10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 333-146341

KBS REAL ESTATE INVESTMENT TRUST II, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	26-0658752
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
620 Newport Center Drive, Suite 1300 Newport Beach, California	92660
(Address of Principal Executive Offices)	(Zip Code)

(949) 417-6500

(Registrant’s Telephone Number, Including Area Code)

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

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

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

None

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

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

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  þ    No  ¨

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

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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-Accelerated Filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	þ

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

There is no established market for the Registrant’s shares of common stock. The Registrant is currently conducting the ongoing initial public offering of its shares of common stock pursuant to a Registration Statement on Form S-11, which shares are being sold at $10.00 per share, with discounts available for certain categories of purchasers. There were approximately 720,330 shares of common stock held by non-affiliates at June 30, 2008, the last business day of the registrant’s most recently completed second fiscal quarter.

As of March 24, 2009, there were 44,978,256 outstanding shares of common stock of the Registrant.

Documents Incorporated by Reference:

Registrant incorporates by reference in Part III (Items 10, 11, 12, 13 and 14) of this Form 10-K portions of its Definitive Proxy Statement for the 2009 Annual Meeting of Stockholders.

TABLE OF CONTENTS

PART I		3
ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	7
ITEM 1B.	UNRESOLVED STAFF COMMENTS	35
ITEM 2.	PROPERTIES	35
ITEM 3.	LEGAL PROCEEDINGS	38
ITEM 4.	SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS	38
PART II		39
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	39
ITEM 6.	SELECTED FINANCIAL DATA	42
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	43
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	53
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	54
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	54
ITEM 9A.	CONTROLS AND PROCEDURES	54
ITEM 9B.	OTHER INFORMATION	54
PART III		55
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	55
ITEM 11.	EXECUTIVE COMPENSATION	55
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	55
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	55
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	55
PART IV		56
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	56
INDEX TO FINANCIAL STATEMENTS		F-1

1

FORWARD-LOOKING STATEMENTS

Certain statements included in this annual report on Form 10-K are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of KBS Real Estate Investment Trust II, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and 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 over time, unless required by law.

The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

• Both we and our advisor have limited operating histories. This inexperience makes our future performance difficult to predict.

• All of our executive officers, some of our directors and other key real estate professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager and other KBS-affiliated entities. As a result, they face conflicts of interest, including significant conflicts created by our advisor’s compensation arrangements with us and other KBS-advised programs and investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in unanticipated actions.

• Because investment opportunities that are suitable for us may also be suitable for other KBS-advised programs or investors, our advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders.

• If we raise substantially less than the maximum offering, we may not be able to invest in a diverse portfolio of real estate assets and the value of an investment in us may vary more widely with the performance of specific assets.

• If we are unable to locate investments with attractive yields while we are investing the proceeds of our ongoing initial public offering, our distributions and the long-term returns of our investors may be lower than they otherwise would.

• We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants.

• Our current and future investments in real estate, mortgage loans, mezzanine loans, bridge loans, mortgage-backed securities, collateralized debt obligations and other debt may be affected by unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders.

• The current credit market disruptions have caused the spreads on prospective debt financing to increase. This could cause the costs and terms of new financings to be less attractive than the terms of our current indebtedness and increase the cost of our variable rate debt. In addition, we may not be able to refinance our existing indebtedness or to obtain additional debt financing on attractive terms. As such, we may be forced to use a greater proportion of our offering proceeds to finance our acquisitions, reducing the number of acquisitions we would otherwise make, and/or dispose of some of our assets.

• Continued disruptions in the financial markets and deteriorating economic conditions could adversely affect the value of our investments.

• Certain of our debt obligations have variable interest rates with interest and related payments that vary with the movement of LIBOR or other indexes. Increases in the indexes could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.

All forward-looking statements should be read in light of the risks identified in Part I, Item IA of this annual report on

Form 10-K.

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PART I

ITEM 1. BUSINESS

Overview

KBS Real Estate Investment Trust II, Inc. (the “Company”) is a Maryland corporation formed on July 12, 2007 to invest in a diverse portfolio of real estate properties and real estate-related assets. The Company intends to qualify as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2008. As used herein, the terms “we,” “our” and “us” refer to the Company and as required by context, KBS Limited Partnership II, a Delaware limited partnership, which we refer to as our “Operating Partnership,” and to their subsidiaries. We plan to own substantially all of our assets and conduct our operations through our Operating Partnership, of which we are the sole general partner.

We intend to invest in a diverse portfolio of real estate assets. The types of properties that we may invest in include office, industrial and retail properties located throughout the United States. Although we may invest in any of these types of properties, we expect to invest primarily in office and industrial properties. All such real estate assets may be acquired directly by us or the Operating Partnership, though we may invest in other entities that make similar investments. We also expect to invest in real estate-related assets, including mortgage, mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real estate companies. As of December 31, 2008, we owned four real estate properties consisting of three office properties and one office/flex property encompassing 1,401,379 rentable square feet. In addition, as of December 31, 2008, we owned one real estate loan.

On September 27, 2007, we filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a minimum of 250,000 shares and a maximum of 280,000,000 shares of common stock for sale to the public of which 200,000,000 shares were registered in our primary offering and 80,000,000 shares were registered under our dividend reinvestment plan. The SEC declared our registration statement effective on April 22, 2008 and we retained KBS Capital Markets Group LLC (“KBS Capital Markets Group”), an affiliate of our advisor, to serve as the dealer manager of the offering. The dealer manager is responsible for marketing our shares in the ongoing initial public offering. We intend to use substantially all of the net proceeds from the ongoing initial public offering to invest in a diverse portfolio of real estate and real estate-related assets as described above.

As of June 24, 2008, our escrow agent had received sufficient gross offering proceeds to satisfy the minimum number of shares requirement to break escrow in our ongoing initial public offering. From commencement of the offering through December 31, 2008, we had sold 31,495,364 shares in our ongoing initial public offering for gross offering proceeds of $314.2 million, which includes 202,284 shares issued through our dividend reinvestment plan for gross proceeds of $1.9 million.

Subject to certain restrictions and limitations, our business is managed by KBS Capital Advisors LLC (“KBS Capital Advisors”), our external advisor, pursuant to an advisory agreement. KBS Capital Advisors, conducts our operations and manages our portfolio of real estate investments. Our advisor owns 20,000 shares of our common stock. We have no paid employees.

Investment Objectives

We intend to invest in and manage a diverse portfolio of real estate and real estate-related assets. We plan to diversify our portfolio by investment type, investment size and investment risk with the goal of attaining a portfolio of income-producing real estate and real estate-related assets that provide attractive and stable returns to our investors. We intend to allocate between 60% and 70% of our portfolio to investments in core properties, which are generally existing properties with at least 80% occupancy and minimal near-term rollover, and allocate between 30% and 40% of our portfolio to real estate-related investments. We do not expect our non-controlling equity investments in other public companies to exceed 5% of the proceeds of our public offering, assuming we sell the maximum offering amount, or to represent a substantial portion of our assets at any one time.

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Although these percentages represent our target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego a good investment because it does not precisely fit our expected portfolio composition. We believe that we are most likely to meet our investment objectives through the careful selection and underwriting of assets. When making an acquisition, we will focus on the performance and risk characteristics of that investment, how that investment will fit with our portfolio-level performance objectives, the other assets in our portfolio and how the returns and risks of that investment compare to the returns and risks of available investment alternatives. Thus, to the extent that our advisor presents us with good investment opportunities that allow us to meet the REIT requirements under the Internal Revenue Code of 1986, as amended (the “Code”), the portfolio may consist of a greater percentage of real estate-related investments. As of December 31, 2008, as a percentage of our total investments, the purchase price of our real estate properties represented 88% of our portfolio and the purchase price of our real estate-related investments represented 12% of our portfolio.

Real Estate Portfolio

Real Estate Properties

We expect to invest in core properties, which are generally lower risk, existing properties with at least 80% occupancy and minimal near-term lease rollover. The types of properties that we may invest in include office, industrial, and retail properties located throughout the United States. Although we may invest in any of these types of properties, the primary property types in which we intend to invest are as follows (in no order of priority):

• office properties — including low-rise, mid-rise and high-rise office buildings and office parks in urban and suburban locations, especially those that are in or near central business districts or have access to transportation; and

• industrial properties — including warehouse and distribution facilities, office/warehouse flex properties, research and development properties and light industrial properties.

We will generally hold fee title or a long-term leasehold estate in the properties we acquire. We may also invest in or acquire operating companies or other entities that own and operate assets that meet our investment objectives. We will make investments in other entities when we consider it more efficient to acquire an entity that already owns assets meeting our investment objectives than to acquire such assets directly. We may also participate with other entities (including non-affiliated entities) in property ownership through joint ventures, limited liability companies, partnerships and other types of common ownership.

We generally intend to hold our core properties for four to seven years, which we believe is the optimal period to enable us to capitalize on the potential for increased income and capital appreciation of properties. However, economic and market conditions may influence us to hold our investments for different periods of time.

Real Estate-Related Assets

We also expect to make substantial investments in real estate loans, including first and second mortgage loans, mezzanine loans, B-Notes, bridge loans, convertible mortgages, wraparound mortgage loans, construction mortgage loans and participations in such loans. We intend to structure, underwrite and originate some of the debt products in which we invest. Our underwriting process will involve comprehensive financial, structural, operational and legal due diligence to assess the risks of investments so that we can optimize pricing and structuring. By originating loans directly, we will be able to efficiently structure a diverse range of products. For instance, we may sell some components of the debt we originate while retaining attractive, risk-adjusted strips of the debt for ourselves. Our advisor or a wholly owned subsidiary of our advisor will source our debt investments.

We also expect to invest in debt and equity securities. The debt securities in which we may invest include mortgage-backed securities, collateralized debt obligations and debt securities issued by other real estate companies. While we may invest in any of these debt-related investments, we expect that the majority of these investments would be commercial mortgage-backed securities. With respect to equity securities, we may purchase the common or preferred stock of REITs or other real estate companies or options to acquire their stock. We may target a public company that owns commercial real estate or real estate-related assets when we believe its stock is trading at a discount to that company’s net asset value. We may eventually seek to acquire or gain a controlling interest in companies that we target. We do not expect our non-controlling equity investments in other public companies to exceed 5% of the proceeds of our public offering, assuming we sell the maximum offering amount, or to represent a substantial portion of our assets at any one time.

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Financing Objectives

We will obtain the capital required to make investments and conduct our operations from the proceeds of our ongoing initial public offering, any future offerings we may conduct, from secured or unsecured financings from banks and other lenders, from any undistributed funds from operations and from the sale of investments. We have financed our acquisitions to date with a combination of the proceeds from our ongoing initial public offering and debt.

Our investment strategy is to utilize primarily secured and possibly unsecured debt to finance our investment portfolio; however, given the current debt market environment, we may elect to forego the use of debt on some or all of our future real estate acquisitions. We may elect to secure financing subsequent to the acquisition date on future real estate properties and initially acquire investments without debt financing. Once we have fully invested the proceeds of our ongoing initial public offering, we expect our debt financing to be between 50% and 65% of the cost of our tangible assets (before deducting depreciation or other noncash reserves). Our charter limits our borrowings to 75% of the cost (before deducting depreciation or other noncash reserves) of our tangible assets; however, we may exceed that limit if the majority of the conflicts committee approves each borrowing in excess of our charter limitation and we disclose such borrowings to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. During the early stages of our ongoing initial public offering, and to the extent financing in excess of this limit is available at attractive terms, the conflicts committee may approve debt in excess of this limit. From time to time, our debt financing may be below 50% of the cost of our tangible assets due to the lack of availability of debt financing. We did not exceed our charter limitation on borrowings during any quarter of 2008. As of December 31, 2008, our borrowings were approximately 47% of the cost of our tangible assets (before depreciation or other noncash reserves).

We may incur indebtedness in the form of bank borrowings, purchase money obligations to the sellers of properties we purchase, publicly and privately-placed debt instruments and/ or financings from institutional investors or other lenders. This indebtedness may be unsecured or secured by mortgages or other interests in our properties, or may be limited to the particular property to which the indebtedness relates. We may finance the acquisition or origination of certain real estate-related investments with warehouse lines of credit and repurchase agreements. Repurchase agreements economically resemble short-term, variable-rate financings and usually require the maintenance of specific loan-to-collateral value ratios. If the market value of the assets subject to a repurchase agreement decline, we may be required to provide additional collateral or make cash payments to maintain the loan-to-collateral value ratio. If we are unable to provide such collateral or cash repayments, we may lose our economic interest in the underlying assets. Warehouse facilities, bank credit facilities and repurchase agreements generally include a recourse component, meaning that lenders retain a general claim against us as an entity. Further, such borrowings may also provide the lender with the ability to make margin calls and may limit the length of time which any given asset may be used as eligible collateral. The form of our indebtedness may be long-term or short-term, fixed or floating rate or in the form of a revolving credit facility. KBS Capital Advisors will seek to obtain financing on our behalf on the most favorable terms available.

Except with respect to the borrowing limits contained in our charter, we may reevaluate and change our debt policy in the future without a stockholder vote. Factors that we would consider when reevaluating or changing our debt policy include: then-current economic conditions, the relative cost and availability of debt and equity capital, any acquisition opportunities, the ability of our properties and other investments to generate sufficient cash flow to cover debt service requirements and other similar factors.

Economic Dependency

We are dependent on our advisor and the dealer manager for certain services that are essential to us, including the sale of our shares in our ongoing initial public offering; the identification, evaluation, negotiation, purchase and disposition of properties and other investments; management of the daily operations of our real estate portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, we will be required to obtain such services from other sources.

5

Competitive Market Factors

The United States commercial real estate investment and leasing markets remains competitive. We face competition from various entities for investment opportunities in commercial and office properties, including other REITs, pension funds, insurance companies, investment funds and companies, partnerships, and developers. Many of these entities have substantially greater financial resources than we do and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of a tenant or the geographic location of its investments. Competition from these entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Additionally, disruptions and dislocations in the credit markets have materially impacted the cost and availability of debt to finance real estate acquisitions, which is a key component of our acquisition strategy. This lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage for other entities that have greater financial resources than we do. All of the above factors could result in delays in the investment of proceeds from our ongoing initial public offering. Further, as a result of their greater resources, those entities may have more flexibility than we do in their ability to offer rental concessions to attract tenants. This could put pressure on our ability to maintain or raise rents and could adversely affect our ability to attract or retain tenants. As a result, our financial condition, results of operations, cash flow, ability to satisfy our debt service obligations and ability to pay distributions to our stockholders may be adversely affected.

The success of our portfolio of real estate-related investments depends, in part, on our ability to acquire and originate investments with spreads over our borrowing cost. In acquiring and originating these investments, we compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders, governmental bodies and other entities, many of which have greater financial resources and lower costs of capital available to them than we do. In addition, there are numerous REITs with asset acquisition objectives similar to ours, and others may be organized in the future, which may increase competition for the investments suitable for us. Competitive variables include market presence and visibility, size of loans offered and underwriting standards. To the extent that a competitor is willing to risk larger amounts of capital in a particular transaction or to employ more liberal underwriting standards when evaluating potential loans than we are, our acquisition and origination volume and profit margins for our investment portfolio could be impacted. Our competitors may also be willing to accept lower returns on their investments and may succeed in buying the assets that we have targeted for acquisition. Although we believe that we are well positioned to compete effectively in each facet of our business, there is enormous competition in our market sector and there can be no assurance that we will compete effectively or that we will not encounter increased competition in the future that could limit our ability to conduct our business effectively.

Compliance with Federal, State and Local Environmental Law

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous real property owner or operator may be liable for the cost of removing or remediating hazardous or toxic substances on, under or in such property. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could reduce the amounts available for distribution to our stockholders.

All of our properties have been subject to Phase I environmental assessments at the time they were acquired. Some of the properties we have acquired are subject to potential environmental liabilities arising primarily from historic activities at or in the vicinity of the properties. Based on our environmental diligence and assessments of our properties and our purchase of pollution and remediation legal liability insurance with respect to some of our properties, we do not believe that environmental conditions at our properties are likely to have a material adverse effect on our operations.

6

Employees

We have no paid employees. The employees of our advisor or its affiliates provide management, acquisition, advisory and certain administrative services for us.

Industry Segments

Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that public entities report information about operating segments in their annual financial statements. We acquire and operate commercial properties and invest in real estate-related assets, including real estate loans, and as a result, we operate in two business segments. For financial data by segment, see Note 15 “Segment Information” in the notes to consolidated financial statements filed herewith.

Available Information

Access to copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other filings with the SEC, including amendments to such filings, may be obtained free of charge from the following website, http://www.kbs-cmg.com/REIT_II/kbs_reitII.htm, through a link to the SEC’s website, http://www.sec.gov. These filings are available promptly after we file them with, or furnish them to, the SEC.

ITEM 1A. RISK FACTORS

The following are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Risks Related to an Investment in Us

Because no public trading market for our shares currently exists, it will be difficult for our stockholders to sell their shares and, if they are able to sell their shares, it will likely be at a substantial discount to the public offering price.

Our charter does not require our directors to seek stockholder approval to liquidate our assets by a specified date, nor does our charter require our directors to list our shares for trading on a national securities exchange by a specified date. There is no public market for our shares and we currently have no plans to list our shares on a national securities exchange. Until our shares are listed, if ever, stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase standards. In addition, our charter prohibits the ownership of more than 9.8% of our stock, unless exempted by our board of directors, which may inhibit large investors from purchasing our shares. In its sole discretion, our board of directors could amend, suspend or terminate our share redemption program upon 30 days’ notice. Further, the share redemption program includes numerous restrictions that would limit a stockholder’s ability to sell his or her shares. Therefore, it will be difficult for our stockholders to sell their shares promptly or at all. If a stockholder is able to sell his or her shares, it would likely be at a substantial discount to the public offering price. It is also likely that our shares would not be accepted as the primary collateral for a loan. Because of the illiquid nature of our shares, investors should purchase them only as a long-term investment and be prepared to hold them for an indefinite period of time.

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

Our ability to achieve our investment objectives and to pay distributions depends upon the performance of KBS Capital Advisors, our advisor, in the acquisition of our investments, including the determination of any financing arrangements, and the ability of our advisor to source loan origination opportunities for us. Competition from competing entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Additionally, disruptions and dislocations in the credit markets have materially impacted the cost and availability of debt to finance real estate acquisitions, which is a key component of our acquisition strategy. This lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage to other entities that have greater financial resources than we do. We will also depend upon the performance of our property managers in the selection of tenants and negotiation of leasing arrangements. Rising vacancies across commercial real estate have resulted in increased pressure on real estate investors and their property managers to find new tenants and keep existing tenants. In order to do so, we may have to offer inducements, such as free rent and tenant improvements, to compete for attractive tenants. We are also subject to competition in seeking to acquire real estate-related investments. The more shares we sell in our ongoing initial public offering, the greater our challenge will be to invest all of the net offering proceeds on attractive terms. Our investors must rely entirely on the management abilities of KBS Capital Advisors, the property managers KBS Capital Advisors selects and the oversight of our board of directors. We can give no assurance that KBS Capital Advisors will be successful in obtaining suitable investments on financially attractive terms or that, if KBS Capital Advisors makes investments on our behalf, our objectives will be achieved. If we, through KBS Capital Advisors, are unable to find suitable investments promptly, we will hold the proceeds from our public offering in an interest-bearing account or invest the proceeds in short-term assets. If we would continue to be unsuccessful in locating suitable investments, we may ultimately decide to liquidate. In the event we are unable to timely locate suitable investments, we may be unable or limited in our ability to pay distributions and we may not be able to meet our investment objectives.

Continued disruptions in the financial markets and deteriorating economic conditions could adversely impact the commercial mortgage market as well as the market for real estate-related debt investments generally, which could hinder our ability to implement our business strategy and generate returns to our stockholders.

We intend to allocate approximately 30% to 40% of our portfolio to real estate-related investments such as mortgage, mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real estate companies. The returns available to investors in these investments are determined by: (i) the supply and demand for such investments, (ii) the performance of the assets underlying the investments and (iii) the existence of a market for such investments, which includes the ability to sell or finance such investments.

During periods of volatility, the number of investors participating in the market may change at an accelerated pace. As liquidity or “demand” increases the returns available to investors on new investments will decrease. Conversely, a lack of liquidity will cause the returns available to investors on new investments to increase.

For nearly two years, concerns pertaining to the deterioration of credit in the residential mortgage market have expanded to almost all areas of the debt capital markets including corporate bonds, asset-backed securities and commercial real estate bonds and loans. We cannot foresee when these markets will stabilize. This instability may interfere with the successful implementation of our business strategy.

Continued disruptions in the financial markets and deteriorating economic conditions could adversely affect our ability to service our existing indebtedness, our ability to refinance or secure additional debt financing on attractive terms and the values of our investments.

The capital and credit markets have been experiencing extreme volatility and disruption for nearly two years. Liquidity in the global credit market has been severely contracted by these market disruptions, making it costly to obtain new lines of credit or refinance existing debt. We rely on debt financing to finance our properties and we expect to continue to use debt to acquire properties and possibly other real estate-related investments. As a result of the ongoing credit market turmoil, we may not be able to refinance our existing indebtedness or to obtain additional debt financing on attractive terms. As such, we may be forced to use a greater proportion of our offering proceeds to finance our acquisitions, reducing the number of acquisitions we would otherwise make, and/or to dispose of some of our assets. If the current debt market environment persists we may modify our investment strategy in order to optimize our portfolio performance. Our options would include limiting or eliminating the use of debt and focusing on those higher yielding investments that do not require the use of leverage to meet our portfolio goals.

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The continued disruptions in the financial markets and deteriorating economic conditions could adversely affect the values of our investments. Turmoil in the capital markets has constrained equity and debt capital available for investment in commercial real estate, resulting in fewer buyers seeking to acquire commercial properties and possible increases in capitalization rates and lower property values. Furthermore, these deteriorating economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio and in the collateral securing any loan investments we may make. These could have the following negative effects on us:

• the values of our investments in commercial properties could decrease below the amounts paid for such investments;

• the value of collateral securing our loan investments could decrease below the outstanding principal amounts of such loans;

• revenues from our properties could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to pay dividends or meet our debt service obligations on debt financing; and/or

• revenues on the properties and other assets underlying our loan investments could decrease, making it more difficult for the borrower to meet its payment obligations to us, which could in turn make it more difficult for us to pay dividends or meet our debt service obligations on debt financing.

All of these factors could impair our ability to make distributions to our investors and decrease the value of an investment in us.

We may suffer from delays in locating suitable investments, which could limit our ability to make distributions and lower the overall return on our stockholders’ investment.

We rely upon our sponsors and the other real estate professionals at our advisor, including Peter M. Bren, Keith D. Hall, Peter McMillan III and Charles J. Schreiber, Jr., to identify suitable investments. The private KBS-sponsored programs, especially those that are currently raising offering proceeds, as well as the institutional investors for whom KBS affiliates serve as investment advisors, also rely upon Messrs. Bren and Schreiber for investment opportunities. In addition, KBS Real Estate Investment Trust, Inc. (“KBS REIT I”), which is managed by our advisor, relies upon Messrs. Bren, Hall, McMillan and Schreiber to identify potential investments and actively manage its assets. To the extent that our sponsors and the other real estate professionals at our advisor face competing demands upon their time at times when we have capital ready for investment, we may face delays in locating suitable investments. Further, the more money we raise in our ongoing initial public offering, the more difficult it will be to invest the net offering proceeds promptly and on attractive terms. Therefore, the large size of our public offering and the competition from other entities that may be better positioned to acquire the types of properties and other investments we desire to purchase increase the risk of delays in investing our net offering proceeds. Delays we encounter in the selection and acquisition or origination of income-producing assets would likely limit our ability to pay distributions to our stockholders and lower their overall returns. Further, if we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, our stockholders could suffer delays in the distribution of cash distributions attributable to those particular properties. Our stockholders should expect to wait at least several months after the closing of a property acquisition before receiving cash distributions attributable to that property.

Our stockholders will not have the opportunity to evaluate our investments before we make them, which makes our stockholders’ investment more speculative.

We will seek to invest substantially all of the net proceeds from our ongoing initial public offering, after the payment of fees and expenses, in the acquisition of or investment in interests in real estate and real estate-related assets. However, because our stockholders will be unable to evaluate the economic merit of specific real estate projects before we invest in them, they will have to rely entirely on the ability of our advisor to select suitable and successful investment opportunities. Furthermore, our board of directors will have broad discretion in implementing policies regarding tenant or mortgagor creditworthiness and our stockholders will not have the opportunity to evaluate potential tenants, managers or borrowers. These factors increase the risk that our stockholders’ investment may not generate returns consistent with their expectations.

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If we are unable to raise substantial funds, we will be limited in the number and type of investments we make and the value of our stockholders’ investment in us will fluctuate with the performance of the specific assets we acquire.

Our initial public offering is being made on a “best efforts” basis, meaning that our dealer manager is only required to use its best efforts to sell our shares and has no firm commitment or obligation to purchase any of the shares. As a result, the amount of proceeds we raise in the offering may be substantially less than the amount we would need to achieve a diversified portfolio of investments. If we are unable to raise substantial funds, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments that we make. In that case, the likelihood that any single asset’s performance would adversely affect our profitability will increase. Additionally, we are not limited in the number or size of our investments or the percentage of net proceeds we may dedicate to a single investment. Our stockholders’ investment in our shares will be subject to greater risk to the extent that we lack a diversified portfolio of investments. Further, we will have certain fixed operating expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able to raise substantial funds in our ongoing initial public offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and cash flow and limiting our ability to make distributions.

We are a recently formed company; we and our advisor have limited operating histories, which makes our future performance difficult to predict.

We are a recently formed company and have a limited operating history. We were incorporated in the State of Maryland on July 12, 2007. Our stockholders should not assume that our performance will be similar to the past performance of other real estate investment programs sponsored by affiliates of our advisor, including KBS REIT I.

Our advisor was formed on October 18, 2004 and its operations have consisted solely of serving as the external advisor to KBS REIT I, which launched its initial public offering and commenced real estate operations in 2006, and to us. KBS REIT I was the first publicly offered investment program sponsored by Messrs. Bren, Hall, McMillan and Schreiber. The private KBS-sponsored programs were not subject to the up-front commissions, fees and expenses associated with a public offering nor all of the laws and regulations that will apply to us. For all of these reasons, our stockholders should be especially cautious when drawing conclusions about our future performance and they should not assume that it will be similar to the prior performance of other KBS-sponsored programs. Our limited operating history, our advisor’s limited operating history and the differences between us and the private KBS-sponsored programs significantly increase the risk and uncertainty our stockholders face in making an investment in our shares.

Because we are dependent upon our advisor and its affiliates to conduct our operations, any adverse changes in the financial health of our advisor or its affiliates or our relationship with them could hinder our operating performance and the return on our stockholders’ investment.

We are dependent on KBS Capital Advisors to manage our operations and our portfolio of real estate assets. Our advisor has a limited operating history and it will depend upon the fees and other compensation that it will receive from us and KBS REIT I in connection with the purchase, management and sale of assets to conduct its operations. Any adverse changes in the financial condition of KBS Capital Advisors or our relationship with KBS Capital Advisors could hinder its ability to successfully manage our operations and our portfolio of investments.

Our dealer manager, KBS Capital Markets Group, has a limited operating history and our ability to implement our investment strategy is dependent, in part, upon the ability of KBS Capital Markets Group to successfully conduct our initial public offering, which makes an investment in us more speculative.

We have retained KBS Capital Markets Group, an affiliate of our advisor, to conduct our initial public offering. KBS Capital Markets Group has a limited operating history. The initial public offering of KBS REIT I, which commenced its initial public offering in January 2006 and ceased offering shares in its primary initial public offering on May 30, 2008, was the first offering conducted by our dealer manager. Our initial public offering, which commenced in 2008, is the second public offering conducted by our dealer manager. The success of our offering, and our ability to implement our business strategy, is dependent upon the ability of KBS Capital Markets Group to build and maintain a network of broker-dealers to sell our shares to their clients. If KBS Capital Markets Group is not successful in establishing, operating and managing this network of broker-dealers, our ability to raise proceeds through our offering will be limited and we may not have adequate capital to implement our investment strategy. If we are unsuccessful in implementing our investment strategy, our stockholders could lose all or a part of their investment.

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If we pay distributions from sources other than our cash flow from operations, we will have less funds available for investment in properties and other assets and the overall return to our stockholders may be reduced.

Our organizational documents permit us to pay distributions from any source. If we fund distributions from financings, the net proceeds from our ongoing initial public offering or other sources, we will have less funds available for investment in properties and other real estate-related assets and the overall return to our stockholders may be reduced. We expect to have little, if any, cash flow from operations available for distribution until we make substantial investments. Further, because we may receive income from interest or rents at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures and other expenses, we expect that at least during the early stages of our development and from time to time during our operational stage, we will declare distributions in anticipation of cash flow that we expect to receive during a later period and we will pay these distributions in advance of our actual receipt of these funds. In these instances, we expect to utilize third-party borrowings to fund our distributions. We may also fund such distributions from advances from our advisor or sponsors or from our advisor’s deferral of its asset management fee. To the extent distributions exceed cash flow from operations, a stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize capital gain.

The loss of or the inability to obtain key real estate professionals at our advisor and key employees at our dealer manager could delay or hinder implementation of our investment strategies, which could limit our ability to make distributions and decrease the value of an investment in our shares.

Our success depends to a significant degree upon the contributions of Peter M. Bren, Keith D. Hall, Peter McMillan III, Charles J. Schreiber , Jr. and, through our dealer manager, Greg P. Brakovich, each of whom would be difficult to replace. Neither we nor our affiliates have employment agreements with Messrs. Bren, Hall, McMillan or Schreiber. Messrs. Bren, Hall, McMillan, Schreiber and Brakovich may not remain associated with us. If any of these persons were to cease their association with us, our operating results could suffer. We do not intend to maintain key person life insurance on any person. We believe that our future success depends, in large part, upon our advisor’s and its affiliates’ ability to attract and retain highly skilled managerial, operational and marketing professionals. Competition for such professionals is intense, and our advisor and its affiliates may be unsuccessful in attracting and retaining such skilled individuals. Further, we intend to establish strategic relationships with firms that have special expertise in certain services or detailed knowledge regarding real properties in certain geographic regions. Maintaining such relationships will be important for us to effectively compete with other investors for properties and tenants in such regions. We may be unsuccessful in establishing and retaining such relationships. If we lose or are unable to obtain the services of highly skilled professionals or do not establish or maintain appropriate strategic relationships, our ability to implement our investment strategies could be delayed or hindered, and the value of our stockholders’ investment may decline.

Our rights and the rights of our stockholders to recover claims against our independent directors are limited, which could reduce our stockholders’ and our recovery against them if they negligently cause us to incur losses.

Maryland law provides that a director has no liability in that capacity if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter provides that no independent director shall be liable to us or our stockholders for monetary damages and that we will generally indemnify them for losses unless they are grossly negligent or engage in willful misconduct. As a result, our stockholders and we may have more limited rights against our independent directors than might otherwise exist under common law, which could reduce our stockholders’ and our recovery from these persons if they act in a negligent manner. In addition, we may be obligated to fund the defense costs incurred by our independent directors (as well as by our other directors, officers, employees (if we ever have employees) and agents) in some cases, which would decrease the cash otherwise available for distribution to our stockholders.

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We may change our targeted investments without stockholder consent.

We expect to allocate approximately 60% to 70% of our portfolio to investments in core properties and approximately 30% to 40% of our portfolio to real estate-related investments such as mortgage, mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real estate companies. We do not expect our non-controlling equity investments in other public companies to exceed 5% of the proceeds of our ongoing initial public offering, assuming we sell the maximum offering amount, or to represent a substantial portion of our assets at any one time. Though this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments as described. A change in our targeted investments or investment guidelines may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our common stock and our ability to make distributions to our stockholders.

Risks Related to Conflicts of Interest

KBS Capital Advisors and its affiliates, including all of our executive officers, some of our directors and other key real estate professionals, face conflicts of interest caused by their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our stockholders.

All of our executive officers, some of our directors and other key real estate professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager and other affiliated KBS entities. KBS Capital Advisors and its affiliates receive substantial fees from us. These fees could influence our advisor’s advice to us as well as the judgment of affiliates of KBS Capital Advisors. Among other matters, these compensation arrangements could affect their judgment with respect to:

• the continuation, renewal or enforcement of our agreements with KBS Capital Advisors and its affiliates, including the advisory agreement and the dealer-manager agreement;

• public offerings of equity by us, which entitle KBS Capital Markets Group to dealer-manager fees and will likely entitle KBS Capital Advisors to increased acquisition, origination and asset-management fees;

• sales of properties and other investments, which entitle KBS Capital Advisors to disposition fees and possible subordinated incentive fees;

• acquisitions of properties and other investments and originations of loans, which entitle KBS Capital Advisors to acquisition or origination fees and asset-management fees, and, in the case of acquisitions of investments from other KBS-sponsored programs, might entitle affiliates of KBS Capital Advisors to disposition fees and possible subordinated incentive fees in connection with its services for the seller;

• borrowings to acquire properties and other investments and to originate loans, which borrowings will increase the acquisition, origination and asset-management fees payable to KBS Capital Advisors;

• whether and when we seek to list our common stock on a national securities exchange, which listing could entitle KBS Capital Advisors to a subordinated incentive listing fee;

• whether we seek stockholder approval to internalize our management, which may entail acquiring assets (such as office space, furnishings and technology costs) and negotiating compensation for real estate professionals at our advisor and its affiliates that may result in such individuals receiving more compensation from us than they currently receive from our advisor; and

• whether and when we seek to sell the company or its assets, which sale could entitle KBS Capital Advisors to a subordinated incentive fee.

The fees our advisor receives in connection with the acquisition, origination and management of assets are based on the cost of the investment, and not based on the quality of the investment or the quality of the services rendered to us. This may influence our advisor to recommend riskier transactions to us.

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KBS Capital Advisors faces conflicts of interest relating to the acquisition of assets and leasing of properties and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets and obtain less creditworthy tenants, which could limit our ability to make distributions and reduce our stockholders’ overall investment return.

We rely on our sponsors and other key real estate professionals at our advisor, including Peter M. Bren, Keith Hall, Peter McMillan III and Charles J. Schreiber, Jr., to identify suitable investment opportunities for us. KBS REIT I is also advised by KBS Capital Advisors and relies on our sponsors and the same real estate professionals. Messrs. Bren and Schreiber and several of the other key real estate professionals at KBS Capital Advisors are also the key real estate professionals at KBS Realty Advisors and its affiliates, the advisors to the private KBS-sponsored programs and the investment advisors to institutional investors in real estate and real estate-related assets. As such, the one private KBS-sponsored program that is currently raising funds for investment and any future programs all rely on many of the same group of real estate professionals. Many investment opportunities that are suitable for us may also be suitable for other KBS programs and investors. When these real estate professionals direct an investment opportunity to any KBS-sponsored program or KBS-advised investor, they, in their sole discretion, will offer the opportunity to the program or investor for which the investment opportunity is most suitable based on the investment objectives, portfolio and criteria of each program or investor. For so long as we are externally advised, our charter provides that it shall not be a proper purpose of the corporation for us to purchase real estate or any significant asset related to real estate unless our advisor has recommended the investment to us. Thus, the real estate professionals of KBS Capital Advisors could direct attractive investment opportunities to other entities or investors. Such events could result in us investing in properties that provide less attractive returns, which may reduce our ability to make distributions to our stockholders.

We and other KBS-sponsored programs and KBS-advised investors also rely on these real estate professionals to supervise the property management and leasing of properties. If the KBS team of real estate professionals direct creditworthy prospective tenants to properties owned by another KBS-sponsored program or KBS-advised investor when they could direct such tenants to our properties, our tenant base may have more inherent risk and our properties’ occupancy may be lower than might otherwise be the case. Further, Messrs. Bren, Hall, McMillan and Schreiber and existing and future KBS-sponsored programs and KBS-advised investors are not prohibited from engaging, directly or indirectly, in any business or from possessing interests in any other business venture or ventures, including businesses and ventures involved in the acquisition, development, ownership, leasing or sale of real estate investments.

KBS Capital Advisors, the real estate professionals assembled by our advisor, their affiliates and our officers will face competing demands relating to their time and this may cause our operations and our stockholders’ investment to suffer.

We rely on KBS Capital Advisors and the real estate professionals our advisor has assembled, including Messrs. Bren, Hall, McMillan and Schreiber, for the day-to-day operation of our business. Messrs. Bren, Hall, McMillan and Schreiber are also executive officers of KBS REIT I, and Messrs. Bren and Schreiber are executive officers of KBS Realty Advisors and its affiliates, the advisors of the other KBS-sponsored programs and the investment advisors to institutional investors in real estate and real estate-related assets. As a result of their interests in other KBS programs, their obligations to other investors and the fact that they engage in and they will continue to engage in other business activities, on behalf of themselves and others, Messrs. Bren, Hall, McMillan and Schreiber will face conflicts of interest in allocating their time among us, KBS REIT I, KBS Capital Advisors and other KBS-sponsored programs and other business activities in which they are involved. In addition, KBS Capital Advisors and KBS Realty Advisors and its affiliates share many of the same real estate professionals. During times of intense activity in other programs and ventures, these individuals may devote less time and fewer resources to our business than are necessary or appropriate to manage our business. If this occurs, the returns on our investments, and the value of our stockholders’ investment, may decline.

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All of our executive officers, some of our directors and the key real estate professionals assembled by our advisor face conflicts of interest related to their positions and/or interests in KBS Capital Advisors and its affiliates, including our dealer manager, which could hinder our ability to implement our business strategy and to generate returns to our stockholders.

All of our executive officers, some of our directors and the key real estate professionals assembled by our advisor are also executive officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager and other affiliated KBS entities. Through KBS-affiliated entities, some of these persons also serve as the investment advisors to institutional investors in real estate and real estate-related assets and through KBS Capital Advisors and KBS Realty Advisors these persons serve as the advisor to KBS REIT I and other KBS-sponsored programs. As a result, they owe fiduciary duties to each of these entities, their members and limited partners and these investors, which fiduciary duties may from time to time conflict with the fiduciary duties that they owe to us and our stockholders. Their loyalties to these other entities and investors could result in action or inaction that is detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities. If we do not successfully implement our business strategy, we may be unable to generate the cash needed to make distributions to our stockholders and to maintain or increase the value of our assets.

Our board’s loyalties to KBS REIT I and possibly to future KBS-sponsored programs could influence its judgment, resulting in actions that may not be in our stockholders’ best interest or that result in a disproportionate benefit to another KBS-sponsored program at our expense.

All of our directors are also directors of KBS REIT I, another public, non-traded REIT sponsored by Messrs. Bren, Hall, McMillan and Schreiber. The loyalties of our directors serving on the board of KBS REIT I or possibly on the board of future KBS-sponsored programs may influence the judgment of our board when considering issues for us that also may affect other KBS-sponsored programs, such as the following:

• The conflicts committee of our board of directors must evaluate the performance of KBS Capital Advisors with respect to whether KBS Capital Advisors is presenting to us our fair share of investment opportunities. If our advisor is not presenting a sufficient number of investment opportunities to us because it is presenting many opportunities to another KBS-sponsored program or if our advisor is giving preferential treatment to another KBS-sponsored program in this regard, our conflicts committee may not be well suited to enforce our rights under the terms of the advisory agreement or to seek a new advisor.

• We could enter into transactions with other KBS-sponsored programs, such as property sales, acquisitions or financing arrangements. Decisions of the board or the conflicts committee regarding the terms of those transactions may be influenced by the board’s or committee’s loyalties to such other KBS-sponsored programs.

• A decision of the board or the conflicts committee regarding the timing of a debt or equity offering could be influenced by concerns that the offering would compete with an offering of other KBS-sponsored programs.

• A decision of the board or the conflicts committee regarding the timing of property sales could be influenced by concerns that the sales would compete with those of other KBS-sponsored programs.

Because our independent directors are also independent directors of KBS REIT I, they will receive compensation for service on the board of KBS REIT I. Like us, KBS REIT I will pay each independent director an annual retainer of $40,000 as well as compensation for attending meetings as follows: (i) $2,500 for each board meeting attended, (ii) $2,500 for each committee meeting attended (except that the committee chairman will be paid $3,000 for each meeting attended), (iii) $2,000 for each teleconference board meeting attended, and (iv) $2,000 for each teleconference committee meeting attended (except that the committee chairman will be paid $3,000 for each teleconference committee meeting attended). In addition, KBS REIT I reimburses directors for reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors.

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    For the year ended December 31, 2008, the independent directors of KBS REIT I earned compensation as follows:

Independent Director	Compensation Earned in 2008(1)	Compensation Paid in 2008(1)
Hank Adler	$  93,246 (2)	$ 103,581
Barbara Cambon	$  97,746 (3)	$ 105,081
Stuart A. Gabriel, Ph.D	$  78,746 (4)	$   88,081

⁽¹⁾ Compensation Paid in 2008 includes meeting fees earned during 2007 but paid or reimbursed in 2008 as follows: Mr. Adler $20,668; Ms. Cambon $20,668; and Mr. Gabriel $15,668. Note that independent director compensation was increased effective October 1, 2008 to the amounts set forth the paragraph above.

⁽²⁾ This amount includes (i) fees earned for attendance at 11 board meetings, 15 conflicts committee meetings and seven audit committee meetings, (ii) the annual retainer and (iii) costs reimbursements for reasonable out-of-pocket expenses incurred in connection with attendance at meetings.

⁽³⁾ This amount includes (i) fees earned for attendance at 10 board meetings, 14 conflicts committee meetings and six audit committee meetings, (ii) the annual retainer and (iii) costs reimbursements for reasonable out-of-pocket expenses incurred in connection with attendance at meetings.

⁽⁴⁾ This amount includes (i) fees earned for attendance at 10 board meetings, 14 conflicts committee meetings and seven audit committee meetings, (ii) the annual retainer and (iii) costs reimbursements for reasonable out-of-pocket expenses incurred in connection with attendance at meetings.

Risks Related to Our Corporate Structure

Our charter limits the number of shares a person may own, which may discourage a takeover that could otherwise result in a premium price to our stockholders.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. To help us comply with the REIT ownership requirements of the Code, our charter prohibits a person from directly or constructively owning more than 9.8% of our outstanding shares, unless exempted by our board of directors. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock.

Our charter permits our board of directors to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third party from acquiring us in a manner that could result in a premium price to our stockholders.

Our board of directors may classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of preferred stock with priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price to holders of our common stock.

Our stockholders’ investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we become an unregistered investment company, we could not continue our business.

We do not intend to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things:

• limitations on capital structure;

• restrictions on specified investments;

• prohibitions on transactions with affiliates; and

• compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses.

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We intend to qualify for an exemption from registration under Section 3(c)(5)(C) of the Investment Company Act, which means we must engage primarily in the business of buying real estate, mortgages and other liens on or interests in real estate. The position of the SEC staff generally requires us to maintain at least 55% of our portfolio in “qualifying real estate assets” (that is, real estate, mortgage loans and commercial mortgage-backed securities (“CMBS”) that represent the entire ownership in a pool of mortgage loans and other qualifying interests in real estate) and at least another 25% of our portfolio in additional qualifying real estate assets or “real estate-related assets.” Participations in mortgage loans, mortgaged-backed securities, mezzanine loans, preferred equity investments, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets, depending on the characteristics of the specific investments, including the rights that we have with respect to the underlying assets. Our ownership of these investments, therefore, may be limited by provisions of the Investment Company Act and SEC staff interpretations.

To maintain compliance with the Investment Company Act exemption, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional assets that we might not otherwise have acquired or may have to forego opportunities to make investments that we would otherwise want to make and would be important to our investment strategy.

If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement and a court could appoint a receiver to take control of us and liquidate our business.

Rapid changes in the values of our assets may make it more difficult for us to maintain our qualification as a REIT or our exemption from the Investment Company Act.

If the market value or income potential of our qualifying assets changes as compared to the market value or income potential of our non-qualifying assets, or if the market value or income potential of our assets that are considered “real estate-related assets” under the Investment Company Act or REIT qualification tests changes as compared to the market value or income potential of our assets that are not considered “real estate-related assets” under the Investment Company Act or REIT qualification tests, whether as a result of increased interest rates, prepayment rates or other factors, we may need to modify our investment portfolio in order to maintain our REIT qualification or exemption from the Investment Company Act. If the decline in real estate asset values and/or income occurs quickly, this may be especially difficult, if not impossible, to accomplish. This difficulty may be exacerbated by the illiquid nature of any non-real estate assets that we may own. We may have to make investment decisions that we otherwise would not make absent REIT and Investment Company Act considerations.

Our stockholders will have limited control over changes in our policies and operations, which increases the uncertainty and risks our stockholders face.

Our board of directors determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under Maryland General Corporation Law and our charter, our stockholders have a right to vote only on limited matters. Our board’s broad discretion in setting policies and our stockholders’ inability to exert control over those policies increases the uncertainty and risks our stockholders face.

Our stockholders may not be able to sell their shares under our share redemption program and, if our stockholders are able to sell their shares under the program, they may not be able to recover the amount of their investment in our shares.

Our share redemption program includes numerous restrictions that limit our stockholders’ ability to sell their shares. Our stockholders must hold their shares for at least one year in order to participate in the share redemption program, except for redemptions sought upon a stockholder’s death or “qualifying disability.” We limit the number of shares redeemed pursuant to the share redemption program as follows: (1) during any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year and (2) during each calendar year, redemptions will be limited to the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year. Further, we have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. These limits may prevent us from accommodating all redemption requests made in any year. Our board would be free to amend, suspend or terminate the share redemption program upon 30 days’ notice.

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The prices at which we will initially redeem shares under the program are as follows:

• The lower of $9.25 or 92.5% of the price paid to acquire the shares from us for stockholders who have held their shares for at least one year;

• The lower of $9.50 or 95.0% of the price paid to acquire the shares from us for stockholders who have held their shares for at least two years;

• The lower of $9.75 or 97.5% of the price paid to acquire the shares from us for stockholders who have held their shares for at least three years; and

• The lower of $10.00 or 100% of the price paid to acquire the shares from us for stockholders who have held their shares for at least four years.

Notwithstanding the above, once we establish an estimated value per share of our common stock, the redemption price per share for all stockholders would be equal to the estimated value per share, as determined by our advisor or another firm chosen for that purpose. We expect to establish an estimated value per share no later than three years after the completion of our offering stage; however, the time frame before which we establish an estimated value per share may be different depending on regulatory requirements or if necessary to assist broker-dealers who sell shares in our ongoing initial public offering. We will consider our offering stage complete when we are no longer publicly offering equity securities – whether through our initial public offering or follow-on public offerings – and have not done so for one year. The restrictions of our share redemption program severely limit our stockholders’ ability to sell their shares should they require liquidity and limit their ability to recover the value they invested.

The offering price of our shares was not established on an independent basis; the actual value of our stockholders’ investment may be substantially less than what they pay. We may use the most recent price paid to acquire a share in our offering as the estimated value of our shares for up to three years after we have completed our offering stage (though we may establish an estimated value per share sooner if required by any regulatory bodies or if necessary to assist broker-dealers who sell shares in our ongoing initial public offering). Even when our advisor begins to use other valuation methods to estimate the value of our shares, the value for our shares will be based upon a number of assumptions that may not be accurate or complete.

We established the offering price of our shares on an arbitrary basis. The selling price of our shares bears no relationship to our book or asset values or to any other established criteria for valuing shares. Because the offering price is not based upon any independent valuation, the offering price may not be indicative of the proceeds that our stockholders would receive upon liquidation. Further, the offering price may be significantly more than the price at which the shares would trade if they were to be listed on an exchange or actively traded by broker-dealers.

To assist Financial Industry Regulatory Authority (“FINRA”) members and their associated persons that participate in our public offering of common stock, pursuant to FINRA Conduct Rule 511, we disclose in each annual report distributed to stockholders a per share estimated value of the shares, the method by which it was developed, and the date of the data used to develop the estimated value. In addition, KBS Capital Advisors, our advisor, prepares annual statements of estimated share values to assist fiduciaries of retirement plans subject to the annual reporting requirements of ERISA in the preparation of their reports relating to an investment in our shares. For these purposes, KBS Capital Advisors estimated the value of our common shares as $10.00 per share as of December 31, 2008. The basis for this valuation is the fact that the current public offering price for our shares of common stock in our primary offering is $10.00 per share (ignoring purchase price discounts for certain categories of purchasers). Our advisor has indicated that it intends to use the most recent price paid to acquire a share in our ongoing public offering (ignoring purchase price discounts for certain categories of purchasers) as its estimated per share value of our shares for up to three years after we have completed our offering stage (though we may establish an estimated value per share sooner if required by any regulatory bodies or if necessary to assist broker-dealers who sell shares in our public offering). We will consider our offering stage complete when we are no longer publicly offering equity securities and have not done so for one year. (For purposes of this definition, we do not consider a “public equity offering” to include offerings on behalf of selling stockholders or offerings related to a dividend reinvestment plan, employee benefit plan or the redemption of interests in our Operating Partnership.) Our charter does not restrict our ability to conduct offerings in the future.

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Although this initial estimated value represents the most recent price at which most investors are willing to purchase shares in our primary offering, this reported value is likely to differ from the price at which a stockholder could resell his or her shares because (i) there is no public trading market for the shares at this time; (ii) the estimated value does not reflect, and is not derived from, the fair market value of our properties and other assets, nor does it represent the amount of net proceeds that would result from an immediate liquidation of those assets, because the amount of proceeds available for investment from our primary public offering is net of selling commissions, dealer manager fees, other organization and offering costs and acquisition and origination fees and expenses; (iii) the estimated value does not take into account how market fluctuations affect the value of our investments, including how the current disruptions in the financial and real estate markets may affect the values of our investments; and (iv) the estimated value does not take into account how developments related to individual assets may have increased or decreased the value of our portfolio.

When determining the estimated value of our shares by methods other than the last price paid to acquire a share in our public offering, our advisor, or another firm we choose for that purpose, will estimate the value of our shares based upon a number of assumptions that may not be accurate or complete. Accordingly, these estimates may not be an accurate reflection of the fair market value of our investments and will not likely represent the amount of net proceeds that would result from an immediate sale of our assets.

Because the dealer manager is one of our affiliates, our stockholders will not have the benefit of an independent due diligence review of us, which is customarily performed in underwritten offerings; the absence of an independent due diligence review increases the risks and uncertainty our stockholders face.

Our dealer manager, KBS Capital Markets Group, is one of our affiliates. Because KBS Capital Markets Group is an affiliate, its due diligence review and investigation of us and our prospectus cannot be considered to be an independent review. Therefore, our stockholders do not have the benefit of an independent review and investigation of our initial public offering of the type normally performed by an unaffiliated, independent underwriter in a public securities offering.

Our investors’ interest in us will be diluted if we issue additional shares, which could reduce the overall value of their investment.

Our common stockholders do not have preemptive rights to any shares we issue in the future. Our charter authorizes us to issue 1,010,000,000 shares of capital stock, of which 1,000,000,000 shares are designated as common stock and 10,000,000 shares are designated as preferred stock. Our board of directors may increase the number of authorized shares of capital stock without stockholder approval. After our investors purchase shares in our public offering, our board may elect to (1) sell additional shares in future public offerings, (2) issue equity interests in private offerings, (3) issue shares to our advisor, or its successors or assigns, in payment of an outstanding obligation or (4) issue shares of our common stock to sellers of properties or assets we acquire in connection with an exchange of limited partnership interests of the Operating Partnership. To the extent we issue additional equity interests after our investors purchase shares in our initial public offering, their percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our real estate investments, our investors may also experience dilution in the book value and fair value of their shares.

Payment of fees to KBS Capital Advisors and its affiliates reduces cash available for investment and distribution and increases the risk that our stockholders will not be able to recover the amount of their investment in our shares.

KBS Capital Advisors and its affiliates perform services for us in connection with the selection and acquisition or origination of our investments, the management and leasing of our properties and the administration of our other investments. We pay them substantial fees for these services, which results in immediate dilution to the value of our stockholders’ investment and reduces the amount of cash available for investment or distribution to stockholders.

We may also pay significant fees during our listing/liquidation stage. Although most of the fees payable during our listing/liquidation stage are contingent on our investors first receiving agreed-upon investment returns, affiliates of KBS Capital Advisors could also receive significant payments even without our reaching the investment-return thresholds should we seek to become self-managed. Due to the apparent preference of the public markets for self-managed companies, a decision to list our shares on a national securities exchange might be preceded by a decision to become self-managed. Given our advisor’s familiarity with our assets and operations, we might prefer to become self-managed by acquiring entities affiliated with our advisor. Such an internalization transaction could result in significant payments to affiliates of our advisor irrespective of whether our stockholders enjoyed the returns on which we have conditioned other incentive compensation.

Therefore, these fees increase the risk that the amount available for distribution to common stockholders upon a liquidation of our portfolio would be less than stockholders paid for our shares. These substantial fees and other payments also increase the risk that our stockholders will not be able to resell their shares at a profit, even if our shares are listed on a national securities exchange.

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If we are unable to obtain funding for future capital needs, cash distributions to our stockholders and the value of our investments could decline.

When tenants do not renew their leases or otherwise vacate their space, we will often need to expend substantial funds for improvements to the vacated space in order to attract replacement tenants. Even when tenants do renew their leases we may agree to make improvements to their space as part of our negotiation. If we need additional capital in the future to improve or maintain our properties or for any other reason, we may have to obtain financing from sources beyond our cash flow from operations, such as borrowings or future equity offerings. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both, which would limit our ability to make distributions to our stockholders and could reduce the value of our stockholders’ investment.

Our stockholders may be more likely to sustain a loss on their investment because our sponsors do not have as strong an economic incentive to avoid losses as do sponsors who have made significant equity investments in their companies.

Our sponsors have only invested $200,000 in us through the purchase of 20,000 shares of our common stock at $10 per share. Therefore, if we are successful in raising enough proceeds to reimburse our sponsors for our significant organization and offering expenses, our sponsors will have little exposure to loss in the value of our shares. Without this exposure, our investors may be at a greater risk of loss because our sponsors do not have as much to lose from a decrease in the value of our shares as do those sponsors who make more significant equity investments in their companies.

Although we will not currently be afforded the protection of the Maryland General Corporation Law relating to deterring or defending hostile takeovers, our board of directors could opt into these provisions of Maryland law in the future, which may discourage others from trying to acquire control of us and may prevent our stockholders from receiving a premium price for their stock in connection with a business combination.

Under Maryland law, “business combinations” between a Maryland corporation and certain interested stockholders or affiliates of interested stockholders are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. Also under Maryland law, control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, an officer of the corporation or an employee of the corporation who is also a director of the corporation are excluded from the vote on whether to accord voting rights to the control shares. Should our board opt into these provisions of Maryland law, it may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Similarly, provisions of Title 3, Subtitle 8 of the Maryland General Corporation Law could provide similar anti-takeover protection.

General Risks Related to Investments in Real Estate

Economic and regulatory changes that impact the real estate market generally may decrease the value of our investments and weaken our operating results.

Our properties and their performance are subject to the risks typically associated with real estate, including:

• downturns in national, regional and local economic conditions;

• competition from other office and industrial buildings;

• adverse local conditions, such as oversupply or reduction in demand for office and industrial buildings and changes in real estate zoning laws that may reduce the desirability of real estate in an area;

• vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;

• changes in the supply of or the demand for similar or competing properties in an area;

• changes in interest rates and the availability of permanent mortgage financing, which may render the sale of a property or loan difficult or unattractive;

• changes in tax, real estate, environmental and zoning laws; and

• periods of high interest rates and tight money supply.

Any of the above factors, or a combination thereof, could result in a decrease in the value of our investments, which would have an adverse effect on our operations, on our ability to pay distributions to our stockholders and on the value of our stockholders’ investment.

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If our acquisitions fail to perform as expected, cash distributions to our stockholders may decline.

Since breaking escrow in June 2008, we have made acquisitions of properties and other real estate-related assets. If these assets do not perform as expected we may have less cash flow from operations available to fund distributions and investor returns may be reduced.

Properties that have significant vacancies could be difficult to sell, which could diminish the return on these properties.

A property may incur vacancies either by the expiration of tenant leases or the continued default of tenants under their leases. If vacancies continue for a long period of time, we may suffer reduced revenues resulting in less cash available to distribute to stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property depends principally upon the value of the cash flow generated by the leases associated with that property. Such a reduction on the resale value of a property could also reduce the value of our stockholders’ investment.

We depend on tenants for our revenue, and, accordingly, our revenue and our ability to make distributions to our stockholders is dependent upon the success and economic viability of our tenants.

The success of our investments materially depends upon the financial stability of the tenants leasing the properties we own. The inability of a single major tenant or a number of smaller tenants to meet their rental obligations would lower our net income. A default by a tenant on its lease payments would cause us to lose the revenue associated with such lease and require us to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord of a property and may incur substantial costs in protecting our investment and re-letting the property. Tenants may have the right to terminate their leases upon the occurrence of certain customary events of default and, in other circumstances, may not renew their leases or, because of market conditions, may be able to renew their leases on terms that are less favorable to us than the terms of their initial leases. Further, some of the properties in which we invest may be outfitted to suit the particular needs of the tenants. We may have difficulty replacing the tenants of these properties if the outfitted space limits the types of businesses that could lease that space without major renovation. Because the market value of a property depends principally upon the value of the leases associated with such property, we may incur a loss upon the sale of a property with significant vacant space. These events could cause us to reduce the amount of distributions to stockholders.

Our inability to sell a property when we want could limit our ability to pay cash distributions to our stockholders.

Many factors that are beyond our control affect the real estate market and could affect our ability to sell properties for the price, on the terms or within the time frame that we desire. These factors include general economic conditions, the availability of financing, interest rates and other factors, including supply and demand. Because real estate investments are relatively illiquid, we have a limited ability to vary our portfolio in response to changes in economic or other conditions. Further, before we can sell a property on the terms we want, it may be necessary to expend funds to correct defects or to make improvements. However, we can give no assurance that we will have the funds available to correct such defects or to make such improvements. We may be unable to sell our properties at a profit. Our inability to sell properties at the time and on the terms we want could reduce our cash flow and limit our ability to make distributions to our stockholders and could reduce the value of our stockholders’ investment.

If we sell a property by providing financing to the purchaser, we will bear the risk of default by the purchaser, which could delay or reduce the distributions available to our stockholders.

If we decide to sell any of our properties, we intend to use our best efforts to sell them for cash; however, in some instances, we may sell our properties by providing financing to purchasers. When we provide financing to a purchaser, we will bear the risk that the purchaser may default, which could reduce our cash distributions to stockholders. Even in the absence of a purchaser default, the distribution of the proceeds of the sale to our stockholders, or the reinvestment of the proceeds in other assets, will be delayed until the promissory notes or other property we may accept upon a sale are actually paid, sold, refinanced or otherwise disposed.

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Potential development and construction delays and resultant increased costs and risks may hinder our operating results and decrease our net income.

Although we expect that we will invest primarily in properties that have operating histories or whose construction is complete, from time to time we may acquire unimproved real property or properties that are under development or construction. Investments in such properties will be subject to the uncertainties associated with the development and construction of real property, including those related to re-zoning land for development, environmental concerns of governmental entities and/or community groups and our builders’ ability to build in conformity with plans, specifications, budgeted costs and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Delays in completing construction could also give tenants the right to terminate preconstruction leases. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. These and other factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer.

Competition with third parties in acquiring properties and other investments may reduce our profitability and the return on our stockholders’ investment.

We face competition from various entities for investment opportunities in commercial and office properties, including other REITs, pension funds, insurance companies, investment funds and companies, partnerships, and developers. Many of these entities have substantially greater financial resources than we do and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of a tenant or the geographic location of its investments. Competition from these entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Additionally, disruptions and dislocations in the credit markets have materially impacted the cost and availability of debt to finance real estate acquisitions, which is a key component of our acquisition strategy. This lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage for other entities that have greater financial resources than we do. In addition, the number of entities and the amount of funds competing for suitable investments may increase. If we acquire properties and other investments at higher prices and/or by using less-than-ideal capital structures, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets. If such events occur, our stockholders may experience a lower return on their investment.

Our joint venture partners could take actions that decrease the value of an investment to us and lower our stockholders’ overall return.

We may enter into joint ventures with third parties to acquire properties and other assets. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements. Such investments may involve risks not otherwise present with other methods of investment, including, for example, the following risks:

• that our co-venturer, co-tenant or partner in an investment could become insolvent or bankrupt;

• that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals; or

• that such co-venturer, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives.

Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce our returns on that investment and the value of our stockholders’ investment.

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Costs imposed pursuant to governmental laws and regulations may reduce our net income and the cash available for distributions to our stockholders.

Real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to protection of the environment and human health. We could be subject to liability in the form of fines, penalties or damages for noncompliance with these laws and regulations. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, the remediation of contamination associated with the release or disposal of solid and hazardous materials, the presence of toxic building materials, and other health and safety-related concerns.

Some of these laws and regulations may impose joint and several liability on the tenants, owners or operators of real property for the costs to investigate or remediate contaminated properties, regardless of fault, whether the contamination occurred prior to purchase, or whether the acts causing the contamination were legal. Our tenants’ operations, the condition of properties at the time we buy them, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties.

The presence of hazardous substances, or the failure to properly manage or remediate these substances, may hinder our ability to sell, rent or pledge such property as collateral for future borrowings. Any material expenditures, fines, penalties, or damages we must pay will reduce our ability to make distributions and may reduce the value of our stockholders’ investment.

