UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

Commission File Number: 000-53650

Behringer Harvard Opportunity REIT II, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	20-8198863
(State or other jurisdiction of incorporation or	(I.R.S. Employer
organization)	Identification No.)

15601 Dallas Parkway, Suite 600, Addison, Texas 75001

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:  (866) 655-3600

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant:  (1) has filed all reports required to be filed by Section 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 x  No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

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

As of October 31, 2012, Behringer Harvard Opportunity REIT II, Inc. had 26,065,533 shares of common stock outstanding.

BEHRINGER HARVARD OPPORTUNITY REIT II, INC.

FORM 10-Q

Quarter Ended September 30, 2012

	PART I
	FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements (Unaudited).
	Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	3
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2012 and 2011	4
	Condensed Consolidated Statements of Equity for the Nine Months Ended September 30, 2012 and 2011	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
	PART II
	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosure	39
Item 5.	Other Information	39
Item 6.	Exhibits	40
Signature		41

2

PART I

FINANCIAL INFORMATION

Item 1.                   Financial Statements.

Behringer Harvard Opportunity REIT II, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except shares)

(unaudited)

	September 30,			December 31,
	2012			2011
Assets
Real estate
Land and improvements, net	$	73,440		$	86,962
Buildings and improvements, net	200,242			218,839
Real estate under development	443			105
Total real estate	274,125			305,906
Assets associated with real estate held for sale	42,970			29,420
Cash and cash equivalents	60,916			80,130
Restricted cash	5,948			5,616
Accounts receivable, net	2,637			1,704
Receivable from related party	3,350			3,485
Prepaid expenses and other assets	1,862			1,596
Furniture, fixtures and equipment, net	7,044			7,219
Deferred financing fees, net	3,511			4,533
Lease intangibles, net	5,838			8,387
Total assets	$	408,201		$	447,996
Liabilities and Equity
Notes payable	$	181,593		$	239,757
Accounts payable	2,732			3,718
Acquired below-market leases, net	1,068			1,271
Distributions payable	—			1,069
Accrued and other liabilities	8,641			5,140
Obligations associated with real estate held for sale	35,880			37
Total liabilities	229,914			250,992
Commitments and contingencies
Equity
Preferred stock, $.0001 par value per share; 50,000,000 shares authorized, none outstanding	—			—
Convertible stock, $.0001 par value per share; 1,000 shares authorized, 1,000 outstanding	—			—
Common stock, $.0001 par value per share; 350,000,000 shares authorized, 26,065,533 and 25,267,048 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively	3			3
Additional paid-in capital	233,324			225,968
Accumulated distributions and net loss	(63,682		)	(43,657		)
Accumulated other comprehensive income	(103		)	83
Total Behringer Harvard Opportunity REIT II, Inc. equity	169,542			182,397
Noncontrolling interest	8,745			14,607
Total equity	178,287			197,004
Total liabilities and equity	$	408,201		$	447,996

See Notes to Condensed Consolidated Financial Statements.

3

Behringer Harvard Opportunity REIT II, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share amounts)

(unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Revenues
Rental revenue	$	8,407		$	6,332		$	25,007		$	17,098
Hotel revenue	3,073			1,865			7,980			4,856
Interest income from real estate loan receivable	—			444			—			2,926
Total revenues	11,480			8,641			32,987			24,880
Expenses:
Property operating expenses	5,793			4,479			16,673			12,178
Interest expense	2,319			1,741			6,901			4,769
Real estate taxes	1,218			895			3,548			2,557
Property management fees	428			225			1,233			771
Asset management fees	808			780			2,444			2,140
General and administrative	850			613			2,241			1,667
Acquisition expense	10			331			739			1,786
Depreciation and amortization	3,455			3,066			11,185			8,564
Total expenses	14,881			12,130			44,964			34,432
Interest income, net	30			24			105			111
Other income	17			821			96			821
Loss from continuing operations before income taxes and equity in losses’ of unconsolidated joint ventures	(3,354		)	(2,644		)	(11,776		)	(8,620		)
Equity in earnings of unconsolidated joint ventures	—			2,989			—			2,681
Income (loss) from continuing operations	(3,354		)	345			(11,776		)	(5,939		)
Income (loss) from discontinued operations	(39		)	(65		)	7,759			(954		)
Net income (loss)	(3,393		)	280			(4,017		)	(6,893		)
Noncontrolling interest in continuing operations	275			376			978			1,158
Noncontrolling interest in discontinued operations	17			40			(729		)	193
Net (income) loss attributable to the noncontrolling interest	292			416			249			1,351
Net income (loss) attributable to the Company	$	(3,101	)	$	696		$	(3,768	)	$	(5,542	)
Amounts attributable to the Company
Continuing operations	$	(3,079	)	$	721		$	(10,798	)	$	(4,781	)
Discontinued operations	(22		)	(25		)	7,030			(761		)
Net income (loss) attributable to the Company	$	(3,101	)	$	696		$	(3,768	)	$	(5,542	)
Weighted average shares outstanding:
Basic and diluted	26,069			24,508			25,962			23,739
Net income (loss) per share
Continuing operations	$	(0.12	)	$	0.03		$	(0.42	)	$	(0.20	)
Discontinued operations	—			—			0.27			(0.03		)
Basic and diluted income (loss) per share	$	(0.12	)	$	0.03		$	(0.15	)	$	(0.23	)
Comprehensive income (loss):
Net income (loss)	$	(3,393	)	$	280		$	(4,017	)	$	(6,893	)
Other comprehensive income (loss):
Unrealized losses on interest rate derivatives	9			(104		)	8			(346		)
Foreign currency translation gain (loss)	161			(169		)	(193		)	87
Total other comprehensive loss	170			(273		)	(185		)	(259		)
Comprehensive income (loss)	(3,223		)	7			(4,202		)	(7,152		)
Comprehensive income (loss) attributable to noncontrolling interest	292			437			248			1,420
Comprehensive income (loss) attributable to the Company	$	(2,931	)	$	444		$	(3,954	)	$	(5,732	)

See Notes to Condensed Consolidated Financial Statements.

4

Behringer Harvard Opportunity REIT II, Inc.

Condensed Consolidated Statements of  Equity

(unaudited)

(in thousands)

														Accumulated
	Convertible Stock			Common Stock				Additional			Accumulated			Other
	Number	Par		Number		Par		Paid-in			Distributions and			Comprehensive			Noncontrolling			Total
	of Shares	Value		of Shares		Value		Capital			Net (Loss)			Income (loss)			Interest			Equity
Balance at Janauary 1, 2011	1	$	—	22,330		$	2	$	195,149		$	(23,883	)	$	410		$	10,533		$	182,211
Issuance of common stock, net				2,420		—		24,436												24,436
Redemption of common stock				(174	)			(1,573		)										(1,573		)
Distributions declared on common stock											(8,881		)							(8,881		)
Contributions from noncontrolling interest																	3,648			3,648
Distributions to noncontrolling interest																	(497		)	(497		)
Other comprehensive income (loss):
Unrealized losses on interest rate derivatives														(277		)	(69		)	(346		)
Foreign currency translation gain														87						87
Net loss											(5,542		)				(1,351		)	(6,893		)
Balance at September 30, 2011	1	$	—	24,576		$	2	$	218,012		$	(38,306	)	$	220		$	12,264		$	192,192
Balance at January 1, 2012	1	$	—	25,267		$	3	$	225,968		$	(43,657	)	$	83		$	14,607		$	197,004
Issuance of common stock, net				910		—		8,346												8,346
Redemption of common stock				(111	)			(990		)										(990		)
Distributions declared on common stock											(16,257		)							(16,257		)
Contributions from noncontrolling interest																	1,543			1,543
Distributions to noncontrolling interest																	(7,157		)	(7,157		)
Other comprehensive income (loss):
Unrealized gains on interest rate derivatives														7			1			8
Foreign currency translation loss														(193		)				(193		)
Net loss											(3,768		)				(249		)	(4,017		)
Balance at Septmeber 30, 2012	1	$	—	26,066		$	3	$	233,324		$	(63,682	)	$	(103	)	$	8,745		$	178,287

See Notes to Condensed Consolidated Financial Statements.

5

Behringer Harvard Opportunity REIT II, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine months ended September 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(4,017	)	$	(6,893	)
Adjustments to reconcile net income (loss) to net cash flows used in operating activities:
Depreciation and amortization	12,262			11,484
Amortization of deferred financing fees	800			1,008
Equity in losses of unconsolidated joint venture	—			(2,681		)
Gain on sale of discontinued operations	(9,264		)	—
Loss on early extinguishment of debt	1,236			—
Change in operating assets and liabilities:
Accounts receivable	(932		)	(301		)
Interest receivable-real estate loan receivable	—			2,227
Prepaid expenses and other assets	(261		)	(1,182		)
Accounts payable	1,024			(250		)
Accrued and other liabilities	3,428			2,007
Net receivables to related parties	104			(152		)
Addition of lease intangibles	(336		)	(556		)
Cash provided by operating activities	4,044			4,711
Cash flows from investing activities:
Purchases of real estate	(11,039		)	(37,381		)
Proceeds from sale of discontinued operations	38,684			—
Additions to property and equipment	(11,701		)	(8,975		)
Repayment of real estate loans receivable	—			25,000
Change in restricted cash	(332		)	4,861
Cash provided by (used in) investing activities	15,612			(16,495		)
Cash flows from financing activities:
Financing costs	(1,015		)	(728		)
Proceeds from notes payable	7,401			30,626
Payments on notes payable	(29,761		)	(1,212		)
Issuance of common stock	6,142			17,934
Redemptions of common stock	(990		)	(1,573		)
Offering costs	(553		)	(1,647		)
Distributions	(14,536		)	(2,899		)
Contributions from noncontrolling interest holders	1,543			3,648
Distributions to noncontrolling interest holders	(7,157		)	(497		)
Cash provided by (used in) financing activities	(38,926		)	43,652
Effect of exchange rate changes on cash and cash equivalents	56			77
Net change in cash and cash equivalents	(19,214		)	31,945
Cash and cash equivalents at beginning of period	80,130			49,375
Cash and cash equivalents at end of period	$	60,916		$	81,320

See Notes to Condensed Consolidated Financial Statements.

6

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.             Business and Organization

Business

Behringer Harvard Opportunity REIT II, Inc. (which may be referred to as the “Company,” “we,” “us,” or “our”) was organized as a Maryland corporation on January 9, 2007 and has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes.

We acquire and operate commercial real estate and real estate-related assets.  In particular, we focus generally on acquiring commercial properties with significant possibilities for short-term capital appreciation, such as those requiring development, redevelopment, or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who are distressed or face time-sensitive deadlines.  In addition, our opportunistic investment strategy also includes investments in real estate-related assets that present opportunities for higher current income.  Such investments may have capital gain characteristics, whether as a result of a discount purchase or related equity participations.  We may acquire a wide variety of commercial properties, including office, industrial, retail, hospitality, recreation and leisure, single-tenant, multifamily, and other real properties.  These properties may be existing, income-producing properties, newly constructed properties, or properties under development or construction.  They may include multifamily properties purchased for conversion into condominiums and single-tenant properties that may be converted for multi-tenant use.  We may invest in real estate-related securities, including securities issued by other real estate companies, either for investment or in change of control transactions completed on a negotiated basis or otherwise.  Further, we also may originate or invest in collateralized mortgage-backed securities and mortgage, bridge or mezzanine loans, or in entities that make investments similar to the foregoing.  We expect to make our investments in or in respect of real estate assets located in the United States and other countries based on our view of existing market conditions.  We completed our first property acquisition, an office building located in Denver, Colorado, on October 28, 2008.  As of September 30, 2012, we had 11 real estate investments, all of which were consolidated into our condensed consolidated financial statements (including Parrot’s Landing classified as held for sale).

Substantially all of our business is conducted through Behringer Harvard Opportunity OP II LP, a limited partnership organized in Delaware on January 12, 2007 (“Behringer Harvard Opportunity OP II”).  As of September 30, 2012, our wholly-owned subsidiary, BHO II, Inc., a Delaware corporation, was the sole general partner of Behringer Harvard Opportunity OP II and owned a 0.1% partnership interest in Behringer Harvard Opportunity OP II.  As of September 30, 2012, our wholly-owned subsidiary, BHO Business Trust II, a Maryland business trust, was the sole limited partner of Behringer Harvard Opportunity OP II and owned the remaining 99.9% interest in Behringer Harvard Opportunity OP II.

We are externally managed and advised by Behringer Harvard Opportunity Advisors II, LLC, a Texas limited liability company that was formed on March 16, 2010 (the “Advisor”) when Behringer Harvard Opportunity Advisors II LP, a Texas limited partnership formed in January 2007, was converted to a limited liability company.  The Advisor is responsible for managing our day-to-day affairs and for identifying and making acquisitions and investments on our behalf.

Organization

On February 26, 2007, we filed a Registration Statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer up to 125,000,000 shares of common stock for sale to the public (the “Initial Offering”), of which 25,000,000 shares were being offered pursuant to our distribution reinvestment plan (the “DRP”).  On July 3, 2011, the Initial Offering terminated in accordance with its terms.

Prior to termination of the Initial Offering, on September 13, 2010, we filed a second Registration Statement on Form S-11 with the SEC to register a follow-on public offering of up to 75,000,000 shares of our common stock for sale to the public (the “Follow-On Offering” and, together with the Initial Offering, the “Offerings”), of which 25,000,000 shares were being offered pursuant to the DRP.  We terminated the primary portion of the Follow-On Offering effective March 15, 2012 and the DRP portion of the Follow-On Offering effective April 3, 2012. Through September 30, 2012, we raised gross offering proceeds of approximately $265.3 million from the sale of approximately 26.7 million shares under the Offerings, including shares sold under the DRP.

