Corporation as provided in Section 6.2.6.

                           Section 6.2.2  Status of Shares Held by the
Charitable Trustee. Shares held by the Charitable Trustee shall continue to be
issued and outstanding Shares of the Corporation. The Prohibited Owner shall
have no rights in the Shares held by the Charitable Trustee. The Prohibited
Owner shall not benefit economically from ownership of any Shares held in trust
by the Charitable Trustee, shall have no rights to dividends or other
Distributions and shall not possess any rights to vote or other rights
attributable to the Shares held in the Charitable Trust.

                           Section 6.2.3  Dividend and Voting Rights.  The
Charitable Trustee shall have all voting rights and rights to dividends or other
Distributions with respect to Shares held in the Charitable Trust, which rights
shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or other Distribution paid prior to the discovery by the Corporation
that Shares have been transferred to the Charitable Trustee shall be paid with
respect to such Shares to the Charitable Trustee upon demand and any dividend or
other Distribution authorized but unpaid shall be paid when due to the
Charitable Trustee. Any dividends or Distributions so paid over to the
Charitable Trustee shall be held in trust for the Charitable Beneficiary. The
Prohibited Owner shall have no voting rights with respect to Shares held in the
Charitable Trust and, subject to Maryland law, effective as of the date that
Shares have been transferred to the Charitable Trustee, the Charitable Trustee
shall have the authority (at the Charitable Trustee's sole discretion) (i) to
rescind as void any vote cast by a Prohibited Owner prior to the discovery by
the Corporation that Shares have been transferred to the Charitable Trustee and
(ii) to recast such vote in accordance with the desires of the Charitable
Trustee acting for the benefit of the Charitable Beneficiary; provided, however,
that if the Corporation has already taken irreversible corporate action, then
the Charitable Trustee shall not have the authority to rescind and recast such
vote. Notwithstanding the provisions of this Article VI, until the Corporation
has received notification that Shares have been transferred into a Charitable
Trust, the Corporation shall be entitled to rely on its share transfer and other
stockholder records for purposes of preparing lists of stockholders entitled to
vote at meetings, determining the validity and authority of proxies and
otherwise conducting votes of stockholders.

                                      -19-



                           Section 6.2.4  Sale of Shares by Charitable Trustee.
Within 20 days of receiving notice from the Corporation that Shares have been
transferred to the Charitable Trust, the Charitable Trustee shall sell the
Shares held in the Charitable Trust to a Person, designated by the Charitable
Trustee, whose ownership of the Shares will not violate the ownership
limitations set forth in Section 6.1.1(a). Upon such sale, the interest of the
Charitable Beneficiary in the Shares sold shall terminate and the Charitable
Trustee shall distribute the net proceeds of the sale to the Prohibited Owner
and to the Charitable Beneficiary as provided in this Section 6.2.4. The
Prohibited Owner shall receive the lesser of (1) the price paid by the
Prohibited Owner for the Shares or, if the Prohibited Owner did not give value
for the Shares in connection with the event causing the Shares to be held in the
Charitable Trust (e.g., in the case of a gift, devise or other such
transaction), the Market Price of the Shares on the day of the event causing the
Shares to be held in the Charitable Trust and (2) the price per share received
by the Charitable Trustee (net of any commissions and other expenses of sale)
from the sale or other disposition of the Shares held in the Charitable Trust.
The Charitable Trustee may reduce the amount payable to the Prohibited Owner by
the amount of dividends and Distributions which have been paid to the Prohibited
Owner and are owed by the Prohibited Owner to the Charitable Trustee pursuant to
Section 6.2.3 of this Article VI. Any net sales proceeds in excess of the amount
payable to the Prohibited Owner shall be immediately paid to the Charitable
Beneficiary. If, prior to the discovery by the Corporation that Shares have been
transferred to the Charitable Trustee, such Shares are sold by a Prohibited
Owner, then (i) such Shares shall be deemed to have been sold on behalf of the
Charitable Trust and (ii) to the extent that the Prohibited Owner received an
amount for such Shares that exceeds the amount that such Prohibited Owner was
entitled to receive pursuant to this Section 6.2.4, such excess shall be paid to
the Charitable Trustee upon demand.

                           Section 6.2.5  Purchase Right in Shares Transferred
to the Charitable Trustee. Shares transferred to the Charitable Trustee shall be
deemed to have been offered for sale to the Corporation, or its designee, at a
price per share equal to the lesser of (i) the price per share in the
transaction that resulted in such transfer to the Charitable Trust (or, in the
case of a devise or gift, the Market Price at the time of such devise or gift)
and (ii) the Market Price on the date the Corporation, or its designee, accepts
such offer. The Corporation may reduce the amount payable to the Prohibited
Owner by the amount of dividends and distributions which has been paid to the
Prohibited Owner and are owed by the Prohibited Owner to the Charitable Trustee
pursuant to Section 6.2.3 of this Article VI. The Corporation may pay the amount
of such reduction to the Charitable Trustee for the benefit of the Charitable
Beneficiary. The Corporation shall have the right to accept such offer until the
Charitable Trustee has sold the Shares held in the Charitable Trust pursuant to
Section 6.2.4. Upon such a sale to the Corporation, the interest of the
Charitable Beneficiary in the Shares sold shall terminate and the Charitable
Trustee shall distribute the net proceeds of the sale to the Prohibited Owner.

                           Section 6.2.6  Designation of Charitable
Beneficiaries. By written notice to the Charitable Trustee, the Corporation
shall designate one or more nonprofit organizations to be the Charitable
Beneficiary of the interest in the Charitable Trust such that (i) Shares held in
the Charitable Trust would not violate the restrictions set forth in Section
6.1.1(a) in the hands of such Charitable Beneficiary and (ii) each such
organization must be described in Section 501(c)(3) of the Code and
contributions to each such organization must be eligible for deduction under
each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

                  Section 6.3. Restrictions on Ownership and Transfer of Shares
by Benefit Plans.

                                      -20-



                           Section 6.3.1. Ownership Limitations.
Notwithstanding any other provisions in the Charter, if and to the extent that
any class or series of Shares do not constitute "publicly offered securities"
(as defined in Section 2510.3-101 of the Department of Labor regulations, or any
successor regulation thereto), then Benefit Plan Investors may not, on any date,
hold, individually or in the aggregate, 25% or more of the value of such class
or series of Shares. For purposes of determining whether Benefit Plan Investors
hold, individually or in the aggregate, 25% or more of the value of such class
or series of Shares, the value of Shares of such class held by any director or
officer of the Corporation, or any other Person who has discretionary authority
or control with respect to the assets of the Corporation, or the Advisor or its
affiliates, as defined in the Plan Asset Regulations, shall be disregarded.