The costs of defending against claims of environmental liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could reduce the amounts available for distribution to our stockholders.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous real property owner or operator may be liable for the cost of removing or remediating hazardous or toxic substances on, under or in such property. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose liens on property or restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials and lead-based paint. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The costs of defending against claims of environmental liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could reduce the amounts available for distribution to our stockholders. All of our properties have been subject to Phase I environmental assessments at the time they were acquired.

Costs associated with complying with the Americans with Disabilities Act may decrease cash available for distributions.

Our properties may be subject to the Americans with Disabilities Act of 1990, as amended. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. Any funds used for Disabilities Act compliance will reduce our net income and the amount of cash available for distributions to our stockholders.

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Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce our cash flows and the return on our stockholders’ investment.

There are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that commercial property owners purchase coverage against terrorism as a condition for providing mortgage loans. Such insurance policies may not be available at reasonable costs, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate coverage for such losses. If any of our properties incurs a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss, which may reduce the value of our stockholders’ investment. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions to stockholders.

Terrorist attacks and other acts of violence or war may affect the markets in which we plan to operate, which could delay or hinder our ability to meet our investment objectives and reduce our stockholders’ overall return.

Terrorist attacks or armed conflicts may directly impact the value of our properties through damage, destruction, loss or increased security costs. KBS-sponsored programs and KBS-advised investors have historically owned properties in major metropolitan areas. We expect that we will also invest in such markets. We may not be able to obtain insurance against the risk of terrorism because it may not be available or may not be available on terms that are economically feasible. The terrorism insurance that we obtain may not be sufficient to cover loss for damages to our properties as a result of terrorist attacks. The inability to obtain sufficient terrorism insurance or any terrorism insurance at all could limit our investment options as some mortgage lenders have begun to insist that specific coverage against terrorism be purchased by commercial owners as a condition of providing loans.

Risks Related to Real Estate-Related Investments

Our investments in real estate-related investments are subject to the risks typically associated with real estate.

Our investments in mortgage, mezzanine or other real estate loans will generally be directly or indirectly secured by a lien on real property (or the equity interests in an entity that owns real property) that, upon the occurrence of a default on the loan, could result in our acquiring ownership of the property. We will not know whether the values of the properties ultimately securing our loans will remain at the levels existing on the dates of origination of those loans. If the values of the underlying properties drop, our risk will increase because of the lower value of the security associated with such loans. In this manner, real estate values could impact the values of our loan investments. Our investments in mortgage-backed securities, collateralized debt obligations and other real estate-related investments may be similarly affected by real estate property values. Therefore, our real estate-related investments will be subject to the risks typically associated with real estate, which are described above under the heading “—General Risks Related to Investments in Real Estate.”

If we make or invest in mortgage, mezzanine, bridge or other real estate loans, our loans will be subject to interest rate fluctuations that will affect our returns as compared to market interest rates; accordingly, the value of our stockholders’ investment would be subject to fluctuations in interest rates.

If we make or invest in fixed rate, long-term loans and interest rates rise, the loans could yield a return that is lower than then-current market rates. If interest rates decrease, we will be adversely affected to the extent that loans are prepaid because we may not be able to reinvest the proceeds at as high of an interest rate. If we invest in variable-rate loans and interest rates decrease, our revenues will also decrease. For these reasons, if we invest in mortgage, mezzanine, bridge or other real estate loans, our returns on those loans and the value of our stockholders’ investment will be subject to fluctuations in interest rates.

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The mortgage loans we invest in and the mortgage loans underlying the mortgage securities we invest in are subject to delinquency, foreclosure and loss, which could result in losses to us.

Commercial real estate loans are secured by multifamily or commercial property and are subject to risks of delinquency and foreclosure. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by, among other things: tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expenses or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental rules, regulations and fiscal policies, including environmental legislation, natural disasters, terrorism, social unrest and civil disturbances.

In the event of any default under a mortgage loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations. Foreclosure of a mortgage loan can be an expensive and lengthy process that could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

Delays in liquidating defaulted mortgage loans could reduce our investment returns.

If we make or invest in mortgage loans and there are defaults under those mortgage loans, we may not be able to repossess and sell the underlying properties quickly. The resulting time delay could reduce the value of our investment in the defaulted mortgage loans. An action to foreclose on a property securing a mortgage loan is regulated by state statutes and regulations and is subject to many of the delays and expenses of other lawsuits if the defendant raises defenses or counterclaims. In the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan.

The mezzanine loans in which we may invest would involve greater risks of loss than senior loans secured by the same properties.

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

The B-Notes in which we may invest may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us.

We may invest in B-Notes. A B-Note is a mortgage loan typically (i) secured by a first mortgage on a single large commercial property or group of related properties and (ii) subordinated to an A-Note secured by the same first mortgage on the same collateral. As a result, if a borrower defaults, there may not be sufficient funds remaining for B-Note holders after payment to the A-Note holders. Since each transaction is privately negotiated, B-Notes can vary in their structural characteristics and risks. For example, the rights of holders of B-Notes to control the process following a borrower default may be limited in certain investments. We cannot predict the terms of each B-Note investment. Further, B-Notes typically are secured by a single property, and so reflect the increased risks associated with a single property compared to a pool of properties.

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Bridge loans may involve a greater risk of loss than conventional mortgage loans.

We may provide bridge loans secured by first-lien mortgages on properties to borrowers who are typically seeking short-term capital to be used in an acquisition, development or refinancing of real estate. The borrower may have identified an undervalued asset that has been undermanaged or is located in a recovering market. If the market in which the asset is located fails to recover according to the borrower’s projections, or if the borrower fails to improve the quality of the asset’s management or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the bridge loan, and we may not recover some or all of our investment.

In addition, owners usually borrow funds under a conventional mortgage loan to repay a bridge loan. We may, therefore, be dependent on a borrower’s ability to obtain permanent financing to repay our bridge loan, which could depend on market conditions and other factors. Bridge loans are also subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance. In the event of any default under bridge loans held by us, we bear the risk of loss of principal and nonpayment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount of the bridge loan. To the extent we suffer such losses with respect to our investments in bridge loans, the value of our company and of our common stock may be adversely affected.

Investment in non-conforming and non-investment grade loans may involve increased risk of loss.

Loans we may acquire or originate may not conform to conventional loan criteria applied by traditional lenders and may not be rated or may be rated as non-investment grade. Non-investment grade ratings for these loans typically result from the overall leverage of the loans, the lack of a strong operating history for the properties underlying the loans, the borrowers’ credit history, the properties’ underlying cash flow or other factors. As a result, loans we acquire or originate may have a higher risk of default and loss than conventional loans. Any loss we incur may reduce distributions to stockholders and adversely affect the value of our common stock.

Our investments in subordinated loans and subordinated mortgage-backed securities may be subject to losses.

We intend to acquire or originate subordinated loans and invest in subordinated mortgage-backed securities. In the event a borrower defaults on a subordinated loan and lacks sufficient assets to satisfy our loan, we may suffer a loss of principal or interest. In the event a borrower declares bankruptcy, we may not have full recourse to the assets of the borrower, or the assets of the borrower may not be sufficient to satisfy the loan. If a borrower defaults on our loan or on debt senior to our loan, or in the event of a borrower bankruptcy, our loan will be satisfied only after the senior debt is paid in full. Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies (through “standstill periods”), and control decisions made in bankruptcy proceedings relating to borrowers.

In general, losses on a mortgage loan included in a securitization will be borne first by the equity holder of the property, then by a cash reserve fund or letter of credit, if any, and then by the “first loss” subordinated security holder. In the event of default and the exhaustion of any equity support, reserve fund, letter of credit and any classes of securities junior to those in which we invest, we may not be able to recover all of our investment in the securities we purchase. In addition, if the underlying mortgage portfolio has been overvalued by the originator, or if the values subsequently decline and, as a result, less collateral is available to satisfy interest and principal payments due on the related mortgage-backed securities, the securities in which we invest may effectively become the “first loss” position behind the more senior securities, which may result in significant losses to us.

Risks of cost overruns and non-completion of the construction or renovation of the properties underlying loans we make or acquire may materially adversely affect our investment.

The renovation, refurbishment or expansion by a borrower under a mortgaged or leveraged property involves risks of cost overruns and non-completion. Costs of construction or improvements to bring a property up to standards established for the market position intended for that property may exceed original estimates, possibly making a project uneconomical. Other risks may include: environmental risks and construction, rehabilitation and subsequent leasing of the property not being completed on schedule. If such construction or renovation is not completed in a timely manner, or if it costs more than expected, the borrower may experience a prolonged impairment of net operating income and may not be able to make payments on our investment and we may not recover some or all of our investment.

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To close transactions within a time frame that meets the needs of borrowers of loans we may originate, we may perform underwriting analyses in a very short period of time, which may result in credit decisions based on limited information.

We may gain a competitive advantage by, from time to time, being able to analyze and close transactions within a very short period of time. Our underwriting guidelines require a thorough analysis of many factors, including the underlying property’s financial performance and condition, geographic market assessment, experience and financial strength of the borrower and future prospects of the property within the market. If we make the decision to extend credit to a borrower prior to the completion of one or more of these analyses, we may fail to identify certain credit risks that we would otherwise have identified.

The CMBS in which we may invest are subject to all of the risks of the underlying mortgage loans and the risks of the securitization process.

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

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

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

To the extent that we make investments in real estate-related securities, a portion of those investments may be illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

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

We may invest in the equity securities of CDOs and such investments may involve significant risks, including that CDO equity receives distributions from the CDO only if the CDO generates enough income to first pay the holders of its debt securities and its expenses.

We may invest in the equity securities of CDOs. When we use the term “CDO”, we are referring to a collateralized debt obligation or an entity that issues such securities. A CDO entity is a special purpose vehicle that purchases collateral (such as real estate-related investments, bank loans or asset-backed securities) that is expected to generate a stream of interest or other income. The CDO issues various classes of securities that participate in that income stream, typically one or more classes of debt instruments and a class of equity securities. The equity is usually entitled to all of the income generated by the CDO after the CDO pays all of the interest due on the debt securities and its expenses. However, there will be little or no income available to the CDO equity if there are defaults by the obligors under the underlying collateral and those defaults exceed a certain amount. In that event, the value of our investment in CDO equity could decrease substantially. In addition, the equity securities of CDOs are generally illiquid, and because they represent a leveraged investment in the CDO’s assets, the value of the equity securities will generally have greater fluctuations than the values of the underlying collateral.

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Delays in restructuring or liquidating non-performing real estate securities could reduce the return on our stockholders’ investment.

Real estate securities may become non-performing after acquisition for a wide variety of reasons. Such non-performing real estate investments may require a substantial amount of workout negotiations and/or restructuring, which may entail, among other things, a substantial reduction in the interest rate and a substantial write-down of such loan or asset. However, even if a restructuring is successfully accomplished, upon maturity of such real estate security, replacement “takeout” financing may not be available. We may find it necessary or desirable to foreclose on some of the collateral securing one or more of our investments. Intercreditor provisions may substantially interfere with our ability to do so. Even if foreclosure is an option, the foreclosure process can be lengthy and expensive. Borrowers often resist foreclosure actions by asserting numerous claims, counterclaims and defenses, including, without limitation, lender liability claims and defenses, in an effort to prolong the foreclosure action. In some states, foreclosure actions can take up to several years or more to litigate. At any time during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure action and further delaying the foreclosure process. Foreclosure litigation tends to create a negative public image of the collateral property and may result in disrupting ongoing leasing and management of the property. Foreclosure actions by senior lenders may substantially affect the amount that we may earn or recover from an investment.

We will depend on debtors for our revenue, and, accordingly, our revenue and our ability to make distributions to our stockholders will be dependent upon the success and economic viability of such debtors.

The success of our real estate-related investments such as loans and debt and derivative securities will materially depend on the financial stability of the debtors underlying such investments. The inability of a single major debtor or a number of smaller debtors to meet their payment obligations could result in reduced revenue or losses. In the event of a debtor default or bankruptcy, we may experience delays in enforcing our rights as a creditor, and such rights may be subordinated to the rights of other creditors. These events could negatively affect the cash available for distribution to our stockholders and the value of our stockholders’ investment.

Prepayments can adversely affect the yields on our investments.

The yields on our debt investments may be affected by the rate of prepayments differing from our projections. Prepayments on debt instruments, where permitted under the debt documents, are influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond our control, and consequently, such prepayment rates cannot be predicted with certainty. If we are unable to invest the proceeds of such prepayments received, the yield on our portfolio will decline. In addition, we may acquire assets at a discount or premium and if the asset does not repay when expected, our anticipated yield may be impacted. Under certain interest rate and prepayment scenarios we may fail to recoup fully our cost of acquisition of certain investments.

If credit spreads widen before we obtain long-term financing for our assets, the value of our assets may suffer.

We will price our assets based on our assumptions about future credit spreads for financing of those assets. We expect to obtain longer-term financing for our assets using structured financing techniques in the future. In such financings, interest rates are typically set at a spread over a certain benchmark, such as the yield on United States Treasury obligations, swaps, or LIBOR. If the spread that borrowers will pay over the benchmark widens and the rates we charge on our assets to be securitized are not increased accordingly, this may reduce our income or cause losses.

Hedging against interest rate exposure may adversely affect our earnings, limit our gains or result in losses, which could adversely affect cash available for distribution to our stockholders.

We may enter into interest rate swap agreements or pursue other interest rate hedging strategies. Our hedging activity will vary in scope based on the level of interest rates, the type of portfolio investments held, and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect us because, among other things:

• interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;

• available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;

• the duration of the hedge may not match the duration of the related liability or asset;

• the amount of income that a REIT may earn from hedging transactions to offset interest rate losses is limited by federal tax provisions governing REITs;

• the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction;

• the party owing money in the hedging transaction may default on its obligation to pay; and

• we may purchase a hedge that turns out not to be necessary, i.e., a hedge that is out of the money.

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Any hedging activity we engage in may adversely affect our earnings, which could adversely affect cash available for distribution to our stockholders. Therefore, while we may enter into such transactions to seek to reduce interest rate risks, unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged or liabilities being hedged may vary materially. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended accounting treatment and may expose us to risk of loss.

Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities and involve risks and costs.

The cost of using hedging instruments increases as the period covered by the instrument increases and during periods of rising and volatile interest rates. We may increase our hedging activity and thus increase our hedging costs during periods when interest rates are volatile or rising and hedging costs have increased. In addition, hedging instruments involve risk since they often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities. Consequently, there are no requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions. Furthermore, the enforceability of agreements underlying derivative transactions may depend on compliance with applicable statutory, commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. The business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result in a default. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized profits and force us to cover our resale commitments, if any, at the then-current market price. Although generally we will seek to reserve the right to terminate our hedging positions, it may not always be possible to dispose of or close out a hedging position without the consent of the hedging counterparty, and we may not be able to enter into an offsetting contract in order to cover our risk. We cannot be certain that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in losses.

Our investments in real estate-related debt securities and preferred and common equity securities will be subject to the specific risks relating to the particular issuer of the securities and may involve greater risk of loss than secured debt financings.

We may make equity investments in REITs and other real estate companies. We may target a public company that owns commercial real estate or real estate-related assets when we believe its stock is trading at a discount to that company’s net asset value. We may eventually seek to acquire or gain a controlling interest in the companies that we target. We do not expect our non-controlling equity investments in other public companies to exceed 5% of the proceeds of our ongoing initial public offering, assuming we sell the maximum offering amount, or to represent a substantial portion of our assets at any one time. We may also invest in debt securities and preferred equity securities issued by REITs and other real estate companies. Our investments in debt securities and preferred and common equity securities will involve special risks relating to the particular issuer of the securities, including the financial condition and business outlook of the issuer. Issuers that are REITs and other real estate companies are subject to the inherent risks associated with real estate and real estate-related investments. Furthermore, debt securities and preferred and common equity securities may involve greater risk of loss than secured debt financings due to a variety of factors, including that such investments are generally unsecured and may also be subordinated to other obligations of the issuer. As a result, investments in debt securities and preferred and common equity securities are subject to risks of (i) limited liquidity in the secondary trading market, (ii) substantial market price volatility resulting from changes in prevailing interest rates, (iii) subordination to the prior claims of banks and other senior lenders to the issuer, (iv) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest redemption proceeds in lower yielding assets, (v) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations and (vi) the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic downturn. These risks may adversely affect the value of outstanding debt securities and preferred and common equity securities and the ability of the issuers thereof to make principal, interest and/or distribution payments to us.

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Declines in the market values of our investments may adversely affect periodic reported results of operations and credit availability, which may reduce earnings and, in turn, cash available for distribution to our stockholders.

A portion of our assets may be classified for accounting purposes as “available-for-sale.” These investments are carried at estimated fair value and temporary changes in the market values of those assets will be directly charged or credited to stockholders’ equity without impacting net income on the income statement. Moreover, if we determine that a decline in the estimated fair value of an available-for-sale security below its amortized value is other-than-temporary, we will recognize a loss on that security on the income statement, which will reduce our earnings in the period recognized.

A decline in the market value of our assets may adversely affect us particularly in instances where we have borrowed money based on the market value of those assets. If the market value of those assets declines, the lender may require us to post additional collateral to support the loan. If we were unable to post the additional collateral, we may have to sell assets at a time when we might not otherwise choose to do so. A reduction in credit available may reduce our earnings and, in turn, cash available for distribution to stockholders.

Further, credit facility providers may require us to maintain a certain amount of cash reserves or to set aside unlevered assets sufficient to maintain a specified liquidity position, which would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on equity. In the event that we are unable to meet these contractual obligations, our financial condition could deteriorate rapidly.

Market values of our investments may decline for a number of reasons, such as changes in prevailing market rates, increases in defaults, increases in voluntary prepayments for those investments that we have that are subject to prepayment risk, widening of credit spreads and downgrades of ratings of the securities by ratings agencies.

Some of our portfolio investments will be carried at estimated fair value as determined by us and, as a result, there may be uncertainty as to the value of these investments.

Some of our portfolio investments will be in the form of securities that are recorded at fair value but that have limited liquidity or are not publicly traded. The fair value of securities and other investments that have limited liquidity or are not publicly traded may not be readily determinable. We estimate the fair value of these investments on a quarterly basis. Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on numerous estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. The value of our common stock could be adversely affected if our determinations regarding the fair value of these investments are materially higher than the values that we ultimately realize upon their disposal.

Risks Associated with Debt Financing

We incur mortgage indebtedness and other borrowings, which increases our risk of loss due to foreclosure.

We may obtain lines of credit and long-term financing that may be secured by our properties and other assets. In some instances, we may acquire real properties by financing a portion of the price of the properties and mortgaging or pledging some or all of the properties purchased as security for that debt. We may also incur mortgage debt on properties that we already own in order to obtain funds to acquire additional properties. In addition, we may borrow as necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes, including borrowings to satisfy the REIT requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders (computed without regard to the dividends-paid deduction and excluding net capital gain). We, however, can give our stockholders no assurance that we will be able to obtain such borrowings on satisfactory terms.

If we do mortgage a property and there is a shortfall between the cash flow from that property and the cash flow needed to service mortgage debt on that property, then the amount of cash available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss of a property since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, reducing the value of our stockholders’ investment. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure even though we would not necessarily receive any cash proceeds. We may give full or partial guaranties to lenders of mortgage debt on behalf of the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties.

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We may utilize repurchase agreements as a component of our financing strategy. Repurchase agreements economically resemble short-term, variable rate financing and usually require the maintenance of specific loan-to-collateral value ratios. If the market value of the assets subject to a repurchase agreement decline, we may be required to provide additional collateral or make cash payments to maintain the loan-to-collateral value ratios.

We may also obtain recourse debt to finance our acquisitions and meet our REIT distribution requirements. If we have insufficient income to service our recourse debt obligations, our lenders could institute proceedings against us to foreclose upon our assets. If a lender successfully forecloses upon any of our assets, our ability to pay cash distributions to our stockholders will be limited and our stockholders could lose all or part of their investment.

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

If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties. If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the debt becomes due or of being unable to refinance on favorable terms. If interest rates are higher when we refinance the properties, our income could be reduced. We may be unable to refinance properties. If any of these events occurs, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise capital by issuing more stock or borrowing more money.

We expect to use leverage in connection with our investments in real estate-related assets, which increases the risk of loss associated with this type of investment.

We may finance the acquisition and origination of certain real estate-related investments with warehouse lines of credit and repurchase agreements. In addition, we may engage in various types of securitizations in order to finance our loan originations. Although the use of leverage may enhance returns and increase the number of investments that we can make, it may also substantially increase the risk of loss. There can be no assurance that leveraged financing will be available to us on favorable terms or that, among other factors, the terms of such financing will parallel the maturities of the underlying assets acquired. If alternative financing is not available, we may have to liquidate assets at unfavorable prices to pay off such financing. Our return on our investments and cash available for distribution to our stockholders may be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the income that we can derive from the assets we acquire.

Our debt service payments will reduce our cash flow available for distributions. We may not be able to meet our debt service obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations. We may utilize repurchase agreements as a component of our financing strategy. Repurchase agreements economically resemble short-term, variable-rate financing and usually require the maintenance of specific loan-to-collateral value ratios. If the market value of the assets subject to a repurchase agreement decline, we may be required to provide additional collateral or make cash payments to maintain the loan-to-collateral value ratio. If we are unable to provide such collateral or cash repayments, we may lose our economic interest in the underlying assets. Further, credit facility providers and warehouse facility providers may require us to maintain a certain amount of cash reserves or to set aside unleveraged assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on assets. In the event that we are unable to meet these collateral obligations, our financial condition could deteriorate rapidly.

We may not be able to access financing sources on attractive terms, which could adversely affect our ability to execute our business plan.

We may finance our assets over the long-term through a variety of means, including repurchase agreements, credit facilities, issuance of commercial mortgage-backed securities, collateralized debt obligations and other structured financings. Our ability to execute this strategy will depend on various conditions in the markets for financing in this manner that are beyond our control, including lack of liquidity and greater credit spreads. We cannot be certain that these markets will remain an efficient source of long-term financing for our assets. If our strategy is not viable, we will have to find alternative forms of long-term financing for our assets, as secured revolving credit facilities and repurchase facilities may not accommodate long-term financing. This could subject us to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flows, thereby reducing cash available for distribution to our stockholders and funds available for operations as well as for future business opportunities.

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To the extent that we pursue CDO securitizations, delays in obtaining or securing long-term securitization financing will extend our default risk exposure.

We may leverage our real estate-related investments by borrowing. Such borrowings will initially take the form of warehouse facilities, bank credit facilities and repurchase agreements. In the future, we may also enter into securitization transactions in the form of CDOs and use the proceeds from such transactions to reduce the outstanding balances under our warehouse facilities, bank credit facilities and repurchase agreements. While we will retain the equity component, or below investment grade component, of such CDOs and, therefore, still have exposure to any investments included in such securitizations, our inability to enter into securitization transactions will increase our overall exposure to risks associated with ownership of such investments, including the risk of default. Warehouse facilities, bank credit facilities and repurchase agreements generally include a recourse component, meaning that lenders retain a general claim against us as an entity. Further, such borrowings may also provide the lender with the ability to make margin calls and may limit the length of time that any given asset may be used as eligible collateral.

We may not be able to acquire eligible investments for a CDO issuance or may not be able to issue CDO securities on attractive terms, either of which may require us to seek more costly financing for our investments or to liquidate assets.

We may acquire debt instruments and finance them on a non-recourse long-term basis, such as through the issuance of CDOs. During the period that we are acquiring these assets, we may finance our purchases through relatively short-term credit facilities. We intend to use short-term warehouse lines of credit to finance the acquisition of instruments until a sufficient quantity is accumulated, at which time we may refinance these lines through a securitization, such as a CDO issuance, or other long-term financing. As a result, we are subject to the risk that we will not be able to acquire, during the period that our warehouse facility is available, a sufficient amount of eligible assets to maximize the efficiency of a CDO issuance. In addition, conditions in the capital markets may make the issuance of CDOs less attractive to us when we have accumulated a sufficient pool of collateral. If we are unable to issue a CDO to finance these assets, we may be required to seek other forms of potentially less attractive financing or otherwise to liquidate the assets.

The use of CDO financings with over-collateralization requirements may have a negative impact on our cash flow.

We expect that the terms of CDOs we may issue will generally provide that the principal amount of assets must exceed the principal balance of the related bonds by a certain amount, commonly referred to as “over-collateralization.” We anticipate that the CDO terms will provide that, if certain delinquencies and/or losses exceed specified levels, which we will establish based on the analysis by the rating agencies (or any financial guaranty insurer) of the characteristics of the assets collateralizing the bonds, the required level of over-collateralization may be increased or may be prevented from decreasing as would otherwise be permitted had losses or delinquencies not exceeded those levels. Other tests (based on delinquency levels or other criteria) may restrict our ability to receive net income from assets collateralizing the obligations. We cannot assure our stockholders that the performance tests will be satisfied. In advance of completing negotiations with the rating agencies or other key transaction parties on our future CDO financings, we cannot assure our stockholders of the actual terms of the CDO delinquency tests, over-collateralization terms, cash flow release mechanisms or other significant factors regarding the calculation of net income to us. Failure to obtain favorable terms with regard to these matters may materially and adversely affect our net income. If our assets fail to perform as anticipated, our over-collateralization or other credit enhancement expense associated with our CDO financings will increase.

We may be required to repurchase loans that we have sold or to indemnify holders of CDOs we issue.

If any of the loans we originate or acquire and sell or securitize do not comply with representations and warranties that we make about certain characteristics of the loans, the borrowers and the underlying properties, we may be required to repurchase those loans (including from a trust vehicle used to facilitate a structured financing of the assets through CDOs) or replace them with substitute loans. In addition, in the case of loans that we have sold instead of retained, we may be required to indemnify persons for losses or expenses incurred as a result of a breach of a representation or warranty. Repurchased loans typically require a significant allocation of working capital to be carried on our books, and our ability to borrow against such assets may be limited. Any significant repurchases or indemnification payments could materially and adversely affect our financial condition and operating results.

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

When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan agreements we enter may contain covenants that limit our ability to further mortgage a property or that prohibit us from discontinuing insurance coverage or replacing KBS Capital Advisors as our advisor. These or other limitations would decrease our operating flexibility and our ability to achieve our operating objectives.

Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.

We expect that we will incur additional debt in the future and increases in interest rates will increase the cost of that debt, which could reduce the cash we have available for distributions. Additionally, if we incur variable rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to pay distributions to our stockholders. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments at times that may not permit realization of the maximum return on such investments.

We have broad authority to incur debt and high debt levels could hinder our ability to make distributions and decrease the value of our stockholders’ investment.

Our policies do not limit us from incurring debt until our borrowings would exceed 75% of the cost of our tangible assets (before deducting depreciation or other noncash reserves) and we may exceed this limit with the approval of the conflicts committee of our board of directors. As of March 24, 2009, our borrowings were 42% of the cost of all of our tangible assets (before deducting depreciation or other noncash reserves). High debt levels would cause us to incur higher interest charges and higher debt service payments and may also be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of our stockholders’ investment.

Federal Income Tax Risks

Failure to qualify as a REIT would reduce our net earnings available for investment or distribution.

Our qualification as a REIT will depend upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Code. If we fail to qualify as a REIT for any taxable year after electing REIT status, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends-paid deduction and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

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

If our stockholders participate in our dividend reinvestment plan, they will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. In addition, our stockholders will be treated for tax purposes as having received an additional distribution to the extent the shares are purchased at a discount to fair market value. As a result, unless our stockholders are a tax-exempt entity, they may have to use funds from other sources to pay their tax liability on the value of the shares of common stock received.

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Even if we qualify as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to our stockholders.

Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local taxes on our income or property. For example:

• In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income to our stockholders (which is determined without regard to the dividends-paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on the undistributed income.

• We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.

• If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.

• If we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% “prohibited transaction” tax unless such sale were made by one of our taxable REIT subsidiaries.

We intend to make distributions to our stockholders to comply with the REIT requirements of the Code.

REIT distribution requirements could adversely affect our ability to execute our business plan.

From time to time, we may generate taxable income greater than our income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution to stockholders (for example, where a borrower defers the payment of interest in cash pursuant to a contractual right or otherwise). If we do not have other funds available in these situations we could be required to borrow funds, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

To maintain our REIT status, we may be forced to forego otherwise attractive opportunities, which may delay or hinder our ability to meet our investment objectives and reduce our stockholders’ overall return.

To qualify as a REIT, we must satisfy certain tests on an ongoing basis concerning, among other things, the sources of our income, nature of our assets and the amounts we distribute to our stockholders. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of our stockholders’ investment.

The “taxable mortgage pool” rules may increase the taxes that we or our stockholders incur and may limit the manner in which we conduct securitizations.

We may be deemed to be, or make investments in entities that own or are themselves deemed to be taxable mortgage pools. Similarly, certain of our securitizations or other borrowings could be considered to result in the creation of a taxable mortgage pool for federal income tax purposes. As a REIT, provided that we own 100% of the equity interests in a taxable mortgage pool, we generally would not be adversely affected by the characterization of the securitization as a taxable mortgage pool. Certain categories of stockholders, however, such as foreign stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to the taxable mortgage pool. In addition, to the extent that our stock is owned by tax-exempt “disqualified organizations,” such as certain government-related entities that are not subject to tax on unrelated business income, we will incur a corporate-level tax on a portion of our income from the taxable mortgage pool. In that case, we are authorized to reduce and intend to reduce the amount of our distributions to any disqualified organization whose stock ownership gave rise to the tax by the amount of such tax paid by us that is attributable to such stockholder’s ownership. Moreover, we would be precluded from selling equity interests in these securitizations to outside investors, or selling any debt securities issued in connection with these securitizations that might be considered to be equity interests for federal income tax purposes. These limitations may prevent us from using certain techniques to maximize our returns from securitization transactions.

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The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of assets, other than foreclosure property, deemed held primarily for sale to customers in the ordinary course of business. We might be subject to this tax if we were to dispose of or securitize loans in a manner that was treated as a sale of the loans for federal income tax purposes. Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans at the REIT level, and may limit the structures we utilize for our securitization transactions, even though the sales or structures might otherwise be beneficial to us.

It may be possible to reduce the impact of the prohibited transaction tax by conducting certain activities through taxable REIT subsidiaries. However, to the extent that we engage in such activities through taxable REIT subsidiaries, the income associated with such activities may be subject to full corporate income tax.

The IRS may challenge our characterization of certain income from offshore taxable REIT subsidiaries.

We may form offshore corporate entities treated as taxable REIT subsidiaries. If we form such subsidiaries, we may receive certain “income inclusions” with respect to our equity investments in these entities. We intend to treat such income inclusions, to the extent matched by repatriations of cash in the same taxable year, as qualifying income for purposes of the 95% gross income test but not the 75% gross income test. Because there is no clear precedent with respect to the qualification of such income inclusions for purposes of the REIT gross income tests, no assurance can be given that the IRS will not assert a contrary position. If such income does not qualify for the 95% gross income test, we could be subject to a penalty tax or we could fail to qualify as a REIT, in both events only if such inclusions (along with certain other non-qualifying income) exceed 5% of our gross income.

We may be subject to adverse legislative or regulatory tax changes.

At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. We cannot predict when or if any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation.

Retirement Plan Risks

If the fiduciary of an employee pension benefit plan subject to ERISA (such as profit sharing, Section 401(k) or pension plan) or any other retirement plan or account fails to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, the fiduciary could be subject to criminal and civil penalties.

There are special considerations that apply to employee benefit plans subject to the Employee Retirement Income Security Act (“ERISA”) (such as profit sharing, Section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code (such as an IRA) that are investing in our shares. Fiduciaries investing the assets of such a plan or account in our common stock should satisfy themselves that:

• the investment is consistent with their fiduciary obligations under ERISA and the Internal Revenue Code;

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

• the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Internal Revenue Code;

• the investment will not impair the liquidity of the plan or IRA;

• the investment will not produce “unrelated business taxable income” for the plan or IRA;

• our stockholders will be able to value the assets of the plan annually in accordance with ERISA requirements and applicable provisions of the plan or IRA; and

• the investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.

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Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to equitable remedies. In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the Code, the fiduciary who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested.

ITEM 1B. UNRESOLVED STAFF COMMENTS

We have no unresolved staff comments.

ITEM 2.    PROPERTIES

As of December 31, 2008, our portfolio included three office properties and one office/flex property. In addition, we had invested in one real estate loan receivable.

Real Estate Investments

At December 31, 2008, our portfolio consisted of four properties encompassing approximately 1.4 million rentable square feet. The portfolio consisted of office and office/flex properties. All of these properties are included in our accompanying consolidated financial statements and in the property summary below. At December 31, 2008, our portfolio was approximately 98% leased. The following table provides summary information regarding our properties as of December 31, 2008:

Property Location of Property	Property     Type	Rentable     Square Feet		Total Cost     at 12/31/2008		Debt		Annualized   Base Rent (1)		Average Annualized Base Rent   per Sq. Ft. (2)	Average Remaining     Lease Term     in Years	Percent Leased
Mountain View Corporate Center
Basking Ridge, NJ	Office	134,991	$	30,756,368	$	12,270,000	$	3,897,451	$	30.15	5.58	95.8%
Campus Drive Buildings
100 & 200 Campus Drive Buildings
Florham Park, NJ	Office	559,384		198,698,785		118,326,200		16,114,406		30.01	4.34	96.0%
300-600 Campus Drive Buildings
Florham Park, NJ	Office	564,304		195,207,941		140,850,000		14,580,984		25.84	5.51	100.0%
Total Campus Drive Buildings		1,123,688		393,906,726		259,176,200		30,695,390		27.87	4.94	98.0%
350 E. Plumeria Building
San Jose, CA	Office/Flex	142,700		36,115,915		-		2,972,632		20.83	9.25	100.0%
		1,401,379	$	460,779,009	$	271,446,200	$	37,565,473	$	27.36	5.45	98.0%

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of December 31, 2008, adjusted to straight-line any future contractual rent increases from the time of our acquisition through the balance of the lease term.

⁽²⁾ Average annualized base rent per square foot is calculated as the annualized base rent divided by the leased rentable square feet.

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Portfolio Lease Expirations

The following table reflects lease expirations of our owned properties as of December 31, 2008:

Year of Expiration	Number of Leases   Expiring	Annualized Base Rent (1)		% of Portfolio Annualized Base Rent Expiring	Leased Rentable Square Feet Expiring	% of Portfolio Rentable Square Feet Expiring
Month to Month	4	$	18,000	0.1%	11,657	0.9%
2009	3		345,026	0.9%	9,809	0.7%
2010	7		6,972,001	18.6%	253,266	18.4%
2011	4		2,183,999	5.8%	65,638	4.8%
2012	5		4,149,889	11.0%	158,216	11.5%
2013	2		215,971	0.6%	5,624	0.4%
2014	5		6,442,423	17.1%	224,978	16.4%
2015	4		7,332,167	19.5%	285,486	20.8%
2016	2		6,414,526	17.1%	199,024	14.5%
2017	1		518,839	1.4%	16,852	1.2%
2018	2		2,972,632	7.9%	142,700	10.4%
Total	39	$	37,565,473	100.0%	1,373,250	100.0%

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of December 31, 2008, adjusted to straight-line any future contractual rent increases from the time of our acquisition through the balance of the lease term.

Industry Distribution of Portfolio Leases

The following table shows the tenant industry diversification of our properties as of December 31, 2008:

Industry	Annualized Base Rent (1)		% of Portfolio   Annualized Base Rent	Leased Rentable Square Feet	% of Leased Rentable Square Feet
Manufacturing	$	9,548,780	25.4%	346,250	25.2%
Finance		6,520,711	17.4%	188,906	13.8%
Legal Services		6,442,273	17.1%	265,761	19.3%
Professional Services		5,543,860	14.8%	201,943	14.7%
Accounting Services		4,578,245	12.2%	203,121	14.8%
Retail Trade		2,190,687	5.8%	73,626	5.4%
Insurance		1,667,269	4.4%	51,316	3.7%
Other Services (2)		1,073,648	2.9%	42,327	3.1%
	$	37,565,473	100.0%	1,373,250	100.0%

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of December 31, 2008, adjusted to straight-line any future contractual rent increases from the time of our acquisition through the balance of the lease term.

⁽²⁾ Consists of other industries that individually represent no more than 1% of Annualized Base Rent.

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Significant Tenants

The following table details our 10 largest tenants as a percentage of total annualized base rent as of December 31, 2008:

Tenant	Tenant Industry	Annualized Base Rent (1)		% of Portfolio Annualized Base Rent	Leased Rentable Square Feet	% of Portfolio
BASF Americas Corporation	Manufacturing	$	6,414,526	17.1%	199,024	14.2%
PricewaterhouseCoopers LLP	Accounting Services		4,338,153	11.5%	195,499	14.0%
Day Pitney LLP	Legal Services		3,071,853	8.2%	133,650	9.5%
NetGear, Inc.	Manufacturing		2,972,632	7.9%	142,700	10.2%
McKinsey & Company, Inc. US	Professional Services		2,230,335	5.9%	99,126	7.1%
Barnes & Noble College Bookstore	Retail Trade		2,190,687	5.8%	73,626	5.3%
Drinker Biddle & Reath LLP	Legal Services		2,182,495	5.8%	94,567	6.8%
Merrill Lynch, P, F & S, Inc.	Finance		1,774,273	4.7%	54,593	3.9%
PaineWebber, Inc.	Finance		1,339,544	3.6%	35,366	2.5%
Carroll McNulty & Kull	Legal Services		1,187,924	3.2%	37,544	2.7%
		$	27,702,422	73.7%	1,065,695	76.2%

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of December 31, 2008, adjusted to straight-line any future contractual rent increases from the time of our acquisition through the balance of the lease term.

Geographic Distribution of Portfolio Properties

The following table reflects the geographic distribution of our property portfolio as of December 31, 2008:

State	Number of        Properties	Rentable Square Feet	Annualized Base Rent (1)		Average Annualized Base Rent per Sq. Ft. (2)		Percent of Portfolio Annualized Base Rent	Total Cost
New Jersey	3	1,258,679	$	34,592,841	$	28.11	92.1%	$	424,663,094
California	1	142,700		2,972,632		20.83	7.9%		36,115,915
Total	4	1,401,379	$	37,565,473	$	27.36	100.0%	$	460,779,009

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of December 31, 2008, adjusted to straight-line any future contractual rent increases from the time of our acquisition through the balance of the lease term.

⁽²⁾ Average annualized base rent per square foot is calculated as the annualized base rent divided by the leased rentable square feet.

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Real Estate-Related Investment

As of December 31, 2008, we had invested in one real estate loan receivable, the Northern Trust Building A-Note:

Loan Name Location of Related Property or Collateral	Date   Acquired	Property Type	Loan Type	Payment   Type		Book Value as of December 31, 2008	Rate Type	Annual Effective Interest Rate	Maturity    Date
Northern Trust Building A-Note San Diego, California	12/31/2008	Office	A-Note	Interest Only	$	58,152,117	Fixed	13.1% (1)	10/01/2017

⁽¹⁾ The annual effective interest rate is the investment’s internal rate of return, calculated using the investment’s contractual cash flows and our cost basis in the investment (excluding direct acquisition costs), that will result in a constant yield over the life of the investment.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition. Nor are we aware of any such legal proceedings contemplated by government agencies.

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our stockholders during the fourth quarter of 2008.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stockholder Information

As of March 24, 2009, we had approximately 45.0 million shares of common stock outstanding held by a total of approximately 13,000 stockholders. The number of stockholders is based on the records of Phoenix Transfer, Inc., who serves as our transfer agent.

Market Information

No public market currently exists for our shares of common stock, and we currently have no plans to list our shares on a national securities exchange. Until our shares are listed, if ever, our stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase requirements. In addition, our charter prohibits the ownership of more than 9.8% of our stock, unless exempted by our board of directors. Consequently, there is the risk that our stockholders may not be able to sell their shares at a time or price acceptable to them.

To assist the Financial Industry Regulatory Authority (“FINRA”) members and their associated persons that participate in the ongoing initial public offering of our common stock, pursuant to FINRA Conduct Rule 511, we disclose in each annual report distributed to stockholders a per share estimated value of the shares, the method by which it was developed, and the date of the data used to develop the estimated value. In addition, KBS Capital Advisors, our advisor, prepares annual statements of estimated share values to assist fiduciaries of retirement plans subject to the annual reporting requirements of ERISA in the preparation of their reports relating to an investment in our shares. For these purposes, KBS Capital Advisors estimated the value of our common shares as $10.00 per share as of December 31, 2008. The basis for this valuation is the fact that the current public offering price for our shares of common stock in our primary offering is $10.00 per share (ignoring purchase price discounts for certain categories of purchasers). Our advisor has indicated that it intends to use the most recent price paid to acquire a share in our ongoing public offering (ignoring purchase price discounts for certain categories of purchasers) as its estimated per share value of our shares for up to three years after we have completed our offering stage (though we may establish an estimated value per share sooner if required by any regulatory bodies or if necessary to assist broker-dealers who sell shares in our ongoing initial public offering). We will consider our offering stage complete when we are no longer publicly offering equity securities and have not done so for one year. (For purposes of this definition, we do not consider a “public equity offering” to include offerings on behalf of selling stockholders or offerings related to a dividend reinvestment plan, employee benefit plan or the redemption of interests in our Operating Partnership.)

Although this initial estimated value represents the most recent price at which most investors are willing to purchase shares in our primary offering, this reported value is likely to differ from the price at which a stockholder could resell his or her shares because (i) there is no public trading market for the shares at this time; (ii) the estimated value does not reflect, and is not derived from, the fair market value of our properties and other assets, nor does it represent the amount of net proceeds that would result from an immediate liquidation of those assets, because the amount of proceeds available for investment from our primary public offering is net of selling commissions, dealer manager fees, other organization and offering costs and acquisition and origination fees and expenses; (iii) the estimated value does not take into account how market fluctuations affect the value of our investments, including how the current disruptions in the financial and real estate markets may affect the values of our investments; and (iv) the estimated value does not take into account how developments related to individual assets may have increased or decreased the value of our portfolio.

Notwithstanding the above, in February 2009 FINRA released Regulatory Notice 09-09. This notice confirms that the National Association of Securities Dealers (“NASD”) Rule 2340(c)(2) prohibits broker-dealers that are required to report an estimated value per share for non-traded REITs from using a per share estimated value developed from data that is more than 18 months old. This would mean that broker-dealers that participate in our offering could not use the last price paid to acquire a share in our public offering as the estimated value per share of our common stock beginning 18 months after the date we cease offering shares in our initial public offering. We are currently evaluating the method that we will use to assist broker-dealers with this requirement.

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Distribution Information

We intend to authorize and declare daily distributions that will be paid on a monthly basis. We intend to be taxed as a REIT under the Code beginning with our taxable year ended December 31, 2008. To qualify and maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with U.S. generally accepted accounting principles (“GAAP”)). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant.

During 2008, we declared distributions based on daily record dates for each day during the period commencing July 16, 2008 through December 31, 2008, aggregated by month, as follows:

	July 16 through        July 31		August 1 through      August 15		August 16      through August 31		September 1 through   September 30		October 1 through     October 31		November 1 through     November 30		December 1 through   December 31
Total Distributions Declared (1)	$	29,314	$	46,674	$	247,235	$	683,090	$	1,024,853	$	1,288,870	$	1,620,890
Total Per Share Distribution (1)	$	0.01	$	0.01	$	0.02	$	0.05	$	0.06	$	0.05	$	0.06
Annualized Rate Based on Purchase Price of $10.00 Per Share		2.0%		2.0%		6.5%		6.5%		6.5%		6.5%		6.5%

⁽¹⁾ During 2008, approximately 90% of the distributions declared represented a return of capital and approximately 10% represented ordinary income for tax purposes.

Our board of directors declared a daily distribution for the period from January 1, 2009 through January 31, 2009, which we paid in February 2009, and declared a daily distribution for the period from February 1, 2009 through February 28, 2009, which we paid in March 2009. Our board of directors has also declared a daily distribution for the period from March 1, 2009 through March 31, 2009, which we expect to pay in April 2009; a daily distribution for the period from April 1, 2009 through April 30, 2009, which we expect to pay in May 2009; and a daily distribution for the period from May 1, 2009 through May 31, 2009, which we expect to pay in June 2009. Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan. Our distributions are calculated based on stockholders of record each day during each distribution period at a rate of $0.00178082 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 6.5% annualized rate based on a purchase price of $10.00 per share.

Use of Proceeds from Sales of Registered Securities and Unregistered Sales of Equity Securities

On April 22, 2008, our Registration Statement on Form S-11 (File No. 333-146341), covering a public offering of up to 280,000,000 shares of common stock, was declared effective under the Securities Act of 1933. We commenced our initial public offering on April 22, 2008 upon retaining KBS Capital Markets Group, an affiliate of our advisor, as the dealer manager of our offering. We are offering 200,000,000 shares of common stock in our primary offering at an aggregate offering price of up to $2.0 billion, or $10.00 per share with discounts available to certain categories of purchasers. The 80,000,000 shares offered under our dividend reinvestment plan are initially being offered at an aggregate offering price of $760 million, or $9.50 per share. We expect to sell the shares registered in our primary offering over a two-year period. Under rules promulgated by the SEC, in some instances we may extend the primary offering beyond that date. We may sell shares under the dividend reinvestment plan beyond the termination of the primary offering until we have sold all the shares under the plan.

Through December 31, 2008, we had sold 31,495,364 shares for gross offering proceeds of $314.2 million, including shares sold through our dividend reinvestment program. As of December 31, 2008, we had incurred selling commissions, dealer manager fees and organization and other offering costs in the amounts set forth below. The dealer manager reallowed all of the selling commissions and a portion of the dealer manager fees to participating broker-dealers.

Type of Expense Amount	Amount		Estimated/       Actual
Selling commissions and dealer manager fees	$	29,083,674	Actual
Finders’ fees		-
Expenses paid to or for underwriters		-
Organization and other offering costs		5,504,692	Actual
Total expenses	$	34,588,366

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From the commencement of our ongoing initial public offering through December 31, 2008, the net offering proceeds to us, after deducting the total expenses incurred as described above, were approximately $279.6 million, including net offering proceeds from our dividend reinvestment plan of $1.9 million. The net proceeds from the dividend reinvestment plan offering from each calendar year are used to calculate the maximum dollar value of shares redeemable under our share redemption program in the subsequent calendar year. As of December 31, 2008, we have used the net proceeds from our initial public offering and debt financing to purchase $495.5 million in real estate and real estate-related investments, including $10.1 million of acquisition and origination fees and expenses.

During the fiscal year ended December 31, 2008, we did not sell any equity securities that were not registered under the Securities Act of 1933.

Share Redemption Program

We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances.

There are several limitations on our ability to redeem shares under the share redemption program:

• Unless the shares are being redeemed in connection with a stockholder’s death or “qualifying disability” (as defined under the share redemption program), we may not redeem shares until the stockholder has held his or her shares for one year.

• The share redemption program limits the number of shares we may redeem to those that we could purchase with the net proceeds from the issuance of shares under the dividend reinvestment plan during the prior calendar year.

• During any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.

• We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.

Under the program, we will initially redeem shares as follows:

• The lower of $9.25 or 92.5% of the price paid to acquire the shares from us for stockholders who have held their shares for at least one year;

• The lower of $9.50 or 95.0% of the price paid to acquire the shares from us for stockholders who have held their shares for at least two years;

• The lower of $9.75 or 97.5% of the price paid to acquire the shares from us for stockholders who have held their shares for at least three years; and

• The lower of $10.00 or 100% of the price paid to acquire the shares from us for stockholders who have held their shares for at least four years.

Notwithstanding the above, once we establish an estimated value per share of common stock, the redemption price per share for all stockholders will be equal to the estimated value per share, as determined by our advisor or another firm chosen for that purpose. We expect to establish an estimated value per share no later than three years after the completion of our offering stage; however, the time frame before which we establish an estimated value per share may be different depending on regulatory requirements or if necessary to assist broker-dealers who sell shares in our ongoing initial public offering. We will consider our offering stage complete when we are no longer publicly offering equity securities – whether through our ongoing initial public offering or follow-on public offerings – and have not done so for one year. Until we establish an estimated value per share, the redemption price for shares being redeemed upon a stockholder’s death or qualifying disability will be the amount paid to acquire the shares from us.

Our board of directors may amend or terminate the share redemption program with 30 days’ notice.

As of December 31, 2008, we had not repurchased any shares under our share redemption program because no shares had been tendered for redemption.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data as of and for the year ended December 31, 2008 should be read in conjunction with the accompanying consolidated financial statements and related notes thereto and “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations”:

	As of December 31,
	2008			2007
Balance sheet data
Total real estate and real estate-related investments	$	512,495,555		$	-
Total assets		572,862,538			200,000
Notes payable		271,446,200			-
Total liabilities		300,556,598			-
Redeemable common stock		1,921,698			-
Total stockholders’ equity		270,384,242			200,000
	For the Year Ended     December 31, 2008
Operating data
Total revenues	$	14,676,381
Net loss		(2,581,652	)
Per share data
Net loss per common share - basic and diluted	$	(0.33	)
Distributions declared per common share (1)		0.26
Other data
Cash flows provided by operations	$	4,870,085
Cash flows used in investing activities		(495,535,316	)
Cash flows provided by financing activities		547,074,543
Distributions declared		4,940,926
Weighted-average number of common shares outstanding, basic and diluted		7,926,366
Reconciliation of funds from operations (2)
Net loss	$	(2,581,652	)
Depreciation of real estate assets		2,314,494
Amortization of lease-related costs		4,659,444
FFO	$	4,392,286

⁽¹⁾ Distributions declared per common share assumes each share was issued and outstanding each day from July 16, 2008 through December 31, 2008. Distributions for the period from July 16, 2008 through August 15, 2008 are based on a daily distribution for the period of $0.00054795 per share per day. Distributions for the period from August 16, 2008 through December 31, 2008 are based on a daily distribution for the period of $0.00178082 per share per day.

⁽²⁾ We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of any equity REIT. Because FFO calculations exclude such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ definition. FFO is a non-GAAP financial measure and does not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO includes adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization. Accordingly, FFO should not be considered as an alternative to net income as an indicator of our operating performance.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the “Selected Financial Data” above and our accompanying consolidated financial statements and the notes thereto. Also, see “Forward-Looking Statements” preceding Part I.

Overview

We are a newly organized Maryland corporation that intends to qualify as a real estate investment trust (“REIT”) beginning with the taxable year that ended December 31, 2008. On September 27, 2007, we filed a registration statement on Form S-11 with the Securities and Exchange Commission (“SEC”) to offer a minimum of 250,000 shares and a maximum of 280,000,000 shares of common stock for sale to the public, of which 80,000,000 shares are being offered pursuant to our dividend reinvestment plan. The SEC declared our registration statement effective on April 22, 2008 and we broke escrow in our ongoing initial public offering on June 24, 2008. We expect to sell the 200,000,000 shares offered in our primary offering over a two-year period. If we have not sold all of the shares within two years, we may continue the offering beyond that date.

We intend to acquire and manage a diverse portfolio of real estate and real estate-related assets. We plan to diversify our portfolio by investment type, investment size and investment risk with the goal of attaining a portfolio of income-producing real estate and real estate-related assets that provide attractive and stable returns to our investors. We intend to allocate between 60% and 70% of our portfolio to investments in core properties and allocate between 30% and 40% of our portfolio to real estate-related investments such as mortgage, mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real estate companies. We do not expect our non-controlling equity investments in other public companies to exceed 5% of the proceeds of our ongoing initial public offering, assuming we sell the maximum offering amount, or to represent a substantial portion of our assets at any one time. Although this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego a good investment because it does not precisely fit our expected portfolio composition. Thus, to the extent that our advisor presents us with good investment opportunities that allow us to meet the REIT requirements under the Internal Revenue Code of 1986, as amended (the “Code”), and maintain our exemption from registering as an investment company under the Investment Company Act of 1940, as amended, our portfolio composition may vary significantly from what we initially expect.

KBS Capital Advisors LLC (“KBS Capital Advisors”) is our advisor. As our advisor, KBS Capital Advisors manages our day-to-day operations and our portfolio of real estate assets. KBS Capital Advisors makes recommendations on all investments to our board of directors. KBS Capital Advisors also provides asset-management, marketing, investor-relations and other administrative services on our behalf.

We intend to make an election to be taxed as a REIT under the Code beginning with the taxable year that ended December 31, 2008. If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year after electing REIT status, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and cash available for distribution. However, we believe that we are organized and operate in a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 2008, and we intend to continue to operate so as to remain qualified as a REIT for federal income tax purposes thereafter.

Market Outlook - Real Estate and Real Estate Finance Markets

In the second half of 2007 the residential mortgage and capital markets began showing signs of stress, primarily in the form of escalating default rates on sub-prime mortgages, declining home values and increasing inventory nationwide. In 2008, the “credit crisis” spread to the broader commercial credit and financial markets resulting in illiquidity and volatility in the markets for corporate bonds, asset-backed securities and commercial real estate bonds and loans; we cannot foresee when these markets will stabilize. The United States economy is currently in a recession, which has negatively affected all businesses, including ours.

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These disruptions in the financial markets and deteriorating economic conditions have increased the cost of credit in the commercial real estate sector and could adversely affect the values of our investments. Turmoil in the capital markets has constrained equity and debt capital available for investment in commercial real estate, resulting in fewer real estate transactions, increased capitalization rates and lower property values. Furthermore, these deteriorating economic conditions have negatively impacted and may continue to negatively impact commercial real estate fundamentals and may result in lower occupancy, lower rental rates and declining values in our real estate portfolio, in the collateral securing our loan investments and in any future real estate or real estate-related investments we may make.

Over the short-term, management expects continued volatility in the capital markets and with that, continued volatility in the commercial real estate, the real estate finance and the structured finance markets. This may present a short-term opportunity to acquire real estate investments, real estate loans and other real estate-related investments that are undervalued. However, the opportunity may be hampered by the decreased availability and the increased cost of capital and uncertainty as to when credit markets and the general economy will stabilize.

Liquidity and Capital Resources

Our principal demand for funds during the short and long-term is and will be for the acquisition of properties, loans and other real estate-related investments, the payment of operating expenses, capital expenditures, general and administrative expenses, payments under debt obligations and distributions to stockholders. We have had three primary sources of capital for meeting our cash requirements:

• Proceeds from our ongoing initial public offering, including our dividend reinvestment plan;

• Debt financings; and

• Cash flow generated by our real estate operations and real estate loan receivable.

For the year ended December 31, 2008, our cash needs for acquisitions have been met primarily with a combination of proceeds from our ongoing initial public offering and debt financing. Operating cash needs have been met through cash flow generated by our properties and investments, as well as through the use of debt financing. We believe that our cash on hand, cash flow from operations and anticipated financing activities are sufficient to meet our liquidity needs for the foreseeable future.

Cash Flows from Operating Activities

We commenced real estate operations with the acquisition of our first real estate investment on July 30, 2008. We generated $4.9 million in net cash flows from operating activities primarily from the operations of the assets we acquired during the year ended December 31, 2008. We expect that our cash flows from operating activities will increase in future years as a result of owning the assets acquired during 2008 for a full year and as a result of anticipated future acquisitions of real estate and real estate-related assets.

Cash Flows from Investing Activities

Net cash used in investing activities was $495.5 million for the year ended December 31, 2008. This was primarily due to the acquisition of four real estate properties for $437.4 million and one real estate loan investment for $58.0 million during the year ended December 31, 2008.

Cash Flows from Financing Activities

Net cash provided by financing activities was $547.1 million for the year ended December 31, 2008, and consisted of the following:

Debt Financings

• Net aggregate borrowings of $271.4 million related to (i) borrowings totaling $268.6 million related to the purchase of three real estate properties and (ii) loan draws of $2.8 million used to fund general cash management requirements.

• Payments of deferred financing costs related to the financings of real estate of $1.1 million.

Primary Public Offering and Payment of Offering and Other Costs and Expenses

• Net primary offering proceeds related to our ongoing initial public offering of $278.1 million (after payment of selling commissions, dealer manager fees and other organization and offering expenses of $34.2 million).

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Distributions to Common Stockholders

• During 2008 we declared distributions totaling $4.9 million. Of this amount, $1.4 million was paid to our investors, $1.9 million was reinvested through our dividend reinvestment plan and $1.6 million was payable as of December 31, 2008.

As of December 31, 2008, our liabilities totaled $300.6 million and consisted primarily of a long-term note payable and short-term mortgage loans and mezzanine debt. The long-term note payable is a $93.9 million mortgage loan with a fixed interest rate of 5.9% at December 31, 2008. Short-term notes payable consisted of $130.5 million of variable rate mortgage and mezzanine loans with a weighted-average interest rate of 4.60% and a $47.0 million mezzanine loan with a fixed interest rate of 5.8% at December 31, 2008.

As discussed above, in 2007 and throughout 2008, the global capital markets have experienced significant dislocations and liquidity disruptions that have caused the credit spreads of debt to widen considerably. These circumstances have materially impacted the cost and availability of debt to borrowers. Our investment strategy is to utilize primarily secured and possibly unsecured debt to finance our investment portfolio; however, given the current debt market environment, we may elect to forego the use of debt on some or all of our future real estate acquisitions. Management remains vigilant in monitoring the risks inherent in our portfolio and is taking actions to ensure that we are positioned to take advantage of the current conditions in the capital markets. We may elect to obtain financing subsequent to the acquisition date on future real estate properties and initially acquire investments without debt financing. Once we have fully invested the proceeds of our ongoing initial public offering, we expect our debt financing to be between 50% and 65% of the cost of our tangible assets (before deducting depreciation or other noncash reserves). Our charter limits our borrowings to 75% of the cost (before deducting depreciation or other noncash reserves) of our tangible assets; however, we may exceed that limit if the majority of the conflicts committee approves each borrowing in excess of our charter limitation and we disclose such borrowings to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. During the early stages of our ongoing initial public offering, and to the extent financing in excess of this limit is available at attractive terms, the conflicts committee may approve debt in excess of this limit. From time to time, our debt financing may be below 50% of the cost of our tangible assets due to the lack of availability of debt financing. As of December 31, 2008, our borrowings were approximately 47% of the cost of all our tangible assets (before depreciation or other noncash reserves).

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to our advisor and the dealer manager. During our organization and offering stage, these payments will include payments to the dealer manager for selling commissions and dealer manager fees and payments to the dealer manager and our advisor for reimbursement of certain organization and other offering expenses. However, our advisor has agreed to reimburse us to the extent that selling commissions, dealer manager fees and organization and other offering expenses incurred by us exceed 15% of our gross offering proceeds. During our acquisition and development stage, we expect to make payments to our advisor in connection with the selection and origination or purchase of real estate and real estate-related investments, the management of our assets and costs incurred by our advisor in providing services to us. The advisory agreement has a one-year term but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of KBS Capital Advisors and our conflicts committee.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of December 31, 2008:

			Payments Due During the Years Ending December 31,
Contractual Obligations	Total		2009		2010-2011		2012-2013		Thereafter
Outstanding debt obligations (1)	$	271,446,200	$	177,596,200	$	-	$	-	$	93,850,000
Interest payments on outstanding debt obligations (2)	$	31,987,114	$	8,321,487	$	11,074,300	$	11,074,300	$	1,517,027

⁽¹⁾ Amounts include principal payments only.

⁽²⁾ Projected interest payments are based on the outstanding principal amounts and weighted-average interest rates for the current year-to-date. We incurred interest expense of $3.8 million, excluding amortization of deferred financing costs totaling $0.5 million, during the year ended December 31, 2008.

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Results of Operations

Our results of operations for the year ended December 31, 2008 are not indicative of those expected in future periods as we broke escrow in our ongoing initial public offering on June 24, 2008 and commenced real estate operations on July 30, 2008 in connection with the acquisition of our first investment. During the period from inception (July 12, 2007) to December 31, 2007, we had been formed but had not yet commenced operations, as we had not yet begun our initial public offering. As a result, we had no material results of operations for that period. The SEC declared the registration statement for our initial public offering effective on April 22, 2008 and we retained KBS Capital Markets Group LLC, an affiliate of our advisor, to serve as the dealer manager of the offering.

As of December 31, 2008, we had acquired three office properties, one office/flex property and one real estate loan receivable for an aggregate purchase price of approximately $495.6 million, including closing costs. We expect that all income and expenses related to our portfolio will increase in future years as a result of owning the investments acquired in 2008 for a full year and as a result of the additive effect of anticipated future acquisitions of real estate and real estate-related assets.

Rental income for our real estate properties, all of which were acquired during the year ended December 31, 2008, totaled $11.9 million and tenant reimbursements totaled $2.2 million for the year ended December 31, 2008. We acquired two of our properties during the third quarter, on July 30, 2008 and September 9, 2008, and two properties during the fourth quarter, on October 10, 2008 and December 18, 2008. As a result, our financial statements do not reflect a full period of operations for these properties.

Interest income from our real estate loan receivable, calculated using the interest method, was $20,840 for the year ended December 31, 2008. We acquired our real estate loan receivable on December 31, 2008. We expect that interest income will be substantially higher in future years as a result of owning the real estate loan receivable for a full year and as a result of the additive effect of anticipated future acquisitions.

Property operating costs were $3.3 million for the year ended December 31, 2008. We expect this amount to increase in future years as a result of owning the properties for a full year and as a result of the additive effect of anticipated future acquisitions.

Asset management fees with respect to our real estate and real estate-related investments totaled $0.9 million for the year ended December 31, 2008. All asset management fees incurred as of December 31, 2008 have been paid. We expect this amount to increase in future years as a result of owning our investments for a full year and as a result of the additive effect of anticipated future acquisitions.

General and administrative expenses for the year ended December 31, 2008 totaled $0.8 million. These general and administrative costs consisted primarily of insurance premiums, independent director fees and professional fees. We expect general and administrative costs to increase in future years as a result of a full year of operations as well as increased activity as we make real estate investments but to decrease as a percentage of total revenue.