In connection with our initial capitalization, on January 19, 2007, we issued 22,471 shares of our common stock and 1,000 shares of our convertible stock to Behringer Harvard Holdings.  Behringer Harvard Holdings transferred its shares of convertible stock to the Advisor on April 2, 2010.  As of September 30, 2012, we had 26.1 million shares of common stock outstanding, including the 22,471 shares issued to Behringer Harvard Holdings.  As of September 30, 2012, we had 1,000 shares of convertible stock issued and outstanding to the Advisor.

7

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

We commenced operations on April 1, 2008 upon satisfaction of the conditions of our escrow agreement and our acceptance of initial subscriptions of common stock in the Initial Offering. Upon admission of new stockholders, subscription proceeds for the primary offerings were used for payment of dealer manager fees and selling commissions and could be utilized in the Offerings as consideration for investments and the payment or reimbursement of offering expenses and operating expenses.  Until required for such purposes, net offering proceeds are held in short-term, liquid investments. We used the net proceeds from the Offerings primarily to acquire real estate and real estate-related assets consistent with our opportunistic investment strategy.  As of September 30, 2012, we had issued 26.7 million shares of our common stock, including 22,471 shares owned by Behringer Harvard Holdings and 2.2 million shares issued through the DRP.  As of September 30, 2012, we had redeemed 0.6 million shares of our common stock.

Our common stock is not currently listed on a national securities exchange.  Depending upon then prevailing market conditions, it is our intention to consider beginning the process of liquidating our assets and distributing the net proceeds to our stockholders within three to six years after the termination of the Initial Offering.  If we do not begin an orderly liquidation within that period, we may seek to have our shares listed on a national securities exchange.

2.             Interim Unaudited Financial Information

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the SEC on March 28, 2012.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted in this report on Form 10-Q pursuant to the rules and regulations of the SEC.

The results for the interim periods shown in this report are not necessarily indicative of future financial results.  The accompanying condensed consolidated balance sheet as of September 30, 2012, the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011 and condensed consolidated statements of equity and cash flows for the nine months ended September 30, 2012 and 2011 have not been audited by our independent registered public accounting firm.  In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary to fairly present our condensed consolidated financial position as of September 30, 2012 and December 31, 2011 and our condensed consolidated results of operations and cash flows for the periods ended September 30, 2012 and 2011.  Such adjustments are of a normal recurring nature.

3.             Summary of Significant Accounting Policies

Described below are certain of our significant accounting policies.  The disclosures regarding several of the policies have been condensed or omitted in accordance with interim reporting regulations specified by Form 10-Q.  Please see our Annual Report on Form 10-K for a complete listing of all of our significant accounting policies.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  These estimates include such items as purchase price allocation for real estate acquisitions, impairment of long-lived assets, depreciation and amortization, and allowance for doubtful accounts.  Actual results could differ from those estimates.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts and the accounts of other subsidiaries over which we have control.  All inter-company transactions, balances, and profits have been eliminated in consolidation.  Interests in entities acquired will be evaluated based on applicable GAAP, which includes the requirement to consolidate entities deemed to be variable interest entities (“VIE”) in which we are the primary beneficiary.  If the interest in the entity is determined not to be a VIE, then the entity will be evaluated for consolidation based on legal form, economic substance, and the extent to which we have control and/or substantive participating rights under the respective ownership agreement.  In the Notes to Condensed Consolidated Financial Statements, all dollar and share amounts in tabulation are in thousands of dollars and shares, respectively, unless otherwise noted.

There are judgments and estimates involved in determining if an entity in which we have made an investment is a VIE and, if so, whether we are the primary beneficiary.  The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity.  Determining expected

8

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of those future losses.  A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial statements.

We have evaluated subsequent events for recognition or disclosure in our consolidated financial statements.

Real Estate

Upon the acquisition of real estate properties, we recognize the assets acquired, the liabilities assumed and any noncontrolling interest as of the acquisition date, measured at their fair values.  The acquisition date is the date on which we obtain control of the real estate property.  The assets acquired and liabilities assumed may consist of land, inclusive of associated rights, buildings, assumed debt, identified intangible assets and liabilities and asset retirement obligations. Identified intangible assets generally consist of above-market leases, in-place leases, in-place tenant improvements, in-place leasing commissions and tenant relationships.  Identified intangible liabilities generally consist of below-market leases. Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree over the fair value of the identifiable net assets acquired.  Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired.  Acquisition-related costs are expensed in the period incurred.  Initial valuations are subject to change until our information is finalized, which is no later than twelve months from the acquisition date.

The fair value of the tangible assets acquired, consisting of land and buildings, is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings.  Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or management’s estimates of the fair value of these assets using discounted cash flow analyses or similar methods believed to be used by market participants.  The value of buildings is depreciated over the estimated useful life of 25 years using the straight-line method.

We determine the fair value of assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that management believes we could obtain at the date of the debt assumption.  Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan using the effective interest method.

We determine the value of above-market and below-market leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management’s estimate of current market lease rates for the corresponding in-place leases, measured over a period equal to (a) the remaining non-cancelable lease term for above-market leases, or (b) the remaining non-cancelable lease term plus any below-market fixed rate renewal options that, based on a qualitative assessment of several factors, including the financial condition of the lessee, the business conditions in the industry in which the lessee operates, the economic conditions in the area in which the property is located, and the ability of the lessee to sublease the property during the renewal term, are reasonably assured to be exercised by the lessee for below-market leases.  We record the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the determined lease term.

The total value of identified real estate intangible assets acquired is further allocated to in-place leases, in-place tenant improvements, in-place leasing commissions and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant.  The aggregate value for tenant improvements and leasing commissions is based on estimates of these costs incurred at inception of the acquired leases, amortized through the date of acquisition.  The aggregate value of in-place leases acquired and tenant relationships is determined by applying a fair value model.  The estimates of fair value of in-place leases include an estimate of carrying costs during the expected lease-up periods for the respective spaces considering current market conditions.  In estimating the carrying costs that would have otherwise been incurred had the leases not been in place, we include such items as real estate taxes, insurance and other operating expenses as well as lost rental revenue during the expected lease-up period based on current market conditions.  The estimates of the fair value of tenant relationships also include costs to execute similar leases including leasing commissions, legal fees and tenant improvements as well as an estimate of the likelihood of renewal as determined by management on a tenant-by-tenant basis.

We amortize the value of in-place leases, in-place tenant improvements and in-place leasing commissions to expense over the initial term of the respective leases.  The tenant relationship values are amortized to expense over the initial

9

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

term and any anticipated renewal periods, but in no event does the amortization period for intangible assets or liabilities exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, the unamortized portion of the acquired lease intangibles related to that tenant would be charged to expense.

Anticipated amortization expense associated with the acquired lease intangibles for each of the following five years as of September 30, 2012 is as follows:

Year	Lease / Other Intangibles
September 30, 2012 - December 31, 2012	$	394
2013	1,302
2014	795
2015	437
2016	260

Accumulated depreciation and amortization related to our consolidated investments in real estate assets and intangibles were as follows:

										Acquired
	Buildings and			Land and			Lease			Below-Market
September 30, 2012	Improvements			Improvements			Intangibles			Leases
Cost	$	215,266		$	75,585		$	14,109		$	(2,368	)
Less: depreciation and amortization	(15,024		)	(2,145		)	(8,271		)	1,300
Net (1)	$	200,242		$	73,440		$	5,838		$	(1,068	)

										Acquired
	Buildings and			Land and			Lease			Below-Market
December 31, 2011	Improvements			Improvements			Intangibles			Leases
Cost	$	228,999		$	88,292		$	16,210		$	(2,232	)
Less: depreciation and amortization	(10,160		)	(1,330		)	(7,823		)	961
Net (2)	$	218,839		$	86,962		$	8,387		$	(1,271	)

(1)   Excludes Parrot’s Landing, which was sold on October 31, 2012, and one of the four industrial buildings at Interchange Business Center, which was sold on October 18, 2012 (both classified as held for sale at September 30, 2012).

(2)   Excludes Palms of Monterrey, which was sold on January 5, 2012 (classified as held for sale at December 31, 2011).

Real Estate Held for Sale

We classify properties as held for sale when certain criteria are met, in accordance with GAAP.  At that time we present the assets and obligations of the property held for sale separately in our consolidated balance sheet and we cease recording depreciation and amortization expense related to that property.  Properties held for sale are reported at the lower of their carrying amount or their estimated fair value, less estimated costs to sell.  As of September 30, 2012, Parrot’s Landing and one of the four industrial buildings at Interchange Business Center were classified as held for sale and a sale of the properties was completed on October 31, 2012 and October 18, 2012, respectively.  As of December 31, 2011, our Palms of Monterrey property was classified as held for sale and a sale of the property was completed on January 5, 2012.

Cash and Cash Equivalents

We consider investments in highly liquid money market funds or investments with original maturities of three months or less to be cash equivalents.  The carrying amount of cash and cash equivalents reported on the balance sheet approximates fair value.

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Restricted Cash

As required by our lenders, restricted cash is held in escrow accounts for anticipated capital expenditures, real estate taxes and other reserves for our consolidated properties.  Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions and major capital expenditures.  Alternatively, a lender may require its own formula for an escrow of capital reserves.

Investment Impairment

For all of our real estate and real estate related investments, we monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable.  Examples of the types of events and circumstances that would cause management to assess our assets for potential impairment include, but are not limited to: a significant decrease in the market price of an asset; a significant adverse change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase offers and changes in the global and local markets or economic conditions.  Our assets may at times be concentrated in limited geographic locations and, to the extent that our portfolio is concentrated in limited geographic locations, downturns specifically related to such regions may result in tenants defaulting on their lease obligations at a portion of our properties within a short time period, which may result in asset impairments.  When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition to the carrying amount of the asset.  In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value.  We consider projected future undiscounted cash flows, trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist.  While we believe our estimates of future cash flows are reasonable, different assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates.

In evaluating our investments for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during our ownership, and the projected sales price of each of the properties.  A future change in these estimates and assumptions could result in understating or overstating the carrying value of our investments, which could be material to our financial statements.

We believe the carrying value of our operating real estate is currently recoverable.  Accordingly, there were no impairment charges for the nine months ended September 30, 2012 or 2011.  However, if market conditions worsen beyond our current expectations, or if changes in our strategy significantly affect any key assumptions used in our fair value calculations, we may need to take charges in future periods for impairments related to our existing investments.  Any such non-cash charges would have an adverse effect on our consolidated financial position and results of operations.

Revenue Recognition

We recognize rental income generated from leases on real estate assets on a straight-line basis over the terms of the respective leases, including the effect of rent holidays, if any.  Straight-line rental revenue of $0.1 million and $0.2 million was recognized in rental revenues for the three and nine months ended September 30, 2012, respectively, and includes amounts recognized in discontinued operations.  Straight-line rental revenue of $0.2 million and $0.3 million was recognized in rental revenues for the three and nine months ended September 30, 2011, respectively, and includes amounts recognized in discontinued operations.  Net below market lease amortization of less than $0.1 million and $0.1 million was recognized in rental revenues for the three and nine months ended September 30, 2012, respectively, and includes amounts recognized in discontinued operations.  Net below market lease amortization of less than $0.1 million and $0.3 million was recognized in rental revenues for the three and nine months ended September 30, 2011, respectively, and includes amounts recognized in discontinued operations.

Hotel revenue is derived from the operations of the Courtyard Kauai at Coconut Beach Hotel, consisting of guest room, food and beverage, and other revenue, and is recognized as the services are rendered.

Accounts Receivable

Accounts receivable primarily consist of receivables from our tenants related to our consolidated properties of $1.2 million and straight-line rental revenue receivables of $1.1 million as of September 30, 2012.  Accounts receivable primarily consisted of receivables from our tenants related to our consolidated properties of $0.4 million and straight-line rental revenue receivables of $0.9 million as of December 31, 2011.

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Prepaid Expenses and Other Assets

Prepaid expenses and other assets include prepaid directors’ and officers’ insurance, as well as prepaid insurance of our consolidated properties.

Furniture, Fixtures, and Equipment

Furniture, fixtures, and equipment are recorded at cost and are depreciated using the straight-line method over their estimated useful lives of five to seven years.  Maintenance and repairs are charged to operations as incurred while improvements to such assets are capitalized.  Accumulated depreciation associated with our furniture, fixtures, and equipment was $2.2 million and $1.2 million as of September 30, 2012 and December 31, 2011, respectively.

Deferred Financing Fees

Deferred financing fees are recorded at cost and are amortized to interest expense of our notes payable using a straight-line method that approximates the effective interest method over the life of the related debt.  Accumulated amortization of deferred financing fees was $2 million and $1.2 million as of September 30, 2012 and December 31, 2011, respectively.

Derivative Financial Instruments

Our objective in using derivatives is to add stability to interest expense and to manage our exposure to interest rate movements or other identified risks and to minimize the variability caused by foreign currency translation risk related to our net investment in foreign real estate.  To accomplish these objectives, we use various types of derivative instruments to manage fluctuations in cash flows resulting from interest rate risk attributable to changes in the benchmark interest rate of LIBOR.  These instruments include LIBOR-based interest rate swaps and caps.  For our net investments in foreign real estate, we may use foreign exchange put/call options to eliminate the impact of foreign currency exchange movements on our financial position.

We measure our derivative instruments and hedging activities at fair value and record them as an asset or liability, depending on our rights or obligations under the applicable derivative contract.  For derivatives designated as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged items are recorded in earnings.  Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.  For derivatives designated as cash flow hedges, the effective portions of changes in fair value of the derivatives are reported in other comprehensive income (loss) and are subsequently reclassified into earnings when the hedged item affects earnings.  We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

As of September 30, 2012, we do not have any derivatives designated as net investment hedges or fair value hedges.  No derivatives were being used for trading or speculative purposes.  See Notes 5 and 11 for further information regarding our derivative financial instruments.

Organization and Offering Expenses

We reimbursed the Advisor and its affiliates for organization and offering expenses (other than selling commissions and the dealer manager fee) incurred on our behalf in connection with the primary offering component of the Offerings.