                           Section 6.3.2. Remedies for Violations by Benefit
Plan Investors. If the Board or its designee (including any duly authorized
committee of the Board) shall at any time determine in good faith that (a) a
Transfer or other event has taken place that results in a violation of Section
6.3.1 or will otherwise result in the underlying assets and property of the
Corporation becoming assets of any ERISA Investor or (b) that a Person intends
to acquire or has attempted to acquire or hold Shares in a manner that will
result in a violation of Section 6.3.1 or will otherwise result in the
underlying assets and property of the Corporation becoming assets of any ERISA
Investor, the Board of directors or its designee shall take such action as it
deems advisable to mitigate, prevent or cure the consequences that might result
to the Corporation from such Transfer or other event, including, without
limitation, refusing to give effect to or preventing such Transfer or event
through redemption of such Shares or refusal to give effect to the Transfer or
event on the books of the Corporation or instituting proceedings to enjoin such
Transfer or other event.

                           Section 6.3.3. Information on Benefit Plan Status.
Any Person who acquires or attempts or intends to acquire or hold Shares shall
provide to the Corporation such information as the Corporation may request in
order to determine whether such acquisition or holding has resulted or will
result a in violation of Section 6.3.1 or otherwise has resulted or will result
in the underlying assets and property of the Corporation becoming assets of any
ERISA Investor, including the name and address of any Person for whom a nominee
holds Shares and whether the underlying assets of such Person include assets of
any Benefit Plan Investor.

                  Section 6.4 Settlement. Nothing in this Article VI shall
preclude the settlement of any transaction entered into through the facilities
of the NYSE or any other national securities exchange or automated inter-dealer
quotation system. The fact that the settlement of any transaction occurs shall
not negate the effect of any other provision of this Article VI and any
transferee in such a transaction shall be subject to all of the provisions and
limitations set forth in this Article VI.

                  Section 6.5 Enforcement. The Corporation is authorized
specifically to seek equitable relief, including injunctive relief, to enforce
the provisions of this Article VI.

                  Section 6.6 Non-Waiver. No delay or failure on the part of the
Corporation or the Board of Directors in exercising any right hereunder shall
operate as a waiver of any right of the Corporation or the Board of Directors,
as the case may be, except to the extent specifically waived in writing.

                                      -21-



                                   ARTICLE VII

                        PROVISIONS FOR DEFINING, LIMITING
                      AND REGULATING CERTAIN POWERS OF THE
                CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS

                  Section 7.1 Number of Directors. The business and affairs of
the Corporation shall be managed under the direction of the Board of Directors.
The number of Directors of the Corporation (the "Directors") shall be five,
which number may be increased or decreased from time to time pursuant to the
Bylaws; provided, however, that the total number of Directors shall not be fewer
than three nor more than 15. A majority of the Board will be Independent
Directors except for a period of up to 60 days after the death, removal or
resignation of an Independent Director pending the election of such Independent
Director's successor. The names of the Directors who shall serve until the first
annual meeting of stockholders and until their successors are duly elected and
qualify are:

                                 Scott D. Peters
                              W. Bradley Blair, II
                                Maurice J. DeWald
                                  Warren D. Fix
                                Gary T. Wescombe

These Directors may increase the number of Directors and fill any vacancy,
whether resulting from an increase in the number of Directors or otherwise, on
the Board of Directors prior to the first annual meeting of Stockholders in the
manner provided in the Bylaws.

                  The Corporation elects, at such time as it becomes eligible to
make the election provided for under Section 3-802(b) of the MGCL, that, except
as may be provided by the Board of Directors in setting the terms of any class
or series of Shares, any and all vacancies on the Board of Directors may be
filled only by the affirmative vote of a majority of the remaining Directors in
office, even if the remaining Directors do not constitute a quorum, and any
Director elected to fill a vacancy shall serve for the remainder of the full
term of the directorship in which such vacancy occurred. Notwithstanding the
foregoing sentence, Independent Directors shall nominate replacements for
vacancies among the Independent Directors' positions.

                  Section 7.2 Experience. Each Director shall have at least
three years of relevant experience demonstrating the knowledge and experience
required to successfully acquire and manage the type of assets being acquired by
the Corporation. At least one of the Independent Directors shall have three
years of relevant real estate experience.

                  Section 7.3 Committees. The Board may establish such
committees as it deems appropriate, in its discretion, provided that the
majority of the members of each committee are Independent Directors.

                  Section 7.4 Term. Except as may otherwise be provided in the
terms of any Preferred Shares issued by the Corporation, each Director shall
hold office for one year, until the next annual meeting of Stockholders and
until his or her successor is duly elected and qualifies. Directors may be
elected to an unlimited number of successive terms.

                  Section 7.5 Fiduciary Obligations. The Directors and the
Advisor serve in a fiduciary capacity to the Corporation and have a fiduciary
duty to the Stockholders of the Corporation, including, with respect to the
Directors, a specific fiduciary duty to supervise the relationship of the
Corporation with the Advisor.

                                      -22-



                  Section 7.6 Extraordinary Actions. Notwithstanding any
provision of law permitting or requiring any action to be taken or approved by
the affirmative vote of the holders of Shares entitled to cast a greater number
of votes, any such action shall be effective and valid if declared advisable by
the Board of Directors and taken or approved by the affirmative vote of holders
of Shares entitled to cast a majority of all the votes entitled to be cast on
the matter.

                  Section 7.7 Authorization by Board of Stock Issuance. The
Board of Directors may authorize the issuance from time to time of Shares of any
class or series, whether now or hereafter authorized, or securities or rights
convertible into Shares of any class or series, whether now or hereafter
authorized, for such consideration as the Board of Directors may deem advisable
(or without consideration in the case of a stock split or stock dividend),
subject to such restrictions or limitations, if any, as may be set forth in the
Charter or the Bylaws.

                  Section 7.8 Preemptive Rights and Appraisal Rights. Except as
may be provided by the Board of Directors in setting the terms of classified or
reclassified Shares pursuant to Section 5.4 or as may otherwise be provided by
contract approved by the Board of Directors, no holder of Shares shall, as such
holder, have any preemptive right to purchase or subscribe for any additional
Shares or any other security of the Corporation which it may issue or sell.
Holders of Shares shall not be entitled to exercise any rights of an objecting
stockholder provided for under Title 3, Subtitle 2 of the MGCL or any successor
statute unless the Board of Directors, upon the affirmative vote of a majority
of the Board of Directors, shall determine that such rights apply, with respect
to all or any classes or series of stock, to one or more transactions occurring
after the date of such determination in connection with which holders of such
Shares would otherwise be entitled to exercise such rights.

