10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________

(Mark One)

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

For the quarterly period ended June 30, 2011

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 000-53649

______________________________________________________

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)

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    

Yes  £  No  x

As of August 5, 2011, there were 190,197,424 outstanding shares of common stock of KBS Real Estate Investment Trust II, Inc.

KBS REAL ESTATE INVESTMENT TRUST II, INC.

FORM 10-Q

June 30, 2011

INDEX

PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010	2
		Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2011 and 2010	3
		Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2010 and the Six Months Ended June 30, 2011 (unaudited)	4
		Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2011 and 2010	5
		Condensed Notes to Consolidated Financial Statements as of June 30, 2011 (unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
	Item 4.	Controls and Procedures	42
PART II.	OTHER INFORMATION		43
	Item 1.	Legal Proceedings	43
	Item 1A.	Risk Factors	43
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
	Item 3.	Defaults upon Senior Securities	45
	Item 4.	(Removed and Reserved)	45
	Item 5.	Other Information	45
	Item 6.	Exhibits	46
SIGNATURES			47

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	June 30, 2011			December 31, 2010
	(unaudited)
Assets
Real estate:
Land	$	232,947		$	190,507
Buildings and improvements	1,815,908			1,511,105
Tenant origination and absorption costs	302,768			252,264
Total real estate, cost	2,351,623			1,953,876
Less accumulated depreciation and amortization	(134,384		)	(80,473		)
Total real estate, net	2,217,239			1,873,403
Real estate loans receivable, net	341,164			336,759
Total real estate and real estate-related investments, net	2,558,403			2,210,162
Cash and cash equivalents	54,133			82,413
Restricted cash	162			937
Rents and other receivables, net	33,442			20,582
Above-market leases, net	57,623			48,456
Deferred financing costs, prepaid expenses and other assets	21,727			17,104
Total assets	$	2,725,490		$	2,379,654
Liabilities and stockholders’ equity
Notes payable	$	1,101,270		$	828,157
Accounts payable and accrued liabilities	24,475			20,287
Due to affiliates	5			373
Distributions payable	10,129			9,179
Below-market leases, net	37,625			35,487
Other liabilities	24,466			18,536
Total liabilities	1,197,970			912,019
Commitments and contingencies (Note 13)
Redeemable common stock	67,177			43,306
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, 189,748,321 and 176,739,865 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively	1,897			1,767
Additional paid-in capital	1,631,442			1,537,403
Cumulative distributions in excess of net income	(164,223		)	(112,711		)
Accumulated other comprehensive loss	(8,773		)	(2,130		)
Total stockholders’ equity	1,460,343			1,424,329
Total liabilities and stockholders’ equity	$	2,725,490		$	2,379,654

See accompanying condensed notes to consolidated financial statements.

2

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Revenues:
Rental income	$	56,415	$	20,959	$	107,739	$	39,455
Tenant reimbursements	12,817		3,003		23,697		5,760
Interest income from real estate loans receivable	8,887		7,030		17,686		12,845
Other operating income	2,847		478		5,229		746
Total revenues	80,966		31,470		154,351		58,806
Expenses:
Operating, maintenance, and management	14,453		5,077		28,619		10,031
Real estate taxes and insurance	8,907		2,193		17,141		4,026
Asset management fees to affiliate	5,003		1,788		9,557		3,307
Real estate acquisition fees to affiliates	951		482		3,000		1,588
Real estate acquisition fees and expenses	348		461		2,311		926
General and administrative expenses	1,617		1,090		2,481		2,168
Depreciation and amortization	30,507		12,599		58,714		23,336
Interest expense	12,264		2,476		23,508		4,358
Total expenses	74,050		26,166		145,331		49,740
Other income:
Other interest income	9		106		61		172
Net income	$	6,925	$	5,410	$	9,081	$	9,238
Net income per common share, basic and diluted	$	0.04	$	0.05	$	0.05	$	0.09
Weighted-average number of common shares outstanding, basic and diluted	189,165,416		113,746,113		187,952,694		106,210,219
Distributions declared per common share	$	0.162	$	0.162	$	0.322	$	0.322

See accompanying condensed notes to consolidated financial statements.

3

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Year Ended December 31, 2010 and the Six Months Ended June 30, 2011 (unaudited)

(dollars in thousands)

						Additional Paid-in Capital			Cumulative Distributions and Net Income (Loss)			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Common Stock
	Shares		Amounts
Balance, December 31, 2009	93,167,161		$	932		$	810,006		$	(36,376	)	$	—		$	774,562
Comprehensive income:
Net income	—		—			—			5,508			—			5,508
Unrealized losses on derivative instruments	—		—			—			—			(2,130		)	(2,130		)
Total comprehensive income															3,378
Issuance of common stock	85,838,625		858			852,417			—			—			853,275
Redemptions of common stock	(2,265,921	)	(23		)	(21,237		)	—			—			(21,260		)
Transfers to redeemable common stock	—		—			(22,046		)	—			—			(22,046		)
Distributions declared	—		—			—			(81,843		)	—			(81,843		)
Commissions on stock sales and related dealer manager fees to affiliate	—		—			(74,346		)	—			—			(74,346		)
Other offering costs	—		—			(7,391		)	—			—			(7,391		)
Balance, December 31, 2010	176,739,865		$	1,767		$	1,537,403		$	(112,711	)	$	(2,130	)	$	1,424,329
Comprehensive income:
Net income	—		—			—			9,081			—			9,081
Unrealized losses on derivative instruments	—		—			—			—			(6,643		)	(6,643		)
Total comprehensive income															2,438
Issuance of common stock	14,003,417		140			137,057			—			—			137,197
Redemptions of common stock	(994,961	)	(10		)	(9,454		)	—			—			(9,464		)
Transfers to redeemable common stock	—		—			(23,871		)	—			—			(23,871		)
Distributions declared	—		—			—			(60,593		)	—			(60,593		)
Commissions on stock sales and related dealer manager fees to affiliate	—		—			(8,864		)	—			—			(8,864		)
Other offering costs	—		—			(829		)	—			—			(829		)
Balance, June 30, 2011	189,748,321		$	1,897		$	1,631,442		$	(164,223	)	$	(8,773	)	$	1,460,343

See accompanying condensed notes to consolidated financial statements.

4

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Six Months Ended June 30,
	2011			2010
Cash Flows from Operating Activities:
Net income	$	9,081		$	9,238
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	58,714			23,336
Noncash interest income on real estate-related investments	(3,311		)	(3,054		)
Deferred rent	(10,921		)	(1,714		)
Bad debt expense (recovery)	57			(11		)
Amortization of above- and below-market leases, net	(682		)	(3,215		)
Amortization of deferred financing costs	1,552			249
Decrease in fair value of contingent consideration	135			—
Changes in operating assets and liabilities:
Restricted cash for operational expenditures	561			—
Rents and other receivables	(1,996		)	(1,428		)
Prepaid expenses and other assets	(3,308		)	(2,531		)
Accounts payable and accrued liabilities	1,580			3,595
Other liabilities	(713		)	(1,755		)
Net cash provided by operating activities	50,749			22,710
Cash Flows from Investing Activities:
Acquisitions of real estate	(397,255		)	(209,025		)
Additions to real estate	(9,327		)	(2,283		)
Investments in real estate loans receivable	(1,094		)	(108,216		)
Decrease in restricted cash for capital expenditures	214			—
Net cash used in investing activities	(407,462		)	(319,524		)
Cash Flows from Financing Activities:
Proceeds from notes payable	254,998			75,000
Transfer of financial asset	45,000			—
Principal payments on notes payable	(26,885		)	(32,810		)
Payments of deferred financing costs	(3,742		)	(2,574		)
Return of contingent consideration related to acquisition of real estate	1,029			—
Proceeds from issuance of common stock	103,868			295,376
Payments to redeem common stock	(9,464		)	(12,255		)
Payments of commissions on stock sales and related dealer manager fees	(8,864		)	(27,188		)
Payments of other offering costs	(1,193		)	(3,583		)
Distributions paid to common stockholders	(26,314		)	(14,626		)
Net cash provided by financing activities	328,433			277,340
Net decrease in cash and cash equivalents	(28,280		)	(19,474		)
Cash and cash equivalents, beginning of period	82,413			273,821
Cash and cash equivalents, end of period	$	54,133		$	254,347
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	21,130		$	3,883
Supplemental Disclosure of Noncash Transactions:
Increase in distributions payable	$	950		$	1,404
Increase in capital expenses payable	$	1,813		$	—
Increase in lease commissions payable	$	791		$	—
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$	33,329		$	18,211

See accompanying condensed notes to consolidated financial statements.

5

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

(unaudited)

1. ORGANIZATION

KBS Real Estate Investment Trust II, Inc. (the “Company”) was formed on July 12, 2007 as a Maryland corporation that elected to be taxed 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 directly owns a 0.1% partnership interest in the Operating Partnership. The Company's wholly-owned subsidiary, KBS REIT Holdings II LLC, a Delaware limited liability company formed on August 23, 2007 (“KBS REIT Holdings II”), owns the remaining 99.9% partnership interest in the Operating Partnership and is its sole limited partner.

The Company owns a diverse portfolio of real estate and real estate-related investments. As of June 30, 2011, the Company owned 25 real estate properties (consisting of 18 office properties, one office/flex property, a portfolio of four industrial properties and two individual industrial properties), a leasehold interest in one industrial property and six real estate loans 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 renewed with the Advisor on May 21, 2011 (the “Advisory Agreement”). The Advisory Agreement may be renewed for an unlimited number of one-year periods upon the mutual consent of the Advisor and the Company. Either party may terminate the Advisory Agreement upon 60 days' written notice. The Advisor owns 20,000 shares of the Company's common stock.

Upon commencing its initial public offering (the “Offering”), 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 pursuant to a dealer manager agreement, as amended and restated on April 30, 2010 (the “Dealer Manager Agreement”). The Company ceased offering shares of common stock in its primary offering on December 31, 2010 and terminated its primary offering on March 22, 2011 upon the completion of review of subscriptions submitted in accordance with its processing procedures. The Company continues to offer shares of common stock under its dividend reinvestment plan.

The Company sold 182,681,633 shares of common stock in its primary offering for gross offering proceeds of $1.8 billion. As of June 30, 2011, the Company had sold 10,507,453 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $99.8 million. Also as of June 30, 2011, the Company had redeemed 3,460,765 shares sold in the Offering for $32.6 million.

6

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company's accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2010, except for the addition of an accounting policy related to the transfers of financial assets below. For further information about the Company's accounting policies, refer to the Company's consolidated financial statements and notes thereto for the year ended December 31, 2010 included in the Company's Annual Report on Form 10-K filed with the SEC. 

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 accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements.  In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods.  Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Any reference to the number of properties and square footage are unaudited and outside the scope of the Company's independent registered public accounting firm's review of the financial statements in accordance with the Standards of United States Public Company Accounting Oversight Board. 

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.

Reclassifications

Certain amounts in the Company's prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.

Per Share Data

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and six months ended June 30, 2011 and 2010, respectively.

Distributions declared per common share assumes each share was issued and outstanding each day during the three and six months ended June 30, 2011 and 2010. For the three and six months ended June 30, 2011 and 2010, distributions were based on daily record dates and calculated at a rate of $0.00178082 per share per day. Each day during the periods from January 1, 2011 through June 30, 2011 and January 1, 2010 through June 30, 2010 was a record date for distributions.

7

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

Segments

The Company's segments are based on the Company's method of internal reporting which classifies its operations by investment type: real estate and real estate-related. For financial data by segment, see Note 11, “Segment Information.”

Transfers of Financial Assets

The Company accounts for transfers of real estate loans receivable to unrelated entities in accordance with ASC 860, Transfers and Servicing (“ASC 860”). When a real estate loan receivable is divided into multiple tranches and one or more of the tranches is transferred to an unrelated third party, the Company determines if each of the tranches of the loan would qualify as participating interests. If the tranches do not qualify as participating interests, the Company would account for the transfer as a secured borrowing with a pledge of collateral. As a result, the Company would continue to report the transferred financial asset in its consolidated balance sheet and recognize interest income on the entire note. Proceeds from the transferee are treated as a secured borrowing and recorded as a note payable. Interest income allocated to the transferee is recorded as interest expense on the Company's consolidated statement of operations. See Note 6, "Real Estate Loans Receivable - Recent Originations - One Kendall Square First Mortgage."

Recently Issued Accounting Standards Updates

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220):  Presentation of Comprehensive Income (“ASU No. 2011-05”).  ASU No. 2011-05 requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity.  The amendments in this update are effective for the first interim or annual period beginning after December 15, 2011.  The adoption of ASU No. 2011-05 will require the Company to change the presentation of comprehensive income in its consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”).  ASU No. 2011-04 updates and further clarifies requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, ASU No. 2011-04 clarifies the FASB's intent about the application of existing fair value measurements. ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively.  The Company does not expect the adoption of ASU No. 2011-04 will have a material impact to its consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU No. 2011-02”). ASU No. 2011-02 updated accounting guidance to clarify certain determining factors, such as when a concession has been granted and when a debtor is experiencing financial difficulties, in evaluating whether or not a debt restructuring is deemed to be a “Troubled Debt Restructuring.” The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and are applied retrospectively to the beginning of the annual period of adoption. The Company is currently assessing the impact the adoption of ASU No. 2011-02 will have on its consolidated financial statements. The adoption of ASU No. 2011-02 could result in an increase of future debt restructurings, if any, recorded as “Troubled Debt Restructurings,” which could have a material impact to the Company's consolidated financial statements.

8

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU No. 2010-20”). ASU No. 2010-20 requires the Company to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses. This ASU also requires the Company to disclose additional information related to credit quality indicators, past due information, information related to loans modified in a troubled debt restructuring and significant purchases and sales of financing receivables disaggregated by portfolio segment. ASU No. 2010-20 was initially effective for interim and annual periods ending on or after December 15, 2010. In January 2011, the FASB issued ASU No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (“ASU No. 2011-01”). ASU No. 2011-01 announced that it was deferring the effective date of new disclosure requirements for troubled debt restructurings prescribed by ASU No. 2010-20. The effective date for those disclosures will be concurrent with the effective date for proposed ASU No. 2010-20. The proposed guidance in ASU No. 2010-20 is effective for interim and annual periods beginning after June 15,2011, in conjunction with the effective date of ASU No. 2011-02. The adoption of ASU No. 2010-20 may require additional disclosures, but the Company does not expect the adoption to have a material impact to its consolidated financial statements.

3. RECENT ACQUISITIONS OF REAL ESTATE

During the six months ended June 30, 2011, the Company acquired the following properties (in thousands):

								Intangibles
Property Name	City	State	Acquisition Date	Land		Building and Improvements		Tenant Origination and Absorption Costs		Above-Market Lease Assets		Below-Market Lease Liabilities			Total Purchase Price
Gateway Corporate Center	Sacramento	CA	01/26/2011	$	6,380	$	31,272	$	7,674	$	2,073	$	(464	)	$	46,935
601 Tower at Carlson Center	Minnetonka	MN	02/03/2011	4,350		42,182		7,445		564		(143		)	54,398
I-81 Industrial Portfolio	Various	PA	02/16/2011	7,250		62,655		12,820		7,275		—			90,000
Two Westlake Park	Houston	TX	02/25/2011	7,000		67,590		10,291		111		(5,570		)	79,422
CityPlace Tower	West Palm Beach	FL	04/06/2011	17,460		90,472		16,067		3,002		(501		)	126,500
				$	42,440	$	294,171	$	54,297	$	13,025	$	(6,678	)	$	397,255

The intangible assets and liabilities acquired in connection with these acquisitions have weighted-average amortization periods as of the date of acquisition as follows (in years):

	Tenant Origination and Absorption Costs	Above-Market Lease Assets	Below-Market Lease Liabilities
Gateway Corporate Center	8.7	8.8	9.2
601 Tower at Carlson Center	3.2	4.7	2.6
I-81 Industrial Portfolio	5.9	6.1	—
Two Westlake Park	3.5	2.4	4.8
CityPlace Tower	8.2	8.0	8.4

The Company recorded each acquisition as a business combination and expensed $1.3 million and $5.3 million of acquisition costs related to these properties for the three and six months ended June 30, 2011, respectively. During the three and six months ended June 30, 2011, the Company recognized $11.6 million and $16.2 million of total revenues from these properties, respectively. During the three and six months ended June 30, 2011, the Company recognized $7.1 million and $10.2 million of operating income from these properties, respectively.

9

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

4. REAL ESTATE

As of June 30, 2011, the Company's real estate portfolio was composed of 18 office properties, one office/flex property, a portfolio of four industrial properties, two industrial properties and a leasehold interest in one industrial property, encompassing in the aggregate approximately 10.4 million rentable square feet. As of June 30, 2011, the Company's real estate portfolio was 96% occupied. The following table summarizes the Company's investments in real estate as of June 30, 2011 and December 31, 2010 (in thousands):

	Land		Buildings and Improvements			Tenant Origination and Absorption Costs			Total Real Estate
As of June 30, 2011:
Office	$	219,747	$	1,720,919		$	282,885		$	2,223,551
Industrial (1)	13,200		94,989			19,883			128,072
Cost	$	232,947	$	1,815,908		$	302,768		$	2,351,623
Accumulated depreciation/amortization	—		(77,877		)	(56,507		)	(134,384		)
Net Amount	$	232,947	$	1,738,031		$	246,261		$	2,217,239
As of December 31, 2010:
Office	$	184,557	$	1,478,777		$	244,967		$	1,908,301
Industrial (1)	5,950		32,328			7,297			45,575
Cost	$	190,507	$	1,511,105		$	252,264		$	1,953,876
Accumulated depreciation/amortization	—		(47,307		)	(33,166		)	(80,473		)
Net Amount	$	190,507	$	1,463,798		$	219,098		$	1,873,403

_____________________

⁽¹⁾ Includes an investment in the rights to a ground lease. The ground lease expires in February 2050.

As of June 30, 2011, the following property represented more than 10% of the Company's total assets:

Property	Location	Rentable Square Feet	Total Real Estate, Net (in thousands)		Percentage of Total Assets		Annualized Base Rent (in thousands) (1)		Average Annualized Base Rent per sq. ft.		Occupancy
300 N. LaSalle Building	Chicago, IL	1,302,901	$	598,205	21.9	%	$	43,874	$	34.15	98.6	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2011, adjusted to straight-line any contractual tenant concessions, rent increases and rent decreases from the lease's inception through the balance of the lease term.

10

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

Operating Leases

The Company's real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of June 30, 2011, the leases had remaining terms (excluding options to extend) of up to 17.7 years with a weighted-average remaining term (excluding options to extend) of 6.4 years. The leases 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. Generally, upon the execution of a lease, the Company requires security deposits from tenants in the form of a cash deposit and/or a letter of credit. 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 receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $3.7 million and $2.7 million as of June 30, 2011 and December 31, 2010, respectively.

During the six months ended June 30, 2011 and 2010, the Company recognized deferred rent from tenants of $10.9 million and $1.7 million, respectively, net of lease incentive amortization. As of June 30, 2011 and December 31, 2010, the cumulative deferred rent balance was $27.5 million and $15.5 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $4.9 million and $3.9 million of unamortized lease incentives as of June 30, 2011 and December 31, 2010, respectively.

As of June 30, 2011, the future minimum rental income from the Company’s properties under non-cancelable operating leases was as follows (in thousands):

July 1, 2011 through December 31, 2011	$	106,268
2012	205,142
2013	189,273
2014	175,787
2015	150,986
Thereafter	836,220
	$	1,663,676

As of June 30, 2011, 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) (in thousands)		Percentage of Annualized Base Rent
Legal Services	57	$	50,872	22.9	%
Finance	71	44,804		20.2	%
Other Professional Services	70	33,252		15.0	%
		$	128,928	58.1	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2011, adjusted to straight-line any contractual tenant concessions, rent increases and rent decreases from the lease's inception through the balance of the lease term.

No other tenant industries accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time. During the six months ended June 30, 2011, the Company recorded bad debt expense related to its tenant receivables of $57,000. During the six months ended June 30, 2010, the Company reduced its bad debt reserve and recorded a net recovery of bad debt related to its tenant receivables of $11,000. As of June 30, 2011, the Company had a bad debt reserve of approximately $91,000, which represents less than 1% of annualized base rent. As of June 30, 2011, the Company had two tenants with a rent balance outstanding over 90 days.

11

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

As of June 30, 2011, the Company had a concentration of credit risk related to the following tenant lease that represents more than 10% of the Company's annualized base rent:

Net Rentable Sq. Ft.

Annualized Base Rent Statistics

Tenant

Property

Tenant Industry

Square Feet

% of Portfolio

Annualized Base Rent  (1) (in thousands)

% of Portfolio Annualized Base Rent

Annualized Base Rent per Square Foot

Lease Expiration (2)

Kirkland & Ellis

300 N. LaSalle Building

Legal Services

687,857

6.9

%

$

25,351

11.4

%

$

36.86

2/28/2029

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2011, adjusted to straight-line any contractual tenant concessions, rent increases and rent decreases from the lease's inception through the balance of the lease term.

⁽²⁾ Represents the expiration date of the lease at June 30, 2011 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 June 30, 2011 and December 31, 2010, the Company's tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) are as follows (in thousands):

	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	June 30, 2011			December 31, 2010			June 30, 2011			December 31, 2010			June 30, 2011			December 31, 2010
Cost	$	302,768		$	252,264		$	63,935		$	51,024		$	(50,544	)	$	(44,100	)
Accumulated Amortization	(56,507		)	(33,166		)	(6,312		)	(2,568		)	12,919			8,613
Net Amount	$	246,261		$	219,098		$	57,623		$	48,456		$	(37,625	)	$	(35,487	)

Increases (decreases) in net income as a result of amortization of the Company's tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and six months ended June 30, 2011 and 2010 are as follows (in thousands):

	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	For the Three Months Ended June 30,						For the Three Months Ended June 30,						For the Three Months Ended June 30,
	2011			2010			2011			2010			2011		2010
Amortization expense	$	(14,008	)	$	(6,620	)	$	(2,084	)	$	(270	)	$	2,361	$	1,718

	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	For the Six Months Ended June 30,						For the Six Months Ended June 30,						For the Six Months Ended June 30,
	2011			2010			2011			2010			2011		2010
Amortization expense	$	(27,134	)	$	(12,200	)	$	(3,858	)	$	(396	)	$	4,540	$	3,611

12

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

6. REAL ESTATE LOANS RECEIVABLE

As of June 30, 2011 and December 31, 2010, the Company, through wholly owned subsidiaries, had invested in real estate loans receivable as follows (dollars in thousands):

Loan Name      Location of Related Property or Collateral	Date Acquired/ Originated	Property Type	Loan Type	Outstanding Principal Balance as of June 30, 2011 (1)		Book Value as of June 30, 2011 (2)		Book Value as of December 31, 2010 (2)		Contractual Interest Rate (3)	Annualized Effective Interest Rate (3)	Maturity Date (4)
Northern Trust Building A-Note
San Diego, California	12/31/2008	Office	A-Note	$	94,500	$	64,724	$	63,244	5.6%	13.0%	10/01/2017
One Liberty Plaza Notes (5)
New York, New York	02/11/2009	Office	Mortgage	115,000		75,936		73,914		6.1%	15.0%	08/06/2017
Tuscan Inn First Mortgage Origination
San Francisco, California	01/21/2010	Hotel	Mortgage	20,200		19,834		20,027		8.3%	8.5%	01/21/2015
Chase Tower First Mortgage Origination (6)
Austin, Texas	01/25/2010	Office	Mortgage	59,200		59,216		59,218		8.4%	8.5%	02/01/2015
Pappas Commerce First Mortgage Origination (7)
Boston, Massachusetts	04/05/2010	Industrial	Mortgage	32,673		32,673		31,900		(7)	9.6%	07/01/2014
One Kendall Square First Mortgage Origination (8)
Cambridge, Massachusetts	11/22/2010	Mixed-use Facility	Mortgage Participation	87,500		88,781		88,456		(8)	7.1%	12/01/2013
				$	409,073	$	341,164	$	336,759

_____________________

⁽¹⁾ Outstanding principal balance as of June 30, 2011 represents original principal balance outstanding under the loan, increased for any subsequent fundings and reduced for any principal paydowns.

⁽²⁾ Book value of real estate loans receivable represents outstanding principal balance adjusted for unamortized acquisition discounts, origination fees, and direct origination and acquisition costs.

⁽³⁾ Contractual interest rates are the stated interest rates on the face of the loans. Annualized effective interest rates are calculated as the actual interest income recognized in 2011, using the interest method, divided by the average amortized cost basis of the investment. The annualized effective interest rates and contractual interest rates presented are as of June 30, 2011.

⁽⁴⁾ Maturity dates are as of June 30, 2011.

⁽⁵⁾ Monthly installments on the One Liberty Plaza Notes are interest-only until August 2011. For the final six years on the notes, principal on the loan amortizes on a 30-year amortization schedule, with the remaining principal balance due at maturity.