The Advisor will reimburse us to the extent that the total amount spent on organization and offering expenses in the Offerings (other than selling commissions and the dealer manager fee) exceeds 1.5% of the gross proceeds raised in the primary component of the Offerings.  We terminated the primary portion of the Follow-On Offering effective March 15, 2012.  Based on our current review of gross proceeds from our Offerings, we have recorded a receivable from the Advisor for approximately $3.8 million for organization and offering expenses that were previously reimbursed to the Advisor.  The receivable of $3.8 million is presented net of other payables of $0.4 million to the Advisor on our consolidated balance sheet.  We expect to receive payment from the Advisor for this receivable during the first quarter of 2013.

All offering costs are recorded as an offset to additional paid-in capital, and all organization costs are recorded as an expense at the time we become liable for the payment of these amounts.

Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), and have qualified as a REIT since the year ended December 31, 2008.  To qualify as a REIT, we

12

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code and intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT.

We have reviewed our tax positions under GAAP guidance that clarifies the relevant criteria and approach for the recognition and measurement of uncertain tax positions.  The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return.  A tax position may only be recognized in the financial statements if it is more likely than not that the tax position will be sustained upon examination.  We believe it is more likely than not that the tax positions taken relative to our status as a REIT will be sustained in any tax examination.

Foreign Currency Translation

For our international investment where the functional currency is other than the U.S. dollar, assets and liabilities are translated using period-end exchange rates, while the statement of operations amounts are translated using the average exchange rates for the respective period.  Gains and losses resulting from the change in exchange rates from period to period are reported separately as a component of accumulated other comprehensive income (loss) (“AOCI”).  Gains and losses resulting from foreign currency transactions are included in the condensed consolidated statements of operations and comprehensive income (loss).

The Euro is the functional currency for the operations of Holstenplatz and Alte Jakobstraße.  We also maintain a Euro-denominated bank account that is translated into U.S. dollars at the current exchange rate at each reporting period.  For the nine months ended September 30, 2012, the foreign currency translation adjustment was a loss of $0.2 million.  For the nine months ended September 30, 2011, the foreign currency translation adjustment was a gain of $0.1 million.

Accumulated Other Comprehensive Income (Loss)

AOCI, which is reported in the accompanying consolidated statement of equity, consists of gains and losses affecting equity that are excluded from net income (loss) under GAAP.  The components of AOCI consist of cumulative foreign currency translation gains and losses and the unrealized gain on derivative instruments.

Stock-Based Compensation

We have adopted a stock-based incentive award plan for our directors and consultants and for employees, directors and consultants of our affiliates.  We have not issued any stock-based awards under the plan as of September 30, 2012.

Concentration of Credit Risk

At September 30, 2012 and December 31, 2011, we had cash and cash equivalents deposited in certain financial institutions in excess of federally insured levels.  We have diversified our cash and cash equivalents among several banking institutions in an attempt to minimize exposure to any one of these entities.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash.

Noncontrolling Interest

Noncontrolling interest represents the noncontrolling ownership interest’s proportionate share of the equity in our consolidated real estate investments.  Income and losses are allocated to noncontrolling interest holders based on their ownership percentage.

Earnings per Share

Net income (loss) per share is calculated based on the weighted average number of common shares outstanding during each period.  The weighted average shares outstanding used to calculate both basic and diluted income (loss) per share were the same for the three and nine months ended September 30, 2012 and 2011, as there were no potentially dilutive securities outstanding.

13

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Reportable Segments

GAAP establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments.  We have determined that we have one reportable segment, with activities related to the ownership, development and management of real estate assets.  Our chief operating decision maker evaluates operating performance on an individual property level.  Therefore, our properties are aggregated into one reportable segment.

4.New Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (the “FASB”) issued updated guidance for fair value measurements.  The guidance amends existing guidance to provide common fair value measurements and related disclosure requirements between GAAP and International Financial Reporting Standards.  This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  The adoption of this guidance did not have an impact on our financial statements except for disclosures.

In June 2011, the FASB issued updated guidance related to comprehensive income.  The guidance requires registrants to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  Additionally, registrants will be required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented.  This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Due to our early adoption, this guidance did not have a material impact on our financial statements.

5.Assets and Liabilities Measured at Fair Value

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established.

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access.  Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.  Level 3 inputs are unobservable inputs for the asset or liability that are typically based on an entity’s own assumptions, as there is little, if any, related market activity.  In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.  Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Recurring Fair Value Measurements

Currently, we use interest rate swaps and caps to manage our interest rate risk.  The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative.  This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, implied volatilities, and foreign currency exchange rates.

We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.  Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties.  However, as of September 30, 2012, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.  As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

14

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following fair value hierarchy table presents information about our assets measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011.

September 30, 2012	Level 1		Level 2		Level 3		Total
Assets
Derivative financial instruments	$	—	$	1	$	—	$	1

December 31, 2011	Level 1		Level 2		Level 3		Total
Assets
Derivative financial instruments	$	—	$	19	$	—	$	19

Derivative financial instruments classified as assets are included in prepaid expenses and other assets on the balance sheet.

6.Financial Instruments not Reported at Fair Value

We determined the following disclosure of estimated fair values using available market information and appropriate valuation methodologies.  However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

As of September 30, 2012 and December 31, 2011, management estimated that the carrying value of cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses, other liabilities, payables/receivables from related parties, and distributions payable were at amounts that reasonably approximated their fair value based on their highly-liquid nature and/or short-term maturities.  The notes payable, including the loans classified as obligations associated with real estate held for sale at September 30, 2012 secured by Parrot’s Landing and one of the four industrial buildings at Interchange Business Center, totaling $217.3 million and $239.8 million as of September 30, 2012 and December 31, 2011, respectively, have a fair value of approximately $219.7 million and $242.2 million as of September 30, 2012 and December 31, 2011, respectively, based upon interest rates for debt with similar terms and remaining maturities that management believes we could obtain.  The fair value of the notes payable is categorized as a Level 2 basis.  The fair value is estimated using a discounted cash flow analysis valuation on the borrowing rates currently available for loans with similar terms and maturities.  The fair value of the notes payable was determined by discounting the future contractual interest and principal payments by a market rate.  Disclosure about fair value of financial instruments is based on pertinent information available to management as of September 30, 2012 and December 31, 2011.

7.Real Estate and Real Estate-Related Investments

As of September 30, 2012, we consolidated 11 real estate investments.  The following table presents certain information about our consolidated investments as of September 30, 2012:

Property Name	Location	Date Acquired	Ownership Interest
1875 Lawrence	Denver, CO	October 28, 2008	100	%
Holstenplatz	Hamburg, Germany	June 30, 2010	100	%
Parrot’s Landing (1)	North Lauderdale, Florida	September 17, 2010	90	%
Florida MOB Portfolio (2)	South Florida	October 8, 2010/October 20, 2010 (2)	90	%(3)
Courtyard Kauai Coconut Beach Hotel	Kauai, Hawaii	October 20, 2010	80	%
Interchange Business Center (4)	San Bernardino, California	November 23, 2010	80	%
River Club and the Townhomes at River Club	Athens, Georiga	April 25, 2011	85	%
Babcock Self Storage	San Antonio, Texas	August 30, 2011	85	%
Lakes of Margate	Margate, Florida	October 19, 2011	92.5	%
Arbors Harbor Town	Memphis, Tennessee	December 20, 2011	94	%
Alte Jakobstraße	Berlin, Germany	April 5, 2012	99.7	%

(1) Classified as held for sale on our condensed consolidated balance sheet as of September 30, 2012.  On October 31, 2012, we sold Parrot’s Landing to an unaffiliated third party for a contract price of approximately $56.3 million, excluding transaction costs.

(2) We acquired a portfolio of eight medical office buildings, known as the Original Florida MOB Portfolio on October 8, 2010.  We acquired a medical office building known as Gardens Medical Pavilion on October 20, 2010.  Collectively, the Original Florida MOB Portfolio and Gardens Medical Pavilion are referred to as the Florida MOB Portfolio.

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(3) The Florida MOB Portfolio consists of nine Medical Office Buildings.  We own 90% of each of eight of the buildings. We own 90% of a 90% JV interest in the ninth building, Gardens Medical Pavilion.

(4) On October 18, 2012, we sold one of the four industrial buildings at Interchange Business Center. The building is classified as held for sale on our condensed consolidated balance sheet as of September 30, 2012.

Real Estate Asset Acquisitions

Alte Jakobstraße

On April 5, 2012, we acquired Alte Jakobstraße 79-80 (“Alte Jakobstraße”), a multi-tenant office building located in Berlin, Germany, from an unaffiliated third party.  The purchase price for Alte Jakobstraße, excluding closing costs, was approximately €8.4 million or approximately $11.1 million based on the exchange rate in effect on April 5, 2012.  We funded the purchase price with proceeds from the Follow-On Offering and financing activities.  In connection with the acquisition of Alte Jakobstraße, on April 5, 2012, we entered into a loan for €5.9 million or approximately $7.8 million ($7.3 million was funded as of September 30, 2012) based on the exchange rate in effect on April 5, 2012 (the “AJS Loan”) with an unaffiliated third party.  The AJS Loan bears interest at a fixed annual rate of approximately 2.3% for three years and must be repaid in the amount of 4% annually of the original loan amount plus interest.  The AJS Loan must be repaid in its entirety by December 30, 2015.  The AJS Loan is secured by Alte Jakobstraße, including the leases and rents.

Alte Jakobstraße contributed rental revenue of $0.6 million and a GAAP net loss of $0.1 million to our condensed consolidated statements of operations for the period from April 5, 2012 through September 30, 2012.  The following unaudited pro forma summary presents consolidated information as if the business combination had occurred on January 1, 2011:

	Pro Forma for the Nine Months Ended September 30,
	2012			2011
Revenue	$	33,299		$	25,635
Net loss	$	(3,819	)	$	(7,832	)
Net loss per share	$	(0.15	)	$	(0.33	)

These pro forma amounts have been calculated after applying our accounting policies and adjusting the results of Alte Jakobstraße to reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to the tangible and intangible assets had been applied from January 1, 2011.  Included in the pro forma net loss for both the nine months ended September 30, 2012 and September 30, 2011 is depreciation and amortization expense of $0.3 million.

During the nine months ended September 30, 2012, we incurred $0.5 million in acquisition expenses related to the acquisition of Alte Jakobstraße.  The following table summarizes the amounts of identified assets acquired at the acquisition date:

	Alte Jakobstraße
Land	$	2,367
Buildings	8,523
Lease intangibles, net	333
Acquired below-market leases, net	(184		)
Total identifiable net assets	$	11,039

16

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Real Estate Asset Dispositions

Palms of Monterrey

On January 5, 2012, we sold the Palms of Monterrey for a contract sales price of $39.3 million, excluding transaction costs.  A portion of the proceeds from the sale was used to fully satisfy the existing indebtedness of $19.7 million associated with the property.  The Palms of Monterrey was classified as held for sale on our consolidated balance sheet as of December 31, 2011.

Parrot’s Landing

On October 31, 2012, we sold Parrot’s Landing for a contract sales price of approximately $56.3 million, excluding transaction costs, of which approximately $28.6 million was used to fully satisfy the existing indebtness, resulting in net sales proceeds to us of approximately $18.5 million.  Parrot’s Landing was classified as held for sale on our consolidated balance sheet as of September 30, 2012.  See Note 16 for further information regarding discontinued operations.

Interchange Business Center

On October 18, 2012, we sold one of the four industrial buildings at Interchange Business Center for a contract sales price of approximately $7.5 million, excluding transaction costs.  The proceeds from the sale were used to satisfy a portion of the existing indebtedness associated with the four buildings.  The building sold had been vacant since the initial date of acquisition and was classified as held for sale on our consolidated balance sheet as of September 30, 2012.

8.Real Estate Loan Receivable

PAL Loan

On August 14, 2009, we entered into a loan agreement with an unaffiliated third party borrower to provide up to $25 million of second lien financing for the privatization of, and improvements to, approximately 3,200 hotel lodging units on ten U.S. Army installations.  On August 15, 2011, the debtor associated with the PAL Loan exercised its option to prepay the entire balance of the loan.  We had no investments in real estate loans receivable as of September 30, 2012 and December 31, 2011.  During the nine months ended September 30, 2011, we earned $3.2 million in interest income from the PAL Loan.

9.Notes Payable

The following table sets forth information on our notes payable as of September 30, 2012 and December 31, 2011:

	Notes Payable as of				Interest	Maturity
Description	September 30, 2012		December 31, 2011		Rate	Date
1875 Lawrence	$	15,056	$	21,016	30-day LIBOR + 2.5% (1)(2)	12/31/12
Interchange Business Center	9,883		19,619		30-day LIBOR + 5% (1)(3)	12/01/13
Holstenplatz	10,009		10,084		3.887%	04/30/15
Courtyard Kauai at Coconut Beach Hotel	38,000		38,000		30-day LIBOR + .95% (1)	11/09/15
Florida MOB Portfolio - Palmetto Building	6,114		6,222		4.55%	01/01/16
Florida MOB Portfolio - Victor Farris Building	12,324		12,542		4.55%	01/01/16
Palms of Monterrey	—		19,700		30-day LIBOR + 3.35% (1)(4)	07/01/17
Parrot’s Landing	—		29,013		4.23%	10/01/17
Florida MOB Portfolio - Gardens Medical Pavilion	14,468		14,713		4.9%	01/01/18
River Club and the Townhomes at River Club	25,200		25,200		5.26%	05/01/18
Babcock Self Storage	2,236		2,265		5.80%	08/30/18
Lakes of Margate	15,234		15,383		5.49% and 5.92%	01/01/20
Arbors Harbor Town	26,000		26,000		3.985%	01/01/19
Alte Jakobstraße	7,069		—		2.3%	12/30/15
	$	181,593	$	239,757
Notes Payable included with Obligations associated with real estate held for sale:
Interchange Business Center (5)	$	7,036			30-day LIBOR + 5% (1)(3)	12/01/13
Parrot’s Landing (6)	28,639				4.23%	10/01/17
	$	35,675

(1)30-day LIBOR was 0.21% at September 30, 2012.