                  Section 7.9 Determinations by Board. The determination as to
any of the following matters, made in good faith by or pursuant to the direction
of the Board of Directors consistent with the Charter, shall be final and
conclusive and shall be binding upon the Corporation and every holder of Shares:
the amount of the net income of the Corporation for any period and the amount of
assets at any time legally available for the payment of dividends, redemption of
Shares or the payment of other Distributions on Shares; the amount of paid-in
surplus, net assets, other surplus, annual or other cash flow, funds from
operations, net profit, net assets in excess of capital, undivided profits or
excess of profits over losses on sales of assets; the amount, purpose, time of
creation, increase or decrease, alteration or cancellation of any reserves or
charges and the propriety thereof (whether or not any obligation or liability
for which such reserves or charges shall have been created shall have been paid
or discharged); any interpretation of the terms, preferences, conversion or
other rights, voting powers or rights, restrictions, limitations as to dividends
or Distributions, qualifications or terms or conditions of redemption of any
class or series of Shares; the fair value, or any sale, bid or asked price to be
applied in determining the fair value, of any asset owned or held by the
Corporation or any Shares; the number of Shares of any class of the Corporation;
any matter relating to the acquisition, holding and disposition of any assets by
the Corporation; or any other matter relating to the business and affairs of the
Corporation or required or permitted by applicable law, the Charter or Bylaws or
otherwise to be determined by the Board of Directors.

                  Section 7.10 REIT Qualification. If the Corporation elects to
qualify for federal income tax treatment as a REIT, the Board of Directors shall
use its reasonable best efforts to take such actions as are necessary or
appropriate to preserve the status of the Corporation as a REIT; provided,
however, if the Board of Directors determines that it is no longer in the best
interests of the Corporation to continue to be qualified as a REIT, the Board of
Directors may revoke or otherwise terminate the

                                      -23-


Corporation's REIT election pursuant to Section 856(g) of the Code. The Board of
Directors also may determine that compliance with any restriction or limitation
on stock ownership and transfers set forth in Article VII is no longer required
for REIT qualification. No Director, officer, employee or agent of the
Corporation shall be liable for any act or omission resulting in the loss of tax
benefits under the Code, except to the extent provided in Section 12.2 hereof.

                  Section 7.11 Removal of Directors. Subject to the rights of
holders of one or more classes or series of Preferred Shares to elect or remove
one or more Directors, any Director, or the entire Board of Directors, may be
removed from office at any time, but only by the affirmative vote of at least a
majority of the votes entitled to be cast generally in the election of
Directors.

                  Section 7.12. Ratification of the Third Articles of Amendment
and Restatement by the Independent Directors. These Third Articles of Amendment
and Restatement will be reviewed and ratified by a majority of the Independent
Directors at or before the first meeting of the Board of Directors consisting of
a majority of Independent Directors.

                                  ARTICLE VIII

                                     ADVISOR

                  Section 8.1 Appointment and Initial Investment of Advisor. The
Board is responsible for setting the general policies of the Corporation and for
the general supervision of its business conducted by officers, agents,
employees, advisors or independent contractors of the Corporation. However, the
Board is not required personally to conduct the business of the Corporation, and
it may (but need not) appoint, employ or contract with any Person (including a
Person Affiliated with any Director) as an Advisor and may grant or delegate
such authority to the Advisor as the Board may, in its sole discretion, deem
necessary or desirable. The term of retention of any Advisor shall not exceed
one year, although there is no limit to the number of times that a particular
Advisor may be retained. The Advisor or its Affiliates have made an Initial
Investment of (i) $2,000 in the Corporation and (ii) $200,000 in the Operating
Partnership. The Advisor or any such Affiliate may not sell this Initial
Investment while the Advisor remains a Sponsor but may transfer the initial
investment to other Affiliates. The Advisor has also been granted a subordinated
participation interest in the Operating Partnership in connection with its
capital contribution.

                  Section 8.2 Supervision of Advisor. The Board shall evaluate
the performance of the Advisor before entering into or renewing an Advisory
Agreement, and the criteria used in such evaluation shall be reflected in the
minutes of the meetings of the Board. The Board may exercise broad discretion in
allowing the Advisor to administer and regulate the operations of the
Corporation, to act as agent for the Corporation, to execute documents on behalf
of the Corporation and to make executive decisions that conform to general
policies and principles established by the Board. The Board shall monitor the
Advisor to assure that the administrative procedures, operations and programs of
the Corporation are in the best interests of the Stockholders and are fulfilled.
The Independent Directors are responsible for reviewing the fees and expenses of
the Corporation at least annually or with sufficient frequency to determine that
the expenses incurred are reasonable in light of the investment performance of
the Corporation, its Net Assets, its Net Income and the fees and expenses of
other comparable unaffiliated REITs. Each such determination shall be reflected
in the minutes of the meetings of the Board. The Independent Directors also will
be responsible for reviewing, from time to time and at least annually, the
performance of the Advisor and determining that compensation to be paid to the
Advisor is reasonable in relation to the nature and quality of services
performed and the investment performance of the Corporation and that the
provisions of the Advisory Agreement are being carried out. Specifically, the
Independent Directors will consider factors such as (i) the amount of the fee
paid to the Advisor in relation to the size, composition

                                      -24-



and performance of the Assets, (ii) the success of the Advisor in generating
opportunities that meet the investment objectives of the Corporation, (iii)
rates charged to other REITs and to investors other than REITs by advisors
performing the same or similar services, (iv) additional revenues realized by
the Advisor and its Affiliates through their relationship with the Corporation,
including loan administration, underwriting or broker commissions, servicing,
engineering, inspection and other fees, whether paid by the Corporation or by
others with whom the Corporation does business, (v) the quality and extent of
service and advice furnished by the Advisor, (vi) the performance of the Assets,
including income, conservation or appreciation of capital, frequency of problem
investments and competence in dealing with distress situations, and (vii) the
quality of the Assets relative to the investments generated by the Advisor for
its own account. The Independent Directors may also consider all other factors
that it deems relevant, and the findings of the Independent Directors on each of
the factors considered shall be recorded in the minutes of the Board. The Board
shall determine whether any successor Advisor possesses sufficient
qualifications to perform the advisory function for the Corporation and whether
the compensation provided for in its contract with the Corporation is justified.

                  Section 8.3 Fiduciary Obligations.  The Advisor shall have a
fiduciary responsibility and duty to the Corporation and to the Stockholders.

                  Section 8.4 Affiliation and Functions.  The Board, by
resolution or in the Bylaws, may provide guidelines, provisions or requirements
concerning the affiliation and functions of the Advisor.

                  Section 8.5 Termination. Either a majority of the Independent
Directors or the Advisor may terminate the Advisory Agreement on 60 days'
written notice without cause or penalty, and, in such event, the Advisor will
cooperate with the Corporation and the Board in making an orderly transition of
the advisory function.