Depreciation and amortization expenses for the year ended December 31, 2008 were $7.0 million, and real estate taxes and insurance were $0.9 million. We expect these amounts to increase in future years as a result of owning the properties for a full year and as a result of the additive effect of anticipated future acquisitions.

During the year ended December 31, 2008, we incurred interest expense of $4.3 million including amortization of deferred financing costs of $0.5 million. Three of our real estate property acquisitions were financed with $268.7 million in debt. Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the amount of proceeds raised in our ongoing initial public offering, the cost of borrowings and the opportunity to acquire real estate and real estate-related assets meeting our investment objectives.

Interest income for the year ended December 31, 2008 was $0.6 million and consisted mainly of interest earned on our deposit accounts.

For the year ended December 31, 2008, we had a net loss of $2.6 million. Our operating loss is due primarily to (i) the combination of depreciation and amortization expense and interest expense in excess of revenue less operating expenses and (ii) our limited operations as we commenced real estate operations on July 30, 2008.

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Organization and Offering Costs

Our organization and offering costs (other than selling commissions and dealer manager fees) may be paid by our advisor, the dealer manager or their affiliates on our behalf. Other offering costs include all expenses to be incurred by us in connection with our ongoing initial public offering, including but not limited to (i) legal, accounting, printing, mailing and filing fees; (ii) charges of the escrow holder and transfer agent; (iii) charges of our advisor for administrative services related to the issuance of shares in the offering; (iv) reimbursement of the dealer manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; (v) reimbursement to our advisor for costs in connection with preparing supplemental sales materials; (vi) the cost of bona fide training and education meetings held by us (primarily the travel, meal and lodging costs of registered representatives of broker-dealers); (vii) reimbursement to the dealer manager for attendance and sponsorship fees and cost reimbursements for employees of the dealer manager to attend retail seminars conducted by broker-dealers; and (viii) in special cases, reimbursement to participating broker-dealers for technology costs associated with the offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of the shares in the offering and the ownership of the shares by such broker-dealers’ customers. Organization costs include all expenses to be incurred by us in connection with our formation, including but not limited to legal fees and other incorporation costs.

Pursuant to the advisory agreement and the dealer manager agreement, we are obligated to reimburse our advisor, the dealer manager or their affiliates, as applicable, for organization and other offering costs paid by them on our behalf, provided that our advisor is obligated to reimburse us to the extent selling commissions, dealer manager fees and organization and other offering costs incurred by us exceed 15% of gross proceeds from our ongoing initial public offering. Through December 31, 2008 our advisor, dealer manager, and their affiliates have incurred on our behalf organization and other offering costs of $5.5 million, of which $0.3 million was payable at December 31, 2008. These costs become a liability to us only to the extent selling commissions, dealer manager fees and organization and other offering costs incurred by us do not exceed 15% of the gross proceeds from our ongoing initial public offering. As of December 31, 2008, selling commissions, dealer manager fees, and organization and other offering costs did not exceed 15% of the gross offering proceeds. Through December 31, 2008, including shares issued through our dividend reinvestment plan, we had issued 31,495,364 shares in our ongoing initial public offering for gross offering proceeds of approximately $314.2 million and recorded organization and other offering costs of $5.5 million and selling commissions and dealer manager fees of $29.1 million. Organization costs are expensed as incurred and offering costs, which include selling commissions and dealer manager fees, are charged as incurred as a reduction to stockholders’ equity.

Distributions

During our offering stage, when we may raise capital in our ongoing initial public offering more quickly than we acquire income-producing assets and for some period after our offering stage, we may not be able to pay distributions solely from our cash flow from operations or funds from operations (“FFO”), in which case distributions may be paid in part from debt financing. For the year ended December 31, 2008, we declared aggregate distributions of $4.9 million. FFO for the year ended December 31, 2008 was $4.4 million and our cash flow from operations was $4.9 million. The shortfall between FFO and distributions of $0.5 million was funded with debt financing. See the reconciliation of FFO to net loss below.

Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flow from operations and FFO (except with respect to distributions related to sales of our assets and distributions related to the repayment of principal under any investments we make in mortgage, mezzanine and other loans). However, operating performance cannot be accurately predicted due to numerous factors, including our ability to raise and invest capital at favorable yields, the financial performance of our investments in the current real estate and financial environment, the types and mix of investments in our portfolio and the accounting treatment of our investments in accordance with our accounting policies. As a result, future distributions declared and paid may exceed cash flow from operations.

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Funds from Operations

We believe that FFO is a beneficial indicator of the performance of any equity REIT. Because FFO calculations exclude such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. Our management believes that historical cost accounting for real estate assets in accordance with U.S. generally accepted accounting principles (“GAAP”) implicitly assumes that the value of real estate assets 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 to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. Other REITs may not define FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition or may interpret the current NAREIT definition differently than we do.

FFO is a non-GAAP financial measure and does not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO includes adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization. Accordingly, FFO should not be considered as an alternative to net income as an indicator of our operating performance.

Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the following table for the year ended December 31, 2008:

	For the Year Ended   December 31, 2008
Net loss	$	(2,581,652	)
Add:
Depreciation of real estate assets		2,314,494
Amortization of lease-related costs		4,659,444
FFO	$	4,392,286

Set forth below is additional information related to certain noncash items included in net loss above, which may be helpful in assessing our operating results. Please see the accompanying consolidated statements of cash flows for details of our operating, investing, and financing cash activities.

Noncash Items Included in Net Loss:

• Revenues in excess of actual cash received of $0.6 million for the year ended December 31, 2008, as a result of straight-line rent;

• Revenues in excess of actual cash received of approximately $1.7 million for the year ended December 31, 2008, as a result of amortization of above-market/below-market in-place leases; and

• Amortization of deferred financing costs, which related to notes payable of approximately $0.5 million for the year ended December 31, 2008, were recognized as interest expense.

Operating cash flow and FFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO, such as capitalized interest from a loan, tenant improvements, building improvements, and deferred lease costs.

Critical Accounting Policies

Below is a discussion of the accounting policies that management considers critical in that they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.

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Real Estate

Depreciation and Amortization

We have to make subjective assessments as to the useful lives of our depreciable assets. These assessments have a direct impact on our net income, because, if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis throughout the expected useful lives of these investments. We consider the period of future benefit of an asset to determine its appropriate useful life. We anticipate the estimated useful lives of our assets by class to be as follows:

Buildings	25-40 years
Building improvements	10-25 years
Tenant improvements	Shorter of lease term or expected useful life
Tenant origination and absorption costs	Remaining term of related lease

Real Estate Purchase Price Allocation

Real estate, consisting of land, buildings and improvements, is recorded at cost. We allocate the cost of an acquisition to the acquired tangible assets and identifiable intangibles based on their estimated fair values in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations.

We record above-market and below-market in-place lease values 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 (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining non-cancelable terms of the respective lease. Upon termination of a lease, the unamortized portion of the above-market or below-market lease intangible associated with the vacating tenant’s lease would be charged to rental income in that period.

We measure the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. The value of these intangible assets is classified as tenant origination and absorption costs and is amortized over the remaining non-cancelable terms of the respective leases. We include the amortization of tenant origination and absorption costs as depreciation and amortization expense in the consolidated statement of operations. Management’s estimates of value are made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases. Upon termination of a lease, the unamortized portion of tenant origination and absorption costs associated with the vacating tenant’s lease would be fully amortized in that period.

We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, management also includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases, including leasing commissions and legal and other related expenses, to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.

The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship intangible values, if any, based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

We amortize the value of in-place leases to expense over the initial term of the respective leases. The value of customer relationship intangibles are amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building. Upon termination of a lease, the unamortized portion of the in-place lease value and customer relationship intangibles associated with the vacating tenant’s lease would be charged to expense in that period.

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Estimates of the fair values of the tangible and intangible assets require us to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate estimates would result in an incorrect assessment of our purchase price allocation, which would impact the amount of our net income.

Impairment of Real Estate and Related Intangible Assets and Liabilities

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets and liabilities may not be recoverable and intangible liabilities may be incurred. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, we assess the recoverability by estimating whether we will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, we do not believe that we will be able to recover the carrying value of the real estate and related intangible assets and liabilities, we would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities as defined by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. We did not record any impairment loss on our real estate and related intangible assets and liabilities during the year ended December 31, 2008.

Projections of future cash flows require us to estimate the expected future operating income and expenses related to the real estate and its related intangible assets and liabilities as well as market and other trends. The use of inappropriate assumptions in our future cash flows analyses would result in an incorrect assessment of future cash flows and fair values of the real estate and its related intangible assets and liabilities and could result in the overstatement of the carrying values of our real estate and related intangible assets and liabilities and an overstatement of our net income.

Real Estate Loan Receivable

Our real estate loan receivable is recorded at amortized cost and evaluated for impairment at each balance sheet date under SFAS No. 114, Accounting by Creditors for Impairment of a Loan, an amendment of FASB Statements No. 5 and 15 (“SFAS 114”) and SFAS No. 5, Accounting for Contingencies (“SFAS 5”). The amortized cost of a real estate loan receivable is the outstanding unpaid principal balance, net of unamortized acquisition premiums or discounts and unamortized costs and fees directly associated with the origination or acquisition of the loan. Under SFAS 114, a real estate loan receivable is considered impaired when it becomes probable, based on current information, that we will be unable to collect all amounts due according to the loan’s contractual terms. We may purchase real estate loans at a discount to face value where at the acquisition date we expect to collect less than the contractual amounts due under the terms of the loan based, at least in part, on our assessment of the credit quality of the borrower. We will consider such real estate loan to be impaired when it becomes probable, based on current information, that we will be unable to collect all amounts we estimated we would be able to collect at the time of acquisition. The amount of impairment, if any, will be measured by comparing the recorded amount of the loan to the present value of the expected cash flows or the fair value of the collateral. If a loan is deemed to be impaired, we will record a loan loss reserve and a provision for loan losses to recognize impairment. We recorded no impairment losses on our real estate loan receivable during the year ended December 31, 2008. However, in the future, especially given the current market disruption, it may become probable that we will experience a loss from our investments in loans receivable requiring us to record loan loss reserves. Realized losses on individual loans could be material and significantly exceed any recorded reserves.

We will record real estate loans held for sale at the lower of amortized cost or fair value. We will determine fair value for loans held for sale by using current secondary market information for loans with similar terms and credit quality. If fair value is lower than the amortized cost basis of the loan, we will record a valuation allowance and a provision for loan losses to write the loan down to fair value.

Failure to recognize impairments would result in the overstatement of earnings and the carrying value of our real estate loans held for investment. Actual losses, if any, could differ from estimated amounts.

Revenue Recognition

We recognize minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases and we record amounts expected to be received in later years as deferred rent. We record property operating expense reimbursements due from tenants for common area maintenance, real estate taxes and other recoverable costs in the period the related expenses are incurred.

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We make estimates of the collectibility of our tenant receivables related to base rents, including straight-line rentals, expense reimbursements and other revenue or income. We specifically analyze accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, we make estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. These estimates have a direct impact on our net income because a higher bad debt reserve results in lower earnings.

We will recognize gains on sales of real estate pursuant to the provisions of SFAS No. 66, Accounting for Sales of Real Estate (“SFAS 66”). The specific timing of a sale will be measured against various criteria in SFAS 66 related to the terms of the transaction and any continuing involvement associated with the property. If the criteria for profit recognition under the full-accrual method are not met, we will defer gain recognition and account for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery methods, as appropriate, until the appropriate criteria are met.

Interest income on our real estate loan receivable is recognized on an accrual basis over the life of the investment using the interest method. Direct loan origination or acquisition fees and costs, as well as acquisition premiums or discounts, are amortized over the term of the loan as an adjustment to interest income. We will place loans on nonaccrual status when any portion of principal or interest is 90 days past due, or earlier when concern exists as to the ultimate collection of principal or interest. When a loan is placed on nonaccrual status, we will reverse the accrual for unpaid interest and will not recognize interest income until the cash is received, or the loan returns to accrual status.

If we purchase a real estate loan receivable at a discount to face value where we expect to collect less than the contractual amounts due under the loan and when that expectation is due, at least in part, to the credit quality of the borrower, we will recognize interest income in accordance with American Institute of Certified Public Accountants Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (“SOP 03-3”). Under SOP 03-3, income is recognized at an interest rate equivalent to the estimated yield on the loan, as calculated using the carrying value of the loan and the expected cash flows. Changes in estimated cash flows are recognized through an adjustment to the yield on the loan on a prospective basis. Projecting cash flows for these types of loans requires a significant amount of assumptions and judgment, which may have a significant impact on the amount and timing of revenue recognized on these investments.

We will recognize interest income on real estate securities on an accrual basis according to the contractual terms of the securities. Discounts or premiums will be amortized to interest income over the life of the investment using the interest method.

Other income, including interest earned on our cash, is recognized as it is earned.

Income Taxes

We intend to elect to be taxed as a REIT under the Code, beginning with our taxable year ended December 31, 2008. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to our stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we intend to organize and operate in such a manner as to qualify for treatment as a REIT.

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Subsequent Events

Status of Offering

We commenced our ongoing initial public offering of 280,000,000 shares of common stock on April 22, 2008. As of March 24, 2009, we had accepted aggregate gross offering proceeds of approximately $448.4 million related to the issuance of 44,958,256 shares of stock, including shares issued in the primary offering and under our dividend reinvestment plan.

Distribution Declaration

On January 27, 2009, our board of directors declared a daily distribution for the period from February 1, 2009 through February 28, 2009, which we paid in March 2009, and a daily distribution for the period from March 1, 2009 through March 31, 2009, which we expect to pay in April 2009. On March 25, 2009, our board of directors declared a daily distribution for the period from April 1, 2009 through April 30, 2009, which we expect to pay in May 2009, and a daily distribution for the period from May 1, 2009 through May 31, 2009, which we expect to pay in June 2009. Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan.

Distributions are calculated based on stockholders of record each day during these periods at a rate of $0.00178082 per share per day and will equal a daily amount that, if paid each day for a 365-day period, would equal a 6.5% annualized rate based on a purchase price of $10.00 per share.

Investments and Financings Subsequent to December 31, 2008

350 E. Plumeria Financing and Modification to the Mountain View Corporate Center Loan

On February 6, 2009, we closed a $14.3 million six-month bridge loan facility secured by the 350 E. Plumeria Building (the “350 E. Plumeria Building Mortgage Loan”) and modified the terms of the Mountain View Corporate Center Mortgage Loan. The 350 E. Plumeria Building Mortgage Loan is cross-collateralized and cross-defaulted with the Mountain View Corporate Center Mortgage Loan. The initial maturity date of these loans is July 30, 2009, with an option to extend the maturity date to October 30, 2009, subject to certain conditions set forth in the loan agreement. Monthly installments on these loans will be interest only and the entire principal amount is due on the maturity date, assuming no prior prepayment. The 350 E. Plumeria Building Mortgage Loan bears interest at a variable rate of 275 basis points over one-month LIBOR, as reset daily, with the option to request a fixed rate equal to 275 basis points over one-month or three-month LIBOR by entering into a corresponding one-month or three-month LIBOR contract, but at no point shall the interest rate be less than 4.10%. The 350 E. Plumeria Building Mortgage Loan may be prepaid in whole or in part at any time. An exit fee of 0.25% of the amount being prepaid is due if the loan is prepaid before April 30, 2009. No exit fee is payable if the 350 E. Plumeria Building Mortgage Loan is prepaid on or after April 30, 2009. The Mountain View Corporate Center Mortgage Loan, as modified, also bears interest at a variable rate of 275 basis points over one-month LIBOR, as reset daily, with the option to request a fixed rate equal to 275 basis points over one-month or three-month LIBOR by entering into a corresponding one-month or three-month LIBOR contract, but at no point shall the interest rate be lower than 4.10%. Upon maturity, we intend to refinance these loans using long-term financing.

100 & 200 Campus Drive Extension

On March 11, 2009, we entered into a loan modification agreement with the lender to extend the maturity date of the 100 & 200 Campus Drive Mortgage Loan to June 9, 2009. As a condition of the extension, the loan will bear interest at a variable rate of 350 basis points over one-month LIBOR, as reset daily, with the option to request a fixed rate equal to 350 basis points over one-month LIBOR by entering into a corresponding one-month LIBOR contract during the extension period. We currently intend to refinance the loan balance on a long-term basis upon the expiration of the extension period.

Investment in Mortgage Loan

Investment in One Liberty Plaza Notes

On February 11, 2009, we, through an indirect wholly owned subsidiary, purchased at a discount, two promissory notes secured by a first lien mortgage (the “One Liberty Plaza Notes”) for $66.7 million plus closing costs from a seller unaffiliated with us or our advisor. The One Liberty Plaza Notes are two of six pari-passu participation interests created in connection with a first mortgage loan obtained by the borrower. The property securing the loan is a 53-story, Class A office building located in lower Manhattan. The office building contains 2,186,163 rentable square feet, including 17,305 square feet of retail space, and at January 31, 2009 was approximately 99% leased.

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The initial maturity date of the One Liberty Plaza Notes is August 6, 2017. Given the discounted purchase price and the contractual interest rate on the notes, the annual effective interest rate of this investment is projected to be 15.0%. The One Liberty Plaza Notes may be defeased but not prepaid after August 2010. During the four months prior to the maturity date, the One Liberty Plaza Notes may be prepaid in whole but not in part.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and fund the acquisition, expansion and refinancing of our real estate investment portfolio and operations. We are also exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed or variable rates. We may also enter into derivative financial instruments such as interest rate swaps, caps and floors in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes.

The table below summarizes the book values and the average interest rates of our real estate loan receivable and notes payable for each category as of December 31, 2008 based on the final maturity dates. Certain of our notes payable require periodic principal payments prior to the final maturity date. The fair value estimates for our real estate loan receivable is based on our estimate of current rates prevailing for comparable loans. The fair value of our notes payable is estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity.

	Maturity Date
	2009		2010		2011		2012		2013		Thereafter		Total		Fair Value
Assets
Real estate loan receivable	$	-	$	-	$	-	$	-	$	-	$	58,152,117	$	58,152,117	$	58,152,117
Annual effective interest rate (1)		-		-		-		-		-		13.1%		13.1%
Liabilities
Notes payable
Fixed rate	$	47,000,000	$	-	$	-	$	-	$	-	$	93,850,000	$	140,850,000	$	135,331,533
Average interest rate (2)		5.8%		-		-		-		-		5.9%		5.9%
Variable rate	$	130,596,200	$	-	$	-	$	-	$	-	$	-	$	130,596,200	$	130,596,200
Average interest rate (2)		3.7%		-		-		-		-		-		3.7%

⁽¹⁾ The annual effective interest rate is the investment’s internal rate of return, calculated using the investment’s contractual cash flows and our cost basis in the investment (excluding direct acquisition costs), that will result in a constant yield over the life of the investment.

⁽²⁾ Average interest rate is the weighted-average interest rate. The average interest rate and maturity date presented are as of December 31, 2008.

Our primary market risk exposure is interest rate risk. We have managed and will continue to manage interest rate risk by maintaining a level of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and that the losses may exceed the amount we invested in the instruments. Our profitability and the value of our investment portfolio (including derivatives used for hedging purposes) may be adversely affected during any period.

Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt or fixed rate real estate loan receivable unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. Conversely, movements in interest rates on variable rate debt and loans receivable would change our future earnings and cash flows, but not significantly affect the fair value of those instruments. As we expect to hold our fixed rate debt instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates would have a significant impact on our fixed rate debt instruments.

At December 31, 2008, we were exposed to market risks related to fluctuations in interest rates on $130.5 million of variable rate debt outstanding. If the weighted-average interest rate on our variable rate debt outstanding at December 31, 2008 were 100 basis points higher or lower during the 12 months ended December 31, 2009, our interest expense would be increased or decreased by approximately $1.3 million annually.

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At December 31, 2008, we were also exposed to the effects of changes in interest rates as a result of our acquisition of a fixed rate real estate loan receivable. If interest rates at December 31, 2008 were 100 basis points higher, the fair market value of our real estate loan receivable as of December 31, 2008 would be decreased by $6.3 million. If interest rates at December 31, 2008 were 100 basis points lower, the fair market value of our real estate loan receivable would be increased by $6.8 million.

For a discussion of the interest rate risks related to the current capital and credit markets, see Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Outlook.”

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index to Financial Statements at page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

This annual report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by the rules of the Securities and Exchange Commission for newly public companies.

ITEM 9B. OTHER INFORMATION

As of the quarter ended December 31, 2008, all items required to be disclosed under Form 8-K were reported under Form 8-K.

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PART III

We will file a definitive Proxy Statement for our 2009 Annual Meeting of Stockholders (the “2009 Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2009 Proxy Statement that specifically address the items required to be set forth herein are incorporated by reference.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We have adopted a Code of Ethics and Whistleblower Policy that apply to all of our executive officers and directors, including but not limited to, our principal executive officer and principal financial officer. Our Code of Ethics and Whistleblower Policy can be found at http://www.kbs-cmg.com/REIT_II/kbs_reitII.htm

The other information required by this Item is incorporated by reference from our 2009 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference from our 2009 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated by reference from our 2009 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated by reference from our 2009 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is incorporated by reference from our 2009 Proxy Statement.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Financial Statement Schedules

See the Index to Financial Statements at page F-1 of this report.

The following financial statement schedules are included herein at page F-33 through F-35 of this report:

(b) Exhibits

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EXHIBIT LIST

Ex.	Description
3.1	Second Amended and Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008
3.2	Second Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.2 to Pre-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
4.1	Form of Subscription Agreement, included as Appendix A to prospectus, incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
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 4.2 to Pre-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
4.3	Dividend Reinvestment Plan, included as Appendix B to prospectus, incorporated by reference to Exhibit 4.3 to Pre-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
4.4	Share Redemption Program, incorporated by reference to the description in the prospectus under “Description of Shares – Share Redemption Program,” incorporated by reference to Exhibit 4.4 to Pre-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
4.5	Amended and Restated Escrow Agreement, dated June 2, 2008 by and between KBS Real Estate Investment Trust II, Inc., KBS Capital Markets Group LLC and First Republic Trust Company, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 6, 2008
10.1	Dealer Manager Agreement with Selected Dealer Agreement, dated April 22, 2008, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2008
10.2	Selected Dealer Agreement, dated June 2, 2008, by and between KBS Real Estate Investment Trust II, Inc., KBS Capital Advisors LLC, KBS Capital Markets Group LLC, KBS Holdings LLC and Ameriprise Financial Services, Inc., incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed June 6, 2008
10.3	Amended and Restated Advisory Agreement between KBS Real Estate Investment Trust II and KBS Capital Advisors, dated as of May 21, 2008, incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008
10.4	Contract of Sale (related to the acquisition of Mountain View Corporate Center in Basking Ridge, New Jersey) between Mountainview Realty Holding Company and KBSII Mountain View, LLC, dated as of July 11, 2008, incorporated by reference to Exhibit 10.2 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.5	Loan Agreement (related to the acquisition of Mountain View Corporate Center in Basking Ridge, New Jersey) between KBSII Mountain View, LLC and Wells Fargo Bank, National Association, dated as of July 30, 2008, incorporated by reference to Exhibit 10.3 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341

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Ex.	Description
10.6	Promissory Note (related to the acquisition of Mountain View Corporate Center in Basking Ridge, New Jersey) between KBSII Mountain View, LLC and Wells Fargo Bank, National Association, dated as of July 30, 2008, incorporated by reference to Exhibit 10.4 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.7	Contract of Sale (related to the acquisition of the 100 & 200 Campus Drive in Florham Park, New Jersey) between 100/200 Campus Drive, L.L.C. and KBS Capital Advisors LLC, dated as of July 17, 2008, incorporated by reference to Exhibit 10.5 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.8	Amendment to Contract of Sale (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) between 100/200 Campus Drive, L.L.C. and KBS Capital Advisors LLC, dated as of July 25, 2008, incorporated by reference to Exhibit 10.6 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.9	Second Amendment to Contract of Sale (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) between 100/200 Campus Drive, L.L.C. and KBS Capital Advisors LLC, dated as of July 30, 2008, incorporated by reference to Exhibit 10.7 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.10	Assignment and Assumption of Purchase Agreement between KBS Capital Advisors LLC and KBSII 100-200 Campus Drive, LLC, dated as of August 8, 2008, incorporated by reference to Exhibit 10.8 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.11	Loan Agreement (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) between KBSII 100-200 Campus Drive, LLC and Wells Fargo Bank, National Association, dated as of September 9, 2008, incorporated by reference to Exhibit 10.9 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.12	Promissory Note (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) between KBSII 100-200 Campus Drive, LLC and Wells Fargo Bank, National Association, dated as of September 9, 2008, incorporated by reference to Exhibit 10.10 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.13	Mezzanine Loan Agreement (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) between KBSII REIT Acquisition I, LLC and Wells Fargo Bank, National Association, dated as of September 9, 2008, incorporated by reference to Exhibit 10.11 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.14	Promissory Note (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) between KBSII REIT Acquisition I, LLC and Wells Fargo Bank, National Association, dated as of September 9, 2008, incorporated by reference to Exhibit 10.12 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.15	Contract of Sale (related to the acquisition of the 300-600 Campus Drive Buildings in Florham Park, New Jersey) between Park Avenue Realty Holding Company, Inc. and KBSII 300-600 Campus Drive, LLC, dated as of July 31, 2008, incorporated by reference to Exhibit 10.13 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341

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Ex.	Description
10.16	Purchase Agreement (related to the acquisition of the 350 E. Plumeria Building in San Jose, California) between BRE/Plumeria L.L.C. and KBS Capital Advisors LLC, dated as of September 24, 2008, incorporated by reference to Exhibit 10.14 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.17	First Amendment to Purchase Agreement (related to the acquisition of the 350 E. Plumeria Building in San Jose, California) between BRE/Plumeria L.L.C. and KBS Capital Advisors LLC, dated as of October 6, 2008, incorporated by reference to Exhibit 10.15 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.18	Assignment and Assumption of Purchase Agreement (related to the acquisition of the 350 E. Plumeria Building in San Jose, California) between KBS Capital Advisors LLC and KBSII 350 Plumeria, LLC, dated as of October 6, 2008, incorporated by reference to Exhibit 10.16 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.19	Second Amendment to Purchase Agreement (related to the acquisition of the 350 E. Plumeria Building in San Jose, California) between BRE/Plumeria L.L.C. and KBSII 350 Plumeria, LLC, dated as of October 7, 2008, incorporated by reference to Exhibit 10.17 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.20	Lease Agreement (related to the acquisition of the 350 E. Plumeria Building in San Jose, California) by and between BRE/Plumeria LLC, as Landlord, and NetGear, Inc., as Tenant, dated as of September 25, 2007, incorporated by reference to Exhibit 10.18 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.21	First Amendment to Lease Agreement (related to the acquisition of the 350 E. Plumeria Building in San Jose, California) by and between BRE/Plumeria LLC, as Landlord, and NetGear, Inc., as Tenant, dated as of April 22, 2008, incorporated by reference to Exhibit 10.19 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.22	Mortgage, Assignment of Leases and Rents Security Agreement and Fixture Filing (related to the acquisition of the 300-600 Campus Drive Buildings in Florham Park, New Jersey) between KBSII 300-600 Campus Drive, LLC and New York Life Insurance Company, dated as of October 10, 2008, incorporated by reference to Exhibit 10.20 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.23	Promissory Note (related to the acquisition of the 300-600 Campus Drive Buildings in Florham Park, New Jersey) between KBSII 300-600 Campus Drive, LLC and New York Life Insurance Company, dated as of October 10, 2008, incorporated by reference to Exhibit 10.21 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.24	Mezzanine Loan Agreement (related to the acquisition of the 300-600 Campus Drive Buildings in Florham Park, New Jersey) between KBSII REIT Acquisition II, LLC and Park Avenue Realty Holding Company, Inc., dated as of October 10, 2008, incorporated by reference to Exhibit 10.22 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.25	Promissory Note (Mezzanine Loan) (related to the acquisition of the 300-600 Campus Drive Buildings in Florham Park, New Jersey) between KBSII REIT Acquisition II, LLC and Park Avenue Realty Holding Company, Inc., dated as of October 10, 2008, incorporated by reference to Exhibit 10.23 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341

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Ex.	Description
10.26	Memorandum of Sale (related to the acquisition of the Northern Trust A-Note) between Bank of America, National Association and KBS Debt Holdings II X, LLC, dated as of December 31, 2008, incorporated by reference to Exhibit 10.24 to Post-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.27	Assignment of Loan Documents (related to the acquisition of the Northern Trust A-Note) between Bank of America, National Association and KBS Debt Holdings II X, LLC, dated as of December 31, 2008, incorporated by reference to Exhibit 10.25 to Post-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.28	Amended and Restated Promissory Note A Secured by Deed of Trust (related to the acquisition of the Northern Trust A-Note) between 4370 La Jolla Village, LLC and Bank of America, National Association, dated as of March 30, 2007, incorporated by reference to Exhibit 10.26 to Post-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.29	Amended and Restated Intercreditor Agreement (related to the acquisition of Northern Trust A-Note) between Bank of America, National Association and CBRE Realty Finance CDO 2007-1, Ltd, dated as of December 31, 2008, incorporated by reference to Exhibit 10.27 to Post-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.30	Servicing Agreement (related to the acquisition of the Northern Trust A-Note) between KBS Debt Holdings II X, LLC and CBRE Realty Finance CDO 2007-1, LTD and Bank of America, National Association dated as of December 31, 2008, incorporated by reference to Exhibit 10.28 to Post-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.31	Assignment of Amended and Restated Deed of Trust, Security Agreement, Fixture Filing, and Substitution of Trustee (related to the acquisition of the Northern Trust A-Note) between Bank of America, National Association and KBS Debt Holdings II X, LLC, dated as of December 29, 2008, incorporated by reference to Exhibit 10.29 to Post-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341
10.32	Assignment and Assumption Agreement (related to the acquisition of the One Liberty Plaza Notes) by and between Goldman Sachs Mortgage Company and KBS Debt Holdings II X, LLC, dated as of February 11, 2009
10.33	Amended, Restated and Consolidated Note A-2-B-2-B (related to the acquisition of the One Liberty Plaza Notes) between BROOKFIELD PROPERTIES OLP CO. LLC (f/k/a BFP ONE LIBERTY PLAZA CO. LLC) and Goldman Sachs Mortgage Company, dated as of August 8, 2007
10.34	Amended, Restated and Consolidated Note A-2-B-2-C (related to the acquisition of the One Liberty Plaza Notes) between BROOKFIELD PROPERTIES OLP CO. LLC (f/k/a BFP ONE LIBERTY PLAZA CO. LLC) and Goldman Sachs Mortgage Company, dated as of August 8, 2007

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Ex.	Description
10.35	Intercreditor and Servicing Agreement (related to the acquisition of the One Liberty Plaza Notes) by and between Goldman Sachs Mortgage Company and itself as A-1 Lender and A-2 Lender, dated as of October 1, 2007
10.36	Loan Agreement (related to the acquisition of the One Liberty Plaza Notes) between GOLDMAN SACHS COMMERCIAL MORTGAGE CAPITAL, L.P. and BFP ONE LIBERTY PLAZA CO. LLC, dated as of August 8, 2007
10.37	Amended and Restated Promissory Note Secured by Mortgage (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) by KBSII 100-200 CAMPUS DRIVE, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated as of March 11, 2009
10.38	Modification Agreement (related to the acquisition of the 100 & 200 Campus Drive Buildings in Florham Park, New Jersey) by and between KBSII 100-200 CAMPUS DRIVE, LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, dated as of March 11, 2009
21.1	Subsidiaries of the Company
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

61

INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-3
Consolidated Statement of Operations for the Year Ended December 31, 2008	F-4
Consolidated Statements of Stockholders’ Equity for the Period from July 12, 2007 (inception) to December  31, 2007 and for the Year Ended December 31, 2008	F-5
Consolidated Statement of Cash Flows for the Year Ended December 31, 2008	F-6
Notes to Consolidated Financial Statements	F-7
Financial Statement Schedules
Schedule II – Valuation and Qualifying Accounts	F-33
Schedule III – Real Estate Assets and Accumulated Depreciation and Amortization	F-34

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

KBS Real Estate Investment Trust II, Inc.

We have audited the accompanying consolidated balance sheets of KBS Real Estate Investment Trust II, Inc. as of December 31, 2008 and 2007, the related consolidated statements of stockholders’ equity for the period from July 12, 2007 (inception) to December 31, 2007 and for the year ended December 31, 2008, and the related consolidated statements of operations and cash flows for the year ended December 31, 2008. Our audits also included the financial statement schedules in Item 15(a), Schedule II-Valuation and Qualifying Accounts and Schedule III-Real Estate Assets and Accumulated Depreciation and Amortization. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of KBS Real Estate Investment Trust II, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for the year ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ Ernst & Young LLP                    

Irvine, California

March 25, 2009

F-2

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2008			2007
Assets
Real estate:
Land	$	35,307,000		$	-
Buildings and improvements		379,076,101			-
Tenant origination and absorption costs		46,395,908			-
Total real estate, cost		460,779,009			-
Less accumulated depreciation and amortization		(6,435,571	)		-
Total real estate, net		454,343,438			-
Real estate loan receivable		58,152,117			-
Total real estate and real estate-related investments, net		512,495,555			-
Cash and cash equivalents		56,609,312			200,000
Rents and other receivables, net		2,250,383			-
Above-market leases, net		247,671			-
Deferred financing costs, prepaid expenses and other assets		1,259,617			-
Total assets	$	572,862,538		$	200,000
Liabilities and stockholders’ equity
Notes payable	$	271,446,200		$	-
Accounts payable and accrued liabilities		3,252,851			-
Due to affiliates		412,564			-
Distributions payable		1,620,890			-
Below-market leases, net		22,364,456			-
Other liabilities		1,459,637			-
Total liabilities		300,556,598			-
Commitments and contingencies (Note 17)
Redeemable common stock		1,921,698			-
Stockholders’ equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized,         no shares issued and outstanding		-			-
Common stock, $.01 par value; 1,000,000,000 shares authorized,         31,515,364 and 20,000 shares issued and outstanding         as of December 31, 2008 and December 31, 2007, respectively		315,154			200
Additional paid-in capital		277,591,666			199,800
Cumulative distributions and net losses		(7,522,578	)		-
Total stockholders’ equity		270,384,242			200,000
Total liabilities and stockholders’ equity	$	572,862,538		$	200,000

See accompanying notes.

F-3

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2008

Revenues:
Rental income	$	11,897,681
Tenant reimbursements		2,166,165
Interest income from real estate loans receivable		20,840
Other operating income		2,296
Interest income		589,399
Total revenues		14,676,381
Expenses:
Operating, maintenance, and management		3,334,825
Real estate taxes and insurance		936,679
Asset management fees to affiliate		856,796
General and administrative expenses		810,557
Depreciation and amortization		6,973,938
Interest expense		4,345,238
Total expenses		17,258,033
Net loss		(2,581,652	)
Net loss per common share, basic and diluted	$	(0.33	)
Weighted-average number of common shares outstanding, basic and diluted		7,926,366
Distributions declared per common share	$	0.26

See accompanying notes.

F-4

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Period from July 12, 2007 (Inception) to December 31, 2007

and for the Year Ended December 31, 2008

							Cumulative			Total
	Common Stock			Additional			Distributions			Stockholders’
	Shares	Amounts		Paid-in Capital			and Net Loss			Equity
Balance, July 12, 2007 (inception)	-	$	-	$	-		$	-		$	-
Issuance of common stock	20,000		200		199,800			-			200,000
Net loss	-		-		-			-			-
Balance, December 31, 2007	20,000		200		199,800			-			200,000
Issuance of common stock	31,495,364		314,954		313,901,930			-			314,216,884
Additions to redeemable common stock	-		-		(1,921,698	)		-			(1,921,698	)
Distributions declared	-		-		-			(4,940,926	)		(4,940,926	)
Commissions on stock sales and related dealer manager fees	-		-		(29,083,674	)		-			(29,083,674	)
Other offering costs	-		-		(5,504,692	)		-			(5,504,692	)
Net loss	-		-		-			(2,581,652	)		(2,581,652	)
Balance, December 31, 2008	31,515,364	$	315,154	$	277,591,666		$	(7,522,578	)	$	270,384,242

See accompanying notes.

F-5

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2008

Cash Flows from Operating Activities:
Net loss	$	(2,581,652	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred rent		(596,432	)
Allowance for doubtful accounts		18,923
Depreciation and amortization of real estate		6,973,938
Amortization of discount on real estate loan receivable		(6,254	)
Amortization of note receivable closing costs		121
Amortization of deferred financing costs		541,202
Amortization of above- and below-market leases, net		(1,666,291	)
Changes in operating assets and liabilities:
Rents and other receivables		(1,672,874	)
Prepaid expenses and other assets		(724,035	)
Accounts payable and accrued liabilities		3,123,802
Other liabilities		1,459,637
Net cash provided by operating activities		4,870,085
Cash Flows from Investing Activities:
Acquisitions of real estate		(437,434,445	)
Additions to real estate		(99,855	)
Investment in real estate loan receivable		(58,001,016	)
Net cash used in investing activities		(495,535,316	)
Cash Flows from Financing Activities:
Proceeds from notes payable		271,446,200
Payments of deferred financing costs		(1,076,784	)
Proceeds from issuance of common stock		312,295,186
Payments of commissions on stock sales and related dealer manager fees		(29,083,674	)
Payments of other offering costs		(5,108,047	)
Distributions paid to common stockholders		(1,398,338	)
Net cash provided by financing activities		547,074,543
Net increase in cash and cash equivalents		56,409,312
Cash and cash equivalents, beginning of period		200,000
Cash and cash equivalents, end of period	$	56,609,312
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	2,880,664
Supplemental Disclosure of Non-Cash Transactions:
Increase in other offering costs payable	$	129,049
Increase in other offering costs due to affiliates	$	267,596
Increase in origination fees due to affiliate	$	144,968
Increase in distributions payable	$	1,620,890
Distributions paid to common stockholders through common stock issuances	$	1,921,698
Increase in redeemable common stock	$	1,921,698

See accompanying notes.

F-6

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

1. ORGANIZATION

KBS Real Estate Investment Trust II, Inc. (the “Company”) was formed on July 12, 2007 as a Maryland corporation that intends to qualify as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2008. The Company conducts its business primarily through KBS Limited Partnership II, a Delaware limited partnership formed on August 23, 2007, (the “Operating Partnership”) and its subsidiaries. The Company is the sole general partner of and owns a 0.1% partnership interest in the Operating Partnership. KBS REIT Holdings II LLC (“KBS REIT Holdings II”), a Delaware limited liability company formed on August 23, 2007, owns the remaining 99.9% interest in the Operating Partnership and is its sole limited partner. The Company is the sole member and manager of KBS REIT Holdings II.

The Company intends to invest in a diverse portfolio of real estate assets. The primary types of properties the Company expects to invest in include office, industrial and retail properties located throughout the United States. All such real estate assets may be acquired directly by the Company or the Operating Partnership, though the Company may invest in other entities that make similar investments. The Company also expects to invest in mortgage, mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real estate companies. As of December 31, 2008, the Company owned four real estate properties consisting of three office properties and one office/flex property encompassing approximately 1.4 million rentable square feet. In addition, as of December 31, 2008, the Company owned one real estate loan (see Note 3, “Recent Acquisitions of Real Estate,” Note 4, “Real Estate,” Note 5, “Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities,” and Note 6 “Real Estate Loan Receivable”).

Subject to certain restrictions and limitations, the business of the Company is managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, pursuant to an advisory agreement the Company entered into with the Advisor on March 20, 2008, which was amended and restated on May 21, 2008 (as amended and restated, the “Advisory Agreement”). On August 30, 2007, the Company issued 20,000 shares of its common stock to the Advisor at a purchase price of $10.00 per share. As of December 31, 2008, the Advisor owns 20,000 shares of the Company’s common stock.

On September 27, 2007, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a minimum of 250,000 shares and a maximum of 280,000,000 shares of common stock for sale to the public (the “Offering”), of which 200,000,000 shares were registered in the Company’s primary offering and 80,000,000 shares were registered under the Company’s dividend reinvestment plan. The SEC declared the Company’s registration statement effective on April 22, 2008, and the Company retained KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Advisor, to serve as the dealer manager of the Offering. The Dealer Manager is responsible for marketing the Company’s shares in the Offering. The Company intends to use substantially all of the net proceeds from the Offering to invest in a diverse portfolio of real estate and real estate-related assets as described above.

As of June 24, 2008, the Company’s escrow agent had received sufficient gross offering proceeds to satisfy the minimum number of shares requirement to break escrow in the Offering. From commencement of the Offering through December 31, 2008, the Company sold 31,495,364 shares of common stock in the Offering for gross offering proceeds of $314.2 million, including shares issued through the Company’s dividend reinvestment plan.

F-7

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, KBS REIT Holdings II, the Operating Partnership, and their direct and indirect wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation.

The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

Real Estate

Depreciation and Amortization

Real estate costs related to the acquisition and improvement of properties are capitalized. Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements and construction allowances related to a tenant’s space are capitalized and amortized over the shorter of the tenant’s lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:

Buildings	25-40 years
Building improvements	10-25 years
Tenant improvements	Shorter of lease term or expected useful life
Tenant origination and absorption costs	Remaining term of related lease

Real Estate Purchase Price Allocation

Real estate, consisting of land, buildings and improvements, is recorded at cost. The Company allocates the cost of an acquisition to the acquired tangible assets and identifiable intangibles based on their estimated fair values in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations (“SFAS 141”).

The Company records above-market and below-market in-place lease values 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 (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The Company amortizes any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining non-cancelable terms of the respective lease. Upon termination of a lease, the unamortized portion of the above-market or below-market lease intangible associated with the vacating tenant’s lease would be charged to rental income in that period.

F-8

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

The Company measures the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. The value of these intangible assets is classified as tenant origination and absorption costs and is amortized over the remaining non-cancelable terms of the respective leases. The Company includes the amortization of tenant origination and absorption costs as depreciation and amortization expense in the consolidated statement of operations. Management’s estimates of value are made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods, considering current market conditions and costs to execute similar leases.

The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, management also includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases, including leasing commissions and legal and other related expenses, to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.

The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship intangible values, if any, based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics considered by management in allocating these values include the nature and extent of the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

The Company amortizes the value of in-place leases to expense over the initial term of the respective leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building. Upon termination of a lease, the unamortized portion of the in-place lease value and customer relationship intangibles associated with the vacating tenant’s lease would be charged to expense in that period.

Estimates of the fair values of the tangible and intangible assets require the Company to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment.

Impairment of Real Estate and Related Intangible Assets and Liabilities

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets and liabilities may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses the recoverability by estimating whether the Company will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, the Company believes that it will not be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities as defined by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. There were no impairment losses related to real estate and related intangible assets and liabilities recorded by the Company during the year ended December 31, 2008.

F-9

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

Real Estate Loan Receivable

The Company’s real estate loan receivable is recorded at amortized cost and evaluated for impairment at each balance sheet date under SFAS No. 114, Accounting by Creditors for Impairment of a Loan, an amendment of FASB Statements No. 5 and 15 (“SFAS 114”) and SFAS No. 5, Accounting for Contingencies (“SFAS 5”). The amortized cost of a real estate loan receivable is the outstanding unpaid principal balance, net of unamortized acquisition premiums or discounts and unamortized costs and fees directly associated with the origination or acquisition of the loan. Under SFAS 114, a real estate loan receivable is considered impaired when it becomes probable, based on current information, that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The Company may purchase real estate loans at a discount to face value where at the acquisition date the Company expects to collect less than the contractual amounts due under the terms of the loan based, at least in part, on the Company’s assessment of the credit quality of the borrower. The Company will consider such real estate loan to be impaired when it becomes probable, based on current information, that the Company will be unable to collect all amounts the Company estimated it would be able to collect at the time of acquisition. The amount of impairment, if any, will be measured by comparing the recorded amount of the loan to the present value of the expected cash flows or the fair value of the collateral. If a loan is deemed to be impaired, the Company will record a loan loss reserve and a provision for loan losses to recognize impairment. There were no impairment losses on the real estate loan receivable recorded by the Company during the year ended December 31, 2008. However, in the future, especially given the current market disruption, it may become probable that the Company will experience a loss from its investments in loans receivable requiring the Company to record loan loss reserves. Realized losses on individual loans could be material and significantly exceed any recorded reserves.

The Company will record real estate loans held for sale at the lower of amortized cost or fair value. The Company will determine fair value for loans held for sale by using current secondary market information for loans with similar terms and credit quality. If fair value is lower than the amortized cost basis of the loan, the Company will record a valuation allowance and a provision for loan losses to write the loan down to fair value.

Failure to recognize impairments would result in the overstatement of earnings and the carrying value of the Company’s real estate loans held for investment. Actual losses, if any, could differ significantly from estimated amounts.

Cash and Cash Equivalents

The Company considers all short-term (with an original maturity of three months or less), highly-liquid investments utilized as part of the Company’s cash-management activities to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value.

The Company’s cash and cash equivalents balance exceeds federally insurable limits as of December 31, 2008. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts. The Company has a corporate banking relationship with Wells Fargo Bank, N.A. in which it deposits all funds. There are no restrictions on the use of the Company’s cash as of December 31, 2008.

Rents and Other Receivables

The Company periodically evaluates the collectibility of amounts due from tenants and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. In addition, the Company maintains an allowance for deferred rent receivable that arises from the straight-lining of rents. The Company exercises judgment in establishing these allowances and considers payment history and current credit status of its tenants in developing these estimates.

Deferred Financing Costs

Deferred financing costs represent commitment fees, loan fees, legal fees and other third-party costs associated with obtaining financing. These costs are amortized over the terms of the respective financing agreements using the interest method. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financings that do not close are expensed in the period in which it is determined that the financing will not close.

F-10

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

Redeemable Common Stock

The Company has adopted a share redemption program that may enable stockholders to sell their shares to the Company in limited circumstances.

There are several limitations on the Company’s ability to redeem shares under the share redemption program:

• Unless the shares are being redeemed in connection with a stockholder’s death or “qualifying disability” (as defined under the share redemption program), the Company may not redeem shares until the stockholder has held his or her shares for one year.

• The share redemption program limits the number of shares the Company may redeem to those that the Company could purchase with the net proceeds from the issuance of shares under the dividend reinvestment plan during the prior calendar year.

• During any calendar year, the Company may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.

• The Company has no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.

Under the program, the Company will initially redeem shares as follows:

• The lower of $9.25 or 92.5% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least one year;

• The lower of $9.50 or 95.0% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least two years;

• The lower of $9.75 or 97.5% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least three years; and

• The lower of $10.00 or 100% of the price paid to acquire the shares from the Company for stockholders who have held their shares for at least four years.

Notwithstanding the above, once the Company establishes an estimated value per share of common stock, the redemption price per share for all stockholders will be equal to the estimated value per share, as determined by the Advisor or another firm chosen for that purpose. The Company expects to establish an estimated value per share no later than three years after the completion of its offering stage; however, the time frame before which the Company establishes an estimated value per share may be sooner if required by any regulatory bodies or if necessary to assist broker-dealers who sell shares in the Offering. The Company will consider its offering stage complete when it is no longer publicly offering equity securities – whether through the Offering or follow-on public offerings – and has not done so for one year. Until the Company establishes an estimated value per share, the redemption price for shares being redeemed upon a stockholder’s death or qualifying disability will be the amount paid to acquire the shares from the Company.

The Company’s board of directors may amend or terminate the share redemption program with 30 days’ notice.

As the use of the proceeds from the dividend reinvestment plan for redemptions is outside the Company’s control, the net proceeds from the current year dividend reinvestment plan are considered to be temporary equity under Accounting Series Release No. 268, Presentation in Financial Statements of Redeemable Preferred Stock, and are, therefore, presented as redeemable common stock in the accompanying consolidated balance sheets.

F-11

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

The Company has adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS 150”), which requires, among other things, that financial instruments that represent a mandatory obligation of the Company to repurchase shares be classified as liabilities and reported at settlement value. The Company’s redeemable common shares are contingently redeemable at the option of the holder. As such, SFAS 150 is not applicable until such shares are tendered for redemption by the holder, at which time the Company will reclassify such obligations from temporary equity to a liability based upon their respective settlement values.

During the year ended December 31, 2008, no shares had been tendered for redemption or redeemed by the Company.

Organization and Offering Costs

Organization and offering costs (other than selling commissions and dealer manager fees) of the Company may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company. Other offering costs include all expenses to be incurred by the Company in connection with the Offering, including but not limited to (i) legal, accounting, printing, mailing and filing fees; (ii) charges of the escrow holder and transfer agent; (iii) charges of the Advisor for administrative services related to the issuance of shares in the Offering; (iv) reimbursement of the Dealer Manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; (v) reimbursement to the Advisor for costs in connection with preparing supplemental sales materials; (vi) the cost of bona fide training and education meetings held by the Company (primarily the travel, meal and lodging costs of registered representatives of broker-dealers); (vii) reimbursement to the Dealer Manager for attendance and sponsorship fees and cost reimbursements for employees of the Dealer Manager to attend retail seminars conducted by broker-dealers; and (viii) in special cases, reimbursement to participating broker-dealers for technology costs associated with the Offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of the shares in the Offering and the ownership of the shares by such broker-dealers’ customers. Organization costs include all expenses to be incurred by the Company in connection with the formation of the Company, including but not limited to legal fees and other costs to incorporate the Company.

Pursuant to the Advisory Agreement and the Dealer Manager Agreement, the Company is obligated to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for organization and other offering costs paid by them on behalf of the Company, provided that the Advisor would be obligated to reimburse the Company to the extent selling commissions, dealer manager fees and organization and other offering costs incurred by the Company in the Offering exceed 15% of gross offering proceeds. As a result, these costs are only a liability of the Company to the extent selling commissions, dealer manager fees and organization and other offering costs incurred by the Company do not exceed 15% of the gross proceeds of the Offering. As of December 31, 2008, the Company’s selling commissions, dealer manager fees, and organization and other offering costs did not exceed 15% of the gross offering proceeds. Through December 31, 2008, including shares issued through the Company’s dividend reinvestment plan, the Company had issued 31,495,364 shares in the Offering for gross offering proceeds of $314.2 million and recorded organization and other offering costs of $5.5 million and selling commissions and dealer manager fees of $29.1 million. Organization costs are expensed as incurred and offering costs, which include selling commissions and dealer manager fees, are charged as incurred as a reduction to stockholders’ equity.

Revenue Recognition

The Company recognizes minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related lease, and amounts expected to be received in later years are recorded as deferred rent. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period in which the related expenses are incurred.

F-12

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

The Company makes estimates of the collectibility of its tenant receivables related to base rents, including straight-line rentals, expense reimbursements and other revenue or income. Management specifically analyzes accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. These estimates have a direct impact on the Company’s net income because a higher bad debt reserve results in lower earnings.

The Company will recognize gains on sales of real estate pursuant to the provisions of SFAS No. 66, Accounting for Sales of Real Estate (“SFAS 66”). The specific timing of a sale will be measured against various criteria in SFAS 66 related to the terms of the transaction and any continuing involvement associated with the property. If the criteria for profit recognition under the full-accrual method are not met, the Company will defer gain recognition and account for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery method, as appropriate, until the appropriate criteria are met.

Interest income on the Company’s real estate loan receivable is recognized on an accrual basis over the life of the investment using the interest method. Direct loan origination or acquisition fees and costs, as well as acquisition premiums or discounts, are amortized over the term of the loan as an adjustment to interest income. The Company will place loans on nonaccrual status when any portion of principal or interest is 90 days past due, or earlier when concern exists as to the ultimate collection of principal or interest. When a loan is placed on nonaccrual status, the Company will reserve the accrual for unpaid interest and will not recognize subsequent interest income until the cash is received, or the loan returns to accrual status.

If the Company purchases a real estate loan receivable at a discount to face value where the Company expects to collect less than the contractual amounts due under the loan and when that expectation is due, at least in part, to the credit quality of the borrower, the Company will recognize interest income in accordance with American Institute of Certified Public Accountants Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (“SOP 03-3”). Under SOP 03-3, income is recognized at an interest rate equivalent to the estimated yield on the loan, as calculated using the carrying value of the loan and the expected cash flows. Changes in estimated cash flows are recognized through an adjustment to the yield on the loan on a prospective basis. Projecting cash flows for these types of loans requires a significant amount of assumptions and judgment, which may have a significant impact on the amount and timing of revenue recognized on these investments.

The Company will recognize interest income on real estate securities on an accrual basis according to the contractual terms of the securities. Discounts or premiums will be amortized to interest income over the life of the investment using the interest method.

Other income, including interest earned on the Company’s cash, is recognized as it is earned.

General and Administrative Expenses and Asset Management Fees

General and administrative expenses, totaling $0.8 million for the year ended December 31, 2008, consisted primarily of amortization of insurance premiums, independent director fees, and legal, audit, and other professional fees. In addition, asset management fees to affiliates totaled $0.9 million for the year ended December 31, 2008. To the extent included in the definition of total operating expenses (as set forth in Note 13), general and administrative expenses, including asset management fees due to affiliates, are an operating expense of the Company that is subject to the operating expense reimbursement obligation of the Advisor (as discussed in Note 13). Pursuant to the operating expense reimbursement obligation, commencing upon the earlier to occur of four fiscal quarters after (i) the acquisition of the Company’s first real estate asset or (ii) October 22, 2008 (which is six months after commencement of the Company’s Offering), the Advisor will reimburse the Company at the end of any fiscal quarter for total operating expenses that in the four consecutive fiscal quarters then ended exceed the greater of 2% of its average invested assets or 25% of its net income, unless the conflicts committee of the Company’s board of directors determines that such excess expenses are justified based on unusual and non-recurring factors. The Company acquired its first real estate asset on July 30, 2008. The Company’s charter-imposed limitation on total operating expenses will commence with the fiscal quarter ending September 30, 2009.

F-13

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

Independent Director Compensation

On November 7, 2008, the Company’s conflicts committee approved changes to the compensation paid to independent directors. The changes are effective as of October 1, 2008. Pursuant to the revised compensation structure, the Company pays each of its independent directors an annual retainer of $40,000. In addition, the independent directors are paid for attending meetings as follows: (i) $2,500 for each board meeting attended, (ii) $2,500 for each committee meeting attended (except that the committee chairman is paid $3,000 for each meeting attended), (iii) $2,000 for each teleconference board meeting attended, and (iv) 2,000 for each teleconference committee meeting attended (except that the committee chairman is paid $3,000 for each teleconference committee meeting attended). All directors also receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors. The Company incurred independent director fees of $0.2 million for the year ended December 31, 2008, which are included in general and administrative expenses in the accompanying consolidated statement of operations. At December 31, 2008, $21,000 of independent director fees were payable and are included in accounts payable and accrued liabilities. Director compensation is an operating expense of the Company that is subject to the operating expense reimbursement obligation of the Advisor as discussed in Note 13.

Income Taxes

The Company intends to elect to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, (the “Code”) beginning with the taxable year ended December 31, 2008. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax on income that it distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company intends to organize and operate in such a manner as to qualify for treatment as a REIT.

The Company adopted FIN No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) upon its inception on July 12, 2007. Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements, nor has the Company or its subsidiaries been assessed interest or penalties by any major tax jurisdictions. The Company’s evaluation was performed for the tax year ending December 31, 2008 and 2007. As of December 31, 2008, the return for the calendar year 2007 remains subject to examination by major tax jurisdictions.

Changes to Federal Tax Laws Affecting REITs

The Housing and Economic Recovery Tax Act of 2008 (the “Housing Act”) was signed into law by President Bush on July 30, 2008. The Housing Act’s provisions regarding REITs are generally effective for the Company’s 2009 taxable year and beyond. The Housing Act made the following changes, among others, to certain REIT provisions of the Code:

• Taxable REIT Subsidiaries. The maximum allowed value of taxable REIT subsidiaries’ securities (other than securities that are real estate assets) held by a REIT as a percentage of the total value of a REIT’s assets has been increased from 20% to 25%.

• Prohibited Transactions Safe Harbor. There is a safe harbor that, if available, can allow the Company to avoid the 100% prohibited transaction tax. This safe harbor specifies a holding period that has been reduced from four years to two years by the Housing Act. Certain other changes to the safe harbor are also made under the Housing Act. These new rules apply to sales made after the Housing Act was enacted.

• Hedging Income. Income from a hedging transaction that complies with identification procedures set out in Treasury regulations that hedges indebtedness incurred or to be incurred by the Company to acquire or carry real estate assets will not constitute gross income for purposes of both the 75% and 95% gross income tests.

F-14

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

Per Share Data

Basic net loss per share of common stock is calculated by dividing net loss by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net loss per share of common stock equals basic net loss per share of common stock as there were no potentially dilutive securities outstanding during the year ended December 31, 2008.

Distributions declared per common share assumes each share was issued and outstanding each day from July 16, 2008 through December 31, 2008. Distributions for the period from July 16, 2008 through August 15, 2008 are based on a daily distribution for the period of $0.00054795 per share per day. Distributions for the period from August 16, 2008 through December 31, 2008 are based on a daily distribution for the period of $0.00178082 per share per day. Each day during the period from July 16, 2008 through December 31, 2008 was a record date for distributions.

Industry Segments

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that public entities report information about operating segments in their financial statements. The Company acquires and operates commercial properties and invests in real estate loans, and as a result, the Company operates in two business segments. For financial data by segment, see Note 15, “Segment Information.”

Square Footage, Occupancy and Other Measures

Square footage, occupancy and other measures used to describe real estate and real estate-related investments included in the Notes to Consolidated Financial Statements are presented on an unaudited basis.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value and establishes a framework for measuring fair value under GAAP. In February 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS 157 by one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. FSP 157-2 is effective in fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The adoption of SFAS 157 for the Company’s financial assets and liabilities did not have a material impact on its consolidated financial statements. The Company does not anticipate that the adoption of FSP 157-2 for the Company’s nonfinancial assets and liabilities will have a significant effect on its consolidated financial statements.

In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 for financial assets in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 was effective upon issuance. The adoption of FSP 157-3 did not have a material impact on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. As of December 31, 2008, the Company has not elected to apply the fair value option to any specific assets or liabilities, and, therefore, adoption of this standard did not have an impact on the Company’s consolidated financial statements.

F-15

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”), which replaces SFAS 141. SFAS 141R expands the definition of a business combination and requires the fair value of the purchase price of an acquisition, including the issuance of equity securities, to be determined on the acquisition date. SFAS 141R also requires that all assets, liabilities, contingent considerations, and contingencies of an acquired business be recorded at fair value at the acquisition date. In addition, SFAS 141R requires that acquisition costs generally be expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recorded to income tax expense. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is prohibited. The implementation of this standard on January 1, 2009 could materially impact the Company’s future financial results to the extent that the Company acquires significant amounts of real estate assets, as related acquisition costs will be expensed as incurred rather than the Company’s current practice of capitalizing such costs and amortizing them over the estimated useful life of the assets acquired.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation and presentation of financial statements in accordance with GAAP. SFAS 162 became effective on November 15, 2008. The adoption of SFAS 162 did not have a significant effect on the Company’s consolidated financial statements.

In January 2009, the FASB issued FASB Staff Position No. EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20 (“FSP EITF 99-20-1”). FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets (“EITF 99-20”), to align it with the impairment guidance within SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, by removing from EITF 99-20 the requirement to place exclusive reliance on market participants’ assumptions about future cash flows when evaluating an asset for other-than-temporary impairment. This FSP will now require that assumptions about future cash flows consider reasonable management judgment about the probability that there has been an adverse change in the holder’s estimated cash flows from the cash flows previously projected. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008. The Company does not anticipate that the adoption of FSP EITF 99-20-1 will have a significant effect on its consolidated financial statements.

3. RECENT ACQUISITIONS OF REAL ESTATE

Real Estate Acquisitions During the Year Ended December 31, 2008

During the year ended December 31, 2008, the Company acquired the following properties:

							Intangibles
Property Name	Location	Acquisition Date	Land		Building and Improvements		Tenant Origination and Absorption Costs		Above-Market Lease Assets		Below-Market Lease Liabilities			Total Purchase Price		Notes Payable (1)
Mountain View Corporate
Center	Basking Ridge, NJ	07/30/2008	$	3,600,000	$	23,408,146	$	3,729,412	$	233,596	$	(235,440	)	$	30,735,714	$     12,270,000(2)
Campus Drive Buildings
100 & 200 Campus Drive Buildings	Florham Park, NJ	09/09/2008		10,700,000		167,285,611		21,223,246		-		(14,526,480	)		184,682,377	118,326,200
300-600 Campus Drive Buildings	Florham Park, NJ	10/10/2008		9,717,000		166,814,731		18,630,816		36,862		(9,294,456	)		185,904,953	140,850,000
Total Campus Drive Buildings				20,417,000		334,100,342		39,854,062		36,862		(23,820,936	)		370,587,330	259,176,200
350 E. Plumeria Building (3)	San Jose, CA	12/18/2008		11,290,000		21,564,414		3,254,145		2,842		-			36,111,401	-
			$	35,307,000	$	379,072,902	$	46,837,619	$	273,300	$	(24,056,376	)	$	437,434,445	$  271,446,200

⁽¹⁾ See Note 9, “Notes Payable” for specific terms of the Company’s notes payable.

⁽²⁾ The outstanding principal balance relates to a $13.5 million six-month bridge loan facility, of which $9.5 million was initially funded for the acquisition of Mountain View Corporate Center and $2.8 million was subsequently funded for general cash management requirements. Pursuant to the loan agreement, at December 31, 2008 an additional $1.2 million is available for future disbursement for the Company’s general cash management requirements, subject to certain conditions set forth in the loan agreement.