⁽⁶⁾ Monthly installments on the Chase Tower First Mortgage are interest-only for the first three years, followed by principal and interest payments with principal calculated using an amortization of 30 years for the balance of the term, with the remaining principal balance due at maturity.

⁽⁷⁾ As of June 30, 2011, $31.9 million had been disbursed under the Pappas Commerce First Mortgage and an additional $18.0 million remains available for future funding, subject to certain conditions set forth in the loan agreement. Interest on the first mortgage is calculated at a fixed rate of 9.5%. Outstanding principal balance also includes a protective advance of $0.8 million made on June 22, 2011 to cover property taxes and to fund the tax and insurance reserve account. Interest on the protective advance is calculated at a fixed rate of 14.5%.

⁽⁸⁾ Monthly installments on One Kendall Square First Mortgage are interest-only during the initial term of the loan. On April 5, 2011, the Company, through an indirect wholly owned subsidiary, entered into a note splitter agreement with the borrower under the One Kendall Square First Mortgage Origination and restructured the One Kendall Square First Mortgage to provide for two debt tranches with varying interest rates. See "-Recent Originations - One Kendall Square First Mortgage."

13

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

The following summarizes the activity related to the real estate loans receivable for the six months ended June 30, 2011 (in thousands):

Real estate loans receivable - December 31, 2010	$	336,759
Accretion of discounts on purchased real estate loans receivable	3,564
Closing costs and origination fees on origination of real estate loans receivable	321
Amortization of closing costs and origination fees on real estate loans receivable	(253		)
Pappas Commerce First Mortgage Origination - protective advance	773
Real estate loans receivable - June 30, 2011	$	341,164

For the three and six months ended June 30, 2011 and 2010, interest income from real estate loans receivable consisted of the following (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Contractual interest income	$	7,228		$	5,467		$	14,375		$	9,791
Accretion of purchase discounts	1,823			1,583			3,564			3,095
Amortization of closing costs and origination fees	(164		)	(20		)	(253		)	(41		)
Interest income from real estate loans receivable	$	8,887		$	7,030		$	17,686		$	12,845

As of June 30, 2011 and December 31, 2010, interest receivable from real estate loans receivable was $2.3 million and $2.4 million, respectively, and was included in rents and other receivables.

The following is a schedule of maturities for all real estate loans receivable outstanding as of June 30, 2011 (in thousands):

	Current Maturity				Fully Extended Maturity (1)
	Face Value (Funded)		Book Value		Face Value (Funded)		Book Value
July 1, 2011 through December 31, 2011	$	—	$	—	$	—	$	—
2012	—		—		—		—
2013	87,500		88,781		—		—
2014	32,673		32,673		32,673		32,673
2015	79,400		79,050		166,900		167,831
Thereafter	209,500		140,660		209,500		140,660
	$	409,073	$	341,164	$	409,073	$	341,164

_____________________

⁽¹⁾ The schedule of current maturities above represents the contractual maturity dates and outstanding balances as of June 30, 2011. Certain of the real estate loans receivable have extension options available to the borrowers, subject to certain conditions, that have been reflected in the schedule of fully extended maturities.

14

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

Recent Originations

One Kendall Square First Mortgage

On November 22, 2010, the Company, through an indirect wholly owned subsidiary, originated the One Kendall Square First Mortgage in the amount of $175.0 million (the “One Kendall Square First Mortgage”). The One Kendall Square First Mortgage note bears interest at a floating rate of 550 basis points over one-month LIBOR, but at no point shall the interest rate be less than 7.5% (“Loan Rate”). On November 30, 2010, the Company, through an indirect wholly owned subsidiary, sold, at par, a pari-passu participation interest with respect to 50% of the outstanding principal balance of the One Kendall Square First Mortgage to an unaffiliated buyer (“Participation Holder”), leaving it with an $87.5 million interest.

On April 5, 2011, the Company, through an indirect wholly owned subsidiary, restructured the One Kendall Square First Mortgage to provide for two debt tranches with varying interest rates. These tranches consist of Promissory Note A (“Note A”), with an original principal amount of $90.0 million, of which the Company and the Participation Holder each hold an interest of $45.0 million, and Promissory Note B (“Note B”), which is subordinate to Note A, with an original principal amount of $85.0 million, of which the Company and the Participation Holder each hold an interest of $42.5 million. Note A bears interest at a floating rate of 250 basis points over one-month LIBOR, subject to a minimum interest rate of 4.0%. Note B bears interest at an amount that when combined with the interest on Note A, equals the original Loan Rate on the $175.0 million One Kendall Square First Mortgage. On April 6, 2011, the Company, through an indirect wholly owned subsidiary, and Participation Holder sold and transferred their respective $45.0 million interests in Note A, at par, to an unaffiliated buyer.

Since the Note A and Note B tranches of the One Kendall Square First Mortgage do not qualify as participating interests, as defined in ASC 860, the Company accounted for the sale of its $45.0 million interest in Note A as a secured borrowing with a pledge of collateral and continued to record the Company's entire $87.5 million interest in the One Kendall Square First Mortgage as a real estate loan receivable. For the same reason, its $45.0 million interest in Note A is recorded as a note payable in the accompanying consolidated balance sheets. Interest income allocated to the transferee is recorded as interest expense on the Company's consolidated statement of operations. Interest income from the One Kendall Square First Mortgage for the three and six months ended June 30, 2011 was $1.5 million and $3.1 million, net of amortization of closing costs and origination fees, respectively. Interest expense from the One Kendall Square First Mortgage for the three and six months ended June 30, 2011 was $0.5 million, respectively.

15

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

7. NOTES PAYABLE

As of June 30, 2011 and December 31, 2010, the Company’s notes payable consisted of the following (dollars in thousands):

	Principal as of June 30, 2011		Principal as of December 31, 2010		Contractual Interest Rate as of June 30, 2011(1)	Effective Interest Rate at June 30, 2011 (1)	Payment Type	Maturity Date (2)
100 & 200 Campus Drive Mortgage Loan (3)	$	55,000	$	55,000	One-month LIBOR + 3.25%	5.1%	Interest Only	02/26/2014
300-600 Campus Drive Mortgage Loan	93,850		93,850		5.90%	5.9%	Interest Only	04/10/2014
Portfolio Revolving Loan Facility (4) (5)	55,000		65,000		One-month LIBOR + 3.00% (5)	5.2%	Interest Only	04/30/2014
Willow Oaks Revolving Loan (6)	13,000		13,000		(6)	4.3%	Interest Only	08/01/2013
300 N. LaSalle Building Mortgage Loan	350,000		350,000		4.25%	4.3%	Interest Only	08/01/2015
Torrey Reserve West Mortgage Loan (7)	—		16,885		(7)	(7)	(7)	(7)
Union Bank Plaza Mortgage Loan (8)	105,000		105,000		One-month LIBOR + 1.75%	3.4%	Interest Only	09/15/2015
Portfolio Bridge Loan (9)	—		40,622		(9)	(9)	(9)	(9)
Emerald View at Vista Center Mortgage Loan	19,800		19,800		One-month LIBOR + 2.25%	4.6%	Interest Only	01/01/2016
National City Tower Mortgage Loan (9)	—		69,000		(9)	(9)	(9)	(9)
Portfolio Loan (10)	348,300		—		One-month LIBOR + 2.15%	3.6%	Interest Only	01/27/2016
One Kendall Square Borrowing (11)	45,000		—		One-month LIBOR + 2.50%	4.0%	Interest Only	12/01/2013
601 Tower Mortgage Loan (12)	16,320		—		(12)	3.5%	Interest Only	06/03/2015
	$	1,101,270	$	828,157

____________________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2011. Effective interest rate is calculated as the actual interest rate in effect at June 30, 2011 (consisting of the contractual interest rate and the effect of interest rate swaps and contractual floor rates), using interest rate indices at June 30, 2011, where applicable. For further information regarding the Company's derivative instruments, see Note 8, “Derivative Instruments.”

⁽²⁾ Represents the initial maturity date or the maturity date as extended as of June 30, 2011; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

⁽³⁾ As of June 30, 2011, $55.0 million had been disbursed to the Company and $9.6 million remained available for future disbursements, subject to certain conditions set forth in the loan agreement.

⁽⁴⁾ On April 30, 2010, the Company entered into a four-year revolving loan facility for an amount up to $100.0 million. As of June 30, 2011, $55.0 million had been disbursed to the Company and $45.0 million remained available for future disbursements, subject to certain conditions set forth in the loan agreement.

⁽⁵⁾ The interest rate under this loan is calculated at a variable rate of 300 basis points over one-month LIBOR, but at no point shall the interest rate be less than 4.25%; however, there is no minimum floor rate for any portion of the loan that is subject to a swap contract with a minimum initial term of two years or any shorter term expiring on the maturity date.

⁽⁶⁾ On July 26, 2010, the Company entered into a three-year $65.0 million revolving loan. As of June 30, 2011, $13.0 million had been disbursed to the Company and $52.0 million remains available for future disbursements, subject to certain conditions set forth in the loan agreement. The interest rate under this loan is calculated at a variable rate of 300 basis points over one-month, three-month or six-month LIBOR, but at no point during the initial term may the interest rate be less than 4.5% for portions of the loan that are not subject to a swap contract.

⁽⁷⁾ On March 10, 2011, the Company used proceeds from the Portfolio Loan to repay this loan in full. See “- Recent Financing Transactions - Portfolio Loan.”

⁽⁸⁾ On September 15, 2010, in connection with the acquisition of the Union Bank Plaza, the Company entered into a five-year mortgage loan for borrowings of up to $119.3 million secured by the Union Bank Plaza. As of June 30, 2011, $105.0 million had been disbursed to the Company with the remaining loan balance of $14.3 million available for future disbursements, subject to certain conditions set forth in the loan agreement.

⁽⁹⁾ In connection with the closing of the Portfolio Loan, the Company consolidated this loan into the Portfolio Loan. See “-Recent Financing Transactions - Portfolio Loan.”

⁽¹⁰⁾ See “-Recent Financing Transactions - Portfolio Loan.”

⁽¹¹⁾ See Note 6, "Real Estate Loans Receivable - Recent Originations - One Kendall Square First Mortgage."

⁽¹²⁾ See "-Recent Financing Transactions - 601 Tower Mortgage Loan."

As of June 30, 2011 and December 31, 2010, the Company's deferred financing costs were $8.4 million and $6.2 million, respectively, net of amortization and are included in deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets.

16

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

During the three and six months ended June 30, 2011, the Company incurred $12.3 million and $23.5 million of interest expense, respectively. During the three and six months ended June 30, 2010, the Company incurred $2.5 million and $4.4 million of interest expense, respectively. As of June 30, 2011 and December 31, 2010, $3.7 million and $2.9 million, respectively, of interest expense was payable. Included in interest expense for the three and six months ended June 30, 2011 was $0.6 million and $1.5 million of amortization of deferred financing costs, respectively. Included in interest expense for the three and six months ended June 30, 2010 was $0.2 million of amortization of deferred financing costs, respectively. Interest expense incurred as a result of the Company’s interest rate swap agreements was $2.2 million and $3.9 million for the three and six months ended June 30, 2011, respectively. Interest expense incurred as a result of the Company’s interest rate swap agreements was $0.3 million for the three and six months ended June 30, 2010, respectively.

The following is a schedule of maturities for all notes payable outstanding as of June 30, 2011 (in thousands):

	Current Maturity		Fully Extended Maturity (1)
July 1, 2011 through December 31, 2011	$	—	$	—
2012	—		—
2013	58,000		—
2014	203,850		93,850
2015	471,320		518,000
Thereafter	368,100		489,420
	$	1,101,270	$	1,101,270

____________________________

⁽¹⁾ Represents the maturities of all notes payable outstanding as of June 30, 2011 assuming the Company exercises all extension options available per the terms of the loan agreements. The Company can give no assurance that it will be able to satisfy the conditions to extend the terms of the loan agreements.

Certain of our notes payable contain financial and non-financial debt covenants. As of June 30, 2011, the Company was in compliance with all debt covenants.

Recent Financing Transactions

Portfolio Loan

On January 28, 2011, the Company, through indirect wholly owned subsidiaries (the “Borrowers”), entered into a five‑year portfolio loan with Wells Fargo Bank, N.A. (the “Lender”) dated January 27, 2011 for an amount up to $360.0 million (the “Portfolio Loan ”). As of June 30, 2011, $348.3 million had been disbursed to the Borrowers with the remaining loan balance of $7.8 million (the “Holdback”) available for future disbursements, subject to certain conditions set forth in the loan agreement. In addition, in the event of certain tenant expansions meeting requirements as defined in the loan agreement, the principal amount of the Portfolio Loan may be increased to $368.1 million. The Company incurred approximately $1.5 million in net loan costs in conjunction with the initial funding of the Portfolio Loan. The initial maturity date of the Portfolio Loan is January 27, 2016, with two one-year extension options, subject to the satisfaction of certain conditions by the Borrowers. The Portfolio Loan bears interest at a floating rate of 215 basis points over one-month LIBOR during the initial term of the loan, 240 basis points over one-month LIBOR during the first extension period of the loan and 265 basis points over one-month LIBOR during the second extension period of the loan. As of June 30, 2011, the Company had entered into various interest rate swap agreements with varying maturity dates, which effectively fixed the interest rate on $313.4 million of the $348.3 million outstanding at an average interest rate of 3.8%. See Note 8, "Derivative Instruments." Monthly payments are interest only with the entire principal amount due at maturity, assuming no prior prepayment. The Borrowers may, upon no less than three business days' notice to the Lender, prepay all or a portion of the Portfolio Loan, subject to possible exit fees. Any prepayment made on or after October 27, 2015 will not be subject to a prepayment fee.

17

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

In connection with the closing of the Portfolio Loan, the Company consolidated into the Portfolio Loan, a portfolio bridge loan with an outstanding balance of $40.6 million and a mortgage loan secured by National City Tower with an outstanding principal balance of $69.0 million. On March 10, 2011, the Company used proceeds from the Portfolio Loan to repay in full a $16.8 million mortgage loan secured by Torrey Reserve West.

The Portfolio Loan is secured by Hartman II Business Center, Plano Business Park, Horizon Tech Center, Dallas Cowboys Distribution Center, Crescent VIII, National City Tower, Granite Tower, Gateway Corporate Center, I-81 Industrial Portfolio, Two Westlake Park, Torrey Reserve West and in the future, the Portfolio Loan may be secured by additional real estate properties that may be acquired by the Company, subject to certain terms of the loan agreement.

601 Tower Mortgage Loan

On June 6, 2011, the Company, through an indirect wholly owned subsidiary (the “601 Tower Borrower”), entered into a four-year revolving credit loan with TD Bank, N.A. for borrowings up to $32.6 million secured by the 601 Tower at Carlson Center (the “601 Tower Mortgage Loan”). The 601 Tower Mortgage Loan is comprised of two tranches: (i) tranche A, a $16.3 million mortgage loan ("Tranche A") and (ii) tranche B, a revolving loan facility for an amount up to $16.3 million ("Tranche B"). As of June 30, 2011, the outstanding principal balance was $16.3 million under Tranche A and $16.3 million remains available for future disbursements under Tranche B, subject to certain conditions set forth in the loan agreement. The 601 Tower Mortgage Loan matures on June 3, 2015, subject to two one-year extension options. Tranche A bears interest at a fixed rate of 3.54% per annum through the initial term. During the extended term, Tranche A bears interest at a variable rate of 220 basis points over one-month LIBOR or, at the election of the 601 Tower Borrower, a fixed rate equal to 220 basis points over the swap index rate having a maturity date closest to the extended maturity date. Monthly payments under Tranche A are interest-only during the initial term of the loan. During the extension periods, monthly payments include principal and interest with principal payments calculated using an amortization schedule of 25 years for the balance of the loan, with the remaining principal balance and all accrued and unpaid interest due at maturity. The 601 Tower Borrower has the right to prepay all or a portion of Tranche A at any time, subject to possible prepayment fees. Tranche B bears interest at a variable rate of 220 basis points over one-month LIBOR. Monthly payments under Tranche B are interest-only.

KBS REIT Properties II, LLC ("REIT Properties II"), one of the Company's wholly owned subsidiaries that indirectly owns all of the Company's properties, is providing a limited guaranty of the 601 Tower Mortgage Loan with respect to certain potential costs, expenses, losses, damages and other sums which may result from certain actions or inactions by the 601 Tower Borrower. REIT Properties II is also providing a guaranty of any and all sums, including the principal balance outstanding under the 601 Tower Mortgage Loan, in the event of certain voluntary or involuntary bankruptcy or insolvency proceedings related to the 601 Tower at Carlson Center.

8. DERIVATIVE INSTRUMENTS

The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates. The primary goal of the Company's risk management practices related to interest rate risk is to prevent changes in interest rates from adversely impacting the Company's ability to achieve its investment return objectives. The Company does not enter into the derivatives for speculative purposes.

The Company enters into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate notes payable. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero. All of the Company's interest rate swaps are designated as cash flow hedges.

18

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

The following table summarizes the notional and fair value of the Company's interest rate swaps designated as cash flow hedges as of June 30, 2011 and December 31, 2010. The notional value is an indication of the extent of the Company's involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):

						Fair Value of Asset (Liability)			Fair Value of Asset (Liability)
Derivative Instruments	Effective Date	Maturity Date	Notional Value		Reference Rate	June 30, 2011			December 31, 2010
Interest Rate Swap	02/26/2010	02/26/2014	$	10,000	One-month LIBOR/ Fixed at 2.30%	$	(363	)	$	(322	)
Interest Rate Swap	02/26/2010	02/26/2014	10,000		One-month LIBOR/ Fixed at 2.30%	(363		)	(322		)
Interest Rate Swap (1)	04/30/2010	04/30/2014	55,000		One-month LIBOR/ Fixed at 2.17%	(1,773		)	(1,520		)
Interest Rate Swap	07/26/2010	08/01/2013	6,500		One-month LIBOR/ Fixed at 1.33%	(90		)	(57		)
Interest Rate Swap	07/26/2010	08/01/2013	6,500		One-month LIBOR/ Fixed at 1.33%	(90		)	(56		)
Interest Rate Swap	09/15/2010	09/15/2015	105,000		One-month LIBOR/ Fixed at 1.70%	(404		)	1,092
Interest Rate Swap	12/15/2010	02/26/2014	17,500		One-month LIBOR/ Fixed at 1.53%	(284		)	(149		)
Interest Rate Swap	12/15/2010	02/26/2014	17,500		One-month LIBOR/ Fixed at 1.53%	(284		)	(149		)
Interest Rate Swap	12/16/2010	01/01/2016	19,800		One-month LIBOR/ Fixed at 2.39%	(565		)	(329		)
Interest Rate Swap	12/20/2010	06/16/2015	69,000		One-month LIBOR/ Fixed at 1.94%	(1,160		)	(318		)
Interest Rate Swap	02/01/2011	01/01/2016	56,150		One-month LIBOR/ Fixed at 2.16%	(1,030		)	—
Interest Rate Swap	02/01/2011	02/01/2015	8,400		One-month LIBOR/ Fixed at 1.75%	(123		)	—
Interest Rate Swap	02/01/2011	02/01/2014	80,150		One-month LIBOR/ Fixed at 1.29%	(836		)	—
Interest Rate Swap	03/08/2011	02/01/2014	85,900		One-month LIBOR/ Fixed at 1.45%	(1,254		)	—
Interest Rate Swap	03/10/2011	02/01/2014	13,750		One-month LIBOR/ Fixed at 1.32%	(154		)	—
Total derivatives designated  as hedging instruments			$	561,150		$	(8,773	)	(2,130		)

____________________________

⁽¹⁾ In connection with entering into the Portfolio Revolving Loan Facility, the Company entered into an interest rate swap agreement with Wells Fargo Bank, N.A. which effectively fixes the interest rate on the initial $55.0 million drawn under the loan at approximately 5.17% for the first three years of the loan and fixes the interest rate on $45.0 million of this amount at approximately 5.17% for the last year of the initial loan term.

19

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

Asset derivatives are recorded as deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets, and liability derivatives are recorded as other liabilities on the accompanying consolidated balance sheets. The change in fair value of the effective portion of a derivative instrument that is designated as a cash flow hedge is recorded as other comprehensive income (loss) in the accompanying consolidated statements of stockholders' equity. The Company recorded unrealized losses of $6.6 million on derivative instruments designated as cash flow hedges in accumulated other comprehensive income (loss) for the six months ended June 30, 2011. Amounts in other comprehensive income (loss) will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow.  As a result of utilizing derivative instruments designated as cash flow hedges to hedge our variable rate notes payable, the Company recognized an additional $3.9 million of interest expense related to the effective portion of cash flow hedges during the six months ended June 30, 2011. The change in fair value of the ineffective portion is recognized directly in earnings. During the six months ended June 30, 2011, there was no ineffective portion related to the change in fair value of the cash flow hedges. During the next 12 months, the Company expects to recognize additional unrealized losses related to derivative instruments designated as cash flow hedges. The present value of these additional unrealized losses totaled $8.0 million as of June 30, 2011 and were included in accumulated other comprehensive income (loss).

9. FAIR VALUE DISCLOSURES

The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company's financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instruments for which it is practicable to estimate the fair value:

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

Real estate loans receivable: These instruments are presented in the accompanying consolidated balance sheets at their amortized cost net of recorded loan loss reserves and not at fair value. The fair values of real estate loans receivable were estimated using an internal valuation model that considered the expected cash flows for the loans, underlying collateral values (for collateral-dependent loans) and estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements.

Derivative instruments: These instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments is determined by a third-party expert using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk.

20

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

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 for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach.

Contingent consideration: The fair value of the Company's contingent consideration is estimated using a probability-weighted discounted cash flow analysis. The discounted cash flow analysis is based on management's estimates of current market interest rates for instruments with similar characteristics and expected cash flows under this arrangement.

The following were the carrying amounts and fair values of the Company's financial instruments as of June 30, 2011 and December 31, 2010, which carrying amounts do not approximate the fair value (in thousands):

	June 30, 2011						December 31, 2010
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial assets:
Real estate loans receivable	$	409,073	$	341,164	$	411,207	$	408,300	$	336,759	$	413,423
Financial liabilities:
Notes payable	1,101,270		1,101,270		1,122,109		828,157		828,157		829,914

Disclosure of the fair value of financial instruments is based on pertinent information available to the Company as of June 30, 2011 and requires a significant amount of judgment. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. 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.

During the six months ended June 30, 2011, the Company measured the following assets and liabilities at fair value (in thousands):

				Fair Value Measurements Using
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Nonrecurring Basis:
Investments in real estate(1)	$	397,255		$	—	$	—		$	397,255
Recurring Basis:
Contingent consideration	$	1,899		$	—	$	—		$	1,899
Liability derivatives	$	(8,773	)	$	—	$	(8,773	)	$	—

____________________________

⁽¹⁾  Amount reflects acquisition date fair values of real estate acquired in 2011.

21

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

10. RELATED PARTY TRANSACTIONS

The Company has entered into the Advisory Agreement with the Advisor and the Dealer Manager Agreement with the Dealer Manager. These agreements entitle the Advisor and/or the Dealer Manager to specified fees upon the provision of certain services with regard to the Offering, the investment of funds in real estate and real estate-related investments and the management of those investments, 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 and certain costs incurred by the Advisor in providing services to the Company. The Advisor and Dealer Manager also serve as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc. and KBS Legacy Partners Apartment REIT, Inc. During the six months ended June 30, 2011 and 2010, no transactions occurred between the Company and these other KBS-sponsored programs.

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and six months ended June 30, 2011 and 2010, respectively, and any related amounts payable as of June 30, 2011 and December 31, 2010 (in thousands):

	Incurred									Payable as of
	Three Months Ended June 30,					Six Months Ended June 30,				June 30,		December 31,
	2011			2010		2011		2010		2011		2010
Expensed
Asset management fees	$	5,003		$	1,788	$	9,557	$	3,307	$	—	$	—
Reimbursement of operating expenses (1)	12			1		23		2		5		9
Acquisition fees	951			482		3,000		1,588		—		—
Additional Paid-in Capital
Selling commissions	(2		)	11,113		5,748		17,556		—		—
Dealer manager fees	(2		)	5,627		3,116		9,630		—		—
Reimbursable other offering costs	8			934		316		1,498		—		364
Capitalized
Origination fees	—			290		—		1,084		—		—
Disposition fees (2)	450			—		450		—		—		—
	$	6,420		$	20,235	$	22,210	$	34,665	$	5	$	373

_____________________

⁽¹⁾ The Advisor may seek reimbursement for certain employee costs under the Advisory Agreement. Commencing July 1, 2010, the Company has reimbursed the Advisor for the Company's allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These were the only employee costs reimbursed under the Advisory Agreement through June 30, 2011. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company's executive officers.