(2)The loan has a minimum interest rate of 6.25%.

(3)The 30-day LIBOR rate is set at a minimum value of 2.5%.

(4)The loan has a maximum interest rate of 7%.

(5)On October 18, 2012, we sold one of the four industrial buildings at Interchange Business Center to an unaffiliated third party.  Based on the loan agreement, the net proceeds from the sale of approximately $7 million (classified as obligations associated with real estate held for sale on our condensed consolidated balance sheet as of September 30, 2012) were used to satisfy a portion of the existing indebtedness associated with the four buildings.

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Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(6)On October 31, 2012, we sold Parrot’s Landing to an unaffiliated third party. We classified the note payable as obligations associated with real estate held for sale on our condensed consolidated balance sheet as of September 30, 2012.

At September 30, 2012, our notes payable balance, including the loans classified as obligations associated with real estate held for sale secured by Parrot’s Landing and one of the four industrial buildings at Interchange Business Center, was $217.3 million and consisted of the notes payable related to our consolidated properties.  We have unconditionally guaranteed payment of the note payable related to 1875 Lawrence for an amount not to exceed the lesser of (i) $11.75 million and (ii) 50% of the total amount advanced under the loan agreement if the aggregate amount advanced is less than $23.5 million.  We currently intend to refinance the note payable or exercise the one-year extension option pursuant to the terms under the loan agreement.  We have guaranteed payment of certain recourse liabilities with respect to certain customary nonrecourse carveouts as set forth in the guaranties in favor of the unaffiliated lenders with respect to the Courtyard Kauai at Coconut Beach Hotel notes payable.  For the nine months ended September 30, 2012, we sold one asset to an unaffiliated third party and used a portion of the proceeds from the sale to fully satisfy the existing indebtedness of $19.7 million associated with the property.  Furthermore, we made a principal payment of $5.9 million on the loan related to 1875 Lawrence.  During October 2012, we sold one asset and one of the four industrial buildings at Interchange Business Center to an unaffiliated third party and used the proceeds from the sale to satisfy the existing indebtedness of $35.7 million (classified as obligations associated with real estate held for sale). See footnote 16, Discontinued Operations and Real Estate Held for Sale for further details.

We are subject to customary affirmative, negative, and financial covenants and representations, warranties and borrowing conditions, all as set forth in our loan agreements.  As of September 30, 2012, we believe we were in compliance with the covenants under our loan agreements.

The following table summarizes our contractual obligations for principal payments excluding obligations associated with real estate held for sale as of September 30, 2012:

Year	Amount Due
October 1, 2012 - December 31, 2012	$	15,711
2013	11,870
2014	2,585
2015	55,953
2016	18,677
Thereafter	76,797
	$	181,593

10.Leasing Activity

Future minimum base rental payments of our office and industrial properties due to us under non-cancelable leases in effect as of September 30, 2012 for our consolidated properties are as follows:

September 30, 2012 - December 31, 2012	$	14,886
2013	14,787
2014	11,341
2015	8,664
2016	6,017
Thereafter	7,954
Total	$	63,649

The schedule above does not include rental payments due to us from our multifamily, hotel, student housing, and self-storage properties, as leases associated with these properties typically are for periods of one year or less.  As of September 30, 2012, none of our tenants accounted for 10% or more of our aggregate annual rental revenues from our consolidated properties.

11.Derivative Instruments and Hedging Activities

We may be exposed to the risk associated with variability of interest rates that might impact our cash flows and the results of operations.  The hedging strategy of entering into interest rate caps and swaps, therefore, is to eliminate or reduce, to the extent possible, the volatility of cash flows.

18

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In October 2010, we entered into a new interest rate cap agreement related to the debt on the Courtyard Kauai Coconut Beach Hotel, and in November 2010, we entered into an interest rate cap agreement related to our debt on Interchange Business Center.

Derivative instruments classified as assets were reported at their combined fair values of less than $0.1 million in prepaid expenses and other assets at September 30, 2012 and December 31, 2011.  During the nine months ended September 30, 2012 and 2011, we recorded an unrealized gain of less than $0.1 million and an unrealized loss of $0.3 million to AOCI in our statement of equity to adjust the carrying amount of the interest rate caps qualifying as hedges at September 30, 2012 and 2011, respectively.

The following table summarizes the notional values of our derivative financial instruments.  The notional values provide an indication of the extent of our involvement in these instruments, but do not represent exposure to credit, interest rate, or market risks:

Type / Description	Notional Value		Interest Rate / Strike Rate	Index	Maturity
Cash Flow Hedges
Interest rate cap - Courtyard Kauai Coconut Beach Hotel	$	38,000	3.00% - 6.00%	30-day LIBOR	October 15, 2014
Interest rate cap - Interchange Business Center	$	5,000	2.50%	30-day LIBOR	December 1, 2013

The table below presents the fair value of our derivative financial instruments, as well as their classification on the consolidated balance sheets as of September 30, 2012 and December 31, 2011:

Derivatives designated as	Balance Sheet	Asset Derivatives
hedging instruments:	Location	September 30, 2012		December 31, 2011
Interest rate derivative contracts	Prepaid expenses and other assets	$	1	$	19

The table below presents the effect of our derivative financial instruments on the consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011:

Derivatives in Cash Flow Hedging Relationships
Amount of Gain or (Loss)					Amount of Gain or (Loss)
Recognized in AOCI on					Recognized in AOCI on
Derivative (Effective Portion)					Derivative (Effective Portion)
Three Months Ended September 30,					Nine Months Ended September 30,
2012		2011			2012		2011
$	9	$	(104	)	$	8	$	(346	)

Derivatives in Cash Flow Hedging Relationships
Amount of Loss Reclassifed from AOCI into Income (Effective Portion)					Amount of Loss Reclassifed from AOCI into Income (Effective Portion)
Three Months Ended September 30,					Nine Months Ended September 30,
2012			2011		2012			2011
$	(12	)	$	—	$	(26	)	$	—

19

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

12.Commitments and Contingencies

Our operating leases consist of ground leases on each of eight buildings acquired in connection with the purchase of the Original Florida MOB Portfolio.  Each ground lease is for a term of 50 years, with a 25-year extension option.  The annual payment for each ground lease increases by 10% every five years.  For the three and nine months ended September 30, 2012, we incurred $0.1 million and $0.2 million, respectively, in lease expense related to our ground leases.  For the three and nine months ended September 30, 2011, we incurred less than $0.1 million and $0.2 million, respectively, in lease expense related to our ground leases.  Future minimum lease payments for all operating leases from September 30, 2012 are as follows:

September 30, 2012 - December 31, 2012	$	73
2013	293
2014	293
2015	301
2016	301
Therafter	21,528
Total	$	22,789

13.Distributions

Distributions are authorized at the discretion of our board of directors based on its analysis of our performance over the previous period and expectations of performance for future periods.  These analyses may include actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for our portfolio, capital expenditure needs, general financial and market conditions and other factors that our board deems relevant.  The board’s decision will be influenced, in substantial part, by its obligation to ensure that we maintain our status as a REIT.  In light of the continued uncertainty in the global financial and real estate markets, we cannot provide assurance that we will be able to achieve expected cash flows necessary to pay distributions at any particular level, or at all.  On March 20, 2012, our board of directors declared a special distribution of $0.50 per share of common stock payable to our stockholders of record as of April 3, 2012 and determined to cease regular, monthly distributions in favor of payment of periodic distributions from excess proceeds from asset dispositions or from other sources as necessary to maintain our REIT tax status.  The special distribution payment was made on May 10, 2012.

Until our investments are generating sufficient operating cash flow to fully fund the payment of distributions to our stockholders, we have paid and may in the future pay some or all of our distributions from sources other than operating cash flow.  We have, for example, generated cash to pay distributions from financing activities, components of which may include proceeds from the Offerings and borrowings (including borrowings secured by our assets) in anticipation of future operating cash flow.  We have also utilized cash from refinancings and dispositions, the components of which may represent a return of capital and/or the gains on sale.  In addition, from time to time, our Advisor may agree to waive or defer all or a portion of the acquisition, asset management or other fees or incentives due to it, pay general administrative expenses, or otherwise supplement investor returns in order to increase the amount of cash that we have available to pay distributions to our stockholders.

We paid no distributions to stockholders during the three months ended September 30, 2012.  Total distributions paid to stockholders during the nine months ended September 30, 2012 were $17.3 million and consisted of the special cash distribution of $13 million and the regular distributions of $4.3 million.  A portion of the $4.3 million regular distributions to stockholders was funded from cash flow provided by operations.  Total distributions of $8.8 million were paid to stockholders during the nine months ended September 30, 2011.  Distributions funded through the issuance of shares under the DRP during the nine months ended September 30, 2011 were $5.9 million.  Accordingly, cash amounts distributed to stockholders during the nine months ended September 30, 2011 were $2.9 million and were funded from cash flow provided by operations.  Future distributions declared and paid may exceed cash flow from operating activities until such time as we invest in additional real estate or real estate-related assets at favorable yields and our investments reach stabilization.

20

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Distributions paid to stockholders were funded through various sources, including cash flow from operating activities, proceeds raised as part of our Offerings, reinvestment through our DRP and additional borrowings.  The following summarizes certain information related to the sources of recent distributions:

	September 30,
	2012		2011
Total Distributions Paid	$	17,326	$	8,811
Principal Sources of Funding:
Distribution Reinvestment Plan	$	2,790	$	5,912
Cash flow provided by (used in) operating activities	$	4,044	$	4,711
Cash available at the beginning of the period (1)	$	80,130	$	49,375

(1)Represents the cash available at the beginning of the reporting period primarily attributable to excess funds raised from the issuance of common stock and borrowings, after the impact of historical operating activities, other investing and financing activities.

Distributions for the first three quarters of 2012 and 2011 were as follows ($ in thousands, except per share amounts):

								Cash Flow			Total		Declared
		Distributions Paid						Provided by (used in)			Distributions		Distribution
	2012	Cash		Reinvested		Total		Operations			Declared		Per Share
Third quarter	Regular distribution	$	—	$	—	$	—	$	3,550		$	—	$	—
Second quarter	Regular distribution	388		716		1,104		1,325			—		—
Second quarter	Special cash distribution	13,048		—		13,048		—			—		—
First quarter	Regular distribution	1,100		2,074		3,174		(831		)	3,209		0.125
First quarter	Special cash distribution (a)	—		—		—		—			13,048		0.500
		$	14,536	$	2,790	$	17,326	$	4,044		$	16,257	$	0.625

								Cash Flow					Declared
		Distributions Paid						Provided by (used in)			Distributions		Distribution
	2011	Cash		Reinvested		Total		Operations			Declared		Per Share
Third quarter	Regular distribution	$	1,026	$	2,049	$	3,075	$	5,716		$	3,090	$	0.126
Second quarter	Regular distribution	972		1,991		2,963		(593		)	2,976		0.125
First quarter	Regular distribution	901		1,872		2,773		(412		)	2,815		0.123
		$	2,899	$	5,912	$	8,811	$	4,711		$	8,881	$	0.374

(a)         Declared amount is based upon number of stockholders as of April 3, 2012.

Distributions declared per share assume the share was issued and outstanding each day during the period.  Beginning June 2009 through March 2012, the declared daily regular distribution rate was $0.0013699 per share of common stock, which was equivalent to an annualized distribution rate of 5.0% assuming the share was purchased for $10.00.

14.Related Party Transactions

The Advisor and certain of its affiliates will receive fees and compensation in connection with the Offerings, and in connection with the acquisition, management, and sale of our assets.

Pursuant to a Dealer Manager Agreement, we engaged Behringer Securities LP (“Behringer Securities”) to act as our dealer manager in connection with the Offerings.  The Follow-On Offering terminated as to the primary portion on March 15, 2012 and we terminated the DRP portion of the Follow-On Offering effective April 3, 2012.  The terms of the Dealer Manager Agreement were the same in all material respects as the terms of the agreement entered with Behringer Securities dated January 4, 2008 pursuant to which Behringer Securities acted as the dealer manager for the Initial Offering.

Behringer Securities received commissions of up to 7% of gross primary offering proceeds.  Behringer Securities reallowed 100% of selling commissions earned to participating broker-dealers.  In addition, we paid Behringer Securities a dealer manager fee of up to 2.5% of gross offering proceeds.  Pursuant to separately negotiated agreements, Behringer Securities reallowed a portion of its dealer manager fee in an aggregate amount up to 2% of gross offering proceeds to broker-dealers participating in the Offerings; provided, however, that Behringer Securities reallowed, in the aggregate, no more than 1.5% of gross offering proceeds for marketing fees and expenses, conference fees and non-itemized, non-invoiced due diligence efforts and no more than 0.5% of gross offering proceeds for out-of-pocket and bona fide, separately invoiced due diligence expenses incurred as fees, costs or other expenses from third parties.  Further, in special cases pursuant to separately negotiated agreements and subject to applicable limitations imposed by the Financial Industry Regulatory

21

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Authority, Behringer Securities used a portion of its dealer manager fee to reimburse certain broker-dealers participating in the Offerings for technology costs and expenses associated with the Offerings and costs and expenses associated with the facilitation of the marketing and ownership of our shares by such broker-dealers’ customers.  No selling commissions, dealer manager fees or organization and offering expenses were paid for sales under the DRP.  For the nine months ended September 30, 2012, Behringer Securities earned selling commissions and dealer manager fees of $0.4 million and $0.2 million, respectively, which were recorded as a reduction to additional paid-in capital.  For the nine months ended September 30, 2011, Behringer Securities earned selling commissions and dealer manager fees of $1.2 million and $0.4 million, respectively, which were recorded as a reduction to additional paid-in capital.