                  Section 8.6 Disposition Fees on Sale of Property. Unless
otherwise provided in any resolution adopted by the Board of Directors, the
Corporation may pay the Advisor a disposition fee upon the Sale of one or more
Properties, in an amount equal to the lesser of (i) one-half of the Competitive
Real Estate Commission, or (ii) three percent of the contracted for sales price
of such Property or Properties. Payment of such fee may be made only if the
Advisor provides a substantial amount of services in connection with the Sale of
a Property or Properties, as determined by a majority of the Independent
Directors. In addition, the amount paid when added to all other real estate
commissions paid to unaffiliated parties in connection with such Sale shall not
exceed the lesser of the Competitive Real Estate Commission or an amount equal
to six percent of the contracted for sales price of such Property or Properties.

                  Section 8.7 Incentive Fees. Unless otherwise provided in any
resolution adopted by the Board of Directors, the Corporation may pay the
Advisor an interest in the gain from the Sale of Assets, for which full
consideration is not paid in cash or property of equivalent value, provided the
amount or percentage of such interest is reasonable. Such an interest in gain
from the Sale of Assets shall be considered presumptively reasonable if it does
not exceed 15% of the balance of such net proceeds remaining after payment to
Stockholders, in the aggregate, of an amount equal to 100% of the Invested
Capital, plus an amount equal to six percent of the Invested Capital per annum
cumulative. In the case of multiple Advisors, such Advisor and any of their
Affiliates shall be allowed such fees provided such fees are distributed by a
proportional method reasonably designed to reflect the value added to the
Corporation's assets by each respective Advisor or any Affiliate.

                                      -25-



                  Section 8.8 Organizational and Offering Expenses Limitation.
Unless otherwise provided in any resolution adopted by the Board of Directors,
the Corporation shall reimburse the Advisor and its Affiliates for
Organizational and Offering Expenses incurred by the Advisor or its Affiliates;
provided, however, that the total amount of all Organizational and Offering
Expenses shall be reasonable and shall in no event exceed 15% of the Gross
Proceeds of each Offering.

                  Section 8.9 Acquisition Fees. Unless otherwise provided in any
resolution adopted by the Board of Directors, the Corporation may pay the
Advisor and its Affiliates fees for the review and evaluation of potential
investments in Assets; provided, however, that the total of all Acquisition Fees
and Acquisition Expenses shall be reasonable, and shall not exceed an amount
equal to six percent of the Contract Purchase Price, or, in the case of a
Mortgage, six percent of the funds advanced; provided, further, that a majority
of the Directors (including a majority of the Independent Directors) not
otherwise interested in the transaction may approve fees and expenses in excess
of this limit if they determine the transaction to be commercially competitive,
fair and reasonable to the Corporation.

                  Section 8.10 Reimbursement for Total Operating Expenses.
Unless otherwise provided in any resolution adopted by the Board of Directors,
the Corporation may reimburse the Advisor, at the end of each fiscal quarter,
for Total Operating Expenses incurred by the Advisor; provided, however, that
the Corporation shall not reimburse the Advisor at the end of any fiscal quarter
for Total Operating Expenses that, in the four consecutive fiscal quarters then
ended, exceed the greater of two percent of Average Invested Assets or 25% of
Net Income (the "2%/25% Guidelines") for such year. The Independent Directors
shall have the responsibility of limiting Total Operating Expenses to amounts
that do not exceed the 2%/25% Guidelines unless they have made a finding that,
based on such unusual and non-recurring factors that they deem sufficient, a
higher level of expenses (an "Excess Amount") is justified. Within 60 days after
the end of any fiscal quarter of the Corporation for which there is an Excess
Amount which the Independent Directors conclude was justified and reimbursable
to the Advisor, there shall be sent to the Stockholders a written disclosure of
such fact, together with an explanation of the factors the Independent Directors
considered in determining that such Excess Amount was justified. Any such
finding and the reasons in support thereof shall be reflected in the minutes of
the meetings of the Board. In the event that the Independent Directors do not
determine that excess expenses are justified, the Advisor shall reimburse the
Corporation the amount by which the expenses exceeded the 2%/25% Guidelines.

                  Section 8.11 Reimbursement Limitation. The Corporation shall
not reimburse the Advisor or its Affiliates for services for which the Advisor
or its Affiliates are entitled to compensation in the form of a separate fee.

                                   ARTICLE IX

                       INVESTMENT POLICIES AND LIMITATIONS

                  Section 9.1 Review of Investment Policies. The Independent
Directors shall review the investment policies of the Corporation with
sufficient frequency (not less often than annually) to determine that the
policies being followed by the Corporation are in the best interests of its
Stockholders. Each such determination and the basis therefor shall be set forth
in the minutes of the meetings of the Board.

                  Section 9.2 Certain Permitted Investments. Until such time as
the Common Shares are Listed, the following investment limitations shall apply:

                           (a)      The Corporation may invest in Assets, as
defined in Article IV hereof.

                                      -26-



                           (b)      The Corporation may invest in Joint Ventures
with the Sponsor, Advisor, one or more Directors or any Affiliate, only if a
majority of Directors (including a majority of Independent Directors) not
otherwise interested in the transaction, approve such investment as being fair
and reasonable to the Corporation and on substantially the same terms and
conditions as those received by the other joint venturers.

                           (c)      Subject to any limitations in Section 9.3,
the Corporation may invest in equity securities only if a majority of Directors
(including a majority of Independent Directors) not otherwise interested in the
transaction approve such investment as being fair, competitive and commercially
reasonable.

                  Section 9.3 Investment Limitations. Until such time as the
Common Shares are Listed, the following investment limitations shall apply. In
addition to other investment restrictions imposed by the Board from time to
time, consistent with the Corporation's objective of qualifying as a REIT, the
following shall apply to the Corporation's investments:

                           (a)      Not more than ten percent of the
Corporation's total assets shall be invested in Unimproved Real Property or
mortgage loans on Unimproved Real Property.

                           (b)      The Corporation shall not invest in
commodities or commodity future contracts. This limitation is not intended to
apply to futures contracts, when used solely for hedging purposes in connection
with the Corporation's ordinary business of investing in real estate assets and
mortgages.

                           (c)      The Corporation shall not invest in or make
any Mortgage unless an appraisal is obtained concerning the underlying property
except for those loans insured or guaranteed by a government or government
agency. In cases in which a majority of Independent Directors so determine, and
in all cases in which the transaction is with the Advisor, Sponsor, Directors,
or any Affiliates thereof, such appraisal of the underlying property must be
obtained from an Independent Appraiser. Such appraisal shall be maintained in
the Corporation's records for at least five years and shall be available for
inspection and duplication by any Stockholder for a reasonable charge. In
addition to the appraisal, a mortgagee's or owner's title insurance policy or
commitment as to the priority of the mortgage or condition of the title must be
obtained.