⁽²⁾ For the three and six months ended June 30, 2011, the Company capitalized $0.5 million of disposition fees related to the sale and transfer of the Company's interest in Note A of the One Kendall Square First Mortgage. Since the Note A and Note B tranches of the One Kendall Square First Mortgage do not qualify as participating interests, as defined in ASC 860, the Company accounted for the sale of its interest in Note A as a secured borrowing with a pledge of collateral and continued to record the Company's entire $87.5 million interest in the One Kendall Square First Mortgage as a real estate loan receivable. Additionally, as Note A did not qualify as a participating interest, the transfer of Note A is recorded as a note payable in the accompanying consolidated balance sheets. The disposition fees are included in deferred financing costs, prepaid expenses and other assets in the accompanying consolidated balance sheets.

22

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

11. SEGMENT INFORMATION

The Company presently operates in two business segments based on its investment types: real estate and real estate-related. Under the real estate segment, the Company has invested in office, office/flex and industrial properties. Under the real estate-related segment, the Company has invested in mortgage loans, a mortgage participation and an A-Note. All revenues earned from the Company's two operating segments were from external customers and there were no intersegment sales or transfers. 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, non-operating interest expense and other corporate-level expenses. The accounting policies of the segments are consistent with those described in Note 2, “Summary of Significant Accounting Policies.”

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 and other operating income) less property and related expenses (property operating expenses, real estate taxes, insurance, asset management 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 investments 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 defined above may not be comparable to other REITs or companies as their definitions of NOI may differ from the Company's definition.

23

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

The following tables summarize total revenues and NOI for each reportable segment for the three and six months ended June 30, 2011 and 2010 and total assets and total liabilities for each reportable segment as of June 30, 2011 and December 31, 2010 (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2011		2010		2011		2010
Revenues:
Real estate segment	$	72,079	$	24,440	$	136,665	$	45,961
Real estate-related segment	8,887		7,030		17,686		12,845
Total segment revenues	$	80,966	$	31,470	$	154,351	$	58,806
Interest Expense:
Real estate segment	$	11,485	$	2,171	$	22,369	$	3,734
Real estate-related segment	469		—		469		—
Total segment interest expense	11,954		2,171		22,838		3,734
Corporate-level	310		305		670		624
Total interest expense	$	12,264	$	2,476	$	23,508	$	4,358
NOI:
Real estate segment	$	32,776	$	13,661	$	60,138	$	25,665
Real estate-related segment	7,873		6,580		16,058		12,043
Total NOI	$	40,649	$	20,241	$	76,196	$	37,708
	As of June 30,		As of December 31,
	2011		2010
Assets:
Real estate segment	$	2,346,877	$	1,981,974
Real estate-related segment	343,887		339,146
Total segment assets	2,690,764		2,321,120
Corporate-level (1)	34,726		58,534
Total assets	$	2,725,490	$	2,379,654
Liabilities:
Real estate segment	$	1,142,018	$	901,270
Real estate-related segment	45,173		61
Total segment liabilities	1,187,191		901,331
Corporate-level (2)	10,779		10,688
Total liabilities	$	1,197,970	$	912,019

_____________________

⁽¹⁾ Total corporate-level assets consisted primarily of proceeds from the Offering being held in the form of cash and cash equivalents of approximately $34.2 million and $58.5 million as of June 30, 2011 and December 31, 2010, respectively.

⁽²⁾ As of June 30, 2011 and December 31, 2010, corporate-level liabilities consisted primarily of distributions payable.

24

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

The following table reconciles the Company’s net income to its NOI for the three and six months ended June 30, 2011 and 2010 (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2011			2010			2011			2010
Net income	$	6,925		$	5,410		$	9,081		$	9,238
Other interest income	(9		)	(106		)	(61		)	(172		)
Real estate acquisition fees to affiliates	951			482			3,000			1,588
Real estate acquisition fees and expenses	348			461			2,311			926
General and administrative expenses	1,617			1,090			2,481			2,168
Depreciation and amortization	30,507			12,599			58,714			23,336
Corporate-level interest expense	310			305			670			624
NOI	$	40,649		$	20,241		$	76,196		$	37,708

12. PRO FORMA FINANCIAL INFORMATION

The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the three and six months ended June 30, 2011 and 2010. The Company acquired four individual office properties and a portfolio of four industrial properties during the six months ended June 30, 2011, all of which were accounted for as business combinations. The following unaudited pro forma information for the three and six months ended June 30, 2011 and 2010 has been prepared to give effect to the acquisition of I-81 Industrial Portfolio and CityPlace Tower as if the acquisitions occurred on January 1, 2010. 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 on this date, nor does it purport to predict the results of operations for future periods (in thousands, except share and per share amounts).

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2011		2010		2011		2010
Revenues	$	81,059	$	36,066	$	158,961	$	67,627
Depreciation and amortization	$	30,502	$	14,317	$	60,230	$	26,763
Net income	$	8,309	$	6,109	$	13,575	$	10,477
Net income per common share, basic and diluted	$	0.04	$	0.05	$	0.07	$	0.08
Weighted-average number of common shares outstanding, basic and diluted	189,748,321		132,076,612		189,748,321		124,540,718

The pro forma information for the three and six months ended June 30, 2011 were adjusted to exclude $1.3 million and $3.3 million of acquisition costs related to the above properties incurred in 2011, respectively.

25

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

13. COMMITMENTS AND CONTINGENCIES

Economic Dependency

The Company is dependent on the Advisor for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase, and disposition of real estate and real estate-related investments; management of the daily operations of the Company's real estate and real estate-related investment portfolio; and other general and administrative responsibilities. In the event the Advisor is unable to provide the respective services, the Company will be required to obtain such services from other sources.

Geographic Concentration

The 300 N. LaSalle Building represented approximately 22% of the Company's total assets as of June 30, 2011 and 20% and 21% of the Company's total revenues for the three and six months ended June 30, 2011, respectively. As a result of this investment, the geographic concentration of the Company's portfolio makes it particularly susceptible to adverse economic developments in the Chicago real estate market. Any adverse economic or real estate developments in this market, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company's operating results.

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 June 30, 2011.

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 probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

14. SUBSEQUENT EVENTS

The Company evaluates subsequent events up until the date the consolidated financial statements are issued.

Distributions Paid

On July 15, 2011, the Company paid distributions of $10.1 million, which related to distributions declared for each day in the period from June 1, 2011 through June 30, 2011.

26

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2011

(unaudited)

Distributions Declared

On July 8, 2011, the Company's board of directors declared distributions based on daily record dates for the period from August 1, 2011 through August 31, 2011, which the Company expects to pay in September 2011. On August 10, 2011, the Company's board of directors declared distributions based on daily record dates for the period from September 1, 2011 through September 30, 2011, which the Company expects to pay in October 2011, and distributions based on daily record dates for the period October 1, 2011 through October 31, 2011, which the Company expects to pay in November 2011. Investors may choose to receive cash distributions or purchase additional shares through the Company's dividend reinvestment plan.

Distributions for these periods will be 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.

Investments and Financings Subsequent to June 30, 2011

CityPlace Tower Mortgage Loan

On July 6, 2011, the Company, through an indirect wholly owned subsidiary (the “CityPlace Tower Borrower”), entered into a mortgage loan with Metropolitan Life Insurance Company, which is unaffiliated with the Company or the Advisor, for $71.0 million secured by the CityPlace Tower (the “CityPlace Tower Mortgage Loan”). The CityPlace Tower Mortgage Loan matures on August 1, 2015, with an option to extend the maturity date to August 1, 2016, subject to certain conditions. The CityPlace Tower Mortgage Loan bears interest at a fixed rate of 3.59% during the initial term of the loan and a variable rate of 200 basis points over one-month LIBOR during the extension. Monthly payments on the CityPlace Tower Mortgage Loan are interest-only, with the entire principal amount, plus any outstanding interest and fees, due at maturity.

REIT Properties II is providing a limited guaranty of the CityPlace Tower Mortgage Loan with respect to certain potential costs, expenses, losses, damages and other sums, including interest thereon, which may result from certain actions or inactions by the CityPlace Tower Borrower. REIT Properties II is also providing a guaranty of the principal balance and any interest or other sums outstanding under the CityPlace Tower Mortgage Loan in the event of certain voluntary or involuntary bankruptcy or insolvency proceedings related to the CityPlace Tower Borrower.

Origination of Sheraton Charlotte Airport Hotel First Mortgage

On July 11, 2011, the Company, through an indirect wholly owned subsidiary, originated a first mortgage loan in the amount of $14.5 million (the “Sheraton Charlotte Airport Hotel First Mortgage”) from a borrower unaffiliated with the Company or the Advisor. The borrower used the proceeds from the loan to refinance its existing debt. Payments under the Sheraton Charlotte Airport Hotel First Mortgage are interest-only payments for the first two years, followed by principal and interest payments with principal calculated using an amortization schedule of 30 years for the balance of the term. The Sheraton Charlotte Airport Hotel First Mortgage note bears interest at a fixed rate of 7.5%. The Sheraton Charlotte Airport Hotel First Mortgage matures on August 1, 2018 and may be prepaid in whole (but not in part) subject to a formula-based yield maintenance premium for the majority of the term of the loan and may be prepaid in whole (but not in part) without prepayment penalty on or after June 1, 2018.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

The following discussion and analysis should be read in conjunction with the accompanying financial statements of KBS Real Estate Investment Trust II, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to KBS Real Estate Investment Trust II, Inc., a Maryland corporation, and, as required by context, KBS Limited Partnership II, a Delaware limited partnership, which we refer to as the “Operating Partnership,” and to their subsidiaries.

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q 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 of the risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

• We have a limited operating history. This inexperience makes our future performance difficult to predict.

• All of our executive officers, some of our directors and other key real estate and debt finance professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in KBS Capital Advisors LLC ("KBS Capital Advisors"), our advisor, the entity that acted as our dealer manager and/or 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. Fees paid to our advisor in connection with transactions involving the origination, acquisition and management of our investments are based on the cost of the investment, not on the quality of the investment or services rendered to us. This arrangement could influence our advisor to recommend riskier transactions to us.

• 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.

• We pay substantial fees to and expenses of our advisor and its affiliates and, in connection with our public offering, we paid substantial fees to participating broker-dealers. These payments increase the risk that our stockholders will not earn a profit on their investment in us and increase the risk of loss to our stockholders.

• We have used and expect to continue to use proceeds from financings to fund a portion of our distributions from time to time during our operational stage in anticipation of cash flow to be received in later periods. We may also fund such distributions from advances from our advisor or sponsors, from our advisor's deferral of its asset management fee, from the net proceeds from the sale of real estate and from the receipt of principal payments on our real estate-related investments.

• We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants. Revenues from our properties could decrease due to a reduction in tenants (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental rates, making it more difficult for us to meet our debt service obligations and limiting our ability to pay distributions to our stockholders.  

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

• 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. Revenues from our properties and the properties and other assets directly securing our loan investments could decrease. Such events would make it more difficult for the borrowers under our loan investments to meet their payment obligations to us. It could also make it more difficult for us to meet our debt service obligations and limit our ability to pay distributions to our stockholders.

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

• We cannot predict with any certainty how much, if any, of our dividend reinvestment plan proceeds will be available for general corporate purposes, including, but not limited to, the redemption of shares under our share redemption program, the funding of capital expenditures on our real estate investments, or the repayment of debt. If such funds are not available from the dividend reinvestment plan offering, then we may have to use a greater proportion of our cash flow from operations to meet these cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program.

All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (the “SEC”) and the risks identified in Post-Effective Amendment No. 14 to our Registration Statement (file no. 333-146341), filed with the SEC on April 5, 2011.

Overview

We were formed on July 12, 2007 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2008 and intend to operate in such a manner. We have invested in a diverse portfolio of real estate and real estate-related investments. We conduct our business primarily through our Operating Partnership, of which we are the sole general partner. 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.

We own a diverse portfolio of real estate and real estate-related investments. As of June 30, 2011, we owned 25 real estate properties (consisting of 18 office properties, one office/flex property, a portfolio of four industrial properties and two individual industrial properties), a leasehold interest in one industrial property and six real estate loans receivable.

On September 27, 2007, we filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer 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. We ceased offering shares of common stock in our primary offering on December 31, 2010. We sold 182,681,633 shares of common stock in the primary offering for gross offering proceeds of $1.8 billion. We continue to offer shares of common stock under our dividend reinvestment plan. As of June 30, 2011, we had sold 10,507,453 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $99.8 million. Also as of June 30, 2011, we had redeemed 3,460,765 shares sold in the offering for $32.6 million.

Market Outlook – Real Estate and Real Estate Finance Markets

During the past three years, significant and widespread concerns about credit risk and access to capital have been present in the U.S. and global financial markets. Economies throughout the world have experienced increased unemployment and sagging consumer confidence due to a downturn in economic activity. Amid signs of recovery in the economic and financial markets, concerns remain regarding job growth, wage stagnation, credit restrictions and increased taxation. Recent global economic events centered on the possible default of sovereign government debt in Europe and the lowering of the credit rating of the U.S. government debt by Standard & Poor's to AA+ from AAA have increased market volatility.

29

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

The health of the global capital markets remain a concern. The banking industry has been experiencing improved earnings, but the relatively low growth economic environment has caused the markets to question whether financial institutions are truly appropriately capitalized. The downgrade of the U.S. government debt has increased these concerns, especially for the larger, money center banks. Smaller financial institutions have continued to work with borrowers to amend and extend existing loans; however, as these loans reach maturity, there is the potential for future credit losses. The FDIC's list of troubled financial institutions is still quite large and the threat of more bank closings will weigh heavily on the financial markets.

Over the past several months, the U.S. commercial real estate industry has experienced some improvement in fundamental benchmarks, such as occupancy, rental rates and pricing. Continued improvement in these fundamentals remains contingent upon sustainable economic growth. In general, borrower defaults may rise, and occupancy and rental rate stabilization will vary by market and by property type. Looking forward, it is widely assumed that mortgage delinquencies have not yet peaked.

Currently, benchmark interest rates, such as LIBOR, remain near historic lows. This has allowed borrowers with floating rate debt to continue to make debt service payments even as the properties securing these loans experience decreased occupancy and lower rental rates. Low short-term rates have allowed these borrowers to meet their debt obligations; however, they would not meet the current underwriting requirements needed to refinance this debt today. As these loans near maturity, borrowers may have to find new sources of funds in order to recapitalize their properties.

Throughout the financial crisis and economic downturn, commercial real estate transactions experienced a sharp decline in volume. Recent trends indicate a modest rebound in transaction activity. High-quality assets in top-tier markets experienced the largest increase in transaction volume. One of the significant barriers to deal flow is the spread between buyer/seller pricing expectations. It is expected that more commercial properties will come into the market as loans mature, marginally performing properties default and banks increase their foreclosure activity. From a financing perspective, new lending is expected to remain subdued in the near term. The commercial mortgage backed securities ("CMBS") market, formerly a significant source of liquidity and debt capital, was inactive in 2008 and 2009, and left a void in the market for long-term, affordable, fixed rate debt. During that time, the void was partially filled by portfolio lenders such as insurance companies, but at very different terms than were available in the past. These remaining lenders generally increased credit spreads, lowered the amount of available proceeds, required recourse security and credit enhancements, and otherwise tightened underwriting standards, while simultaneously limiting lending to existing relationships with borrowers that invest in high quality assets in top-tier markets. In addition, lenders have limited the amount of financing available to existing relationships in an effort to manage capital allocations and credit risk.

Recently, there have been signs that the credit markets have begun to thaw as the global economy has shown signs of recovery and growth. New CMBS issuances and the increased access to the capital markets for publicly-traded REITs has led many to believe that commercial real estate lending will be revived as the market's appetite for risk returns. Similarly, many lending institutions have increased their lending on commercial real estate, which coupled with historically low interest rates and slightly-relaxed underwriting standards, has helped increase commercial real estate transaction volume. It is important to remember that these trends have only recently begun and an improvement in one aspect of the market does not provide an indication of a general market recovery or provide any indication of the duration of the existing downturn, or the speed of any expected recovery. Recent setbacks in the demand for CMBS securities serve as a reminder that the health of the global capital markets is still fragile.

Despite improved access to capital for some companies, the aforementioned economic conditions have continued to impact the capital markets. Global government interventions in the banking system and the persistence of a highly expansionary monetary policy by the U.S. Treasury have introduced additional complexity and uncertainty to the markets. The U.S. government's recent introduction of additional regulation to the financial markets, including the banking, insurance and brokerage sectors, has resulted in general uncertainty as to the long-term impact on these markets and on the economy as a whole. Adding to this uncertainty are increased disclosure requirements and changes to accounting principles involving the valuation of investments. These conditions are expected to continue, and combined with a challenging macro-economic environment, may interfere with the implementation of our business strategy and/or force us to modify it.

30

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Impact on Our Real Estate Investments

These market conditions have and will likely continue to have a significant impact on our real estate investments and create a highly competitive leasing environment. In addition, these market conditions have impacted our tenants' businesses, which makes it more difficult for them to meet current lease obligations and places pressure on them to negotiate favorable lease terms upon renewal in order for their businesses to remain viable. Projected future declines in rental rates, slower or potentially negative net absorption of leased space and expectations of future rental concessions, including free rent to retain tenants who are up for renewal or to sign new tenants, are expected to result in decreases in cash flow. Historically low interest rates could help offset some of the impact of decreases in operating cash flow for properties financed with variable rate mortgages; however, interest rates likely will not remain at these historically low levels for the life of many of our investments.

Impact on Our Real Estate-Related Investments

Our real estate-related investments are directly secured by commercial real estate. As a result, our real estate-related investments have been impacted to some degree by the same factors impacting our real estate investments.

As of June 30, 2011, we had fixed rate real estate loans receivable with a principal value of $321.6 million and a carrying value (including origination and closing costs) of $252.4 million that mature between 2014 and 2017 and a variable rate real estate loan receivable with a principal balance of $87.5 million and a carrying value (including origination and closing costs) of $88.8 million that matures in 2013.

Impact on Our Financing Activities

In light of the risks associated with declines of operating cash flows from our real estate properties and the current underwriting environment for commercial real estate mortgages, we may have difficulty refinancing some of our mortgage notes at maturity or may not be able to refinance our obligations at terms as favorable as the terms of our existing indebtedness. As of June 30, 2011, we had debt obligations in the aggregate principal amount of $1.1 billion, all of which mature between 2013 and 2016. We have a total of $460.2 million of fixed rate notes payable and $641.1 million of variable rate notes payable. The interest rates on $561.2 million of our variable rate notes payable are effectively fixed through interest rate swap agreements. As of June 30, 2011, we had no mortgage debt outstanding scheduled to mature within 12 months of that date.

Liquidity and Capital Resources

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

• Proceeds from our now terminated primary offering;

• Proceeds from common stock issued under our dividend reinvestment plan;

• Debt financings; and

• Cash flow generated by our real estate operations and real estate-related investments.

We ceased offering shares of common stock in our primary offering on December 31, 2010 and continue to offer shares under our dividend reinvestment plan. To date, we have invested a significant amount of the proceeds from our initial public offering and anticipate making several more investments in the future. We intend to use our cash on hand, cash flow generated by our real estate operations and real estate-related investments, proceeds from our dividend reinvestment plan and principal repayments on our real estate loans receivable as our primary sources of immediate and long-term liquidity. As of June 30, 2011, we have an aggregate of $122.9 million available for future disbursements under four credit facilities, subject to certain conditions and restrictions set forth in the respective loan agreements.

Our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures, debt service payments and corporate general and administrative expenses. Cash flow from operations from real estate investments is primarily dependent upon the occupancy level of our portfolio, the net effective rental rates on our leases, the collectibility of rent and operating recoveries from our tenants and how well we manage our expenditures. As of June 30, 2011, our real estate portfolio was 96% occupied and our bad debt reserve was less than 1% of annualized base rent. As of June 30, 2011, we had two tenants with a rent balance outstanding for over 90 days.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Our real estate-related investments generate cash flow in the form of interest income, which is reduced by loan servicing fees and debt service payments. Cash flows from operations from our real estate-related investments are primarily dependent on the operating performance of the underlying collateral and the borrower's ability to make their debt service payments. As of June 30, 2011, the borrowers under our real estate loans receivable were all current.

For the six months ended June 30, 2011, our cash needs for acquisitions, capital expenditures and payment of debt obligations were met with the proceeds from debt financing and proceeds from our initial public offering, including our dividend reinvestment plan. Operating cash needs during the same period were met through cash flow generated by our real estate and real estate-related investments. We made distributions to our stockholders during the six months ended June 30, 2011 using a combination of cumulative cash flows from operations and debt financing. We believe that our cash on hand, proceeds from our dividend reinvestment plan, cash flow from operations, availability under our credit facilities 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. As of June 30, 2011, we owned 25 real estate properties (consisting of 18 office properties, one office/flex property, a portfolio consisting of four industrial properties and two individual industrial properties), a leasehold interest in one industrial property and six real estate loans receivable. During the six months ended June 30, 2011, net cash provided by operating activities was $50.7 million, compared to $22.7 million during the six months ended June 30, 2010. Net cash from operations increased in 2011 primarily due to increases in rental revenue from our real estate and increases in contractual interest income from our real estate-related investments as a result of our investment activities during 2010 and 2011, partially offset by increases in operating expenses and asset management fees. We expect that our cash flows from operating activities will increase in future periods as a result of owning investments acquired in 2011 for an entire period and as a result of anticipated future acquisitions of real estate and real estate-related investments.

Cash Flows from Investing Activities

Net cash used in investing activities was $407.5 million for the six months ended June 30, 2011, and primarily consisted of the following:

• Acquisitions of four individual office properties and a portfolio of four industrial properties for an aggregate purchase price of $397.3 million; and

• $9.3 million of additions to real estate.

Cash Flows from Financing Activities

Our cash flows from financing activities consist primarily of proceeds from our now terminated initial public offering, debt financings and distributions paid to our stockholders. During the six months ended June 30, 2011, net cash provided by financing activities was $328.4 million and consisted primarily of the following:

• $269.4 million of net cash provided by debt and other financings as a result of proceeds from notes payable of $300.0 million, partially offset by principal payments on notes payable of $26.9 million and payments of deferred financing costs of $3.7 million;

• $93.8 million of cash provided by offering proceeds related to our initial public offering, net of payments of commissions, dealer manager fees and other organization and offering expenses of $10.1 million;

• $26.3 million of net cash distributions, after giving effect to dividends reinvested by stockholders of $33.3 million; and

• $9.5 million of cash used for redemptions of common stock.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Contractual Commitments and Contingencies

In order to execute our investment strategy, we primarily utilize secured debt, and, to the extent available, may in the future utilize unsecured debt, to finance a portion of our investment portfolio. Management remains vigilant in monitoring the risks inherent with the use of debt in our portfolio and is taking actions to ensure that these risks, including refinance and interest rate risks, are properly balanced with the benefit of using leverage. We may elect to obtain financing subsequent to the acquisition date on future real estate acquisitions and initially acquire investments without debt financing. Once we have fully invested the proceeds of our initial public offering, we expect our debt financing and other liabilities to be between 50% and 65% of the cost of our tangible assets (before deducting depreciation or other noncash reserves). Our charter limits our total liabilities 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. From time to time, our debt financing and other liabilities may be below 50% of the cost of our tangible assets due to the lack of availability of debt financing or repayment of debt. As of June 30, 2011, our borrowings and other liabilities were approximately 43% and 42% of the cost (before depreciation or other noncash reserves) and book value (before depreciation) of our tangible assets, respectively.

In addition to using our capital resources for investing purposes and meeting our debt obligations, we use our capital resources to make certain payments to our advisor and our dealer manager. During our offering stage, these payments included payments to our dealer manager for selling commissions and dealer manager fees related to sales in our primary offering and payments to our dealer manager and our advisor for reimbursement of certain organization and other offering expenses related both to the primary offering and the dividend reinvestment plan. 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 is in effect through May 21, 2012 and has a one-year term but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of our advisor and our conflicts committee.

The following is a summary of our contractual obligations as of June 30, 2011 (in thousands):

			Payments Due During the Years Ending December 31,
Contractual Obligations	Total		Remainder of 2011			2012-2013			2014-2015			Thereafter
Outstanding debt obligations(1)	$	1,101,270	$	—		$	58,000		$	675,170		$	368,100
Interest payments on outstanding debt obligations(2)	176,991		23,301			92,061			60,687			942
Outstanding funding obligations under real estate loans receivable	18,000		(3		)	(3		)	(3		)	—

_________________________ 

⁽¹⁾ Amounts include principal payments only.

⁽²⁾ Projected interest payments are based on the outstanding principal amounts and interest rates in effect at June 30, 2011 (consisting of the contractual interest rate and the effect of interest rate floors and swaps). We incurred interest expense of $22.0 million, excluding amortization of deferred financing costs totaling $1.5 million, during the six months ended June 30, 2011.

⁽³⁾ As of June 30, 2011, $31.9 million had been disbursed under the Pappas Commerce First Mortgage Origination and another $18.0 million remains available for future funding, subject to certain conditions set forth in the loan agreement. This amount does not have a fixed funding date, but may be funded in any future year, subject to certain conditions set forth in the loan agreement. As of June 30, 2011, an additional $0.8 million had been disbursed as a protective advance made on June 22, 2011 to cover property taxes and to fund the tax and insurance reserve account. The Pappas Commerce First Mortgage matures on July 1, 2014.