⁽³⁾ As of December 31, 2008, the purchase price allocation is preliminary and pending the receipt of information necessary to complete the valuation of certain tangible and intangible assets and liabilities.

F-16

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

During the year ended December 31, 2008, the Company recorded $47.1 million and $24.1 million of intangible assets and liabilities, respectively, in connection with these real estate acquisitions, which have weighted-average amortization periods as of the dates of acquisition as follows (in years):

	Tenant Origination and     Absorption Costs	Above-Market       Lease Assets	Below-Market     Lease Liabilities
Mountain View Corporate Center	6.0	4.4	6.3
Campus Drive Buildings
100 & 200 Campus Drive Buildings	5.1	-	6.0
300-600 Campus Drive Buildings	5.7	5.6	5.9
Total Campus Drive Buildings	5.3	5.6	6.0
350 E. Plumeria Building	9.3	9.3	-

4. REAL ESTATE

As of December 31, 2008, the Company’s real estate portfolio was composed of three office properties and one office/flex property encompassing 1,401,379 rentable square feet and was 98% leased. The following table provides summary information regarding the properties owned by the Company as of December 31, 2008:

Property	Acquisition     Date	Location	Property     Type	Total     Real Estate     at Cost		Accumulated Depreciation and     Amortization			Total     Real Estate,     Net
Mountain View Corporate Center	07/30/2008	Basking Ridge, NJ	Office	$	30,756,368	$	(714,057	)	$	30,042,311
Campus Drive Buildings
100 & 200 Campus Drive Buildings	09/09/2008	Florham Park, NJ	Office		198,698,785		(3,682,986	)		195,015,799
300-600 Campus Drive Buildings	10/10/2008	Florham Park, NJ	Office		195,207,941		(1,991,775	)		193,216,166
Total Campus Drive Buildings					393,906,726		(5,674,761	)		388,231,965
350 E. Plumeria Building	12/18/2008	San Jose, CA	Office/Flex		36,115,915		(46,753	)		36,069,162
				$	460,779,009	$	(6,435,571	)	$	454,343,438

⁽¹⁾ In 2008, the Company wrote off fully amortized costs from cost and accumulated amortization in tenant origination and absorption costs of $0.4 million.

F-17

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

Operating Leases

The Company’s operating real estate assets are leased to tenants under operating leases for which the terms and expirations vary. As of December 31, 2008, the leases have remaining terms of up to nine years and may have provisions to extend the lease agreements, options for early termination after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a tenant’s receivable exceeds the amount of its security deposit. Security deposits related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets. (See Note 11 “Other Liabilities”)

The future minimum rental income from the Company’s properties under non-cancelable operating leases as of December 31, 2008 for the years ending December 31 is as follows:

2009	$	35,900,180
2010		33,399,187
2011		29,425,084
2012		27,300,967
2013		24,317,425
Thereafter		53,236,373
	$	203,579,216

As of December 31, 2008, the Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:

Industry	Number of     Tenants	Annualized       Base Rent (1)		Percentage of     Annualized Base Rent
Manufacturing	3	$	9,548,780	25.4%
Finance	8		6,520,711	17.4%
Legal Services	3		6,442,273	17.1%
Professional Services	6		5,543,860	14.8%
Accounting Services	2		4,578,245	12.2%
		$	32,633,869	86.9%

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of December 31, 2008, adjusted to straight-line any future contractual rent increases from the time of the Company’s acquisition through the balance of the lease term.

F-18

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

The following two tenant leases represent more than 10% of the Company’s annualized base rent as of December 31, 2008:

			Net Rentable Sq. Ft.		Annualized Base Rent Statistics
Tenant	Property	Tenant Industry	Square       Feet	% of     Portfolio	Annualized   Base Rent (1)		% of Portfolio    Annualized Base Rent	Annualized Base Rent per Square Feet		Lease  Expirations (2)
BASF Americas Corporation	100 & 200 Campus     Drive Buildings	Manufacturing	199,024	14.2%	$	6,414,526	17.1%	$	32.23	11/30/2016
PricewaterhouseCoopers LLP	300-600 Campus     Drive Buildings	Accounting Services	195,499	14.0%		4,338,153	11.5%		22.19	09/30/2015
			394,523	28.2%	$	10,752,679	28.6%	$	27.25

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of December 31, 2008, adjusted to straight-line any future contractual rent increases from the time of the Company’s acquisition through the balance of the lease term.

⁽²⁾ Represents the expiration date of the lease at December 31, 2008 and does not take into account any tenant renewal options.

5. TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES

As of December 31, 2008, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities are as follows:

	Tenant Origination and     Absorption Costs			Above-Market     Lease Assets			Below-Market     Lease Liabilities
Cost (1)	$	46,395,908		$	273,300		$	23,834,870
Accumulated Amortization (1)		(3,042,715	)		(25,629	)		(1,470,414	)
Net Amount	$	43,353,193		$	247,671		$	22,364,456

⁽¹⁾ In 2008, the Company wrote off fully amortized costs from cost and accumulated amortization in tenant origination and absorption costs of $0.4 million and below-market lease liabilities of $0.2 million.

The Company amortizes any capitalized above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining non-cancellable terms of the respective leases. The Company includes the amortization of tenant origination and absorption costs as depreciation and amortization in the consolidated statement of operations. Amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the year ended December 31, 2008 are as follows:

	Tenant Origination and     Absorption Costs			Above-Market     Lease Assets			Below-Market     Lease Liabilities
Amortization	$	(3,484,426	)	$	(25,629	)	$	1,691,920

F-19

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

The remaining unamortized balance for these outstanding intangible assets and liabilities as of December 31, 2008 will be amortized for the years ending December 31 as follows:

	Tenant Origination and Absorption Costs			Above-Market   Lease Assets			Below-Market  Lease Liabilities
2009	$	(11,216,015	)	$	(59,799	)	$	5,567,489
2010		(8,880,799	)		(59,799	)		4,414,110
2011		(6,011,159	)		(59,799	)		2,764,286
2012		(5,050,745	)		(57,596	)		2,470,986
2013		(4,156,092	)		(6,909	)		2,307,095
Thereafter		(8,038,383	)		(3,769	)		4,840,490
	$	(43,353,193	)	$	(247,671	)	$	22,364,456
Weighted-Average Remaining Amortization Period		5.6 years			4.2 years			5.8 years

6. REAL ESTATE LOAN RECEIVABLE

As of December 31, 2008, the Company, through a wholly owned subsidiary, had invested in one real estate loan receivable, the Northern Trust Building A-Note (defined below).

Loan Name Location of related property or collateral	Date Acquired	Property Type	Loan Type	Payment Type	Book Value as of 12/31/2008	Rate Type	Annual Effective Interest Rate	Maturity Date
Northern Trust Building A-Note     San Diego, California	12/31/2008	Office	A-Note	Interest Only	$  58,152,117	Fixed	13.1% (1)	10/01/2017

⁽¹⁾ The annual effective interest rate is the investment’s internal rate of return, calculated using the investment’s contractual cash flows and the Company’s cost basis in the investment (excluding direct acquisition costs), that will result in a constant yield over the life of the investment.

The following table summarizes the activity related to the real estate loan receivable for the year ended December 31, 2008:

Face value of real estate loan receivable acquired	$	94,500,000
Discount on purchase of real estate loan receivable		(37,072,350	)
Amortization of discount on purchase of real estate loan receivable		6,254
Closing costs on purchase of real estate loan receivable		718,334
Amortization of closing costs on purchase of real estate loan receivable		(121	)
Real estate loan receivable - December 31, 2008	$	58,152,117

During the year ended December 31, 2008, the Company earned $20,840 in interest income from its interest in the real estate loan receivable, including the amortization of loan discount and closing costs related to the purchase of the real estate loan receivable. At December 31, 2008, the Company had recorded interest receivable on the real estate loan receivable of $0.5 million, which includes pro-rated interest income the Company paid to the seller of the Northern Trust Building A-Note at closing.

F-20

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

Recent Acquisition of Real Estate Loan

Investment in Northern Trust Building A-Note

On December 31, 2008, the Company, through an indirect wholly owned subsidiary, purchased, at a discount, a promissory note secured by a deed of trust (the “Northern Trust Building A-Note”) from a seller unaffiliated with the Company or the Advisor. The borrower used the proceeds from the Northern Trust Building A-Note, additional financing in the amount of $10.3 million (the “Northern Trust B-Note”) and other funds to acquire a 10-story Class A high-rise office building that is approximately 90% leased. The property contains 188,918 square feet and is located within a Class A office park in the San Diego, California area. The Northern Trust A-Note is senior to the Northern Trust B-Note.

The Northern Trust Building A-Note may be prepaid in whole but not in part without premium or penalty on or after April 1, 2017. If the borrower prepays the Northern Trust Building A-Note prior to April 1, 2017, in addition to the outstanding principal balance, the Company would be due a formula-based prepayment premium along with accrued interest to and including the prepayment date.

7. RENTS AND OTHER RECEIVABLES

As of December 31, 2008, the Company’s rents and other receivables consist of the following:

Tenant receivables, net of allowance for doubtful accounts of $18,923	$	1,192,505
Deferred rent		596,432
Interest receivable		461,446
	$	2,250,383

8. DEFERRED FINANCING COSTS, PREPAID EXPENSES AND OTHER ASSETS

As of December 31, 2008, the Company’s deferred financing costs, prepaid expenses and other assets consist of the following:

Deferred financing costs, net of accumulated amortization of $541,202	$	535,583
Utility deposits		326,326
Lease commissions		306,358
Other assets and prepaid expenses		91,350
	$	1,259,617

F-21

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

9. NOTES PAYABLE

As of December 31, 2008, the Company’s notes payable consist of the following:

	Outstanding     Principal Balance		Average     Interest Rate(1)	Interest Rate or Index and Margin	Payment Type	Maturity     Date
Mountain View Corporate Center Mortgage Loan	$	12,270,000(2)	4.22%	(3)	Interest Only	01/30/2009(4)
Campus Drive Buildings
100 & 200 Campus Drive Buildings
100 & 200 Campus Drive Mortgage Loan		89,800,000	4.09%	(3)	Interest Only	03/09/2009(5)
100 & 200 Campus Drive Mezzanine Loan		28,526,200	6.36%	one-month LIBOR + 3.70%	(6)	03/09/2009
Total 100 & 200 Campus Drive Buildings		118,326,200
300-600 Campus Drive Buildings
300-600 Campus Drive Mortgage Loan		93,850,000	5.90%	Fixed	Interest Only	04/10/2014
300-600 Campus Drive Mezzanine Loan		47,000,000	5.80%(7)	Fixed	Interest Only	07/10/2009
Total 300-600 Campus Drive Buildings		140,850,000
	$	271,446,200

⁽¹⁾ Average interest rate is calculated as the weighted-average interest rate applicable to outstanding balances from the inception of the loan to December 31, 2008.

⁽²⁾ This loan is part of a $13.5 million six-month bridge loan facility. As of December 31, 2008, an additional $1.2 million is available for future disbursement for the Company’s general cash management requirements, subject to certain conditions set forth in the loan agreement.

⁽³⁾ At the Company’s election, the interest rate under this loan may be calculated at a variable rate of Prime or 225 basis points over one-month, three-month, or six-month LIBOR by entering into a one-month, three-month, or six-month LIBOR contract, respectively.

⁽⁴⁾ On February 6, 2009, the Company modified this loan with the same lender for a six-month period with an option to extend the maturity date by three months. See Note 18 “Subsequent Events.”

⁽⁵⁾ On March 11, 2009, the Company entered into a loan modification agreement with the lender to extend the maturity date of the 100 & 200 Campus Drive Mortgage Loan to June 9, 2009. See Note 18 “Subsequent Events.”

⁽⁶⁾ On September 9, 2008, the Company entered into the 100 & 200 Campus Drive Mezzanine Loan. The Company is required to make interest-only payments for the first three months of the 100 & 200 Campus Drive Mezzanine Loan term, followed by principal payments of approximately $9.5 million, plus interest, for each of the fourth and fifth months of the 100 & 200 Campus Drive Mezzanine Loan term. The remaining principal balance is due at maturity.

⁽⁷⁾ This loan bears interest at a fixed rate of 5.8% per annum until February 10, 2009 and the interest rate is increased on a monthly basis by 0.5% per annum thereafter.

During the year ended December 31, 2008, the Company incurred $4.3 million of interest expense. Of this amount, $0.9 million was payable at December 31, 2008. Included in interest expense for the year ended December 31, 2008 was $0.5 million of amortization of deferred financing costs.

The following is a schedule of maturities for all notes payable outstanding as of December 31:

2009	$	177,596,200
2010		-
2011		-
2012		-
2013		-
Thereafter		93,850,000
	$	271,446,200

F-22

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

During the year ended December 31, 2008, the Company entered into the following financings related to its real estate portfolio:

Mountain View Corporate Center Financing

On July 30, 2008, the Company, through a wholly owned subsidiary, entered into a six-month bridge loan facility with a financial institution for $13.5 million secured by Mountain View Corporate Center, of which $9.5 million was initially funded for the acquisition of Mountain View Corporate Center and $2.8 million was subsequently funded for general cash management requirements. As of December 31, 2008, an additional $1.2 million was available for future disbursement for the Company’s general cash management-requirements, subject to certain conditions set forth in the loan agreement.

100 & 200 Campus Drive Buildings Financing

On September 9, 2008, the Company, through an indirect wholly owned subsidiary, entered into a six-month bridge loan with a financial institution for $89.8 million secured by the 100 & 200 Campus Drive Buildings and a mezzanine loan with a financial institution for $28.5 million secured by a pledge of 100% of the equity interests in the subsidiary that holds title to the 100 & 200 Campus Drive Buildings.

300-600 Campus Drive Buildings Financing

On October 10, 2008, the Company, through an indirect wholly owned subsidiary, completed the secured financing of the 300-600 Campus Drive Buildings. The Company obtained a 66-month mortgage loan from a financial institution in the amount of approximately $93.9 million. The Company also obtained a mezzanine loan with a financial institution for $47.0 million secured by a pledge of 100% of the equity interests in the subsidiary that holds title to the 300-600 Campus Drive Buildings.

10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

As of December 31, 2008, the Company’s accounts payable and accrued liabilities consisted of the following:

Accounts payable and other accrued liabilities	$	2,329,479
Accrued interest expense		923,372
	$	3,252,851

11. OTHER LIABILITIES

As of December 31, 2008, the Company’s other liabilities consisted of the following:

Tenant security deposits	$	636,723
Prepaid rent		822,914
	$	1,459,637

F-23

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, Disclosures about Fair Value of Financial Instruments (“SFAS 107”), requires disclosure of fair value information about financial instruments, whether or not recognized in the Company’s financial statements for which it is practicable to estimate that value. SFAS 107 defines fair value of a financial instrument as the amount at which such financial instrument could be exchanged in a current transaction between willing parties, in other than a forced sale or liquidation. For certain of the Company’s financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges between willing parties. Accordingly, fair values are based upon management’s estimates using various valuation techniques, such as computing the present value of estimated future cash flows using discount rates commensurate with the risks involved. These techniques are significantly affected by the assumptions used, including the discount rate and the estimated future cash flows. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

The following methods and assumptions were used by management to estimate the fair value of each class of financial instrument for which it is practicable to estimate the fair value:

Cash and cash equivalents, rent and other receivables, and accounts payable and accrued liabilities: These balances reasonably approximate their fair values due to the short maturities of these items.

Real estate loan receivable: The Company’s real estate loan receivable is presented at its amortized cost and not at fair value. On December 31, 2008, the Company had acquired at a discount, through a wholly owned subsidiary, the Northern Trust Building A-Note for approximately $58.1 million. As the Northern Trust Building A-Note was acquired on December 31, 2008, the book value of $58.1 million at that date was deemed to approximate the fair market value.

Notes Payable: The fair value of the Company’s notes payable is estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates and spreads for similar instruments. At December 31, 2008, the Company had $271.4 million of debt outstanding.

	December 31, 2008
	Carrying Amount		Face Value		Fair Value
Financial assets:
Real estate loan receivable	$	58,152,117	$	94,500,000	$	58,152,117
Financial liabilities:
Notes payable	$	271,446,200	$	271,446,200	$	265,927,733

Disclosure of the fair value of financial instruments is based on pertinent information available to the Company at December 31, 2008. Prices of financial instruments have been fluctuating significantly in response to the continuing deterioration of the credits markets. This has made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of value at a future date could be materially different.

F-24

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

13. RELATED PARTY TRANSACTIONS

The Company has entered into an Advisory Agreement with the Advisor and a Dealer Manager Agreement with the Dealer Manager. These agreements entitle the Advisor and the Dealer Manager to specified fees upon the provision of certain services with regard to the Offering and the investment of funds in real estate and real estate-related assets, among other services, as well as reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company (as discussed in Note 2) and certain costs incurred by the Advisor in providing services to the Company.

Pursuant to the terms of the agreements described above, summarized below are the related-party costs incurred by the Company for the year ended December 31, 2008, and any related amounts payable as of December 31, 2008:

	Incurred in the Year Ended   December 31, 2008		Payable as of   December 31, 2008
Expensed
Asset management fees	$	856,796	$	-
Reimbursable insurance premiums and operating expenses (1)		182,265		-
Additional Paid-in Capital
Selling commissions (2)		18,152,098		-
Dealer manager fees (2)		10,931,576		-
Reimbursable other offering costs (2) (3)		5,361,859		267,596
Capitalized
Acquisition and origination fees (4)		3,832,005		144,968
	$	39,316,599	$	412,564

⁽¹⁾ The Company reimbursed the Advisor $0.1 million for directors and officers insurance premiums for the Company’s directors and officers covering the period from February 29, 2008 through February 28, 2009. Insurance premiums are capitalized to prepaid expenses in the accompanying consolidated balance sheets and amortized to general and administrative expenses in the period to which the expenditures relate. Operating expenses are charged as incurred against general and administrative expenses in the accompanying consolidated statements of operations.

⁽²⁾ Selling commissions, dealer manager fees and reimbursements of other offering costs are charged as incurred against stockholders’ equity in the accompanying consolidated financial statements.

⁽³⁾ Reimbursable other offering costs represent the portion of the Company’s other offering costs incurred by the Advisor and its affiliates on behalf of the Company and subsequently reimbursed or reimbursable by the Company. The Company has recorded other offering costs related to the Offering of $5.5 million for the year ended December 31, 2008, including both other offering costs incurred directly by the Company and those costs incurred by the Advisor and its affiliates on behalf of the Company. Of the total other offering costs recorded by the Company, $5.4 million was incurred by the Advisor and its affiliates and recorded by the Company and $5.1 million had been paid by the Company at December 31, 2008.

⁽⁴⁾ Represents acquisition and origination fees related to purchases of real estate and real estate-related investments during the year ended December 31, 2008.

F-25

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

The Company had not incurred any disposition fees, subordinated participation in net cash flows, or subordinated incentive listing fees during the year ended December 31, 2008.

The fees and reimbursement obligations under the Advisory Agreement and Dealer Manager Agreement are as follows:

Form of Compensation	Amount
Selling Commission	The Company pays the Dealer Manager up to 6% of the gross offering proceeds before reallowance of commissions earned by participating broker-dealers. The Dealer Manager reallows 100% of commissions earned to participating broker-dealers. No sales commission is paid on shares issued through the dividend reinvestment plan. A reduced sales commission is paid with respect to certain volume discount sales. Assuming all shares in the primary offering are sold at the highest possible selling commissions (with no discounts to any categories of purchasers), estimated selling commissions are approximately $120.0 million if the Company sells the maximum of 200 million shares in the primary offering.
Dealer Manager Fee	The Company pays the Dealer Manager 3.5% of gross offering proceeds. No dealer manager fee is paid on shares issued under the dividend reinvestment plan. The Dealer Manager may reallow to any participating broker-dealer up to 1% of the gross offering proceeds attributable to that participating broker-dealer as a marketing fee and in special cases the Dealer Manager may increase the reallowance. A reduced dealer manager fee is paid with respect to certain volume discount sales. The estimated dealer manager fee is approximately $70.0 million if the Company sells the maximum of 200 million shares in the primary offering.
Reimbursement of Organization and Other Offering Expenses	The Company reimburses the Advisor or its affiliates for organization and other offering expenses (as discussed in Note 2) incurred by the Advisor or its affiliates on behalf of the Company to the extent that reimbursement would not cause selling commissions, dealer manager fees and organization and other offering expenses borne by the Company to exceed 15% of gross offering proceeds as of the date of reimbursement. The Company estimates organization and offering costs will total approximately $24.6 million if the Company sells the maximum of 280 million shares.
Acquisition Fee	The Company pays the Advisor an acquisition fee equal to 0.75% of the cost of investments acquired, including acquisition expenses and any debt attributable to such investments. With respect to investments in and originations of loans, the Company pays an origination fee to the Advisor in lieu of an acquisition fee.

F-26

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

Form of Compensation	Amount
Origination Fee	The Company pays the Advisor or its wholly owned subsidiary 1.0% of the amount funded by the Company to acquire or originate mortgage, mezzanine, bridge or other loans, including any expenses related to such investments and any debt the Company uses to fund the acquisition or origination of the loans. The Company does not pay an acquisition fee with respect to such loans.
Asset Management Fee (1)	The Company pays the Advisor a monthly asset management fee equal to one-twelfth of 0.75% of the sum of the cost of all real estate investments made by the Company and of the Company’s investments in joint ventures, including acquisition fees, origination fees, acquisition and origination expenses and any debt attributable to such investments.
Reimbursement of Operating Expenses (1)	The Company reimburses the expenses incurred by the Advisor or its affiliates in connection with their provision of services to the Company, including the Company’s allocable share of the Advisor’s overhead, such as insurance, rent, personnel costs, utilities and IT costs. Though the Advisor may seek reimbursement for personnel and other overhead costs under the Advisory Agreement, the Advisor does not intend to do so at this time. If the Advisor does decide to seek reimbursement for personnel and other overhead costs, such costs may include the Company’s proportionate share of the salaries of persons involved in the preparation of documents to meet SEC reporting requirements. The Company will not reimburse the Advisor or its affiliates for personnel and other overhead costs in connection with services for which the Advisor or its affiliates receive acquisition fees, origination fees or disposition fees.
Disposition Fee (1)	For substantial assistance in connection with the sale of properties or other investments, the Company will pay the Advisor or its affiliate a disposition fee of 1% of the contract sales price of the properties or other investments sold. However, in no event may the disposition fees (including real estate commissions) paid to the Advisor, its affiliates and unaffiliated third parties exceed 6% of the contract sales price of the properties or other investments sold. To the extent the disposition fee is paid upon the sale of any assets other than real property, it will count against the limit on “total operating expenses” described below. The Company does not intend to sell properties or other assets to affiliates. However, if the Company does sell an asset to an affiliate, its organizational documents would not prohibit it from paying the Advisor a disposition fee. Before the Company sells an asset to an affiliate, the Company’s Articles of Incorporation would require that the Company’s conflicts committee conclude, by a majority vote, that the transaction is fair and reasonable to the Company and on terms and conditions no less favorable to the Company than those available from third parties.

F-27

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

Form of Compensation	Amount
Subordinated Participation in Net Cash Flows (1)	After investors receive a return of their net capital contributions and an 8% per year cumulative, noncompounded return, the Advisor is entitled to receive 15% of the net cash flows produced by the Company, whether from continuing operations, net sale proceeds or otherwise. The 8% per year cumulative, noncompounded return is calculated based on the amount of capital invested in the Offering. In making this calculation, an investor’s net capital contribution is reduced to the extent distributions in excess of a cumulative, noncompounded, annual return of 8% are paid (from whatever source), except to the extent such distributions would be required to supplement prior distributions paid in order to achieve a cumulative, noncompounded, annual return of 8%.
Subordinated Incentive Listing Fee	Upon listing the Company’s common stock on a national securities exchange, the Advisor or its affiliates will receive 15% of the amount by which (1) the market value of the Company’s outstanding stock plus distributions paid by the Company prior to listing exceeds (2) the sum of invested capital and the amount of cash flow necessary to generate an 8% per year cumulative, noncompounded return to stockholders.

⁽¹⁾ Commencing with the fiscal quarter ended September 30, 2009, the Advisor will reimburse the Company at the end of any fiscal quarter for total operating expenses that in the four consecutive fiscal quarters then ended exceed the greater of 2% of its average invested assets or 25% of its net income, unless the conflicts committee of the Company’s board of directors has determined that such excess expenses were justified based on unusual and non-recurring factors.

“Average invested assets” means the average monthly book value of the Company’s assets during the 12-month period before deducting depreciation, bad debts or other noncash reserves.

“Total operating expenses” means all expenses paid or incurred by the Company, as determined under GAAP, that are in any way related to the Company’s operation, including advisory fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and stock exchange listing of the Company’s stock; (b) interest payments; (c) taxes; (d) noncash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based on the gain on the sale of the Company’s assets; and (f) acquisition fees, origination fees, acquisition and origination expenses (including expenses relating to potential investments that the Company does not close), disposition fees on the resale of property and other expenses connected with the acquisition, origination, disposition and ownership of real estate interests, loans or other property (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property). To the extent the Advisor receives the fee described above at “Subordinated Participation in Net Cash Flows” and such fee is derived from cash flows other than net sales proceeds, that fee will count against the limit on “total operating expenses.” To the extent the Advisor receives the fee described above as “Disposition Fee” and such fee is paid upon the sale of any assets other than real property, it will count against the limit on “total operating expenses.”

The Advisory Agreement has a one-year term. The Company may terminate the Advisory Agreement on 60 days’ written notice.

F-28

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

14. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the year ended December 31, 2008, as if all the Company’s real estate acquisitions that were completed during the year ended December 31, 2008 were completed as of January 1, 2008. As of December 31, 2008, the Company owned four real estate properties containing approximately 1.4 million rentable square feet, all of which were acquired during the year ended December 31, 2008. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had these acquisitions occurred as of January 1, 2008, nor do they purport to predict the results of operations for future periods.

Revenues	$	51,787,602
Depreciation and amortization	$	(21,947,563	)
Net loss	$	(7,709,361	)
Net loss per common share, basic and diluted	$	(0.35	)
Weighted-average number of common   shares outstanding, basic and diluted		22,339,020

15. SEGMENT INFORMATION

The Company presently operates in two business segments: real estate investments and real estate-related assets. The Company does not allocate corporate-level accounts to its operating segments. Corporate-level accounts include corporate general and administrative expenses, non-operating interest income and other corporate-level expenses. The accounting policies of the segments are consistent with those described in the summary of significant accounting policies (see Note 2).

The Company evaluates the performance of its segments based upon net operating income (“NOI”), which is a non-GAAP supplemental financial measure. The Company defines NOI for its real estate segment as operating revenues (rental income, tenant reimbursements, interest and other income) less property and related expenses (property operating expenses, real estate taxes, insurance, asset management fees, loan servicing fees and provision for bad debt) less interest expense. The Company defines NOI for its real estate-related segment as interest income less loan servicing costs and asset management fees. NOI excludes certain items that are not considered to be controllable in connection with the management of an asset, such as non-property income and expenses, depreciation and amortization, and corporate general and administrative expenses. The Company uses NOI to evaluate the operating performance of the Company’s real estate and real estate-related assets and to make decisions about resource allocations. The Company believes that net income is the GAAP measure that is most directly comparable to NOI; however, NOI should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes the items described above. Additionally, NOI as presented below may not be comparable to other REITs or companies as their definitions of NOI may differ from the Company’s definition.

F-29

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

The following table presents summary information related to the Company’s reportable segments:

	For the Year Ended December 31, 2008
Revenues:
Real estate	$	14,066,142
Real estate-related		20,840
	$	14,086,982
NOI:
Real estate	$	4,610,952
Real estate-related		18,835
	$	4,629,787
	As of December 31, 2008
Assets:
Real estate		461,042,983
Real estate-related		58,608,380
Corporate-level (1)		53,211,175
	$	572,862,538
Liabilities:
Real estate		298,183,437
Real estate-related		4,244
Corporate-level (2)		2,368,917
	$	300,556,598

⁽¹⁾ Total corporate-level assets consisted primarily of corporate-level offering proceeds being held in the form of cash and cash equivalents of approximately $53.2 million as of December 31, 2008 primarily for future real estate and real estate-related investments.

⁽²⁾ As of December 31, 2008, total liabilities in the corporate-level accounts consisted primarily of distributions payable.

The following table reconciles the Company’s net loss to its net operating income from reportable segments for the year ended December 31, 2008:

Net loss	$	(2,581,652	)
Interest income		(589,399	)
General and administrative expenses		810,557
Depreciation and amortization		6,973,938
Corporate-level interest expense		16,343
NOI from reportable segments	$	4,629,787

F-30

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

16. QUARTERLY RESULTS (UNAUDITED)

Presented below is a summary of the unaudited quarterly financial information for the year ended December 31, 2008:

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Revenues	$	3,812		$	1,384		$	2,222,471		$	12,448,714
Net loss	$	(21,533	)	$	(104,201	)	$	(383,782	)	$	(2,072,136	)
Loss per common share, basic and diluted	$	(1.08	)	$	(1.64	)	$	(0.05	)	$	(0.09	)
Distributions declared per common share (1)	$	-		$	-		$	0.10		$	0.16

⁽¹⁾ Distributions declared per common share for the third quarter assumes each share was issued and outstanding each day during the period from July 16, 2008 through September 30, 2008. Distributions declared per common share for the fourth quarter assumes each share was issued and outstanding each day during the fourth quarter. Each day during the period from July 16, 2008 through December 31, 2008 was a record date for distributions.

17. COMMITMENTS AND CONTINGENCIES

Economic Dependency

The Company is dependent on the Advisor and the Dealer Manager for certain services that are essential to the Company, including the sale of the Company’s shares of common and preferred stock available for issue; the identification, evaluation, negotiation, purchase, and disposition of properties and other investments; management of the daily operations of the Company’s real estate investment portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other sources.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Compliance with existing environmental laws is not expected to have a material adverse effect on the Company’s financial condition and results of operations as of December 31, 2008.

Legal Matters

From time to time, the Company is party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on its results of operations or financial condition.

18. SUBSEQUENT EVENTS

Status of Offering

The Company commenced its Offering on April 22, 2008. As of March 24, 2009, the Company had accepted gross offering proceeds of approximately $448.4 million related to the issuance of 44,958,256 shares of stock, including shares issued in the primary offering and under the dividend reinvestment plan.

Distributions Paid

On January 15, 2009, the Company paid distributions of approximately $1.6 million, which related to distributions declared for each day in the period from December 1, 2008 through December 31, 2008. On February 17, 2009, the Company paid distributions of approximately $1.8 million related to distributions declared for each day in the period from January 1, 2009 through January 31, 2009, and on March 16, 2009, the Company paid distributions of approximately $1.9 million related to distributions declared for each day in the period from February 1, 2009 through February 28, 2009.

F-31

KBS REAL ESTATE INVESTMENT TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

Distributions Declared

On January 27, 2009, the Company’s board of directors declared a daily distribution for the period from March 1, 2009 through March 31, 2009, which the Company expects to pay in April 2009. On March 25, 2009, the Company’s board of directors declared a daily distribution for the period from April 1, 2009 through April 30, 2009, which the Company expects to pay in May 2009, and a daily distribution for the period from May 1, 2009 through May 31, 2009, which the Company expects to pay in June 2009. Investors may choose to receive cash distributions or purchase additional shares through the Company’s dividend reinvestment plan.

Distributions are calculated based on stockholders of record each day during these periods at a rate of $0.00178082 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 6.5% annualized rate based on a purchase price of $10.00 per share.

Subsequent Investments and Financings

350 E. Plumeria Financing and Modification to the Mountain View Corporate Center Loan

On February 6, 2009, the Company closed a $14.3 million six-month bridge loan facility secured by the 350 E. Plumeria Building (the “350 E. Plumeria Building Mortgage Loan”) and modified the terms of the Mountain View Corporate Center Mortgage Loan. The 350 E. Plumeria Building Mortgage Loan is cross-collateralized and cross-defaulted with the Mountain View Corporate Center Mortgage Loan. The initial maturity date of these loans is July 30, 2009 with an option to extend the maturity date to October 30, 2009, subject to certain conditions set forth in the loan agreement. Monthly installments on these loans will be interest only and the entire principal amount is due on the maturity date, assuming no prior prepayment. The 350 E. Plumeria Building Mortgage Loan bears interest at a variable rate of 275 basis points over one-month LIBOR, as reset daily, with the option to request a fixed rate equal to 275 basis points over one-month or three-month LIBOR by entering into a corresponding one-month or three-month LIBOR contract, but at no point shall the interest rate be less than 4.10%. The 350 E. Plumeria Building Mortgage Loan may be prepaid in whole or in part at any time. An exit fee of 0.25% of the amount being prepaid is due if the loan is prepaid before April 30, 2009. No exit fee is payable if the 350 E. Plumeria Building Mortgage Loan is prepaid on or after April 30, 2009. The Mountain View Corporate Center Mortgage Loan, as modified, also bears interest at a variable rate of 275 basis points over one-month LIBOR, as reset daily, with the option to request a fixed rate equal to 275 basis points over one-month or three-month LIBOR by entering into a corresponding one-month or three-month LIBOR contract, but at no point shall the interest rate be lower than 4.10%.

100 & 200 Campus Drive Extension

On March 11, 2009, the Company entered into a loan modification agreement with the lender to extend the maturity date of the 100 & 200 Campus Drive Mortgage Loan to June 9, 2009. As a condition of the extension, the loan will bear interest at a variable rate of 350 basis points over one-month LIBOR, as reset daily, with the option to request a fixed rate equal to 350 basis points over one-month LIBOR by entering into a corresponding one-month LIBOR contract during the extension period. The Company currently intends to refinance the loan balance on a long-term basis upon the expiration of the extension period.

Investment in Mortgage Loan

Investment in One Liberty Plaza Notes

On February 11, 2009, the Company, through an indirect wholly owned subsidiary, purchased, at a discount, two promissory notes secured by a first lien mortgage for $66.7 million plus closing costs (the “One Liberty Plaza Notes”) from a seller unaffiliated with the Company or the Advisor. The One Liberty Plaza Notes are two of six pari-passu participation interests created in connection with a first mortgage loan obtained by the borrower. The property securing the loan is a 53-story, Class A office building located in lower Manhattan. The office building contains 2,186,163 rentable square feet, including 17,305 square feet of retail space, and at January 31, 2009 was approximately 99% leased.

The initial maturity date of the One Liberty Plaza Notes is August 6, 2017. Given the discounted purchase price and the contractual interest rate on the notes, the annual effective interest rate of this investment is projected to be 15.0%. The One Liberty Plaza Notes may be defeased but not prepaid after August 2010. During the four months prior to the maturity date, the One Liberty Plaza Notes may be prepaid in whole but not in part.

F-32

KBS REAL ESTATE INVESTMENT TRUST II, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

December 31, 2008

Description	Balance at     Beginning of     Year		Additions  Charged Against  Operations		Uncollectible     Accounts Written-off		Balance at      End of Year
Year Ended December 31, 2008
Allowance for doubtful accounts	$	-	$	18,923	$	-	$	18,923

F-33

KBS REAL ESTATE INVESTMENT TRUST II, INC.

SCHEDULE III

REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION

December 31, 2008

					Initial Cost to Company								Gross Amount at which Carried at Close of Period
Description	Location	Ownership Percent	Encumbrances		Land		Building and Improvements (1)		Total		Cost Capitalized Subsequent to Acquisition		Land		Building and Improvements (1)		Total (2)		Accumulated Depreciation and Amortization		Original Date of Construction	Date Acquired
Mountain View Corporate Center	Basking Ridge, NJ	100%	$	12,270,000	$	3,600,000	$	27,137,558	$	30,737,558	$	18,810	$	3,600,000	$	27,156,368	$	30,756,368	$	714,057	2001	07/30/2008
Campus Drive Buildings
100 & 200 Campus Drive Buildings	Florham Park, NJ	100%		118,326,200		10,700,000		188,508,857		199,208,857		28,295		10,700,000		187,998,785		198,698,785		3,682,986	1988/1989	09/09/2008
300-600 Campus Drive Buildings	Florham Park, NJ	100%		140,850,000		9,717,000		185,445,547		195,162,547		45,394		9,717,000		185,490,941		195,207,941		1,991,775	1997/1999	10/10/2008
Total Campus Drive Buildings				259,176,200		20,417,000		373,954,404		394,371,404		73,689		20,417,000		373,489,726		393,906,726		5,674,761
350 E. Plumeria Building	San Jose, CA	100%		-		11,290,000		24,818,559		36,108,559		7,356		11,290,000		24,825,915		36,115,915		46,753	1984/2008	12/18/2008
		TOTAL	$	271,446,200	$	35,307,000	$	425,910,521	$	461,217,521	$	99,855	$	35,307,000	$	425,472,009	$	460,779,009	$	6,435,571

⁽¹⁾ Building and improvements include tenant origination and absorption costs.

⁽²⁾ The aggregate cost of real estate for federal income tax purposes was $437,534,300 as of December 31, 2008.

F-34

KBS REAL ESTATE INVESTMENT TRUST II, INC.

SCHEDULE III

REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION AND AMORTIZATION (CONTINUED)

December 31, 2008

	Real Estate Properties			Accumulated Depreciation and Amortization
Acquisitions	$	461,217,521		$	6,973,617
Improvements		99,855			321
Write-off of fully depreciated and fully amortized assets		(538,367	)		(538,367	)
Balance at December 31, 2008	$	460,779,009		$	6,435,571

F-35

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newport Beach, State of California, on March 27, 2009.

KBS REAL ESTATE INVESTMENT TRUST II, INC.
By:	/s/ Charles J. Schreiber, Jr.
	Charles J. Schreiber, Jr.
	Chairman of the Board, Chief Executive Officer and Director

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

Name	Title	Date
/S/ CHARLES J. SCHREIBER, JR. Charles J. Schreiber, Jr.	Chairman of Board, Chief Executive Officer and Director	March 27, 2009
/S/ DAVID E. SNYDER David E. Snyder	Chief Financial Officer	March 27, 2009
/S/ PETER MCMILLAN III Peter McMillan III	Executive Vice President, Treasurer, Secretary and Director	March 27, 2009
/S/ STACIE K. YAMANE Stacie K. Yamane	Chief Accounting Officer	March 27, 2009
/S/ HANK ADLER Hank Adler	Director	March 27, 2009
/S/ BARBARA R. CAMBON Barbara R. Cambon	Director	March 27, 2009
/S/ STUART A. GABRIEL, PH.D. Stuart A. Gabriel, Ph.D.	Director	March 27, 2009

EX-10.32

Exhibit 10.32

EXECUTION VERSION

ASSIGNMENT AND ASSUMPTION AGREEMENT

THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this “Agreement”) dated as of February 11, 2009 is entered into by and between Goldman Sachs Mortgage Company, a New York limited partnership (“Assignor”) and KBS Debt Holdings II X, LLC, a Delaware limited liability company (“Assignee”).

W I T N E S S E T H:

WHEREAS, reference is made to the Loan Agreement, dated as of August 8, 2007 between Assignor, as successor to Goldman Sachs Commercial Mortgage Capital, L.P. (“GSCMC”), as lender, and Brookfield Properties OLP Co. LLC (f/k/a BFP One Liberty Plaza Co. LLC), as borrower (“Borrower”) (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”), and to the loan made pursuant thereto (the “Loan”);

WHEREAS, the Loan is represented by that certain Amended, Restated and Consolidated Note A-1 in the original principal amount of $350,000,000 (“Note A-1”), that certain Amended, Restated and Consolidated Note A-2-A in the original principal amount of $250,000,000 ( “Note A-2-A”), that certain Amended, Restated and Consolidated Note A-2-B-1 in the original principal amount of $35,000,000 (“Note A-2-B-1”), that certain Amended, Restated and Consolidated Note A-2-B-2-A in the original principal amount of $100,000,000 (the “Note A-2-B-2-A”), that certain Amended, Restated and Consolidated Note A-2-B-2-B in the original principal amount of $75,000,000 (“Purchased Note 1”) and that certain Amended, Restated and Consolidated Note A-2-B-2-C in the original principal amount of $40,000,000 (“Purchased Note 2”; together with Purchased Note 1, collectively, the “Purchased Notes”; Note A-1, Note A-2-A, Note A-2-B-1 and Note A-2-B-2-A , collectively, the “Other Notes”).

WHEREAS, pursuant to the terms of this Agreement, Assignor desires to sell, and Assignee desires to purchase, the Purchased Notes;

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows:

1. Assignment. Assignor hereby sells, assigns and transfers to Assignee all of Assignor’s right, title and interest in and to the Purchased Notes, in exchange for payment to Assignor in immediately available funds of an aggregate purchase price specified in a settlement statement executed by both parties, plus all accrued and unpaid interest on the original principal balance of the Purchased Notes through the day immediately preceding the Settlement Date.

“Settlement Date” means the Business Day on which Assignor receives from Assignee the aggregate purchase price in immediately available funds; provided, however, that if Assignor receives such aggregate purchase price after 3:00 p.m., New York time, on any Business Day, the Settlement Date shall be the next succeeding Business Day.

2. Assumption. Assignee hereby assumes the obligations, and agrees to observe and perform all the covenants, applicable to the holder of the Purchased Notes under the Loan Documents accruing from and after the Settlement Date, including the obligations of the A-2 Lender that are applicable to the holder of the Purchased Notes under that certain Intercreditor

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and Servicing Agreement, dated as of October 1, 2007, between Assignor in its capacity as the initial holder of the A-1 Note (as defined therein) and Assignor in its capacity as holder of the A-2 Note (as defined therein) (as amended, the “Intercreditor Agreement”) and Assignor hereby agrees that it shall remain fully liable for any obligations and liabilities which accrued prior to the Settlement Date under the Intercreditor Agreement and the Loan Documents.

3. Non-Reliance on Assignor. Except as explicitly set forth herein, Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or financial or other statements of the Borrower, or the validity or enforceability of the obligations of the Borrower in respect of the Loan Agreement or any other Loan Document. Assignee acknowledges that it has, independently and without reliance on Assignor (except as set forth in the representations in Section 4 below), and based on the documents listed on Schedule 1 hereto and on such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower, the Collateral and the Property.

4. Representations.

(a) The assignment provided for herein shall be without representation or warranty by Assignor, except for the representations and warranties contained in Exhibit A attached hereto and made a part hereof and in clause (c) below.

(b) Assignee hereby represents and warrants as follows:

(i) Assignee is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware.

(ii) Assignee has the full power, authority and legal right to purchase the Purchased Notes, and to execute, deliver and perform this Agreement;

(iii) Assignee has duly authorized, executed and delivered this Agreement and, assuming the due authorization, execution and delivery by the Assignee, this Agreement constitutes the legal, valid and binding agreement of the Assignee, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, liquidation, receivership, moratorium and other laws relating to or affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law); and

(iv) Assignee is not (x) an “employee benefit plan” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) subject to the fiduciary responsibility provisions of ERISA, (y) a “plan” described in Section 4975(e)(1) of the Internal Revenue Code of 1986 (the “Code”) subject to Section 4975 of the Code, or (z) an entity whose underlying assets include plan assets by reason of an investment by any such “employee benefit plan” or “plan” in the entity.

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(c) Each party hereto represents and warrants to the other that it has dealt with no broker or similar person in connection with entering into this Agreement (other than the other party to this Agreement).

5. Other Notes. Schedule 2 contains the list, as of the date hereof, of each of the holders of the Other Notes to the Assignor’s knowledge, together with contact information for each of the holders of the Other Notes.

6. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to conflict of law principles.

7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

8. Successors and Assigns. The provisions of this Agreement shall be binding upon the parties and their respective successors and/or assigns.

9. Entire Agreement. This Agreement constitutes the entire agreement, and supercedes all prior agreements, if any, of the parties hereto with respect to the subject matter hereof.

10. Defined Terms. Capitalized terms used and not defined herein will have the respective meanings set forth in the Loan Agreement.

[Remainder of page intentionally left blank; signature pages follow]

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EXECUTION VERSION

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written.

ASSIGNOR:
GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership
By:	Goldman Sachs Real Estate Funding Corp., its general partner
	By:	/s/ Authorized Signatory
		Name:
		Title:
ASSIGNEE:
KBS DEBT HOLDINGS II X, LLC, a Delaware limited liability company
By:	KBS LIMITED PARTNERSHIP II, a Delaware limited partnership, its sole manager
	By:   KBS REAL ESTATE INVESTMENT TRUST II, INC., a Maryland corporation, its sole general partner
	By:	/s/ Charles J. Schreiber, Jr.
		Charles J. Schreiber, Jr.
		Chief Executive Officer

EX-10.33

Exhibit 10.33

AMENDED, RESTATED AND CONSOLIDATED NOTE A-2-B-2-B

BFP ONE LIBERTY PLAZA CO. LLC

MERS MIN: 8000101-0000006759-4

$75,000,000.00	New York, New York
	As of August 8, 2007

FOR VALUE RECEIVED, the undersigned BROOKFIELD PROPERTIES OLP CO. LLC (f/k/a BFP ONE LIBERTY PLAZA CO. LLC), a Delaware limited liability company (the “Maker”), promises to pay to the order of GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership, and its successors and assigns (the holder of this Note from time to time, or any portion hereof, is hereinafter referred to as the “Holder”) or to such other account pursuant to such other wiring instruction as the Holder may from time to time designate in writing, the principal amount of SEVENTY FIVE MILLION DOLLARS ($75,000,000.00), or so much thereof as may be outstanding from time to time (the “Principal Amount”), together with interest thereon and all other amounts payable to the Holder under the Loan Documents with respect to the Loan, such principal, interest and other amounts to be payable as provided in the Loan Agreement (as defined below). Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Loan Agreement.

This Amended, Restated and Consolidated Note A-2-B-2-B (this “Note”), together with that certain Amended, Restated and Consolidated Note A-2-B-2-C, of even date herewith, by Maker for the benefit of Goldman Sachs Mortgage Company (the “A-2-B-2-C Note”), replaces, but does not extinguish the indebtedness evidenced by, that certain Amended, Restated and Consolidated Note A-2-B-2-B, dated as of August 8, 2007, in the original principal amount of ONE HUNDRED FIFTEEN MILLION DOLLARS ($115,000,000.00) executed by Maker and payable to the order of Goldman Sachs Mortgage Company, as holder (“Original Note”). This Note, together with the A-2-B-2-C Note, amends and restates, in its entirety, the Original Note.

This Note, together with the A-2-B-2-C Note, that certain Amended, Restated and Consolidated Note A-1, that certain Amended, Restated and Consolidated Note A-2-A, that certain Amended, Restated and Consolidated Note A-2-B-1 and that certain Amended, Restated and Consolidated Note A-2-B-2-A (collectively, the “Other Notes”), is the “Note” referred to in that certain Loan Agreement, dated as of the date hereof, among the Maker, as borrower, and Goldman Sachs Commercial Mortgage Capital, L.P., as a lender (as amended, modified or supplemented and in effect from time to time, the “Loan Agreement”) and, together with the Other Notes, evidences the Loan made thereunder. Reference to the Loan Agreement is hereby made for a statement of the rights of the Holder and the duties and obligations of the Maker, but neither this reference to the Loan Agreement nor any provision thereof shall affect or impair the absolute and unconditional obligation of the Maker to pay the principal, interest and other amounts payable with respect to this Note when due. The Principal Amount shall bear interest at the rates provided for in the Loan Agreement.

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All advances made to the Maker pursuant to the Loan Agreement and all prepayments of principal thereof, and the resulting changes to the Principal Amount, may be endorsed by the Holder upon the schedule hereto attached which is a part of this Note; provided, however, that the failure of the Holder to make any such endorsement shall not in any manner affect the obligation of Maker to repay the Principal Amount in accordance with the terms hereof. Such endorsements (absent manifest error) shall be prima facie evidence of the Principal Amount.

This Note is secured by the Mortgage, the Assignment of Rents and Leases and other security interests and liens granted in the Loan Agreement and in other Loan Documents.

The principal sum evidenced by this Note, together with accrued interest and other sums or amounts due hereunder, shall become immediately due and payable at the option of the Holder upon the occurrence and during the continuation of any Event of Default in accordance with the provisions of the Loan Agreement.

This Note, together with the Other Notes, amends, restates and consolidates in their entirety the terms and provisions of those certain promissory notes issued by the Maker and described in Schedule A (collectively, the “Existing Note”) so that henceforth this Note, together with the Existing Note, shall constitute evidence of but one debt in the principal amount stated above. The terms, covenants, agreements, rights, obligations and conditions contained in this Note shall supersede and control the terms, covenants, agreements, rights, obligations and conditions of the Existing Note; provided, however, that nothing herein shall impair the indebtedness evidenced by the Existing Note.

With respect to the amounts due and payable pursuant to this Note, the Maker waives the following: (1) demand, presentment, protest, notice of dishonor, notice of nonpayment, suit against any party, diligence in collection of this Note, except for notices required by any Governmental Authority and notices required by the Loan Agreement; and (2) any further receipt by or acknowledgment of any Collateral now or hereafter deposited, pledged or conveyed as security for the Loan.

In no event shall the amount of interest (and any other sums or amounts that are deemed to constitute interest under applicable Legal Requirements) due or payable hereunder (including interest calculated at the Default Rate) exceed the maximum rate of interest designated by applicable Legal Requirements (the “Maximum Amount”), and in the event such excess payment is inadvertently paid by the Maker or inadvertently received by the Holder, then such excess sum shall be credited as a payment of principal on this Note, and if in excess of the outstanding Principal Amount of this Note, shall be immediately returned to the Maker upon such determination. It is the express intent hereof that the Maker not pay and the Holder not receive, directly or indirectly, interest in excess of the Maximum Amount.

Other than as expressly set forth in the Loan Agreement, this Note may not be assigned in whole or in part by the Maker. The Holder shall have the right from time to time at its discretion to make an assignment or sell a participation subject to and in accordance with the terms set forth in the Loan Agreement. Maker’s obligations in connection with any such assignment or participation shall be as set forth in the Loan Documents.

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The Holder shall not by any act, delay, omission or otherwise be deemed to have amended, modified, supplemented, waived, extended, discharged or terminated any of its rights or remedies, except by an amendment, modification, supplement, waiver, extension, discharge or termination in writing and signed by the appropriate parties, as may be applicable pursuant to the Loan Agreement. All rights and remedies of the Holder under the terms of this Note and applicable statutes or rules of law shall be cumulative, and may be exercised successively or concurrently. The Maker agrees that there are no defenses, equities or setoffs with respect to the obligations set forth herein.

Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable Legal Requirements, but if any provision of this Note shall be prohibited by or invalid under applicable Legal Requirements, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.

The Holder may, at its option, release any Collateral given to secure the indebtedness evidenced hereby, and no such release shall impair the obligations of the Maker to the Holder under this Note and the other Loan Documents.

This Note was negotiated in New York, and made by the Maker and accepted by the Holder in the State of New York, and the proceeds of this Note were disbursed from New York, which State the parties agree has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects (including, without limitation, matters of construction, validity and performance), this Note and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such State and any applicable law of the United States of America.

ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST THE HOLDER OR THE MAKER ARISING OUT OF OR RELATING TO THIS NOTE SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK. THE MAKER, AND BY ACCEPTANCE OF THIS NOTE, THE HOLDER, HEREBY (i) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND (ii) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.

The provisions of this Note shall be subject to the provisions of the Loan Agreement including the non-recourse provisions of Section 9.19 of the Loan Agreement, the provisions of which are incorporated herein by this reference as if fully set forth herein.

THE MAKER AND, BY ACCEPTANCE HEREOF, THE HOLDER, TO THE FULLEST EXTENT THAT EACH MAY LAWFULLY DO SO, WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING, WITHOUT LIMITATION, ANY TORT

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ACTION), BROUGHT BY EITHER PARTY HERETO WITH RESPECT TO THIS NOTE OR THE OTHER LOAN DOCUMENTS.

4

IN WITNESS WHEREOF, the Maker has caused this Note to be executed as of the day and year first above written.

MAKER:
BROOKFIELD PROPERTIES OLP CO. LLC
By:	/s/ Ralph S. Toussie
	Name: Ralph S. Toussie Title: Vice President, Associate Counsel

EX-10.34

Exhibit 10.34

AMENDED, RESTATED AND CONSOLIDATED NOTE A-2-B-2-C

BFP ONE LIBERTY PLAZA CO. LLC

MERS MIN: 8000101-0000006759-4

$40,000,000.00	New York, New York
	As of August 8, 2007

FOR VALUE RECEIVED, the undersigned BROOKFIELD PROPERTIES OLP CO. LLC (f/k/a BFP ONE LIBERTY PLAZA CO. LLC), a Delaware limited liability company (the “Maker”), promises to pay to the order of GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership, and its successors and assigns (the holder of this Note from time to time, or any portion hereof, is hereinafter referred to as the “Holder”) or to such other account pursuant to such other wiring instruction as the Holder may from time to time designate in writing, the principal amount of FORTY MILLION DOLLARS ($40,000,000.00), or so much thereof as may be outstanding from time to time (the “Principal Amount”), together with interest thereon and all other amounts payable to the Holder under the Loan Documents with respect to the Loan, such principal, interest and other amounts to be payable as provided in the Loan Agreement (as defined below). Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Loan Agreement.

This Amended, Restated and Consolidated Note A-2-B-2-C (this “Note”), together with that certain Amended, Restated and Consolidated Note A-2-B-2-B, of even date herewith, in the original principal amount of SEVENTY FIVE MILLION DOLLARS ($75,000,000) by Maker for the benefit of Goldman Sachs Mortgage Company (the “A-2-B-2-B Note”), replaces, but does not extinguish the indebtedness evidenced by, that certain Amended, Restated and Consolidated Note A-2-B-2-B, dated as of August 8, 2007, in the original principal amount of ONE HUNDRED FIFTEEN MILLION DOLLARS ($115,000,000.00) executed by Maker and payable to the order of Goldman Sachs Mortgage Company, as holder (“Original Note”). This Note, together with the A-2-B-2-B Note, amends and restates, in its entirety, the Original Note.

This Note, together with the A-2-B-2-B Note, that certain Amended, Restated and Consolidated Note A-1, that certain Amended, Restated and Consolidated Note A-2-A, that certain Amended, Restated and Consolidated Note A-2-B-1 and that certain Amended, Restated and Consolidated Note A-2-B-2-A (collectively, the “Other Notes”), is the “Note” referred to in that certain Loan Agreement, dated as of the date hereof, among the Maker, as borrower, and Goldman Sachs Commercial Mortgage Capital, L.P., as a lender (as amended, modified or supplemented and in effect from time to time, the “Loan Agreement”) and, together with the Other Notes, evidences the Loan made thereunder. Reference to the Loan Agreement is hereby made for a statement of the rights of the Holder and the duties and obligations of the Maker, but neither this reference to the Loan Agreement nor any provision thereof shall affect or impair the absolute and unconditional obligation of the Maker to pay the principal, interest and other amounts payable with respect to this Note when due. The Principal Amount shall bear interest at the rates provided for in the Loan Agreement.

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All advances made to the Maker pursuant to the Loan Agreement and all prepayments of principal thereof, and the resulting changes to the Principal Amount, may be endorsed by the Holder upon the schedule hereto attached which is a part of this Note; provided, however, that the failure of the Holder to make any such endorsement shall not in any manner affect the obligation of Maker to repay the Principal Amount in accordance with the terms hereof. Such endorsements (absent manifest error) shall be prima facie evidence of the Principal Amount.

This Note is secured by the Mortgage, the Assignment of Rents and Leases and other security interests and liens granted in the Loan Agreement and in other Loan Documents.

The principal sum evidenced by this Note, together with accrued interest and other sums or amounts due hereunder, shall become immediately due and payable at the option of the Holder upon the occurrence and during the continuation of any Event of Default in accordance with the provisions of the Loan Agreement.

This Note, together with the Other Notes, amends, restates and consolidates in their entirety the terms and provisions of those certain promissory notes issued by the Maker and described in Schedule A (collectively, the “Existing Note”) so that henceforth this Note, together with the Existing Note, shall constitute evidence of but one debt in the principal amount stated above. The terms, covenants, agreements, rights, obligations and conditions contained in this Note shall supersede and control the terms, covenants, agreements, rights, obligations and conditions of the Existing Note; provided, however, that nothing herein shall impair the indebtedness evidenced by the Existing Note.

With respect to the amounts due and payable pursuant to this Note, the Maker waives the following: (1) demand, presentment, protest, notice of dishonor, notice of nonpayment, suit against any party, diligence in collection of this Note, except for notices required by any Governmental Authority and notices required by the Loan Agreement; and (2) any further receipt by or acknowledgment of any Collateral now or hereafter deposited, pledged or conveyed as security for the Loan.

In no event shall the amount of interest (and any other sums or amounts that are deemed to constitute interest under applicable Legal Requirements) due or payable hereunder (including interest calculated at the Default Rate) exceed the maximum rate of interest designated by applicable Legal Requirements (the “Maximum Amount”), and in the event such excess payment is inadvertently paid by the Maker or inadvertently received by the Holder, then such excess sum shall be credited as a payment of principal on this Note, and if in excess of the outstanding Principal Amount of this Note, shall be immediately returned to the Maker upon such determination. It is the express intent hereof that the Maker not pay and the Holder not receive, directly or indirectly, interest in excess of the Maximum Amount.

Other than as expressly set forth in the Loan Agreement, this Note may not be assigned in whole or in part by the Maker. The Holder shall have the right from time to time at its discretion to make an assignment or sell a participation subject to and in accordance with the terms set forth in the Loan Agreement. Maker’s obligations in connection with any such assignment or participation shall be as set forth in the Loan Documents.

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The Holder shall not by any act, delay, omission or otherwise be deemed to have amended, modified, supplemented, waived, extended, discharged or terminated any of its rights or remedies, except by an amendment, modification, supplement, waiver, extension, discharge or termination in writing and signed by the appropriate parties, as may be applicable pursuant to the Loan Agreement. All rights and remedies of the Holder under the terms of this Note and applicable statutes or rules of law shall be cumulative, and may be exercised successively or concurrently. The Maker agrees that there are no defenses, equities or setoffs with respect to the obligations set forth herein.

Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable Legal Requirements, but if any provision of this Note shall be prohibited by or invalid under applicable Legal Requirements, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note.

The Holder may, at its option, release any Collateral given to secure the indebtedness evidenced hereby, and no such release shall impair the obligations of the Maker to the Holder under this Note and the other Loan Documents.

This Note was negotiated in New York, and made by the Maker and accepted by the Holder in the State of New York, and the proceeds of this Note were disbursed from New York, which State the parties agree has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects (including, without limitation, matters of construction, validity and performance), this Note and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such State and any applicable law of the United States of America.

ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST THE HOLDER OR THE MAKER ARISING OUT OF OR RELATING TO THIS NOTE SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK. THE MAKER, AND BY ACCEPTANCE OF THIS NOTE, THE HOLDER, HEREBY (i) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND (ii) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.

The provisions of this Note shall be subject to the provisions of the Loan Agreement including the non-recourse provisions of Section 9.19 of the Loan Agreement, the provisions of which are incorporated herein by this reference as if fully set forth herein.

THE MAKER AND, BY ACCEPTANCE HEREOF, THE HOLDER, TO THE FULLEST EXTENT THAT EACH MAY LAWFULLY DO SO, WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING, WITHOUT LIMITATION, ANY TORT

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ACTION), BROUGHT BY EITHER PARTY HERETO WITH RESPECT TO THIS NOTE OR THE OTHER LOAN DOCUMENTS.

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IN WITNESS WHEREOF, the Maker has caused this Note to be executed as of the day and year first above written.

MAKER:
BROOKFIELD PROPERTIES OLP CO. LLC
By:	/s/ Ralph S. Toussie
	Name: Ralph S. Toussie Title: Vice President, Associate Counsel

EX-10.35

Exhibit 10.35

INTERCREDITOR AND SERVICING AGREEMENT

THIS INTERCREDITOR AND SERVICING AGREEMENT (this “Agreement”), dated as of October 1, 2007, is between GOLDMAN SACHS MORTGAGE COMPANY, having an address of 85 Broad Street, New York, New York 10004 (“Goldman”), in its capacity as initial holder of the A-1 Note (in such capacity, the “Initial A-1 Lender”), and Goldman in its capacity as initial holder of the A-2 Note (the “Initial A-2 Lender”).

RECITALS

On August 8, 2007 (the “Origination Date”), Goldman Sachs Commercial Mortgage Capital, L.P. originated a certain loan in the aggregate original principal sum of $850,000,000 (as further defined below, the “Loan”) to BFP One Liberty Plaza Co. LLC (the “Borrower”) and thereafter assigned the Loan to Goldman. The Loan consists of two (2) separate and distinct obligations represented by (i) that certain Promissory Note in the original principal amount of $350,000,000, by the Borrower in favor of Initial A-1 Lender (together with any and all renewals, amendments, modifications, consolidations, replacements and extensions thereof, the “A-1 Note”), and (ii) that certain Promissory Note in the original principal amount of $500,000,000, by the Borrower in favor of Initial A-2 Lender (together with any and all renewals, amendments, modifications, consolidations, replacements and extensions thereof, the “A-2 Note”), respectively. The Loan is secured by a mortgage or deed of trust, dated as of the Origination Date (as amended, modified or supplemented, the “Mortgage”), encumbering certain real property identified therein (the “Mortgaged Property”). All documents evidencing or securing the Loan (including, without limitation, the Mortgage and the Notes) shall be collectively referred to herein as the “Loan Documents.”

The A-1 Note and A-2 Note are from time to time together referred to herein as the “Notes”.