                           (d)      The Corporation shall not make or invest in
any Mortgage, including a construction loan, on any one property if the
aggregate amount of all mortgage loans outstanding on the property, including
the loans of the Corporation, would exceed an amount equal to 85% of the
appraised value of the property as determined by appraisal unless substantial
justification exists because of the presence of other underwriting criteria. For
purposes of this subsection, the "aggregate amount of all mortgage loans
outstanding on the property, including the loans of the Corporation" shall
include all interest (excluding contingent participation in income and/or
appreciation in value of the mortgaged property), the current payment of which
may be deferred pursuant to the terms of such loans, to the extent that deferred
interest on each loan exceeds five percent per annum of the principal balance of
the loan.

                           (e)      The Corporation shall not invest in
indebtedness secured by a mortgage on real property which is subordinate to the
lien or other indebtedness of the Advisor, any Director, the Sponsor or any
Affiliate of the Corporation.

                           (f)      The Corporation shall not issue (A) equity
Securities redeemable solely at the option of the holder (except that
Stockholders may offer their Common Shares to the Corporation pursuant to any
repurchase plan adopted by the Board on terms outlined in the Prospectus
relating to any

                                      -27-



Offering, as such plan is thereafter amended in accordance with its terms); (B)
debt Securities unless the historical debt service coverage (in the most
recently completed fiscal year) as adjusted for known changes is sufficient to
properly service that higher level of debt; (C) equity Securities on a deferred
payment basis or under similar arrangements; or (D) options or warrants to the
Advisor, Directors, Sponsor or any Affiliate thereof except on the same terms as
such options or warrants are sold to the general public. Options or warrants may
be issued to Persons other than the Advisor, Directors, Sponsor or any Affiliate
thereof, but not at exercise prices less than the fair market value of the
underlying Securities on the date of grant and not for consideration (which may
include services) that in the judgment of the Independent Directors has a market
value less than the value of such option or warrant on the date of grant.
Options or warrants issuable to the Advisor, Directors, Sponsor or any Affiliate
thereof shall not exceed ten percent of the outstanding Shares on the date of
grant. The voting rights per Share (other than any publicly held Share) sold in
a private offering shall not exceed the voting rights which bear the same
relationship to the voting rights of a publicly held Share as the consideration
paid to the Corporation for each privately offered Share bears to the book value
of each outstanding publicly held Share.

                           (g)      A majority of the Directors or of the
members of a duly authorized committee of the Board of Directors shall authorize
the consideration to be paid for each Asset, ordinarily based on the fair market
value of the Asset. If a majority of the Independent Directors on the Board of
Directors or such duly authorized committee determine, or if the Asset is
acquired from the Advisor, a Director, the Sponsor or their Affiliates, such
fair market value shall be determined by a qualified Independent Appraiser
selected by such Independent Directors.

                           (h)      The aggregate Leverage shall be reasonable
in relation to the Net Assets and shall be reviewed by the Board at least
quarterly. The maximum amount of such Leverage in relation to Net Assets shall
not exceed 300%. Notwithstanding the foregoing, Leverage may exceed such limit
if any excess in borrowing over such level is approved by a majority of the
Independent Directors. Any such excess borrowing shall be disclosed to
Stockholders in the next quarterly report of the Corporation following such
borrowing, along with justification for such excess.

                           (i)      The Corporation will continually review its
investment activity to attempt to ensure that it is not classified as an
"investment company" under the Investment Company Act of 1940, as amended.

                           (j)      The Corporation will not make any investment
that the Corporation believes will be inconsistent with its objectives of
qualifying and remaining qualified as a REIT unless and until the Board
determines, in its sole discretion, that REIT qualification is not in the best
interests of the Corporation.

                           (k)      The Corporation shall not invest in real
estate contracts of sale unless such contracts of sale are in recordable form
and appropriately recorded in the chain of title.

                           (l)      The Corporation shall not engage in the
business of underwriting or the agency distribution of securities issued by
other Persons.

                                    ARTICLE X

                              CONFLICTS OF INTEREST

                  Section 10.1 Sales and Leases to Corporation. The Corporation
may purchase or lease an Asset or Assets from the Sponsor, the Advisor, a
Director or any Affiliate thereof upon a finding by a majority of Directors
(including a majority of Independent Directors) not otherwise interested in the

                                      -28-



transaction that such transaction is fair and reasonable to the Corporation and
at a price to the Corporation no greater than the cost of the Asset to such
Sponsor, Advisor, Director or Affiliate, or, if the price to the Corporation is
in excess of such cost, that substantial justification for such excess exists
and such excess is reasonable. In no event shall the purchase price of any
Property to the Corporation exceed its current appraised value.

                  Section 10.2 Sales and Leases to the Sponsor, Advisor,
Directors or Affiliates. An Advisor, Sponsor, Director or Affiliate thereof may
purchase or lease Assets from the Corporation if a majority of Directors
(including a majority of Independent Directors) not otherwise interested in the
transaction determine that the transaction is fair and reasonable to the
Corporation. In no event shall the purchase price of any Property purchased from
the Corporation by an Advisor, Sponsor, Director or Affiliate thereof be less
than its current appraised value.

                  Section 10.3 Other Transactions.

                           (a)      The Corporation shall not engage in any
other transaction with the Sponsor, the Advisor, a Director or any Affiliates
thereof unless a majority of the Directors (including a majority of the
Independent Directors) not otherwise interested in such transaction approve such
transaction as fair and reasonable to the Corporation and on terms and
conditions not less favorable to the Corporation than those available from
unaffiliated third parties.

                           (b)      The Corporation shall not make loans to the
Sponsor, the Advisor, a Director or any Affiliates thereof except Mortgages
pursuant to Section 9.3(c) hereof or loans to wholly owned subsidiaries of the
Corporation. The Sponsor, Advisor, Directors and any Affiliates thereof shall
not make loans to the Corporation, or to joint ventures in which the Corporation
is a co-venturer, unless approved by a majority of the Directors (including a
majority of the Independent Directors) not otherwise interested in such
transaction as fair, competitive, and commercially reasonable, and no less
favorable to the Corporation than comparable loans between unaffiliated parties.