We reimbursed the Advisor and its affiliates for organization and offering expenses (other than selling commissions and the dealer manager fee) incurred on our behalf in connection with the primary offering component of the Offerings.  The total we were required to remit to the Advisor for organization and offering expenses (other than selling commissions and the dealer manager fee) was limited to 1.5% of the gross proceeds raised in the completed primary offering components of the Offerings as determined upon completion of the Offerings.  The Advisor or its affiliates determined the amount of organization and offering expenses owed based on specific invoice identification, as well as an allocation of costs to us and other Behringer Harvard programs, based on respective equity offering results of those entities in offering.

The Advisor is required to reimburse us to the extent that the total amount spent on organization and offering expenses (other than selling commissions and the dealer manager fee) in the Offerings exceeds 1.5% of the gross proceeds raised in the primary component of the Offerings.  Based on the gross proceeds from our Offerings, we have recorded a receivable from the Advisor for approximately $3.8 million of organization and offering expenses that were previously reimbursed to the Advisor.  The receivable of $3.8 million is presented net of other payables of $0.4 million to the Advisor on our consolidated balance sheet.  We expect to receive payment from the Advisor for this receivable during the first quarter of 2013.

Since our inception through September 30, 2012, approximately $16.4 million of organization and offering expenses was incurred by the Advisor or its affiliates on our behalf.  Of this amount, $7.5 million has been reimbursed by us.  As of September 30, 2012, we had no amounts payable to the Advisor for organization and offering expenses.

The Advisor or its affiliates will also receive acquisition and advisory fees of 2.5% of the amount paid and/or in respect of the purchase, development, construction, or improvement of each asset we acquire, including any debt attributable to those assets.  The Advisor and its affiliates will also receive acquisition and advisory fees of 2.5% of the funds advanced in respect of a loan investment.  We incurred acquisition and advisory fees payable to the Advisor of $0.5 million for the nine months ended September 30, 2012.  We incurred acquisition and advisory fees payable to the Advisor of $0.9 million for the nine months ended September 30, 2011.

The Advisor or its affiliates also receive an acquisition expense reimbursement in the amount of 0.25% of (i) the funds paid for purchasing an asset, including any debt attributable to the asset, (ii) the funds budgeted for development, construction, or improvement in the case of assets that we acquire and intend to develop, construct, or improve, and (iii) the funds advanced in respect of a loan investment.  In addition, to the extent the Advisor or its affiliates directly provide services formerly provided or usually provided by third parties, including, without limitation, accounting services related to the preparation of audits required by the SEC, property condition reports, title services, title insurance, insurance brokerage or environmental services related to the preparation of environmental assessments in connection with a completed investment, the direct employee costs and burden to the Advisor of providing these services will be acquisition expenses for which we will reimburse the Advisor.  We also pay third parties, or reimburse the Advisor or its affiliates, for any investment-related expenses due to third parties in the case of a completed investment, including, but not limited to, legal fees and expenses, travel and communication expenses, costs of appraisals, accounting fees and expenses, third-party brokerage or finder’s fees, title insurance, premium expenses, and other closing costs.  In addition, acquisition expenses for which we will reimburse the Advisor, include any payments made to (i) a prospective seller of an asset, (ii) an agent of a prospective seller of an asset, or (iii) a party that has the right to control the sale of an asset intended for investment by us that are not refundable and that are not ultimately applied against the purchase price for such asset.  Except as described above with respect to services customarily or previously provided by third parties, the Advisor is responsible for paying all of the expenses it incurs associated with persons employed by the Advisor to the extent that they are dedicated to making investments for us, such as wages and benefits of the investment personnel.  The Advisor and its affiliates are also responsible for paying all of the investment-related expenses that we or the Advisor or its affiliates incur that are due to third parties or related to the additional services provided by the Advisor as described above with respect to investments we do not make, other than certain non-refundable payments made in connection with any acquisition.  For the nine months ended September 30, 2012 and 2011, we incurred acquisition expense reimbursements of less than $0.1 million and $0.1 million, respectively.

22

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

We pay the Advisor or its affiliates a debt financing fee of 1% of the amount available under any loan or line of credit made available to us.  It is anticipated that the Advisor will pay some or all of these fees to third parties with whom it subcontracts to coordinate financing for us.  We incurred debt financing fees of $0.1 million and $0.2 million for the nine months ended September 30, 2012 and 2011, respectively.

We pay the Advisor or its affiliates a development fee in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project if such affiliate provides the development services and if a majority of our independent directors determines that such development fee is fair and reasonable and on terms and conditions not less favorable than those available from unaffiliated third parties.  We incurred no such fees for the nine months ended September 30, 2012 or 2011.

We pay our property manager and affiliate of the Advisor, Behringer Harvard Opportunity II Management Services, LLC (“BHO II Management”), or its affiliates, fees for the management, leasing, and construction supervision of our properties.  Property management fees are 4.5% of the gross revenues of the properties managed by BHO II Management or its affiliates, plus leasing commissions based upon the customary leasing commission applicable to the same geographic location of the respective property.  In the event that we contract directly with a third-party property manager in respect of a property, BHO II Management or its affiliates receives an oversight fee equal to 0.5% of the gross revenues of the property managed.  In no event will BHO II Management or its affiliates receive both a property management fee and an oversight fee with respect to any particular property.  In the event we own a property through a joint venture that does not pay BHO II Management directly for its services, we will pay BHO II Management a management fee or oversight fee, as applicable, based only on our economic interest in the property.  We incurred and expensed property management fees or oversight fees to BHO II Management of approximately $0.9 million and $0.2 million for the nine months ended September 30, 2012 and 2011, respectively.

We pay the Advisor or its affiliates a monthly asset management fee of one-twelfth of 1.0% of the sum of the higher of the cost or value of each asset.  For the nine months ended September 30, 2012 and 2011, we expensed $2.3 million and $2.1 million, respectively, of asset management fees.

We reimburse the Advisor or its affiliates for all expenses paid or incurred by the Advisor in connection with the services provided to us, subject to the limitation that we will not reimburse the Advisor for any amount by which our operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of:  (A) 2% of our average invested assets, or (B) 25% of our net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of our assets for that period.  Notwithstanding the above, we may reimburse the Advisor for expenses in excess of this limitation if a majority of our independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. For the nine months ended September 30, 2012 and 2011, we incurred and expensed such costs for administrative services of $1.1 million and $0.8 million, respectively.

We are dependent on Behringer Securities, the Advisor, and BHO II Management for certain services that are essential to us, including asset acquisition and disposition decisions, property management and leasing services, and other general administrative responsibilities.  In the event that these companies were unable to provide us with their respective services, we would be required to obtain such services from other sources.

On November 1, 2012, we, through a wholly-owned subsidiary of our operating partnership, entered into a lease agreement with Behringer Harvard Europe Real Estate GmbH, to lease approximately 380 rentable square meters at Holstenplatz.  The lease commenced on November 1, 2012 for a 14-month term with two options to extend the lease for an additional one-year terms.  The annualized rent is approximately $80,000.  Our management and board of directors determined that the lease was fair and reasonable to us and on terms and conditions that are no less favorable to us than can be obtained from unaffiliated third parties for comparable transactions or services in the same location.

23

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

15.Supplemental Cash Flow Information

Supplemental cash flow information is summarized below:

	Nine months ended September 30,
	2012		2011
Interest paid	$	7,400	$	6,266
Non-cash investing activities:
Capital expenditures for real estate in accounts payable	$	72	$	1,140
Capital expenditures for real estate in accrued liabilities	$	439	$	38
Receivable from sale of property in unconsolidated joint venture	$	—	$	7,108
Non-cash financing activities:
Common stock issued in distribution reinvestment plan	$	2,790	$	5,912
Accrued dividends payable	$	—	$	1,009
Offering costs payable to related parties	$	8	$	—
Offering costs receivable from related parties	$	—	$	2,238

16.Discontinued Operations and Real Estate Held for Sale

On December 22, 2011, we sold Archibald Business Center for a contract price of $15 million.  On January 5, 2012, we sold the Palms of Monterrey for a contract sales price of $39.3 million, and on October 18, 2012, we sold one of the four industrial buildings at Interchange Business Center for a contract sales price of approximately $7.5 million, excluding transaction costs.  The proceeds from the sale were used to satisfy a portion of the existing indebtedness associated with the four buildings.  The building sold had been vacant since the initial date of acquisition.  On October 31, 2012, we sold Parrot’s Landing for a contract sales price of $56.3 million.

We have classified the results of operations for the properties discussed above into discontinued operations in the accompanying condensed consolidated statements of operations.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Rental revenue	$	1,691		$	2,988		$	5,118		$	8,991
Expenses
Property operating expenses	595			938			1,867			2,789
Interest expense	380			813			1,231			2,448
Real estate taxes	292			351			893			1,126
Property management fees	62			94			199			278
Asset management fees	17			21			51			65
Depreciation and amortization	384			836			1,146			3,239
Total expenses	1,730			3,053			5,387			9,945
Loss on early extinguishment of debt (1)	—			—			(1,236		)	—
Gain on sale of real estate property	—			—			9,264			—
Income (loss) from discontinued operations	$	(39	)	$	(65	)	$	7,759		$	(954	)

(1)Loss on early extinguishment of debt for the nine months ended September 30, 2012 was approximately $1.2 million and was comprised of the write-off of deferred financing fees and an early termination fee.

24

Behringer Harvard Opportunity REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The major classes of assets and liabilities associated with the real estate held for sale as of September 30, 2012 and December 31, 2011was as follows:

	September 30, 2012		December 31, 2011
Land and improvements, net	$	14,747	$	6,316
Building and improvements, net	27,745		22,294
Furniture, fixtures and equipment, net	478		810
Assets associated with real estate held for sale	$	42,970	$	29,420
Notes Payable	$	35,675	$	—
Accrued and other liabilities	205		37
Obligations associated with real estate held for sale	$	35,880	$	37

*****

25

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our accompanying financial statements and the notes thereto.

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These forward-looking statements include discussion and analysis of the financial condition of Behringer Harvard Opportunity REIT II, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including our ability to rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, the value of our assets, our anticipated capital expenditures, the amount and timing of anticipated future cash distributions to our stockholders, the estimated per share value of our common stock and other matters.  Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions.  These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements.  Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described herein and under Item 1A, “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2012 and the factors described below:

·no trading market for our shares exists, and we can provide no assurance that one will ever develop;

·possible delays in locating suitable investments;

·our potential inability to invest in a diverse portfolio;

·investments in foreign properties are susceptible to currency exchange rate fluctuations, adverse political developments, and changes in foreign laws;

·adverse market and economic challenges experienced by the U.S. and global economies or real estate industry as a whole and the local economic conditions in the markets in which our properties are located;

·the availability of credit generally, and any failure to refinance or extend our debt as it comes due or a failure to satisfy the conditions and requirements of that debt;

·future increases in interest rates;

·our ability to raise capital in the future by issuing additional equity or debt securities, selling our assets or otherwise;

·payment of distributions from sources other than cash flows from operating activities;

·our obligation to pay substantial fees to our Advisor and its affiliates;

·our ability to retain our executive officers and other key personnel of our Advisor, our property manager and their affiliates;

·conflicts of interest arising out of our relationships with our Advisor and its affiliates;

·unfavorable changes in laws or regulations impacting our business or our assets; and

·factors that could affect our ability to qualify as a real estate investment trust.

Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Report, and may ultimately prove to be incorrect.  We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results, except as required by applicable law.  We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

26

Cautionary Note

The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties.  Moreover, these representations, warranties or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.

Executive Overview

We were formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic basis.  In particular, we focus generally on acquiring commercial properties with significant possibilities for short-term capital appreciation, such as those requiring development, redevelopment or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who are distressed or face time-sensitive deadlines.  In addition, our opportunistic investment strategy may also include investments in loans secured by or related to real estate at more attractive rates of current return than have been available for some time.  Such loan investments may have capital gain characteristics, whether as a result of a discount purchase or related equity participations.  We may acquire a wide variety of commercial properties, including office, industrial, retail, hospitality, recreation and leisure, single-tenant, multifamily, and other real properties.  These properties may be existing, income-producing properties, newly constructed properties or properties under development or construction and may include multifamily properties purchased for conversion into condominiums or single-tenant properties that may be converted for multi-tenant use.  Further, we may invest in real estate-related securities, including securities issued by other real estate companies, either for investment or in change of control transactions completed on a negotiated basis or otherwise.  We also may originate or invest in collateralized mortgage-backed securities and mortgage, bridge or mezzanine loans, or in entities that make investments similar to the foregoing.  We expect to make our investments in or in respect of real estate assets located in the United States and other countries based on current market conditions.

On February 26, 2007, we filed an initial Registration Statement on Form S-11 with the SEC to offer up to 125,000,000 shares in the Initial Offering, of which 25,000,000 shares were being offered pursuant to DRP.  On July 3, 2011, the Initial Offering terminated in accordance with its terms.

Prior to termination of the Initial Offering, on September 13, 2010, we filed a second Registration Statement on Form S-11 with the SEC to register up to 75,000,000 shares of our common stock for sale to the public in the Follow-On Offering, of which 25,000,000 shares were offered pursuant to the DRP.  We terminated the primary portion of the Follow-On Offering on March 15, 2012 and the DRP component effective April 3, 2012.  We raised gross offering proceeds of approximately $265.3 million from the sale of approximately 26.7 million shares under the Offerings, including shares sold under the DRP.