Results of Operations

Overview

As of June 30, 2010, we owned eight office properties, one office/flex property, two industrial properties and five real estate loans receivable. As of June 30, 2011, we owned 18 office properties, one office/flex property, a portfolio of four industrial properties, two individual industrial properties, a leasehold interest in one industrial property and six real estate loans receivable. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of owning investments acquired in 2010 and 2011 for an entire period and anticipated future acquisitions of real estate and real estate-related investments. The results of operations presented for the three and six months ended June 30, 2011 and 2010 are not directly comparable because we were still investing the proceeds from our initial public offering in 2011.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Comparison of the three months ended June 30, 2011 versus the three months ended June 30, 2010

The following table provides summary information about our results of operations for the three months ended June 30, 2011 and 2010 (dollar amounts in thousands):

	Three Months Ended June 30,				Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions/ Originations (1)			$ Change Due to Properties  or Loans Held Throughout Both Periods (2)
	2011		2010
Rental income	$	56,415	$	20,959	$	35,456		169	%	$	36,143		$	(687	)
Tenant reimbursements	12,817		3,003		9,814			327	%	10,425			(611		)
Interest income from real estate loans receivable	8,887		7,030		1,857			26	%	1,571			286
Other operating income	2,847		478		2,369			496	%	2,334			35
Operating, maintenance, and management	14,453		5,077		9,376			185	%	9,524			(148		)
Real estate taxes and insurance	8,907		2,193		6,714			306	%	6,761			(47		)
Asset management fees to affiliate	5,003		1,788		3,215			180	%	3,190			25
Real estate acquisition fees to affiliates	951		482		469			97	%	468			1
Real estate acquisition fees and expenses	348		461		(113		)	(25	)%	(105		)	(8		)
General and administrative expenses	1,617		1,090		527			48	%	n/a			n/a
Depreciation and amortization	30,507		12,599		17,908			142	%	20,489			(2,581		)
Interest expense	12,264		2,476		9,788			395	%	8,970			818
Other interest income	9		106		(97		)	(92	)%	n/a			n/a

______________________________

⁽¹⁾ Represents the dollar amount increase for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 related to real estate and real estate-related investments acquired or originated on or after April 1, 2010.

⁽²⁾ Represents dollar amount increase (decrease) for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 with respect to real estate and real estate-related investments owned by us during both periods.

Rental income and tenant reimbursements increased from $24.0 million for the three months ended June 30, 2010 to $69.2 million for the three months ended June 30, 2011, primarily as a result of acquisitions of real estate. The increase was partially offset by a $1.3 million net decrease in rental income and tenant reimbursements from properties held throughout both periods, which is primarily due to lease expirations subsequent to June 30, 2010. We expect rental income and tenant reimbursements to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate.

Interest income from our real estate loans receivable, recognized using the interest method, increased from $7.0 million for the three months ended June 30, 2010 to $8.9 million for the three months ended June 30, 2011, primarily as a result of the growth in our real estate loans receivable portfolio. Interest income included $1.6 million in accretion of purchase price discounts, net of amortization of closing costs, for the three months ended June 30, 2011 and 2010, respectively. We expect interest income to increase in future periods as a result of anticipated future acquisitions of real estate-related investments.

Other operating income increased from $0.5 million for the three months ended June 30, 2010 to $2.8 million for the three months ended June 30, 2011, primarily as a result of the growth in our real estate portfolio. Other operating income consisted primarily of parking revenues related to properties acquired subsequent to June 30, 2010. We expect other operating income to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate.

Operating, maintenance and management costs increased from $5.1 million for the three months ended June 30, 2010 to $14.5 million for the three months ended June 30, 2011, primarily as a result of the growth in our real estate portfolio. We expect operating, maintenance and management costs to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate.

Real estate taxes and insurance increased from $2.2 million for the three months ended June 30, 2010 to $8.9 million for the three months ended June 30, 2011, primarily as a result of the growth in our real estate portfolio. We expect real estate taxes and insurance to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate.

34

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Asset management fees with respect to our real estate and real estate-related investments increased from $1.8 million for the three months ended June 30, 2010 to $5.0 million for the three months ended June 30, 2011, as a result of the growth in our real estate and real estate-related investment portfolio. All asset management fees incurred as of June 30, 2011 have been paid. We expect asset management fees to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate and real estate-related investments.

Real estate acquisition fees and expenses to affiliates and non-affiliates increased from $0.9 million for the three months ended June 30, 2010 to $1.3 million for the three months ended June 30, 2011 due to the growth in our real estate portfolio. We expect real estate acquisition fees and expenses to decrease in future periods as we have invested the majority of the proceeds from our public offering.

General and administrative expenses increased from $1.1 million for the three months ended June 30, 2010 to $1.6 million for the three months ended June 30, 2011 primarily due to a decrease in fair value of contingent consideration related to certain rent guarantees and higher transfer agent fees. These general and administrative costs also consisted primarily of legal fees, audit fees, transfer agent fees and other professional fees. We expect general and administrative costs to vary in future periods.

Depreciation and amortization increased from $12.6 million for the three months ended June 30, 2010 to $30.5 million  for the three months ended June 30, 2011, primarily due to the growth in our real estate portfolio. This increase was partially offset by a $2.6 million decrease in depreciation and amortization from properties held throughout both periods primarily due to lease expirations subsequent to June 30, 2010. We expect these amounts to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate.

Interest expense increased from $2.5 million for the three months ended June 30, 2010 to $12.3 million for the three months ended June 30, 2011. Included in interest expense is the amortization of deferred financing costs of $0.2 million and $0.6 million for the three months ended June 30, 2010 and June 30, 2011, respectively. The increase in interest expense is primarily a result of our use of debt in acquiring real property investments subsequent to June 30, 2010 and an increase in our average loan balance of properties held throughout both periods. Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the availability and cost of debt financing, draws on our credit facilities and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives.

Comparison of the six months ended June 30, 2011 versus the six months ended June 30, 2010

The following table provides summary information about our results of operations for the six months ended June 30, 2011 and 2010 (dollar amounts in thousands):

	Six Months Ended June 30,				Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions/ Originations (1)		$ Change Due to Properties  or Loans Held Throughout Both Periods (2)
	2011		2010
Rental income	$	107,739	$	39,455	$	68,284		173	%	$	69,578	$	(1,294	)
Tenant reimbursements	23,697		5,760		17,937			311	%	19,146		(1,209		)
Interest income from real estate loans receivable	17,686		12,845		4,841			38	%	4,380		461
Other operating income	5,229		746		4,483			601	%	4,445		38
Operating, maintenance, and management	28,619		10,031		18,588			185	%	18,598		(10		)
Real estate taxes and insurance	17,141		4,026		13,115			326	%	13,231		(116		)
Asset management fees to affiliate	9,557		3,307		6,250			189	%	6,220		30
Real estate acquisition fees to affiliates	3,000		1,588		1,412			89	%	1,410		2
Real estate acquisition fees and expenses	2,311		926		1,385			150	%	1,402		(17		)
General and administrative expenses	2,481		2,168		313			14	%	n/a		n/a
Depreciation and amortization	58,714		23,336		35,378			152	%	38,414		(3,036		)
Interest expense	23,508		4,358		19,150			439	%	17,733		1,417
Other interest income	61		172		(111		)	(65	)%	n/a		n/a

_______________________

⁽¹⁾ Represents the dollar amount increase for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 related to real estate and real estate-related investments acquired or originated on or after January 1, 2010.

⁽²⁾ Represents dollar amount increase (decrease) for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 with respect to real estate and real estate-related investments owned by us during both periods.

35

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Rental income and tenant reimbursements increased from $45.2 million for the six months ended June 30, 2010 to $131.4 million for the six months ended June 30, 2011, primarily as a result of acquisitions of real estate. The increase was partially offset by a $2.5 million net decrease in rental income and tenant reimbursements from properties held throughout both periods, which is primarily due to lease expirations subsequent to June 30, 2010. We expect rental income and tenant reimbursements to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate.

Interest income from our real estate loans receivable, recognized using the interest method, increased from $12.8 million for the six months ended June 30, 2010 to $17.7 million for the six months ended June 30, 2011, primarily as a result of the growth in our real estate loans receivable portfolio. Interest income included $3.3 million and $3.1 million in accretion of purchase price discounts, net of amortization of closing costs, for the six months ended June 30, 2011 and 2010, respectively. We expect interest income to increase in future periods as a result of anticipated future acquisitions of real estate-related investments.

Other operating income increased from $0.7 million for the six months ended June 30, 2010 to $5.2 million for the six months ended June 30, 2011, primarily as a result of the growth in our real estate portfolio. Other operating income consisted primarily of parking revenues related to properties acquired subsequent to June 30, 2010. We expect other operating income to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate.

Operating, maintenance and management costs increased from $10.0 million for the six months ended June 30, 2010 to $28.6 million for the six months ended June 30, 2011, primarily as a result of the growth in our real estate portfolio. We expect operating, maintenance and management costs to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate.

Real estate taxes and insurance increased from $4.0 million for the six months ended June 30, 2010 to $17.1 million for the six months ended June 30, 2011, primarily as a result of the growth in our real estate portfolio. We expect real estate taxes and insurance to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate.

Asset management fees with respect to our real estate and real estate-related investments increased from $3.3 million for the six months ended June 30, 2010 to $9.6 million for the six months ended June 30, 2011, as a result of the growth in our real estate and real estate-related investment portfolio. All asset management fees incurred as of June 30, 2011 have been paid. We expect asset management fees to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate and real estate-related investments.

Real estate acquisition fees and expenses to affiliates and non-affiliates increased from $2.5 million for the six months ended June 30, 2010 to $5.3 million for the six months ended June 30, 2011 due to the growth in our real estate portfolio. We expect real estate acquisition fees and expenses to decrease in future periods as we have invested the majority of the proceeds from our public offering.

General and administrative expenses increased from $2.2 million for the six months ended June 30, 2010 to $2.5 million for the six months ended June 30, 2011 primarily due to a decrease in fair value of contingent consideration related to certain rent guarantees, higher dividend costs and miscellaneous general and administrative costs, offset by a decrease in legal fees. These general and administrative costs consisted primarily of legal fees, audit fees, transfer agent fees and other professional fees. We expect general and administrative costs to vary in future periods.

Depreciation and amortization increased from $23.3 million for the six months ended June 30, 2010 to $58.7 million for the six months ended June 30, 2011, primarily due to the growth in our real estate portfolio. This increase was partially offset by a $3.0 million decrease from properties held throughout both periods primarily due to lease expirations subsequent to June 30, 2010. We expect these amounts to increase in future periods as a result of owning the assets acquired during 2011 for an entire period and as a result of anticipated future acquisitions of real estate.

Interest expense increased from $4.4 million for the six months ended June 30, 2010 to $23.5 million for the six months ended June 30, 2011. Included in interest expense is the amortization of deferred financing costs of $1.5 million and $0.2 million for the six months ended June 30, 2011 and June 30, 2010, respectively. The increase in interest expense is primarily a result of our use of debt in acquiring real property investments subsequent to June 30, 2010 and an increase in our average loan balance and the average interest rate on financings of properties held throughout both periods. Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the availability and cost of debt financing, draws on our credit facilities and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives.

36

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Funds from Operations and Modified Funds from Operations

We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of an 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 among 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. We compute FFO in accordance with the current NAREIT definition. Our computation of FFO may not be comparable to other REITs that do not define FFO in accordance with the NAREIT definition or that interpret the current NAREIT definition differently than we do.

Changes in accounting rules have resulted in a substantial increase in the number of non-operating and non-cash items included in the calculation of FFO. As a result, our management also uses modified funds from operations (“MFFO”) as an indicator of our ongoing performance as well as our dividend sustainability. We believe that MFFO is helpful as a measure of ongoing operating performance because it excludes costs that management considers more reflective of investing activities and other non-operating items included in FFO. MFFO also excludes non-cash items such as straight-line rental revenue. In particular, we believe MFFO provides investors with information to help assess the sustainability of our operating performance after our acquisition stage is complete because it excludes acquisition fees and expenses that affect our operations only in the periods in which properties are acquired. Additionally, we believe that MFFO provides investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance. MFFO excludes from FFO: acquisition fees and expenses; adjustments related to contingent purchase price obligations; amounts relating to straight-line rents and amortization of above and below market intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; amortization of closing costs; impairments of real estate and real estate-related investments; mark-to-market adjustments included in net income; and gains or losses included in net income for the extinguishment or sale of debt or hedges. We compute MFFO in accordance with the definition of MFFO included in the practice guideline issued by the Investment Program Association (“IPA”) in November 2010. Our computation of MFFO may not be comparable to other REITs that do not compute MFFO in accordance with the current IPA definition or that interpret the current IPA definition differently than we do.

FFO and MFFO are non-GAAP financial measures and do 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 and MFFO include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization and the other items described above. Accordingly, FFO and MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, MFFO does not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an indication of our liquidity. We believe FFO and MFFO, in addition to net income and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures and are useful in understanding how our management evaluates our ongoing operating performance.

37

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Our calculation of FFO and MFFO is presented in the table below for the three and six months ended June 30, 2011 and 2010, respectively (in thousands). No conclusions or comparisons should be made from the presentation of these periods.

	For the Three Months Ended  June 30,						For the Six Months Ended  June 30,
	2011			2010			2011			2010
Net income	$	6,925		$	5,410		$	9,081		$	9,238
Depreciation of real estate assets	11,237			3,417			21,344			6,402
Amortization of lease-related costs	19,270			9,182			37,370			16,934
FFO	37,432			18,009			67,795			32,574
Real estate acquisition fees and expenses to affiliates	951			482			3,000			1,588
Real estate acquisition fees and expenses	348			461			2,311			926
Straight-line rent and amortization of above- and below-market leases	(6,070		)	(2,286		)	(11,603		)	(4,929		)
Amortization of discounts and closing costs	(1,659		)	(1,563		)	(3,311		)	(3,054		)
Adjustment to valuation of contingent purchase consideration	293			—			135			—
MFFO	$	31,295		$	15,103		$	58,327		$	27,105

FFO and MFFO may be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs.

Distributions

Until we have fully invested the proceeds of our primary offering, and for some period after our offering stage, we may not be able to pay distributions solely from our cash flow from operations or FFO, in which case distributions may be paid in part from debt financing. Distributions declared, distributions paid and cash flows from operations were as follows for the first and second quarters of 2011 (in thousands, except per share amounts):

	Distributions Declared (1)		Distributions Declared Per Share (1)(2)		Distributions Paid (3)						Cash  Flows From Operations
Period					Cash		Reinvested		Total
First Quarter 2011	$	29,934	$	0.160	$	12,644	$	16,072	$	28,716	$	9,396
Second Quarter 2011	30,659		0.162		13,670		17,257		30,927		41,353
	$	60,593	$	0.322	$	26,314	$	33,329	$	59,643	$	50,749

_______________________

⁽¹⁾ Distributions for the period from January 1, 2011 through June 30, 2011 are based on daily record dates and are calculated at a rate of $0.00178082 per share per day.

⁽²⁾ Assumes share was issued and outstanding each day during the periods presented.

⁽³⁾ Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid approximately 15 days following month end.

For the six months ended June 30, 2011, we paid aggregate distributions of $59.6 million, including $26.3 million of distributions paid in cash and $33.3 million of distributions reinvested through our dividend reinvestment plan. FFO and cash flow from operations for the six months ended June 30, 2011 were $67.8 million and $50.7 million, respectively. We funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with $50.7 million of current period operating cash flows and $8.9 million of debt financing. See the reconciliation of FFO to net income above.

38

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

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 investments we make in mortgage, mezzanine and other loans). However, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under “Forward-Looking Statements,” “Market Outlook - Real Estate and Real Estate Finance Markets” and “Results of Operations” herein, and the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC. Those factors include: the future operating performance of our investments in the existing real estate and financial environment; our ability to identify investments that are suitable to execute our investment objectives; the success and economic viability of our tenants; the ability of our borrowers and their sponsors to continue to make their debt service payments and/or to repay their loans upon maturity; changes in interest rates on our variable rate debt obligations; and the level of participation in our dividend reinvestment plan. In the event our FFO and/or cash flow from operations continue to decrease in the future, the level of our distributions may also decrease. In addition, future distributions declared and paid may exceed FFO and/or cash flow from operations.

Critical Accounting Policies

Our consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities as of 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. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC. There have been no significant changes to our policies during 2011, except as follows.

Transfers of Financial Assets

We account for transfers of real estate loans receivable to unrelated entities in accordance with ASC 860, Transfers and Servicing. When a real estate loan receivable is divided into multiple tranches and one or more of the tranches is transferred to an unrelated third party, we determine if each of the tranches of the loan would qualify as participating interests. If the tranches do not qualify as participating interests, we would account for the transfer as a secured borrowing with a pledge of collateral. As a result, we would continue to report the transferred financial asset on our consolidated balance sheet and recognize interest income on the entire note. Proceeds from the transferee are treated as a secured borrowing and recorded as a note payable. Interest income allocated to the transferee is recorded as interest expense on our consolidated statement of operations.

Subsequent Events

We evaluate subsequent events up until the date the consolidated financial statements are issued.

Distributions Paid

On July 15, 2011, we paid distributions of $10.1 million, which related to distributions declared for each day in the period from June 1, 2011 through June 30, 2011.

Distributions Declared

On July 8, 2011, our board of directors declared distributions based on daily record dates for the period from August 1, 2011 through August 31, 2011, which we expect to pay in September 2011. On August 10, 2011, our board of directors declared distributions based on daily record dates for the period from September 1, 2011 through September 30, 2011, which we expect to pay in October 2011, and distributions based on daily record dates for the period October 1, 2011 through October 31, 2011, which we expect to pay in November 2011. Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan.

Distributions for these periods will be 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.

39

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Investments and Financings Subsequent to June 30, 2011

CityPlace Tower Mortgage Loan

On July 6, 2011, we, through an indirect wholly owned subsidiary (the “CityPlace Tower Borrower”), entered into a mortgage loan with Metropolitan Life Insurance Company, which is unaffiliated with us or our advisor, for $71.0 million secured by the CityPlace Tower (the “CityPlace Tower Mortgage Loan”). The CityPlace Tower Mortgage Loan matures on August 1, 2015, with an option to extend the maturity date to August 1, 2016, subject to certain conditions. The CityPlace Tower Mortgage Loan bears fixed interest at 3.59% during the initial term of the loan and a variable rate of 200 basis points over one-month LIBOR during the extension. Monthly payments on the CityPlace Tower Mortgage Loan are interest-only, with the entire principal amount, plus any outstanding interest and fees, due at maturity.

REIT Properties II is providing a limited guaranty of the CityPlace Tower Mortgage Loan with respect to certain potential costs, expenses, losses, damages and other sums, including interest thereon, which may result from certain actions or inactions by the CityPlace Tower Borrower. REIT Properties II is also providing a guaranty of the principal balance and any interest or other sums outstanding under the CityPlace Tower Mortgage Loan in the event of certain voluntary or involuntary bankruptcy or insolvency proceedings related to the CityPlace Tower Borrower.

Origination of Sheraton Charlotte Airport Hotel First Mortgage

On July 11, 2011, we, through an indirect wholly owned subsidiary, originated a first mortgage loan in the amount of $14.5 million (the “Sheraton Charlotte Airport Hotel First Mortgage”) from a borrower unaffiliated with us or our advisor. The borrower used the proceeds from the loan to refinance its existing debt. Payments under the Sheraton Charlotte Airport Hotel First Mortgage are interest-only payments for the first two years, followed by principal and interest payments with principal calculated using an amortization schedule of 30 years for the balance of the term. The Sheraton Charlotte Airport Hotel First Mortgage note bears interest at a fixed rate of 7.5%. The Sheraton Charlotte Airport Hotel First Mortgage matures on August 1, 2018 and may be prepaid in whole (but not in part) subject to a formula-based yield maintenance premium for the majority of the term of the loan and may be prepaid in whole (but not in part) without prepayment penalty on or after June 1, 2018.

40

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 3. 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 to 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 profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes. 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. We have managed and will continue to manage interest rate risk by maintaining a ratio 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.

We borrow funds and make investments at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt or fixed rate real estate loans receivable unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. At June 30, 2011, the fair value and carrying value of our fixed rate real estate loans receivable were $325.1 million and $252.4 million, respectively. The fair value estimate of our real estate loans receivable is estimated using an internal valuation model that considers the expected cash flows for the loans, underlying collateral values (for collateral-dependent loans) and the estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements. At June 30, 2011, the fair value of our fixed rate debt was $479.4 million and the carrying value of our fixed rate debt was $460.2 million. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated at June 30, 2011. As we expect to hold our fixed rate 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, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

Conversely, movements in interest rates on our variable rate debt and loan receivable would change our future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of floating rate instruments. At June 30, 2011, we were exposed to market risks related to fluctuations in interest rates on $79.9 million of variable rate debt outstanding, after giving consideration to the impact of interest rate swap agreements on approximately $561.2 million of our variable rate debt. Based on interest rates as of June 30, 2011, if interest rates were 100 basis points higher during the 12 months ending June 30, 2012, interest expense on our variable rate debt would increase by $0.3 million and if interest rates were 100 basis points lower during the 12 months ending June 30, 2012, interest expense on our variable rate debt would decrease by $0.1 million. At June 30, 2011, we were exposed to market risks related to fluctuations in interest rates on our variable rate loan receivable outstanding with an outstanding principal balance of $87.5 million. An increase or decrease of 100 basis points in interest rates would have no impact on our future earnings and cash flows due to an interest rate floor on our variable rate loan receivable.

The weighted-average annual effective interest rates of our fixed rate real estate loans receivable and variable rate real estate loan receivable at June 30, 2011 were 11.8% and 7.1%, respectively. The weighted-average annual effective interest rate represents the effective interest rate at June 30, 2011, using the interest method, that we use to recognize interest income on our real estate loans receivable. The weighted-average interest rates of our fixed rate debt and variable rate debt at June 30, 2011 were 4.6% and 3.9%, respectively. The weighted-average interest rate represents the actual interest rate in effect at June 30, 2011 (consisting of the contractual interest rate and the effect of interest rate swaps and floors), using interest rate indices as of June 30, 2011 where applicable.

41

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 4. 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 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

42

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Please see the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC and identified in Post-Effective Amendment No. 14 to our Registration Statement (file no. 333-146341), filed with the SEC on April 5, 2011.

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

a) During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.

b) On April 22, 2008, our Registration Statement on Form S-11 (File No. 333-146341), covering a public offering of up to 200,000,000 shares of common stock in our primary offering and 80,000,000 shares of common stock under our dividend reinvestment plan, 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 LLC, an affiliate of our advisor, as the dealer manager of our offering. We ceased offering shares of common stock in our primary offering on December 31, 2010 and terminated our primary offering on March 22, 2011 upon the completion of review of subscriptions submitted in accordance with our processing procedures. We continue to offer shares of common stock under our dividend reinvestment plan. We may sell shares under the dividend reinvestment plan until we have sold all the shares under the plan.

We offered 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 sold 182,681,633 shares of common stock in the primary offering for gross offering proceeds of $1.8 billion. As of June 30, 2011, we had sold 10,507,453 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $99.8 million. Also as of June 30, 2011, we had redeemed 3,460,765 shares sold in the offering for $32.6 million. As of June 30, 2011, we had incurred selling commissions, dealer manager fees, other underwriting compensation and other organization and offering costs in the amounts set forth below. We paid selling commissions and dealer manager fees to KBS Capital Markets Group in connection with our primary offering, and KBS Capital Markets Group reallowed all selling commissions and a portion of the dealer manager fees to participating broker-dealers. In addition, we reimburse KBS Capital Advisors and KBS Capital Markets Group for certain offering expenses as described in our prospectus, as amended and supplemented.

Type of Expense Amount	Amount		Estimated/Actual
	(in thousands)
Selling commissions and dealer manager fees	$	167,207	Actual
Finders’ fees	—		Actual
Other underwriting compensation	10,330		Actual
Other organization and offering costs (excluding underwriting compensation)	9,891		Actual
Total expenses	$	187,428

From the commencement of our initial public offering through June 30, 2011, the net offering proceeds to us, after deducting the total expenses incurred as described above, were approximately $1.7 billion, including net offering proceeds from our dividend reinvestment plan of $99.8 million.

We have used substantially all of the net proceeds from our initial public offering to invest in and manage a diverse portfolio of real estate and real estate-related investments. We may use the net proceeds from the sale of shares under our dividend reinvestment plan for general corporate purposes, including, but not limited to, the redemption of shares under our share redemption program; capital expenditures; tenant improvement costs and other funding obligations. As of June 30, 2011, we had used the net proceeds from our initial public offering and debt financing to purchase $2.7 billion in real estate and real estate-related investments, including $34.2 million of acquisition and origination fees and expenses.

43

PART II. OTHER INFORMATION (CONTINUED)

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds (continued)

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

Pursuant to the share redemption program, as amended to date, there are several limitations on our ability to redeem shares:

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

• During any calendar year, the share redemption program limits the number of shares we may redeem to those that we could purchase with the amount of 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.