                                   ARTICLE XI

                                  STOCKHOLDERS

                  Section 11.1 Meetings. There shall be an annual meeting of the
Stockholders, to be held on such date and at such time and place as shall be
determined by or in the manner prescribed in the Bylaws, at which the Directors
shall be elected and any other proper business may be conducted; provided that
such annual meeting will be held upon reasonable notice and within a reasonable
period (not less than 30 days) following delivery of the annual report. The
holders of a majority of Shares entitled to vote who are present in person or by
proxy at an annual meeting at which a quorum is present, may, without the
necessity for concurrence by the Board, vote to elect the Directors. A quorum
shall be 50% of the then outstanding Shares entitled to vote. Special meetings
of Stockholders may be called in the manner provided in the Bylaws, including by
the president or by a majority of the Directors or a majority of the Independent
Directors, and shall be called by an officer of the Corporation upon written
request of Stockholders holding in the aggregate not less than ten percent of
the outstanding Shares entitled to be voted on any issue proposed to be
considered at any such special meeting. Notice of any special meeting of
Stockholders shall be given as provided in the Bylaws, and the special meeting
shall be held not less than 15 days nor more than 60 days after the delivery of
such notice. If the meeting is called by written request of Stockholders as
described in this Section 11.1, the special meeting shall be held at the time
and place specified in the Stockholder request; provided, however, that if none
is so specified, at such time and place convenient to the Stockholders. If there
are no Directors, the officers of the

                                      -29-



Corporation shall promptly call a special meeting of the Stockholders entitled
to vote for the election of successor Directors. Any meeting may be adjourned
and reconvened as the Board may determine or as otherwise provided in the
Bylaws.

                  Section 11.2 Voting Rights of Stockholders. Subject to the
provisions of any class or series of Shares then outstanding and the mandatory
provisions of any applicable laws or regulations, the Stockholders shall be
entitled to vote only on the following matters: (a) election or removal of
Directors, without the necessity for concurrence by the Board, as provided in
Sections 11.1, 7.4 and 7.11 hereof; (b) amendment of the Charter as provided in
Article XIII hereof, without the necessity for the concurrence by the Board; (c)
liquidation or dissolution of the Corporation, without the necessity for the
concurrence by the Board; (d) merger or consolidation of the Corporation, or the
sale or other disposition of all or substantially all of the Corporation's
assets; and (e) such other matters with respect to which the Board of Directors
has adopted a resolution declaring that a proposed action is advisable and
directing that the matter be submitted to the Stockholders for approval or
ratification. Except with respect to the foregoing matters, no action taken by
the Stockholders at any meeting shall in any way bind the Board. Without the
approval of a majority of the Shares entitled to vote on the matter, the Board
may not (i) amend the Charter to materially and adversely affect the rights,
preferences and privileges of the Stockholders; (ii) amend provisions of the
Charter relating to director qualifications, fiduciary duties, liability and
indemnification, conflicts of interest, investment policies or investment
restrictions; (iii) liquidate or dissolve the Corporation other than before the
initial investment in property; (iv) sell all or substantially all of the
Corporation's assets other than in the ordinary course of business; or (v) cause
the merger or reorganization of the Corporation.

                  Section 11.3 Voting Limitations on Shares Held by the Advisor,
Directors and Affiliates. With respect to Shares owned by the Advisor, any
Director, or any of their Affiliates, neither the Advisor, nor such Director(s),
nor any of their Affiliates may vote or consent on matters submitted to the
Stockholders regarding the removal of the Advisor, such Director(s) or any of
their Affiliates or any transaction between the Corporation and any of them. In
determining the requisite percentage in interest of Shares necessary to approve
a matter on which the Advisor, such Director(s) and any of their Affiliates may
not vote or consent, any Shares owned by any of them shall not be included.

                  Section 11.4 Right of Inspection. Any Stockholder and any
designated representative thereof shall be permitted access to the records of
the Corporation to which it is entitled under applicable law at all reasonable
times, and may inspect and copy any of them for a reasonable charge. Inspection
of the Corporation's books and records by the office or agency administering the
securities laws of a jurisdiction shall be provided upon reasonable notice and
during normal business hours.

                  Section 11.5 Access to Stockholder List. An alphabetical list
of the names, addresses and telephone numbers of the Stockholders, along with
the number of Shares held by each of them (the "Stockholder List"), shall be
maintained as part of the books and records of the Corporation and shall be
available for inspection by any Stockholder or the Stockholder's designated
agent at the home office of the Corporation upon the request of the Stockholder.
The Stockholder List shall be updated at least quarterly to reflect changes in
the information contained therein. A copy of such list shall be mailed to any
Stockholder so requesting within ten days of receipt by the Corporation of the
request. The copy of the Stockholder List shall be printed in alphabetical
order, on white paper, and in a readily readable type size (in no event smaller
than ten-point type). The Corporation may impose a reasonable charge for
expenses incurred in reproduction pursuant to the Stockholder request. A
Stockholder may request a copy of the Stockholder List in connection with
matters relating to Stockholders' voting rights, and the exercise of Stockholder
rights under federal proxy laws.

                                      -30-




                  If the Advisor or the Board neglects or refuses to exhibit,
produce or mail a copy of the Stockholder List as requested, the Advisor and/or
the Board, as the case may be, shall be liable to any Stockholder requesting the
list for the costs, including reasonable attorneys' fees, incurred by that
Stockholder for compelling the production of the Stockholder List, and for
actual damages suffered by any Stockholder by reason of such refusal or neglect.
It shall be a defense that the actual purpose and reason for the requests for
inspection or for a copy of the Stockholder List is to secure such list of
Stockholders or other information for the purpose of selling such list or copies
thereof, or of using the same for a commercial purpose other than in the
interest of the applicant as a Stockholder relative to the affairs of the
Corporation. The Corporation may require the Stockholder requesting the
Stockholder List to represent that the list is not requested for a commercial
purpose unrelated to the Stockholder's interest in the Corporation. The remedies
provided hereunder to Stockholders requesting copies of the Stockholder List are
in addition, to and shall not in any way limit, other remedies available to
Stockholders under federal law, or the laws of any state.

                  Section 11.6 Reports. The Directors, including the Independent
Directors, shall take reasonable steps to insure that the Corporation shall
cause to be prepared and mailed or delivered to each Stockholder as of a record
date after the end of the fiscal year and each holder of other publicly held
Securities within 120 days after the end of the fiscal year to which it relates
an annual report for each fiscal year ending after the Commencement of the
Initial Public Offering that shall include: (i) financial statements prepared in
accordance with generally accepted accounting principles which are audited and
reported on by independent certified public accountants; (ii) the ratio of the
costs of raising capital during the period to the capital raised; (iii) the
aggregate amount of advisory fees and the aggregate amount of other fees paid to
the Advisor and any Affiliate of the Advisor by the Corporation and including
fees or charges paid to the Advisor and any Affiliate of the Advisor by third
parties doing business with the Corporation; (iv) the Total Operating Expenses
of the Corporation, stated as a percentage of Average Invested Assets and as a
percentage of its Net Income; (v) a report from the Independent Directors that
the policies being followed by the Corporation are in the best interests of its
Stockholders and the basis for such determination; and (vi) separately stated,
full disclosure of all material terms, factors and circumstances surrounding any
and all transactions involving the Corporation, Directors, Advisors, Sponsors
and any Affiliate thereof occurring in the year for which the annual report is
made, and the Independent Directors shall be specifically charged with a duty to
examine and comment in the report on the fairness of such transactions.