Market Outlook

During the third quarter of 2012, the U.S. economy showed signs of stabilizing, but with growth coming at a slower pace as compared to prior economic recoveries.  GDP growth increased to 2% from 1.3% in the prior quarter, a pace that is too slow to dramatically improve the overall economy in the near term.  A major contributor to this slow growth was the European debt crisis and its effect on the global economy, as well as uncertainty by U.S. businesses as to the impact of the presidential election and the resolution of the so-called “fiscal cliff”.  Consequently, projections for global growth were reduced and U.S. exports were down for the third quarter of 2012.  However, domestically, many economic reports suggested that several sectors are in a recovery mode.  The U.S. economy added 171,000 new jobs in October 2012, which puts job creation for the year ahead of 2011’s pace.  The labor force participation rate, is a key metric that measures those working or looking for jobs, was also higher. American manufacturing and factory output were up 2.8% for the year to September 2012, beating consensus estimates.  Retail sales reported higher growth in August and September of 2012 than had been reported since 2010.  Housing, which is critical to a sustained recovery, is providing clearer evidence that it has moved off the bottom and rebounding with increased housing starts and sales and improved projections and confidence by homebuilders going forward.  All of these factors are leading to increased consumer sentiment and spending.  On a net basis, we believe the general consensus is the U.S. economy is currently able to overcome the negative global issues and is moving forward at a moderate, but uneven pace.  As an owner of office and industrial real estate properties, the majority of our income and cash flow is derived from rental revenue received pursuant to tenant leases for space at our properties.  Over the past several months there has been some improvement in fundamental benchmarks such as occupancy, rental rates and pricing.  Continued improvement in these fundamentals is dependent upon sustained economic growth.  Occupancy and rental rate stabilization will vary by market and property type.

A portion of our portfolio is currently invested in nine medical office buildings.  The demand for health care services, and consequently health care properties, is projected to increase in the near future.  The Centers for Medicare and

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Medicaid Services project that national health care expenditures will rise to $3.5 trillion in 2015, or 18.2% of gross domestic product.  The annual growth in national health expenditures for 2012 through 2021 is expected to be 5.7%, which would be 0.9% faster than the expected annual increase in GDP during this period.  While demographics are the primary driver of demand, economic conditions and availability of services contribute to health care service utilization rates.  We believe the health care property market may be less susceptible to fluctuations and economic downturns relative to other property sectors.

The total U.S. population is projected to increase by 20.4% through 2030.  The population aged 65 and over is projected to increase by 79.2% through 2030.  This population is an important component of health care utilization.  Most health care services are provided within a health care facility such as a hospital, a physician’s office or a senior housing facility.

Smith Travel Research indicates that the year-to-date national overall occupancy rate for hospitality properties in the United States increased to 67.1% and the national overall Average Daily Rate (“ADR”) increased to $107.34.  The hotel industry is expected to see continued modest growth in 2012.  If the economy continues to improve, we expect room rates for hotels to increase since increased demand for hotel rooms generally correlates with growth in the U.S. gross domestic product (GDP).  Compared to prior year, Courtyard Kauai at Coconut Beach Hotel has experienced double digit increase in occupancy rate and an approximately 6% increase in ADR.

Although an uneven U.S. economy may provide some resistance, primarily with respect to overall job growth, the favorable demand/supply fundamentals present in multifamily sector should still support reasonable growth.  On the demand side, the demographics for the targeted multifamily renter, the age group from 20 to 34 years old, are still positive in the sector.  This group is growing in size and while the other age segments have experienced employment declines, their aggregate employment has increased.  Further, while this age group in previous economic cycles experienced increasing single family home ownership, higher credit standards for single family mortgages and more reluctance to commit to home ownership are currently leading to more rental demand.  At the same time on the supply side, developments of new multifamily communities decreased substantially since 2008, such that supply has not been keeping up with demand.  We believe that this demand will lead to increased development activity; however, since high quality multifamily developments can take 18 to 36 months to entitle, permit and construct, we believe there is, even in the most aggressive outlook, a continued window of limited supply.  Accordingly, many analysts are still projecting continued multifamily rental growth, albeit at a slower pace.  However, multifamily performance is highly correlated with job and income growth.  While the factors noted above should position the multifamily sector to perform better in a slow growth environment, eventually the multifamily sector will need stronger employment and disposable consumer income to maintain rental growth.  As of September 30, 2012, a portion of our portfolio is invested in three multifamily properties including one classified as held for sale.

Current interest rates and the availability of multifamily financing are also favorable factors in the multifamily sector.  In the last 9 months, five and ten year treasury rates have declined approximately 25% and 13%, respectively, and as of September 30, 2012, are approximately 0.6% and 1.7%, respectively.  Competition for multifamily financing, particularly high quality, stabilized communities such as ours, has also added to the favorable financing environment.  In addition to government sponsored entities, insurance companies and commercial banks have been aggressive lenders in our sector.  While there is a risk that the European debt crisis, future legislative restrictions on Fannie Mae and Freddie Mac multifamily lending, or inflationary or capital pressures could eventually reverse these trends resulting in increased lending costs for multifamily, thus far this has not occurred.

Unlike traditional multifamily housing, all leases for student housing property typically commence and terminate on the same dates.  In the case of our typical student housing leases, this date coincides with the commencement of the fall academic term with the leases typically terminating at the completion of the last summer school session of the academic year.  As such, we must re-lease each property in its entirety each year, resulting in significant turnover in our tenant population from year to year.  As a result, we are highly dependent upon the effectiveness of our marketing and leasing efforts during the annual leasing season that typically begins in January and ends in August of each year.  Our properties’ occupancy rates are therefore typically relatively stable during the August to July academic year, but are susceptible to fluctuation at the commencement of each new academic year, which may be greater than the fluctuation in occupancy rates experienced by traditional multifamily properties.  A portion of our portfolio is currently invested in two student housing complexes.

Liquidity and Capital Resources

Our principal demands for funds will be for the (a) acquisition of real estate and real estate-related assets, (b) payment of operating expenses and (c) payment of interest on our outstanding indebtedness.  Generally, we expect to meet cash needs for the payment of operating expenses and interest on our outstanding indebtedness from our cash flow from operations.  To the extent that our cash flow from operations is not sufficient to cover our operating expenses, interest on our

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outstanding indebtedness, redemptions or distributions, we expect to use any proceeds not invested from the Offerings, borrowings and asset sales to fund such needs.

We continually evaluate our liquidity and ability to fund future operations and debt obligations.  As part of those analyses, we consider lease expirations and other factors.  Leases at our consolidated office and industrial properties representing 23% of our annualized base rent will expire by the end of 2013.  As a normal course of business, we are pursuing renewals, extensions and new leases.  If we are unable to renew or extend the expiring leases under similar terms or are unable to negotiate new leases, it would negatively impact our liquidity and adversely affect our ability to fund our ongoing operations.

We expect to fund our short-term liquidity requirements by using cash on hand, cash flow from the operations of investments we acquire and asset sales.  Operating cash flows are expected to increase as additional real estate assets are added to the portfolio and our existing portfolio stabilizes.  Although we intend to diversify our real estate portfolio, to the extent our portfolio is concentrated in certain geographic regions, types of assets, industries or business sectors, downturns relating generally to such regions, assets, industry or business sectors may result in tenants defaulting on their lease obligations at a number of our properties within a short time period.  Such defaults could negatively affect our liquidity and adversely affect our ability to fund our ongoing operations.

For both our short-term and long-term liquidity requirements, other potential future sources of capital may include proceeds from secured or unsecured financings from banks or other lenders, proceeds from the sale of our investments, if and when any are sold, and undistributed funds from operations or cash flow.  If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.

We may, but are not required to, establish capital reserves from net offering proceeds, cash flow generated by operating properties and other investments, or net sale proceeds from the sale of our properties and other investments.  Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions and major capital expenditures.  Alternatively, a lender may establish its own criteria for escrow of capital reserves.

We intend to borrow money to acquire properties and make other investments.  There is no limitation on the amount we may invest in any single property or other asset or on the amount we can borrow for the purchase of any individual property or other investment.  Under our charter, the maximum amount of our indebtedness is limited to 300% of our “net assets” (as defined by our charter) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors.  In addition to our charter limitation, our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests.  Our policy limitation, however, does not apply to individual real estate assets. We terminated the primary portion of the Follow-On Offering effective March 15, 2012 and the DRP component effective April 3, 2012.

The debt markets have experienced pervasive and fundamental disruptions.  Should the overall cost of borrowings increase, either by increases in the index rates or by increases in lender spreads, we will need to factor such increases into the economics of our acquisitions, developments and investments.  This may result in our investment operations generating lower overall economic returns and a reduced level of cash flow, which could potentially impact our ability to make distributions to our stockholders.  In addition, the dislocations in the debt markets have reduced the amount of capital that is available to finance real estate, which in turn: (a) leads to a decline in real estate values generally; (b) slows real estate transaction activity; (c) reduces the loan to value ratio upon which lenders are willing to extend debt; and (d) results in difficulty in refinancing debt as it becomes due, all of which may reasonably be expected to have a material adverse impact on the value of real estate investments and the revenues, income or cash flow from the operations of real properties and mortgage loans. In addition, the current state of the debt markets has negatively impacted our ability to raise equity capital.

Debt Financings

We may, from time to time, obtain mortgage, bridge or mezzanine loans for acquisitions and investments, as well as property development.  We may obtain financing at the time an asset is acquired or an investment is made or at such later time as determined to be necessary, depending on multiple factors.

At September 30, 2012, our notes payable balance was $217.3 million, including the loans secured by Parrot’s Landing and one of the four industrial buildings at Interchange Business Center classified as obligations associated with real estate held for sale.  We have unconditionally guaranteed payment of the note payable related to 1875 Lawrence which has a maturity date of December 31, 2012 for an amount not to exceed the lesser of (i) $11.75 million and (ii) 50% of the total amount advanced under the loan agreement if the aggregate amount advanced is less than $23.5 million.  We currently plan on refinancing the note payable or exercising the one year extension option pursuant to the terms under the loan agreement.  We have guaranteed payment of certain recourse liabilities with respect to certain customary nonrecourse carveouts as set forth in the

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guaranties in favor of the unaffiliated lenders with respect to the notes payable related to the Courtyard Kauai at Coconut Beach Hotel.  For the nine months ended September 30, 2012, we sold one asset to an unaffiliated third party and used a portion of the proceeds from the sale to fully satisfy the existing indebtedness of $19.7 million associated with the property.  Furthermore, we made a principal payment of $5.9 million on the loan related to 1875 Lawrence.  During October 2012, we sold one asset and one of the four industrial buildings at Interchange Business Center to an unaffiliated third party and used the proceeds from the sale to satisfy the existing indebtedness of $35.7 million (classified as obligations associated with real estate held for sale). See footnote 16, Discontinued Operations and Real Estate Held for Sale for further details.

Our loan agreements stipulate that we comply with certain reporting and financial covenants.  These covenants include, among other things, maintaining minimum debt service coverage ratios and liquidity.  As of September 30, 2012, we believe we were in compliance with the debt covenants under our loan agreements.

One of our principal long-term liquidity requirements includes the repayment of maturing debt.  The following table provides information with respect to the maturities and scheduled principal repayments of our indebtedness excluding obligations associated with real estate held for sale as of September 30, 2012.  The table does not represent any extension options ($ in thousands).

	Payments Due by Period
	October 1, 2012 - December 31, 2012		2013		2014		2015		2016		Thereafter		Total
Principal payments - variable rate debt	$	15,055	$	9,883	$	—	$	38,000	$	—	$	—	$	62,938
Principal payments - fixed rate debt	656		1,987		2,585		17,953		18,677		76,797		118,655
Interest payments - variable rate debt (based on rates in effect as of September 30, 2012)	615		1,223		448		422		—		—		2,708
Interest payments - fixed rate debt	1,380		5,431		5,351		5,011		3,914		7,339		28,426
Operating leases(1)	73		293		293		301		301		21,528		22,789
Total (2)	$	17,779	$	18,817	$	8,677	$	61,687	$	22,892	$	105,664	$	235,516

(1)Our operating leases consist of ground leases on each of eight buildings acquired in connection with the purchase of the Original Florida MOB Portfolio.  Each ground lease is for a term of 50 years, with a 25-year extension option.  The annual payment for each ground lease increases by 10% every five years.

(2)Does not include the loans secured by Parrot’s Landing and one of the four industrial buildings at Interchange Business Center which are classified as obligations associated with real estate held for sale on our consolidated balance sheet totaling $35.7 million.

Results of Operations

Three months ended September 30, 2012 as compared to the three months ended September 30, 2011.

Continuing Operations

As of September 30, 2012, we had 11 real estate investments, ten of which were consolidated in our continuing operations.  As of September 30, 2011, we had ten real estate and real estate-related investments, seven of which were consolidated in our continuing operations.

Our results of operations for the respective periods presented reflect increases in most categories due to the growth of our portfolio in each period presented.  Management expects increases in most categories in the future as we purchase additional real estate and real estate-related assets and as we begin to realize the full year impact of our acquisitions.

Revenues.  Revenues for the three months ended September 30, 2012 were $11.5 million, an increase of $2.8 million from the three months ended September 30, 2011.  The change in revenue is primarily due to:

·an increase in rental revenue of $2.1 million due to the acquisition of three consolidated properties; and

·an increase of hotel revenue of $1.2 million at the Courtyard Kauai at Coconut Beach Hotel due to completion of the planned renovation.

For the three months ended September 30, 2011, we earned $0.4 million of interest income from our real estate loan receivable related to the PAL Loan.  The debtor associated with the PAL real estate loan receivable exercised its option to prepay the entire balance of the loan on August 15, 2011.

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Property Operating Expenses.  Property operating expenses for the three months ended September 30, 2012 were $5.8 million and were comprised of operating expenses for the 10 properties we consolidated.  Property operating expenses for the three months ended September 30, 2011 were $4.5 million and were comprised of operating expenses for the seven properties we consolidated.  This increase is principally a result of acquisitions during 2012 and the fourth quarter of 2011 and increased activity related to Courtyard Kauai at Coconut Beach Hotel.

Interest Expense.  Interest expense for the three months ended September 30, 2012 was $2.3 million as compared to $1.7 million for the three months ended September 30, 2011.

Real Estate Taxes.  Real estate taxes for the three months ended September 30, 2012 were $1.2 million related to our consolidated properties.  Real estate taxes for the three months ended September 30, 2011 were $0.9 million.