We may amend, suspend or terminate the program upon 30 days' notice to our stockholders. We may provide this notice by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to our stockholders.

During the six months ended June 30, 2011, we fulfilled all redemption requests and redeemed shares pursuant to our share redemption program as follows:

Month	Total Number of Shares Redeemed (1)	Average Price Paid Per Share (2)		Approximate Dollar Value of Shares Available That May Yet Be  Redeemed Under the Program
January 2011	153,255	$	9.46	(3)
February 2011	180,593	$	9.49	(3)
March 2011	148,978	$	9.46	(3)
April 2011	162,948	$	9.48	(3)
May 2011	207,488	$	9.59	(3)
June 2011	141,079	$	9.56	(3)
Total	994,341

_____________________

⁽¹⁾ We announced the adoption and commencement of the program on April 8, 2008. We announced amendments to the program on May 13, 2009 (which amendment became effective on June 12, 2009) and on March 11, 2011 (which amendment became effective on April 10, 2011).

⁽²⁾ Pursuant to the program, as amended, we currently redeem shares at prices determined 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, the redemption price for redemptions sought upon a stockholder's death, “qualifying disability” or “determination of incompetence” will initially be the amount paid to acquire the shares from us. Furthermore, 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 currently expect to establish an estimated value per share no later than the expiration of the first 18-month period in which we do not sell shares in a public equity offering and every 12 to 18 months thereafter. “Public equity offering” for this purpose does not include offerings on behalf of selling stockholders or offerings related to a dividend reinvestment plan, employee benefit plan or the redemption of interests in the Operating Partnership. We ceased offering shares in our initial public offering on December 31, 2010, but we may conduct follow-on public equity offerings in the future.

⁽³⁾ We limit the dollar value of shares that may be redeemed under the program as described above. During the six months ended June 30, 2011, we redeemed $9.5 million of common stock, which represented all redemption requests received in good order and eligible for redemption through the June 2011 redemption date. Based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2010 and redemptions through June 30, 2011, we may redeem up to $33.8 million of shares for the remainder of 2011.

44

PART II. OTHER INFORMATION (CONTINUED)

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds (continued)

In addition to the redemptions under the share redemption program described above, during the six months ended June 30, 2011, we repurchased 620 shares of our common stock at $10.00 per share for an aggregate price of $6,200.

Item 3. Defaults upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

45

PART II. OTHER INFORMATION (CONTINUED)

Item 6. Exhibits

Ex.	Description
3.1	Second Articles of Amendment and Restatement 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	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
4.2	Amended and Restated Dividend Reinvestment Plan, incorporated by reference to Appendix A to the prospectus dated April 5, 2011, Commission File No. 333-146341
4.3	Second Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2010
10.1	Advisory Agreement, by and between the Company and KBS Capital Advisors LLC, dated May 21, 2011
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
101.1	The following information from the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Stockholders' Equity; and (iv) Consolidated Statements of Cash Flows.

46

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	KBS REAL ESTATE INVESTMENT TRUST II, INC.
August 11, 2011	By:	/S/ CHARLES J. SCHREIBER, JR.
		Charles J. Schreiber, Jr.
		Chairman of the Board, Chief Executive Officer and Director
August 11, 2011	By:	/S/ DAVID E. SNYDER
		David E. Snyder
		Chief Financial Officer

47

EX-10.1

Exhibit 10.1

ADVISORY AGREEMENT

between

KBS REAL ESTATE INVESTMENT TRUST II, INC.

and

KBS CAPITAL ADVISORS LLC

May 21, 2011

TABLE OF CONTENTS

Page

ARTICLE 1 - DEFINITIONS			1
ARTICLE 2 - APPOINTMENT			9
ARTICLE 3 - DUTIES OF THE ADVISOR			9
	3.01	Organizational and Offering Services	9
	3.02	Acquisition Services	9
	3.03	Asset Management Services	10
	3.04	Stockholder Services	12
	3.05	Other Services	13
ARTICLE 4 - AUTHORITY OF ADVISOR			13
	4.01	General	13
	4.02	Powers of the Advisor	13
	4.03	Approval by the Board	13
	4.04	Modification or Revocation of Authority of Advisor	13
ARTICLE 5 - BANK ACCOUNTS			13
ARTICLE 6 - RECORDS AND FINANCIAL STATEMENTS			14
ARTICLE 7 - LIMITATION ON ACTIVITIES			14
ARTICLE 8 - FEES			14
	8.01	Acquisition Fees	14
	8.02	Origination Fees	15
	8.03	Asset Management Fees	16
	8.04	Disposition Fees	16
	8.05	Subscription Processing Fee	17
	8.06	Subordinated Share of Cash Flows	17
	8.07	Subordinated Incentive Fee	17
	8.08	Changes to Fee Structure	18
ARTICLE 9 - EXPENSES			18
	9.01	General	18
	9.02	Timing of and Limitations on Reimbursements	20
ARTICLE 10 - VOTING AGREEMENT			21
ARTICLE 11 - RELATIONSHIP OF ADVISOR AND COMPANY; OTHER ACTIVITIES OF THE ADVISOR			21
	11.01	Relationship	21
	11.02	Time Commitment	21
	11.03	Investment Opportunities and Allocation	21
ARTICLE 12 - THE KBS NAME			22
ARTICLE 13 - TERM AND TERMINATION OF THE AGREEMENT			22
	13.01	Term	22
	13.02	Termination by Either Party	22
	13.03	Payments on Termination and Survival of Certain Rights and Obligations	22
ARTICLE 14 - ASSIGNMENT			23
ARTICLE 15 - INDEMNIFICATION AND LIMITATION OF LIABILITY			23

i

	15.01	Indemnification	23
	15.03	Limitation Indemnification	24
	15.02	Limitation on Payment of Expenses	24
ARTICLE 16 - MISCELLANEOUS			24
	16.01	Notices	24
	16.02	Modification	25
	16.03	Severability	25
	16.04	Construction	25
	16.05	Entire Agreement	25
	16.06	Waiver	25
	16.07	Gender	26
	16.08	Titles Not to Affect Interpertation	26
	16.09	Counterparts	26

ii

ADVISORY AGREEMENT

This Advisory Agreement, dated as of May 21, 2011 (the “Agreement”), is between KBS Real Estate Investment Trust II, Inc., a Maryland corporation (the “Company”), and KBS Capital Advisors LLC, a Delaware limited liability company (the “Advisor”).

W I T N E S S E T H

WHEREAS, the Company desires to avail itself of the knowledge, experience, sources of information, advice, assistance and certain facilities available to the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of, the Board of Directors of the Company, all as provided herein; and

WHEREAS, the Advisor is willing to undertake to render such services, subject to the supervision of the Board of Directors of the Company, on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

The following defined terms used in this Agreement shall have the meanings specified below:

“Acquisition Expenses” means any and all expenses, excluding the fee payable to the Advisor pursuant to Section 8.01, incurred by the Company, the Advisor or any Affiliate of either in connection with the selection, acquisition or development of any property, loan or other potential investment, whether or not acquired or originated, as applicable, including, without limitation, legal fees and expenses, travel and communication expenses, costs of appraisals, nonrefundable option payments on properties or other investments not acquired, accounting fees and expenses, title insurance premiums and miscellaneous expenses related to the selection, acquisition or development of any property, loan or other potential investment.

“Acquisition Fees” means the fee payable to the Advisor pursuant to Section 8.01 plus all other fees and commissions, excluding Acquisition Expenses, paid by any Person to any Person in connection with making or investing in any Property or other Permitted Investment or the purchase, development or construction of any Property by the Company. Included in the computation of such fees or commissions shall be any real estate commission, selection fee, Development Fee, Construction Fee, nonrecurring management fee, loan fees or points or any fee of a similar nature, however designated. Excluded shall be Development Fees and Construction Fees paid to Persons not Affiliated with the Advisor in connection with the actual development and construction of a Property.

1

“Advisor” means (i) KBS Capital Advisors LLC, a Delaware limited liability company, or (ii) any successor advisor to the Company.

“Affiliate or Affiliated” An Affiliate of another Person includes any of the following: (i) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; (ii) any Person directly or indirectly owning, controlling, or holding with the power to vote 10% or more of the outstanding voting securities of such other Person; (iii) any legal entity for which such Person acts as an executive officer, director, trustee, or general partner; (iv) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; and (v) any executive officer, director, trustee, or general partner of such other Person. An entity shall not be deemed to control or be under common control with an Advisor-sponsored program unless (i) the entity owns 10% or more of the voting equity interests of such program or (ii) a majority of the board of directors (or equivalent governing body) of such program is composed of Affiliates of the entity.

“Appraised Value” means the value according to an appraisal made by an Independent Appraiser.

“Articles of Incorporation” means the Articles of Incorporation of the Company under Title 2 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time.

“Asset Management Fee” shall have the meaning set forth in Section 8.03.

“Average Invested Assets” means, for a specified period, the average of the aggregate book value of the assets of the Company invested, directly or indirectly, in Properties, Loans and other Permitted Investments secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period.

“Board of Directors” or “Board” means the persons holding such office, as of any particular time, under the Articles of Incorporation of the Company, whether they be the Directors named therein or additional or successor Directors.

“Bylaws” means the bylaws of the Company, as amended from time to time.

“Cash from Financings” means the net cash proceeds realized by the Company from the financing of Properties, Loans or other Permitted Investments or from the refinancing of any Company indebtedness (after deduction of all expenses incurred in connection therewith).

“Cash from Sales and Settlements” means the net cash proceeds realized by the Company (i) from the sale, exchange or other disposition of any of its assets or any portion thereof after deduction of all expenses incurred in connection therewith including, without limitation, Disposition Fees and (ii) from the prepayment, maturity, workout or other settlement of any Loan or Permitted Investment or portion thereof after deduction of all expenses incurred in connection therewith. In the case of a transaction described in clause (i) (C) of the definition of “Sale” and (i)(B) of the definition of “Settlement,” Cash from Sales and Settlements means the

2

proceeds of any such transaction actually distributed to the Company from the Joint Venture or partnership. Cash from Sales and Settlements shall not include Cash from Financings.

“Cash from Sales, Settlements and Financings” means the total sum of Cash from Sales and Settlements and Cash from Financings.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.

“Company” means KBS Real Estate Investment Trust II, Inc., a corporation organized under the laws of the State of Maryland.

“Competitive Real Estate Commission” means a real estate or brokerage commission for the purchase or sale of property that is reasonable, customary, and competitive in light of the size, type, and location of the property.

“Conflicts Committee” shall have the meaning set forth in the Company's Articles of Incorporation.

“Construction Fee” means a fee or other remuneration for acting as general contractor and/or construction manager to construct improvements, supervise and coordinate projects or to provide major repairs or rehabilitation on a Property.

“Contract Sales Price” means the total consideration received by the Company for the sale of a Property, Loan or other Permitted Investment.

“Cost of Real Estate Investments” means the sum of (i) with respect to Properties wholly owned, directly or indirectly, by the Company, the amount actually paid or allocated to the purchase, development, construction or improvement of Properties, inclusive of fees and expenses related thereto, plus the amount of any outstanding debt attributable to such Properties and (ii) in the case of Properties owned by any Joint Venture or partnership in which the Company or the Partnership is, directly or indirectly, a co-venturer or partner, the portion of the amount actually paid or allocated to the purchase, development, construction or improvement of Properties, inclusive of fees and expenses related thereto, plus the amount of any outstanding debt associated with such Properties that is attributable to the Company's investment in the Joint Venture or partnership.

“Cost of Loans and other Permitted Investments” means the sum of the cost of all Loans and Permitted Investments held, directly or indirectly, by the Company or the Partnership, calculated each month on an ongoing basis, and calculated as follows for each investment: the lesser of (i) the amount actually paid or allocated to acquire or fund the Loan or Permitted Investment (inclusive of fees and expenses related thereto and the amount of any debt associated with or used to acquire or fund such investment) and (ii) the outstanding principal amount of such Loan or Permitted Investment (plus the fees and expenses related to the acquisition or funding of such investment), as of the time of calculation. With respect to any Loan or Permitted Investment held by the Company or the Partnership through a Joint Venture or partnership of

3

which it is, directly or indirectly, a co-venturer or partner, such amount shall be the Company's proportionate share thereof.

“Dealer Manager” means (i) KBS Capital Markets Group LLC, a Delaware limited liability company, or (ii) any successor dealer manager to the Company.

“Development Fee” means a fee for the packaging of a Property, including negotiating and approving plans, and undertaking to assist in obtaining zoning and necessary variances and necessary financing for the Property, either initially or at a later date.

“Director” means a member of the Board of Directors of the Company.

“Disposition Fee” shall have the meaning set forth in Section 8.04.

“Distributions” means any distributions of money or other property by the Company to owners of Shares, including distributions that may constitute a return of capital for federal income tax purposes.

“GAAP” means accounting principals generally accepted in the United States.

“Gross Proceeds” means the aggregate purchase price of all Shares sold for the account of the Company through an Offering, without deduction for Organization and Offering Expenses.

“Independent Appraiser” means a person or entity with no material current or prior business or personal relationship with the Advisor or the Directors, who is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Company, and who is a qualified appraiser of real estate as determined by the Board. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers (“M.A.I.”) or the Society of Real Estate Appraisers (“S.R.E.A.”) shall be conclusive evidence of such qualification.

“Initial Public Offering” means the initial public offering of Shares registered on Registration Statement No. 333-146341 on Form S-11.

“Invested Capital” means the amount calculated by multiplying the total number of Shares purchased by Stockholders by the issue price, reduced by any amounts paid by the Company to repurchase Shares pursuant to the Company's plan for redemption of Shares.

“Joint Venture” means any joint venture, limited liability company or other Affiliate of the Company that owns, in whole or in part, on behalf of the Company any Properties, Loans or other Permitted Investments.

“Listed” or “Listing” shall have the meaning set forth in the Company's Articles of Incorporation.

“Loans” means mortgage loans and other types of debt financing investments made by the Company or the Partnership, either directly or indirectly, including through ownership interests in a Joint Venture or partnership, and including, without limitation, mezzanine loans, B-

4

notes, bridge loans, convertible mortgages, wraparound mortgage loans, construction mortgage loans, loans on leasehold interests, and participations in such loans.

“Market Value” shall have the meaning set forth in Section 8.07.

“NASAA Guidelines” means the NASAA Statement of Policy Regarding Real Estate Investment Trusts as in effect on the date hereof.

“Net Income” means, for any period, the total revenues applicable to such period, less the total expenses applicable to such period excluding additions to reserves for depreciation, bad debts or other similar non-cash reserves; provided, however, Net Income for purposes of calculating total allowable Operating Expenses (as defined herein) shall exclude the gain from the sale of the Company's assets.

“Offering” means any offering of Shares that is registered with the SEC, excluding Shares offered under any employee benefit plan.

“Operating Cash Flow” means Operating Revenue Cash Flows minus the sum of (i) Operating Expenses, (ii) all principal and interest payments on indebtedness and other sums paid to lenders, (iii) 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 tax incurred in connection with the issuance, distribution, transfer, registration and Listing of the Shares, (iv) taxes, (v) incentive fees paid in compliance with Section IV.F. of the NASAA Guidelines and (vi) Acquisition Fees, Acquisition Expenses, real estate commissions on the resale of real property, and other expenses connected with the acquisition, disposition, and ownership of real estate interests, loans or other property (other than commissions on the sale of assets other than real property), such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property.

“Operating Expenses” means all costs and expenses incurred by the Company, as determined under GAAP, that in any way are related to the operation of the Company or to Company business, including fees paid to the Advisor, but excluding (i) 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 tax incurred in connection with the issuance, distribution, transfer, registration and Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad loan reserves, (v) incentive fees paid in compliance with Section IV.F. of the NASAA Guidelines and (vi) Acquisition Fees, Acquisition Expenses, real estate commissions on the resale of real property, and other expenses connected with the acquisition, disposition, and ownership of real estate interests, loans or other property (other than commissions on the sale of assets other than real property), such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property.

“Operating Revenue Cash Flows” means the Company's cash flow from ownership and/or operation of (i) Properties, (ii) Loans, (iii) Permitted Investments, (iv) short-term investments, and (v) interests in Properties, Loans and Permitted Investments owned by any Joint Venture or any partnership in which the Company or the Partnership is, directly or indirectly, a co-venturer or partner.

5

“Organization and Offering Expenses” means all expenses incurred by or on behalf of the Company in connection with or in preparing the Company for registration of and subsequently offering and distributing its Shares to the public, whether incurred before or after the date of this Agreement, which may include but are not limited to, total underwriting and brokerage discounts and commissions (including fees of the underwriters' attorneys); any expense allowance granted by the Company to the underwriter or any reimbursement of expenses of the underwriter by the Company; expenses for printing, engraving and mailing; compensation of employees while engaged in sales activity; charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts; and expenses of qualification of the sale of the securities under Federal and State laws, including taxes and fees, accountants' and attorneys' fees.

“Origination Fees” means the fee payable to the Advisor pursuant to Section 8.02 plus all other fees and commissions, excluding Acquisition Expenses, paid by any Person to any Person in connection with making or investing in any Loan by the Company.

“Partnership” means KBS Limited Partnership II, a Delaware limited partnership formed to own and operate Properties, Loans and other Permitted Investments on behalf of the Company.

“Permitted Investments” means all investments (other than Properties, Loans and short-term investments acquired for purposes of cash management) in which the Company may acquire an interest, either directly or indirectly, including through ownership interests in a Joint Venture or partnership, pursuant to its Articles of Incorporation, Bylaws and the investment objectives and policies adopted by the Board from time to time.

“Person” means an individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c) (17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity, or any government or any agency or political subdivision thereof, and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.

“Property” or “Properties” means any real property or properties transferred or conveyed to the Company or the Partnership, either directly or indirectly, and/or any real property or properties transferred or conveyed to a Joint Venture or partnership in which the Company is, directly or indirectly, a co-venturer or partner.

“Property Manager” means an entity that has been retained to perform and carry out at one or more of the Properties property-management services, excluding persons, entities or independent contractors retained or hired to perform facility management or other services or tasks at a particular Property, the costs for which are passed through to and ultimately paid by the tenant at such Property.

“Registration Statement” means the registration statement filed by the Company with the SEC on Form S-11 (Reg. No. 333-146341), as amended from time to time, in connection with the Initial Public Offering.

6

“REIT” means a “real estate investment trust” under Sections 856 through 860 of the Code.

“Sale or Sales” means (i) any transaction or series of transactions whereby: (A) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of any Property, Loan or other Permitted Investment or portion thereof, including the transfer of any Property that is the subject of a ground lease, and including any event with respect to any Property, Loan or other Permitted Investment that gives rise to a significant amount of insurance proceeds or condemnation awards; (B) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company or the Partnership in any Joint Venture or partnership in which it is, directly or indirectly, a co-venturer or partner; or (C) any Joint Venture or partnership (in which the Company or the Partnership is, directly or indirectly, a co-venturer or partner) sells, grants, transfers, conveys, or relinquishes its ownership of any Property, Loan or other Permitted Investment or portion thereof, including any event with respect to any Property, Loan or other Permitted Investment that gives rise to insurance claims or condemnation awards, but (ii) not including any transaction or series of transactions specified in clause (i) (A), (i) (B), or (i) (C) above in which the proceeds of such transaction or series of transactions are reinvested in one or more Properties, Loans or other Permitted Investments within 180 days thereafter.

“SEC” means the United States Securities and Exchange Commission.

“Settlement” means (i) the prepayment, maturity, workout or other settlement of any Loan or other Permitted Investment or portion thereof owned, directly or indirectly, by (A) the Company or the Partnership or (B) any Joint Venture or any partnership in which the Company or the Partnership is, directly or indirectly, a partner, but (ii) not including any transaction or series of transactions specified in clause (i) (A) or (i) (B) above in which the proceeds of such prepayment, maturity, workout or other settlement are reinvested in one or more Properties, Loans or other Permitted Investments within 180 days thereafter.

“Shares” means the shares of common stock of the Company, par value $.01 per share.

“Stockholders” means the registered holders of the Shares.

“Stockholders' 8% Return” means, as of any date, an aggregate amount equal to an 8% cumulative, non-compounded, annual return on Invested Capital (calculated like simple interest on a daily basis based on a three hundred sixty-five day year). For purposes of calculating the Stockholders' 8% Return, Invested Capital shall be determined for each day during the period for which the Stockholders' 8% Return is being calculated and shall be calculated net of (1) Distributions of Operating Cash Flow to the extent such Distributions of Operating Cash Flow provide a cumulative, non-compounded, annual return in excess of 8%, as such amounts are computed on a daily basis based on a three hundred sixty-five day year and (2) Distributions of Cash from Sales, Settlements and Financings, except to the extent such Distributions would be required to supplement Distributions of Operating Cash Flow in order to achieve a cumulative, non-compounded, annual return of 8%, as such amounts are computed on a daily basis based on a three hundred sixty-five day year.

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“Subordinated Incentive Fee” means the fee payable to the Advisor under certain circumstances if the Shares are Listed, as calculated in Section 8.07.

“Subordinated Performance Fee Due Upon Termination” means a fee payable in the form of an interest bearing promissory note (the “Performance Fee Note”) in a principal amount equal to (1) 15% of the amount, if any, by which (a) the Appraised Value of the Company's Properties at the Termination Date, less amounts of all indebtedness secured by the Company's Properties, plus the fair market value of all other Loans and Permitted Investments of the Company at the Termination Date, less amounts of indebtedness related to such Loans and Permitted Investments, plus total Distributions (excluding any stock dividend) through the Termination Date exceeds (b) the sum of Invested Capital plus total Distributions required to be made to the stockholders in order to pay the Stockholders' 8% Return from inception through the Termination Date less (2) any prior payment to the Advisor of a Subordinated Share of Cash Flows. Interest on the Performance Fee Note will accrue beginning on the Termination Date at a rate deemed fair and reasonable by the Conflicts Committee. The Company shall repay the Performance Fee Note at such time as the Company completes the first Sale or Settlement after the Termination Date using Cash from Sales and Settlements. If the Cash from Sales and Settlements from the first Sale or Settlement after the Termination Date is insufficient to pay the Performance Fee Note in full, including accrued interest, then the Performance Fee Note shall be paid in part from the Cash from Sales and Settlements from the first Sale or Settlement, and in part from the Cash from Sales and Settlements from each successive Sale or Settlement until the Performance Fee Note is repaid in full, with interest. If the Performance Fee Note has not been paid in full within five years from the Termination Date, then the Advisor, its successors or assigns, may elect to convert the balance of the fee, including accrued but unpaid interest, into Shares at a price per Share equal to the average closing price of the Shares over the ten trading days immediately preceding the date of such election if the Shares are Listed at such time. If the Shares are not Listed at such time, the Advisor, its successors or assigns, may elect to convert the balance of the fee, including accrued but unpaid interest, into Shares at a price per Share equal to the fair market value for the Shares as determined by the Board of Directors based upon the Appraised Value of Company's Properties on the date of election plus the fair market value of all other Loans and Permitted Investments of the Company on the date of election.

“Subordinated Share of Cash Flows” has the meaning set forth in Section 8.06.

“Subscription Processing Fee” has the meaning set forth in Section 8.05.

“Termination Date” means the date of termination of the Agreement determined in accordance with Article 13 hereof.

“2%/25% Guidelines” means the requirement pursuant to the NASAA Guidelines that, in any period of four consecutive fiscal quarters, total Operating Expenses not exceed the greater of 2% of the Company's Average Invested Assets during such 12-month period or 25% of the Company's Net Income over the same 12-month period.

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ARTICLE 2

APPOINTMENT

The Company hereby appoints the Advisor to serve as its advisor and asset manager on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.

ARTICLE 3

DUTIES OF THE ADVISOR

The Advisor is responsible for managing, operating, directing and supervising the operations and administration of the Company and its assets. The Advisor undertakes to use its best efforts to present to the Company potential investment opportunities and to provide the Company with a continuing and suitable investment program consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the Board. Subject to the limitations set forth in this Agreement, including Article 4 hereof, and the continuing and exclusive authority of the Board over the management of the Company, the Advisor shall, either directly or by engaging an Affiliate or third party, perform the following duties:

3.01 Organizational and Offering Services. The Advisor shall perform all services related to the organization of the Company or any Offering or private sale of the Company's securities, other than services that (i) are to be performed by the Dealer Manager, (ii) the Company elects to perform directly or (iii) would require the Advisor to register as a broker-dealer with the SEC or any state.