                                   ARTICLE XII

                    LIABILITY LIMITATION AND INDEMNIFICATION

                  Section 12.1 Limitation of Stockholder Liability. No
Stockholder shall be liable for any debt, claim, demand, judgment or obligation
of any kind of, against or with respect to the Corporation by reason of his
being a Stockholder, nor shall any Stockholder be subject to any personal
liability whatsoever, in tort, contract or otherwise, to any Person in
connection with the Corporation's assets or the affairs of the Corporation by
reason of his being a Stockholder.

                  Section 12.2 Limitation of Director and Officer Liability;
Indemnification.

                  (a) Subject to the conditions set forth under Maryland law or
in paragraph (c) or (d) below, no Director or officer of the Corporation shall
be liable to the Corporation or its Stockholders for money damages. Neither the
amendment nor repeal of this Section 12.2(a), nor the adoption or amendment of
any other provision of the Charter or Bylaws inconsistent with this Section
12.2(a), shall apply to or affect in any respect the applicability of the
preceding sentence with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.

                                      -31-



                  (b) Subject to the conditions set forth under Maryland law or
in paragraph (c) or (d) below, the Corporation shall indemnify and, without
requiring a preliminary determination of the ultimate entitlement to
indemnification, pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (i) any individual who is a present or former
Director or officer of the Corporation and who is made or threatened to be made
a party to the proceeding by reason of his or her service in that capacity, (ii)
any individual who, while a Director or officer of the Corporation and at the
request of the Corporation, serves or has served as a director, officer, partner
or trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made or
threatened to be made a party to the proceeding by reason of his or her service
in that capacity or (iii) the Advisor of any of its Affiliates acting as an
agent of the Corporation. The Corporation may, with the approval of the Board of
Directors or any duly authorized committee thereof, provide such indemnification
and advance for expenses to a Person who served a predecessor of the Corporation
in any of the capacities described in (i) or (ii) above and to any employee or
agent of the Corporation or a predecessor of the Corporation. The Board may take
such action as is necessary to carry out this Section 12.2(b). No amendment of
the Charter or repeal of any of its provisions shall limit or eliminate the
right of indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.

                  (c) Notwithstanding anything to the contrary contained in
paragraph (a) or (b) above, the Corporation shall not provide for
indemnification of a Director, the Advisor or any Affiliate of the Advisor (the
"Indemnitee") for any liability or loss suffered by any of them and the
Corporation shall not provide that an Indemnitee be held harmless for any loss
or liability suffered by the Corporation, unless all of the following conditions
are met:

                                    (i)     The Indemnitee has determined, in
good faith, that the course of conduct that caused the loss or liability was in
the best interests of the Corporation;

                                    (ii)    The Indemnitee was acting on behalf
of or performing services for the Corporation;

                                    (iii)   Such liability or loss was not the
result of (A) negligence or misconduct, in the case that the Indemnitee is a
Director (other than an Independent Director), the Advisor or an Affiliate of
the Advisor or (B) gross negligence or willful misconduct, in the case that the
Indemnitee is an Independent Director; and

                                    (iv)    Such indemnification or agreement to
hold harmless is recoverable only out of Net Assets and not from the
Stockholders.

                  (d) Notwithstanding anything to the contrary contained in
paragraph (a) or (b) above, the Corporation shall not provide indemnification
for any loss, liability or expense arising from or out of an alleged violation
of federal or state securities laws by such party unless one or more of the
following conditions are met: (i) there has been a successful adjudication on
the merits of each count involving alleged material securities law violations as
to the Indemnitee, (ii) such claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction as to the Indemnitee; or (iii) a
court of competent jurisdiction approves a settlement of the claims against the
Indemnitee and finds that indemnification of the settlement and the related
costs should be made, and the court considering the request for indemnification
has been advised of the position of the Securities and Exchange Commission and
of the published position of any state securities regulatory authority in which
Securities were offered or sold as to indemnification for violations of
securities laws.

                                      -32-



                  Section 12.3 Payment of Expenses. The Corporation shall pay or
reimburse reasonable legal expenses and other costs incurred by an Indemnitee in
advance of final disposition of a proceeding if all of the following are
satisfied: (i) the proceeding relates to acts or omissions with respect to the
performance of duties or services on behalf of the Corporation, (ii) the
Indemnitee provides the Corporation with written affirmation of the Indemnitee's
good faith belief that the Indemnitee has met the standard of conduct necessary
for indemnification by the Corporation as authorized by Section 12.2 hereof,
(iii) the legal proceeding was initiated by a third party who is not a
Stockholder or, if by a Stockholder of the Corporation acting in his or her
capacity as such, a court of competent jurisdiction approves such advancement,
and (iv) the Indemnitee provides the Corporation with a written agreement to
repay the amount paid or reimbursed by the Corporation, together with the
applicable legal rate of interest thereon, if it is ultimately determined that
the Indemnitee did not comply with the requisite standard of conduct and is not
entitled to indemnification. Any indemnification payment or reimbursement of
expenses will be furnished in accordance with the procedures in Section 2-418(e)
of the MGCL or any successor statute.

                  Section 12.4 Express Exculpatory Clauses in Instruments.
Neither the Stockholders nor the Directors, officers, employees or agents of the
Corporation shall be liable under any written instrument creating an obligation
of the Corporation by reason of their being Stockholders, Directors, officers,
employees or agents of the Corporation, and all Persons shall look solely to the
Corporation's assets for the payment of any claim under or for the performance
of that instrument. The omission of the foregoing exculpatory language from any
instrument shall not affect the validity or enforceability of such instrument
and shall not render any Stockholder, Director, officer, employee or agent
liable thereunder to any third party, nor shall the Directors or any officer,
employee or agent of the Corporation be liable to anyone as a result of such
omission.