The parties hereto mutually agree as follows:

1. Definitions. Capitalized terms not defined herein shall have the meanings ascribed thereto in the Loan Agreement. The following terms shall have the respective meanings set forth below.

“A-1 Lender” shall mean, the Initial A-1 Lender or any subsequent holder of the A-1 Note, together with any successor and assigns.

“A-1 Note” shall have the meaning assigned to that term in the recitals.

“A-1 Note Principal Balance” shall mean, on any date of determination, the then outstanding principal balance of the A-1 Note.

“A-2 Lender” shall mean the Initial A-2 Lender or any subsequent holder of the A-2 Note, together with any successor and assigns.

“A-2 Note” shall have the meaning assigned to that term in the recitals. If the A-2 Note is bifurcated into multiple notes in accordance herewith, then each reference herein to the A-2 Note shall apply with respect to each such bifurcated note.

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“A-2 Note Principal Balance” shall mean, on any date of determination, the then outstanding principal balance of the A-2 Note.

“Accepted Servicing Practices” shall have the same meaning as the analogous definition set forth in the Pooling Agreement, except that the definition of such analogous term must provide, among other things, that the Master Servicer and Special Servicer shall service the Loan for the benefit of A-1 Lender and the A-2 Lender as a collective whole, taking into account that the A-1 Note is pari passu in right of payment with the A-2 Note.

“Additional Trust Fund Expenses” shall mean, only with respect to the Loan (and no other loans in a Securitization Trust), (i) any interest accrued on Advances pursuant to the Pooling Agreement; (ii) compensation payable to the Special Servicer in connection with a Specially Serviced Loan or an REO Property; (iii) indemnification of the trustee, the fiscal agent and certain related Persons or reimbursement of the trustee and the fiscal agent for costs and expenses to the extent provided for herein or in the Pooling Agreement; (iv) indemnification of the Master Servicer and certain related Persons pursuant to this Agreement or the Pooling Agreement or reimbursement for certain costs and expenses to the extent provided for herein or in the Pooling Agreement (other than costs and expenses reimbursable as Advances); (v) indemnification of the Special Servicer and certain related Persons pursuant to this Agreement or the Pooling Agreement or reimbursement for certain costs and expenses to the extent provided for herein or in the Pooling Agreement; (vi) tax-related expenses and the cost of various opinions of counsel required to be obtained and paid out of the applicable account; and (vii) to the extent not covered by indemnification from one of the parties hereto or by a party to the Pooling Agreement, any other cost, expense, liability or loss borne by a Securitization Trust, including, without limitation, any costs of obtaining Rating Agency Confirmations not reimbursed by the Borrower (to the extent that the circumstances giving rise to the subject ratings confirmation relate to the A-1 Note and the A-2 Note or any REO Property and such confirmation is required under the pooling and servicing agreements for each of the Initial Securitization and the Subsequent Securitization), in each case to the extent that such Securitization Trust has not obtained, and in the reasonable good faith judgment of the trustee will not obtain, reimbursement or indemnification thereof from any person or from the proceeds of the liquidation or disposition of the Loan or REO Property.

“Advances” shall have the meaning assigned to such term in Section 6. For avoidance of doubt, “Advances” shall not include P&I Advances.

“Affiliate” shall mean, with respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Agreement” shall mean this Intercreditor and Servicing Agreement, the exhibits and schedules hereto and all amendments hereof and supplements hereto.

“Bankruptcy Code” shall mean the United States Bankruptcy Code, as amended from time to time, any successor statute or rule promulgated thereto.

“Borrower” shall have the meaning assigned to such term in the recitals.

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“Borrower Related Parties” shall have the meaning assigned to such term in Section 14.

“Business Day” shall mean any day that is not a Saturday or Sunday, and that is not a legal holiday in New York, New York, or any other city which serves as the principal place of business for any successor to Servicer (including, without limitation, after the Securitization Date, any trustee or servicer under the Pooling Agreement) nor a day which banking institutions or savings associations in any of the foregoing cities are closed for business.

“Code” means the Internal Revenue Code of 1986, as amended.

“Default Rate” shall mean, with respect to the Loan, the default rate of interest specified in the Loan Documents.

“Directing Lender” shall mean the holder or holders (acting alone or collectively) of the largest percentage interest in the Loan (or their respective designees, including, without limitation, any related controlling class representative, directing certificateholder or similar party).

“Eligibility Requirements” means, with respect to any Person, that such Person (i) has total assets (in name or under management) in excess of $600,000,000 and (except with respect to a pension advisory firm or similar fiduciary) capital/statutory surplus or shareholder’s equity of $250,000,000, and (ii) is regularly engaged in the business of making or owning commercial real estate loans (including mezzanine loans, loan participations and loans held through repurchase transactions) or owning or managing interests (either directly or through funds under management) in commercial properties.

“Event of Default” shall mean, with respect to the Loan, an “Event of Default” as defined in the Loan Agreement.

“Exchange Act” shall have the meaning assigned such term in Section 10.

“Goldman” shall have the meaning assigned to that term in the recitals.

“Initial A-1 Lender” shall have the meaning assigned to such term in the recitals.

“Initial A-2 Lender” shall have the meaning assigned to such term in the recitals.

“Initial Lender” shall mean, collectively or individually as the context requires, the Initial A-1 Lender and/or Initial A-2 Lender.

“Initial Securitization” shall mean the Securitization of the A-1 Note.

“Interest Rate” shall mean non-default interest rate of the Loan, as specified in the Loan Documents.

“Lender” shall mean, individually or collectively as the context requires, the A-1 Lender and/or A-2 Lender.

“Loan” shall have the meaning assigned to such term in the recitals.

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“Loan Agreement” shall mean that certain Loan Agreement, dated as of the Origination Date, between Borrower and the Lenders.

“Loan Documents” shall have the meaning assigned to such term in the recitals.

“Master Servicer” shall mean the party responsible for master servicing of the Loan hereunder or under the Pooling Agreement, as applicable.

“Master Servicer Remittance Date” shall have the same meaning as the analogous definition set forth in the Pooling Agreement.

“Monthly Payment Date” shall mean the monthly payment date specified in the Loan Documents.

“Mortgage” shall have the meaning assigned to such term in the recitals.

“Mortgaged Property” shall have the meaning assigned to such term in the recitals.

“Non-Exempt Person” shall have the meaning assigned to such term in Section 23.

“Note” shall mean any of the A-1 Note or the A-2 Note, as applicable.

“Notes” shall have the meaning assigned to such term in the recitals.

“Origination Date” shall have the meaning assigned to such terms in the recitals.

“P&I Advances” shall have the meaning assigned to such term in Section 6.

“Permitted Fund Manager” means any Person that on the date of determination is (i) a nationally-recognized manager of investment funds investing in debt or equity interests relating to commercial real estate, (ii) investing through a fund with committed capital of at least $250,000,000 and (iii) not subject to any existing or future law, case proceeding or other action in any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors.

“Person” shall mean any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Pooling Agreement” shall mean the pooling and servicing agreement, dated as of October 1, 2007, by and among Greenwich Capital Commercial Funding Corp., as depositor, Wachovia Bank, National Association, as master servicer, LNR Partners, Inc., as special servicer and LaSalle Bank National Association, as trustee.

“Pro Rata Portion” shall mean on any date (a) with respect to the A-1 Lender and any amount, the A-1 Lender’s pro rata portion of such amount based upon the ratio between (x) the outstanding A-1 Note Principal Balance, and (y) the sum of the outstanding A-1 Note Principal Balance and A-2 Note Principal Balance, in each case, immediately prior to any distributions on such date, and (b) with respect to the A-2 Lender and any amount, the A-2 Lender’s pro rata portion of such amount based upon the ratio between (x) the

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outstanding A-2 Note Principal Balance and (y) the sum of the outstanding A-1 Note Principal Balance and A-2 Note Principal Balance, in each case, immediately prior to any distributions on such date.

“Qualified Institutional Lender” means (i) any of the Initial Lenders; or (ii) any of the following:

(a) a real estate investment trust, bank, savings and loan association, investment bank, insurance company, trust company, commercial credit corporation, pension plan, pension fund or pension advisory firm, mutual fund, government entity or plan, provided that any such Person referred to in this clause (a) satisfies the Eligibility Requirements;

(b) an investment company, money management firm or “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, as amended, or an institutional “accredited investor” within the meaning of Regulation D under the Securities Act of 1933, as amended, provided that any such Person referred to in this clause (b) satisfies the Eligibility Requirements;

(c) an institution substantially similar to any of the foregoing entities described in clauses (a) or (b) that satisfies the Eligibility Requirements;

(d) any entity Controlled by any of the entities described in clauses (a), (b), or (c) above;

(e) a Qualified Trustee in connection with the creation of mortgage pass-through certificates backed by, or other securitization of (or portion of), the applicable promissory note (or any participation therein) (any such securitization, “CMBS”) or the creation of collateralized debt obligations (“CDO”) secured by or financing through an “owner trust” of (or portion of) the applicable promissory note (or any participation therein) (collectively, “Securitization Vehicles”), so long as with respect to any CMBS securitization, the special servicer is a Qualified Servicer or with respect to any CDO, such CDO is rated by two or more nationally recognized statistical rating organizations; provided that, in the case of a CDO, the operative documents of the related Securitization Vehicle require that the “equity interest” in such CDO is owned by one or more entities that are Qualified Institutional Lenders under clauses (a), (b), (c) or (d) of this definition; or

(f) an investment fund, limited liability company, limited partnership or general partnership where a Permitted Fund Manager or an entity that is otherwise a Qualified Institutional Lender under clauses (a), (b), (c) or (d) of this definition investing through a fund with committed capital of at least $250,000,000 acts as the general partner, managing member or fund manager and at least 50% of the equity interests in such investment vehicle are owned, directly or indirectly, by one or more entities that are otherwise Qualified Institutional Lenders under clauses (a), (b), (c) or (d) of this definition.

For purposes of this definition only, “Control” means the ownership, directly or indirectly, in the aggregate of more than fifty percent (50%) of the beneficial ownership interests of an entity and the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of an entity, whether through the ability to exercise voting power, by contract or otherwise, and “Controlled” and “Controlling” have the meaning correlative thereto.

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“Qualified Servicer” shall mean a servicer that meets the customary criteria for an acceptable master servicer or special servicer, as applicable, in the Pooling Agreement (excluding any consent requirements).

“Qualified Trustee” means (i) a corporation, bank, banking association or a trust company, organized and doing business under the laws of any state or the United States of America, authorized under such laws to exercise corporate trust powers and to accept the trust conferred, having a combined capital and surplus of at least $100,000,000 and subject to supervision or examination by federal or state authority, (ii) an institution whose deposits are insured by the Federal Deposit Insurance Corporation or (iii) an institution whose long-term senior unsecured debt is rated at either of the then in effect top two rating categories of each of the Rating Agencies.

“Rating Agencies” shall mean Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., Moody’s Investors Service, Inc. and Fitch, Inc. or, if any of such entities shall for any reason no longer perform the functions of a securities rating agency, any other nationally recognized statistical rating agency designated by Servicer; provided, however, that at any time during which either the A-1 Note or the A-2 Note is an asset of a Securitization, “Rating Agencies” or “Rating Agency” shall mean the rating agencies that from time to time rate the securities issued in connection with either such Securitization.

“Rating Agency Confirmation” shall mean, at any time that either the A-1 Note or the A-2 Note is an asset of a Securitization, a written confirmation from each Rating Agency that its credit rating of each class of the securities issued under the pooling and servicing agreement or similar agreement to which it has assigned a rating, immediately prior to the occurrence of the event with respect to which such Rating Agency Confirmation is sought, will not be qualified, downgraded or withdrawn as a result of the occurrence of such event, which confirmation may be granted or withheld in such Rating Agency’s sole and absolute discretion.

“REMIC” shall mean a real estate mortgage investment conduit within the meaning of the Code.

“REMIC Provisions” shall mean provisions of the federal income tax law relating to real estate mortgage investment conduits, which appear at Sections 860A through 860G of subchapter M of Chapter 1 of the Code, and related provisions, and regulations (including any applicable proposed regulations) and rulings promulgated thereunder, as the foregoing may be in effect from time to time.

“REO Property” shall mean the Mortgaged Property if title thereto has been acquired on behalf of the A-1 Lender and A-2 Lender through foreclosure, delivery of a deed in lieu of foreclosure or otherwise.

“Securities Act” shall have the meaning assigned to such term in Section 10.

“Securitization” shall mean the transaction pursuant to which the A-1 Lender or the A-2 Lender will transfer the A-1 Note or the A-2 Note, respectively, in connection with a securitization to a trustee pursuant to a pooling and servicing agreement, trust and servicing agreement or similar agreement creating a trust fund which will issue certificates which will, among other things, represent an undivided interest in the A-1 Note or the A-2 Note, as applicable, and one (1) or more other mortgage loans or notes.

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“Securitization Date” shall mean the effective date on which a Securitization is consummated. Unless the context clearly indicates otherwise, references to “the Securitization Date” mean the initial effective date on which the Initial Securitization is consummated.

“Securitization Trust” shall mean the trust formed pursuant to a Securitization pursuant to which either the A-1 Note and/or the A-2 Note is held.

“Servicer” shall mean the Master Servicer or Special Servicer, as applicable, under the Pooling Agreement related to the Initial Securitization.

“Servicing Fee” means the fee of the Master Servicer at the Servicing Fee Rate.

“Servicing Fee Rate” shall mean 0.01% per annum.

“Servicing Transfer Event” shall have the same meaning as the analogous definition set forth in the Pooling Agreement.

“Special Servicer” shall mean the party responsible for special servicing the Loan or any REO Property hereunder or under the Pooling Agreement, as applicable.

“Specially Serviced Loan” shall have the same meaning as the analogous definition set forth in the Pooling Agreement.

“Subsequent Securitization” shall mean each Securitization of all or any portion of the A-2 Note (as same may hereafter be bifurcated into multiple Notes pursuant hereto).

“Subsequent Securitization Note” shall mean the A-2 Note.

“Taxes” shall have the meaning assigned to such term in Section 22.

“Transfer” shall have the meaning assigned such term in Section 13.

2. Payments; Priorities. (a) All payments and receipts in respect of the Loan shall be applied to the Notes on a pro rata and pari passu basis and shall be remitted by Servicer to each Lender one (1) Business Day prior to the Master Servicer Remittance Date (in each case net of such Lender’s Pro Rata Portion of any servicing fees at the Servicing Fee Rate and any Additional Trust Fund Expenses). If the Lenders or their nominee acquire title to the Mortgaged Property, then all amounts derived from the operation and disposition of the Mortgaged Property shall be allocable among the Lenders on a pro rata and pari passu basis.

(b) If and to the extent that any servicer, trustee, fiscal agent or any other third party to a Securitization is, pursuant to the applicable pooling agreement, reimbursed or entitled to be reimbursed pursuant to the applicable pooling agreement for any Additional Trust Fund Expenses relating to the Loan and/or the Mortgaged Property out of amounts otherwise payable in respect of the Notes, the A-1 Lender and the A-2 Lender shall be required to bear their respective Pro Rata Portion of such reimbursement or payment. In connection with the foregoing, if either the A-1 Lender or the A-2 Lender bears more than its respective Pro Rata Portion of any such reimbursement or payment, then the A-1 Lender or the A-2 Lender, as the case may be, shall be entitled to contribution from the other Lender (promptly upon demand), until the contributing A-1 Lender or A-2 Lender, as the case may be,

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has borne its respective Pro Rata Portion of such reimbursement or payment. If any Note is subject to a Securitization, then the related pooling and servicing agreement or other comparable agreement shall provide for payments to be made out of the assets of the related Securitization Trust.

3. Intentionally Omitted.

4. Administration of the Loan Generally.

(a) The Servicer shall administer the Loan in a manner consistent with the terms of this Agreement, the Pooling Agreement (from and after the Securitization Date), the Loan Documents, Accepted Servicing Practices and applicable law.

(b) Upon the consummation of the Securitization of the A-1 Note, A-1 Lender and A-2 Lender acknowledge and agree that the Pooling Agreement will govern the terms of the servicing and administration of the Loan. At any time after a Securitization Date that the A-1 Note is not part of the Securitization Trust, A-2 Lender shall cause the Loan to be serviced by a Qualified Servicer pursuant to a servicing agreement substantially the same as the Pooling Agreement and for which Rating Agency Confirmation (if the A-2 Note is part of a Securitization) has been obtained that contains servicing provisions that do not diminish the rights of the Lenders set forth in the Pooling Agreement and all references herein to the “Pooling Agreement” shall mean such subsequent pooling agreement; provided, however, that until a replacement pooling agreement has been entered into and Rating Agency Confirmation obtained, A-1 Lender shall cause the Loan to be serviced in accordance with Accepted Servicing Practices as if the Pooling Agreement was still in full force and effect with respect to the Loan. Notwithstanding anything to the contrary contained herein, in accordance with the Pooling Agreement, any servicer appointed hereunder shall service and administer the Loan taking into account the interests of the A-1 Lender and the A-2 Lender as a collective whole.

(c) Subject to the terms of this Agreement, Servicer shall have the exclusive right and obligation to administer the Loan on behalf of A-1 Lender and A-2 Lender and to enforce the Loan Documents, and Servicer has the sole and exclusive authority to (i) modify or waive any of the terms of the Loan Documents, (ii) consent to any action or failure to act by the Borrower or any party to the Loan Documents, (iii) vote all claims with respect to the Loan in any bankruptcy, insolvency or similar proceedings, whether voluntary or involuntary including the right to approve or reject any plan of reorganization, and (iv) exercise or refrain from exercising any powers or rights which Servicer may have under the Loan Documents, including, without limitation, the right at any time to accelerate, or refrain from accelerating, the Loan, to foreclose and sell and otherwise deal with the Mortgaged Property, or refrain from foreclosing, selling or otherwise dealing with the Mortgaged Property, and to enforce or refrain from enforcing the Loan Documents. Notwithstanding the foregoing or anything to the contrary in this Agreement, in no event will Servicer be permitted to take any action or refrain from taking any action which would violate any law of any applicable jurisdiction, breach the related Loan Documents, be inconsistent with Accepted Servicing Practices or the REMIC Provisions or violate any provisions of this Agreement or the Pooling Agreement.

(d) The Directing Lender will be entitled to advise the Servicer with respect to the following actions of the Servicer; and, further subject to the provisions of this clause (d), the Pooling Agreement shall not permit the Servicer to take (or, in the case of the Special Servicer, if and when appropriate under the Pooling Agreement, to consent to the Servicer’s taking) any of the following actions unless and until it has notified each Lender in writing and the Directing Lender has not objected

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in writing within 10 Business Days of the Directing Lender having been notified thereof and having been provided with all reasonably requested information with respect thereto (it being understood and agreed that if such written objection has not been received by the Servicer within such 10-Business Day period, then the Directing Lender’s approval will be deemed to have been given):

(i) any proposed or actual foreclosure upon or comparable conversion, which may include acquisition as an REO Property, of the ownership of the Mortgaged Property when the Loan is a Specially Serviced Loan;

(ii) any modification, extension, amendment or waiver of a monetary term, including the timing of payments, or any material non-monetary term (including any prohibition on additional debt or any material term relating to insurance other than a determination to allow the Borrower to maintain insurance with a qualified insurer rated at least “A” from S&P and Fitch and “A2” from Moody’s despite a higher standard in the related loan documents) of the Loan;

(iii) any proposed or actual sale of the Mortgaged Property as an REO Property for less than the unpaid principal balance of the Loan, plus accrued interest (other than default interest) thereon;

(iv) any acceptance of a discounted payoff with respect to the Loan;

(v) any determination to bring the Mortgaged Property as an REO Property, or the Mortgaged Property securing the Loan in default into compliance with applicable environmental laws or to otherwise address hazardous materials located at the Mortgaged Property;

(vi) any release of collateral for the Loan or any release of the Borrower or any guarantor under the Loan, other than in accordance with the terms of the Loan (with no material discretion by the mortgagee), or upon satisfaction of the Loan;

(vii) any acceptance of substitute or additional collateral for the Loan, other than in accordance with the terms of the Loan (with no material discretion by the mortgagee);

(viii) any waiver of a due-on-sale or due-on-encumbrance clause with respect to the Loan;

(ix) any acceptance of an assumption agreement releasing the Borrower or a guarantor from liability under the Loan;

(x) any acceptance of a change in the property management company, subject to certain thresholds set forth in the Pooling Agreement;

(xi) any extension of the maturity date of the Loan;

(xii) any determination by the Special Servicer that a Servicing Transfer Event pursuant to clauses (b), (c) or (d) of the definition of “Specially Serviced Loan” (as defined in the Pooling Agreement) has occurred; and

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(xiii) any determination by the Special Servicer that a Servicing Transfer Event has occurred with respect to the Loan solely by reason of the failure of the Borrower to maintain or cause to be maintained insurance coverage against damages or losses arising from acts of terrorism;

provided that, in the event that the Servicer determines that immediate action is necessary to protect the interests of the A-1 Lender and the A-2 Lender (as a collective whole), the Servicer may take (or, in the case of the Special Servicer, if and when appropriate under the Pooling Agreement, may consent to the Servicer’s taking) any such action without waiting for the Directing Lender’s response.

Notwithstanding anything herein to the contrary, no advice, direction or objection from or by the Directing Lender may (and the Servicer shall ignore and act without regard to any such advice, direction or objection that the Servicer has determined, in its reasonable, good faith judgment, will) require, cause or permit the Servicer to violate any provision of this Agreement or the Pooling Agreement (including the Servicer’s obligation to act in accordance with Accepted Servicing Practices, the Loan Documents or applicable law) or result in an adverse REMIC event or an adverse Grantor Trust event. Furthermore, the Servicer shall not be obligated to seek approval from the Directing Lender for any actions to be taken by the Servicer with respect to the workout or liquidation of the A-1 Note or the A-2 Note if:

(i) the Servicer has, as provided in the first paragraph of this clause (d), notified the Directing Lender in writing of various actions that the Servicer proposes to take with respect to the workout or liquidation of the A-1 Note or the A-2 Note; and

(ii) for 60 days following the first such notice, the Directing Lender has objected to all of those proposed actions and has failed to suggest any alternative actions that the Servicer considers to be consistent with the Accepted Servicing Practices.

The Directing Lender may designate, in writing, a representative, including itself, to exercise its rights and powers under this Section or otherwise under this Agreement and the Pooling Agreement (copies of such writing to be delivered to each of the parties to the Pooling Agreement). Such designation shall remain in effect until it is revoked by the Directing Lender by a writing delivered to the other Lender and each of the parties to the Pooling Agreement. In the absence of any such designation, after the Securitization of the A-1 Note, the Directing Lender shall be deemed to have designated the controlling class representative under such Securitization

(e) The Directing Lender shall have the right at any time from time to time to terminate the then existing Special Servicer with respect to the Loan, but only for cause, and following any termination or resignation of the Special Servicer the Directing Lender shall have the right to appoint a successor Special Servicer that is a Qualified Servicer; provided that any appointment of a Special Servicer by the Directing Lender or its designee shall be subject to the terms and conditions of the Pooling Agreement, including, without limitation, the requirement that the Directing Lender or its designee desiring to effect such appointment obtain and deliver to the trustee Rating Agency Confirmation with respect thereto.

(f) In the event that the A-2 Note becomes subject to a Securitization, on or before March 15th of each year during which a Form 10-K is required to be filed by the trustee of the Securitization related to such Note, the Pooling Agreement shall require each of the Master Servicer, Special Servicer and Trustee of the Pooling Agreement to, upon 30 days written request, provide (and

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to cause any applicable sub-servicers, sub-contractors, agents and vendors to timely provide) to the Person who executes the Sarbanes-Oxley certification with respect to the Securitization of the A-2 Note, in each case upon which such Person can rely, (i) any Sarbanes-Oxley backup certification as is reasonably required in the market and pursuant to the applicable Pooling Agreement, (ii) all disclosure information required to be included in any offering document under Items 1108, 1117, and 1119 of Regulation AB and any other applicable Items of Regulation AB under the ‘33 Act, and required to be included in any report required under the Exchange Act related to the Subsequent Securitization and (iii) the assessment and attestation of servicing compliance as required under Item 1122 and the servicer compliance statement as required under Item 1123. Notwithstanding the foregoing, each Servicer of the A-1 Note shall be required to provide (a) all necessary information, certificates, attestations, letters and other materials and/or (b) all reasonable cooperation necessary to enable the A-2 Lender to comply with the reporting requirements relating to servicing disclosure under the Exchange Act and/or the Securities Act (including without limitation, if applicable Regulation AB), as the case may be, at such times as the related Securitization Trust is subject to such requirements.

(g) If any event of default on the part of the Master Servicer occurs under the Pooling Agreement that materially and adversely affects the Lender of the A-2 Note or any Securities backed by the A-2 Note, and the Master Servicer is not otherwise terminated in accordance with the terms of such Agreement, then such Master Servicer may not be terminated by or at the direction of the A-2 Note; provided that in such event, at the request of such Lender of the A-2 Note, the trustee of the Securitization Trust containing the A-1 Note shall require such Master Servicer to appoint, within 30 days of such trustee’s request, a sub-servicer mutually agreed by the Lenders with respect to the Notes, such appointment or replacement to be effected in accordance with the terms and provisions of such Agreement (which shall include the delivery of Rating Agency Confirmation with respect thereto).

(h) Each of the Master Servicer and the Special Servicer under the Pooling Agreement shall afford to the A-2 Lender access to any records relating to the Notes in its possession as such Lender may reasonably request, except to the extent it is prohibited from doing so by applicable law or contract or to the extent such information is subject to a privilege under applicable law to be asserted on behalf of the certificateholders of the Securitization related to the A-1 Note or the Lenders. Such access shall be afforded only upon reasonable prior written request and during normal business hours at the offices of the Master Servicer or the Special Servicer, as the case may be, designated by it.

(i) If the A-2 Note is included in a rated commercial mortgage securitization, and if any particular servicing action with respect to the Notes or any REO Property requires Rating Agency Confirmation in connection therewith under any provision of the related pooling agreement, then the related master servicer or special servicer under such pooling agreement shall likewise obtain a similar confirmation of ratings from any applicable Rating Agency with respect to any securities backed by the A-2 Note (including any Rating Agency rating the Securitization of the A-2 Note that does not rate the Securitization of the A-1 Note).

(j) Any amendments to the Pooling Agreement that have a material adverse effect on the A-2 Note shall require either (i) a Rating Agency Confirmation from the Rating Agencies rating such Note’s Securitization or (ii) if such Note is not held by any Securitization, the consent of the Lender of such Note, as applicable.

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(k) The Lender holding the A-2 Note (and those designees thereof acting on behalf of exercising the rights of such Lender) shall be third-party beneficiaries to the Pooling Agreement with respect to their rights as specifically provided for herein.

(l) Notwithstanding any modification of the Loan in connection with a workout, any reduction in payments under the Loan shall apply to the A-1 Note and the A-2 Note on a pro rata basis in accordance with the A-1 Note Principal Balance and the A-2 Note Principal Balance, respectively.

5. Advances.

(a) If Servicer, any trustee or trust fund incurs any liabilities, costs, fees or expenses (including, without limitation, legal fees and special servicing fees), or makes any protective or other property advances on behalf of the Borrower or other servicing and/or property advances, together with interest on any such advances (such advances and interest thereon, collectively, “Advances”) in connection with the Loan, any actual or proposed amendment or waiver of any term thereof or restructuring or refinancing thereof or with any effort to enforce or protect A-1 Lender’s or A-2 Lender’s rights or interests with respect thereto, then Servicer shall be reimbursed promptly from payments otherwise distributable to such Lenders in accordance with Section 2(a) hereof, to the extent such costs are not reimbursed by or on behalf of the Borrower. Except to the extent set forth in the immediately succeeding two sentences, no Lender shall have any liability under this Section in excess of the value of its respective Note or in excess of the payments due to such Lender. The pooling and servicing agreement governing the A-2 Note may provide for the servicing party and/or trustee and/or fiscal agent thereunder to make Advances if such advances are not made under the Pooling Agreement, in which case the party making such Advances shall be entitled to reimbursement in the same manner as if the Advance were made by Servicer. After the Securitization Date, if the A-2 Note has not been included in a Securitization, any nonrecoverable Advances with respect to the Loan shall be reimbursed to the Servicer out of general collections on the loan for the A-1 Note and from the A-2 Lender on a pro rata basis based on the A-1 Note Principal Balance and the A-2 Note Principal Balance. If both A-1 Note and A-2 Note have been included in Securitization Trusts, under the pooling and servicing agreement related to the A-2 Lender, the master servicer, special servicer, trustee or fiscal agent, as applicable, under such pooling and servicing agreement shall be required to reimburse the Servicer from general collections on the loans included in such Securitization Trust for the related Note’s portion of nonrecoverable Advances made with respect to the Loan, such portion to be determined on a pro rata basis based on the A-1 Note Principal Balance and the A-2 Note Principal Balance.

6. The Servicer and/or the servicer of the A-2 Note may have obligations to make principal and/or interest advances (such advances, including interest thereon, collectively “P&I Advances”) under any applicable pooling and servicing agreements, but the Servicer shall not make P&I Advances with respect to the A-2 Note and the servicer of the A-2 Note shall not make P&I Advances with respect to the A-1 Note. P&I Advances made by the Servicer or any other party with respect to the A-1 Note shall be reimbursed solely out of amounts allocable to the A-1 Note and/or, to the extent permitted by the Pooling Agreement, out of other amounts in the Securitization Trust for the Securitization of the A-1 Note. P&I Advances made by the A-2 Lender or any other party with respect to the A-2 Note shall be reimbursed solely out of amounts allocable to the A-2 Note and/or, to the extent permitted by the applicable pooling and servicing agreement, out of other amounts in the Securitization Trust for the Securitization of the A-2 Note.

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7. Limitation on Liability. Except as otherwise provided in the Pooling Agreement, no party nor any of its directors, officers, employees or agents, or any controlling person thereof, shall have any liability with respect to any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement or the Pooling Agreement, or for errors in judgment; provided that this provision shall not protect any party against any breach of a representation, warranty or covenant contained herein or any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or negligence in its performance of its duties or by reason of reckless disregard for its obligations and duties under this Agreement or the Pooling Agreement. Except as otherwise provided under the Pooling Agreement, Servicer, and any director, officer, employee or agent of Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. Except as otherwise provided under the Pooling Agreement, Servicer shall not be under any obligation to appear in, prosecute or defend any legal action or threatened legal action which is not incidental to its duties to service the Loan in accordance with this Agreement or the Pooling Agreement. In such event, all legal expenses and costs of such action shall be Advances, and Servicer shall be entitled to be reimbursed therefor as such.

8. Intentionally Omitted.

9. Intentionally Omitted.

10. Not a Security. The Notes shall not be deemed to be securities within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. Each Note represents a separate debt obligation of the Borrower.

11. No Creation of a Partnership or Exclusive Purchase Right. Nothing contained in this Agreement, and no action taken pursuant hereto, shall be deemed to constitute the arrangement between A-1 Lender and A-2 Lender as a partnership, association, joint venture or other entity.

12. Termination. This Agreement shall terminate (except for such rights as are expressly provided to survive this Agreement) upon full and final payment of all amounts due under the Notes.

13. Transfers. No Lender shall Transfer all or any interest in the Loan to the Borrower or an Affiliate thereof, and any such Transfer shall be void ab initio. No Lender shall Transfer more than forty-nine percent (49%) in the aggregate of its respective interest in the Loan to any Person that is not a Qualified Institutional Lender. Upon the consummation of a Transfer of all or any portion of the Loan, the transferring Lender shall be released from all liability arising under this Agreement with respect to such interest (or the portion thereof that was the subject of such Transfer) for the period after the effective date of such Transfer, provided that the transferee (other than the trustee of, and the securityholders with respect to, a Securitization Trust) expressly assumes in writing all such liabilities arising from and after such transfer. In addition, notwithstanding any other provision hereof, any Lender may pledge, or sell in a repurchase transaction, all or any portion of its interest in the Loan to a Qualified Institutional Lender or to a financial institution whose long-term unsecured debt is rated at least “A” (or the equivalent) or better by each Rating Agency.

14. Other Business Activities of A-1 Lender and A-2 Lender. Each Lender acknowledges that each other Lender and its respective affiliates may make loans or otherwise extend credit to, and generally engage in any kind of business with any Affiliate of the Borrower (“Borrower

13

Related Parties”), and receive payments on such other loans or extensions of credit to Borrower Related Parties and otherwise act with respect thereto freely and without accountability in the same manner as if this Agreement and the transactions contemplated hereby were not in effect.

15. Governing Law; Waiver of Jury Trial. The parties agree that the State of New York has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects, including, without limitation, matters of construction, validity and performance, this Agreement and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such State and any applicable law of the United States of America. Each party hereto hereby submits to the jurisdiction of the Courts of the State of New York and the United States District Court of the Southern District of New York for the purpose of resolution of any and all actions brought hereunder. Each party hereby irrevocably waives any objections, including without limitation any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any such action or proceeding in any such jurisdiction. Each of the parties hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement.

16. Modification, Waiver in Writing. This Agreement shall not be modified, cancelled or terminated except by an instrument in writing signed by the parties hereto. The party seeking modification of this Agreement shall be solely responsible for any and all expenses that may arise in order to modify this Agreement. A-1 Lender and A-2 Lender shall not amend or modify this Agreement after the Securitization Date without first receiving (a) Rating Agency Confirmation, except for a modification (i) to cure any ambiguity, to correct or supplement any provision herein that may be defective or inconsistent with any other provisions herein or with the Pooling Agreement, or (ii) to make other provisions with respect to matters or questions arising under this Agreement, which shall not be inconsistent with the provisions of this Agreement and (b) an opinion of counsel experienced in REMIC matters that such amendment or modification will not adversely affect the REMIC status of the Loan and this Agreement.

17. Successors and Assigns; Third Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the parties hereto, Servicer and their respective successors and permitted assigns. Except as provided in the immediately preceding sentence, none of the provisions of this Agreement shall be for the benefit of or enforceable by any Person not a party hereto.

18. Custody of Loan Documents. The originals of all of the Loan Documents (other than the A-2 Note) will be held initially by the Servicer (or a trustee or custodian) on behalf of the Lenders.

19. Reports. Servicer shall, to the extent not already available to the A-2 Lender, provide such information as is available pursuant to standard CMSA reports meeting existing industry standards.

20. Enforcement of Loan Documents. Notwithstanding any other provision herein, but subject to Sections 4(a)(i), 4(j) and 4(f), each Lender agrees and acknowledges that Servicer, acting in accordance with the terms of this Agreement, shall have the sole authority to take any actions under the terms of any insurance policies relating to the Loan (including without limitation, any environmental insurance policy) and to enforce the terms of, and to exercise any and all rights of the Lenders under, the

14

Loan Documents. In servicing and administering the Loan, Servicer shall, in accordance with Accepted Servicing Practices, use reasonable efforts to enforce the terms of the Loan Documents relating to insurance policies and shall take such actions as it deems appropriate, in accordance with Accepted Servicing Practices and the terms of this Agreement, with respect to the enforcement of such policies, except as otherwise provided in the Pooling Agreement.

21. Costs and Expenses. Servicing Fees and Additional Trust Fund Expenses will be netted against payment and proceeds of the Loan prior to payments to A-1 Lender or A-2 Lender in accordance with the provisions of Section 2. If any amounts netted out of payments to A-1 Lender and A-2 Lender are subsequently recovered (whether from the Borrower, as part of liquidation proceeds or otherwise), Servicer shall promptly distribute each Lender’s Pro Rata Portion of such amounts to the applicable Lender in immediately available funds.

22. Withholding Taxes. (a) If Servicer or the Borrower shall be required by law to deduct and withhold Taxes (as hereinafter defined) from interest, fees or other amounts payable to A-1 Lender or A-2 Lender with respect to the Loan as a result of such Lender constituting a Non-Exempt Person (as hereinafter defined), Servicer shall be entitled to do so with respect to such Lender’s interest in such payment (all withheld amounts being deemed paid to A-1 Lender and A-2 Lender, respectively), provided that Servicer shall furnish A-1 Lender and A-2 Lender with a statement setting forth the amount of Taxes withheld, the applicable rate and other information which may reasonably be requested for the purposes of assisting A-1 Lender and A-2 Lender to seek any allowable credits or deductions for the Taxes so withheld in each jurisdiction in which A-1 Lender and A-2 Lender are subject to tax.

(b) A “Non-Exempt Person” is any Person other than a Person who is either (i) a United States Person or (ii) has on file with Servicer for the relevant year such duly-executed form(s) or statement(s) which may, from time to time, be prescribed by law and which, pursuant to applicable provisions of (A) any income tax treaty between the United States and the country of residence of such Person, (B) the Code or (C) any applicable rules or regulations in effect under the items described in clauses (A) or (B) above, permit Servicer to make such payments free of any obligation or liability for withholding. For the purposes of this Section, “Taxes” shall mean any income or other taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature, now or hereafter imposed by any jurisdiction or by any department, agency, state or other political subdivision thereof or therein.

(c) Each of A-1 Lender and A-2 Lender shall and hereby agrees to severally indemnify Servicer against and hold Servicer harmless from and against any Taxes, interest, penalties and attorneys’ fees and disbursements arising or resulting from any failure of Servicer to withhold Taxes from payment made to A-1 Lender or A-2 Lender, as the case may be, in reliance upon any representation, certificate, statement, document or instrument made or provided by A-1 Lender or A-2 Lender, as the case may be, to Servicer in connection with the obligation of Servicer to withhold Taxes from payments made to A-1 Lender or A-2 Lender, as the case may be, it being expressly understood and agreed that (i) Servicer shall be absolutely and unconditionally entitled to accept any such representation, certificate, statement, document or instrument as being true and correct in all respects and to fully rely thereon without any obligation or responsibility to investigate or to make any inquiries with respect to the accuracy, veracity, correctness or validity of the same and (ii) the A-1 Lender or the A-2 Lender shall, upon request of Servicer and at its sole cost and expense, defend any claim or action relating to the foregoing indemnification by A-1 Lender or A-2 Lender, as the case may be, with counsel selected by Servicer.

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23. Change in Structure. If, in connection with a Securitization, any Lender determines that it is advantageous to restructure its Note as a senior/subordinated participation or bifurcate its Note into a senior note and one or more subordinate notes, or two or more pari-passu notes, each Lender agrees that it shall, upon request, execute a participation agreement, co-lender agreement and/or such other documents requested by the other Lender to reflect such structural change; provided, such new documentation does not materially alter the substantive terms of the relationship between A-1 Lender and A-2 Lender or the rights of the A-1 Lender or A-2 Lender with respect to the servicing of the Loan set forth herein, and provided, further, that no Lender whose Note is in a Securitization shall be obligated to execute any of the foregoing without receipt of Rating Agency Confirmation and an opinion of counsel experienced in REMIC matters that such amendment or modification will not adversely affect the REMIC status of the Loan. The Lender requesting such change shall reimburse the other Lender for all reasonable costs and expenses incurred by such other Lender (including, without limitation, all reasonable attorneys’ fees and disbursements, search fees and other out-of-pocket expenses) in complying with such other Lender’s request under this Section 23. Nothing herein shall prevent any Lender from replacing its Note with multiple Notes.

24. [Intentionally Omitted].

25. Counterparts. This Agreement may be executed in any number of counterparts and all of such counterparts shall together constitute one and the same instrument.

26. Captions. The titles and headings of the paragraphs of this Agreement have been inserted for convenience of reference only and are not intended to summarize or otherwise describe the subject matter of the paragraphs and shall not be given any consideration in the construction of this Agreement.

27. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable laws, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

28. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter contained in this Agreement and supersedes all prior agreements, understandings and negotiations between the parties.

29. Notices. All notices, consents, approvals and requests required or permitted hereunder shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) hand delivery, with proof of attempted delivery, (b) certified or registered United States mail, postage prepaid, (c) expedited delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) by telecopier (with answerback acknowledged) provided that such telecopied notice must also be delivered by one of the means set forth in (a), (b) or (c) above, addressed if to A-1 Lender at its address set forth on the first page hereof, if to A-2 Lender at its address set forth on the first page hereof or, in the case of either Lender, at such other address and to the attention of such other Person as shall be designated from time to time by any party hereto, in a written notice to the other party hereto in the manner provided for in this Section 28. A copy of all notices, consents, approvals and requests directed to A-2 Lender or A-1 Lender shall be delivered concurrently to each Person (not to exceed four (4) in the aggregate) designated by the A-1 Lender and the A-2 Lender. A notice shall

16

be deemed to have been given: (a) in the case of hand delivery, at the time of delivery; (b) in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; (c) in the case of expedited prepaid delivery upon the first attempted delivery on a Business Day; or (d) in the case of telecopier, upon receipt of answerback confirmation, provided that such telecopied notice was also delivered as required in this Section 28. A party receiving a notice which does not comply with the technical requirements for notice under this Section 28 may elect to waive any deficiencies and treat the notice as having been properly given.

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IN WITNESS WHEREOF, Initial A-1 Lender and Initial A-2 Lender have caused this Agreement to be duly executed as of the day and year first above written.

GOLDMAN SACHS MORTGAGE COMPANY,
as Initial A-1 Lender
By:	/s/ Mark J. Buono
	Name: Mark J. Buono Title: Vice President
GOLDMAN SACHS MORTGAGE COMPANY, as Initial A-2 Lender
By:	/s/ Mark J. Buono
	Name: Mark J. Buono Title: Vice President

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EX-10.36

Exhibit 10.36

LOAN AGREEMENT

Dated as of August 8, 2007

between

BFP ONE LIBERTY PLAZA CO. LLC,

as Borrower,

and

GOLDMAN SACHS COMMERCIAL MORTGAGE CAPITAL, L.P.,

as Lender

TABLE OF CONTENTS

		Page
DEFINITIONS		1
ARTICLE I GENERAL TERMS
Section 1.1.	The Loan	22
Section 1.2.	Interest and Principal	22
Section 1.3.	Method and Place of Payment	24
Section 1.4.	Taxes	24
Section 1.5.	Release	25
ARTICLE II
DEFEASANCE AND ASSUMPTION
Section 2.1.	Defeasance	25
Section 2.2.	Assumption	27
ARTICLE III ACCOUNTS
Section 3.1.	Cash Management Account	28
Section 3.2.	Distributions from Cash Management Account	28
Section 3.3.	Intentionally Omitted	29
Section 3.4.	Tax and Insurance Escrow Account	29
Section 3.5.	TI/LC Reserve Account	30
Section 3.6.	Replacement Reserve Account	31
Section 3.7.	Intentionally Omitted.	32
Section 3.8.	Loss Proceeds Account	32
Section 3.9.	Unfunded Obligations Account	32
Section 3.10.	Account Collateral	34
Section 3.11.	Permitted Investments	34
Section 3.12.	Bankruptcy	34
ARTICLE IV REPRESENTATIONS AND WARRANTIES
Section 4.1.	Organization	35
Section 4.2.	Authorization	35
Section 4.3.	No Conflicts	35
Section 4.4.	Consents	35
Section 4.5.	Enforceable Obligations	36
Section 4.6.	No Default	36
Section 4.7.	Payment of Taxes	36
Section 4.8.	Compliance with Law	36
Section 4.9.	ERISA	36
Section 4.10.	Government Regulation	36

i

Section 4.11.	No Bankruptcy Filing	36
Section 4.12.	Other Debt	37
Section 4.13.	Litigation	37
Section 4.14.	Leases; Material Agreements	37
Section 4.15.	Full and Accurate Disclosure	37
Section 4.16.	Financial Condition	38
Section 4.17.	Single-Purpose Requirements	38
Section 4.18.	Location of Chief Executive Offices	38
Section 4.19.	Not Foreign Person	38
Section 4.20.	Labor Matters	38
Section 4.21.	Title	38
Section 4.22.	No Encroachments	38
Section 4.23.	Physical Condition	39
Section 4.24.	Solvency	39
Section 4.25.	Management	39
Section 4.26.	Condemnation	39
Section 4.27.	Utilities and Public Access	39
Section 4.28.	Environmental Matters	40
Section 4.29.	Assessments	41
Section 4.30.	No Joint Assessment	41
Section 4.31.	Separate Lots	41
Section 4.32.	Permits; Certificate of Occupancy	41
Section 4.33.	Flood Zone	41
Section 4.34.	Security Deposits	41
Section 4.35.	Intentionally Omitted.	41
Section 4.36.	Acquisition Documents	41
Section 4.36.	Insurance	42
Section 4.37.	Use of Proceeds	42
Section 4.38.	IDA Lease	42
Section 4.39.	Embargoed Person	42
Section 4.40.	Compliance with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering Laws	43
Section 4.41.	Survival	43
ARTICLE V AFFIRMATIVE COVENANTS
Section 5.1.	Existence	43
Section 5.2.	Maintenance of Property; Compliance with Legal Requirements	43
Section 5.3.	Impositions and Other Claims	44
Section 5.4.	Access to Property	44
Section 5.5.	Notice of Default	44
Section 5.6.	Litigation	44
Section 5.7.	Cooperate in Legal Proceedings	44
Section 5.8.	Leases	45
Section 5.9.	Plan Assets, etc.	46
Section 5.10.	Further Assurances	46

ii

Section 5.11.	Management of Collateral	47
Section 5.12.	Annual Financial Statements	47
Section 5.13.	Quarterly Financial Statements	48
Section 5.14.	Monthly Financial Statements	49
Section 5.15.	Insurance	49
Section 5.16.	Casualty and Condemnation	52
Section 5.17.	Annual Budget	54
Section 5.18.	General Indemnity	54
Section 5.19.	Nonbinding Consultation	55
Section 5.20.	Compliance with Encumbrances	55
ARTICLE VI NEGATIVE COVENANTS
Section 6.1.	Liens on the Property	55
Section 6.2.	Ownership	56
Section 6.3.	Transfer	56
Section 6.4.	Debt	56
Section 6.5.	Dissolution; Merger or Consolidation	56
Section 6.6.	Change In Business	56
Section 6.7.	Debt Cancellation	56
Section 6.8.	Affiliate Transactions	56
Section 6.9.	Misapplication of Funds	56
Section 6.10.	Place of Business	56
Section 6.11.	Modifications and Waivers	56
Section 6.12.	ERISA	57
Section 6.13.	Alterations and Expansions	57
Section 6.14.	Advances and Investments	57
Section 6.15.	Single-Purpose Entity	57
Section 6.16.	Zoning and Uses	57
Section 6.17.	Waste	58
ARTICLE VII DEFAULTS
Section 7.1.	Event of Default	58
Section 7.2.	Remedies	60
Section 7.3.	No Waiver	61
Section 7.4.	Application of Payments after an Event of Default	61
ARTICLE VIII CONDITIONS PRECEDENT
Section 8.1.	Conditions Precedent to Closing	61
ARTICLE IX MISCELLANEOUS
Section 9.1.	Successors	64
Section 9.2.	GOVERNING LAW	64

iii

Section 9.3.	Modification, Waiver in Writing	65
Section 9.4.	Notices	65
Section 9.5.	TRIAL BY JURY	66
Section 9.6.	Headings	66
Section 9.7.	Assignment and Participation	66
Section 9.8.	Severability	68
Section 9.9.	Preferences	68
Section 9.10.	Remedies of Borrower	68
Section 9.11.	Offsets, Counterclaims and Defenses	68
Section 9.12.	No Joint Venture	68
Section 9.13.	Conflict; Construction of Documents	68
Section 9.14.	Brokers and Financial Advisors	69
Section 9.15.	Counterparts	69
Section 9.16.	Estoppel Certificates	69
Section 9.17.	Payment of Expenses; Mortgage Recording Taxes	69
Section 9.18.	No Third-Party Beneficiaries	70
Section 9.19.	Recourse	70
Section 9.20.	Right of Set-Off	71
Section 9.21.	Exculpation of Lender	71
Section 9.22.	Servicer	72
Section 9.23.	Prior Agreements	72

iv

Exhibits
Exhibit A	Form of Tenant Notice
Exhibit B	Form of Cash Management Agreement
Schedules
Schedule A	Property
Schedule B	Exception Report
Schedule C	Nonconsolidation Opinion
Schedule D	Unfunded Obligations
Schedule E	Rent Roll
Schedule F	Material Agreements
Schedule G	Pre-Approved Cash Management Banks

v

LOAN AGREEMENT

THIS LOAN AGREEMENT, dated as of August 8, 2007, is between GOLDMAN SACHS COMMERCIAL MORTGAGE CAPITAL, L.P., a Delaware limited partnership, as lender, as lender (together with its successors and assigns, including any lawful holder of any portion of the Indebtedness, as hereinafter defined, “Lender”), and BFP ONE LIBERTY PLAZA CO. LLC, a Delaware limited liability company, as borrower (together with its permitted successors and assigns, “Borrower”).

RECITALS

WHEREAS, Borrower desires to obtain from Lender the Loan (as hereinafter defined) in connection with the financing of the property known as One Liberty Plaza; and

WHEREAS, Lender is willing to make the Loan on the terms and conditions hereof if Borrower joins in the execution and delivery of this Agreement, issues the Note and executes and delivers the other Loan Documents which shall establish the terms and conditions of the Loan;

NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, the parties hereby covenant, agree, represent and warrant as follows:

DEFINITIONS

(a) When used herein, the following capitalized terms shall have the following meanings:

“Account Collateral” means, collectively, the Collateral Accounts and all sums at any time held, deposited or invested therein, together with any interest or other earnings thereon, and all proceeds thereof (including proceeds of sales and other dispositions), whether accounts, general intangibles, chattel paper, deposit accounts, instruments, documents or securities.

“Affiliate” of any specified Person means any other Person controlling, controlled by or under common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities or other beneficial interests (determined in a manner analogous to the method for determining beneficial ownership under Rule 13d-3 under the Securities Exchange Act of 1934, as amended), by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Agreement” means this Loan Agreement, as the same may from time to time hereafter be modified or replaced.

“Alteration” means any demolition, alteration, installation, improvement or expansion of or to the Property or any portion thereof, other than Tenant Improvements required under Leases.

“Annual Budget” means a capital and operating expenditure budget for the Property prepared by Borrower, which shall include amounts sufficient to operate and maintain the Property at a standard at least equal to that maintained on the date hereof.

“Appraisal” means an as-is appraisal of the Property prepared by a member of the American Institute of Real Estate Appraisers selected by Lender, which appraisal shall meet the minimum appraisal standards for national banks promulgated by the Comptroller of the Currency pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (FIRREA) and shall comply with the Uniform Standards of Professional Appraisal Practice (USPAP).

“Approved Annual Budget” has the meaning set forth in Section 5.17.

“Approved Management Agreement” means that certain Management and Leasing Agreement, dated as of January 31, 2001, between Borrower and Brookfield Financial Properties, L.P., as such agreement may be modified or replaced (subject to Lender’s prior written consent in the case of any modification or replacement that would have the effect of increasing the fees payable thereunder or otherwise have a material adverse effect on Lender or Borrower), and any other management agreement with respect to which Lender receives Rating Confirmation and which provides that it may be terminated by Borrower without fee or penalty on not less than 30 days’ prior written notice.

“Approved Property Manager” means (i) Brookfield Financial Properties, L.P., (ii) any other management company Controlled by BPC, or (iii) any other reputable management company having at least five years’ experience in the management of commercial office properties in New York City that is reasonably approved by Lender and with respect to which Lender receives Rating Confirmation, in each case unless and until Lender requests the termination of such management company during the continuance of an Event of Default pursuant to Section 5.11(d).

“Assignment” has the meaning set forth in Section 9.7(b).

“Assignment of Contracts” means the collateral assignment of contracts, licenses, permits, agreements, warranties and approvals executed by Borrower on the date hereof, as the same may from time to time be modified or replaced in accordance herewith.

“Assignment of Rents and Leases” means the assignment of rents and leases executed by Borrower on the date hereof, as the same may from time to time be modified or replaced in accordance herewith.

“Assumption” has the meaning set forth in Section 2.2.

“Bankruptcy Code” has the meaning set forth in Section 7.1(d).

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“Borrower” has the meaning provided in the first paragraph of this agreement.

“BPC” means Brookfield Properties Corporation, an Ontario corporation.

“Business Day” means any day other than (i) a Saturday and a Sunday and (ii) a day on which federally insured depository institutions in the State of New York or the state in which the offices of Lender, its trustee, its Servicer or its Servicer’s collection account are located are authorized or obligated by law, governmental decree or executive order to be closed.

“Capital Expenditure” means hard and soft costs incurred by Borrower with respect to replacements and capital repairs made to the Property (including repairs to, and replacements of, structural components, roofs, building systems, parking garages and parking lots), in each case to the extent capitalized in accordance with GAAP.

“Cash Management Account” has the meaning set forth in Section 3.1(a).

“Cash Management Agreement” means a cash management agreement in substantially the form of Exhibit B, as the same may from time to time be modified or replaced in accordance herewith.

“Cash Management Bank” means any depository institution selected by Lender from time to time in which Eligible Accounts may be maintained. Any selection by Lender of a Cash Management Bank that is not a Pre-Approved Cash Management Bank shall be subject to Borrower’s prior approval, not to be unreasonably withheld, conditioned or delayed.

“Casualty” means a fire, explosion, flood, collapse or other casualty affecting all or any portion of the Property.

“Certificates” means, collectively, any senior and/or subordinate notes, debentures or pass-through certificates, or other evidence of indebtedness, or debt or equity securities, or any combination of the foregoing, representing a direct or beneficial interest, in whole or in part, in the Loan.

“Change of Control” means the failure of Borrower to be Controlled by one or more Qualified Equityholders (individually or collectively).

“Cleary Reserve” has the meaning set forth in Section 3.9(a).

“Closing Date” means the date hereof.

“Code” means the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

“Collateral” means all assets owned from time to time by Borrower including the Property, the Revenues and all other tangible and intangible property (including any Defeasance Collateral) in respect of which Lender is granted a Lien under the Loan Documents, and all proceeds thereof.

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“Collateral Accounts” means, collectively, the Cash Management Account, the Tax and Insurance Escrow Account, the TI/LC Reserve Account, the Loss Proceeds Account, the Replacement Reserve Account, the Unfunded Obligations Account, the Cleary Reserve, and any Defeasance Collateral Account (as defined in the Defeasance Pledge Agreement).

“Commercially Reasonable” means, with respect to the terms and conditions of any proposed Lease, commercially reasonable when compared with terms and conditions of Leases in similarly situated properties in similar contexts at the time in question, taking into account, inter alia, the size, creditworthiness and bargaining power of a prospective Tenant.

“Condemnation” means a taking or voluntary conveyance of all or part of the Property or any interest therein or right accruing thereto or use thereof, as the result of, or in settlement of, any condemnation or other eminent domain proceeding by any Governmental Authority.

“Contingent Obligation” means any obligation of Borrower directly or indirectly guaranteeing any Debt of any other Person in any manner and any contingent obligation to purchase, to provide funds for payment, to supply funds to invest in any other Person or otherwise to assure a creditor against loss.

“Control” of any entity means the ownership, directly or indirectly, of more than 51% of the equity interests in, and rights to distribution from, such entity and the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such entity, whether through the ability to exercise voting power, by contract or otherwise (“Controlled” has the meaning correlative thereto).

“Cooperation Agreement” means that certain Mortgage Loan Cooperation Agreement, dated as of the date hereof, among Borrower, Lender and Sponsor, as the same may from time to time be modified or replaced in accordance herewith.

“Damages” to a party means any and all liabilities, obligations, losses, damages, penalties, assessments, actions, judgments, suits, claims, costs, expenses (including reasonable attorneys’ fees whether or not suit is brought), settlement costs and disbursements imposed on, incurred by or asserted against such party.

“Debt” means, with respect to any Person, without duplication:

(i) all indebtedness of such Person to any other party, including indebtedness for borrowed money or for the deferred purchase price of property or services;

(ii) all letters of credit issued for the account of such Person and all unreimbursed amounts drawn thereunder;

(iii) all indebtedness secured by a Lien on any property owned by such Person (whether or not such indebtedness has been assumed) except obligations for impositions which are not yet due and payable;

(iv) all Contingent Obligations of such Person;

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(v) all payment obligations of such Person under any interest rate protection agreement (including any interest rate swaps, floors, collars or similar agreements) and similar agreements; and

(vi) all contractual indemnity obligations of such Person.

“Default” means the occurrence and uncured continuance of any event which, but for the giving of notice or the passage of time, or both, would be an Event of Default.

“Default Rate” means, with respect to any Note, the greater of (x) 3% per annum in excess of the interest rate otherwise applicable to such Note hereunder and (y) 1% per annum in excess of the Prime Rate from time to time.

“Defeasance Borrower” has the meaning set forth in Section 2.1(b).

“Defeasance Collateral” means (x) non-callable AAA-rated United States securities backed by the full faith and credit of the U.S. government, or (y) non-callable AAA-rated “Government Securities” as defined in Section 2(a)(16) of the Investment Company Act of 1940, as amended.

“Defeasance Pledge Agreement” has the meaning set forth in Section 2.1(a)(iii).

“Defease” means to deliver Defeasance Collateral as substitute Collateral for the Loan in accordance with Section 2.1; and the terms “Defeased” and “Defeasance” have meanings correlative to the foregoing.

“Easement Areas” has the meaning set forth in Section 4.27.

“Eligible Account” means (i) a segregated account maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution, or (ii) a segregated trust account or accounts maintained with the corporate trust department of a federal depository institution or state-chartered depository institution which has an investment grade rating and is subject to regulations regarding fiduciary funds on deposit under, or similar to, Title 12 of the Code of Federal Regulations Section 9.10(b) which, in either case, has corporate trust powers, acting in its fiduciary capacity.

“Eligible Institution” means an institution (i) whose commercial paper, short-term debt obligations or other short-term deposits are rated at least A–1, Prime-1 or F-1, as applicable, by each of the Rating Agencies and whose long-term senior unsecured debt obligations are rated at least A- or A2, as applicable, by each of the Rating Agencies, and whose deposits are insured by the FDIC or (ii) with respect to which Lender shall have received Rating Confirmation.

“Embargoed Person” has the meaning set forth in Section 4.39.

“Engineering Report” means a structural and seismic engineering report or reports with respect to the Property prepared by such independent engineer as shall be approved by Lender and delivered to Lender in connection with the Loan, and any amendments or supplements thereto delivered to Lender.

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“Environmental Auditor” means EBI Consulting or any other independent environmental auditor approved by Lender.

“Environmental Claim” means any written notice, claim, proceeding, investigation or demand by any Person or Governmental Authority alleging or asserting liability with respect to Borrower or the Property arising out of, based on or resulting from (i) the alleged presence, Use or Release of any Hazardous Substance, (ii) any alleged violation of any Environmental Law, or (iii) any alleged injury or threat of injury to property, health or safety or to the environment caused by Hazardous Substances.

“Environmental Indemnity” the environmental indemnity agreement executed by Borrower on the date hereof, as the same may from time to time be modified or replaced in accordance herewith.

“Environmental Laws” means any and all present and future federal, state or local laws, statutes, ordinances or regulations, any judicial or administrative orders, decrees or judgments thereunder, and any permits, approvals, licenses, registrations, filings and authorizations, in each case as now or hereafter in effect, relating to the pollution, protection or cleanup of the environment, the impact of Hazardous Substances on property, health or safety, or the Use or Release of Hazardous Substances.

“Environmental Reports” means a “Phase I Environmental Site Assessment” as referred to in the ASTM Standards on Environmental Site Assessments for Commercial Real Estate, E 1527-05 (and, if necessary, a “Phase II Environmental Site Assessment”), prepared by an Environmental Auditor and delivered to Lender and any amendments or supplements thereto delivered to Lender, and shall also include any other environmental reports delivered to Lender pursuant to this Agreement and the Environmental Indemnity.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder.

“ERISA Affiliate,” at any time, means each trade or business (whether or not incorporated) that would, at the time, be treated together with Borrower as a single employer under Title IV or Section 302 of ERISA or Section 412 of the Code.

“Event of Default” has the meaning set forth in Section 7.1.

“Exception Report” means the report prepared by Borrower and attached hereto as Schedule B, setting forth any exceptions to the representations and warranties set forth in Article IV.

“Fiscal Quarter” means the three-month period ending on March 31, June 30, September 30 and December 31 of each year, or such other fiscal quarter of Borrower as Borrower may select from time to time with the prior consent of Lender, such consent not to be unreasonably withheld.

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“Fiscal Year” means the 12-month period ending on December 31 of each year, or such other fiscal year of Borrower as Borrower may select from time to time with the prior consent of Lender, not to be unreasonably withheld.

“Fitch” means Fitch, Inc. and its successors.

“Form W-8BEN” means Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) of the Department of Treasury of the United States of America, and any successor form.

“Form W-8ECI” means Form 8ECI (Certificate of Foreign Person’s Claim for Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States) of the Department of the Treasury of the United States of America, and any successor form.

“GAAP” means generally accepted accounting principles in the United States of America, consistently applied.

“Governmental Authority” means any federal, state, county or municipal government, any bureau, department, agency or political subdivision thereof and any Person with jurisdiction exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (including any court).

“Guaranty Eligibility Requirement” means a requirement that is satisfied for so long as Sponsor has total assets (in name or under management), based on fair market value, in excess of $3 billion and (except with respect to a pension advisory firm or similar fiduciary) capital/statutory surplus or shareholder’s equity in excess of $1 billion.

“Hazardous Substance” means petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives and flammable materials; radioactive materials; polychlorinated biphenyls and compounds containing them; lead and lead-based paint; asbestos or asbestos-containing materials in any form that is or could become friable; underground or above-ground storage tanks, whether empty or containing any substance; any substance the presence of which on the Property is prohibited by any federal, state or local authority; any substance that requires special handling; and any other material or substance now or in the future defined as a “hazardous substance,” “hazardous material,” “hazardous waste,” “extremely hazardous waste,” “toxic substance,” “toxic pollutant,” “contaminant,” “pollutant” or other words of similar import within the meaning of any Environmental Law, or that may have a negative impact on human health or the environment, other than substances legally and customarily used by office tenants in the ordinary course of business.