3.02 Acquisition Services.

(i) Serve as the Company's investment and financial advisor and provide relevant market research and economic and statistical data in connection with the Company's assets and investment objectives and policies;

(ii) Subject to Section 4 hereof and the investment objectives and policies of the Company: (a) locate, analyze and select potential investments; (b) structure and negotiate the terms and conditions of transactions pursuant to which investments in Properties, Loans and other Permitted Investments will be made; (c) acquire, originate and dispose of Properties, Loans and other Permitted Investments on behalf of the Company; (d) arrange for financing and refinancing and make other changes in the asset or capital structure of investments in Properties, Loans and other Permitted Investments; and (e) enter into leases, service contracts and other agreements for Properties, Loans and other Permitted Investments;

(iii) Perform due diligence on prospective investments and create due diligence reports summarizing the results of such work;

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(iv) Prepare reports regarding prospective investments that include recommendations and supporting documentation necessary for the Directors to evaluate the proposed investments;

(v) Obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of contemplated investments of the Company;

(vi) Deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with the Company's investments; and

(vii) Negotiate and execute approved investments and other transactions, including prepayments, maturities, workouts and other settlements of Loans and other Permitted Investments.

3.03 Asset Management Services.

(i) Real Estate and Related Services:

(a) Investigate, select and, on behalf of the Company, engage and conduct business with (including enter contracts with) such Persons as the Advisor deems necessary to the proper performance of its obligations as set forth in this Agreement, including but not limited to consultants, accountants, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, developers, construction companies, Property Managers and any and all Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services;

(b) Negotiate and service the Company's debt facilities and other financings;

(c) Monitor applicable markets and obtain reports (which may be prepared by the Advisor or its Affiliates) where appropriate, concerning the value of investments of the Company;

(d) Monitor and evaluate the performance of each asset of the Company and the Company's overall portfolio of assets, provide daily management services to the Company and perform and supervise the various management and operational functions related to the Company's investments;

(e) Formulate and oversee the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing and disposition of Properties, Loans and other Permitted Investments on an overall portfolio basis;

(f) Consult with the Company's officers and the Board and assist the Board in the formulation and implementation of the Company's financial policies, and, as necessary, furnish the Board with advice and recommendations with respect to the making of investments consistent with the investment objectives

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and policies of the Company and in connection with any borrowings proposed to be undertaken by the Company;

(g) Oversee the performance by the Property Managers of their duties, including collection and proper deposits of rental payments and payment of Property expenses and maintenance;

(h) Conduct periodic on-site property visits to some or all (as the Advisor deems reasonably necessary) of the Properties to inspect the physical condition of the Properties and to evaluate the performance of the Property Managers;

(i) Review, analyze and comment upon the operating budgets, capital budgets and leasing plans prepared and submitted by each Property Manager and aggregate these property budgets into the Company's overall budget;

(j) Coordinate and manage relationships between the Company and any co-venturers or partners; and

(k) Consult with the Company's officers and the Board and provide assistance with the evaluation and approval of potential asset dispositions, sales and refinancings.

(ii) Accounting and Other Administrative Services:

(a) Provide the day-to-day management of the Company and perform and supervise the various administrative functions reasonably necessary for the management of the Company;

(b) From time to time, or at any time reasonably requested by the Board, make reports to the Board on the Advisor's performance of services to the Company under this Agreement;

(c) Make reports to the Conflicts Committee each quarter of the investments that have been made by other programs sponsored by the Advisor or any of its Affiliates, including KBS Realty Advisors LLC, as well as any investments that have been made by the Advisor or any of its Affiliates directly;

(d) Provide or arrange for any administrative services and items, legal and other services, office space, office furnishings, personnel and other overhead items necessary and incidental to the Company's business and operations;

(e) Provide financial and operational planning services;

(f) Maintain accounting and other record-keeping functions at the Company and investment levels, including information concerning the activities of the Company as shall be required to prepare and to file all periodic financial reports, tax returns and any other information required to be filed with the SEC, the Internal Revenue Service and any other regulatory agency;

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(g) Maintain and preserve all appropriate books and records of the Company;

(h) Provide tax and compliance services and coordinate with appropriate third parties, including the Company's independent auditors and other consultants, on related tax matters;

(i) Provide the Company with all necessary cash management services;

(j) Manage and coordinate with the transfer agent the monthly dividend process and payments to Stockholders;

(k) Consult with the Company's officers and the Board and assist the Board in evaluating and obtaining adequate insurance coverage based upon risk management determinations;

(l) Provide the Company's officers and the Board with timely updates related to the overall regulatory environment affecting the Company, as well as managing compliance with such matters, including but not limited to compliance with the Sarbanes-Oxley Act of 2002;

(m) Consult with the Company's officers and the Board relating to the corporate governance structure and appropriate policies and procedures related thereto;

(n) Perform all reporting, record keeping, internal controls and similar matters in a manner to allow the Company to comply with applicable law, including federal and state securities laws and the Sarbanes-Oxley Act of 2002;

(o) Notify the Board of all proposed material transactions before they are completed; and

(p) Do all things necessary to assure its ability to render the services described in this Agreement.

3.04 Stockholder Services.

(i) Manage services for and communications with Stockholders, including answering phone calls, preparing and sending written and electronic reports and other communications;

(ii) Oversee the performance of the transfer agent and registrar;

(iii) Establish technology infrastructure to assist in providing Stockholder support and service; and

(iv) Consistent with Section 3.01, the Advisor shall perform the various subscription processing services reasonably necessary for the admission of new Stockholders.

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3.05 Other Services. Except as provided in Article 7, the Advisor shall perform any other services reasonably requested by the Company (acting through the Conflicts Committee).

ARTICLE 4

AUTHORITY OF ADVISOR

4.01 General. All rights and powers to manage and control the day-to-day business and affairs of the Company shall be vested in the Advisor. The Advisor shall have the power to delegate all or any part of its rights and powers to manage and control the business and affairs of the Company to such officers, employees, Affiliates, agents and representatives of the Advisor or the Company as it may deem appropriate. Any authority delegated by the Advisor to any other Person shall be subject to the limitations on the rights and powers of the Advisor specifically set forth in this Agreement or the Articles of Incorporation.

4.02 Powers of the Advisor. Subject to the express limitations set forth in this Agreement and the continuing and exclusive authority of the Board over the management of the Company, the power to direct the management, operation and policies of the Company shall be vested in the Advisor, which shall have the power by itself and shall be authorized and empowered on behalf and in the name of the Company to carry out any and all of the objectives and purposes of the Company and to perform all acts and enter into and perform all contracts and other undertakings that it may in its sole discretion deem necessary, advisable or incidental thereto to perform its obligations under this Agreement.

4.03 Approval by the Board. Notwithstanding the foregoing, the Advisor may not take any action on behalf of the Company without the prior approval of the Board or duly authorized committees thereof if the Articles of Incorporation or Maryland General Corporation Law require the prior approval of the Board. The Advisor will deliver to the Board all documents required by it to evaluate a proposed investment (and any related financing).

4.04 Modification or Revocation of Authority of Advisor. The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority or approvals set forth in Article 3 and this Article 4 hereof; provided, however, that such modification or revocation shall be effective upon receipt by the Advisor and shall not be applicable to investment transactions to which the Advisor has committed the Company prior to the date of receipt by the Advisor of such notification.

ARTICLE 5

BANK ACCOUNTS

The Advisor may establish and maintain one or more bank accounts in its own name for the account of the Company or in the name of the Company and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Company, under such terms and conditions as the Board may approve, provided that no funds shall be commingled with the funds of the Advisor. The Advisor shall from time to time

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render appropriate accountings of such collections and payments to the Board and the independent auditors of the Company.

ARTICLE 6

RECORDS AND FINANCIAL STATEMENTS

The Advisor, in the conduct of its responsibilities to the Company, shall maintain adequate and separate books and records for the Company's operations in accordance with GAAP, which shall be supported by sufficient documentation to ascertain that such books and records are properly and accurately recorded. Such books and records shall be the property of the Company and shall be available for inspection by the Board and by counsel, auditors and other authorized agents of the Company, at any time or from time to time during normal business hours. Such books and records shall include all information necessary to calculate and audit the fees or reimbursements paid under this Agreement. The Advisor shall utilize procedures to attempt to ensure such control over accounting and financial transactions as is reasonably required to protect the Company's assets from theft, error or fraudulent activity. All financial statements that the Advisor delivers to the Company shall be prepared on an accrual basis in accordance with GAAP, except for special financial reports that by their nature require a deviation from GAAP. The Advisor shall liaise with the Company's officers and independent auditors and shall provide such officers and auditors with the reports and other information that the Company so requests.

ARTICLE 7

LIMITATION ON ACTIVITIES

Notwithstanding any provision in this Agreement to the contrary, the Advisor shall not take any action that, in its sole judgment made in good faith, would (i) adversely affect the ability of the Company to qualify or continue to qualify as a REIT under the Code, (ii) subject the Company to regulation under the Investment Company Act of 1940, as amended, (iii) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company, its Shares or its other securities, (iv) require the Advisor to register as a broker-dealer with the SEC or any state, or (v) violate the Articles of Incorporation or Bylaws. In the event an action that would violate (i) through (v) of the preceding sentence but such action has been ordered by the Board, the Advisor shall notify the Board of the Advisor's judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event, the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given.

ARTICLE 8

FEES

8.01 Acquisition Fees. As compensation for the investigation, selection and acquisition (by purchase, investment or exchange) of Properties and other Permitted Investments, the

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Company shall pay an Acquisition Fee to the Advisor for each such investment. With respect to the acquisition of a Property to be wholly owned by the Company, the Acquisition Fee payable to the Advisor shall equal 0.75% of the sum of the amount actually paid or allocated to the purchase, development, construction or improvement of such Property, inclusive of the Acquisition Expenses associated with such Property, and the amount of any debt attributable to such Property. With respect to other wholly owned Permitted Investments, the Acquisition Fee payable to the Advisor shall equal 0.75% of the cost of such investment, inclusive of Acquisition Expenses associated with such investment, and the amount of any debt attributable to such Permitted Investment. With respect to the acquisition of a Property or other Permitted Investment through any Joint Venture or any partnership in which the Company is, directly or indirectly, a co-venturer or partner, the Acquisition Fee payable to the Advisor shall equal 0.75% of the portion of the amount actually paid or allocated to the purchase, development, construction or improvement of the Property or other Permitted Investment, inclusive of the Acquisition Expenses associated with such Property or Permitted Investment, plus the amount of any outstanding debt associated with such Property or Permitted Investment that is attributable to the Company's investment in the Joint Venture or partnership. Notwithstanding anything herein to the contrary, the payment of Acquisition Fees by the Company shall be subject to the limitations contained in the Company's Articles of Incorporation. The Advisor shall submit an invoice to the Company following the closing or closings of each acquisition, accompanied by a computation of the Acquisition Fee. The Acquisition Fee payable to the Advisor shall be paid at the closing of the acquisition upon receipt of the invoice by the Company. The Company will not pay an Acquisition Fee to the Advisor with respect to any transaction in which the Company is required to pay an Origination Fee to the Advisor pursuant to the provisions of Section 8.02 below.

8.02 Origination Fees. As compensation for the investigation, selection, sourcing and acquisition or origination of Loans, the Company shall pay an Origination Fee to the Advisor for each such acquisition or origination. With respect to the acquisition or origination of a Loan to be wholly owned by the Company, the Origination Fee payable to the Advisor shall equal 1% of the amount funded by the Company to acquire or originate the Loan, including any Acquisition Expenses related to such investment and any debt used to fund the acquisition or origination of the Loan. With respect to the acquisition of a Loan through any Joint Venture or any partnership in which the Company is, directly or indirectly, a co-venturer or partner, the Origination Fee payable to the Advisor shall equal 1% of the portion of the amount actually paid or allocated to acquire or originate the Loan, inclusive of the Acquisition Expenses associated with such Loan, plus the amount of any outstanding debt associated with such Loan that is attributable to the Company's investment in the Joint Venture or partnership. The Company will not pay an Origination Fee to the Advisor with respect to any transaction pursuant to which the Company is required to pay the Advisor an Acquisition Fee. Notwithstanding anything herein to the contrary, the payment of Origination Fees by the Company shall be subject to the limitations on Acquisition Fees contained in (and defined in) the Company's Articles of Incorporation. The Advisor shall submit an invoice to the Company following the closing or closings of each Loan, accompanied by a computation of the Origination Fee. The Origination Fee payable to the Advisor shall be paid at the closing of the transaction upon receipt of the invoice by the Company.

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8.03 Asset Management Fees.

(i)Except as provided in Section 8.03(ii) hereof, the Company shall pay the Advisor as compensation for the services described in Section 3.03 hereof a monthly fee (the “Asset Management Fee”) in an amount equal to one-twelfth of 0.75% of the sum of the Cost of Real Estate Investments and the Cost of Loans and other Permitted Investments. The Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the Asset Management Fee for the applicable period. The Asset Management Fee shall be payable on the last day of such month, or the first business day following the last day of such month. The Asset Management Fee may or may not be taken, in whole or in part, as to any period in the sole discretion of the Advisor. All or any portion of the Asset Management Fees not taken as to any period shall be deferred without interest and may be paid in such other fiscal period as the Advisor shall determine.

(ii) Notwithstanding anything contained in Section 8.03(i) to the contrary, a Property, Loan or other Permitted Investment that has suffered an impairment in value, reduction in cash flow or other negative circumstances may either be excluded from the calculation of the Cost of Real Estate Investments or the Cost of Loans and other Permitted Investments or included in such calculation at a reduced value that is recommended by the Advisor and the Company's management and then approved by a majority of the Company's independent directors, and the resulting change in the Asset Management Fee with respect to such investment will be applicable upon the earlier to occur of the date on which (i) such investment is sold, (ii) such investment is surrendered to a Person other than the Company, its direct or indirect wholly owned subsidiary or a Joint Venture or partnership in which the Company has an interest, (iii) the Advisor determines that it will no longer pursue collection or other remedies related to such investment, or (iv) the Advisor recommends a revised fee arrangement with respect to such investment.

8.04 Disposition Fees. If the Advisor or any of its Affiliates provide a substantial amount of services (as determined by the Conflicts Committee) in connection with a Sale, the Advisor or such Affiliate shall receive a fee at the closing (the “Disposition Fee”) equal to 1.0% of the Contract Sales Price; provided, however, that no Disposition Fee shall be payable to the Advisor for any Sale if such Sale involves the Company selling all or substantially all of its assets in one or more transactions designed to effectuate a business combination transaction (as opposed to a Company liquidation, in which case the Disposition Fee would be payable if the Advisor or an Affiliate provides a substantial amount of services as provided above). The payment of any Disposition Fees by the Company shall be subject to the limitations contained in the Company's Articles of Incorporation. Any Disposition Fee payable under this Section 8.04 may be paid in addition to commissions paid to non-Affiliates, provided that the total commissions (including such Disposition Fee) paid to all Persons by the Company for each Sale shall not exceed an amount equal to the lesser of (i) 6.0% of the aggregate Contract Sales Price of each Property, Loan or other Permitted Investment or (ii) the Competitive Real Estate Commission for each Property, Loan or other Permitted Investment. Substantial assistance in connection with the Sale of a Property includes the Advisor's preparation of an investment package for the Property (including a new investment analysis, rent rolls, tenant information regarding credit, a property title report, an environmental report, a structural report and exhibits) or such other substantial services performed by the Advisor in connection with a Sale. The Advisor shall submit an invoice to the Company on or about the closing or closings of each disposition, accompanied by a computation of the Disposition Fee. Generally, the Disposition Fee payable to the Advisor shall

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be paid at the closing of the transaction upon receipt of the invoice by the Company. However, the Disposition Fee may or may not be taken, in whole or in part, as to any period in the sole discretion of the Advisor. All or any portion of the Disposition Fees not taken as to any period shall be deferred without interest and may be paid in such other period as the Advisor shall determine.

8.05 Subscription Processing Fee. The Company shall pay the Advisor as compensation for the services described in Section 3.04(iv) hereof a monthly fee (the “Subscription Processing Fee”) in an amount equal to $35 per subscription agreement for Shares received and processed by the Advisor. The Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the total amount of the Subscription Processing Fee for the applicable period. Generally, the Subscription Processing Fee payable to the Advisor shall be paid on the last day of such month, or the first business day following the last day of such month. The Subscription Processing Fee is an Organization and Offering Expense of the Company and is subject to the limitations on Organization and Offering Expenses in Article 9 hereof.

8.06 Subordinated Share of Cash Flows. The Subordinated Share of Cash Flows shall be payable to the Advisor in an amount equal to 15% of Operating Cash Flow and Cash from Sales, Settlements and Financings remaining after the Stockholders have received Distributions of Operating Cash Flow and of Cash from Sales, Settlements and Financings such that the owners of all outstanding Shares have received Distributions in an aggregate amount equal to the sum of:

a.the Stockholders' 8% Return and

b.Invested Capital.

When determining whether the above threshold has been met:

(A)Any stock dividend shall not be included as a Distribution; and

(B)Distributions paid on Shares redeemed by the Company (and thus no longer included in the determination of Invested Capital), shall not be included as a Distribution.

Following Listing, no Subordinated Share of Cash Flows will be paid to the Advisor.

If the Subordinated Share of Cash Flows is payable to the Advisor, the Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the total amount of the Subordinated Share of Cash Flows for the applicable period. Generally, the Subordinated Share of Cash Flows payable to the Advisor shall be paid on the last day of such month, or the first business day following the last day of such month.

8.07 Subordinated Incentive Fee. Upon Listing, the Advisor shall be entitled to the Subordinated Incentive Fee in an amount equal to 15.0% of the amount by which (i) the market value of the outstanding Shares of the Company, measured by taking the average closing price or the average of the bid and asked price, as the case may be, over a period of 30 days during which the Shares are traded, with such period beginning 180 days after Listing (the “Market Value”), plus the total of all Distributions paid to Stockholders (excluding any stock dividends) from the Company's inception until the date that Market Value is determined, exceeds (ii) the sum of (A)

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100% of Invested Capital and (B) the total Distributions required to be paid to the Stockholders in order to pay the Stockholders' 8% Return from inception through the date Market Value is determined. The Company shall have the option to pay such fee in the form of cash, Shares, a promissory note or any combination of the foregoing. The Subordinated Incentive Fee will be reduced by the amount of any prior payment to the Advisor of a Subordinated Share of Cash Flows. In the event the Subordinated Incentive Fee is paid to the Advisor following Listing, no other performance fee will be paid to the Advisor.

8.08 Changes to Fee Structure. In the event of Listing, the Company and the Advisor shall negotiate in good faith to establish a fee structure appropriate for a perpetual-life entity.

ARTICLE 9

EXPENSES

9.01 General. In addition to the compensation paid to the Advisor pursuant to Article 8 hereof, the Company shall pay directly or reimburse the Advisor for all of the expenses paid or incurred by the Advisor or its Affiliates on behalf of the Company or in connection with the services provided to the Company pursuant to this Agreement, including, but not limited to:

(i) All Organization and Offering Expenses; provided, however, that the Company shall not reimburse the Advisor to the extent such reimbursement would cause the total amount spent by the Company on Organization and Offering Expenses to exceed 15% of the Gross Proceeds raised as of the date of the reimbursement and provided further that within 60 days after the end of the month in which an Offering terminates, the Advisor shall reimburse the Company to the extent the Company incurred Organization and Offering Expenses exceeding 15% of the Gross Proceeds raised in the completed Offering; the Company shall not reimburse the Advisor for any Organization and Offering Expenses that the Conflicts Committee determines are not fair and commercially reasonable to the Company;

(ii) Acquisition Fees, Origination Fees and Acquisition Expenses incurred in connection with the selection and acquisition of Properties, Loans and other Permitted Investments, including such expenses incurred related to assets pursued or considered but not ultimately acquired by the Company, provided that, notwithstanding anything herein to the contrary, the payment of Acquisition Fees, Origination Fees and Acquisition Expenses by the Company shall be subject to the limitations contained in the Company's Articles of Incorporation;

(iii) The actual out-of-pocket cost of goods and services used by the Company and obtained from entities not Affiliated with the Advisor;

(iv) Interest and other costs for borrowed money, including discounts, points and other similar fees;

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(v) Taxes and assessments on income or Properties, taxes as an expense of doing business and any other taxes otherwise imposed on the Company and its business, assets or income;

(vi) Out-of-pocket costs associated with insurance required in connection with the business of the Company or by its officers and Directors;

(vii) Expenses of managing, improving, developing, operating and selling Properties, Loans and other Permitted Investments owned, directly or indirectly, by the Company, as well as expenses of other transactions relating to such Properties, Loans and other Permitted Investments, including but not limited to prepayments, maturities, workouts and other settlements of Loans and other Permitted Investments;

(viii) All out-of-pocket expenses in connection with payments to the Board and meetings of the Board and Stockholders;

(ix) Personnel and related employment costs incurred by the Advisor or its Affiliates in performing the services described in Article 3 hereof, including but not limited to reasonable salaries and wages, benefits and overhead of all employees directly involved in the performance of such services, provided that, other than reimbursement of travel and communication expenses, no reimbursement shall be made for costs of such employees of the Advisor or its Affiliates to the extent that such employees perform services for which the Advisor receives Acquisition Fees, Origination Fees or Disposition Fees;

(x) Out-of-pocket expenses of providing services for and maintaining communications with Stockholders, including the cost of preparation, printing, and mailing annual reports and other Stockholder reports, proxy statements and other reports required by governmental entities;

(xi) Audit, accounting and legal fees, and other fees for professional services relating to the operations of the Company and all such fees incurred at the request, or on behalf of, the Board, the Conflicts Committee or any other committee of the Board;

(xii) Out-of-pocket costs for the Company to comply with all applicable laws, regulations and ordinances;

(xiii) Expenses connected with payments of Distributions made or caused to be made by the Company to the Stockholders;

(xiv) Expenses of organizing, redomesticating, merging, liquidating or dissolving the Company or of amending the Articles of Incorporation or the Bylaws; and

(xv) All other out-of-pocket costs incurred by the Advisor in performing its duties hereunder.

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9.02 Timing of and Additional Limitations on Reimbursements.

(i) Expenses incurred by the Advisor on behalf of the Company and reimbursable pursuant to this Article 9 shall be reimbursed no less than monthly to the Advisor. The Advisor shall prepare a statement documenting the expenses of the Company during each quarter and shall deliver such statement to the Company within 45 days after the end of each quarter.

(ii) Notwithstanding anything else in this Article 9 to the contrary, the expenses enumerated in this Article 9 shall not become reimbursable to the Advisor unless and until the Company has raised $2.5 million in the Initial Public Offering.

(iii) Commencing upon the earlier to occur of four fiscal quarters after (i) the Company's acquisition of its first real estate asset or (ii) October 22, 2008 (which is six months after commencement of the Initial Public Offering), the following limitation on Operating Expenses shall apply: The Company shall not reimburse the Advisor at the end of any fiscal quarter for Operating Expenses that in the four consecutive fiscal quarters then ended (the “Expense Year”) exceed (the “Excess Amount”) the greater of 2% of Average Invested Assets or 25% of Net Income (the “2%/25% Guidelines”) for such year unless the Conflicts Committee determines that such excess was justified, based on unusual and nonrecurring factors that the Conflicts Committee deems sufficient. If the Conflicts Committee does not approve such excess as being so justified, any Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the Company. If the Conflicts Committee determines such excess was justified, then, within 60 days after the end of any fiscal quarter of the Company for which total reimbursed Operating Expenses for the Expense Year exceed the 2%/25% Guidelines, the Advisor, at the direction of the Conflicts Committee, shall cause such fact to be disclosed to the Stockholders in writing (or the Company shall disclose such fact to the Stockholders in the next quarterly report of the Company or by filing a Current Report on Form 8-K with the SEC within 60 days of such quarter end), together with an explanation of the factors the Conflicts Committee considered in determining that such excess expenses were justified. The Company will ensure that such determination will be reflected in the minutes of the meetings of the Board. All figures used in the foregoing computation shall be determined in accordance with GAAP applied on a consistent basis.

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ARTICLE 10

VOTING AGREEMENT

The Advisor agrees that, with respect to any Shares now or hereinafter owned by it, the Advisor will not vote or consent on matters submitted to the stockholders of the Company regarding (i) the removal of the Advisor or any Affiliate of the Advisor, (ii) any transaction between the Company and the Advisor or any of its Affiliates, (iii) the election of directors of the Company or (iv) the approval or termination of any contract with the Advisor or any Affiliate of the Advisor. This voting restriction shall survive until such time that the Advisor is both no longer serving as such and is no longer an Affiliate of the Company.

ARTICLE 11

RELATIONSHIP OF ADVISOR AND COMPANY;

OTHER ACTIVITIES OF THE ADVISOR

11.01 Relationship. The Company and the Advisor are not partners or joint venturers with each other, and nothing in this Agreement shall be construed to make them such partners or joint venturers. Nothing herein contained shall prevent the Advisor from engaging in other activities, including, without limitation, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates. Nor shall this Agreement limit or restrict the right of any manager, director, officer, employee or equityholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other Person. The Advisor may, with respect to any investment in which the Company is a participant, also render advice and service to each and every other participant therein. The Advisor shall promptly disclose to the Board the existence of any condition or circumstance, existing or anticipated, of which it has knowledge, that creates or could create a conflict of interest between the Advisor's obligations to the Company and its obligations to or its interest in any other Person.