                                  ARTICLE XIII

                                   AMENDMENTS

                  The Corporation reserves the right from time to time to make
any amendment to the Charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in the
Charter, of any Shares. All rights and powers conferred by the Charter on
Stockholders, Directors and officers are granted subject to this reservation.
Except for those amendments permitted to be made without Stockholder approval
under Maryland law or by specific provision in the Charter, any amendment to the
Charter shall be valid only if approved by the affirmative vote of a majority of
all votes entitled to be cast on the matter, including without limitation, (1)
any amendment which would adversely affect the rights, preferences and
privileges of the Stockholders and (2) any amendment to Sections 7.2, 7.5 and
7.11 of Article VII, Article IX, Article X, Article XII and Article XIV hereof
and this Article XIII (or any other amendment of the Charter that would have the
effect of amending such sections).

                                   ARTICLE XIV

                              ROLL-UP TRANSACTIONS

                  In connection with any proposed Roll-Up Transaction, an
appraisal of all of the Corporation's assets shall be obtained from a competent
Independent Appraiser. The Corporation's assets shall be appraised on a
consistent basis, and the appraisal shall be based on the evaluation of all
relevant information and shall indicate the value of the assets as of a date
immediately prior to the announcement of the proposed Roll-Up Transaction. The
appraisal shall assume an orderly liquidation of the assets over

                                      -33-



a twelve-month period. The terms of the engagement of the Independent Appraiser
shall clearly state that the engagement is for the benefit of the Corporation
and the Stockholders. A summary of the appraisal, indicating all material
assumptions underlying the appraisal, shall be included in a report to
Stockholders in connection with a proposed Roll-Up Transaction. In connection
with a proposed Roll-Up Transaction, the Person sponsoring the Roll-Up
Transaction shall offer to Stockholders who vote against the proposed Roll-Up
Transaction the choice of:

                           (a)      accepting the securities of a Roll-Up Entity
offered in the proposed Roll-Up Transaction; or

                           (b)      one of the following:

                                    (i) remaining as Stockholders and preserving
their interests therein on the same terms and conditions as existed previously;
or

                                    (ii) receiving cash in an amount equal to
the Stockholder's pro rata share of the appraised value of the net assets of the
Corporation.

                  The Corporation is prohibited from participating in any
proposed Roll-Up Transaction:

                           (a)      that would result in the Stockholders having
voting rights in a Roll-Up Entity that are less than the rights provided for in
Sections 11.1 and 11.2 hereof;

                           (b)      that includes provisions that would operate
as a material impediment to, or frustration of, the accumulation of Shares by
any purchaser of the securities of the Roll-Up Entity (except to the minimum
extent necessary to preserve the tax status of the Roll-Up Entity), or which
would limit the ability of an investor to exercise the voting rights of its
securities of the Roll-Up Entity on the basis of the number of Shares held by
that investor;

                           (c)      in which investor's rights to access of
records of the Roll-Up Entity will be less than those described in Sections 11.4
and 11.5 hereof; or

                           (d)      in which any of the costs of the Roll-Up
Transaction would be borne by the Corporation if the Roll-Up Transaction is not
approved by the Stockholders.

                  THIRD: The amendment to and restatement of the charter of the
Corporation as hereinabove set forth has been duly advised by the Board of
Directors and approved by the stockholders of the Corporation as required by
law.

                  FOURTH:  The current address of the principal office of the
Corporation is as set forth in Article III of the foregoing amendment and
restatement of the charter.

                  FIFTH:  The name and address of the Corporation's current
resident agent is as set forth in Article III of the foregoing amendment and
restatement of the charter.

                  SIXTH:  The number of directors of the Corporation and the
names of those currently in office are as set forth in Article VII of the
foregoing amendment and restatement of the charter.

                  SEVENTH: The total number of shares of stock which the
Corporation had authority to issue immediately prior to this amendment was
1,200,000,000, consisting of 1,000,000,000 shares of

                                      -34-



Common Stock, $0.01 par value per share, and 200,000,000 shares of Preferred
Stock, $0.01 par value per share. The aggregate par value of all shares of stock
having par value was $12,000,000.

                  EIGHTH: The total number of shares of stock which the
Corporation has authority to issue pursuant to the foregoing amendment and
restatement of the charter of the Corporation is 1,200,000,000, consisting of
1,000,000,000 shares of Common Stock, $0.01 par value per share, and 200,000,000
shares of Preferred Stock, $0.01 par value per share. The aggregate par value of
all authorized shares of stock having par value is $12,000,000.

                  NINTH: The undersigned Chief Executive Officer acknowledges
these Third Articles of Amendment and Restatement to be the corporate act of the
Corporation and as to all matters or facts required to be verified under oath,
the undersigned Chief Executive Officer acknowledges that to the best of his
knowledge, information and belief, these matters and facts are true in all
material respects and that this statement is made under the penalties for
perjury.


                                      -35-



                  IN WITNESS WHEREOF, the Corporation has caused these Third
Articles of Amendment and Restatement to be signed in its name and on its behalf
by its Chief Executive Officer and attested to by its Secretary on this 8th day
of December, 2006.

ATTEST:                                     NNN HEALTHCARE/OFFICE REIT, INC.


/s/ Andrea R. Biller                        /s/ Scott D. Peters
                                                                          (SEAL)
- -----------------------------------         ------------------------------
Name: Andrea R. Biller                      Name: Scott D. Peters
Title:  Secretary                           Title:  Chief Executive Officer

EX-21.1

Exhibit 21.1

Subsidiaries of NNN Healthcare/Office REIT, Inc.

NNN Healthcare/Office REIT Holdings, L.P. (Delaware)
NNN Southpointe, LLC
NNN Crawfordsville, LLC

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Scott D. Peters, certify that:

1. I have reviewed this Annual Report on Form 10-K of NNN Healthcare/Office REIT, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Scott D. Peters

Scott D. Peters

Chief Executive Officer

(principal executive officer)

Date: March 2, 2007

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Shannon K S Johnson, certify that:

1. I have reviewed this Annual Report on Form 10-K of NNN Healthcare/Office REIT, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Shannon K S Johnson

Shannon K S Johnson

Chief Financial Officer

(principal financial officer)

Date: March 2, 2007

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of NNN Healthcare/Office REIT, Inc., or the Company, hereby certifies, to his knowledge, that:

(i) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2006, or the Report, fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  Scott D. Peters

Scott D. Peters

Chief Executive Officer

(principal executive officer)

Date: March 2, 2007

The foregoing certification is being furnished with the Company’s Annual Report on Form 10-K for the period ended December 31, 2006, pursuant to 18 U.S.C. § 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general information language in such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of NNN Healthcare/Office REIT, Inc., or the Company, hereby certifies, to her knowledge, that:

(i) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2006, or the Report, fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  Shannon K S Johnson

Shannon K S Johnson

Chief Financial Officer

(principal financial officer)

Date: March 2, 2007

The foregoing certification is being furnished with the Company’s Annual Report on Form 10-K for the period ended December 31, 2006, pursuant to 18 U.S.C. § 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general information language in such filing.