“IDA Lease” means the Lease, dated as of December 20, 2000, between the New York City Industrial Development Agency, as landlord, and WFP One Liberty Plaza Co. L.P., as tenant, and assigned by WFP One Liberty Plaza Co. L.P. to Borrower, as amended by the First Amendment to Overlease Agreement, dated as of December 1, 2002 between the New York City Industrial Development Agency and Borrower.

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“Indebtedness” means the Principal Indebtedness, together with interest and all other obligations and liabilities of Borrower under the Loan Documents, including all Transaction Costs and other amounts due or to become due to Lender pursuant hereto, under the Notes or in accordance with any of the other Loan Documents, Yield Maintenance Premiums and all other amounts, sums and expenses reimbursable by Borrower to Lender hereunder or pursuant to the Notes or any of the other Loan Documents.

“Indemnified Liabilities” has the meaning set forth in Section 9.19.

“Indemnified Parties” has the meaning set forth in Section 5.18.

“Independent Director” of any limited liability company means an individual who is duly appointed as a member of the board of directors of such limited liability company and who is not, and has never been, and will not while serving as Independent Director, be any of the following:

(i) a member, partner, equityholder, manager, director, officer or employee of Borrower or its members or Affiliates (other than as an independent director or manager of an Affiliate of Borrower that is required by a creditor to be a single purpose bankruptcy remote entity);

(ii) a creditor, supplier or service provider (including provider of professional services) to Borrower or any of its members or Affiliates (other than a company that provides professional independent directors and which also provides other services to Borrower or any of its members or Affiliates in the ordinary course of business);

(iii) a member of the immediate family of any such member, partner, equityholder, manager, director, officer, employee, creditor, supplier or service provider; or

(iv) a Person that controls (whether directly, indirectly or otherwise) any of (i), (ii) or (iii) above.

“Initial Interest Rate” means 6.139% per annum.

“Initial Payment Date” means the Payment Date in October 2007.

“Initial Principal Payment Date” means the Payment Date in August 2011.

“Insurance Requirements” means, collectively, (i) all material terms of any insurance policy required pursuant to this Agreement and (ii) all material regulations and then-current standards applicable to or affecting the Property or any portion thereof or any use or condition thereof, which may, at any time, be recommended by the board of fire underwriters, if any, having jurisdiction over the Property, or any other body exercising similar functions.

“Interest Accrual Period” means each period from and including the sixth day of a calendar month through and including the fifth day of the immediately succeeding calendar

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month; provided, however, that the first Interest Accrual Period shall commence on and include the Closing Date.

“Interest Rate” means (i) with respect to the initial Note, the Initial Interest Rate, and (ii) with respect to each Note resulting from the bifurcation of the initial Note into multiple Notes pursuant to Section 1.1(c), the per annum interest rate of such Note as determined by Lender in accordance with such Section.

“Lease” means any lease, sublease or sub-sublease to which Borrower is a party, license, letting, concession, occupancy agreement or other agreement (whether written or oral and whether now or hereafter in effect), existing as of the date hereof or hereafter entered into by Borrower, pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in the Property, and every modification, amendment or other agreement relating to such lease, sublease, sub-sublease, or other agreement entered into, in accordance with the terms of the Loan Documents, in connection with such lease, sublease, sub-sublease, or other agreement and all agreements related thereto, and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto.

“Leasing Commissions” means leasing commissions required to be paid by Borrower in connection with the leasing of space to Tenants at the Property pursuant to Leases entered into by Borrower in accordance herewith and payable in accordance with third-party/arm’s-length brokerage agreements.

“Legal Requirements” means:

(i) all governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities (including Environmental Laws) affecting either Borrower or the Property or any portion thereof or the construction, ownership, use, alteration or operation thereof, or any portion thereof (whether now or hereafter enacted and in force);

(ii) all permits, licenses and authorizations and regulations relating thereto; and

(iii) all covenants, conditions and restrictions contained in any instruments at any time in force (whether or not involving Governmental Authorities) affecting the Property or any portion thereof which, in the case of this clause (iii), require repairs, modifications or alterations in or to the Property or any portion thereof, or in any material way limit or restrict the existing use and enjoyment thereof.

“Lender” has the meaning set forth in the first paragraph of this Agreement and in Section 9.7.

“Lien” means any mortgage, lien (statutory or other), pledge, hypothecation, assignment, preference, priority, security interest, or any other encumbrance or charge on or affecting any Collateral or any portion thereof, or any interest therein (including any conditional sale or other title retention agreement, any sale-leaseback, any financing lease or similar

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transaction having substantially the same economic effect as any of the foregoing, the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any other jurisdiction, domestic or foreign, and mechanics’, materialmen’s and other similar liens and encumbrances, as well as any option to purchase, right of first refusal to purchase, right of first offer to purchase which by its terms lasts for a period in excess of 30 days or other right to acquire the Property).

“Loan” has the meaning set forth in Section 1.1(a).

“Loan Amount” means $850 million.

“Loan Documents” means this Agreement, the Notes, the Mortgage (and related financing statements), the Assignment of Rents and Leases, the Assignment of Contracts, the Environmental Indemnity, the Subordination of Property Management Agreement, the Cash Management Agreement, the Cooperation Agreement, any Qualified Letter of Credit, any Defeasance Pledge Agreement and all other agreements, instruments, certificates and documents necessary to effectuate the granting to Lender of first-priority Liens on the Collateral or otherwise in satisfaction of the requirements of this Agreement or the other documents listed above, as all of the aforesaid may be modified or replaced from time to time in accordance herewith.

“Lockout Period” means the period from the Closing Date to but excluding the first Payment Date following the earlier to occur of (i) the third anniversary of the Closing Date and (ii) the second anniversary of the date on which the entire Loan (excluding any “B” note secured by the Property and any mezzanine loan secured by direct or indirect equity interests in the Borrower, but including any pari passu “A” note) has been securitized pursuant to a Securitization or series of Securitizations.

“Loss Proceeds” means amounts, awards or payments payable to Borrower or Lender in respect of all or any portion of the Property in connection with a Casualty or Condemnation thereof (after the deduction therefrom and payment to Borrower and Lender, respectively, of any and all reasonable expenses incurred by Borrower and Lender in the recovery thereof, including all reasonable attorneys’ fees and disbursements, the reasonable fees of insurance experts and adjusters and the reasonable costs incurred in any litigation or arbitration with respect to such Casualty or Condemnation).

“Loss Proceeds Account” has the meaning set forth in Section 3.8.

“Major Lease” means any Lease at the Property which, when aggregated with all Leases at the Property with the same Tenant or its Affiliates, covers more than one full floor of the Property (or the equivalent).

“Material Adverse Effect” means a material adverse effect upon (i) the ability of Borrower to perform, or of Lender to enforce, any material provision of any Loan Document, or (ii) the value, use or enjoyment of the Property or the operation thereof.

“Material Agreements” means each contract and agreement (other than Leases) relating to the ownership, management, development, use, operation, leasing, maintenance,

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repair or improvement of the Property, or otherwise imposing obligations on Borrower, under which Borrower would have the obligation to pay more than $5,000,000 per annum or which cannot be terminated by Borrower without cause upon 60 days’ notice or less or which is with an affiliate of Borrower.

“Material Alteration” means any Alteration to be performed by or on behalf of Borrower at the Property (other than an Alteration the cost of which a Tenant is obligated to repay or reimburse Borrower and which Borrower reasonably believes will be so reimbursed) which (a) is reasonably likely to have a Material Adverse Effect, (b) is reasonably expected to cost in excess of $15,000,000, as determined by an independent architect, or (c) is reasonably expected to permit (or is reasonably likely to induce) Tenants whose Leases in the aggregate cover more than 80,000 rentable square feet or contributed more than 5% of the base contract rental revenue of the Property during the trailing 12-month period (after adjustment to eliminate the effect of free rent periods) to terminate their Leases or abate rent.

“Maturity Date” means the Payment Date in August 2017, or such earlier date as may result from acceleration of the Loan in accordance with this Agreement.

“Monthly Replacement Reserve Amount” at any time means $38,801.

“Monthly TI/LC Amount” at any time means $349,206.

“Moody’s” means Moody’s Investors Service, Inc. and its successors.

“Mortgage” means the mortgage of the Property executed by Borrower on the date hereof, as the same may from time to time be modified or replaced in accordance herewith.

“Net Operating Income” means the excess of Operating Income over Operating Expenses.

“Nonconsolidation Opinion” means that certain opinion letter attached hereto as Schedule C.

“Note” means that certain promissory note made by Borrower to the order of Lender as of the Closing Date to evidence the Loan, as such note may be replaced by multiple Notes in accordance with Section 1.1(c) and as otherwise modified, assigned (in whole or in part) and/or replaced from time to time in accordance herewith.

“OFAC List” means the list of specially designated nationals and blocked persons subject to financial sanctions that is maintained by the U.S. Treasury Department, Office of Foreign Assets Control and any other similar list maintained by the U.S. Treasury Department, Office of Foreign Assets Control pursuant to any applicable governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities, including, without limitation, trade embargo, economic sanctions, or other prohibitions imposed by Executive Order of the President of the United States. The OFAC List currently is accessible through the internet website at www.treas.gov/ofac/t11sdn.pdf.

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“Officer’s Certificate” means a certificate delivered to Lender which is signed by an authorized officer of Borrower or its managing member and certifies the information therein to the best of such officer’s knowledge.

“Operating Expenses” means, for any period, the sum of those operating, renting, administrative, management, legal and other ordinary expenses actually paid by Borrower or, without duplication, which come due and payable by Borrower during such period in connection with its ownership of the Property; provided, however, that such expenses shall not include (i) depreciation, amortization or other noncash items (other than expenses that are due and payable but not yet paid), (ii) interest, principal or any other sums due and owing with respect to the Loan, (iii) income taxes or other taxes in the nature of income taxes, (iv) Capital Expenditures, or (v) equity distributions.

“Operating Income” means, for any period, all operating income of Borrower from the Property during such period, determined in accordance with GAAP (but without straight-lining of rents), other than (i) Loss Proceeds (but Operating Income will include rental loss insurance proceeds to the extent allocable to such period), (ii) any revenue attributable to a Lease to the extent it is paid more than 30 days prior to the due date, (iii) any interest income from any source, (iv) any repayments received from any third party of principal loaned or advanced to such third party by Borrower, (v) any proceeds resulting from the Transfer of all or any portion of the Property or the FF&E, (vi) sales, use and occupancy or other taxes on receipts required to be accounted for by Borrower to any government or governmental agency, (vii) refunds and uncollectible accounts, and (viii) any other extraordinary or non-recurring items.

“Participation” has the meaning set forth in Section 9.7(b).

“Payment Date” means, with respect to each Interest Accrual Period, the sixth day of the calendar month in which such Interest Accrual Period ends (or if such sixth day is not a Business Day, the first succeeding Business Day).

“Peg Balance” means the aggregate amount of payments required to be made under Sections 3.2(b)(i) through (iv) on the next Payment Date, as specified in the most recent notice from the Servicer to the Cash Management Bank pursuant to the Cash Management Agreement.

“Permits” means all licenses, permits, variances and certificates used in connection with the ownership, operation, use or occupancy of the Property (including business licenses, state health department licenses, licenses to conduct business and all such other permits, licenses and rights, obtained from any Governmental Authority or private Person concerning ownership, operation, use or occupancy of the Property).

“Permitted Debt” means:

(i) the Indebtedness;

(ii) Trade Payables not represented by a note, customarily paid by Borrower within 60 days of incurrence and in fact not more than 60 days outstanding, which are

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incurred in the ordinary course of Borrower’s ownership and operation of the Property, in amounts reasonable and customary for similar properties and not exceeding 3.0% of the Loan Amount;

(iii) financing leases and purchase money debt, in each case incurred in the ordinary course of business in connection with the financing or purchase of equipment and other personal property used on the Property, provided that the aggregate capitalized amount of all such permitted financing leases plus the aggregate amount of all such permitted purchase money debt shall not exceed $1,000,000 at any time; and

(iv) any other Debt which is hereafter approved in writing by Lender in its sole discretion and with respect to which Lender shall have received Rating Confirmation.

“Permitted Encumbrances” means:

(i) the Liens created by the Loan Documents;

(ii) all Liens and other matters specifically disclosed on Schedule B of the Qualified Title Insurance Policies;

(iii) Liens, if any, for Taxes not yet delinquent;

(iv) mechanics’, materialmen’s or similar Liens, if any, and liens for delinquent taxes or impositions, in each case only if being contested in good faith and by appropriate proceedings, provided that each of such Liens is not in imminent danger of foreclosure and provided further that either (a) each such Lien is released or discharged of record or fully insured over by the title insurance company issuing the Qualified Title Insurance Policies within 60 days of its creation, or (b) Borrower deposits with Lender, by the expiration of such 60-day period, an amount equal to 150% of the dollar amount of such Lien or a bond in the aforementioned amount from such surety, and upon such terms and conditions, as shall be reasonably satisfactory to Lender, as security for the payment or release of such Lien;

(v) rights of existing and future Tenants as tenants only pursuant to written Leases entered into in conformity with the provisions of this Agreement;

(vi) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred or entered into in the ordinary course of business which do not have a Material Adverse Effect; and

(vii) any other Liens which are hereafter approved in writing by Lender in its sole discretion and with respect to which Lender shall have received Rating Confirmation.

“Permitted Investments” means the following, subject to qualifications hereinafter set forth:

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(i) obligations of, or obligations guaranteed as to principal and interest by, the U.S. government or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States of America;

(ii) federal funds, unsecured certificates of deposit, time deposits, banker’s acceptances, and repurchase agreements having maturities of not more than 365 days of any bank, the short-term debt obligations of which are rated A-1+ (or the equivalent) by each of the Rating Agencies and, if it has a term in excess of three months, the long-term debt obligations of which are rated AAA (or the equivalent) by each of the Rating Agencies;

(iii) deposits that are fully insured by the Federal Deposit Insurance Corp. (FDIC);

(iv) debt obligations that are rated AAA or higher (or the equivalent) by each of the Rating Agencies;

(v) commercial paper rated A–1+ (or the equivalent) by each of the Rating Agencies;

(vi) investment in money market funds rated AAAm or AAAm–G (or the equivalent) by each of the Rating Agencies; and

(vii) such other investments as to which Lender shall have received Rating Confirmation.

Notwithstanding the foregoing, “Permitted Investments” (i) shall exclude any security with the Standard & Poor’s “r” symbol (or any other Rating Agency’s corresponding symbol) attached to the rating (indicating high volatility or dramatic fluctuations in their expected returns because of market risk), as well as any mortgage-backed securities and any security of the type commonly known as “strips”; (ii) shall not have maturities in excess of one year; (iii) shall be limited to those instruments that have a predetermined fixed dollar of principal due at maturity that cannot vary or change; and (iv) shall exclude any investment where the right to receive principal and interest derived from the underlying investment provide a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment. Interest may either be fixed or variable, and any variable interest must be tied to a single interest rate index plus a single fixed spread (if any), and move proportionately with that index. No investment shall be made which requires a payment above par for an obligation if the obligation may be prepaid at the option of the issuer thereof prior to its maturity. All investments shall mature or be redeemable upon the option of the holder thereof on or prior to the earlier of (x) three months from the date of their purchase or (y) the Business Day preceding the day before the date such amounts are required to be applied hereunder.

“Person” means any individual, corporation, limited liability company, partnership, joint venture, estate, trust, unincorporated association or Governmental Authority and any fiduciary acting in such capacity on behalf of any of the foregoing.

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“Plan” means an employee benefit plan (i) which is maintained for employees of Borrower or any ERISA Affiliate and which is subject to Title IV of ERISA or (ii) with respect to which Borrower or any ERISA Affiliate could be subjected to any liability under Title IV of ERISA (including Section 4069 of ERISA).

“Plan Assets” means assets of any employee benefit plan subject to Part 4, Subtitle A, Title I of ERISA.

“Policies” has the meaning set forth in Section 5.15(b).

“Pre-Approved Cash Management Bank” means each of the financial institutions listed in Schedule G and its respective affiliates.

“Prepayment Period” means the final four Interest Accrual Periods prior to the Maturity Date.

“Prime Rate” means the “prime rate” published in the “Money Rates” section of The Wall Street Journal. If The Wall Street Journal ceases to publish the “prime rate,” then Lender shall select an equivalent publication that publishes such “prime rate,” and if such “prime rate” is no longer generally published or is limited, regulated or administered by a governmental or quasi-governmental body, then Lender shall reasonably select a comparable interest rate index.

“Principal Indebtedness” means the principal balance of the Loan outstanding from time to time.

“Property” means the fee, leasehold and reversionary interests in the land, improvements and condominium units collectively known as One Liberty Plaza in New York City, New York, as such property is more particularly described on Schedule A.

“Qualified Equityholder” means (i) Sponsor (ii) Brookfield Properties Corp., (iii) any bank, savings and loan association, investment bank, insurance company, trust company, commercial credit corporation, pension plan, pension fund, pension advisory firm, mutual fund, government entity or plan, real estate company, investment fund or institution substantially similar to any of the foregoing, provided in each case that such institution has total assets (in name or under management) in excess of $2,000,000,000 and (except with respect to a pension advisory firm or similar fiduciary) capital/statutory surplus or shareholder’s equity in excess of $1,000,000,000, in each case excluding the Property, and is regularly engaged in the business of owning properties similar to the Property in major metropolitan areas, and (iv) any entity approved by Lender with respect to which Rating Confirmation is received.

“Qualified Guarantee” means a guarantee from Sponsor in favor of Lender, in form and substance reasonably satisfactory to Lender; provided that (1) a guarantee shall cease to be a Qualified Guarantee if at any time Sponsor fails to satisfy the Guaranty Eligibility Requirement, and (2) at the time of the delivery of each Qualified Guarantee, Borrower shall deliver to Lender an opinion of counsel, in form and substance reasonably satisfactory to Lender, to the effect that delivery of such Qualified Guarantee does not alter the conclusion reached in the Nonconsolidation Opinion.

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“Qualified Letter of Credit” means a clean, irrevocable, unconditional, transferable letter of credit reasonably satisfactory to Lender with respect to which Borrower has no reimbursement obligation, in favor of Lender and entitling Lender to draw thereon in New York, New York, issued by a domestic bank or the U.S. agency or branch of a foreign bank the long-term unsecured debt rating of which is not less than AA (or the equivalent) from each of the Rating Agencies. The following terms and conditions shall apply to each Qualified Letter of Credit:

(i) Each such Qualified Letter of Credit shall expressly provide that partial draws are permitted thereunder.

(ii) Each such Qualified Letter of Credit shall expressly provide that it is freely transferable to any successor or assign of Lender.

(iii) Lender shall be entitled to draw on any Qualified Letter of Credit immediately and without further notice (a) upon the occurrence and during the continuance of any Event of Default, (b) if Borrower shall not have delivered to Lender, no less than 30 days prior to the expiration date of such Qualified Letter of Credit, if any (including any renewal or extension thereof), a renewal or extension of such Qualified Letter of Credit or a replacement Qualified Letter of Credit for a term of not less than one year (or through the date that is 30 days beyond the Maturity Date, whichever is earlier), or (c) if the credit rating or financial condition of the issuing bank falls below the ratings set forth above in this definition and Borrower fails to provide a replacement Qualified Letter of Credit, Qualified Guaranty or cash reserve as required hereunder.

“Qualified Successor Borrower” means a Single-Purpose Entity Controlled by one or more Qualified Equityholders.

“Qualified Survey” means a current title survey of the Property, certified to the title company issuing the Qualified Title Insurance Policies and Lender and their respective successors and assigns, in form and substance reasonably satisfactory to Lender.

“Qualified Title Insurance Policy” means a mortgagee’s title insurance policy in form and substance reasonably satisfactory to Lender.

“Rating Agency” means (i) until a Securitization, S&P, Moody’s and Fitch, and (ii) from and after a Securitization, those of S&P, Moody’s and Fitch that rate the Certificates issued in any Securitization.

“Rating Confirmation” means, with respect to any proposed action, confirmation in writing from each of the Rating Agencies that such action shall not result, in and of itself, in a downgrade, withdrawal or qualification of any rating then assigned to any outstanding Certificates; provided that if a Securitization taking the form of a transaction rated by the Rating Agencies has not occurred, then “Rating Confirmation” shall instead mean that the matter in question shall be subject to the prior written approval of Lender in its reasonable discretion (it being agreed that it shall be reasonable for Lender to withhold consent if the proposed action is not in compliance with reasonably prudent lending practices or the guidelines of the Rating

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Agencies). No Rating Confirmation shall be regarded as having been received unless and until any conditions imposed on its effectiveness by any Rating Agency shall have been satisfied.

“Release” means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment (including the movement of Hazardous Substances through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata).

“Rent Roll” has the meaning set forth in Section 4.14(a).

“Replacement Reserve Account” has the meaning set forth in Section 3.6.

“Revenues” means all rents, rent equivalents, moneys payable as damages pursuant to a Lease or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower from any and all sources including any obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of property or rendering of services by Borrower and proceeds, if any, from business interruption or other loss of income insurance.

“S&P” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc., and its successors.

“Securitization” means a transaction in which all or any portion of the Loan and the Loan Documents is deposited into one or more trusts which issue Certificates to investors, or a similar transaction.

“Securitization Issuer” means the issuer of Certificates in a Securitization.

“Service” means the Internal Revenue Service or any successor agency thereto.

“Servicer” means the entity or entities appointed by Lender from time to time to serve as servicer and/or special servicer of the Loan. If at any time no entity shall be so appointed, the term “Servicer” shall be deemed to refer to Lender.

“Single-Purpose Entity” means a Person which (a) was formed solely for the purpose of acquiring the Property, (b) does not engage in any business unrelated to the Property, (c) does not have any assets other than those related to its interest in the Property or any Debt other than Permitted Debt, (d) maintains books, records, accounts, financial statements, stationery, invoices and checks which are separate and apart from those of any other Person (except that Borrower’s financial position, assets, results of operations and cash flows may be included in the consolidated financial statements of an Affiliate of Borrower in accordance with GAAP, provided that any such consolidated financial statements shall contain a note indicating that Borrower and its Affiliates are separate legal entities and maintain records, books of account and bank accounts separate and apart from any other Person), (e) is subject to and complies with all of the limitations on powers and separateness requirements set forth in the organizational

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documentation of Borrower as of the Closing Date, (f) holds itself out as being a Person separate and apart from each other Person, conducts its business in its own name (except for services rendered under a management agreement with an Affiliate, so long as the manager, or equivalent thereof, under such management agreement holds itself out as an agent of Borrower), and exercises reasonable efforts to correct any known misunderstanding actually known to it regarding its separate identity, and maintains an arm’s-length relationship with its Affiliates, (g) pays its own liabilities out of its own funds and reasonably allocates any overhead that is shared with an Affiliate, including, but not limited to, paying for shared office space and services performed by any officer or employee of an Affiliate, (h) maintains (or contracts with an Affiliate or other party to provide) a sufficient number of employees in light of its contemplated business operations, (i) conducts its business so that the assumptions made with respect to it in the Nonconsolidation Opinion (which is attached hereto as Schedule C) shall at all times be true and correct in all material respects, (j) observes all applicable limited liability company formalities in all material respects, (k) does not commingle its assets with those of any other Person, (l) does not guarantee or become obligated for the debts of any other Person or hold out its credit as being available to satisfy the obligations or securities of others, (m) does not acquire obligations or securities of its members, (n) does not pledge its assets for the benefit of any other Person or make any loans or advances to any Person, (o) maintains adequate capital in light of its contemplated business operations, and (p) has at all times two Independent Directors on its Board of Directors and has an operating agreement which provides that for so long as the Loan is outstanding, the Borrower shall not take or consent to any of the following actions except to the extent expressly permitted in this Agreement and the other Loan Documents:

(i) the dissolution, liquidation, consolidation, merger or sale of all or substantially all of its assets;

(ii) the engagement by it in any business other than the acquisition, development, management, leasing, ownership, maintenance and operation of the Property and activities incidental thereto;

(iii) the filing, or consent to the filing, of a bankruptcy or insolvency petition, any general assignment for the benefit of creditors or the institution of any other insolvency proceeding, or the seeking or consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official without the affirmative vote of both of its Independent Directors; and

(iv) any amendment or modification of any provision of its organizational documents relating to qualification as a “Single-Purpose Entity”.

“Sponsor” means Brookfield Financial Properties, L.P. and any successor by merger or by acquisition of substantially all of its business and assets.

“Subordination of Property Management Agreement” means the subordination of property management agreement executed by Borrower and the Approved Property Manager on the date hereof, as the same may from time to time be modified or replaced in accordance herewith.

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“Tax and Insurance Escrow Account” has the meaning set forth in Section 3.4(a).

“Taxes” means all real estate and personal property taxes, assessments, fees, taxes on rents or rentals, water rates or sewer rents, facilities and other governmental, municipal and utility district charges or other similar taxes or assessments now or hereafter levied or assessed or imposed against the Property or Borrower with respect to the Property or rents therefrom or which may become Liens upon the Property, without deduction for any amounts reimbursable to Borrower by third parties.

“Tenant” means any Person liable by contract or otherwise to pay monies (including a percentage of gross income, revenue or profits) pursuant to a Lease.

“Tenant Improvements” means, collectively, (i) tenant improvements to be undertaken for any Tenant which are required to be completed by or on behalf of Borrower pursuant to the terms of such Tenant’s Lease, and (ii) allowances to be paid to a Tenant pursuant to such Tenant’s Lease in connection with such Tenant’s construction of its tenant improvements at the Property.

“Tenant Notice” has the meaning set forth in Section 3.1(b).

“Termination Fee” has the meaning set forth in Section 3.5(d).

“Test Period” means each 12-month period ending on the last day of a Fiscal Quarter.

“TI/LC Reserve Account” has the meaning set forth in Section 3.5.

“Trade Payables” means unsecured amounts payable by or on behalf of Borrower for or in respect of the operation of the Property in the ordinary course and which would under GAAP be regarded as ordinary expenses, including amounts payable to suppliers, vendors, contractors, mechanics, materialmen or other Persons providing property or services to the Property or Borrower.

“Transaction” means the transaction contemplated by the Loan Documents.

“Transaction Costs” means the costs and expenses described in Section 9.17.

“Transfer” means the pledge, sale or other whole or partial conveyance of all or any portion of the Property or any direct or indirect interest therein to a third party (other than pledges, sales and conveyances of indirect equity interests in Borrower that are not otherwise prohibited hereunder and the imposition of zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred or entered into in the ordinary course of business which do not have a Material Adverse Effect), including granting of any purchase options, rights of first refusal, rights of first offer or similar rights to purchase all or any portion of the Property (other than such rights as have heretofore been granted and are listed in the Exception Report and/or the Rent Rolls) or the subjecting of any portion of the Property to restrictions on transfer; provided that the conveyance of a space lease, license or other occupancy right at the Property in accordance herewith shall not constitute a Transfer.

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“Treasury Constant Yield” means the arithmetic mean of the rates published as “Treasury Constant Maturities” as of 5:00 p.m., New York time, for the five Business Days preceding the date on which acceleration has been declared, as shown on the USD screen of the Moneyline Telerate service (or such other page as may replace that page on that service, or such other page or replacement therefor on any successor service), or if such service is not available, the Bloomberg service (or any successor service), or if neither the Moneyline Telerate nor the Bloomberg service is available, under Section 504 in the weekly statistical release designated H.15(519) (or any successor publication) published by the Board of Governors of the Federal Reserve System, for “On the Run” U.S. Treasury obligations corresponding to the scheduled Maturity Date. If no such maturity shall so exactly correspond, yields for the two most closely corresponding published maturities shall be calculated pursuant to the foregoing sentence and the Treasury Constant Yield shall be interpolated or extrapolated (as applicable) from such yields on a straight-line basis (rounding, in the case of relevant periods, to the nearest month).

“Unfunded Obligations” means the items described in Schedule D.

“Unfunded Obligations Account” has the meaning set forth in Section 3.9(a).

“Unfunded Obligations Amount” means $22,991,245.27.

“Use” means, with respect to any Hazardous Substance, the generation, manufacture, processing, distribution, handling, use, treatment, recycling or storage of such Hazardous Substance or transportation of such Hazardous Substance.

“U.S. Person” means a United States person within the meaning of Section 7701(a)(30) of the Code.

“U.S. Tax” means any present or future tax, assessment or other charge or levy imposed by or on behalf of the United States of America or any taxing authority thereof.

“Yield Maintenance Premium” shall mean, with respect to any payment of principal (or any portion thereof) during the continuance of an Event of Default, the greater of (x) 2% of the amount prepaid and (y) the product of:

(A) a fraction whose numerator is the amount so paid and whose denominator is the outstanding principal balance of the Loan before giving effect to such payment, times

(B) the excess of (1) the sum of the respective present values, computed as of the date of such prepayment, of the remaining scheduled payments of principal and interest with respect to the Loan (assuming no prepayments or acceleration of the Loan), determined by discounting such payments to the date on which such payments are made at the Treasury Constant Yield, over (2) the outstanding principal balance of the Loan on such date immediately prior to such payment.

The calculation of the Yield Maintenance Premium shall be made by the Lender and shall, absent manifest error, be final, conclusive and binding upon all parties.

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(b) Rules of Construction. All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. Unless otherwise specified: (i) the words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, (ii) all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined, (iii) “including” means “including, but not limited to”, and (iv) “mortgage” means a mortgage, deed of trust, deed to secure debt or similar instrument, as applicable, and “mortgagee” means the secured party under a mortgage, deed of trust, deed to secure debt or similar instrument. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, as same may be modified herein.

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ARTICLE I

GENERAL TERMS

1.1. The Loan.

(a) On the Closing Date, subject to the terms and conditions of this Agreement, Lender shall make a loan to Borrower (the “Loan”) in an amount equal to the Loan Amount. The Loan shall initially be represented by a single Note which shall bear interest as described herein at a per annum rate equal to the Initial Interest Rate.

(b) The Loan shall be secured by (i) the Property, pursuant to the Mortgage and the Assignment of Rents and Leases, (ii) Borrower’s contract rights, pursuant to the Assignment of Contracts, (iii) the Account Collateral, and (iv) the other security interests and Liens granted in the Loan Documents.

(c) Lender shall have the right at any time, at Lender’s sole discretion, to replace the initial Note with two or more replacement Notes, and the holder of each replacement Note shall similarly have the right at any time, at such holder’s sole discretion, to replace its Note with two or more replacement Notes. Each replacement Note shall be in the form of the Note so replaced but for its principal amount and Interest Rate. The principal amount of each Note shall be determined by applicable holder in its sole discretion, provided that the sum of the principal amounts of the replacement Notes shall equal the then outstanding principal balance of the Notes that are so replaced. Any prepayments not resulting from an Event of Default, Casualty or Condemnation shall be applied to the payment of the principal on the Notes on a pro rata basis. The Interest Rate of each replacement Note shall be determined by the applicable holder in its sole discretion, provided that the weighted average of such Interest Rates, weighted on the basis of the respective principal balances of the Notes, shall equal the Interest Rate of the Note so replaced. Provided Borrower has received five days’ prior notice, Borrower shall execute and return to Lender each such Note within two Business Days after Borrower’s receipt of an execution copy thereof (whereupon Lender shall return the replaced Note to Borrower), and Borrower’s failure to do so within such time period shall, at Lender’s election, constitute an immediate Event of Default hereunder. Borrower hereby authorizes and appoints Lender as its attorney-in-fact to execute such replacement Notes on Borrower’s behalf should Borrower fail to do so. The foregoing grant of authority is a power of attorney coupled with an interest and such appointment shall be irrevocable for the term of this Agreement. Borrower hereby ratifies all actions that such attorney shall lawfully take or cause to be taken in accordance with this Section 1.1(c). If requested by Lender, Borrower shall deliver to Lender, together with such replacement Notes, an opinion of counsel in substantially the form delivered to Lender on the Closing Date with respect to the due authorization and enforceability of such replacement Notes.

1.2. Interest and Principal.

(a) On each Payment Date prior to the Initial Principal Payment Date, Borrower shall pay to Lender interest on each Note for the applicable Interest Accrual Period at the applicable Interest Rate (except that in each case, interest shall be payable at the Default Rate with respect to any portion of such Interest Accrual Period falling during the continuance of an

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Event of Default). On the Closing Date, Borrower shall pay interest from and including the Closing Date through the end of the first Interest Accrual Period.

Commencing with the Initial Principal Payment Date, and on each and every Payment Date thereafter, Borrower shall pay to Lender a constant monthly payment of $5,172,387.70, which amount shall be applied first toward the payment of interest on each Note for the applicable Interest Accrual Period at the applicable Interest Rate (except that in each case, interest shall be payable at the Default Rate with respect to any portion of such Interest Accrual Period falling during the continuance of an Event of Default), and the balance shall be applied toward the reduction of the outstanding principal balances of the Notes pro rata in accordance with their then outstanding principal balances. Interest payable hereunder shall be computed on the basis of a 360-day year and the actual number of days elapsed in the related Interest Accrual Period.

(b) No prepayments of the Loan shall be permitted except for (i) scheduled amortization as described in Section 1.2(a), (ii) prepayments resulting from Casualty or Condemnation as described in Section 5.16(c), and (iii) a prepayment of the Loan in whole (but not in part) during the Prepayment Period on not less than 30 days prior written notice; provided that any prepayment under this clause (iii) shall be accompanied by all interest accrued on the amount prepaid plus, if such prepayment does not occur on a Payment Date, the amount of interest that would have accrued thereon if the Loan had remained outstanding through the end of the Interest Accrual Period in which such prepayment occurs, plus all other amounts then due under the Loan Documents. If a prepayment notice is delivered to Lender and such prepayment is not made within 30 days of the date specified therein, (x) Borrower’s notice of prepayment shall be deemed rescinded, and (y) Borrower shall, at the end of such 30 day period, pay to Lender all reasonable losses, costs and expenses suffered by Lender as a consequence of such rescission. In addition, Defeasance shall be permitted after the expiration of the Lockout Period as described in Section 2.1. The entire outstanding principal balance of the Loan, together with interest accrued thereon and all other amounts then due under the Loan Documents, shall be due and payable by Borrower to Lender on the Maturity Date.

(c) If all or any portion of the Principal Indebtedness (other than scheduled amortization as described in Section 1.2(a) and prepayments resulting from Casualty or Condemnation as described in Section 5.16(d)) is paid to Lender following acceleration of the Loan, Borrower shall pay to Lender an amount equal to the applicable Yield Maintenance Premium. Amounts received in respect of the Indebtedness during the continuance of an Event of Default shall be applied toward interest, principal and other components of the Indebtedness (in such order as Lender shall determine) before any such amounts are applied toward payment of Yield Maintenance Premiums, with the result that Yield Maintenance Premiums shall accrue as the Principal Indebtedness is prepaid but no amount received from Borrower shall constitute payment of a Yield Maintenance Premium until the remainder of the Indebtedness shall have been paid in full.

(d) Any regularly scheduled payments of interest and/or principal (excluding payments of principal at maturity) not paid when due hereunder shall bear interest at the applicable Default Rate and, when paid, shall be accompanied by a late fee in an amount equal to 4% times the amount of such late payment in order to defray the expense incurred by Lender in

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handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment.

1.3. Method and Place of Payment. Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Notes (including any deposit into the Cash Management Account pursuant to Section 3.2(b)) shall be made to Lender not later than 11:00 a.m., New York City time, on the date when due and shall be made in lawful money of the United States of America by wire transfer in federal or other immediately available funds to the account specified from time to time by Lender. Any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day. Lender shall notify Borrower in writing of any changes in the account to which payments are to be made. If the amount received from Borrower is less than the sum of all amounts then due and payable hereunder, such amount shall be applied toward the components of the Indebtedness (e.g., interest, principal and other amounts payable hereunder), the Loan and the Notes in such sequence as Lender shall elect in its sole discretion.

1.4. Taxes.

(a) Borrower agrees to indemnify Lender against any present or future stamp, documentary or other similar or related taxes or other similar or related charges now or hereafter imposed, levied, collected, withheld or assessed by any United States Governmental Authority by reason of the execution and delivery of the Loan Documents and any consents, waivers, amendments and enforcement of rights under the Loan Documents.

(b) If Borrower is required by law to withhold or deduct any amount from any payment hereunder in respect of any U.S. Tax, Borrower shall withhold or deduct the appropriate amount, remit such amount to the appropriate Governmental Authority and pay to each Person to whom there has been an Assignment or Participation of a Loan and who is not a U.S. Person such additional amounts as are necessary in order that the net payment of any amount due to such non-U.S. Person hereunder after deduction for or withholding in respect of any U.S. Tax imposed with respect to such payment (or in lieu thereof, payment of such U.S. Tax by such non-U.S. Person), will not be less than the amount stated herein to be then due and payable; provided that the foregoing obligation to pay such additional amounts shall not apply while the Loan is contained within a Securitization and shall not apply (i) to any assignee that has not complied with the obligations contained in Section 9.7(c), (ii) to any U.S. Taxes imposed solely by reason of the failure by such Person (or, if such Person is not the beneficial owner of the relevant Loan, such beneficial owner) to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the United States of America of such Person (or beneficial owner, as the case may be) if such compliance is required by statute or regulation of the United States of America as a precondition to relief or exemption from such U.S. Taxes; or (iii) with respect to any Person who is a fiduciary or partnership or other than the sole beneficial owner of such payment, to any U.S. Tax imposed with respect to payments made under any Note to a fiduciary or partnership to the extent that the beneficial owner or member of the partnership would not have been entitled to the additional amounts if such beneficial owner or member of the partnership had been the holder of the Note.

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(c) Within 30 days after paying any amount from which it is required by law to make any deduction or withholding, and within 30 days after it is required by law to remit such deduction or withholding to any relevant taxing or other authority, Borrower shall deliver to such non-U.S. Person satisfactory evidence of such deduction, withholding or payment (as the case may be).

1.5. Release. Upon payment of the Indebtedness in full (other than continuing indemnity obligations which survive repayment of the Loan and with respect to which no claim shall have been made and not yet paid), Lender shall execute instruments prepared by Borrower and reasonably satisfactory to Lender releasing and discharging all Liens on all Collateral securing payment of the Indebtedness (subject to Borrower’s obligation to pay any associated fees and expenses), including all balances in the Collateral Accounts.

ARTICLE II

DEFEASANCE AND ASSUMPTION

2.1. Defeasance.

(a) On any date after the expiration of the Lockout Period, provided no Event of Default is then continuing and subject to the notice requirement described in Section 2.1(c), Borrower may obtain the release of the Collateral (other than the Defeasance Collateral) from the liens created by the Loan Documents upon the payment to Lender of all sums then due under the Loan Documents and the delivery of the following to Lender:

(i) Defeasance Collateral sufficient to provide payments on or prior to, and in any event as close as possible to, all successive Payment Dates in an amount sufficient to make all payments of interest and principal due hereunder (including the then outstanding Principal Indebtedness on the first Payment Date in the Prepayment Period or such other date during the Prepayment Period as Borrower shall specify), taking into account any income tax payable on any net annual income of Borrower or the Defeasance Borrower, as applicable;

(ii) written confirmation from an independent certified public accounting firm reasonably satisfactory to Lender that such Defeasance Collateral is sufficient to provide the payments described in clause (i) above;

(iii) a security agreement, in form and substance reasonably satisfactory to Lender, creating in favor of Lender a first priority perfected security interest in such Defeasance Collateral (a “Defeasance Pledge Agreement”);

(iv) an opinion of counsel for Borrower, in form and substance reasonably satisfactory to Lender and delivered by counsel reasonably satisfactory to Lender, opining (1) that the Defeasance Pledge Agreement has been duly authorized and is enforceable against Borrower in accordance with its terms and that Lender has a perfected first priority security interest in such Defeasance Collateral; and (2) that the Defeasance does not constitute a “significant modification” of the Loan under Section 1001 of the Code or cause a tax to be imposed on the Securitization Vehicle;

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(v) Rating Confirmation with respect to such Defeasance;

(vi) instruments reasonably satisfactory to Lender releasing and discharging or assigning to a third party Lender’s Liens on the Collateral (other than the Defeasance Collateral);

(vii) such other certificates, opinions, documents or instruments as Lender and the Rating Agencies may reasonably request; and

(viii) reimbursement for any costs and expenses incurred by Lender in connection with this Section 2.1 (including Rating Agency and Servicer fees and expenses, reasonable fees and expenses of legal counsel and any revenue, documentary stamp or intangible taxes or any other tax or charge due in connection herewith).

Lender shall reasonably cooperate with Borrower to avoid the incurrence of mortgage recording taxes in connection with a Defeasance, which cooperation may include assigning the Note to a refinancing lender in consideration of receipt of a new defeasance note and rights under the Defeasance Pledge Agreement.

(b) At the time of Defeasance, Borrower shall transfer and assign all of its interest in the Property to a third party, unless the Loan is assumed by a bankruptcy-remote entity satisfactory to Lender and the Rating Agencies to which Borrower shall transfer all of the Defeasance Collateral (a “Defeasance Borrower”) and such Defeasance Borrower shall have executed and delivered to Lender an assumption agreement in form and substance reasonably satisfactory to Lender, such Uniform Commercial Code financing statements as may be reasonably requested by Lender and legal opinions of counsel reasonably acceptable to Lender which are substantially equivalent to the opinions delivered to Lender on the Closing Date, including new nonconsolidation opinions reasonably satisfactory to Lender and satisfactory to the Rating Agencies; and Borrower and the Defeasance Borrower shall have delivered such other documents, certificates and legal opinions as Lender shall reasonably request, in which event Borrower shall be completely released and relieved of all of its obligations under the Loan Documents except those obligations which by their terms survive the repayment of the Loan.

(c) Borrower must give Lender at least 30 days’ prior written notice of any Defeasance under this Section 2.1, specifying the date on which the Defeasance is expected to occur.

(d) Upon satisfaction of the requirements contained in this Section 2.1, Lender will execute and deliver to Borrower such instruments, prepared by Borrower and approved by Lender, as shall be necessary to release the Property from the Liens of the Loan Documents.

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2.2. Assumption. The initial Borrower shall have the right to contemporaneously Transfer all of the Collateral to a Qualified Successor Borrower that will assume all of the obligations of Borrower hereunder (an “Assumption”), provided no Event of Default or material monetary Default is then continuing or would result therefrom and the following conditions are met to the reasonable satisfaction of Lender:

(i) such Qualified Successor Borrower shall have executed and delivered to Lender an assumption agreement, in form and substance reasonably acceptable to Lender, evidencing its agreement to abide and be bound by the terms of the Loan Documents;

(ii) such Qualified Successor Borrower shall execute and deliver such Uniform Commercial Code financing statements as may be reasonably requested by Lender;

(iii) a Qualified Equityholder reasonably satisfactory to Lender in its sole discretion shall provide a guaranty of the Indemnified Liabilities in form satisfactory to Lender;

(iv) such Qualified Successor Borrower shall have delivered to Lender legal opinions of counsel reasonably acceptable to Lender which are equivalent to the opinions delivered to Lender on the Closing Date, including new nonconsolidation opinions which are reasonably satisfactory to Lender and satisfactory to each of the Rating Agencies; and Borrower and the Qualified Successor Borrower shall have delivered such other documents, certificates and legal opinions as Lender shall reasonably request;

(v) such Qualified Successor Borrower shall have delivered to Lender all documents reasonably requested by it relating to the existence of such Qualified Successor Borrower and the due authorization of the Qualified Successor Borrower to assume the Loan and to execute and deliver the documents described in this Section 2.2, each in form and substance reasonably satisfactory to Lender, including, but not limited to, a certified copy of the applicable resolutions from all appropriate persons, certified copies of the certificate of formation and Operating Agreement (or the equivalent) of the Qualified Successor Borrower, together with all amendments thereto, and certificates of good standing or existence for the Qualified Successor Borrower issued as of a recent date by its state of organization and each other state where such entity, by the nature of its business, is required to qualify or register;

(vi) the Qualified Title Insurance Policy shall have been properly endorsed to reflect the Transfer of the Property to the Qualified Successor Borrower;

(vii) Rating Confirmation shall have been received with respect to the legal structure of the successor borrower, the documentation of the Assumption and the related legal opinions; and

(viii) the Servicer shall have received upon request a nonrefundable assumption fee in an amount equal to 0.50% of the then outstanding Loan Amount (provided, however, that in connection with an Assumption by a Qualified Successor Borrower that is controlled by, and at least 25% of the direct or indirect equity interest in which is

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owned by, either BPC or Sponsor, the assumption fee shall be $150,000) and shall have received payment of all reasonable out-of-pocket costs and expenses incurred by Lender and Servicer, as applicable, in connection with such assumption (including reasonable attorneys’ fees and costs, the cost of an endorsement to the Qualified Title Insurance Policy reflecting the conveyance of the Property to the Qualified Successor Borrower, lien search and credit investigation expenses and rating agency fees and expenses).

ARTICLE III

ACCOUNTS

3.1. Cash Management Account.

(a) On or prior to the Closing Date, Borrower shall establish and thereafter maintain with a depository institution satisfactory to Lender (the “Cash Management Bank”) an account for the collection of income from the Property (the “Cash Management Account”). As a condition precedent to the Closing Date, Borrower shall cause the Cash Management Bank to execute and deliver a Cash Management Agreement which provides, inter alia, that no party other than Lender and Servicer shall have the right to withdraw and disburse funds from the Cash Management Account. The fees and expenses of the Cash Management Bank shall be paid by Borrower.

(b) Within five Business Days following the Closing Date, Borrower shall deliver to each Tenant in the Property a written notice (a “Tenant Notice”) in the form of Exhibit A instructing that (i) all payments under the Leases shall thereafter be transmitted by them directly to, and deposited directly into, the Cash Management Account and (ii) such instruction may not be rescinded unless and until such Tenant receives from Borrower or Lender a copy of Lender’s written consent to such rescission. Borrower shall send a copy of each such written notice to Lender and shall redeliver such notices to each Tenant until such time as such Tenant complies therewith. Borrower covenants to cause all cash Revenues relating to the Property and all other money received by Borrower with respect to the Property (other than tenant security deposits required to be held in escrow accounts) to be deposited in the Cash Management Account by the end of the first Business Day following Borrower’s or the Property Manager’s receipt thereof; and Borrower shall be permitted to deposit in the Cash Management Account such additional amounts as Borrower may elect.

(c) Lender shall have the right at any time, upon not less than 30 days’ prior written notice to Borrower, to replace the Cash Management Bank with any Eligible Institution at which Eligible Accounts may be maintained that will promptly execute and deliver to Lender a Cash Management Agreement substantially identical to the Cash Management Agreement executed at Closing; provided that any replacement that is not with a Pre-Approved Cash Management Bank shall be subject to Borrower’s prior consent, not to be unreasonably withheld, conditioned or delayed.

3.2. Distributions from Cash Management Account.

(a) The Cash Management Agreement shall provide that the Cash Management Bank shall remit to an account specified by Borrower, at the end of each Business

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Day, the amount, if any, by which amounts then contained in the Cash Management Account exceed the Peg Balance; provided, however, that Servicer may terminate such remittances during the continuance of an Event of Default upon notice to the Cash Management Bank. Servicer may notify the Cash Management Bank at any time of any change in the Peg Balance.

(b) On each Payment Date, provided no Event of Default has occurred and is continuing, the Servicer shall transfer amounts from the Cash Management Account, to the extent available therein, to make the following payments in the following order of priority:

(i) to the Tax and Insurance Reserve Account, the amounts then required to be deposited therein pursuant to Section 3.4;

(ii) to Lender, the amount of all scheduled or delinquent interest on the Loan and all other amounts then due and payable under the Loan Documents (with any amounts in respect of principal paid last);

(iii) to the Replacement Reserve Account, the amounts required to be deposited therein pursuant to Section 3.6;

(iv) to the TI/LC Reserve Account, any amount required to be deposited therein pursuant to Section 3.5; and

(v) all remaining amounts to such accounts as Borrower may direct.

(c) If by 11:00 a.m., New York City time, on any Payment Date during the amount in the Cash Management Account shall be sufficient to make all of the payments and deposits described in Section 3.2(b)(i) through (iv), Borrower shall be deemed to have made such payments and deposits on such Payment Date unless Lender is legally constrained from transferring such amount in accordance with such Section by reason of any insolvency related to Borrower or any other event.

(d) If on any Payment Date the amount in the Cash Management Account shall be insufficient to make all of the transfers described in Section 3.2(b)(i) through (iv), Borrower shall deposit into the Cash Management Account on such Payment Date the amount of such deficiency. If Borrower shall fail to make such deposit, the same shall constitute an Event of Default and, in addition to all other rights and remedies provided for under the Loan Documents, Lender may disburse and apply the amounts in the Cash Management Account toward the components of the Indebtedness (e.g., interest, principal and other amounts payable hereunder), the Loan and the Notes in such sequence as Lender shall elect in its sole discretion.

3.3 Intentionally Omitted.

3.4. Tax and Insurance Escrow Account.

(a) On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the purpose of reserving amounts payable by Borrower in respect of Taxes and insurance premiums (the “Tax and Insurance Escrow Account”).

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(b) On the Closing Date, the Tax and Insurance Escrow Account shall be funded in an amount equal to the sum of (i) an amount sufficient to pay all Taxes by the 10^th day prior to the date they come due, assuming subsequent monthly fundings on Payment Dates of  ¹/12 of projected annual Taxes, plus (ii) an amount sufficient to pay all insurance premiums by the 10^th day prior to the date they come due, assuming subsequent monthly fundings on Payment Dates of  ¹/12 of projected insurance premiums.

(c) On each subsequent Payment Date, an additional deposit shall be made therein in an amount equal to the sum of:

(A)  ¹/12 of the Taxes that Lender reasonably estimates, based on information provided by Borrower, will be payable during the next ensuing 12 months, plus

(B)  ¹/12 of the insurance premiums that Lender reasonably estimates, based on information provided by Borrower, will be payable during the next ensuing 12 months;

provided, however, that if at any time Lender reasonably determines that the amount in the Tax and Insurance Escrow Account will not be sufficient to accumulate (upon payment of subsequent monthly amounts in accordance with the provisions hereof) the full amount of all installments of Taxes and insurance premiums by the date on which such amounts come due, then Lender shall notify Borrower of such determination and Borrower shall increase its monthly payments to the Tax and Insurance Escrow Account by the amount that Lender reasonably estimates is sufficient to achieve such accumulation.

(d) Borrower shall provide Lender with copies of all tax and insurance bills relating to the Property promptly after Borrower’s receipt thereof. Lender will apply amounts in the Tax and Insurance Escrow Account toward the purposes for which such amounts are deposited therein. In connection with the making of any payment from the Tax and Insurance Escrow Account, Lender may cause such payment to be made according to any bill, statement or estimate procured from the appropriate public office, without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof unless given written advance notice by Borrower of such inaccuracy, invalidity or other contest.

3.5. TI/LC Reserve Account.

(a) On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the purpose of reserving amounts in respect of Tenant Improvements and Leasing Commissions (the “TI/LC Reserve Account”).

(b) On each Payment Date, there shall be deposited into the TI/LC Reserve Account an amount equal to the Monthly TI/LC Amount; or, at Borrower’s election, Borrower shall deliver to Lender a Qualified Letter of Credit or a Qualified Guaranty that shall at all times be in an amount that is not less than the amount that would be contained in the TI/LC Reserve Account had Borrower made monthly deposits therein and subsequently withdrawn therefrom all amounts that would have been permitted to be withdrawn therefrom pursuant to Section 3.5(c). If Borrower satisfies its obligation under this Section 3.5(b) by providing a letter of credit which

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at any time ceases to be a Qualified Letter of Credit, or by providing a guaranty which at any time ceases to be a Qualified Guaranty, Borrower shall, within 10 Business Days thereafter, either (x) deliver to Lender a Qualified Letter of Credit or, if applicable, a Qualified Guaranty, in the amount required under the first sentence of this Section 3.5(b) or (y) deposit into the TI/LC Reserve Account the amount that would be contained therein had Borrower made monthly deposits therein and subsequently withdrawn therefrom all amounts that would have been permitted to be withdrawn therefrom pursuant to Section 3.5(c).

(c) If Borrower satisfies its obligation under Section 3.5(b) by making deposits into the TI/LC Reserve Account, then, upon the request of Borrower at any time that no Event of Default is continuing (but not more often than once per calendar month), Lender shall cause disbursements to Borrower from the TI/LC Reserve Account to reimburse Borrower for Leasing Commissions and Tenant Improvement costs incurred by Borrower in connection with a new Lease (or Lease extension) entered into in accordance herewith, or, at Borrower’s direction, to directly pay such costs, provided that (1) Borrower shall deliver to Lender invoices evidencing incurrence of the costs as to which such disbursements are requested, and (2) Lender may condition the making of a requested disbursement on (i) reasonable evidence establishing that the requested disbursement is in respect of Leasing Commissions and Tenant Improvement costs incurred by Borrower in connection with a new Lease (or Lease extension) entered into in accordance herewith, and (ii) Borrower’s receipt of partial lien releases and waivers from contractors, subcontractors and others with respect to amounts for which Borrower has previously received disbursements under this Section 3.5(c).

(d) Whenever a Major Lease is terminated, whether by buy-out, cancellation, default or otherwise, and Borrower receives any payment, fee or penalty in respect of such termination (a “Termination Fee”), Borrower shall promptly cause such Termination Fee to be deposited into the TI/LC Reserve Account (except that if such Termination Fee exceeds 125% of the Leasing Commissions, Tenant Improvement costs and other Capital Expenditures reasonably required to enter into a replacement Lease in respect of the space covered by the terminated Lease (or 100% of such amounts if they are set forth as a fixed dollar amount in executed agreements), such excess shall instead be deposited into the Cash Management Account). Provided no Event of Default has occurred and is continuing, Lender shall disburse such Termination Fee to Borrower at the written request of Borrower in respect of Leasing Commissions and Tenant Improvement costs incurred by Borrower in connection with a replacement Lease entered into in accordance with the terms hereof in respect of the space covered by such terminated Lease and the remainder of such Termination Fee, if any, shall be remitted to the Cash Management Account after the space covered by such terminated Lease has been relet and the replacement Tenant is in occupancy and has commenced paying rent under the replacement Lease.

3.6. Replacement Reserve Account.

(a) On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the purpose of reserving amounts in respect of Capital Expenditures (the “Replacement Reserve Account”).

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(b) On each Payment Date, there shall be deposited into the Replacement Reserve Account an amount equal to the Monthly Replacement Reserve Amount; or, at Borrower’s election, Borrower shall deliver to Lender a Qualified Letter of Credit or a Qualified Guaranty that shall at all times be in the amount that would be contained in the Replacement Reserve Account had Borrower made monthly deposits therein and subsequently withdrawn therefrom all amounts that would have been permitted to be withdrawn therefrom pursuant to Section 3.6(c). If Borrower satisfies its obligation under this Section 3.6(b) by providing a letter of credit which at any time ceases to be a Qualified Letter of Credit, or by providing a guaranty which at any time ceases to be a Qualified Guaranty, Borrower shall, within 10 Business Days thereafter, either (x) deliver to Lender a Qualified Letter of Credit or, if applicable, a Qualified Guaranty, in the amount required under the first sentence of this Section 3.6(b) or (y) deposit into the Replacement Reserve Account the amount that would be contained therein had Borrower made monthly deposits therein and subsequently withdrawn therefrom all amounts that would have been permitted to be withdrawn therefrom pursuant to Section 3.6(c).

(c) If Borrower satisfies its obligation under Section 3.6(b) by making deposits into the Replacement Reserve Account, then, upon the request of Borrower at any time that no Event of Default is continuing (but not more often that once per calendar month), Lender will cause disbursements to Borrower from the Replacement Reserve Account to reimburse Borrower for Capital Expenditures, or, at Borrower’s direction, to directly pay such costs; provided that (1) Borrower shall deliver to Lender invoices evidencing incurrence of the costs as to which such disbursements are requested, and (2) Lender may condition the making of a requested disbursement on (i) reasonable evidence establishing that the requested disbursement is in respect of a Capital Expenditure; and (ii) Borrower’s receipt of partial lien releases and waivers from contractors, subcontractors and others with respect to amounts for which Borrower has previously received disbursements under this Section 3.6(c).

3.7. Intentionally Omitted.

3.8. Loss Proceeds Account.

(a) On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the purpose of depositing any Loss Proceeds (the “Loss Proceeds Account”).

(b) Provided no Event of Default is continuing, funds in the Loss Proceeds account shall be applied in accordance with Section 5.16.

3.9. Unfunded Obligations Account.

(a) On or prior to the Closing Date, Borrower shall establish and thereafter maintain with the Cash Management Bank an account for the purpose of reserving an amount in respect of Unfunded Obligations required to be funded by Borrower (the “Unfunded Obligations Account”). The portion of the amount contained in the Unfunded Obligations Account that relates to the Cleary Gottlieb lease is referred to herein as the “Cleary Reserve”.

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(b) On the Closing Date, Borrower shall either (x) deposit into the Unfunded Obligations Account, from the proceeds of the Loan, an amount equal to the Unfunded Obligations Amount, or (y) deliver to Lender a Qualified Letter of Credit in such amount. If Borrower satisfies its obligations under the preceding sentence by making a deposit into the Unfunded Obligations Account, Borrower shall have the right at any time, so long as no Event of Default is continuing, to require Lender to return such deposit to Borrower in exchange for a Qualified Letter of Credit in the amount so returned to Borrower. In addition, any amount (or portion thereof) that would otherwise be required to be deposited into the Unfunded Obligations Account may, at Borrower’s election, be provided instead in the form of a guaranty satisfactory to Lender from Sponsor, provided that and for so long as (x) Sponsor satisfies the Guaranty Eligibility Requirement, and (y) Borrower delivers to Lender at the time of delivery of such guaranty customary legal opinions including an opinion of counsel, in form and substance reasonably satisfactory to Lender, to the effect that delivery of the guaranty does not alter the conclusion reached in the Nonconsolidation Opinion (which opinion may be included in the Nonconsolidation Opinion).

(c) Borrower shall perform the Unfunded Obligations in a diligent, workmanlike manner and shall complete the same within the respective time periods set forth in Schedule D. Upon the request of Borrower at any time that no Event of Default is continuing (but not more often than once per calendar month), Lender shall cause disbursements to Borrower from the Unfunded Obligations Account to reimburse Borrower for reasonable costs and expenses incurred in the performance of Unfunded Obligations or, at Borrower’s direction, to directly pay such costs (or, if applicable, shall permit the reduction of the amount of the Qualified Letter of Credit by the amount that would have been so disbursed), provided that

(i) Borrower shall deliver to Lender invoices evidencing that the costs for which such disbursements are requested are due and payable;

(ii) Borrower shall deliver to Lender an Officer’s Certificate confirming that all such costs have been previously paid by Borrower or will be paid from the proceeds of the requested disbursement; and

(iii) Lender may condition the making of a requested disbursement on (1) reasonable evidence establishing that Borrower has applied any amounts previously received by it in accordance with this Section for the expenses to which specific draws made hereunder relate, (2) a reasonably satisfactory site inspection, and (3) receipt of lien releases and waivers from any contractors, subcontractors and others with respect to such amounts.

(d) If Borrower satisfies its obligation under Section 3.9(b) by providing a letter of credit which at any time ceases to be a Qualified Letter of Credit, or by providing a guaranty which at any time ceases to be a Qualified Guaranty, Borrower shall, within 10 Business Days thereafter, either (x) deliver to Lender a Qualified Letter of Credit or, if applicable, a Qualified Guaranty, in the amount required under such Section 3.9(b) or (y) deposit into the Unfunded Obligations Account the amount that would be contained therein had Borrower deposited the Unfunded Obligations Amount therein on the Closing Date and

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subsequently withdrawn therefrom all amounts that would have been permitted to be withdrawn therefrom pursuant to Section 3.9(c).

3.10. Account Collateral.

(a) Borrower hereby grants a perfected first-priority security interest in favor of Lender in and to the Account Collateral as security for the Indebtedness, together with all rights of a secured party with respect thereto. Each Collateral Account shall be an Eligible Account under the sole dominion and control of Lender and shall be in the name of Borrower, as pledgor, and Lender, as pledgee. Borrower shall have no right to make withdrawals from any of the Collateral Accounts. Funds in the Collateral Accounts shall not be commingled with any other monies at any time. Borrower shall execute any additional documents that Lender in its reasonable discretion may require and shall provide all other evidence reasonably requested by Lender to evidence or perfect its first-priority security interest in the Account Collateral.

(b) The insufficiency of amounts contained in the Collateral Accounts shall not relieve Borrower from its obligation to fulfill all covenants contained in the Loan Documents.

(c) During the continuance of an Event of Default, Lender may, in its sole discretion, apply funds in the Collateral Accounts either toward the components of the Indebtedness (e.g., interest, principal and other amounts payable hereunder), the Loan and the Notes in such sequence as Lender shall elect in its sole discretion or toward the payment of Operating Expenses and Capital Expenditures.

3.11. Permitted Investments. Funds in the Collateral Account shall be invested only in Permitted Investments, at the discretion of (x) with respect to the Tax and Insurance Reserve Account, Lender, and (y) with respect to the other Collateral Accounts, Borrower. All income and gains from the investment of funds in the Collateral Accounts other than the Tax and Insurance Reserve Account shall be retained in the Collateral Accounts from which they were derived. Unless otherwise required by applicable law, all income and gains from the investment of funds in the Tax and Insurance Reserve Account shall be for the account of Lender in consideration of its administration of such Collateral Account, and Lender shall have the right at any time to cause the Cash Management Bank to remit such amounts to Lender. After the Loan and all other Indebtedness have been paid in full, the Collateral Accounts shall be closed and the balances therein, if any, shall be paid to Borrower.