Property Management Fees.  Property management fees related to our consolidated properties for the three months ended September 30, 2012 were $0.4 million.  Property management fees for the three months ended September 30, 2011 were $0.2 million.

Asset Management Fees.   Asset management fees for the three months ended September 30, 2012 were $0.8 million and consisted of asset management fees related to our ten consolidated properties.  Asset management fees for the three months ended September 30, 2011 were $0.8 million and consisted of asset management fees related to our seven properties we consolidated in 2011.

General and Administrative Expenses.  General and administrative expenses for the three months ended September 30, 2012 were $0.9 million, as compared to $0.6 million for the three months ended September 30, 2011, and were comprised of auditing fees, legal fees, board of directors’ fees, and other administrative expenses.  We expect general and administrative expense to increase as a result of certain costs now expensed as a result of the termination of the Offerings.

Depreciation and Amortization Expense.  Depreciation and amortization expense for the three months ended September 30, 2012 was $3.5 million and was comprised of depreciation and amortization expense related to our ten consolidated properties.  Depreciation and amortization expense for the three months ended September 30, 2011 was $3.1 million and was comprised of depreciation and amortization related to our seven consolidated properties.

Nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011.

Continuing Operations

As of September 30, 2012, we had 11 real estate investments, ten of which were consolidated in our continuing operations.  As of September 30, 2011, we had ten real estate and real estate-related investments, seven of which were consolidated in our continuing operations.

Our results of operations for the respective periods presented reflect increases in most categories due to the growth of our portfolio in each period presented.  Management expects increases in most categories in the future as we purchase additional real estate and real estate-related assets and as we begin to realize the full year impact of our acquisitions.

Revenues.  Revenues for the nine months ended September 30, 2012 were $33 million, an increase of $8.1 million from the nine months ended September 30, 2011.  The change in revenue is primarily due to:

·an increase in rental revenue of $7.9 million due to the acquisition of four consolidated properties; and

·an increase of hotel revenue of $3.1 million at the Courtyard Kauai at Coconut Beach Hotel due to completion of the planned renovation.

For the nine months ended September 30, 2011, we earned interest income from our real estate loan receivable of $2.9 million, all of which was related to the PAL Loan.

Property Operating Expenses.  Property operating expenses for the nine months ended September 30, 2012 were $16.7 million and were comprised of operating expenses for the ten properties we consolidated.  Property operating expenses for the nine months ended September 30, 2011 were $12.2 million and were comprised of operating expenses for the seven properties we consolidated.  This increase is principally a result of acquisitions during 2012 and the fourth quarter of 2011 and increased activity related to Courtyard Kauai at Coconut Beach Hotel.

Interest Expense.  Interest expense for the nine months ended September 30, 2012 was $6.9 million as compared to $4.8 million for the nine months ended September 30, 2011.

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Real Estate Taxes.  Real estate taxes for the nine months ended September 30, 2012 were $3.5 million related to our consolidated properties.  Real estate taxes for the nine months ended September 30, 2011 were $2.6 million.

Property Management Fees.  Property management fees related to our consolidated properties for the nine months ended September 30, 2012 were $1.2 million.  Property management fees for the nine months ended September 30, 2011 were $0.8 million.

Asset Management Fees.   Asset management fees for the nine months ended September 30, 2012 were $2.4 million and consisted of asset management fees related to our ten consolidated properties.  Asset management fees for the nine months ended September 30, 2011 were $2.1 million and consisted of asset management fees related to our seven properties we consolidated in 2011.

General and Administrative Expenses.  General and administrative expenses for the nine months ended September 30, 2012 were $2.2 million, as compared to $1.7 million for the nine months ended September 30, 2011, and were comprised of auditing fees, legal fees, board of directors’ fees and other administrative expenses.  We expect general and administrative expense to increase as a result of certain costs capitalized during the Offerings that will now be expensed as a result of its termination.

Depreciation and Amortization Expense.  Depreciation and amortization expense for the nine months ended September 30, 2012 was $11.2 million and was comprised of depreciation and amortization expense related to our ten consolidated properties.  Depreciation and amortization expense for the nine months ended September 30, 2011 was $8.6 million and was comprised of depreciation and amortization related to our seven consolidated properties.

See Note 16 to Condensed Consolidated Financial Statements for further information regarding discontinued operations.

Cash Flow Analysis

Cash provided by operating activities for the nine months ended September 30, 2012 was $4 million and was primarily comprised of the net loss of $4 million, adjusted for depreciation and amortization, including amortization of deferred financing fees of $13.1 million, cash used for working capital and other operating activities of approximately $4.2 million and offset by a gain on sale of the Palms of Monterrey of $9.3 million.  Cash provided by operating activities for the nine months ended September 30, 2011 was $4.7 million and was comprised of the net loss of $6.9 million, adjusted for depreciation and amortization, including amortization of deferred financing fees of $12.5 million and cash provided by working capital and other operating activities of approximately $1.8 million, offset by equity in (gains) / losses of unconsolidated joint ventures of $2.7 million.

Cash provided by investing activities for the nine months ended September 30, 2012 was $15.6 million, and was comprised of net proceeds from sale of the Palms of Monterrey of $38.7 million, offset by purchase of real estate of $11 million, additions of property and equipment of $11.7 million and an increase in restricted cash of approximately $0.4 million.  Cash used in investing activities for the nine months ended September 30, 2011 was $16.5 million, and was comprised of purchases of real estate of $37.4 million, cash used for additions of property and equipment of approximately $9 million, offset by repayment of notes receivable of $25 million and a decrease in restricted cash of $4.9 million.

Cash used in financing activities for the nine months ended September 30, 2012 was $38.9 million, and was comprised of payments to notes payable, net of proceeds and financing costs, of $23.4 million, cash distributions to our stockholders of $14.5 million, net distributions to non-controlling interest holders of $5.6 million, redemptions of common stock of $1 million, offset by the issuance of common stock, net of offering costs, of $5.6 million.  Cash provided by financing activities for the nine months ended September 30, 2011 was $43.7 million, and was comprised of proceeds from notes payable, net of payments and financing costs, of $28.7 million, the issuance of common stock, net of offering costs, of $16.3 million offset by net contributions from non-controlling interest holders of $3.2 million, redemptions of common stock of $1.6 million and cash distributions to our shareholders of $2.9 million.

Funds from Operations

Funds from operations (“FFO”) is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance.  We use FFO as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) in the April 2002 “White Paper of Funds From Operations” which is net income (loss), computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains (or losses) from sales of property and impairments of depreciable real estate (including impairments of investments in unconsolidated joint ventures and partnerships which resulted from measurable decreases in the fair value of the depreciable real estate held by the joint venture or partnership), plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures, subsidiaries, and noncontrolling interests as one measure to evaluate our operating performance.  In October 2011, NAREIT clarified the FFO definition to exclude impairment charges of depreciable real estate (including impairments of investments

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in unconsolidated joint ventures and partnerships which resulted from measurable decreases in the fair value of the depreciable real estate held by the joint venture or partnership).  We have calculated FFO for all periods presented in accordance with this clarification.

Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time.  Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient.  As a result, our management believes that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance.

We believe that FFO is helpful to investors and our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, impairments of depreciable assets, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income.

FFO should not be considered as an alternative to net income (loss), as an indication of our liquidity, nor as an indication of funds available to fund our cash needs, including our ability to make distributions and should be reviewed in connection with other GAAP measurements.  Additionally, the exclusion of impairments limits the usefulness of FFO as a historical operating performance measure since an impairment charge indicates that operating performance has been permanently affected.  FFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO.  Our FFO as presented may not be comparable to amounts calculated by other REITs that do not define these terms in accordance with the current NAREIT definition or that interpret the definition differently.

Our calculation of FFO for the three and nine months ended September 30, 2012 and 2011 is presented below ($ in thousands except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net income (loss) attributable to the Company	$	(3,101	)	$	696		$	(3,768	)	$	(5,542	)
Adjustments for:
Real estate depreciation and amortization(1)	3,461			3,515			10,933			10,624
Gain on sale of real estate(2)	—			(3,261		)	(8,338		)	(3,261		)
Funds from operations (FFO)	$	360		$	950		$	(1,173	)	$	1,821
GAAP weighted average shares:
Basic and diluted	26,069			24,508			25,962			23,739
FFO per share	$	0.01		$	0.04		$	(0.05	)	$	0.08
Net income (loss) per share	$	(0.12	)	$	0.03		$	(0.15	)	$	(0.23	)

(1) Real estate depreciation and amortization includes our consolidated depreciation and amortization expense, as well as our pro rata share of those unconsolidated investments which we account for under the equity method of accounting and the noncontrolling interest adjustment for the third-party partners’ share of the real estate depreciation and amortization.  Reflects the real estate depreciation and amortization of continuing operations, as well as discontinued operations.

(2) For the three and nine months ended September 30, 2011, the $3.3 million represents our portion of the gain on the sale of an investment in an unconsolidated joint venture which is included in equity in earnings of unconsolidated joint ventures.

Provided below is additional information related to selected items included in net gain (loss) above, which may be helpful in assessing our operating results.

·Straight-line rental revenue of $0.1 million and $0.2 million was recognized for the three and nine months ended September 30, 2012, respectively.  Straight-line rental revenue of $0.2 million and $0.3 million was recognized for the three and nine months ended September 30, 2011, respectively.  The noncontrolling interest portion of straight-line rental revenue for each of the three and nine months ended September 30, 2012 was less than $0.1 million.  The noncontrolling interest portion of straight-line rental revenue for each of the three and nine months ended September 30, 2011 was less than $0.1 million.

·Net above/below market lease amortization of less than $0.1 million and $0.1 million was recognized as an increase to rental revenue for the three and nine months ended September 30, 2012, respectively.  Net above/below market lease amortization of less than $0.1 million and $0.3 million was recognized as an increase to rental revenue for the three and nine months ended September 30, 2011 respectively.  The noncontrolling interest portion of net above/below market lease amortization for the three and nine months ended September 30, 2012 was less than $0.1 million.  The noncontrolling interest portion of net

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above/below market lease amortization for the three and nine months ended September 30, 2011 was less than $0.1 million.

·Amortization of deferred financing costs of $0.3 million and $0.8 million was recognized as interest expense for our notes payable for the three and nine months ended September 30, 2012, respectively.  Amortization of deferred financing costs of $0.3 million and $0.8 million was recognized as interest expense for our notes payable for the three and nine months ended September 30, 2011.

In addition, cash flows generated from FFO may be used to fund all or a portion of certain capitalizable items that are excluded from FFO, such as capital expenditures and payments of principal on debt, each of which may impact the amount of cash available for distribution to our stockholders.

Distributions

Distributions are authorized at the discretion of our board of directors based on its analysis of our performance over the previous periods and expectations of performance for future periods.  These analyses may include actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for our portfolio, capital expenditure needs, general financial and market conditions and other factors that our board deems relevant.  The board’s decision will be substantially influenced by its obligation to ensure that we maintain our status as a REIT.  In light of the continued uncertainty in the global financial and real estate markets, we cannot provide assurance that we will be able to achieve expected cash flows necessary to pay distributions at any particular level, or at all.

On March 20, 2012, our board of directors declared a special distribution of $0.50 per share of common stock payable to our stockholders of record as of April 3, 2012 and determined to cease regular, monthly distributions in favor of payment of periodic distributions from excess proceeds from asset dispositions or from other sources as necessary to maintain our REIT tax status.  The payment date for the special distribution was on May 10, 2012.

Until our investments are generating sufficient operating cash flow to fully fund the payment of distributions to our stockholders, we have paid and may in the future pay some or all of our distributions from sources other than operating cash flow.  We have, for example, generated cash to pay distributions from financing activities, components of which include proceeds from the Offerings and borrowings (including borrowings secured by our assets) in anticipation of future operating cash flow.  We have also utilized cash from refinancing and dispositions, the components of which may represent a return of capital and/or the gains on sale.  In addition, from time to time, our Advisor may agree to waive or defer all or a portion of the acquisition, asset management or other fees or incentives due to it, pay general administrative expenses or otherwise supplement investor returns in order to increase the amount of cash that we have available to pay distributions to our stockholders.

The following summarizes certain information related to the sources of recent distributions ($ in thousands):

	September 30,
	2012		2011
Total Distributions Paid (1)	$	17,326	$	8,811
Principal Sources of Funding:
Distribution Reinvestment Plan	$	2,790	$	5,912
Cash flow provided by (used in) operating activities	$	4,044	$	4,711
Cash available at the beginning of the period (2)	$	80,130	$	49,375

(1)Nine months ending September 30, 2012, includes special cash distribution of $13 million.

(2)Represents the cash available at the beginning of the reporting period primarily attributable to excess funds raised from the issuance of common stock and borrowings, after the impact of historical operating activities, other investing and financing activities.

We paid no distributions to stockholders during the three months ended September 30, 2012.  Total distributions paid to stockholders during the nine months ended September 30, 2012 were $17.3 million and consisted of the special cash distribution of $13 million and the regular distribution of $4.3 million.  A portion of the $4.3 million regular distributions to stockholders was funded from cash flow provided by operations.  Total distributions of $8.8 million were paid to stockholders during the nine months ended September 30, 2011.  Distributions funded through the issuance of shares under the DRP during the nine months ended September 30, 2011 were $5.9 million.  Accordingly, cash amounts distributed to stockholders during the nine months ended September 30, 2011 were $2.9 million and were funded from cash provided by operations.  Future distributions declared and paid may exceed cash flow from operating activities or fund from operations until such time as we invest in additional real estate or real estate-related assets at favorable yields and our investments reach stabilization.

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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP.  The preparation of these financial statements requires our 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.  On a regular basis, we evaluate these estimates, including investment impairment.  These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates.

Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.