11.02 Time Commitment. The Advisor shall, and shall cause its Affiliates and their respective employees, officers and agents to, devote to the Company such time as shall be reasonably necessary to conduct the business and affairs of the Company in an appropriate manner consistent with the terms of this Agreement. The Company acknowledges that the Advisor and its Affiliates and their respective employees, officers and agents may also engage in activities unrelated to the Company and may provide services to Persons other than the Company or any of its Affiliates.

11.03 Investment Opportunities and Allocation. The Advisor shall be required to use commercially reasonable efforts to present a continuing and suitable investment program to the Company that is consistent with the investment policies and objectives of the Company, but neither the Advisor nor any Affiliate of the Advisor shall be obligated generally to present any particular investment opportunity to the Company even if the opportunity is of character that, if presented to the Company, could be taken by the Company. In the event an investment opportunity is located, the allocation procedure set forth under the caption “Conflicts of Interest - Certain Conflict Resolution Measures - Allocation of Investment Opportunities” in the

21

Registration Statement shall govern the allocation of the opportunity among the Company and Affiliates of the Advisor.

ARTICLE 12

THE KBS NAME

The Advisor and its Affiliates have a proprietary interest in the name “KBS.” The Advisor hereby grants to the Company a non-transferable, non-assignable, non-exclusive royalty-free right and license to use the name “KBS” during the term of this Agreement. Accordingly, and in recognition of this right, if at any time the Company ceases to retain the Advisor or one of its Affiliates to perform advisory services for the Company, the Company will, promptly after receipt of written request from the Advisor, cease to conduct business under or use the name “KBS” or any derivative thereof and the Company shall change its name and the names of any of its subsidiaries to a name that does not contain the name “KBS” or any other word or words that might, in the reasonable discretion of the Advisor, be susceptible of indication of some form of relationship between the Company and the Advisor or any its Affiliates. At such time, the Company will also make any changes to any trademarks, servicemarks or other marks necessary to remove any references to the word “KBS.” Consistent with the foregoing, it is specifically recognized that the Advisor or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having “KBS” as a part of their name, all without the need for any consent (and without the right to object thereto) by the Company.

ARTICLE 13

TERM AND TERMINATION OF THE AGREEMENT

13.01 Term. This Agreement shall have an initial term of one year from the date hereof and may be renewed for an unlimited number of successive one-year terms upon mutual consent of the parties. The Company (acting through the Conflicts Committee) will evaluate the performance of the Advisor annually before renewing this Agreement, and each such renewal shall be for a term of no more than one year. Any such renewal must be approved by the Conflicts Committee.

13.02 Termination by Either Party. This Agreement may be terminated upon 60 days written notice without cause or penalty by either the Company (acting through the Conflicts Committee) or the Advisor. The provisions of Articles 1, 10, 12, 13, 15 and 16 shall survive termination of this Agreement.

13.03 Payments on Termination and Survival of Certain Rights and Obligations. Payments to the Advisor pursuant to this Section 13.03 shall be subject to the 2%/25% Guidelines to the extent applicable.

(i) After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder except it shall be entitled to receive from the Company

22

within 30 days after the effective date of such termination (A) all unpaid reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to termination of this Agreement and (B) the Subordinated Performance Fee Due Upon Termination, provided that no Subordinated Performance Fee Due Upon Termination will be paid if the Company has paid or is obligated to pay the Subordinated Incentive Fee.

(ii) The Advisor shall promptly upon termination:

(a) pay over to the Company all money collected pursuant to this Agreement, if any, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;

(b) deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;

(c) deliver to the Board all assets and documents of the Company then in the custody of the Advisor; and

(d) cooperate with the Company to provide an orderly transition of advisory functions.

ARTICLE 14

ASSIGNMENT

This Agreement may be assigned by the Advisor to an Affiliate with the consent of the Conflicts Committee. The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board or the Conflicts Committee. This Agreement shall not be assigned by the Company without the consent of the Advisor, except in the case of an assignment by the Company to a corporation or other organization that is a successor to all of the assets, rights and obligations of the Company, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company is bound by this Agreement.

ARTICLE 15

INDEMNIFICATION AND LIMITATION OF LIABILITY

15.01 Indemnification. Except as prohibited by the restrictions provided in this Section 15.01, Section 15.02 and Section 15.03, the Company shall indemnify, defend and hold harmless the Advisor and its Affiliates, including their respective officers, directors, equity holders, partners and employees, from all liability, claims, damages or losses arising in the performance of their duties hereunder, and related expenses, including reasonable attorneys' fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance. Any indemnification of the Advisor may be made only out of the net assets of the Company and not from Stockholders.

23

Notwithstanding the foregoing, the Company shall not indemnify the Advisors or its Affiliates for any loss, liability or expense arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged material securities law violations as to the particular indemnitee; (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the SEC and of the published position of any state securities regulatory authority in which securities of the Company were offered or sold as to indemnification for violations of securities laws.

15.02 Limitation on Indemnification. Notwithstanding the foregoing, the Company shall not provide for indemnification of the Advisor or its Affiliates for any liability or loss suffered by any of them, nor shall any of them be held harmless for any loss or liability suffered by the Company, unless all of the following conditions are met:

(i)The Advisor or its Affiliates have determined, in good faith, that the course of conduct that caused the loss or liability was in the best interests of the Company.

(ii)The Advisor or its Affiliates were acting on behalf of or performing services for the Company.

(iii)Such liability or loss was not the result of negligence or misconduct by the Advisor or its Affiliates.

15.03 Limitation on Payment of Expenses. The Company shall pay or reimburse reasonable legal expenses and other costs incurred by the Advisors or its Affiliates in advance of the final disposition of a proceeding only if (in addition to the procedures required by the Maryland General Corporation Law, as amended from time to time) all of the following are satisfied: (a) the proceeding relates to acts or omissions with respect to the performance of duties or services on behalf of the Company, (b) the legal proceeding was initiated by a third party who is not a stockholder or, if by a stockholder acting in his or her capacity as such, a court of competent jurisdiction approves such advancement and (c) the Advisor or its Affiliates undertake to repay the amount paid or reimbursed by the Company, together with the applicable legal rate of interest thereon, if it is ultimately determined that the particular indemnitee is not entitled to indemnification.

ARTICLE 16

MISCELLANEOUS

16.01 Notices. Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is required by the Articles of Incorporation, the Bylaws or is accepted by

24

the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:

To the Company or the Board:

KBS Real Estate Investment Trust II, Inc.

620 Newport Center Drive, Suite 1300

Newport Beach, California 92660

To the Advisor:

KBS Capital Advisors LLC

620 Newport Center Drive, Suite 1300

Newport Beach, California 92660

Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Section 16.01.

16.02 Modification. This Agreement shall not be changed, modified, terminated or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or permitted assigns.

16.03 Severability. The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.

16.04 Construction. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware.

16.05 Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.

16.06 Waiver. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

25

16.07 Gender. Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.

16.08 Titles Not to Affect Interpretation. The titles of Articles and Sections contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.

16.09 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.

[The remainder of this page is intentionally left blank.

Signature page follows.]

26

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of

the date and year first above written.

KBS REAL ESTATE INVESTMENT TRUST II, INC.

   By: /s/ Charles J. Schreiber, Jr.

         Charles J. Schreiber, Jr., Chief Executive Officer

KBS CAPITAL ADVISORS LLC

   By: PBren Investments, L.P., a Manager

By: PBren Investments, LLC, as general

               partner

        By: /s/ Peter M. Bren

Peter M. Bren, Manager

By: Schreiber Real Estate Investments, L.P., a

Manager

By: Schreiber Investments, LLC, as general partner

        By: /s/ Charles J. Schreiber, Jr.

Charles J. Schreiber, Jr., Manager

27

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 quarterly report on Form 10-Q 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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:	August 11, 2011	By:	/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 quarterly report on Form 10-Q 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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:	August 11, 2011	By:	/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 Quarterly Report on Form 10-Q of KBS Real Estate Investment Trust II, Inc. (the “Registrant”) for the quarter ended June 30, 2011, 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:	August 11, 2011	By:	/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 Quarterly Report on Form 10-Q of KBS Real Estate Investment Trust II, Inc. (the “Registrant”) for the quarter ended June 30, 2011, 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:	August 11, 2011	By:	/S/ DAVID E. SNYDER
			David E. Snyder
			Chief Financial Officer

XML



Consolidated Balance Sheets Parentheticals (USD $)	Jun. 30, 2011	Dec. 31, 2010
Preferred stock par value	$ 0.01	$ 0.01
Preferred stock-shares authorized	10,000,000	10,000,000
Preferred Shares issued	0	0
Preferred Shares outstanding	0	0
Common stock par value	$ 0.01	$ 0.01
Common shares authorized	1,000,000,000	1,000,000,000
Common shares issued	189,748,321	176,739,865
Common shares outstanding	189,748,321	176,739,865

XML



Consolidated Statements of Operations (USD $) In Thousands, except Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Revenues:
Rental income	$ 56,415	$ 20,959	$ 107,739	$ 39,455
Tenant reimbursements	12,817	3,003	23,697	5,760
Interest income from real estate loans receivable	8,887	7,030	17,686	12,845
Other operating income	2,847	478	5,229	746
Total revenues	80,966	31,470	154,351	58,806
Expenses:
Operating, maintenance, and management	14,453	5,077	28,619	10,031
Real estate taxes and insurance	8,907	2,193	17,141	4,026
Asset management fees to affiliate	5,003	1,788	9,557	3,307
Real estate acquisition fees to affiliates	951	482	3,000	1,588
Real estate acquisition fees and expenses	348	461	2,311	926
General and administrative expenses	1,617	1,090	2,481	2,168
Depreciation and amortization	30,507	12,599	58,714	23,336
Interest expense	12,264	2,476	23,508	4,358
Total expenses	74,050	26,166	145,331	49,740
Other income:
Other interest income	9	106	61	172
Net income	$ 6,925	$ 5,410	$ 9,081	$ 9,238
Net income per common share, basic and diluted	$ 0.04	$ 0.05	$ 0.05	$ 0.09
Weighted-average number of common shares outstanding, basic	189,165,416	113,746,113	187,952,694	106,210,219
Weighted-average number of common shares outstanding, diluted	189,165,416	113,746,113	187,952,694	106,210,219
Distributions declared per common share	$ 0.162	$ 0.162	$ 0.322	$ 0.322

XML



Document and Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 05, 2011
Document Information [Line Items]
Entity Registrant Name	KBS Real Estate Investment Trust II, Inc.
Entity Central Index Key	0001411059
Current Fiscal Year end	--12-31
Entity Filer category	Non-accelerated Filer
Document type	10-Q
Document period end date	Jun. 30, 2011
Document fiscal year focus	2011
Document fiscal period focus	Q2
Amendment flag	false
Entity Common Stock, Shares Outstanding		190,197,424

XML



Real Estate Loans Receivable

6 Months Ended

Jun. 30, 2011

REAL ESTATE LOANS RECEIVABLE [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

REAL ESTATE LOANS RECEIVABLE

As of June 30, 2011 and December 31, 2010, the Company, through wholly owned subsidiaries, had invested in real estate loans receivable as follows (dollars in thousands):

Loan Name      Location of Related Property or Collateral	Date Acquired/ Originated	Property Type	Loan Type	Outstanding Principal Balance as of June 30, 2011 (1)		Book Value as of June 30, 2011 (2)		Book Value as of December 31, 2010 (2)		Contractual Interest Rate (3)	Annualized Effective Interest Rate (3)	Maturity Date (4)
Northern Trust Building A-Note
San Diego, California	12/31/2008	Office	A-Note	$	94,500	$	64,724	$	63,244	5.6%	13.0%	10/01/2017
One Liberty Plaza Notes (5)
New York, New York	02/11/2009	Office	Mortgage	115,000		75,936		73,914		6.1%	15.0%	08/06/2017
Tuscan Inn First Mortgage Origination
San Francisco, California	01/21/2010	Hotel	Mortgage	20,200		19,834		20,027		8.3%	8.5%	01/21/2015
Chase Tower First Mortgage Origination (6)
Austin, Texas	01/25/2010	Office	Mortgage	59,200		59,216		59,218		8.4%	8.5%	02/01/2015
Pappas Commerce First Mortgage Origination (7)
Boston, Massachusetts	04/05/2010	Industrial	Mortgage	32,673		32,673		31,900		(7)	9.6%	07/01/2014
One Kendall Square First Mortgage Origination (8)
Cambridge, Massachusetts	11/22/2010	Mixed-use Facility	Mortgage Participation	87,500		88,781		88,456		(8)	7.1%	12/01/2013
				$	409,073	$	341,164	$	336,759

_____________________

⁽¹⁾ Outstanding principal balance as of June 30, 2011 represents original principal balance outstanding under the loan, increased for any subsequent fundings and reduced for any principal paydowns.

⁽²⁾ Book value of real estate loans receivable represents outstanding principal balance adjusted for unamortized acquisition discounts, origination fees, and direct origination and acquisition costs.

⁽³⁾ Contractual interest rates are the stated interest rates on the face of the loans. Annualized effective interest rates are calculated as the actual interest income recognized in 2011, using the interest method, divided by the average amortized cost basis of the investment. The annualized effective interest rates and contractual interest rates presented are as of June 30, 2011.

⁽⁴⁾ Maturity dates are as of June 30, 2011.

⁽⁵⁾ Monthly installments on the One Liberty Plaza Notes are interest-only until August 2011. For the final six years on the notes, principal on the loan amortizes on a 30-year amortization schedule, with the remaining principal balance due at maturity.

⁽⁶⁾ Monthly installments on the Chase Tower First Mortgage are interest-only for the first three years, followed by principal and interest payments with principal calculated using an amortization of 30 years for the balance of the term, with the remaining principal balance due at maturity.

⁽⁷⁾ As of June 30, 2011, $31.9 million had been disbursed under the Pappas Commerce First Mortgage and an additional $18.0 million remains available for future funding, subject to certain conditions set forth in the loan agreement. Interest on the first mortgage is calculated at a fixed rate of 9.5%. Outstanding principal balance also includes a protective advance of $0.8 million made on June 22, 2011 to cover property taxes and to fund the tax and insurance reserve account. Interest on the protective advance is calculated at a fixed rate of 14.5%.

⁽⁸⁾ Monthly installments on One Kendall Square First Mortgage are interest-only during the initial term of the loan. On April 5, 2011, the Company, through an indirect wholly owned subsidiary, entered into a note splitter agreement with the borrower under the One Kendall Square First Mortgage Origination and restructured the One Kendall Square First Mortgage to provide for two debt tranches with varying interest rates. See "-Recent Originations - One Kendall Square First Mortgage."

The following summarizes the activity related to the real estate loans receivable for the six months ended June 30, 2011 (in thousands):

Real estate loans receivable - December 31, 2010	$	336,759
Accretion of discounts on purchased real estate loans receivable	3,564
Closing costs and origination fees on origination of real estate loans receivable	321
Amortization of closing costs and origination fees on real estate loans receivable	(253		)
Pappas Commerce First Mortgage Origination - protective advance	773
Real estate loans receivable - June 30, 2011	$	341,164

For the three and six months ended June 30, 2011 and 2010, interest income from real estate loans receivable consisted of the following (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Contractual interest income	$	7,228		$	5,467		$	14,375		$	9,791
Accretion of purchase discounts	1,823			1,583			3,564			3,095
Amortization of closing costs and origination fees	(164		)	(20		)	(253		)	(41		)
Interest income from real estate loans receivable	$	8,887		$	7,030		$	17,686		$	12,845

As of June 30, 2011 and December 31, 2010, interest receivable from real estate loans receivable was $2.3 million and $2.4 million, respectively, and was included in rents and other receivables.

The following is a schedule of maturities for all real estate loans receivable outstanding as of June 30, 2011 (in thousands):

	Current Maturity				Fully Extended Maturity (1)
	Face Value (Funded)		Book Value		Face Value (Funded)		Book Value
July 1, 2011 through December 31, 2011	$	—	$	—	$	—	$	—
2012	—		—		—		—
2013	87,500		88,781		—		—
2014	32,673		32,673		32,673		32,673
2015	79,400		79,050		166,900		167,831
Thereafter	209,500		140,660		209,500		140,660
	$	409,073	$	341,164	$	409,073	$	341,164

_____________________

⁽¹⁾ The schedule of current maturities above represents the contractual maturity dates and outstanding balances as of June 30, 2011. Certain of the real estate loans receivable have extension options available to the borrowers, subject to certain conditions, that have been reflected in the schedule of fully extended maturities.

Recent Originations

One Kendall Square First Mortgage

On November 22, 2010, the Company, through an indirect wholly owned subsidiary, originated the One Kendall Square First Mortgage in the amount of $175.0 million (the “One Kendall Square First Mortgage”). The One Kendall Square First Mortgage note bears interest at a floating rate of 550 basis points over one-month LIBOR, but at no point shall the interest rate be less than 7.5% (“Loan Rate”). On November 30, 2010, the Company, through an indirect wholly owned subsidiary, sold, at par, a pari-passu participation interest with respect to 50% of the outstanding principal balance of the One Kendall Square First Mortgage to an unaffiliated buyer (“Participation Holder”), leaving it with an $87.5 million interest.

On April 5, 2011, the Company, through an indirect wholly owned subsidiary, restructured the One Kendall Square First Mortgage to provide for two debt tranches with varying interest rates. These tranches consist of Promissory Note A (“Note A”), with an original principal amount of $90.0 million, of which the Company and the Participation Holder each hold an interest of $45.0 million, and Promissory Note B (“Note B”), which is subordinate to Note A, with an original principal amount of $85.0 million, of which the Company and the Participation Holder each hold an interest of $42.5 million. Note A bears interest at a floating rate of 250 basis points over one-month LIBOR, subject to a minimum interest rate of 4.0%. Note B bears interest at an amount that when combined with the interest on Note A, equals the original Loan Rate on the $175.0 million One Kendall Square First Mortgage. On April 6, 2011, the Company, through an indirect wholly owned subsidiary, and Participation Holder sold and transferred their respective $45.0 million interests in Note A, at par, to an unaffiliated buyer.

Since the Note A and Note B tranches of the One Kendall Square First Mortgage do not qualify as participating interests, as defined in ASC 860, the Company accounted for the sale of its $45.0 million interest in Note A as a secured borrowing with a pledge of collateral and continued to record the Company's entire $87.5 million interest in the One Kendall Square First Mortgage as a real estate loan receivable. For the same reason, its $45.0 million interest in Note A is recorded as a note payable in the accompanying consolidated balance sheets. Interest income allocated to the transferee is recorded as interest expense on the Company's consolidated statement of operations. Interest income from the One Kendall Square First Mortgage for the three and six months ended June 30, 2011 was $1.5 million and $3.1 million, net of amortization of closing costs and origination fees, respectively. Interest expense from the One Kendall Square First Mortgage for the three and six months ended June 30, 2011 was $0.5 million, respectively.

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Segment Information

6 Months Ended

Jun. 30, 2011

SEGMENT INFORMATION [Abstract]

Segment Reporting Disclosure [Text Block]

SEGMENT INFORMATION

The Company presently operates in two business segments based on its investment types: real estate and real estate-related. Under the real estate segment, the Company has invested in office, office/flex and industrial properties. Under the real estate-related segment, the Company has invested in mortgage loans, a mortgage participation and an A-Note. All revenues earned from the Company's two operating segments were from external customers and there were no intersegment sales or transfers. 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, non-operating interest expense and other corporate-level expenses. The accounting policies of the segments are consistent with those described in Note 2, “Summary of Significant Accounting Policies.”

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 and other operating income) less property and related expenses (property operating expenses, real estate taxes, insurance, asset management 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 investments 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 defined above may not be comparable to other REITs or companies as their definitions of NOI may differ from the Company's definition.

The following tables summarize total revenues and NOI for each reportable segment for the three and six months ended June 30, 2011 and 2010 and total assets and total liabilities for each reportable segment as of June 30, 2011 and December 31, 2010 (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2011		2010		2011		2010
Revenues:
Real estate segment	$	72,079	$	24,440	$	136,665	$	45,961
Real estate-related segment	8,887		7,030		17,686		12,845
Total segment revenues	$	80,966	$	31,470	$	154,351	$	58,806
Interest Expense:
Real estate segment	$	11,485	$	2,171	$	22,369	$	3,734
Real estate-related segment	469		—		469		—
Total segment interest expense	11,954		2,171		22,838		3,734
Corporate-level	310		305		670		624
Total interest expense	$	12,264	$	2,476	$	23,508	$	4,358
NOI:
Real estate segment	$	32,776	$	13,661	$	60,138	$	25,665
Real estate-related segment	7,873		6,580		16,058		12,043
Total NOI	$	40,649	$	20,241	$	76,196	$	37,708
	As of June 30,		As of December 31,
	2011		2010
Assets:
Real estate segment	$	2,346,877	$	1,981,974
Real estate-related segment	343,887		339,146
Total segment assets	2,690,764		2,321,120
Corporate-level (1)	34,726		58,534
Total assets	$	2,725,490	$	2,379,654
Liabilities:
Real estate segment	$	1,142,018	$	901,270
Real estate-related segment	45,173		61
Total segment liabilities	1,187,191		901,331
Corporate-level (2)	10,779		10,688
Total liabilities	$	1,197,970	$	912,019

_____________________

⁽¹⁾ Total corporate-level assets consisted primarily of proceeds from the Offering being held in the form of cash and cash equivalents of approximately $34.2 million and $58.5 million as of June 30, 2011 and December 31, 2010, respectively.

⁽²⁾ As of June 30, 2011 and December 31, 2010, corporate-level liabilities consisted primarily of distributions payable.

The following table reconciles the Company’s net income to its NOI for the three and six months ended June 30, 2011 and 2010 (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2011			2010			2011			2010
Net income	$	6,925		$	5,410		$	9,081		$	9,238
Other interest income	(9		)	(106		)	(61		)	(172		)
Real estate acquisition fees to affiliates	951			482			3,000			1,588
Real estate acquisition fees and expenses	348			461			2,311			926
General and administrative expenses	1,617			1,090			2,481			2,168
Depreciation and amortization	30,507			12,599			58,714			23,336
Corporate-level interest expense	310			305			670			624
NOI	$	40,649		$	20,241		$	76,196		$	37,708

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company's accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2010, except for the addition of an accounting policy related to the transfers of financial assets below. For further information about the Company's accounting policies, refer to the Company's consolidated financial statements and notes thereto for the year ended December 31, 2010 included in the Company's Annual Report on Form 10-K filed with the SEC. 

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 accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements.  In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods.  Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Any reference to the number of properties and square footage are unaudited and outside the scope of the Company's independent registered public accounting firm's review of the financial statements in accordance with the Standards of United States Public Company Accounting Oversight Board. 

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.

Reclassifications

Certain amounts in the Company's prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.

Per Share Data

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and six months ended June 30, 2011 and 2010, respectively.

Distributions declared per common share assumes each share was issued and outstanding each day during the three and six months ended June 30, 2011 and 2010. For the three and six months ended June 30, 2011 and 2010, distributions were based on daily record dates and calculated at a rate of $0.00178082 per share per day. Each day during the periods from January 1, 2011 through June 30, 2011 and January 1, 2010 through June 30, 2010 was a record date for distributions.

Segments

The Company's segments are based on the Company's method of internal reporting which classifies its operations by investment type: real estate and real estate-related. For financial data by segment, see Note 11, “Segment Information.”

Transfers of Financial Assets

The Company accounts for transfers of real estate loans receivable to unrelated entities in accordance with ASC 860, Transfers and Servicing (“ASC 860”). When a real estate loan receivable is divided into multiple tranches and one or more of the tranches is transferred to an unrelated third party, the Company determines if each of the tranches of the loan would qualify as participating interests. If the tranches do not qualify as participating interests, the Company would account for the transfer as a secured borrowing with a pledge of collateral. As a result, the Company would continue to report the transferred financial asset in its consolidated balance sheet and recognize interest income on the entire note. Proceeds from the transferee are treated as a secured borrowing and recorded as a note payable. Interest income allocated to the transferee is recorded as interest expense on the Company's consolidated statement of operations. See Note 6, "Real Estate Loans Receivable - Recent Originations - One Kendall Square First Mortgage."

Recently Issued Accounting Standards Updates

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220):  Presentation of Comprehensive Income (“ASU No. 2011-05”).  ASU No. 2011-05 requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity.  The amendments in this update are effective for the first interim or annual period beginning after December 15, 2011.  The adoption of ASU No. 2011-05 will require the Company to change the presentation of comprehensive income in its consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”).  ASU No. 2011-04 updates and further clarifies requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, ASU No. 2011-04 clarifies the FASB's intent about the application of existing fair value measurements. ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively.  The Company does not expect the adoption of ASU No. 2011-04 will have a material impact to its consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU No. 2011-02”). ASU No. 2011-02 updated accounting guidance to clarify certain determining factors, such as when a concession has been granted and when a debtor is experiencing financial difficulties, in evaluating whether or not a debt restructuring is deemed to be a “Troubled Debt Restructuring.” The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and are applied retrospectively to the beginning of the annual period of adoption. The Company is currently assessing the impact the adoption of ASU No. 2011-02 will have on its consolidated financial statements. The adoption of ASU No. 2011-02 could result in an increase of future debt restructurings, if any, recorded as “Troubled Debt Restructurings,” which could have a material impact to the Company's consolidated financial statements.