3.12. Bankruptcy. Borrower and Lender hereby acknowledge and agree that upon the filing of a bankruptcy petition by or against Borrower under the Bankruptcy Code, the Account Collateral and the Revenues (whether then already in the Collateral Accounts, or then due or becoming due thereafter) shall be deemed not to be property of Borrower’s bankruptcy estate within the meaning of Section 541 of the Bankruptcy Code. In the event, however, that a court of competent jurisdiction determines that, notwithstanding the foregoing characterization of the Account Collateral and the Revenues by Borrower and Lender, the Account Collateral and/or the Revenues do constitute property of Borrower’s bankruptcy estate, then Borrower and Lender hereby further acknowledge and agree that all such Revenues, whether due and payable before or after the filing of the petition, are and shall be cash collateral of Lender. Borrower

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acknowledges that Lender does not consent to Borrower’s use of such cash collateral and that, in the event Lender elects (in its sole discretion) to give such consent, such consent shall only be effective if given in writing signed by Lender. Except as provided in the immediately preceding sentence, Borrower shall not have the right to use or apply or require the use or application of such cash collateral (i) unless Borrower shall have received a court order authorizing the use of the same, and (ii) Borrower shall have provided such adequate protection to Lender as shall be required by the bankruptcy court in accordance with the Bankruptcy Code.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Borrower hereby represents and warrants to Lender that, as of the Closing Date, except as set forth in the Exception Report:

4.1. Organization.

(a) Borrower is a limited liability company, validly existing and in good standing under the laws of the State of Delaware, and is in good standing as a foreign limited liability company in each other jurisdiction where ownership of its properties or the conduct of its business requires it to be so, and Borrower has all power and authority under such laws and its organizational documents and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted.

(b) Borrower has no subsidiaries and does not own any equity interest in any other Person.

4.2. Authorization. Borrower has the power and authority to enter into this Agreement and the other Loan Documents, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated by the Loan Documents and has by proper action duly authorized the execution and delivery of the Loan Documents.

4.3. No Conflicts. Neither the execution and delivery of the Loan Documents, nor the consummation of the transactions contemplated therein, nor performance of and compliance with the terms and provisions thereof will (i) violate or conflict with any provision of its operating agreement, certificate of formation or other governance document, (ii) violate any law, regulation (including Regulation U, Regulation X or Regulation T), order, writ, judgment, injunction, decree or permit applicable to it, (iii) violate or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, contract or other Material Agreement to which Borrower or Sponsor is a party or by which Borrower or Sponsor may be bound, or (iv) result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to Borrower’s properties in favor of any party other than Lender.

4.4. Consents. No consent, approval, authorization or order of, or qualification with, any court or Governmental Authority is required in connection with the execution, delivery or performance by Borrower of this Agreement or the other Loan Documents, except for any of the foregoing which have already been obtained.

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4.5. Enforceable Obligations. This Agreement and the other Loan Documents have been duly executed and delivered by Borrower and constitute Borrower’s legal, valid and binding obligations, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by Borrower, including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable.

4.6. No Default. No Default or Event of Default will exist immediately following the making of the Loan.

4.7. Payment of Taxes. Borrower has filed, or caused to be filed, all tax returns (federal, state, local and foreign) required to be filed and paid all amounts of taxes due (including interest and penalties) and has paid all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangible taxes) owing by it necessary to preserve the Liens in favor of Lender, except for taxes which are not yet delinquent.

4.8. Compliance with Law. Borrower, the Property and the use thereof comply in all material respects with all applicable Insurance Requirements and Legal Requirements, including building and zoning ordinances and codes. The Property conforms to current zoning requirements and is neither an illegal nor a legal nonconforming use. Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority the violation of which could adversely affect the Property or the condition (financial or otherwise) or business of Borrower. There has not been committed by or on behalf of Borrower or, to the best of Borrower’s knowledge, any other person in occupancy of or involved with the operation or use of the Property, any act or omission affording the federal government or any state or local government the right of forfeiture as against the Property or any portion thereof or any monies paid in performance of its obligations under any of the Loan Documents. Borrower has not purchased any portion of the Property with proceeds of any illegal activity.

4.9. ERISA. Neither Borrower nor any ERISA Affiliate of Borrower has incurred any liability under Title IV or Section 302 of ERISA or Section 412 of the Code or maintains or contributes to, or is or has been required to maintain or contribute to, any employee benefit plan subject to Title IV or Section 302 of ERISA or Section 412 of the Code. The consummation of the transactions contemplated hereby will not constitute or result in any transaction prohibited by Section 406 of ERISA or Section 4975 of the Code.

4.10. Government Regulation. Borrower is not an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended.

4.11. No Bankruptcy Filing. Borrower is not contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or property. Borrower does not have knowledge of any Person contemplating the filing of any such petition against it.

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4.12. Other Debt. Borrower does not have outstanding any Debt other than Permitted Debt.

4.13. Litigation. There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending, and to the best of Borrower’s knowledge there are no such actions, suits or proceedings threatened against or affecting Borrower or the Property, which actions, suits or proceedings, alone or in the aggregate, if determined against it or the Property, could result in a Material Adverse Effect (and all such actions, suits and proceedings, regardless of materiality, are listed in the Exception Report).

4.14. Leases; Material Agreements.

(a) The rent rolls attached hereto as Schedule E (the “Rent Rolls”) are true and correct as of the date of this Agreement. Except as indicated on the Rent Rolls and the estoppel letters delivered by Tenants to Lender in connection with the Closing, (i) no Tenant has any extension, renewal or termination options, (ii) no security deposits are being held by Borrower, (iii) all work to be performed by the landlord under the Leases has been substantially performed, all contributions to be made by the landlord to the Tenants thereunder have been made and all other conditions to each such Tenant’s obligations thereunder have been satisfied, and (iv) no Tenant or other party has any option, right of first refusal or similar preferential right to purchase or lease all or any portion of the Property or to require Borrower to perform or finance Tenant Improvements or Material Alterations.

(b) Borrower has delivered to Lender true and complete copies of all Leases. No person has any possessory interest in the Property or right to occupy the same except under and pursuant to the provisions of the Leases.

(c) No fixed rent has been paid more than 30 days in advance of its due date and no payments of rent are more than 30 days delinquent.

(d) There are no Material Agreements except as described in Schedule F. Borrower has made available to Lender true and complete copies of all Material Agreements. Each Material Agreement has been entered into at arm’s length in the ordinary course of business by or on behalf of Borrower.

(e) The Leases and the Material Agreements are in full force and effect and there are no defaults thereunder by Borrower or, to Borrower’s best knowledge, any other party thereto. Borrower is not in default in any respect which would have a Material Adverse Effect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Permitted Encumbrance or any other agreement or instrument to which it is a party or by which it or the Property is bound.

4.15. Full and Accurate Disclosure. To Borrower’s knowledge, no statement of fact heretofore delivered by Borrower to Lender in writing in respect of the Property or the Borrower contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained therein not misleading unless subsequently corrected.

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There is no fact presently actually known to Borrower which has not been disclosed in writing to Lender which is reasonably likely to result in a Material Adverse Effect.

4.16. Financial Condition. All financial data concerning Borrower and the Property heretofore provided to Lender fairly presents in accordance with GAAP the financial position of Borrower in all material respects, as of the date on which it is made, and does not omit to state any material fact necessary to make statements contained herein or therein not misleading. Since the delivery of such data, except as otherwise disclosed in writing to Lender, there have occurred no changes or circumstances which have had or are reasonably likely to result in a Material Adverse Effect.

4.17. Single-Purpose Requirements. Borrower is now, and has always been since its formation, a Single-Purpose Entity.

4.18. Location of Chief Executive Offices. The location of Borrower’s principal place of business and chief executive office is the address listed in Section 9.4.

4.19. Not Foreign Person. Borrower is not a “foreign person” within the meaning of Section 1445(f)(3) of the Code.

4.20. Labor Matters. Borrower is not a party to any collective bargaining agreements.

4.21. Title. Borrower owns good, marketable and indefeasible title to the Property in fee (except that with respect to the space occupied by the National Association of Securities Dealers, Borrower has a good, marketable and indefeasible leasehold and reversionary interest) and good title to the related personal property, in each case free and clear of all Liens whatsoever except the Permitted Encumbrances. The Mortgage, when properly recorded in the appropriate records, together with the Assignment of Rents and Leases and any Uniform Commercial Code financing statements required to be filed in connection therewith, will create (i) valid, perfected first priority liens on the Property or the leasehold interests therein, as the case may be, subject only to Permitted Encumbrances, and (ii) perfected security interests in and to, and perfected collateral assignments of, all personalty (including the Leases), all in accordance with the terms thereof, in each case subject only to any applicable Permitted Encumbrances. The Permitted Encumbrances do not and will not materially adversely affect or interfere with the value, or current use or operation, of the Property, or the security intended to be provided by the Mortgage or Borrower’s ability to repay the Indebtedness in accordance with the terms of the Loan Documents. The Assignment of Rents and Leases, when properly recorded in the appropriate records, create a valid first priority assignment of, or a valid first priority security interest in, certain rights under the related Leases, subject only to licenses granted therein to Borrower to exercise certain rights and to perform certain obligations of the lessor under such Leases, including the right to operate the related Property. No Person other than Borrower owns any interest in any payments due under such Leases that is superior to or of equal priority with Lender’s interest therein.

4.22. No Encroachments. Except as shown on the applicable Qualified Survey, all of the improvements on the Property lie wholly within the boundaries and building restriction

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lines of the Property, and no improvements on adjoining property encroach upon the Property, and no easements or other encumbrances upon the Property encroach upon any of the improvements, so as, in either case, to adversely affect the value or marketability of the Property, except those which are insured against by a Qualified Title Insurance Policy.

4.23. Physical Condition.

(a) Except for matters set forth in the Engineering Reports, the Property (including sidewalks, storm drainage system, roof, plumbing system, HVAC system, fire protection system, electrical system, equipment, elevators, exterior sidings and doors, irrigation system and all structural components) is in good condition, order and repair in all respects material to its use, operation or value.

(b) Borrower is not aware of any material structural or other material defect or damages in the Property, whether latent or otherwise.

(c) Borrower has not received and is not aware of any other party’s receipt of notice from any insurance company or bonding company of any defects or inadequacies in the Property which would, alone or in the aggregate, adversely affect in any material respect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond.

4.24. Solvency. On the Closing Date, the fair salable value of Borrower’s assets exceeds and will, immediately following the making of the Loan and the use and disbursement of the proceeds thereof, exceed Borrower’s aggregate liabilities (including subordinated, unliquidated, disputed and Contingent Obligations). The fair salable value of Borrower’s aggregate assets is and will, immediately following the making of the Loan and the use and disbursement of the proceeds thereof, be greater than Borrower’s probable aggregate liabilities (including the maximum amount of its contingent liabilities on its debts as such debts become absolute and matured). Borrower’s aggregate assets do not and, immediately following the making of the Loan and the use and disbursement of the proceeds thereof will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including Contingent Obligations and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower).

4.25. Management. Except for any Approved Management Agreement, no property management agreements are in effect with respect to the Property.

4.26. Condemnation. No Condemnation has been commenced or, to Borrower’s actual knowledge, is contemplated with respect to all or any material portion of the Property or for the relocation of roadways providing access to the Property.

4.27. Utilities and Public Access. The following statements are accurate in all material respects:

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(i) The Property has adequate rights of access to dedicated public ways (and makes no material use of any means of access or egress that is not pursuant to such dedicated public ways or recorded, irrevocable rights-of-way or easements) and is served by water, electric, sewer, sanitary sewer and storm drain facilities.

(ii) All public utilities necessary to the continued use and enjoyment of the Property as presently used and enjoyed are located in the public right-of-way abutting the premises or in areas (“Easement Areas”) that are the subject of recorded irrevocable easement agreements which benefit the Property and which are listed in Schedule A of the applicable Qualified Title Insurance Policy so as to be included in the coverage thereof.

(iii) All such utilities are connected so as to serve the Property without passing over other property other than Easement Areas.

(iv) All roads necessary for the full utilization of the Property for its current purpose have been completed and are either part of the Property (by way of deed, easement or ground lease) or dedicated to public use and accepted by all Governmental Authorities.

4.28. Environmental Matters. Except as disclosed in the Environmental Reports:

(i) The Property is in compliance in all material respects with all Environmental Laws applicable to the Property (which compliance includes, but is not limited to, the possession of, and compliance with, all environmental, health and safety permits, approvals, licenses, registrations and other governmental authorizations required in connection with the ownership and operation of the Property under all Environmental Laws).

(ii) There is no Environmental Claim pending or, to the actual knowledge of Borrower, threatened, with respect to the Property.

(iii) There have not been and are no past, present or threatened Releases of any Hazardous Substance from or at the Property that are reasonably likely to form the basis of any Environmental Claim, and, to Borrower’s knowledge, there is no threat of any Release of any Hazardous Substance migrating to the Property.

(iv) Without limiting the generality of the foregoing, there is not present at, on, in or under the Property, any Hazardous Substances, PCB-containing equipment, asbestos or asbestos containing materials, underground storage tanks or surface impoundments for any Hazardous Substance, lead in drinking water (except in concentrations that comply with all Environmental Laws), or lead-based paint.

(v) No Liens are presently recorded with the appropriate land records under or pursuant to any Environmental Law with respect to the Property and, to Borrower’s best knowledge, no Governmental Authority has been taking any action to subject the Property to Liens under any Environmental Law.

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(vi) Borrower has not received written notice of any judicial proceeding or governmental or administrative action pending or threatened, under any Environmental Law to which the Borrower is named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental law with respect to the Borrower or, to Borrower’s knowledge, the Property.

(vii) The Borrower has not contractually assumed any liability of any Person under any Environmental Law.

4.29. Assessments. There are no pending or, to Borrower’s knowledge, proposed special or other assessments for public improvements or otherwise affecting the Property, nor are there any contemplated improvements to the Property that may result in such special or other assessments. No extension of time for assessment or payment by Borrower of any federal, state or local tax is in effect.

4.30. No Joint Assessment. Borrower has not suffered, permitted or initiated the joint assessment of the Property (i) with any other real property constituting a separate tax lot, or (ii) with any personal property, or any other procedure whereby the lien of any Taxes which may be levied against such other real property or personal property shall be assessed or levied or charged to the Property as a single Lien.

4.31. Separate Lots. No portion of the Property is part of a tax lot that also includes any real property that is not Collateral.

4.32. Permits; Certificate of Occupancy. Borrower has obtained all Permits necessary for the use and operation of the Property. The uses being made of the Property are in conformity in all material respects with the certificate of occupancy and/or Permits for the Property and any other restrictions, covenants or conditions affecting the Property.

4.33. Flood Zone. None of the Improvements on the Property is located in an area identified by the Federal Emergency Management Agency or the Federal Insurance Administration as having special flood hazards (Zone A), and, to the extent that any portion of the Property is located in an area identified by the Federal Emergency Management Agency as a “100 year flood plain,” the Property is covered by flood insurance meeting the requirements set forth in Section 5.15(a)(ii).

4.34. Security Deposits. Borrower is in compliance in all material respects with all Legal Requirements relating to security deposits.

4.35. Intentionally Omitted.

4.36. Acquisition Documents. Borrower has delivered to Lender true and complete copies of all material agreements and instruments under which Borrower or any of its Affiliates have remaining rights or obligations in respect of Borrower’s acquisition of the Property.

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4.36. Insurance. Borrower has obtained insurance policies reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. All premiums on such insurance policies required to be paid as of the date hereof have been paid for the current policy period. No Person, including Borrower, has done, by act or omission, anything which would impair the coverage of any such policy.

4.37. Use of Proceeds. None of the proceeds of the Loan will be used for the purpose of purchasing or carrying any “margin stock” as defined in Regulation U, Regulation X or Regulation T or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry “margin stock” or for any other purpose which might constitute this transaction a “purpose credit” within the meaning of Regulation U or Regulation X. As of the Closing Date, Borrower does not own any “margin stock.”

4.38. IDA Lease. The following statements are true and correct:

(i) a true and complete copy of the IDA Lease has been delivered to Lender;

(ii) the IDA Lease or a memorandum thereof has been duly recorded;

(iii) the IDA Lease permits Borrower’s interest thereunder to be encumbered by the Mortgage;

(iv) the IDA Lease is assignable (subject to all existing tenancies and subtenancies) by a holder of a mortgage encumbering the lessee’s interest therein upon a foreclosure of mortgage without the consent of the lessor thereunder;

(v) the IDA Lease does not restrict the use of the Property by Borrower, its successors or assigns in a manner that would adversely affect in a material respect the security provided to Lender by the Mortgage;

(vi) upon the expiration or other termination of the IDA Lease, fee title in the premises covered thereby shall revert to Borrower; and

(vii) the IDA Lease is in full force and effect and no default has occurred thereunder nor, to the best of the Borrower’s knowledge after due inquiry and investigation, is there any existing condition which, but for the passage of time or the giving of notice or both, would result in a default under the terms of the IDA Lease.

4.39 Embargoed Person. (a) None of the funds or other assets of any of Borrower or Sponsor constitute property of, or are beneficially owned, directly or indirectly, by any person, entity or government subject to trade restrictions under federal law, including, without limitation, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq. , and any executive orders or regulations promulgated thereunder, with the result that (i) the investment in any of Borrower or Sponsor, as applicable (whether directly or indirectly), is prohibited by law or (ii) the Loan is in violation of law (any such person, entity or government, an “Embargoed Person”); (b) no Embargoed Person has any interest of any nature whatsoever in any of Borrower or Sponsor, as applicable (whether directly or indirectly), with the result that (i) the investment in any of

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Borrower or Sponsor, as applicable (whether directly or indirectly) is prohibited by law or (ii) the Loan is in violation of law and (c) none of the funds of any of Borrower or Sponsor, as applicable, have been derived from any unlawful activity with the result that (i) the investment in any of Borrower or Sponsor, as applicable (whether directly or indirectly) is prohibited by law or (ii) the Loan is in violation of law. Notwithstanding Section 4.41 to the contrary, the representations and warranties contained in this Section 4.39 shall survive in perpetuity.

4.40 Compliance with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering Laws. Borrower, and to the best of Borrower’s knowledge (a) each Person owning an interest in any of Borrower or Sponsor (other than public shareholders), (b) Sponsor, (c) each Property manager (including each Approved Property Manager) and (d) each Tenant at the Property: (i) is not currently identified on the OFAC List and (ii) is not a Person with whom a citizen of the United States is prohibited to engage in transactions by any trade embargo, economic sanction, or other prohibition of any Legal Requirement. Borrower has implemented procedures, and will consistently apply those procedures throughout the term of the Loan, to ensure the foregoing representations and warranties remain true and correct during the term of the Loan.

4.41. Survival. Borrower agrees that all of the representations and warranties of Borrower set forth in this Agreement and in the other Loan Documents shall survive for so long as any portion of the Indebtedness is outstanding. All representations, warranties, covenants and agreements made by Borrower in this Agreement or in the other Loan Documents shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. On the date of any Securitization, on not less than three days’ prior written notice, Borrower shall deliver to Lender a certification (x) confirming that all of the representations and warranties contained herein are true and correct as of the date of the Securitization, or (y) otherwise specifying any changes in or qualifications to such representations and warranties as of such date as may be necessary to make such representations and warranties consistent with the facts as they exist on such date. Borrower shall have no further obligation to update any representation or warranty nor shall any representation or warranty be deemed to have been made on any date other than the Closing Date or as of the date of any Securitization, other than any affirmative disclosure obligation contained herein.

ARTICLE V

AFFIRMATIVE COVENANTS

5.1. Existence. Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence as a limited liability company and all rights, licenses, Permits, franchises and other agreements necessary for the continued use and operation of its business. Borrower shall deliver to Lender a copy of each amendment or other modification to any of its organizational documents promptly after the execution thereof.

5.2. Maintenance of Property; Compliance with Legal Requirements. Borrower will keep the Property in good working order and repair, reasonable wear and tear excepted. Subject to Section 6.13, Borrower shall from time to time make, or cause to be made, all reasonably necessary and desirable repairs, renewals, replacements, betterments and

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improvements thereto. Borrower shall comply with, and shall cause the Property to be operated, maintained, repaired and improved in compliance in all material respects with, all Legal Requirements and Insurance Requirements.

5.3. Impositions and Other Claims. Borrower shall pay and discharge all taxes, assessments and governmental charges levied upon it, its income and its assets as and when such taxes, assessments and charges are due and payable, as well as all lawful claims for labor, materials and supplies or otherwise, subject to any rights to contest contained in the definition of Permitted Encumbrances. Borrower shall file all federal, state and local tax returns and other reports that it is required by law to file. In the event of the enactment after this date of any law or regulation applicable to Lender, any Note, the Property or the Mortgage deducting from the value of property for the purpose of taxation any lien or security interest thereon, or imposing upon Lender the payment of the whole or any portion of the taxes or assessments or charges or liens herein required to be paid by Borrower, or changing in any way the laws or regulations relating to the taxation of mortgages or security agreements or debts secured by mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect the Mortgage, the Indebtedness or Lender, then Borrower, upon demand by Lender, shall pay such taxes, assessments, charges or liens, or reimburse Lender for any amounts paid by Lender; provided that if in the opinion of Lender’s counsel it might be unlawful to require Borrower to make such payment or the making of such payment might result in the imposition of interest beyond the maximum amount permitted by applicable Law, Lender may elect to declare all of the Indebtedness to be due and payable 120 days from the giving of written notice by Lender to Borrower.

5.4. Access to Property. Borrower shall permit agents, representatives and employees of Lender and the Servicer to inspect the Property or any portion thereof, and/or the books and records of Borrower, at such reasonable times as may be requested by Lender upon reasonable advance notice.

5.5. Notices of Material Events. Borrower shall promptly advise Lender of (i) any change in Borrower’s condition, financial or otherwise, which is reasonably likely to have a Material Adverse Effect, or (ii) the occurrence to the best of Borrower’s knowledge of any Default or Event of Default, or (iii) the termination or cancellation of any Major Lease, or (iv) the termination or cancellation of terrorism or other insurance required by this Agreement.

5.6. Litigation. Borrower shall give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened in writing against Borrower which is reasonably likely to have a Material Adverse Effect.

5.7. Cooperate in Legal Proceedings. Except with respect to any claim by Borrower against Lender, Borrower shall cooperate fully with Lender with respect to any proceedings before any Governmental Authority which may in any way affect the rights of Lender hereunder or under any of the Loan Documents and, in connection therewith, Lender may, at its election, participate or designate a representative to participate in any such proceedings.

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5.8. Leases.

(a) Borrower shall furnish Lender with executed copies of all Leases. Borrower hereby covenants and agrees that all new Leases and renewals or amendments of Leases shall be entered into on an arms-length basis with Tenants whose identity and creditworthiness is appropriate for tenancy in a class A office building, shall provide for rental rates and other economic terms which, taken as a whole, are at least equivalent to then-existing market rates, based on the applicable market, and shall contain terms and conditions that are Commercially Reasonable (in each case, unless Lender consents to such Lease in its sole discretion). In connection with and as a condition to any new Major Lease and any renewal or amendment of any Major Lease, Borrower shall deliver to Lender an Officer’s Certificate certifying that same complies with the preceding sentence. All new Leases shall provide that they are subject and subordinate to any current or future mortgage financing on the Property and that the Tenant agrees to attorn to any foreclosing mortgagee at such mortgagee’s request, provided such mortgagee agrees not to disturb such Tenant’s tenancy except in accordance with its Lease. Contemporaneously with the execution of each new Major Lease, Borrower shall deliver to Lender an Officer’s Certificate confirming that such Major Lease is in compliance with this Section 5.8(a).

(b) Any Lease containing an option or preferential right to purchase any portion of the Property, and any Lease with an affiliate of Borrower as Tenant, shall be subject to the prior written approval of Lender. In addition, upon the occurrence and during the continuance of an Event of Default, all new Major Leases, and all terminations, renewals and amendments of Major Leases, and any surrender of rights under any Major Lease, shall be subject to the prior written approval of Lender. Except during the continuance of an Event of Default, each request for approval of a Major Lease which is submitted to Lender in an envelope marked “URGENT – LENDER’S ATTENTION REQUIRED WITHIN 15 BUSINESS DAYS”, together with a copy of the proposed lease, a summary of the economic terms thereof and any termination options contained therein, and copies of all written materials obtained by Borrower in connection with its evaluation of the creditworthiness of the proposed Tenant or, with respect to a proposed termination, a description of the reason therefor, shall be deemed approved if Lender shall not have notified the Borrower in writing of its disapproval and the reasons therefor within 15 Business Days after Lender’s receipt of such submission. Borrower may also request, pursuant to the procedure described in the preceding sentence, Lender’s approval of the rent and other amounts payable under a proposed Major Lease and the identity of the proposed Tenant even if the form of the proposed Major Lease is not yet available for Lender’s review, provided that the approval or deemed approval of such items shall not constitute Lender’s approval of such Major Lease, and when the proposed Major Lease becomes available Borrower shall be required to submit it for Lender’s approval in accordance with the procedure described in the preceding sentence. If Lender shall have previously consented or been deemed to have consented to the rent and other amounts payable under such proposed Major Lease and the identity of the proposed Tenant, Lender’s approval of such proposed Major Lease shall not be withheld unless the terms of such proposed Major Lease, taken as a whole, are not Commercially Reasonable.

(c) Borrower shall (i) deliver to each new Tenant a Tenant Notice upon execution of such Tenant’s Lease, and promptly thereafter deliver to Lender a copy thereof and

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evidence of such Tenant’s receipt thereof; (ii) observe and perform all the material obligations imposed upon the lessor under the Leases; (iii) enforce all of the material terms, covenants and conditions contained in the Leases on the part of the lessee thereunder to be observed or performed, short of termination thereof, provided that Borrower may terminate any Lease following a material default thereunder by the respective Tenant; (iv) not seek to collect any of the rents thereunder more than one month in advance; (v) not execute any assignment of lessor’s interest in the Leases or associated rents other than the Assignment of Rents and Leases; and (vi) not cancel or terminate any guarantee of any of the Major Leases without the prior written consent of Lender.

(d) Security deposits of Tenants under all Leases, whether held in cash or any other form, shall not be commingled with any other funds of Borrower and, if cash, shall be deposited by Borrower at such commercial or savings bank or banks as may be reasonably satisfactory to Lender and pledged to Lender. Any bond or other instrument which Borrower is permitted to hold in lieu of cash security deposits under any applicable Legal Requirements shall be maintained in full force and effect unless replaced by cash deposits as described above, shall be issued by an institution reasonably satisfactory to Lender, shall (if not prohibited by any Legal Requirements) name Lender as payee or mortgagee thereunder (or at Lender’s option, be fully assignable to Lender) or may name Borrower as payee thereunder so long as such bond or other instrument is pledged to Lender as security for the Indebtedness and shall, in all respects, comply with any applicable Legal Requirements and otherwise be reasonably satisfactory to Lender. Borrower shall, upon Lender’s request, provide Lender with evidence reasonably satisfactory to Lender of Borrower’s compliance with the foregoing. During the continuance of any Event of Default, Borrower shall, upon Lender’s request, deposit with Lender in an Eligible Account pledged to and under the sole dominion and control of Lender an amount equal to the aggregate security deposits of the Tenants (and any interest theretofore earned on such security deposits and actually received by Borrower) which Borrower received in cash and had not returned to the applicable Tenants or applied in accordance with the terms of the applicable Lease, and Lender shall hold such security deposits in a segregated account and apply or return such security deposits in accordance with the applicable Leases.

5.9. Plan Assets, etc. Borrower will do, or cause to be done, all things necessary to ensure that it will not be deemed to hold Plan Assets at any time.

5.10. Further Assurances. Borrower shall, at Borrower’s sole cost and expense, from time to time as reasonably requested by Lender, execute, acknowledge, record, register, file and/or deliver to Lender such other instruments, agreements, certificates and documents (including Uniform Commercial Code financing statements and amended or replacement mortgages) as Lender may reasonably request to evidence, confirm, perfect and maintain the Liens securing or intended to secure the obligations of Borrower under the Loan Documents or to facilitate a replacement of the Cash Management Bank pursuant to Section 3.1(c) or a bifurcation of the Notes pursuant to Sections 1.1(c) and/or 9.7(a), in each case if requested by Lender, and do and execute all such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents as Lender shall reasonably request from time to time. Borrower hereby authorizes and appoints Lender as its attorney-in-fact to execute, acknowledge, record, register and/or file such instruments, agreements, certificates and documents, and to do

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and execute such acts, conveyances and assurances, should Borrower fail to do so itself in violation of this Agreement following written request from Lender, in each case without the signature of Borrower. The foregoing grant of authority is a power of attorney coupled with an interest and such appointment shall be irrevocable for the term of this Agreement. Borrower hereby ratifies all actions that such attorney shall lawfully take or cause to be taken in accordance with this Section 5.10. Lender shall provide Borrower with copies of any instruments executed by Lender in accordance with this Section 5.10.

5.11. Management of Collateral.

(a) The Property shall be managed at all times by an Approved Property Manager pursuant to an Approved Management Agreement. Pursuant to the Subordination of Property Management Agreement or Agreements, each Approved Property Manager shall agree that its Approved Management Agreement, and all fees thereunder (including any incentive fees), are subject and subordinate to the Indebtedness in accordance with the Subordination of Property Management Agreement. Borrower may from time to time appoint a successor manager, which successor manager shall be an Approved Property Manager, to manage the Property pursuant to an Approved Management Agreement, and such successor manager shall execute a Subordination of Property Management Agreement for Lender’s benefit. The management agreement shall not provide for per annum management fees in excess of 2.5% of gross revenues.

(b) Borrower covenants and agrees that each Approved Property Manager (including any successor Approved Property Manager) shall at all times while the Loan is outstanding maintain worker’s compensation insurance as required by Governmental Authorities.

(c) Borrower shall notify Lender in writing of any “Event of Default” under and as defined in the Approved Management Agreement of which Borrower has actual knowledge.

(d) Upon (i) the occurrence and during the continuance of an Event of Default or (ii) the filing of a bankruptcy petition with respect to the Approved Property Manager, Lender may, in its sole discretion, require Borrower to terminate the Approved Management Agreement and engage an Approved Property Manager selected by Lender (and in the case of a termination resulting from (ii) above, subject to Borrower’s reasonable approval) to serve as replacement Approved Property Manager pursuant to an Approved Management Agreement.

5.12. Annual Financial Statements. As soon as available, and in any event within 90 days after the close of each Fiscal Year, Borrower shall furnish to Lender, in hard copy and, if reasonably available, electronic format, a balance sheet of Borrower as at the end of such Fiscal Year, together with related statements of income and members’ capital for such Fiscal Year, audited by a “big four” independent certified public accounting firm whose opinion shall be to the effect that such financial statements have been prepared in accordance with GAAP applied on a consistent basis and shall not be qualified as to the scope of the audit or as to the status of Borrower as a going concern. Together with Borrower’s annual financial statements, Borrower shall furnish to Lender, in hard copy and electronic format:

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(i) a statement of cash flows;

(ii) then current rent rolls (including vacancies);

(iii) an annual report for the most recently completed Fiscal Year, describing Capital Expenditures (stated separately with respect to any project costing in excess of $100,000), Tenant Improvements and Leasing Commissions; and

(iv) such other information as Lender shall reasonably request.

5.13. Quarterly Financial Statements. As soon as available, and in any event within 45 days after the end of each Fiscal Quarter, Borrower shall furnish to Lender, in hard copy and electronic format, quarterly and year-to-date unaudited financial statements prepared for such fiscal quarter with respect to Borrower, including a balance sheet and operating statement as at the end of such Fiscal Quarter, together with related statements of income, members’ capital and cash flows for such Fiscal Quarter and for the portion of the Fiscal Year ending with such Fiscal Quarter, which statements shall be accompanied by an Officer’s Certificate certifying that the same are true and correct and were prepared in accordance with GAAP applied on a consistent basis, subject to changes resulting from audit and normal year-end audit adjustments. Each such quarterly report shall be accompanied by the following, in hard copy and electronic format:

(i) a statement in reasonable detail which calculates Net Operating Income for the trailing four Fiscal Quarters, in each case, ending at the end of such Fiscal Quarter;

(ii) a summary of Leases signed during such quarter, which summary shall include the Tenant’s name, lease term, base rent, Tenant Improvements, leasing commissions paid, free rent and other material tenant concessions;

(iii) then current rent rolls (including vacancies); and

(iv) such other information as Lender shall reasonably request.

5.14. Monthly Financial Statements. Until the six-month anniversary of the Closing Date or, if earlier, the date of a Securitization, Borrower shall furnish within 45 days after the end of each calendar month, in hard copy and electronic format, monthly and year-to-date unaudited financial statements prepared for such month with respect to Borrower, including a balance sheet and operating statement as at the end of such month, together with related statements of income, members’ capital and cash flows for such month and for the portion of the Fiscal Year ending with such month, which statements shall be accompanied by an Officer’s Certificate certifying that the same are true and correct and were prepared in accordance with GAAP applied on a consistent basis, subject to changes resulting from audit and normal year-end audit adjustments. Each such monthly report shall be accompanied by the following, in hard copy and electronic format:

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(i) a summary of Leases signed during such month, which summary shall include the Tenant’s name, lease term, base rent, escalations, Tenant Improvements, leasing commissions paid, free rent and other concessions;

(ii) then current rent rolls (including vacancies); and

(iii) such other information as Lender shall reasonably request.

5.15. Insurance.

(a) Borrower shall obtain and maintain with respect to the Property, for the mutual benefit of Borrower and Lender at all times, the following policies of insurance:

(i) insurance against loss or damage by standard perils included within the classification “All Risks Special Form Cause of Loss” (including coverage for damage caused by windstorm and hail). Such insurance shall (A) be in an amount equal to the full replacement cost of the Property (without deduction for physical depreciation), except that windstorm and hail coverage shall be in such amounts as shall be reasonably agreed by Lender; (B) have deductibles acceptable to Lender (but in any event in compliance with Section 5.15(c)(ix), with the exception of Terrorism insurance, which may have a deductible no greater than $1,000,000, and windstorm and hail insurance, which may have a deductible no greater than 5% of total insurable value); (C) be paid annually in advance; (D) contain a “Replacement Cost Endorsement” and an “Agreed Upon Amount Endorsement” with a waiver of coinsurance; and (E) include ordinance or law coverage containing Coverage A: “Loss to the Undamaged Portion of the Building” (with a minimum limit equal to replacement cost), Coverage B: “Demolition Cost” and Coverage C: “Increased Cost of Construction” coverages in amounts as required by Lender;

(ii) Flood insurance if the Property is located in a “100 Year Flood Plain” or “special hazard area” (including Zones A, B, C, V, X and Shaded X Areas) in an amount equal to the maximum limit of coverage available from FEMA/FIA, plus such excess limits requested by Lender, with a deductible in compliance with Section 5.15(c)(ix);

(iii) commercial general liability insurance, including broad form coverage of property damage, blanket contractual liability and personal injury (including death resulting therefrom), containing minimum limits per occurrence of not less than $1,000,000 with not less than a $2,000,000 general aggregate for any policy year. In addition, at least $100,000,000 excess and/or umbrella liability insurance shall be obtained and maintained for any and all claims, including all legal liability imposed upon Borrower and all related court costs and attorneys’ fees and disbursements;

(iv) rental loss and/or business interruption insurance covering 100% of the projected gross income from the Property for (a) the 18 month period commencing on the date of any Casualty or Condemnation, and containing an extended period of indemnity endorsement covering the 12 month period commencing on the date on which the Property has been restored, as reasonably determined by the applicable insurer or (b) the 36-month period, commencing on the date of any Casualty or Condemnation, as agreed

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upon by Borrower and Lender, on an actual loss sustained basis covering the period of restoration and continuing until such income either returns to the same level it was at prior to the loss, or the expiration of 36 months (including coverage post-restoration during such 36 month period), and notwithstanding that the policy may expire prior to the end of such period. The amount of such insurance shall be increased from time to time as and when the gross revenues from the Property increase;

(v) insurance against loss or damage from (A) leakage of sprinkler systems and (B) explosion of steam boilers, air conditioning equipment, high pressure piping, machinery and equipment, pressure vessels or similar apparatus now or hereafter installed in any of the Improvements (without exclusion for explosions) and insurance against loss of occupancy or use arising from any breakdown, in such amounts as are generally available and are generally required by institutional lenders for properties comparable to the Property;

(vi) worker’s compensation insurance with respect to all employees of Borrower as and to the extent required by any Governmental Authority or Legal Requirement and employer’s liability coverage of at least $1,000,000;

(vii) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements, and only if the Property coverage form does not otherwise apply, (A) owner’s contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in subsection (i) above written on a so-called builder’s risk completed value form, including coverage for 100% of the total costs of construction (1) on a non-reporting basis, (2) against all risks insured against pursuant to subsection (i) above, (3) including permission to occupy the Property, and (4) with an agreed amount endorsement waiving co-insurance provisions;

(viii) Intentionally Omitted;

(ix) if required by Lender, earthquake insurance (A) with minimum coverage equivalent to the greater of 1.0x SUL (scenario upper loss) and 1.5x SEL (scenario expected loss), (B) having a deductible approved by Lender (but in any event shall not be in excess of 5% of the full replacement cost of the Property), and (C) if the Property is legally nonconforming under applicable zoning ordinances and codes, containing ordinance of law coverage;

(x) terrorism insurance (which, so long as the Terrorism Risk Insurance Act of 2002, as amended (“TRIA”) is in effect, shall be TRIA coverage) in an amount equal to the full replacement cost of the Property (plus twelve months of business interruption coverage); provided that Borrower shall not be required to spend on terrorism insurance coverage more than 1.5 times the amount of the insurance premium that is payable at such time in respect of the All Risks and business interruption/rental loss insurance required hereunder. Notwithstanding anything to the contrary contained herein, Realrisk Insurance Corporation (“Realrisk”) shall be an acceptable insurer of perils of terrorism

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and acts of terrorism so long as (i) the policy issued by Realrisk has (a) no aggregate limit and (b) a deductible of no greater than as calculated pursuant to TRIA, (ii) other than such deductible, the portion of such insurance which is not reinsured by TRIA, is reinsured by an insurance carrier rated no less than “A” (or its equivalent) by all of the Rating Agencies rating the Securities, (iii) TRIA or a similar federal statute is in effect and provides that the federal government must reinsure that portion of any terrorism insurance claim above (a) the applicable deductible payable by Realrisk and (b) those amounts which are reinsured pursuant to clause (ii) above, (iv) Realrisk is not the subject of a bankruptcy or similar insolvency proceeding and (v) no Governmental Authority issues any statement, finding or decree that insurers of perils of terrorism similar to Realrisk i.e., captive insurers arranged similar to Realrisk) do not qualify for the payments or benefits of TRIA. In the event that Realrisk is providing insurance coverage (A) to other properties immediately adjacent to the Property, and/or (B) to other properties owned by a Person(s) who is not an Affiliate of Borrower, and such insurance is not subject to the same reinsurance and other requirements of this Section 5.1.3, then Lender may reasonably re-evaluate the limits and deductibles of the insurance required to be provided by Realrisk hereunder. In the event any of the foregoing conditions are not satisfied, Realrisk shall not be deemed an acceptable insurer of Terrorism Losses. Borrower represents, warrants and covenants to Lender on behalf of Realrisk that the insurance premiums for the insurance coverages provided to Borrower by Realrisk are fair market value insurance premiums; and

(xi) such other insurance as may from time to time be reasonably requested by Lender.

(b) All policies of insurance (the “Policies”) required pursuant to this Section 5.15 shall be issued by one or more insurers having a claims-paying ability of at least “A” or “A2” by each of the Rating Agencies, or by a schedule of insurers through which at least 75% of the coverage (if there are 4 or fewer insurers on the schedule) or at least 60% of the coverage (if there are 5 or more insurers on the schedule) is with carriers having such claims-paying ability ratings (provided that the first layer of coverage are from carriers rated at least “A” or “A2” and all such carriers shall have claims-paying ability ratings of not less than “BBB+” or “Baa1”), provided the first layer of coverage under such insurance shall be provided by carriers with a minimum financial strength rating from S&P of “A” or better. Notwithstanding the foregoing, Lender hereby acknowledges and agrees that FM Global and Lancashire Insurance Company are acceptable carriers to the extent they currently insure the Property, provided they maintain their current rating. In the event the claims paying ability rating as determined by AM Best falls below the current rating, Borrower must obtain replacement insurance that meets the requirements of this Section without regard to the preceding sentence. Notwithstanding anything to the contrary herein, for purposes of determining whether the insurer ratings requirements set forth above have been satisfied, (1) any insurer that is not rated by Fitch will be regarded as having a Fitch rating that is the equivalent of the rating given to such insurer by any of Moody’s and S&P that does rate such insurer (or, if both such rating agencies rate such insurer, the lower of the two ratings), and (2) any insurer that is not rated by Moody’s will be regarded as having a Moody’s rating of “Baa1” or better if it is rated “A-” or better by S&P and will be regarded as having a Moody’s rating of “A2” or better if it is rated “A+” or better by S&P.

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(c) All Policies required pursuant to this Section 5.15:

(i) shall be maintained throughout the term of the Loan without cost to Lender;

(ii) with respect to casualty policies, shall contain a standard noncontributory mortgagee clause naming Lender and its successors and assigns as first mortgagee and loss payee;

(iii) with respect to liability policies, shall name Lender and its successors and assigns as additional insureds;

(iv) with respect to rental or business interruption insurance policies, shall name Lender and its successors and/or assigns as loss payee;

(v) shall provide that neither Borrower nor Lender nor any other party shall be a co-insurer under said Policies;

(vi) shall provide that Lender shall receive at least 30 days’ prior written notice of any modification, reduction or cancellation thereof;

(vii) shall provide that no act or negligence of Borrower or of a Tenant or other occupant shall affect the validity or enforceability of the insurance insofar as a mortgagee is concerned;

(viii) shall contain a waiver of subrogation against Lender;

(ix) shall contain deductibles which, in addition to complying with any other requirements expressly set forth in Section 5.15(a), are acceptable to Lender and are no larger than is customary for similar policies covering similar properties in the geographic market in which the Property is located and in any event no larger than $250,000, unless otherwise specified within this section; and

(x) may be in the form of a blanket policy, as approved by Lender.

(d) Borrower shall pay the premiums for all Policies as the same become due and payable. Copies of such Policies, certified as true and correct by Borrower, shall be delivered to Lender promptly upon request. Not later than five days prior to the expiration date of each Policy, Borrower shall deliver to Lender evidence, satisfactory to Lender, of its renewal.

(e) Borrower shall not procure any other insurance coverage which would be on the same level of payment as the Policies or would adversely impact in any way the ability of Lender or Borrower to collect any proceeds under any of the Policies.

5.16. Casualty and Condemnation.

(a) In the event of any Casualty or Condemnation, Borrower shall give prompt notice thereof to Lender. Lender may (x) jointly with Borrower settle and adjust any

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claims, (y) during the continuance of an Event of Default, settle and adjust any claims without the consent or cooperation of Borrower, or (z) allow Borrower to settle and adjust any claims; provided that if no Event of Default has occurred and is continuing, Borrower may settle and adjust claims aggregating not in excess of $10,000,000 if such settlement or adjustment is carried out in a competent and timely manner, but Lender shall be and hereby is authorized to collect and receipt for any and all Loss Proceeds. The reasonable expenses incurred by Lender in the adjustment and collection of Loss Proceeds shall become part of the Indebtedness and shall be reimbursed by Borrower to Lender upon demand therefor.

(b) All Loss Proceeds from any Casualty or Condemnation shall be immediately deposited into the Loss Proceeds Account (monthly rental loss/business interruption proceeds to be initially deposited into the Loss Proceeds Account and subsequently deposited into the Cash Management Account in installments as and when the lost rental income covered by such proceeds would have been payable). If any Condemnation or Casualty occurs as to which, in the reasonable judgment of Lender:

(i) the Condemnation or Casualty did not render untenantable more than 10% (in the case of a Condemnation) or 30% (in the case of a Casualty) of the aggregate rentable area of the Property (excluding the public park contained within the Property);

(ii) the Condemnation or Casualty did not result in the cancellation of Leases contributing more than 30% of the Operating Income during the 12-month period immediately preceding such Condemnation or Casualty;

(iii) restoration of the Property is expected to be completed prior to the expiration of rental interruption insurance and at least six months prior to the Maturity Date; and

(iv) after such restoration, the fair market value of the Property will equal at least the fair market value of the Property immediately prior to such Condemnation or Casualty (assuming the affected portion of the Property is relet);

or if Lender otherwise elects to allow Borrower to restore the Property, then, provided no Event of Default is continuing, the Loss Proceeds after receipt thereof by Lender and reimbursement of any reasonable expenses incurred by Lender in connection therewith shall be applied to the cost of restoring, repairing, replacing or rebuilding the Property or part thereof subject to the Casualty or Condemnation, in the manner set forth below (and Borrower hereby covenants and agrees to commence as promptly and diligently as practicable to prosecute such restoring, repairing, replacing or rebuilding of the Property in a workmanlike fashion and in accordance with applicable law to a status at least equivalent to the quality and character of the Property immediately prior to the Condemnation or Casualty). Provided that no Event of Default shall have occurred and be then continuing, Lender shall disburse such proceeds to Borrower upon Lender’s being furnished with (i) evidence reasonably satisfactory to it of the estimated cost of completion of the restoration, (ii) funds, or assurances reasonably satisfactory to Lender that such funds are available and sufficient in addition to the remaining Loss Proceeds, to complete the proposed restoration, and (iii) such architect’s certificates, waivers of lien, contractor’s sworn statements, title insurance endorsements, bonds, plats of survey and such other evidences of cost,

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payment and performance as Lender may reasonably request; and Lender may, in any event, require that all plans and specifications for restoration reasonably estimated by Lender to exceed $15,000,000 be submitted to and approved by Lender prior to commencement of work (which approval shall not be unreasonably withheld). If Lender reasonably estimates that the cost to restore will exceed $15,000,000, Lender may retain a local construction consultant to inspect such work and review Borrower’s request for payments and Borrower shall, on demand by Lender, reimburse Lender for the reasonable fees and disbursements of such consultant (which fees and expenses shall constitute Indebtedness). No payment shall exceed 90% of the value of the work performed from time to time until such time as 50% of the restoration (calculated based on anticipated aggregate cost of the work) has been completed, and amounts retained prior to completion of 50% of the restoration shall not be paid prior to the final completion of the restoration. Funds other than Loss Proceeds shall be disbursed prior to disbursement of such Loss Proceeds, and at all times the undisbursed balance of such proceeds remaining in the Loss Proceeds Account, together with any additional funds irrevocably and unconditionally deposited therein or irrevocably and unconditionally committed for that purpose, shall be at least sufficient in the reasonable judgment of Lender to pay for the cost of completion of the restoration free and clear of all liens or claims for lien.

(c) Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Loss Proceeds lawfully or equitably payable to Lender in connection with the Property. Lender shall be reimbursed for any expenses reasonably incurred in connection therewith (including reasonable attorneys’ fees and disbursements, and, if reasonably necessary to collect such proceeds, the expense of an Appraisal on behalf of Lender) out of such Loss Proceeds.

(d) If Borrower is not entitled to apply Loss Proceeds toward the restoration of the Property pursuant to Section 5.16(b) and Lender elects not to permit such Loss Proceeds to be so applied, such Loss Proceeds shall be applied on the first Payment Date following such election to the prepayment of the Notes in ascending order of interest rate (i.e., first to the Note with the lowest interest rate until its outstanding principal balance has been reduced to zero, then to the Note with the second lowest interest rate until its outstanding principal balance has been reduced to zero, and so on), and shall be accompanied by interest through the end of the applicable Interest Accrual Period. No Yield Maintenance Premium shall be payable in respect of any prepayment made pursuant to this Section 5.16(d).

5.17. Annual Budget. Borrower has previously delivered to Lender the Annual Budget for the Property for the 2007 Fiscal Year. At least 30 days prior to the commencement of each subsequent Fiscal Year during the term of the Loan, Borrower shall deliver to Lender for informational purposes only an Annual Budget for the Property for the ensuing Fiscal Year, and promptly after preparation thereof, any subsequent material revisions to the Annual Budget. During the continuance of any Event of Default, such Annual Budget and any such revisions shall be subject to Lender’s approval, except with respect to non-discretionary items such as insurance premiums and Taxes (the Annual Budget, as so approved, the “Approved Annual Budget”); provided, however, that Borrower shall not amend any Annual Budget more than once in any 60-day period.

5.18. General Indemnity. Borrower shall indemnify, reimburse, defend and hold harmless Lender and its officers, directors, employees and agents (collectively, the

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“Indemnified Parties”) for, from and against any and all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including reasonable attorneys’ fees and legal expenses whether or not suit is brought and settlement costs) and disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Indemnified Parties, in any way relating to or arising out of the making or holding or enforcement of the Loan by Lender or the administration of the Transaction to the extent resulting, directly or indirectly, from any claim (including any Environmental Claim) made (whether or not in connection with any legal action, suit, or proceeding) by or on behalf of any Person; provided, however, that no Indemnified Party shall have the right to be indemnified hereunder for its own fraud, bad faith, gross negligence or willful misconduct. The provisions of and undertakings and indemnification set forth in this Section 5.18 shall survive the satisfaction and payment in full of the Indebtedness and termination of this Agreement.

5.19. Nonbinding Consultation. Lender shall have the right to consult with and advise Borrower regarding significant business activities and business and financial developments of Borrower, provided that any such advice or consultation or the result thereof shall be completely nonbinding on Borrower.

5.20 Compliance with Encumbrances. Borrower covenants and agrees as follows:

(i) Borrower shall comply with all material terms, conditions and covenants of each material Permitted Encumbrance, including any reciprocal easement agreement, any declaration of covenants, conditions and restrictions, and any condominium arrangements.

(ii) Borrower shall promptly deliver to Lender a true and complete copy of each and every notice of default received by Borrower with respect to any obligation of such Borrower under the provisions of any such Permitted Encumbrance.

(iii) Borrower shall deliver to Lender copies of any written notices of default or event of default relating to any such Permitted Encumbrance served by such Borrower.

(iv) During the occurrence of an Event of Default, so long as the Loan is outstanding, Borrower shall not grant or withhold any material consent, approval or waiver under any such Permitted Encumbrance without the prior written consent of Lender.

ARTICLE VI

NEGATIVE COVENANTS

6.1. Liens on the Property. Borrower shall not permit or suffer the existence of any Lien on any of its assets, other than Permitted Encumbrances.

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6.2. Ownership. Borrower shall not own any assets other than the Property and related personal property and fixtures located therein or used in connection therewith.

6.3. Transfer. Borrower shall not Transfer any Collateral other than in compliance with Article II and other than the replacement or other disposition of obsolete or non-useful personal property and fixtures in the ordinary course of business, and Borrower shall not hereafter file a declaration of condominium with respect to the Property or modify the existing condominium arrangement without the consent of Lender, not to be unreasonably withheld, and the receipt of Rating Confirmation.

6.4. Debt. Borrower shall not have any Debt, other than Permitted Debt.

6.5. Dissolution; Merger or Consolidation. Borrower shall not dissolve, terminate, liquidate, merge with or consolidate into another Person without first causing the Loan to be assumed by a Qualified Successor Borrower pursuant to Section 2.2.

6.6. Change in Business. Borrower shall not make any material change in the scope or nature of its business objectives, purposes or operations or undertake or participate in activities other than the continuance of its present business.

6.7. Debt Cancellation. Borrower shall not cancel or otherwise forgive or release any material claim or Debt owed to it by any Person, except for adequate consideration or in the ordinary course of its business.

6.8. Affiliate Transactions. Borrower shall not enter into, or be a party to, any transaction with any Affiliate of Borrower, except for (i) the Approved Management Agreement and (ii) transactions which are on terms which are no less favorable to Borrower than would be obtained in a comparable arm’s length transaction with an unrelated third party.

6.9. Misapplication of Funds. Borrower shall not distribute any Revenue or Loss Proceeds in violation of the provisions of this Agreement, fail to remit amounts to the Cash Management Account as required by Section 3.1(b), or misappropriate any security deposit or portion thereof.

6.10. Place of Business. Borrower shall not change its chief executive office, its principal place of business, its state of formation or its name (except to change its name to Brookfield Properties OLP Co. LLC) without giving Lender at least 30 days’ prior written notice thereof and promptly providing Lender such information and shall have authorized the filing of such replacement Uniform Commercial Code financing statements as Lender may reasonably request in connection therewith.

6.11. Modifications and Waivers. Unless otherwise consented to in writing by Lender:

(i) Borrower shall not amend, modify, terminate, renew, or surrender any rights or remedies under any Lease, or enter into any Lease, except in compliance with Section 5.8;

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(ii) Borrower shall not terminate the operating agreement or certificate of formation of Borrower or amend or modify Articles 1, 5(c), 7, 8, 9, 10, 24 or 26 of the Operating Agreement of Borrower or any other provision of the Operating Agreement or certificate of formation of Borrower that would alter the single-purpose or bankruptcy remoteness provisions contained therein or that would result in a Material Adverse Effect or an Event of Default;

(iii) Borrower shall not amend, modify, surrender or waive any material rights or remedies under, or enter into or terminate, any Material Agreement unless such action is commercially reasonable; and

(iv) Borrower shall not amend, modify, surrender or waive any material rights or remedies under, or terminate, the IDA Lease.

6.12. ERISA.

(a) Borrower shall not maintain or contribute to, or agree to maintain or contribute to, or permit any ERISA Affiliate of Borrower to maintain or contribute to or agree to maintain or contribute to, any employee benefit plan subject to Title IV or Section 302 of ERISA or Section 312 of the Code.

(b) Borrower shall not engage in a non-exempt prohibited transaction described in Section 406 of ERISA or Section 4975 of the Code, as such sections relate to Borrower, or in any transaction that would cause any obligation or action taken or to be taken hereunder (or the exercise by Lender of any of its rights under the Notes, this Agreement, the Mortgage or any other Loan Document) to be a non-exempt prohibited transaction under ERISA.

6.13. Alterations and Expansions. Borrower shall not perform or contract to perform any Material Alteration without the prior written consent of Lender, which consent (in the absence of an Event of Default) shall not be unreasonably withheld. If Lender’s consent is requested hereunder with respect to a Material Alteration, Lender may retain a construction consultant to review such request and, if such request is granted, Lender may retain a construction consultant to inspect the work from time to time. Borrower shall, on demand by Lender, reimburse Lender for the reasonable fees and disbursements of such consultant.

6.14. Advances and Investments. Borrower shall not lend money or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any Person, except for Permitted Investments.

6.15. Single-Purpose Entity. Borrower shall not cease to be a Single-Purpose Entity.

6.16. Zoning and Uses. Borrower shall not do any of the following:

(i) initiate or support any limiting change in the permitted uses of the Property (or to the extent applicable, zoning reclassification of the Property) or any portion thereof, seek any variance under existing land use restrictions, laws, rules or regulations (or, to

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the extent applicable, zoning ordinances) applicable to the Property, or use or permit the use of the Property in a manner that would result in the use of the Property becoming a nonconforming use under applicable land-use restrictions or zoning ordinances or that would violate the terms of any Lease, operating agreement, Legal Requirement or Permitted Encumbrance;

(ii) consent to any modification, amendment or supplement to any of the terms of any Permitted Encumbrance in a manner adverse to the interests of Lender;

(iii) impose or consent to the imposition of any restrictive covenants, easements or encumbrances upon the Property in any manner that adversely affects in any material respect its value, utility or transferability; or

(iv) execute or file any subdivision plat affecting the Property, or institute, or permit the institution of, proceedings to alter any tax lot comprising the Property.

6.17. Waste. Borrower shall not commit or permit any waste on the Property, nor take any actions that might invalidate any insurance carried on the Property.

ARTICLE VII

DEFAULTS

7.1. Event of Default. The occurrence of any one or more of the following events shall be, and shall constitute the commencement of, an “Event of Default” hereunder (any Event of Default which has occurred shall continue unless and until waived by Lender in its sole discretion):

(a) Payment.

(i) Borrower shall default in the payment when due of any principal or interest owing hereunder or under the Notes (including any mandatory prepayment required hereunder), subject to Lender’s right in its sole and absolute discretion to provide, by written notice to Borrower, a grace period through no later than the second Business Day before the date on which such amounts are payable to investors in a Securitization; or

(ii) Borrower shall default, and such default shall continue for at least five Business Days after notice to Borrower that such amounts are owing, in the payment when due of fees, expenses or other amounts owing hereunder, under the Notes or under any of the other Loan Documents.

(b) Representations. Any representation or warranty made by Borrower in any of the Loan Documents, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender shall have been false or misleading in any material respect (or, with respect to any representation or warranty which itself contains a materiality qualifier, in any respect) as of the date such representation or warranty was made.

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(c) Other Loan Documents. Any Loan Document shall fail to be in full force and effect or to convey the material liens, rights, powers and privileges purported to be created thereby; or a default shall occur under any of the other Loan Documents beyond the expiration of any applicable cure period.

(d) Bankruptcy, etc.

(i) Borrower shall commence a voluntary case concerning itself under Title 11 of the United States Code (as amended, modified, succeeded or replaced, from time to time, the “Bankruptcy Code”);

(ii) Borrower shall commence any other proceeding under any reorganization, arrangement, adjustment of debt, relief of creditors, dissolution, insolvency or similar law of any jurisdiction whether now or hereafter in effect relating to Borrower;

(iii) there shall be commenced against Borrower an involuntary case under the Bankruptcy Code, or any such other proceeding, which remains undismissed for a period of 90 days after commencement;

(iv) Borrower shall be adjudicated insolvent or bankrupt;

(v) any order of relief or other order approving any such case or proceeding shall be entered;

(vi) Borrower shall suffer appointment of any custodian or the like for it or for any substantial portion of its property and such appointment continues unchanged or unstayed for a period of 90 days after commencement of such appointment; or

(vii) Borrower shall make a general assignment for the benefit of creditors.

(e) Change of Control.

(i) A Change of Control shall occur; or

(ii) Borrower shall cease to be Controlled by Sponsor or BPC, unless (A) same does not constitute a Change of Control, (B) the requirements specified in clause (iii) below are satisfied, and (C) a Qualified Equityholder reasonably satisfactory to Lender provides to Lender a guaranty of the Indemnified Liabilities in form and substance satisfactory to Lender, and Borrower delivers to Lender reasonably satisfactory legal opinions with respect to the enforceability and authorization thereof; or

(iii) any party other than Borrower’s current equityholder shall obtain 49% or more of the direct or indirect equity interests in Borrower (even if not constituting a Change of Control) and Borrower shall fail to deliver to Lender with respect to such new equityholder a new non-consolidation opinion satisfactory to (A) prior to any Securitization, Lender (Lender’s approval of any such non-consolidation opinion which is in substantially the form of the Nonconsolidation Opinion shall not be unreasonably withheld) or (B) after any Securitization, each of the Rating Agencies.

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(f) Equity Pledge; Preferred Equity. Any direct or indirect equity interest in or right to distributions from Borrower shall be subject to a Lien in favor of any Person, or Borrower or any holder of a direct or indirect interest in Borrower shall issue preferred equity (or debt granting the holder thereof rights substantially similar to those generally associated with preferred equity); except that the following shall be permitted:

(i) any pledge of direct and indirect equity interests in and rights to distributions from Sponsor, BPC or a Qualified Equityholder; and

(ii) the issuance of preferred equity interests in Sponsor, BPC or a Qualified Equityholder.

(f) Insurance. Borrower shall fail to maintain in full force and effect all Policies required hereunder.

(g) ERISA; Negative Covenants. A default shall occur in the due performance or observance by Borrower of any term, covenant or agreement contained in Section 5.9 or in Article VI.

(h) Other Covenants. A default shall occur in the due performance or observance by Borrower of any term, covenant or agreement (other than those referred to in subsections (a) through (g), inclusive, of this Section 7.1) contained in this Agreement or in any of the other Loan Documents, provided that if such default referred to in this subsection (h) is susceptible of being cured, such default shall not constitute an Event of Default unless and until it shall remain uncured for 10 days after Borrower receives written notice thereof, for a default which can be cured by the payment of money, or for 30 days after Borrower receives written notice thereof, for a default which cannot be cured by the payment of money; provided, however, that if a default which cannot be cured by the payment of money is susceptible of cure but cannot reasonably be cured within such 30-day period and Borrower shall have commenced to cure such default within such 30-day period and thereafter diligently and expeditiously proceeds to cure the same, Borrower shall have such additional time as is reasonably necessary to effect such cure, but in no event in excess of 90 days from the original notice.

7.2. Remedies.

(a) Upon the occurrence of an Event of Default and at any time thereafter when such Event of Default is continuing, Lender may by written notice to Borrower, in addition to any other rights or remedies available pursuant to this Agreement, the Notes, the Mortgage and the other Loan Documents, at law or in equity, declare by written notice to Borrower all or any portion of the Indebtedness to be immediately due and payable, whereupon all or such portion of the Indebtedness shall so become due and payable, and may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrower and the Property (including all rights or remedies available at law or in equity); provided, however, that, notwithstanding the foregoing, if an Event of Default specified in paragraph 7.1(d) shall occur, then the Indebtedness shall immediately become due and payable without the giving of any notice or other action by Lender. Any actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at

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such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents.