Principles of Consolidation and Basis of Presentation

Our condensed consolidated financial statements include our accounts and the accounts of other subsidiaries over which we have control.  All inter-company transactions, balances, and profits have been eliminated in consolidation.  Interests in entities acquired will be evaluated based on applicable GAAP, which includes the requirement to consolidate entities deemed to be variable interest entities (“VIE”) in which we are the primary beneficiary.  If the interest in the entity is determined not to be a VIE, then the entity will be evaluated for consolidation based on legal form, economic substance, and the extent to which we have control and/or substantive participating rights under the respective ownership agreement.

There are judgments and estimates involved in determining if an entity in which we have made an investment is a VIE and, if so, whether we are the primary beneficiary.  The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity.  Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of those future losses.  A change in the judgments, assumptions and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial statements.

Real Estate

Upon the acquisition of real estate properties, we recognize the assets acquired, the liabilities assumed, and any noncontrolling interest as of the acquisition date, measured at their fair values.  The acquisition date is the date on which we obtain control of the real estate property.  The assets acquired and liabilities assumed may consist of land, inclusive of associated rights, buildings, assumed debt, identified intangible assets and liabilities and asset retirement obligations.  Identified intangible assets generally consist of above-market leases, in-place leases, in-place tenant improvements, in place leasing commissions and tenant relationships.  Identified intangible liabilities generally consist of below market leases.  Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree over the fair value of the identifiable net assets acquired.  Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired.  Acquisition-related costs are expensed in the period incurred.  Initial valuations are subject to change until our information is finalized, which is no later than twelve months from the acquisition date.

The fair value of the tangible assets acquired, consisting of land and buildings, is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings.  Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or management’s estimates of the fair value of these assets using discounted cash flow analyses or similar methods believed to be used by market participants.  The value of buildings is depreciated over the estimated useful life of 25 years using the straight-line method.

We determine the fair value of assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that management believes we could obtain at the date of the debt assumption.  Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan using the effective interest method.

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We determine the value of above-market and below-market leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management’s estimate of current market lease rates for the corresponding in-place leases, measured over a period equal to (a) the remaining non-cancelable lease term for above-market leases, or (b) the remaining non-cancelable lease term plus any below-market fixed rate renewal options that, based on a qualitative assessment of several factors, including the financial condition of the lessee, the business conditions in the industry in which the lessee operates, the economic conditions in the area in which the property is located, and the ability of the lessee to sublease the property during the renewal term, are reasonably assured to be exercised by the lessee for below-market leases.  We record the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the determined lease term.

The total value of identified real estate intangible assets acquired is further allocated to in-place leases, in place tenant improvements, in place leasing commissions and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant.  The aggregate value for tenant improvements and leasing commissions is based on estimates of these costs incurred at inception of the acquired leases, amortized through the date of acquisition.  The aggregate value of in-place leases acquired and tenant relationships is determined by applying a fair value model.  The estimates of fair value of in-place leases include an estimate of carrying costs during the expected lease-up periods for the respective spaces, considering current market conditions.  In estimating the carrying costs that would have otherwise been incurred had the leases not been in place, we include such items as real estate taxes, insurance and other operating expenses, as well as lost rental revenue during the expected lease-up period based on current market conditions.  The estimates of the fair value of tenant relationships also include costs to execute similar leases, including leasing commissions, legal fees and tenant improvements, as well as an estimate of the likelihood of renewal as determined by management on a tenant-by-tenant basis.

We amortize the value of in-place leases, in place tenant improvements and in place leasing commissions to expense over the initial term of the respective leases.  The tenant relationship values are amortized to expense over the initial term and any anticipated renewal periods, but in no event does the amortization period for intangible assets or liabilities exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, the unamortized portion of the acquired lease intangibles related to that tenant would be charged to expense.

Investment Impairments

For all of our real estate and real estate related investments, we monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable.  Examples of the types of events and circumstances that would cause management to assess our assets for potential impairment include, but are not limited to: a significant decrease in the market price of an asset; a significant adverse change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase offers and changes in the global and local markets or economic conditions.  Our assets may at times be concentrated in limited geographic locations and, to the extent that our portfolio is concentrated in limited geographic locations, downturns specifically related to such regions may result in tenants defaulting on their lease obligations at a portion of our properties within a short time period, which may result in asset impairments.  When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition to the carrying amount of the asset.  In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value.  We consider projected future undiscounted cash flows, trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist.  While we believe our estimates of future cash flows are reasonable, different assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates.

In evaluating our investments for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during our ownership, and the projected sales price of each of the properties.  A future change in these estimates and assumptions could result in understating or overstating the carrying value of our investments, which could be material to our financial statements.

We believe the carrying value of our operating real estate is currently recoverable.  Accordingly, there were no impairment charges for the three or nine months ended September 30, 2012 or 2011.  However, if market conditions worsen beyond our current expectations, or if changes in our strategy significantly affect any key assumptions used in our fair value calculations, we may need to take charges in future periods for impairments related to our existing investments.  Any such non-cash charges would have an adverse effect on our consolidated financial position and results of operations.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk.

Foreign Currency Exchange Risk

As of September 30, 2012, we maintained approximately $2.1 million in Euro-denominated accounts at European financial institutions.  We currently have two investments in Europe, and as such, we believe that we are not materially exposed to any significant foreign currency fluctuations related to these accounts as we do not usually maintain large balances in European financial institutions unless such funds are required for capital needs.

Interest Rate Risk

We may be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments.  Our management’s objectives, with regard to interest rate risks, are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs.  To achieve these objectives, we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates.  With regard to variable rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.  We may enter into derivative financial instruments such as options, forwards, interest rate swaps, caps, or floors to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate portion of our variable rate debt.  Of our $217.3 million in notes payable, including the loans classified as obligations associated with real estate held for sale at September 30, 2012 secured by Parrot’s Landing and one of the four industrial buildings at Interchange Business Center, $62.9 million represented debt subject to variable interest rates, of which $24.9 million is subject to minimum interest rates.  If our variable interest rates increased 100 basis points, we estimate that total annual interest cost, including interest expensed and interest capitalized, would increase by $0.4 million.

Interest rate caps classified as assets were reported at their combined fair value of less than $0.1 million within prepaid expenses and other assets at September 30, 2012.  A 100 basis point decrease in interest rates would result in a less than $0.1 million net decrease in the fair value of our interest rate caps.  A 100 basis point increase in interest rates would result in a $0.1 million net increase in the fair value of our interest rate caps.

Item 4.Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of September 30, 2012, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of September 30, 2012, to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting that occurred during the quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1.Legal Proceedings.

We are not a party to, and none of our properties are subject to, any material pending legal proceedings.

Item 1A.Risk Factors.

There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

During the period covered by this quarterly report, we did not sell any equity securities that were not registered under the Securities Act of 1933.

Share Redemption Program

Our board of directors has adopted a share redemption program that permits stockholders to sell their shares back to us after they have held them for at least one year, subject to the significant conditions and limitations of the program.  Our board of directors can amend the provisions of our share redemption program without the approval of our stockholders.

The terms on which we redeem shares may differ between redemptions upon a stockholder’s death, “qualifying disability” (as defined in the share redemption program) or confinement to a long-term care facility (collectively, “Exceptional Redemptions”) and all other redemptions (“Ordinary Redemptions”).  Our board of directors determined to suspend until further notice accepting Ordinary Redemptions effective April 1, 2012.  Under our share redemption program in effect for the three months ended September 30, 2012, the purchase price for shares redeemed pursuant to an Exceptional Redemption request is set forth below.

In the case of Exceptional Redemptions, prior to the first valuation conducted by the board of directors, or a committee thereof (the “Initial Board Valuation”), the purchase price per share for the redeemed shares will equal 90% of the difference of (a) average price per share the original purchaser or purchasers of shares paid to us for all of his or her shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock) (the “Original Share Price”) less (b) the aggregate distributions per share of any net sale proceeds from the sale of one or more of our assets, or other special distributions so designated by the board of directors (the “Special Distributions”), distributed to stockholders prior to the redemption date and declared from the date of first issue of such redeemed Shares.

On or after the Initial Board Valuation, the purchase price per share for the redeemed shares will equal the lesser of 90% of:

·the current estimated value per share (the “Valuation”) as determined in accordance with the Valuation Policy; and

·the Original Share Price less any Special Distributions distributed to stockholders prior to the redemption date and declared from the date of first issue of such redeemed Shares.

Notwithstanding the redemption prices set forth above, our board of directors may determine, whether pursuant to formulas or processes approved or set by our board of directors, the redemption price of the shares, which may differ between Ordinary Redemptions and Exceptional Redemptions; provided, however, that we must provide at least 30 days’ notice to stockholders before applying this new price determined by our board of directors.

Any shares approved for redemption will be redeemed on a periodic basis as determined from time to time by our board of directors, and no less frequently than annually.  We will not redeem, during any twelve-month period, more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption.  For periods beginning on or after April 1, 2012, the cash available for redemption in any quarterly period will generally be limited to no more than $250,000, and in no event more than $1,000,000 in any twelve-month period.  The redemption limitations apply to all redemptions, whether Ordinary or Exceptional Redemptions.

During the three months ended September 30, 2012 our board of directors redeemed all six Exceptional redemption requests received that complied with the applicable requirements and guidelines of the share redemption program for an aggregate of 8,873 shares redeemed for $0.1 million (approximately $8.55 per share).  We have funded all share redemptions with proceeds from the Offerings.

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We have not presented information regarding submitted and unfulfilled Ordinary Redemption requests for the three months ended September 30, 2012 as our board of directors suspended Ordinary Redemptions effective April 1, 2012 and we believe many stockholders who may otherwise desire to have their shares redeemed have not submitted a request due to the suspension of Ordinary Redemptions.

Any Ordinary Redemption requests submitted while Ordinary Redemptions are suspended will be returned to investors and must be resubmitted upon resumption of Ordinary Redemptions. If Ordinary Redemptions are resumed, we will give all stockholders notice that we are resuming Ordinary Redemptions, so that all stockholders will have an equal opportunity to submit shares for redemption.  Upon resumption of Ordinary Redemptions, any redemption requests will be honored pro rata among all requests received based on funds available. Requests will not be honored on a first come, first served basis.

During the quarter ended September 30, 2012, we redeemed shares as follows:

2012	Total Number of Shares Redeemed	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Be Purchased Under the Plans or Programs
July	—	$	—	—
August	8,873	$	8.55	8,873		(1)
September	—	$	—	—
	8,873	$	8.55	8,873		(1)

(1) A description of the maximum number of shares that may be purchased under our redemption program is included in the narrative preceding this table.

Item 3.Defaults Upon Senior Securities.

None.

Item 4.Mine Safety Disclosure.

None.

Item 5.Other Information.

Annual Meeting

On November 7, 2012, we held our annual meeting of stockholders.  A total of 14,392,256 shares of our common stock outstanding and entitled to vote were represented at the meeting in person or by proxy, representing approximately 55.2% of the total number of shares entitled to vote at the meeting.

At the annual meeting, our stockholders elected the six nominees listed below to serve on our board of directors until the next annual meeting of stockholders, and each will continue in office until his or her successor has been elected and qualified or until his or her earlier death, resignation, or retirement.  The votes cast with respect to each director were as follows:

Nominee	For	Withheld
Robert M. Behringer	13,748,337	643,918
Robert S. Aisner	13,758,433	633,822
Andreas K. Bremer	13,772,659	619,596
Diane S. Detering-Paddison	13,776,641	615,614
Cynthia Pharr Lee	13,780,795	611,460
Jeffrey P. Mayer	13,778,813	613,442

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In addition, at the annual meeting, the stockholders approved an amendment and restatement of our charter.  The proposal to amend and restate the charter is described in detail in the proxy statement related to the annual meeting of stockholders.  The votes cast with respect to the amendment and restatement of the charter were as follows:

For	Against	Abstain
13,243,841	516,644	631,770

We have filed the Third Articles of Amendment and Restatement with the State Department of Assessment and Taxation of the State of Maryland (the “SDAT”), and they were effective immediately upon filing on November 7, 2012.

Finally, at the annual meeting, our stockholders approved a proposal to permit the board of directors to adjourn the meeting, if necessary, to solicit additional proxies in favor of the first two proposals if there were not sufficient votes for the proposals.

Bylaw Amendment

In connection with the stockholder approval of our amended and restated charter, our board of directors approved an amendment and restatement of our bylaws to reduce the quorum required for stockholder meetings.  As amended, our bylaws provide that a quorum is 40% of all the votes entitled to be cast at a stockholder meeting instead of the 50% previously provided.  As approved by our board of directors, our amended and restated bylaws became effective immediately upon the filing of our Third Articles of Amendment and Restatement with the SDAT on November 7, 2012.

Item 6.Exhibits.

The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.

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SIGNATURE

Pursuant to the requirements 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.

	BEHRINGER HARVARD OPPORTUNITY REIT II, INC.
Dated: November 14, 2012	By:	/s/ Andrew J. Bruce
		Andrew J. Bruce
		Chief Financial Officer
		Principal Financial Officer

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Index to Exhibits

Exhibit Number	Description
3.1*	Third Articles of Amendment and Restatement
3.2*	Second Amended and Restated Bylaws
4.2	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.5 to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11, Commission File No. 333-140887
10.1*	Real Estate Purchase and Sale Agreement between Dedicated (Parrots Landing) LP, as buyer, and 7900 Hampton Blvd, LLC as seller, dated August 24, 2012.
10.2*	First Amendment to Real Estate Purchase and Sale Agreement between Dedicated (Parrots Landing) LP, as buyer, and 7900 Hampton Blvd, LLC as seller, dated August 24, 2012.
31.1*	Rule 13a-14(a)/15d-14(a) Certification
31.2*	Rule 13a-14(a)/15d-14(a) Certification
32.1*	Section 1350 Certification**
32.2*	Section 1350 Certification**
99.1	Second Amended and Restated Share Redemption Program (incorporated by reference to Exhibit 4.4 to Form 10-K filed on March 28, 2012)
101**	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed on November 14, 2012, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.

* Filed herewith

** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.  Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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