(b) In the event of the foreclosure or other action by Lender to enforce its remedies in connection with all or any portion of the Property, Lender shall apply all net proceeds of such foreclosure received to repay the Indebtedness, the Indebtedness shall be reduced to the extent of such net proceeds and the remaining portion of the Indebtedness shall remain outstanding, it being understood and agreed by Borrower that Borrower is liable for the repayment of all the Indebtedness; provided, however, that at the election of Lender, the Notes shall be deemed to have been accelerated only to the extent of the net proceeds actually received by Lender with respect to the Property and applied in reduction of the Indebtedness.

(c) During the continuance of any Event of Default, Lender may, but without any obligation to do so and without notice to or demand on Borrower and without releasing Borrower from any obligation hereunder, take any action to cure such Event of Default. Lender may enter upon any or all of the Property upon reasonable notice to Borrower for such purposes or appear in, defend, or bring any action or proceeding to protect its interests and the interests of Lender in the Property or to foreclose the Mortgage or collect the Indebtedness. The costs and expenses incurred by Lender in exercising rights under this paragraph (including reasonable attorneys’ fees), with interest at the Default Rate for the period after notice from Lender that such costs or expenses were incurred to the date of payment to Lender, shall constitute a portion of the Indebtedness, shall be secured by the Mortgage and other Loan Documents and shall be due and payable to Lender upon demand therefor.

(d) Interest shall accrue on any judgment obtained by Lender in connection with its enforcement of the Loan at a rate of interest equal to the Default Rate.

7.3. No Waiver. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed by Lender to be expedient. A waiver of any Default or Event of Default shall not be construed to be a waiver of any subsequent Default or Event of Default or to impair any remedy, right or power consequent thereon.

7.4. Application of Payments after an Event of Default. During the continuance of an Event of Default, all amounts received by Lender in respect of the Loan shall be applied toward the components of the Indebtedness (e.g., Lender’s expenses in enforcing the Loan, interest, principal and other amounts payable hereunder), the Loan and the Notes in such sequence as Lender shall elect in its sole discretion.

ARTICLE VIII

CONDITIONS PRECEDENT

8.1. Conditions Precedent to Closing. This Agreement shall become effective on the date that all of the following conditions shall have been satisfied (or waived by Lender, it

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being agreed that Lender’s funding of the Loan shall constitute Lender’s agreement that such conditions have been satisfied or waived unless the parties shall have otherwise agreed in writing):

(a) Loan Documents. Lender shall have received a duly executed copy of each Loan Document. Each Loan Document which is to be recorded in the public records shall be in form suitable for recording.

(b) Reserved.

(c) Collateral Accounts. Each of the Collateral Accounts shall have been established with the Cash Management Bank and funded to the extent required under Article III.

(d) Opinions of Counsel. Lender shall have received legal opinions satisfactory to Lender.

(e) Organizational Documents. Lender shall have received all documents reasonably requested by Lender relating to the existence of Borrower, the validity of the Loan Documents and other matters relating thereto, in form and substance satisfactory to Lender, including, but not limited to:

(i) Authorizing Resolutions. A certified copy of the resolutions of its board of managers approving and adopting the Loan Documents to be executed by Borrower and authorizing the execution and delivery thereof.

(ii) Operating Agreement. Certified copies of the certificate of formation and the operating agreement of Borrower, in each case together with all amendments thereto.

(iii) Certificates of Good Standing or Existence. Certificates of good standing or existence for Borrower issued as of a recent date by its state of organization and by the state in which the Property is located.

(f) Lease; Material Agreements. Lender shall have received true and complete copies of all Leases and all Material Agreements.

(g) Lien Search Reports. Lender shall have received satisfactory reports of Uniform Commercial Code, tax lien and judgment searches conducted by a search firm acceptable to Lender with respect to the Property and Borrower, such searches to be conducted in such locations as Lender shall have requested.

(h) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date either before or after the execution and delivery of this Agreement.

(i) No Injunction. No Legal Requirement shall exist, and no litigation shall be pending or threatened, which in the good faith judgment of Lender would enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, the making or repayment of the Loan or the consummation of the Transaction.

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(j) Representations and Warranties. The representations and warranties herein and in the other Loan Documents shall be true and correct on and as of the Closing Date with the same effect as if made on such date.

(k) Tenant Estoppel Letters. Lender shall have received estoppel letters in form and substance satisfactory to Lender from Tenants occupying not less than 85% of the aggregate occupied rentable square feet in the Property, which estoppel letters shall include estoppel letters from the Tenants under each Major Lease.

(l) No Material Adverse Effect. No event or series of events shall have occurred which Lender reasonably believes has had or is reasonably likely to have a Material Adverse Effect.

(m) Transaction Costs. Borrower shall have paid all Transaction Costs (or provided for the direct payment of such Transaction Costs by Lender from the proceeds of the Loan).

(n) Insurance. Lender shall have received certificates of insurance on ACORD Form 28, demonstrating insurance coverage in respect of the Property of types, in amounts, with insurers and otherwise in compliance with the terms, provisions and conditions set forth herein. Such certificates shall indicate that Lender is named as additional insured on each liability policy, and that each casualty policy and rental interruption policy contains a loss payee endorsement in favor of Lender.

(o) Title. Lender shall have received a marked, signed commitment to issue, or a pro-forma version of, a Qualified Title Insurance Policy in respect of the Property, listing only such exceptions as are reasonably satisfactory to Lender.

(p) Zoning. Lender shall have received evidence reasonably satisfactory to Lender that the Property is in compliance with all applicable zoning requirements.

(q) Permits; Certificate of Occupancy. Lender shall have received a copy of all Permits necessary for the use and operation of the Property and the certificate(s) of occupancy, if required, for the Property, all of which shall be in form and substance reasonably satisfactory to Lender.

(r) Engineering Report. Lender shall have received a current Engineering Report with respect to the Property, which report shall be in form and substance reasonably satisfactory to Lender.

(s) Environmental Report. Lender shall have received an Environmental Report (not more than six months old) with respect to the Property which discloses no material environmental contingencies with respect to the Property.

(t) Qualified Survey. Lender shall have received a Qualified Survey with respect to the Property in form and substance reasonably satisfactory to Lender.

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(u) Appraisal. Lender shall have obtained an Appraisal of the Property satisfactory to Lender.

(v) Consents, Licenses, Approvals, etc. Lender shall have received copies of all consents, licenses and approvals, if any, required in connection with the execution, delivery and performance by Borrower, and the validity and enforceability, of the Loan Documents, and such consents, licenses and approvals shall be in full force and effect.

(w) Financial Information. Lender shall have received (i) audited financial statements for the Sponsor and audited operating statements for the Property, in each case for the prior three years, certified by a “big four” independent certified public accounting firm, (ii) current results from operations certified by the Chief Financial Officer of the Sponsor, and (iii) such other financial information as Lender shall reasonably request, which information shall be in form and substance reasonably satisfactory to Lender.

(x) Annual Budget. Lender shall have received the 2007 Annual Budget with respect to the Property.

(y) Additional Matters. Lender shall have received such other certificates, opinions, documents and instruments relating to the Loan as may have been reasonably requested by Lender. All corporate and other proceedings, all other documents (including all documents referred to herein and not appearing as exhibits hereto) and all legal matters in connection with the Loan shall be reasonably satisfactory in form and substance to Lender.

ARTICLE IX

MISCELLANEOUS

9.1. Successors. Except as otherwise provided in this Agreement, whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party. All covenants, promises and agreements in this Agreement contained, by or on behalf of Borrower, shall inure to the benefit of Lender and its successors and assigns.

9.2. GOVERNING LAW.

(A) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

(B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST BORROWER OR THE SPONSOR ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS (OTHER THAN ANY ACTION IN RESPECT OF THE CREATION, PERFECTION OR ENFORCEMENT OF A LIEN OR SECURITY INTEREST CREATED PURSUANT TO ANY LOAN DOCUMENTS NOT GOVERNED BY THE LAWS OF THE STATE OF NEW YORK) MAY BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK. BORROWER AND THE SPONSOR HEREBY (i) IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH

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THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (ii) IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND (iii) IRREVOCABLY CONSENT TO SERVICE OF PROCESS BY MAIL, PERSONAL SERVICE OR IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW, AT THE ADDRESS SPECIFIED IN SECTION 9.4.

9.3. Modification, Waiver in Writing. Neither this Agreement nor any other Loan Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated, nor shall any consent or approval of Lender be granted hereunder, unless such amendment, change, waiver, discharge, termination, consent or approval is in writing signed by Lender.

9.4. Notices. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing by expedited prepaid delivery service, either commercial or United States Postal Service, with proof of delivery or attempted delivery, addressed as follows (or at such other address and person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section). A notice shall be deemed to have been given when delivered or upon refusal to accept delivery.

If to Lender:

Goldman Sachs Commercial Mortgage Capital, L.P.

6011 Connection Drive, Suite 550

Irving, Texas 75039

Attention: Michael Forbes

with copies to:

Goldman Sachs Mortgage Company

85 Broad Street, 11^th Floor

New York, New York 10004

Attention: Jeffrey Fastov and Mark Buono

and

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, New York 10006

Attention: Michael Weinberger, Esq.

If to Borrower:

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BFP One Liberty Plaza Co. LLC

c/o Brookfield Financial Properties, L.P.

Three World Financial Center

200 Vesey Street, 11^th Floor

New York, NY 10281

Attention: Mark Brown

and

BFP One Liberty Plaza Co. LLC c/o Brookfield Financial Properties, L.P.

Three World Financial Center

200 Vesey Street, 11 ^th Floor

New York, NY 10281

Attention: General Counsel

with a copy to:

Goodwin, Procter & Hoar

Exchange Place

Boston, MA 02109

Attention: Samuel L. Richardson, Esq.

9.5. TRIAL BY JURY. BORROWER AND THE SPONSOR, TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND THE SPONSOR AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER AND THE SPONSOR.

9.6. Headings. The Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

9.7. Assignment and Participation.

(a) Except as explicitly set forth in Sections 2.1 and 2.2, Borrower may not sell, assign or transfer any interest in the Loan Documents or any portion thereof (including Borrower’s rights, title, interests, remedies, powers and duties hereunder and thereunder).

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(b) Lender and each assignee of all or a portion of the Loan shall have the right from time to time in its discretion to sell one or more of the Notes or any interest therein (an “Assignment”) and/or sell a participation interest in one or more of the Notes (a “Participation”). Borrower agrees reasonably to cooperate with Lender, at Lender’s request, in order to effectuate any such Assignment or Participation. In the case of an Assignment, (i) each assignee shall have, to the extent of such Assignment, the rights, benefits and obligations of the assigning Lender as a “Lender” hereunder and under the other Loan Documents, (ii) the assigning Lender shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to an Assignment, relinquish its rights and be released from its obligations under this Agreement, and (iii) one Lender shall serve as agent for all Lenders and shall be the sole Lender to whom notices, requests and other communications shall be addressed and the sole party authorized to grant or withhold consents hereunder on behalf of the Lenders (subject, in each case, to appointment of a Servicer, pursuant to Section 9.22, to receive such notices, requests and other communications and/or to grant or withhold consents, as the case may be) and to be the sole Lender to designate the account to which payments shall be made by Borrower to the Lenders hereunder. Goldman Sachs Mortgage Company or, upon the appointment of a Servicer, such Servicer, shall maintain, or cause to be maintained, as agent for the Borrower, a register on which it shall enter the name or names of the registered owner or owners from time to time of the Notes. Borrower agrees that upon effectiveness of any Assignment of any Note in part, Borrower will promptly provide to the assignor and the assignee separate promissory notes in the amount of their respective interests (but, if applicable, with a notation thereon that it is given in substitution for and replacement of an original Note or any replacement thereof), and otherwise in the form of such Note, upon return of the Note then being replaced. The assigning Lender shall notify in writing each of the other Lenders of any Assignment. Each potential assignee and potential participant (until it becomes clear that such potential assignee or potential participant is not to become an actual assignee or participant), and each actual assignee and participant, and each rating agency or potential investor in connection with a Securitization, shall be entitled to receive all information received by Lender under this Agreement. After the effectiveness of any Assignment or Participation, the party conveying the Assignment or Participation shall provide notice to Borrower of the identity and address of the assignee or participant. Notwithstanding anything in this Agreement to the contrary, after an Assignment, the assigning Lender (in addition to the assignee) shall continue to have the benefits of any indemnifications contained herein which such assigning Lender had prior to such assignment with respect to matters occurring prior to the date of such assignment.

(c) If, pursuant to this Section 9.7, any interest in this Agreement or any Note is transferred to any transferee that is not a U.S. Person, the transferor Lender shall cause such transferee, concurrently with the effectiveness of such transfer, to furnish to the transferor Lender either Form W-8BEN or Form W-8ECI or any other form in order to establish an exemption from, or reduction in the rate of, U.S. withholding tax on all interest payments hereunder, and (iii) to agree (for the benefit of Lender and Borrower) to provide the transferor Lender a new Form W-8BEN or Form W-8ECI or any forms reasonably requested in order to establish an exemption from, or reduction in the rate of, U.S. withholding tax upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption.

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9.8. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

9.9. Preferences. Lender shall have no obligation to marshal any assets in favor of Borrower or any other party or against or in payment of any or all of the obligations of Borrower pursuant to this Agreement, the Notes or any other Loan Document. During the continuance of an Event of Default, Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the obligations of Borrower hereunder and under the Loan Documents. To the extent Borrower makes a payment or payments to Lender, which payment or proceeds or any portion thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or portion thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender.

9.10. Remedies of Borrower. In the event that a claim or adjudication is made that Lender or any of its agents has unreasonably delayed acting or acted unreasonably in any case where by law or under this Agreement, the Note, the Mortgage or the other Loan Documents, any of such Persons has an obligation to act promptly or reasonably, Borrower agrees that no such Person shall be liable for any monetary damages, and Borrower’s sole remedies shall be limited to commencing an action seeking specific performance, injunctive relief and/or declaratory judgment, except in any instance in which it has been finally determined that Lender’s action, delay or inaction has constituted gross negligence, willful misconduct or an illegal act.

9.11. Offsets, Counterclaims and Defenses. All payments made by Borrower hereunder or under the other Loan Documents shall be made irrespective of, and without any deduction for, any setoffs or counterclaims. Borrower hereby waives the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against it by Lender arising out of or in any way connected with the Notes, this Agreement, the other Loan Documents or the Indebtedness. Any assignee of Lender’s interest in a Loan shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to the Loan.

9.12. No Joint Venture. Nothing in this Agreement is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender, nor to grant Lender any interest in the Property other than that of mortgagee or lender.

9.13. Conflict; Construction of Documents. In the event of any conflict between the provisions of this Agreement and the provisions of the Notes, the Mortgage or any of the other Loan Documents, the provisions of this Agreement shall prevail.

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9.14. Brokers and Financial Advisors. Borrower and Sponsor each hereby represent that they have dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower and Sponsor each hereby agree, jointly and severally, to indemnify and hold Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind in any way relating to or arising from a claim by any Person that such Person acted on behalf of Borrower in connection with the transactions contemplated herein. The provisions of this Section 9.14 shall survive the expiration and termination of this Agreement and the repayment of the Indebtedness.

9.15. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.

9.16. Estoppel Certificates. Borrower and Lender each hereby agree at any time and from time to time, upon not less than 10 days’ prior written notice by Borrower or Lender, as applicable, to execute, acknowledge and deliver to the party specified in such notice a statement, in writing, specifying the unpaid principal balance of the Note and certifying that each of the Loan Documents is in full force and effect and has not been modified (or if there have been modifications, that the same, as modified, is in full force and effect and stating the modifications hereto), and stating whether or not, to the knowledge of such certifying party, any Event of Default has occurred and is then continuing, and, if so, specifying each such Event of Default. In addition, any such written statement from Borrower shall specify (A) the date installments of interest and/or principal were last paid, (B) whether, to the knowledge of Borrower, there exist any offsets or defenses to the payment of the Indebtedness, (C) that the Note, this Agreement, the Mortgages and the other Loan Documents are valid, legal and binding obligations, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and general equitable principles, and (D) such other matters related to the status of the Loan as Lender may reasonably request. Any prospective purchaser of any interest in a Loan or any direct or indirect interests in Borrower shall be permitted to rely on such certificates.

9.17. Payment of Expenses; Mortgage Recording Taxes. Borrower shall reimburse Lender upon receipt of written notice from Lender for (i) all reasonable out-of-pocket costs and expenses incurred by Lender (or any of its affiliates) in connection with the origination of the Loan, including legal fees and disbursements, accounting fees, and the costs of the Appraisal, the Engineering Report, the Qualified Title Insurance Policy, the Qualified Survey, the Environmental Report and any other third-party diligence materials, but not including any Servicer’s set-up and base fees; (ii) all reasonable out-of-pocket costs and expenses incurred by Lender (or any of its affiliates) in connection with (A) monitoring Borrower’s ongoing performance of and compliance with Borrower’s agreements and covenants contained in this Agreement and the other Loan Documents on its part to be performed or complied with after the Closing Date, including confirming compliance with environmental and insurance requirements, (B) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by Borrower or by Lender, (C) filing and recording fees and expenses and other similar expenses incurred in creating and perfecting the

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Liens in favor of Lender pursuant to this Agreement and the other Loan Documents, (D) enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, this Agreement, the other Loan Documents or any Collateral, and (E) obtaining any Rating Confirmation required or requested by Borrower hereunder; and (iii) all actual out-of-pocket costs and expenses (including, if the Loan has been securitized, special servicing fees) incurred by Lender (or any of its affiliates) in connection with the enforcement of any obligations of Borrower, or an Event of Default by Borrower, under the Loan Documents, including any actual or attempted foreclosure, deed-in-lieu of foreclosure, refinancing, restructuring or workout and any insolvency or bankruptcy proceedings (including any applicable transfer taxes). Borrower shall not be required to reimburse Lender for Lender’s costs and expenses associated with the securitization of the Loan.

9.18. No Third-Party Beneficiaries. This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrower, and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder are imposed solely and exclusively for the benefit of Lender, and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan in the absence of strict compliance with any or all thereof, and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender’s sole discretion, Lender deems it advisable or desirable to do so.

9.19. Recourse.

(a) No recourse shall be had for the Indebtedness against any affiliate of Borrower or any officer, director, partner or equityholder of Borrower or any such affiliate unless, in the case of an affiliate, expressly set forth in a Qualified Guarantee or other written agreement to which such affiliate is party. Except for the liabilities of Borrower under Sections 9.19(b), 5.18 and 9.14 and under the Environmental Indemnity and Cooperation Agreement, recourse to the Borrower shall be limited to the Liens of Lender on the Property and the other Collateral.

(b) Borrower shall hold Lender harmless from and against any and all Damages to Lender (including the legal and other expenses of enforcing the obligations of the Borrower under this Section 9.19) resulting from or arising out of any of the following (the “Indemnified Liabilities”):

(i) any intentional physical waste with respect to the Property committed or permitted by Borrower, the Sponsor or any of their respective Affiliates;

(ii) any fraud or intentional misrepresentation committed by Borrower, the Sponsor or any of their respective Affiliates;

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(iii) the misappropriation or misapplication by Borrower, the Sponsor or any of their respective Affiliates of any funds (including misappropriation or misapplication of Revenues, security deposits and/or Loss Proceeds and the violation of the last sentence of Section 5.8(d));

(iv) any Transfer of Collateral, voluntary or collusive Lien on Collateral, or Change of Control which is prohibited hereunder;

(v) any breach by Borrower or the Sponsor of any representation or covenant regarding environmental matters contained in this Agreement or in the Environmental Indemnity;

(vi) the failure of Borrower, at any time, to be a Single-Purpose Entity, if such failure results in material liability unrelated to the Property or consolidation of the Borrower with another entity in connection with a filing of a bankruptcy or similar proceeding in respect of Borrower or such entity; and

(vii) the occurrence of any filing by Borrower under the Bankruptcy Code or any joining or colluding by Borrower or any of its affiliates (including Sponsor) in the filing of an involuntary case in respect of Borrower under the Bankruptcy Code.

9.20. Right of Set-Off. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default, Lender may from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), set-off and appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by Lender (including branches, agencies or Affiliates of Lender wherever located) to or for the credit or the account of Borrower against the obligations and liabilities of Borrower to Lender hereunder, under the Notes, the other Loan Documents or otherwise, irrespective of whether Lender shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of Lender subsequent thereto.

9.21. Exculpation of Lender. Lender neither undertakes nor assumes any responsibility or duty to Borrower or any other party to select, review, inspect, examine, supervise, pass judgment upon or inform Borrower or any third party of (a) the existence, quality, adequacy or suitability of Appraisals of the Property or other Collateral, (b) any environmental report, or (c) any other matters or items, including, but not limited to, engineering, soils and seismic reports which are contemplated in the Loan Documents. Any such selection, review, inspection, examination and the like, and any other due diligence conducted by Lender, is solely for the purpose of protecting Lender’s rights under the Loan Documents, and shall not render Lender liable to Borrower or any third party for the existence, sufficiency, accuracy, completeness or legality thereof.

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9.22. Servicer. Lender may delegate any and all rights and obligations of Lender hereunder and under the other Loan Documents to the Servicer upon notice by Lender to Borrower, whereupon any notice or consent from the Servicer to Borrower, and any action by Servicer on Lender’s behalf, shall have the same force and effect as if Servicer were Lender.

9.23 Prior Agreements. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS CONTAIN THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND THERETO IN RESPECT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, AND ALL PRIOR AGREEMENTS AMONG OR BETWEEN SUCH PARTIES, WHETHER ORAL OR WRITTEN, INCLUDING ANY TERM SHEETS, CONFIDENTIALITY AGREEMENTS AND COMMITMENT LETTERS, ARE SUPERSEDED BY THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT THAT ANY INDEMNIFICATION PROVIDED FOR IN ANY SUCH TERM SHEET OR COMMITMENT LETTER SHALL SURVIVE THE CLOSING).

[Remainder of page intentionally left blank; signature page follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written.

LENDER: GOLDMAN SACHS COMMERCIAL MORTGAGE CAPITAL, L.P.
By:	/s/ Mark J. Buono
	Name: Mark J. Buono Title: Managing Director
BORROWER: BFP ONE LIBERTY PLAZA CO. LLC
By:	/s/ G. Mark Brown
	Name: G. Mark Brown Title: Senior Vice President, Finance

EX-10.37

Exhibit 10.37

Loan No. 1000625

AMENDED AND RESTATED PROMISSORY NOTE SECURED BY MORTGAGE

(100-200 Campus Drive – Florham Park, NJ)

$89,800,000 Irvine, California March 11, 2009

FOR VALUE RECEIVED, the undersigned KBSII 100-200 CAMPUS DRIVE, LLC, a Delaware limited liability company (“Borrower”) promise(s) to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Lender”), at the Los Angeles Loan Center, 2120 East Park Place, Suite 100, El Segundo, California 90245, or at such other place as may be designated in writing by Lender, the principal sum of EIGHTY NINE MILLION EIGHT HUNDRED THOUSAND DOLLARS ($89,800,000) or so much thereof as may from time to time be owing hereunder by reason of advances by Lender to or for the benefit or account of Borrower, with interest thereon, per annum, at one or more of the Effective Rates calculated in accordance with the terms and provisions of the Fixed Rate Agreement attached hereto as Exhibit A and a Fixed Rate Notice described on Exhibit B attached hereto (based on a 360-day year and charged on the basis of actual days elapsed). All sums owing hereunder are payable in lawful money of the United States of America, in immediately available funds without offset, deduction or counterclaim of any kind.

Interest accrued on this Amended and Restated Promissory Note Secured by Mortgage (“Note”) shall be due and payable on the first Business Day (as defined in Exhibit A) of each month commencing with the first month after the date of this Note.

The outstanding principal balance of this Note, together with all accrued and unpaid interest, shall be due and payable in full on June 9, 2009 (“Maturity Date”). Unless expressly defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Loan Agreement (as defined in Exhibit A). Principal amounts outstanding hereunder, upon which repayment obligations exist and interest accrues, shall be determined by the records of Lender, which shall be deemed to be conclusive in the absence of clear and convincing evidence to the contrary presented by Borrower.

This Note is secured by, among other things, that certain Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of September 9, 2008 (as the same may be amended or modified, the “Mortgage”), executed by Borrower for the benefit of Lender.

In order to assure timely payment to Lender of accrued interest, principal, fees and late charges due and owing under the loan evidenced by this Note, Borrower hereby irrevocably authorizes Lender to directly debit Borrower’s demand deposit account with Lender, account no. 4121-770986, for payment when due of all such amounts payable to Lender. Borrower represents and warrants to Lender that Borrower is the legal owner of said account. Written confirmation of the amount and purpose of any such direct debit shall be given to Borrower by Lender not less frequently than monthly. In the event any direct debit hereunder is returned for insufficient funds, Borrower shall pay Lender upon demand, in immediately available funds, all amounts and expenses due and owing to Lender.

If any interest payment required hereunder is not received by Lender (whether by direct debit or otherwise) on or before the fifteenth (15th) calendar day of the month in which it becomes due, Borrower shall pay, at Lender’s option, a late or collection charge equal to four percent (4%) of the amount of such unpaid interest payment (“Late Charge”).

If: (a) Borrower shall fail to pay when due any sums payable hereunder, subject to any grace or cure period provided in the Loan Agreement; or (b) any other Event of Default occurs under the Loan Agreement, the Mortgage or any other Loan Document; or (c) the property which is subject to the Mortgage, or any portion thereof or interest therein, is sold, transferred, mortgaged, assigned, encumbered or leased, whether voluntarily or involuntarily or by operation of law or otherwise, other than as expressly permitted by Lender in writing; THEN Lender may, at its sole option, declare all sums owing under this Note immediately due and payable; provided, however, that if any document related to this Note provides for automatic acceleration of payment of sums owing hereunder, all sums owing hereunder shall be automatically due and payable in accordance with the terms of that document.

Page 1 of 11

Loan No. 1000625

If any attorney is engaged by Lender to enforce or defend any provision of this Note or the Mortgage, or as a consequence of any Event of Default, with or without the filing of any legal action or proceeding, then Borrower shall pay to Lender immediately upon demand all attorneys’ fees and all costs incurred by Lender in connection therewith, together with interest thereon from the date of such demand until paid at the rate of interest applicable to the principal balance owing hereunder as if such unpaid attorneys’ fees and costs had been added to the principal.

No previous waiver and no failure or delay by Lender in acting with respect to the terms of this Note or the Loan Agreement or any other Loan Document shall constitute a waiver of any breach, default, or failure of condition under this Note, the Loan Agreement or any other Loan Document. A waiver of any term of this Note, the Mortgage or of any of the obligations secured thereby must be made in writing and shall be limited to the express written terms of such waiver. In the event of any inconsistencies between the terms of this Note and the terms of any other document related to the loan evidenced by this Note, the terms of this Note shall prevail.

If this Note is executed by more than one person or entity as Borrower, the obligations of each such person or entity shall be joint and several. No person or entity shall be a mere accommodation maker, but each shall be primarily and directly liable hereunder. Except as otherwise provided in any agreement executed in connection with this Note, Borrower waives: presentment; demand; notice of dishonor; notice of default or delinquency; notice of acceleration; notice of protest and nonpayment; notice of costs, expenses or losses and interest thereon; notice of late charges; and diligence in taking any action to collect any sums owing under this Note or in proceeding against any of the rights or interests in or to properties securing payment of this Note.

Time is of the essence with respect to every provision hereof. This Note shall be construed and enforced in accordance with the laws of the State of California, except to the extent that federal laws preempt the laws of the State of California, and all persons and entities in any manner obligated under this Note consent to the jurisdiction of any federal or state court within the State of California having proper venue and also consent to service of process by any means authorized by California or federal law.

Borrower recognizes that its default in making any payment as provided herein or in any other Loan Document as agreed to be paid when due, or the occurrence of any other Event of Default hereunder or under any other Loan Document, will require Lender to incur additional expense in servicing and administering the Loan, in loss to Lender of the use of the money due and in frustration to Lender in meeting its other financial and loan commitments and that the damages caused thereby would be extremely difficult and impractical to ascertain. Borrower agrees (a) that an amount equal to the Late Charge plus the accrual of interest at the Alternate Rate (as defined in Exhibit A) is a reasonable estimate of the damage to Lender in the event of a late payment, and (b) that the accrual of interest at the Alternate Rate following any Event of Default, other than that arising out of a late payment, plus any Fixed Rate Price Adjustment (as defined in Exhibit A), is a reasonable estimate of the damage to Lender in the event of such other Event of Default, regardless of whether there has been an acceleration of the loan evidenced hereby. Nothing in this Note shall be construed as an obligation on the part of Lender to accept, at any time, less than the full amount then due hereunder, or as a waiver or limitation of Lender’s right to compel prompt performance.

All notices or other communications required or permitted to be given pursuant to this Note shall be given to the Borrower or Lender at the address and in the manner provided for in the Loan Agreement, except as otherwise provided herein.

The Loan Documents contain or expressly incorporate by reference the entire agreement of the parties with respect to the matters contemplated therein and supersede all prior negotiations or agreements, written or oral. The Loan Documents shall not be modified except by written instrument executed by all parties. Any reference to the Loan Documents includes any amendments, renewals or extensions now or hereafter approved by Lender in writing.

The limitations on personal liability of shareholders, partners and members of Borrower contained in Section 11.21 of the Loan Agreement shall apply to this Note.

Page 2 of 11

Loan No. 1000625

This Note renews, restates, amends, replaces and supercedes that certain Promissory Note Secured by Mortgage dated September 9, 2008 executed by Borrower and made payable to the order of Lender in the original principal amount of $89,800,000 (the “Prior Note”). It is the intention of Borrower and Lender that while this Note amends, restates, renews, replaces and supercedes the Prior Note, it is not in payment of the Prior Note, but rather is the substitution of one evidence of debt for another. This Note shall in no event be deemed to constitute a waiver, novation, release, discharge or other extinguishment of the indebtedness evidenced by the Prior Note, which continues in full force in effect, as amended and restated by the terms of this Note. The Prior Note is no longer separately negotiable since it has been replaced by this Note.

Exhibits A and B are attached hereto and incorporated herein by reference.

[Signature Follows on Next Page]

Page 3 of 11

Loan No. 1000625

IN WITNESS WHEREOF, the Borrower has executed this Note as of the date set forth above.

“BORROWER”

KBSII 100-200 CAMPUS DRIVE, LLC,

a Delaware limited liability company

By:	KBSII REIT ACQUISITION I, LLC,
	a Delaware limited liability company, its sole member
	By:	KBS REIT PROPERTIES II, LLC,
		a Delaware limited liability company, its sole member
		By:	KBS LIMITED PARTNERSHIP II,
			a Delaware limited partnership, its sole member
			By:	KBS REAL ESTATE INVESTMENT TRUST II, INC.,
				a Maryland corporation, general partner

By:	/s/Charles J. Schreiber, Jr.
	Charles J. Schreiber, Jr.
	Chief Executive Officer

Page 4 of 11

EXHIBIT A

Loan No. 1000625

FIXED RATE AGREEMENT

Exhibit A to an Amended and Restated Promissory Note Secured by Mortgage (“Note”), dated March 11, 2009, made by KBSII 100-200 CAMPUS DRIVE, LLC, a Delaware limited liability company, as Borrower, to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION, as Lender.

Borrower has requested and Lender has agreed to provide the option to fix the rate of interest for specified periods on specified portions of the outstanding principal balance as a basis for calculating the Effective Rate on such portions of the principal amounts owing under this Note. Borrower understands: (i) the process of exercising the fixed rate option as provided herein; (ii) that amounts owing under this Note may bear interest at different rates and for different time periods; and (iii) that absent the terms and conditions hereof, it would be extremely difficult to calculate Lender’s additional costs, expenses, and damages upon the occurrence of an Event of Default (as defined in the Loan Agreement) or prepayment by Borrower hereunder. Given the above, Borrower agrees that the provisions herein (including, without limitation, the Fixed Rate Price Adjustment defined below) provide for a reasonable and fair method for Lender to recover its additional costs, expenses and damages for an Event of Default or prepayment by Borrower.

1. RATES AND TERMS DEFINED. Various rates and terms not otherwise defined herein are defined and described as follows:

“Alternate Rate” is a rate of interest per annum five percent (5%) in excess of the applicable Effective Rate.

“Applicable LIBO Rate” is the rate of interest, equal to the sum of: (a) three and one-half percent (3.50%) plus (b) the LIBO Rate, which rate is divided by one (1.00) minus the Reserve Percentage:

Applicable LIBO Rate = 3.50%	+	LIBO Rate
		(1 - Reserve Percentage)

“Business Day” is a day of the week (but not a Saturday, Sunday or holiday) on which the offices of Lender are open to the public for carrying on substantially all of Lender’s business functions.

“Effective Rate” is the rate of interest calculated in accordance with Section 2 herein.

“Federal Funds Rate” is, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Lender from three (3) Federal Funds brokers of recognized standing selected by Lender.

“Fixed Rate” is the Applicable LIBO Rate as accepted by Borrower as an Effective Rate for a particular Fixed Rate Period and Fixed Rate Portion.

“Fixed Rate Commencement Date” means the date upon which the Fixed Rate Period commences.

“Fixed Rate Notice” is a written notice in the form shown on Exhibit B attached to this Note which requests a Fixed Rate for a particular Fixed Rate Period and Fixed Rate Portion.

“Fixed Rate Period” is the period or periods of (a) one (1), three (3) or six (6) months; or (b) any other shorter period which ends at the Maturity Date, which periods are selected by Borrower and confirmed in the Fixed Rate Notice; provided that no Fixed Rate Period shall extend beyond the Maturity Date and any Fixed Rate Notice electing a Fixed Rate Period that would extend beyond the Maturity Date shall be deemed to be a nullity and of no force or effect.

Page 5 of 11

EXHIBIT A

Loan No. 1000625

“Fixed Rate Portion” is the portion or portions of the principal balance of this Note which Borrower selects to have subject to a Fixed Rate, each of which is an amount: (a) equal to the unpaid principal balance of this Note not already subject to a Fixed Rate; or (b) if less than the unpaid principal balance of this Note not subject to a Fixed Rate, is not less than One Hundred Thousand Dollars ($100,000) and is an even multiple of One Hundred Thousand Dollars ($100,000).

“LIBO Rate” is, for any Fixed Rate Portion, the rate of interest quoted by Lender as the London Inter-Bank Offered Rate for deposits in U.S. Dollars at approximately 9:00 a.m. (California time), for a Fixed Rate Commencement Date or a Price Adjustment Date, as appropriate, for purposes of calculating effective rates of interest for loans or obligations making reference thereto for an amount approximately equal to a Fixed Rate Portion and for a period of time approximately equal to a Fixed Rate Period or the time remaining in a Fixed Rate Period after a Price Adjustment Date, as appropriate.

“Loan Agreement” is that certain Loan Agreement (Non-Revolving) dated as of September 9, 2008 between Borrower and Lender, as the same may be amended or modified from time to time.

“Loan Documents” are the documents defined as such in the Loan Agreement.

“One-Month LIBO Rate” is the rate of interest, equal to the sum of: (a) three and one-half percent (3.50%), plus (b) the rate of interest, that is quoted by Lender from time to time as the London InterBank Offered Rate for deposits in U.S. Dollars, at approximately 9:00 a.m. (California time), for a period of one (1) month (“One-Month Rate”), which rate is divided by one (1.00) minus the Reserve Percentage.

One-Month LIBO Rate = 3.50%	+	One-Month Rate
		(1 – Reserve Percentage)

“Regulatory Costs” are, collectively, future, supplemental, emergency or other changes in Reserve Percentages, assessment rates imposed by the FDIC, or similar requirements or costs imposed by any domestic or foreign governmental authority and related in any manner to a Fixed Rate.

“Replacement Rate” is, for any day, a fluctuating rate of interest equal to three and one-half percent (3.50%), plus the Federal Funds Rate plus one and one-half percent (1.50%).

“Reserve Percentage” is at any time the percentage announced within Lender as the reserve percentage under Regulation D for loans and obligations making reference to the One-Month LIBO Rate, reset daily, or to an Applicable LIBO Rate for a Fixed Rate Period or time remaining in a Fixed Rate Period on a Price Adjustment Date, as appropriate. The Reserve Percentage shall be based on Regulation D or other regulations from time to time in effect concerning reserves for Eurocurrency Liabilities as defined in Regulation D from related institutions as though Lender were in a net borrowing position, as promulgated by the Board of Governors of the Federal Reserve System, or its successor.

“Taxes” are, collectively, all withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to a Fixed Rate.

2. EFFECTIVE RATE. The Effective Rate upon which interest shall be calculated for this Note shall be one or more of the following:

2.1 Provided no Event of Default exists under the Loan Agreement or under any of the other Loan Documents described therein (this Note is one of the Loan Documents):

(a) For those portions of the principal balance of this Note which are not Fixed Rate Portions, the Effective Rate shall be the One-Month LIBO Rate determined by Lender, reset daily.

Page 6 of 11

EXHIBIT A

Loan No. 1000625

(b) For those portions of the principal balance of this Note which are Fixed Rate Portions, the Effective Rate for the Fixed Rate Period thereof shall be the Fixed Rate accepted by Borrower for the Fixed Rate Period selected by Borrower with respect to each Fixed Rate Portion and set in accordance with the provisions hereof.

(c) If any of the transactions necessary for the calculation of interest at any Fixed Rate requested or selected by Borrower or at the One-Month LIBO Rate determined by Lender, reset daily, should be or become prohibited or unavailable to Lender, or, if in Lender’s good faith judgment, it is not possible or practical for Lender to set a Fixed Rate for a Fixed Rate Portion and Fixed Rate Period as requested or selected by Borrower or to set a One-Month LIBO Rate on a daily basis, the Effective Rate for the principal balance of this Note subject to such unavailable interest rate shall be replaced by a floating rate of interest equal to the Replacement Rate.

2.2 During such time as an Event of Default exists, or from and after the date on which all sums owing under this Note become due and payable by acceleration or otherwise; or from and after the date on which the property encumbered by the Mortgage or any portion thereof or interest therein, is, except as expressly permitted in the Loan Documents, sold, transferred, mortgaged, assigned, or encumbered, whether voluntarily or involuntarily, or by operation of law or otherwise, without Lender’s prior written consent (whether or not the sums owing under this Note become due and payable by acceleration); or from and after the Maturity Date, then at the option of Lender, the interest rate applicable to the then outstanding principal balance of this Note shall be the Alternate Rate.

3. SELECTION OF FIXED RATE. Provided no Event of Default exists under the Loan Documents, or would exist with passage of time or notice or both, Borrower, at its option and upon satisfaction of the conditions set forth herein, may request a Fixed Rate as the Effective Rate for calculating interest on the portion of the unpaid principal balance and for the period selected in accordance with and subject to the following procedures and conditions:

3.1 Borrower shall deliver to the Los Angeles Loan Center, 2120 East Park Place, Suite 100, El Segundo, California, 90245, with a copy to: Lender, Real Estate Group, Orange County, 2030 Main Street, Suite 800, Irvine, CA 92614, Attention: Irie Dadabhoy, Relationship Manager, or such other addresses as Lender shall designate, an original or facsimile Fixed Rate Notice no later than 9:00 A.M. (California time), on the day Borrower requests a Fixed Rate quote, for each Fixed Rate Portion. Any Fixed Rate Notice pursuant to this Section 3 is irrevocable.

Lender is authorized to rely upon the telephonic request and acceptance of Kim Westerbeck, Lori Lewis, Stacie Yamane, Dharshi Chandran and Michael Costa as Borrower’s duly authorized agents, or such additional authorized agents as Borrower shall designate in writing to Lender. Borrower’s telephonic notices, requests and acceptances shall be directed to such officers of Lender as Lender may from time to time designate.

3.2 Borrower may, with a timely and complying Fixed Rate Notice, elect (A) to convert all or a portion of the principal balance of this Note which is accruing interest at the One-Month LIBO Rate determined by Lender, reset daily, to a Fixed Rate Portion, or (B) to convert a matured Fixed Rate Portion into a new Fixed Rate Portion, provided, however, that the aggregate amount of the advance being converted into or continued as a Fixed Rate Portion shall, in the aggregate, be not less than One Hundred Thousand Dollars ($100,000) and shall be an even multiple of One Hundred Thousand Dollars ($100,000), unless a lesser amount may be necessary to permit Borrower to select a Fixed Rate for the entirety of the Loan. The conversion of a matured Fixed Rate Portion back to the One-Month LIBO Rate determined by Lender, reset daily, or to a new Fixed Rate Portion shall occur on the last Business Day of the Fixed Rate Period relating to such Fixed Rate Portion. Each Fixed Rate Notice shall specify (1) the amount of the Fixed Rate Portion, (2) the Fixed Rate Period, and (3) the Fixed Rate Commencement Date.

Page 7 of 11

EXHIBIT A

Loan No. 1000625

3.3 Upon receipt of a Fixed Rate Notice in the proper form requesting a Fixed Rate for a Fixed Rate Portion advance under Sections 3.1 and 3.2 above, Lender shall determine the Fixed Rate applicable to the Fixed Rate Period for such Fixed Rate Portion. Each determination by Lender of the Fixed Rate shall be conclusive and binding upon the parties hereto in the absence of manifest error. Lender shall deliver to Borrower (by facsimile) an acknowledgment of receipt and confirmation of the Fixed Rate Notice; provided, however, that failure to provide such acknowledgment of receipt and confirmation of the Fixed Rate Notice to Borrower shall not affect the validity of such rate.

3.4 If Borrower does not make a timely election to convert all or a portion of a matured Fixed Rate Portion into a new Fixed Rate Portion in accordance with Section 3.2 above, such Fixed Rate Portion shall automatically begin to accrue interest at the One-Month LIBO Rate determined by Lender, reset daily, upon the expiration of the Fixed Rate Period applicable to such Fixed Rate Portion.

4. FIXED RATE NOTICE. Borrower’s selection of a Fixed Rate shall be delivered to Lender in the form of the Fixed Rate Notice shown on Exhibit B attached to this Note. Lender shall confirm and deliver to Borrower acceptance of such Fixed Rate Notice via facsimile. Lender’s failure to deliver the Fixed Rate Notice shall not release Borrower from Borrower’s obligation to pay interest at the Effective Rate pursuant to the terms hereof.

5. LIMITATIONS ON RIGHT TO FIX RATE. Borrower may have no more than five (5) Fixed Rate Portions outstanding at one time.

6. TAXES, REGULATORY COSTS AND RESERVE PERCENTAGES. Upon Lender’s demand, Borrower shall pay to Lender, in addition to all other amounts which may be, or become, due and payable under this Note and the Loan Documents, any and all Taxes and Regulatory Costs, to the extent they are not internalized by calculation of an Effective Rate, based upon a reasonable allocation thereof by Lender to the financing transaction contemplated by the Loan Agreement, as may be necessary to compensate Lender for any such Taxes and Regulatory Costs; provided, however, that Lender may not claim under this Section 6 any such Taxes and Regulatory Costs (a) attributable to any period preceding the date that is ninety (90) days prior to the date of its demand, or (b) if the payment of such compensation may not be legally made, whether by modification of the applicable interest rate or otherwise. Further, at Lender’s option, the Effective Rate shall be automatically adjusted by adjusting the Reserve Percentage, as determined by Lender in its prudent banking judgment, from the date of imposition (or subsequent date selected by Lender) of any such Regulatory Costs. Lender shall deliver to Borrower a written statement of the claimed Taxes and Regulatory Costs and the basis therefor in reasonable detail as soon as reasonably practicable after Lender obtains knowledge thereof, but Borrower shall be liable for any Taxes and Regulatory Costs regardless of whether or when notice is so given. If Lender subsequently recovers any amount of Taxes and Regulatory Costs previously paid by Borrower pursuant to this Section 6, whether before or after termination of this Agreement, then, upon receipt of good funds with respect to such recovery, Lender will refund such amount to Borrower if no Event of Default then exists or, if an Event of Default then exists, such amount will be credited to the Obligations in the manner determined by the Lender.

7. FIXED RATE PRICE ADJUSTMENT. Borrower acknowledges that prepayment or acceleration of a Fixed Rate Portion during a Fixed Rate Period shall result in Lender’s incurring additional costs, expenses and/or liabilities and that it is extremely difficult and impractical to ascertain the extent of such costs, expenses and/or liabilities. Therefore, on the date a Fixed Rate Portion is prepaid or the date all sums payable hereunder become due and payable, by acceleration or otherwise (“Price Adjustment Date”), Borrower will pay Lender (in addition to all other sums then owing to Lender) an amount (“Fixed Rate Price Adjustment”) equal to the then present value of (a) the amount of interest that would have accrued on the Fixed Rate Portion for the remainder of the Fixed Rate Period at the Fixed Rate set on the Fixed Rate Commencement Date, less (b) the amount of interest that would accrue on the same Fixed Rate Portion for the same period if the Fixed Rate were set on the Price Adjustment Date at the Applicable LIBO Rate in effect on the Price Adjustment Date. The present value shall be calculated by using as a discount rate the LIBO Rate quoted on the Price Adjustment Date.

Page 8 of 11

EXHIBIT A

Loan No. 1000625

By initialing this provision where indicated below, Borrower confirms that Lender’s agreement to make the loan evidenced by this Note at the interest rates and on the other terms set forth herein and in the other Loan Documents constitutes adequate and valuable consideration, given individual weight by Borrower, for this agreement.

BORROWER’S INITIALS:                           

8. PURCHASE, SALE AND MATCHING OF FUNDS. Borrower understands, agrees and acknowledges the following: (a) Lender has no obligation to purchase, sell and/or match funds in connection with the use of a LIBO Rate as a basis for calculating an Effective Rate or Fixed Rate Price Adjustment; (b) a LIBO Rate is used merely as a reference in determining an Effective Rate and Fixed Rate Price Adjustment; and (c) Borrower has accepted a LIBO Rate as a reasonable and fair basis for calculating an Effective Rate and a Fixed Rate Price Adjustment. Borrower further agrees to pay the Fixed Rate Price Adjustment, Taxes and Regulatory Costs, if any, whether or not Lender elects to purchase, sell and/or match funds.

9. MISCELLANEOUS. As used in this Exhibit, the plural shall mean the singular and the singular shall mean the plural as the context requires. Addresses for the Fixed Rate Notice shall be the same as those for notices under the Loan Agreement.

[Signature to Follow on Next Page]

Page 9 of 11

EXHIBIT A

Loan No. 1000625

This Agreement is executed concurrently with and as part of the Note referred to and described first above.

“BORROWER”

KBSII 100-200 CAMPUS DRIVE, LLC,

a Delaware limited liability company

By:	KBSII REIT ACQUISITION I, LLC, a Delaware limited liability company, its sole member
	By:	KBS REIT PROPERTIES II, LLC, a Delaware limited liability company, its sole member
		By:	KBS LIMITED PARTNERSHIP II, a Delaware limited partnership, its sole member
			By:	KBS REAL ESTATE INVESTMENT TRUST II, INC., a Maryland corporation, general partner

By:	/s/Charles J. Schreiber, Jr.
	Charles J. Schreiber, Jr.
	Chief Executive Officer

Page 10 of 11

EXHIBIT B

FIXED RATE NOTICE Loan No. 1000625

TODAY’S DATE:		LOAN MATURITY DATE:	June 9, 2009
TO:	WELLS FARGO BANK, N.A. LOS ANGELES LOAN CENTER FAX # (310) 615-1014 or (310) 615-1016 ATTENTION: RATE OPTION DESK	LOAN ADMINISTRATOR:	Rhonda Friedly
		RELATIONSHIP MANAGER:	Irie Dadabhoy

BORROWER INTEREST RATE OPTION REQUEST

Rate Quote Line (888) 293-2362 x: 472    Use One Form Per Transaction

LOAN #:   1000625       BORROWER NAME: KBSII 100-200 Campus Drive, LLC, a Delaware limited liability company                                                                                              

RATE SET DATE:	FIXED RATE COMMENCEMENT DATE:		(1350	)
FIXED RATE PERIOD (TERM):		(i.e. 1, 3 or 6 months, etc. as allowed per Note)

INDEX:	LIBO	RATE:	%	+	3.50%	=	#’s%	(1350	)
			Quote		Spread		Applicable Rate

FIXED RATE PORTION EXPIRING ON:                                                                                      $                                                         

1.	AMOUNT ROLLING OVER	$	FROM OBLGN#:
2.	ADD: AMT TRANSFERRED FROM ONE-MONTH LIBO RATE, RESET DAILY PORTION	$	FROM OBLGN#:		TO OBLGN# :
				(5522)		(5020)
3.	ADD: AMT TRANSFERRED FROM OTHER FIXED RATE PORTION	$	FROM OBLGN#:		TO OBLGN# :
				(5522)		(5020)
	ADD: AMT TRANSFERRED FROM OTHER FIXED RATE PORTION	$	FROM OBLGN#:		TO OBLGN# :
				(5522)		(5020)
4.	LESS: AMT TRANSFERRED TO ONE-MONTH LIBO RATE, RESET DAILY PORTION	$	FROM OBLGN#:		TO OBLGN# :
				(5522)		(5020)
	TOTAL FIXED RATE PORTION:	$
ADMINISTRATION FEE DUE:		NONE
CHARGE FEES TO DDA#:		YES, charge DDA	DDA#:
		NO, to be remitted	PLEASE REMIT FEE TO: Los Angeles Loan Center 2120 E. Park Place, Suite 100 El Segundo, CA 90245

Borrower confirms, represents and warrants to Lender, (a) that this selection of a Fixed Rate is subject to the terms and conditions of the Note, Fixed Rate Agreement and Loan Documents (as applicable), and (b) that terms, words and phrases used but not defined in this Notice have the meanings attributed thereto in the Note, Fixed Rate Agreement and Loan Documents (as applicable), and (c) that no breach, failure of condition, or Event of Default has occurred or exists, or would exist after notice or passage of time or both, under the Note or the Loan Documents.

REQUESTED BY (as allowed per documents):	TELEPHONE #:	(         )
PRINT NAME:	FAX #:	(         )

Page 11 of 11

EX-10.38

Exhibit 10.38

MODIFICATION

AGREEMENT

Secured Loan

THIS MODIFICATION AGREEMENT (“Agreement”) dated March 11, 2009, is made and entered into by and between KBSII 100-200 CAMPUS DRIVE, LLC, a Delaware limited liability company (“Borrower”), and Wells Fargo Bank, National Association (“Lender”).

R E C I T A L S

A.        Pursuant to the terms of a Loan Agreement (Non-Revolving) between Borrower and Lender dated September 9, 2008 (“Loan Agreement”), Lender made a loan to Borrower in the principal amount of Eighty Nine Million Eight Hundred Thousand and 00/100ths Dollars ($89,800,000.00) (“Loan”). The Loan is evidenced by a promissory note dated as of the date of the Loan Agreement, executed by Borrower in favor of Lender, in the principal amount of the Loan (“Note”), and is further evidenced by the documents described in the Loan Agreement as “Loan Documents”. The Note is secured by, among other things, a Mortgage with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (“Mortgage”) dated September 9, 2008, executed by Borrower, as Mortgagor, in favor of Lender, as Mortgagee. The Mortgage was recorded on September 12, 2008, in Book 21155, at Page 1469, in the Official Records of Morris County, New Jersey.

B.        The Note, Mortgage, Loan Agreement, this Agreement, the other documents described in the Loan Agreement as “Loan Documents”, together with all modifications and amendments thereto and any document required hereunder, are collectively referred to herein as the “Loan Documents”.

C.        By this Agreement, Borrower and Lender intend to modify and amend certain terms and provisions of the Loan Documents.

NOW, THEREFORE, Borrower and Lender agree as follows:

1.        CONDITIONS PRECEDENT.  The following are conditions precedent to Lender’s obligations under this Agreement:

1.1        If required by Lender, receipt and approval by Lender of a date down to Title Policy No. 11320217 dated September 12, 2008, issued by Lawyers Title Insurance Corporation (“Title Company”) and assurance acceptable to Lender, including, without limitation, CLTA Endorsement No. 110.5, without deletion or exception other than those expressly approved by Lender in writing, that the priority and validity of the Mortgage has not been and will not be impaired by this Agreement or the transactions contemplated hereby;

1.2        Receipt by Lender of the executed originals of this Agreement, the short form of this Agreement (if any) and any and all other documents and agreements which are required by this Agreement or by any other Loan Document, each in form and content acceptable to Lender;

1.3        Recordation in the Official Records of the County where the Property is located of (i) the short form of this Agreement (if any), and (ii) any other documents which are required to be recorded by this Agreement or by any other Loan Document (if any);

1.4        Reimbursement to Lender by Borrower of Lender’s costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby, including, without limitation, title insurance costs, recording fees, attorneys’ fees, appraisal, engineers’ and inspection fees and documentation costs and charges, whether such services are furnished by Lender’s employees or agents or by independent contractors;

1.5        The representations and warranties contained in this Agreement are true and correct;

1.6        All payments due and owing to Lender under the Loan Documents have been paid current as of the effective date of this Agreement; and

1.7        The payment to Lender of a modification fee in the amount of $112,250.00.

2.        REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants that no Default, breach or failure of condition has occurred, or would exist with notice or the lapse of time or both, under any of the Loan Documents (as modified by this Agreement) and that all representations and warranties herein are true and correct, which representations and warranties shall survive execution of this Agreement.

3.        MODIFICATION OF LOAN DOCUMENTS. The Loan Documents are hereby supplemented and modified to incorporate the following, which shall supersede and prevail over any conflicting provisions of the Loan Documents:

3.1        Amended and Restated Note. Effective as of March 10, 2009, the Note is hereby replaced by an amended and restated promissory note secured by mortgage (“Amended Note”), dated as of even date herewith. The terms, covenants and conditions of the Amended Note shall supersede the Note. Any reference to the Note hereinafter shall mean the Amended Note.

3.2        Term Extension. Section 2.1(c) of the Loan Agreement is hereby deleted in its entirety and restated as follows:

“(c) Term. The outstanding balance of the Loan, together with all accrued and unpaid interest and other amounts accrued and unpaid under the Loan Documents, shall be payable in full on the earliest to occur of (i) June 9, 2009, (ii) the acceleration of the Loan pursuant to Section 10.2(a), or (iii) Borrower’s written notice to Lender (pursuant to Section 2.4(a)) of Borrower’s election to prepay all accrued Obligations (said earliest date referred to herein as the “Maturity Date”).”

4.        FORMATION AND ORGANIZATIONAL DOCUMENTS. Borrower has previously delivered to Lender all of the relevant formation and organizational documents of Borrower, of the partners, members or joint venturers of Borrower (if any), and of all guarantors of the Loan (if any), and all such formation documents remain in full force and effect and have not been amended or modified since they were delivered to Lender. Borrower hereby certifies that: (i) the above documents are all of the relevant formation and organizational documents of Borrower; (ii) they remain in full force and effect; and (iii) they have not been amended or modified since they were previously delivered to Lender.

5.        NON-IMPAIRMENT. Except as expressly provided herein, nothing in this Agreement shall alter or affect any provision, condition, or covenant contained in any Loan Document or affect or impair any rights, powers, or remedies of Lender, it being the intent of the parties hereto that the provisions of the Loan Documents shall continue in full force and effect except as expressly modified hereby.

6.        MISCELLANEOUS. This Agreement and the other Loan Documents shall be governed by and interpreted in accordance with the laws of the State of California, except if preempted by federal law. In any action brought or arising out of this Agreement or the other Loan Documents, Borrower, and the general partners, members and joint venturers of Borrower (if any), hereby consent to the jurisdiction of any federal or state court having proper venue within the State of California and also consent to the service of process by any means authorized by California or federal law. The headings used in this Agreement are for convenience only and shall be disregarded in interpreting the substantive provisions of this Agreement. All capitalized terms used herein, which are not defined herein, shall have the meanings given to them in the other Loan Documents. Time is of the essence of each term of the Loan

Documents, including this Agreement. If any provision of this Agreement or any of the other Loan Documents shall be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that portion shall be deemed severed from this Agreement and the remaining parts shall remain in full force as though the invalid, illegal, or unenforceable portion had never been a part thereof.

7.        INTEGRATION; INTERPRETATION. The Loan Documents, including this Agreement, contain or expressly incorporate by reference the entire agreement of the parties with respect to the matters contemplated therein and supersede all prior negotiations or agreements, written or oral. The Loan Documents shall not be modified except by written instrument executed by all parties. Any reference to the Loan Documents includes any amendments, renewals or extensions now or hereafter approved by Lender in writing.

8.        EXECUTION IN COUNTERPARTS. To facilitate execution, this document may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single document. It shall not be necessary in making proof of this document to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be duly executed as of the date first above written.

“LENDER”

Wells Fargo Bank, National Association

        /s/ Irie Dadabhoy

By: Irie Dadabhoy, Vice President    

Lender’s Address: Real Estate

Group (AU #02955) 2030 Main

Street Suite 800 Irvine, CA 92614

Attn: Rhonda Friedly

“BORROWER”

KBSII 100-200 CAMPUS DRIVE, LLC, a Delaware

limited liability company

By: KBSII REIT ACQUISITION I, LLC, a Delaware limited

liability company, its sole member

By: KBS REIT PROPERTIES II, LLC, a Delaware limited

liability company, its sole member

By: KBS LIMITED PARTNERSHIP II, a Delaware limited

partnership, its sole member

By: KBS REAL ESTATE INVESTMENT TRUST II, INC., a

Maryland corporation, general partner

      /s/ Charles J. Schreiber, Jr.

By: Charles J. Schreiber, Jr., Chief Executive Officer  

Borrower’s Address: c/o KBS Capital

Advisors LLC 620 Newport Center

Drive, Suite 1300 Newport Beach, CA

92660

Attn: Michael Costa

GUARANTOR’S CONSENT

The undersigned (“Guarantor”) consents to the foregoing Modification Agreement and the transactions contemplated thereby and reaffirms its obligations under the Limited Guaranty (“Guaranty”) dated September 9, 2008, and its waivers, as set forth in the Guaranty, of each and every one of the possible defenses to such obligations. Guarantor further reaffirms that its obligations under the Guaranty are separate and distinct from Borrower’s obligations.

Agreed and Acknowledged:
Dated as of: March 11, 2009 “GUARANTOR”
KBS REIT PROPERTIES II, LLC, a Delaware limited liability company
By: KBS LIMITED PARTNERSHIP II, a Delaware limited partnership, its sole member
By: KBS REAL ESTATE INVESTMENT TRUST II, INC., a Maryland corporation, general partner
	/s/ Charles J. Schreiber, Jr.
	By: Charles J. Schreiber, Jr., Chief Executive Officer

HAZARDOUS INDEMNITOR’S CONSENT

The undersigned (“Indemnitor”) consents to the foregoing Modification Agreement and the transactions contemplated thereby and reaffirms its obligations under the Hazardous Materials Indemnity Agreement (Secured) (“Indemnity”) dated September 9, 2008, and its waivers, as set forth in the Indemnity, of each and every one of the possible defenses to such obligations.

Agreed and Acknowledged:

Dated as of: March 11, 2009

“INDEMNITOR”

KBSII 100-200 CAMPUS DRIVE, LLC, a Delaware

limited liability company

By: KBSII REIT ACQUISITION I, LLC, a Delaware limited

liability company, its sole member

By: KBS REIT PROPERTIES II, LLC, a Delaware limited

liability company, its sole member

By: KBS LIMITED PARTNERSHIP II, a Delaware limited

partnership, its sole member

By: KBS REAL ESTATE INVESTMENT TRUST II, INC., a

Maryland corporation, general partner

         /s/ Charles J. Schreiber, Jr.

By:  Charles J. Schreiber, Jr., Chief Executive Officer  

EX-21.1

Exhibit 21.1

Direct and Indirect Subsidiaries of KBS Real Estate Investment Trust II, Inc.

KBS Limited Partnership II

KBS REIT Holdings II LLC

KBS REIT Properties II, LLC

KBS Debt Holdings II, LLC

KBS Debt Holdings II X, LLC

KBSII REIT Acquisition I, LLC

KBSII REIT Acquisition II, LLC

KBSII REIT Acquisition III, LLC

KBSII REIT Acquisition IV, LLC

KBSII 100-200 Campus Drive, LLC

KBSII 300-600 Campus Drive, LLC

KBSII Mountain View, LLC

KBSII 350 Plumeria, LLC

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Charles J. Schreiber Jr., certify that:

1. I have reviewed this annual report on Form 10-K of KBS Real Estate Investment Trust II, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have [Language omitted in accordance with SEC Release Nos. 34-47986 and 34-54942]:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release Nos. 34-47986 and 34-54942];

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  March 27, 2009

/s/ Charles J. Schreiber, Jr.

Charles J. Schreiber, Jr.

Chairman of the Board,

Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, David E. Snyder, certify that:

1. I have reviewed this annual report on Form 10-K of KBS Real Estate Investment Trust II, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have [Language omitted in accordance with SEC Release Nos. 34-47986 and 34-54942]:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release Nos. 34-47986 and 34-54942];

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  March 27, 2009

/s/ David E. Snyder

David E. Snyder

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification pursuant to 18 U.S.C. Section 1350,

as Adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of KBS Real Estate Investment Trust II, Inc. (the “Registrant”) for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Charles J. Schreiber Jr., Chief Executive Officer and Director of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:  March 27, 2009

/s/ Charles J. Schreiber, Jr.

Charles J. Schreiber, Jr.

Chairman of the Board,

Chief Executive Officer and Director

EX-32.2

Exhibit 32.2

Certification pursuant to 18 U.S.C. Section 1350,

as Adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of KBS Real Estate Investment Trust II, Inc. (the “Registrant”) for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, David E. Snyder, the Chief Financial Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:  March 27, 2009

/s/ David E. Snyder

David E. Snyder

Chief Financial Officer