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU No. 2010-20”). ASU No. 2010-20 requires the Company to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses. This ASU also requires the Company to disclose additional information related to credit quality indicators, past due information, information related to loans modified in a troubled debt restructuring and significant purchases and sales of financing receivables disaggregated by portfolio segment. ASU No. 2010-20 was initially effective for interim and annual periods ending on or after December 15, 2010. In January 2011, the FASB issued ASU No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (“ASU No. 2011-01”). ASU No. 2011-01 announced that it was deferring the effective date of new disclosure requirements for troubled debt restructurings prescribed by ASU No. 2010-20. The effective date for those disclosures will be concurrent with the effective date for proposed ASU No. 2010-20. The proposed guidance in ASU No. 2010-20 is effective for interim and annual periods beginning after June 15,2011, in conjunction with the effective date of ASU No. 2011-02. The adoption of ASU No. 2010-20 may require additional disclosures, but the Company does not expect the adoption to have a material impact to its consolidated financial statements.

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Derivative Instruments

6 Months Ended

Jun. 30, 2011

DERIVATIVE INSTRUMENTS [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

DERIVATIVE INSTRUMENTS

The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates. The primary goal of the Company's risk management practices related to interest rate risk is to prevent changes in interest rates from adversely impacting the Company's ability to achieve its investment return objectives. The Company does not enter into the derivatives for speculative purposes.

The Company enters into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate notes payable. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero. All of the Company's interest rate swaps are designated as cash flow hedges.

The following table summarizes the notional and fair value of the Company's interest rate swaps designated as cash flow hedges as of June 30, 2011 and December 31, 2010. The notional value is an indication of the extent of the Company's involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):

						Fair Value of Asset (Liability)			Fair Value of Asset (Liability)
Derivative Instruments	Effective Date	Maturity Date	Notional Value		Reference Rate	June 30, 2011			December 31, 2010
Interest Rate Swap	02/26/2010	02/26/2014	$	10,000	One-month LIBOR/ Fixed at 2.30%	$	(363	)	$	(322	)
Interest Rate Swap	02/26/2010	02/26/2014	10,000		One-month LIBOR/ Fixed at 2.30%	(363		)	(322		)
Interest Rate Swap (1)	04/30/2010	04/30/2014	55,000		One-month LIBOR/ Fixed at 2.17%	(1,773		)	(1,520		)
Interest Rate Swap	07/26/2010	08/01/2013	6,500		One-month LIBOR/ Fixed at 1.33%	(90		)	(57		)
Interest Rate Swap	07/26/2010	08/01/2013	6,500		One-month LIBOR/ Fixed at 1.33%	(90		)	(56		)
Interest Rate Swap	09/15/2010	09/15/2015	105,000		One-month LIBOR/ Fixed at 1.70%	(404		)	1,092
Interest Rate Swap	12/15/2010	02/26/2014	17,500		One-month LIBOR/ Fixed at 1.53%	(284		)	(149		)
Interest Rate Swap	12/15/2010	02/26/2014	17,500		One-month LIBOR/ Fixed at 1.53%	(284		)	(149		)
Interest Rate Swap	12/16/2010	01/01/2016	19,800		One-month LIBOR/ Fixed at 2.39%	(565		)	(329		)
Interest Rate Swap	12/20/2010	06/16/2015	69,000		One-month LIBOR/ Fixed at 1.94%	(1,160		)	(318		)
Interest Rate Swap	02/01/2011	01/01/2016	56,150		One-month LIBOR/ Fixed at 2.16%	(1,030		)	—
Interest Rate Swap	02/01/2011	02/01/2015	8,400		One-month LIBOR/ Fixed at 1.75%	(123		)	—
Interest Rate Swap	02/01/2011	02/01/2014	80,150		One-month LIBOR/ Fixed at 1.29%	(836		)	—
Interest Rate Swap	03/08/2011	02/01/2014	85,900		One-month LIBOR/ Fixed at 1.45%	(1,254		)	—
Interest Rate Swap	03/10/2011	02/01/2014	13,750		One-month LIBOR/ Fixed at 1.32%	(154		)	—
Total derivatives designated  as hedging instruments			$	561,150		$	(8,773	)	(2,130		)

____________________________

⁽¹⁾ In connection with entering into the Portfolio Revolving Loan Facility, the Company entered into an interest rate swap agreement with Wells Fargo Bank, N.A. which effectively fixes the interest rate on the initial $55.0 million drawn under the loan at approximately 5.17% for the first three years of the loan and fixes the interest rate on $45.0 million of this amount at approximately 5.17% for the last year of the initial loan term.

Asset derivatives are recorded as deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets, and liability derivatives are recorded as other liabilities on the accompanying consolidated balance sheets. The change in fair value of the effective portion of a derivative instrument that is designated as a cash flow hedge is recorded as other comprehensive income (loss) in the accompanying consolidated statements of stockholders' equity. The Company recorded unrealized losses of $6.6 million on derivative instruments designated as cash flow hedges in accumulated other comprehensive income (loss) for the six months ended June 30, 2011. Amounts in other comprehensive income (loss) will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow.  As a result of utilizing derivative instruments designated as cash flow hedges to hedge our variable rate notes payable, the Company recognized an additional $3.9 million of interest expense related to the effective portion of cash flow hedges during the six months ended June 30, 2011. The change in fair value of the ineffective portion is recognized directly in earnings. During the six months ended June 30, 2011, there was no ineffective portion related to the change in fair value of the cash flow hedges. During the next 12 months, the Company expects to recognize additional unrealized losses related to derivative instruments designated as cash flow hedges. The present value of these additional unrealized losses totaled $8.0 million as of June 30, 2011 and were included in accumulated other comprehensive income (loss).

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

COMMITMENTS AND CONTINGENCIES [Abstract]

Commitments and Contingencies Disclosure [Text Block]

COMMITMENTS AND CONTINGENCIES

Economic Dependency

The Company is dependent on the Advisor for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase, and disposition of real estate and real estate-related investments; management of the daily operations of the Company's real estate and real estate-related investment portfolio; and other general and administrative responsibilities. In the event the Advisor is unable to provide the respective services, the Company will be required to obtain such services from other sources.

Geographic Concentration

The 300 N. LaSalle Building represented approximately 22% of the Company's total assets as of June 30, 2011 and 20% and 21% of the Company's total revenues for the three and six months ended June 30, 2011, respectively. As a result of this investment, the geographic concentration of the Company's portfolio makes it particularly susceptible to adverse economic developments in the Chicago real estate market. Any adverse economic or real estate developments in this market, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company's operating results.

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 June 30, 2011.

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 probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

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Fair Value Disclosures

6 Months Ended

Jun. 30, 2011

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

FAIR VALUE DISCLOSURES

The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company's financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instruments for which it is practicable to estimate the fair value:

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

Real estate loans receivable: These instruments are presented in the accompanying consolidated balance sheets at their amortized cost net of recorded loan loss reserves and not at fair value. The fair values of real estate loans receivable were estimated using an internal valuation model that considered the expected cash flows for the loans, underlying collateral values (for collateral-dependent loans) and estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements.

Derivative instruments: These instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments is determined by a third-party expert using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk.

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 for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach.

Contingent consideration: The fair value of the Company's contingent consideration is estimated using a probability-weighted discounted cash flow analysis. The discounted cash flow analysis is based on management's estimates of current market interest rates for instruments with similar characteristics and expected cash flows under this arrangement.

The following were the carrying amounts and fair values of the Company's financial instruments as of June 30, 2011 and December 31, 2010, which carrying amounts do not approximate the fair value (in thousands):

	June 30, 2011						December 31, 2010
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial assets:
Real estate loans receivable	$	409,073	$	341,164	$	411,207	$	408,300	$	336,759	$	413,423
Financial liabilities:
Notes payable	1,101,270		1,101,270		1,122,109		828,157		828,157		829,914

Disclosure of the fair value of financial instruments is based on pertinent information available to the Company as of June 30, 2011 and requires a significant amount of judgment. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. 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.

During the six months ended June 30, 2011, the Company measured the following assets and liabilities at fair value (in thousands):

				Fair Value Measurements Using
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Nonrecurring Basis:
Investments in real estate(1)	$	397,255		$	—	$	—		$	397,255
Recurring Basis:
Contingent consideration	$	1,899		$	—	$	—		$	1,899
Liability derivatives	$	(8,773	)	$	—	$	(8,773	)	$	—

____________________________

⁽¹⁾  Amount reflects acquisition date fair values of real estate acquired in 2011.

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Notes Payable

6 Months Ended

Jun. 30, 2011

Notes Payable [Abstract]

Mortgage Notes Payable Disclosure [Text Block]

NOTES PAYABLE

As of June 30, 2011 and December 31, 2010, the Company’s notes payable consisted of the following (dollars in thousands):

	Principal as of June 30, 2011		Principal as of December 31, 2010		Contractual Interest Rate as of June 30, 2011(1)	Effective Interest Rate at June 30, 2011 (1)	Payment Type	Maturity Date (2)
100 & 200 Campus Drive Mortgage Loan (3)	$	55,000	$	55,000	One-month LIBOR + 3.25%	5.1%	Interest Only	02/26/2014
300-600 Campus Drive Mortgage Loan	93,850		93,850		5.90%	5.9%	Interest Only	04/10/2014
Portfolio Revolving Loan Facility (4) (5)	55,000		65,000		One-month LIBOR + 3.00% (5)	5.2%	Interest Only	04/30/2014
Willow Oaks Revolving Loan (6)	13,000		13,000		(6)	4.3%	Interest Only	08/01/2013
300 N. LaSalle Building Mortgage Loan	350,000		350,000		4.25%	4.3%	Interest Only	08/01/2015
Torrey Reserve West Mortgage Loan (7)	—		16,885		(7)	(7)	(7)	(7)
Union Bank Plaza Mortgage Loan (8)	105,000		105,000		One-month LIBOR + 1.75%	3.4%	Interest Only	09/15/2015
Portfolio Bridge Loan (9)	—		40,622		(9)	(9)	(9)	(9)
Emerald View at Vista Center Mortgage Loan	19,800		19,800		One-month LIBOR + 2.25%	4.6%	Interest Only	01/01/2016
National City Tower Mortgage Loan (9)	—		69,000		(9)	(9)	(9)	(9)
Portfolio Loan (10)	348,300		—		One-month LIBOR + 2.15%	3.6%	Interest Only	01/27/2016
One Kendall Square Borrowing (11)	45,000		—		One-month LIBOR + 2.50%	4.0%	Interest Only	12/01/2013
601 Tower Mortgage Loan (12)	16,320		—		(12)	3.5%	Interest Only	06/03/2015
	$	1,101,270	$	828,157

____________________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2011. Effective interest rate is calculated as the actual interest rate in effect at June 30, 2011 (consisting of the contractual interest rate and the effect of interest rate swaps and contractual floor rates), using interest rate indices at June 30, 2011, where applicable. For further information regarding the Company's derivative instruments, see Note 8, “Derivative Instruments.”

⁽²⁾ Represents the initial maturity date or the maturity date as extended as of June 30, 2011; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

⁽³⁾ As of June 30, 2011, $55.0 million had been disbursed to the Company and $9.6 million remained available for future disbursements, subject to certain conditions set forth in the loan agreement.

⁽⁴⁾ On April 30, 2010, the Company entered into a four-year revolving loan facility for an amount up to $100.0 million. As of June 30, 2011, $55.0 million had been disbursed to the Company and $45.0 million remained available for future disbursements, subject to certain conditions set forth in the loan agreement.

⁽⁵⁾ The interest rate under this loan is calculated at a variable rate of 300 basis points over one-month LIBOR, but at no point shall the interest rate be less than 4.25%; however, there is no minimum floor rate for any portion of the loan that is subject to a swap contract with a minimum initial term of two years or any shorter term expiring on the maturity date.

⁽⁶⁾ On July 26, 2010, the Company entered into a three-year $65.0 million revolving loan. As of June 30, 2011, $13.0 million had been disbursed to the Company and $52.0 million remains available for future disbursements, subject to certain conditions set forth in the loan agreement. The interest rate under this loan is calculated at a variable rate of 300 basis points over one-month, three-month or six-month LIBOR, but at no point during the initial term may the interest rate be less than 4.5% for portions of the loan that are not subject to a swap contract.

⁽⁷⁾ On March 10, 2011, the Company used proceeds from the Portfolio Loan to repay this loan in full. See “- Recent Financing Transactions - Portfolio Loan.”

⁽⁸⁾ On September 15, 2010, in connection with the acquisition of the Union Bank Plaza, the Company entered into a five-year mortgage loan for borrowings of up to $119.3 million secured by the Union Bank Plaza. As of June 30, 2011, $105.0 million had been disbursed to the Company with the remaining loan balance of $14.3 million available for future disbursements, subject to certain conditions set forth in the loan agreement.

⁽⁹⁾ In connection with the closing of the Portfolio Loan, the Company consolidated this loan into the Portfolio Loan. See “-Recent Financing Transactions - Portfolio Loan.”

⁽¹⁰⁾ See “-Recent Financing Transactions - Portfolio Loan.”

⁽¹¹⁾ See Note 6, "Real Estate Loans Receivable - Recent Originations - One Kendall Square First Mortgage."

⁽¹²⁾ See "-Recent Financing Transactions - 601 Tower Mortgage Loan."

As of June 30, 2011 and December 31, 2010, the Company's deferred financing costs were $8.4 million and $6.2 million, respectively, net of amortization and are included in deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets.

During the three and six months ended June 30, 2011, the Company incurred $12.3 million and $23.5 million of interest expense, respectively. During the three and six months ended June 30, 2010, the Company incurred $2.5 million and $4.4 million of interest expense, respectively. As of June 30, 2011 and December 31, 2010, $3.7 million and $2.9 million, respectively, of interest expense was payable. Included in interest expense for the three and six months ended June 30, 2011 was $0.6 million and $1.5 million of amortization of deferred financing costs, respectively. Included in interest expense for the three and six months ended June 30, 2010 was $0.2 million of amortization of deferred financing costs, respectively. Interest expense incurred as a result of the Company’s interest rate swap agreements was $2.2 million and $3.9 million for the three and six months ended June 30, 2011, respectively. Interest expense incurred as a result of the Company’s interest rate swap agreements was $0.3 million for the three and six months ended June 30, 2010, respectively.

The following is a schedule of maturities for all notes payable outstanding as of June 30, 2011 (in thousands):

	Current Maturity		Fully Extended Maturity (1)
July 1, 2011 through December 31, 2011	$	—	$	—
2012	—		—
2013	58,000		—
2014	203,850		93,850
2015	471,320		518,000
Thereafter	368,100		489,420
	$	1,101,270	$	1,101,270

____________________________

⁽¹⁾ Represents the maturities of all notes payable outstanding as of June 30, 2011 assuming the Company exercises all extension options available per the terms of the loan agreements. The Company can give no assurance that it will be able to satisfy the conditions to extend the terms of the loan agreements.

Certain of our notes payable contain financial and non-financial debt covenants. As of June 30, 2011, the Company was in compliance with all debt covenants.

Recent Financing Transactions

Portfolio Loan

On January 28, 2011, the Company, through indirect wholly owned subsidiaries (the “Borrowers”), entered into a five‑year portfolio loan with Wells Fargo Bank, N.A. (the “Lender”) dated January 27, 2011 for an amount up to $360.0 million (the “Portfolio Loan ”). As of June 30, 2011, $348.3 million had been disbursed to the Borrowers with the remaining loan balance of $7.8 million (the “Holdback”) available for future disbursements, subject to certain conditions set forth in the loan agreement. In addition, in the event of certain tenant expansions meeting requirements as defined in the loan agreement, the principal amount of the Portfolio Loan may be increased to $368.1 million. The Company incurred approximately $1.5 million in net loan costs in conjunction with the initial funding of the Portfolio Loan. The initial maturity date of the Portfolio Loan is January 27, 2016, with two one-year extension options, subject to the satisfaction of certain conditions by the Borrowers. The Portfolio Loan bears interest at a floating rate of 215 basis points over one-month LIBOR during the initial term of the loan, 240 basis points over one-month LIBOR during the first extension period of the loan and 265 basis points over one-month LIBOR during the second extension period of the loan. As of June 30, 2011, the Company had entered into various interest rate swap agreements with varying maturity dates, which effectively fixed the interest rate on $313.4 million of the $348.3 million outstanding at an average interest rate of 3.8%. See Note 8, "Derivative Instruments." Monthly payments are interest only with the entire principal amount due at maturity, assuming no prior prepayment. The Borrowers may, upon no less than three business days' notice to the Lender, prepay all or a portion of the Portfolio Loan, subject to possible exit fees. Any prepayment made on or after October 27, 2015 will not be subject to a prepayment fee.

In connection with the closing of the Portfolio Loan, the Company consolidated into the Portfolio Loan, a portfolio bridge loan with an outstanding balance of $40.6 million and a mortgage loan secured by National City Tower with an outstanding principal balance of $69.0 million. On March 10, 2011, the Company used proceeds from the Portfolio Loan to repay in full a $16.8 million mortgage loan secured by Torrey Reserve West.

The Portfolio Loan is secured by Hartman II Business Center, Plano Business Park, Horizon Tech Center, Dallas Cowboys Distribution Center, Crescent VIII, National City Tower, Granite Tower, Gateway Corporate Center, I-81 Industrial Portfolio, Two Westlake Park, Torrey Reserve West and in the future, the Portfolio Loan may be secured by additional real estate properties that may be acquired by the Company, subject to certain terms of the loan agreement.

601 Tower Mortgage Loan

On June 6, 2011, the Company, through an indirect wholly owned subsidiary (the “601 Tower Borrower”), entered into a four-year revolving credit loan with TD Bank, N.A. for borrowings up to $32.6 million secured by the 601 Tower at Carlson Center (the “601 Tower Mortgage Loan”). The 601 Tower Mortgage Loan is comprised of two tranches: (i) tranche A, a $16.3 million mortgage loan ("Tranche A") and (ii) tranche B, a revolving loan facility for an amount up to $16.3 million ("Tranche B"). As of June 30, 2011, the outstanding principal balance was $16.3 million under Tranche A and $16.3 million remains available for future disbursements under Tranche B, subject to certain conditions set forth in the loan agreement. The 601 Tower Mortgage Loan matures on June 3, 2015, subject to two one-year extension options. Tranche A bears interest at a fixed rate of 3.54% per annum through the initial term. During the extended term, Tranche A bears interest at a variable rate of 220 basis points over one-month LIBOR or, at the election of the 601 Tower Borrower, a fixed rate equal to 220 basis points over the swap index rate having a maturity date closest to the extended maturity date. Monthly payments under Tranche A are interest-only during the initial term of the loan. During the extension periods, monthly payments include principal and interest with principal payments calculated using an amortization schedule of 25 years for the balance of the loan, with the remaining principal balance and all accrued and unpaid interest due at maturity. The 601 Tower Borrower has the right to prepay all or a portion of Tranche A at any time, subject to possible prepayment fees. Tranche B bears interest at a variable rate of 220 basis points over one-month LIBOR. Monthly payments under Tranche B are interest-only.

KBS REIT Properties II, LLC ("REIT Properties II"), one of the Company's wholly owned subsidiaries that indirectly owns all of the Company's properties, is providing a limited guaranty of the 601 Tower Mortgage Loan with respect to certain potential costs, expenses, losses, damages and other sums which may result from certain actions or inactions by the 601 Tower Borrower. REIT Properties II is also providing a guaranty of any and all sums, including the principal balance outstanding under the 601 Tower Mortgage Loan, in the event of certain voluntary or involuntary bankruptcy or insolvency proceedings related to the 601 Tower at Carlson Center.

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Consolidated Statements of Cash Flows (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash Flows from Operating Activities:
Net income	$ 9,081	$ 9,238
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	58,714	23,336
Noncash interest income on real estate-related investments	(3,311)	(3,054)
Deferred rent	(10,921)	(1,714)
Bad debt expense (recovery)	57	(11)
Amortization of above- and below-market leases, net	(682)	(3,215)
Amortization of deferred financing costs	1,552	249
Decrease in fair value of contingent consideration	135	0
Changes in operating assets and liabilities:
Restricted cash for operational expenditures	561	0
Rents and other receivables	(1,996)	(1,428)
Prepaid expenses and other assets	(3,308)	(2,531)
Accounts payable and accrued liabilities	1,580	3,595
Other liabilities	(713)	(1,755)
Net cash provided by operating activities	50,749	22,710
Cash Flows from Investing Activities:
Acquisitions of real estate	(397,255)	(209,025)
Additions to real estate	(9,327)	(2,283)
Investments in real estate loans receivable	(1,094)	(108,216)
Decrease in restricted cash for capital expenditures	214	0
Net cash used in investing activities	(407,462)	(319,524)
Cash Flows from Financing Activities:
Proceeds from notes payable	254,998	75,000
Transfer of financial asset	45,000	0
Principal payments on notes payable	(26,885)	(32,810)
Payments of deferred financing costs	(3,742)	(2,574)
Return of contingent consideration related to acquisition of real estate	1,029	0
Proceeds from issuance of common stock	103,868	295,376
Payments to redeem common stock	(9,464)	(12,255)
Payments of commissions on stock sales and related dealer manager fees	(8,864)	(27,188)
Payments of other offering costs	(1,193)	(3,583)
Distributions paid to common stockholders	(26,314)	(14,626)
Net cash provided by financing activities	328,433	277,340
Net decrease in cash and cash equivalents	(28,280)	(19,474)
Cash and Cash Equivalents, beginning of period	82,413	273,821
Cash and Cash Equivalents, end of period	54,133	254,347
Supplemental Disclosure of Cash Flow Information:
Interest paid	21,130	3,883
Supplemental Disclosure of Noncash Transactions:
Increase in distributions payable	950	1,404
Increase in capital expenses payable	1,813	0
Increase in lease commissions payable	791	0
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$ 33,329	$ 18,211

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Recent Acquisitions of Real Estate

6 Months Ended

Jun. 30, 2011

RECENT ACQUISITIONS OF REAL ESTATE [Abstract]

Business Combination Disclosure [Text Block]

RECENT ACQUISITIONS OF REAL ESTATE

During the six months ended June 30, 2011, the Company acquired the following properties (in thousands):

								Intangibles
Property Name	City	State	Acquisition Date	Land		Building and Improvements		Tenant Origination and Absorption Costs		Above-Market Lease Assets		Below-Market Lease Liabilities			Total Purchase Price
Gateway Corporate Center	Sacramento	CA	01/26/2011	$	6,380	$	31,272	$	7,674	$	2,073	$	(464	)	$	46,935
601 Tower at Carlson Center	Minnetonka	MN	02/03/2011	4,350		42,182		7,445		564		(143		)	54,398
I-81 Industrial Portfolio	Various	PA	02/16/2011	7,250		62,655		12,820		7,275		—			90,000
Two Westlake Park	Houston	TX	02/25/2011	7,000		67,590		10,291		111		(5,570		)	79,422
CityPlace Tower	West Palm Beach	FL	04/06/2011	17,460		90,472		16,067		3,002		(501		)	126,500
				$	42,440	$	294,171	$	54,297	$	13,025	$	(6,678	)	$	397,255

The intangible assets and liabilities acquired in connection with these acquisitions have weighted-average amortization periods as of the date of acquisition as follows (in years):

	Tenant Origination and Absorption Costs	Above-Market Lease Assets	Below-Market Lease Liabilities
Gateway Corporate Center	8.7	8.8	9.2
601 Tower at Carlson Center	3.2	4.7	2.6
I-81 Industrial Portfolio	5.9	6.1	—
Two Westlake Park	3.5	2.4	4.8
CityPlace Tower	8.2	8.0	8.4

The Company recorded each acquisition as a business combination and expensed $1.3 million and $5.3 million of acquisition costs related to these properties for the three and six months ended June 30, 2011, respectively. During the three and six months ended June 30, 2011, the Company recognized $11.6 million and $16.2 million of total revenues from these properties, respectively. During the three and six months ended June 30, 2011, the Company recognized $7.1 million and $10.2 million of operating income from these properties, respectively.

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Real Estate

6 Months Ended

Jun. 30, 2011

Real Estate [Abstract]

Real Estate Disclosure [Text Block]

REAL ESTATE

As of June 30, 2011, the Company's real estate portfolio was composed of 18 office properties, one office/flex property, a portfolio of four industrial properties, two industrial properties and a leasehold interest in one industrial property, encompassing in the aggregate approximately 10.4 million rentable square feet. As of June 30, 2011, the Company's real estate portfolio was 96% occupied. The following table summarizes the Company's investments in real estate as of June 30, 2011 and December 31, 2010 (in thousands):

	Land		Buildings and Improvements			Tenant Origination and Absorption Costs			Total Real Estate
As of June 30, 2011:
Office	$	219,747	$	1,720,919		$	282,885		$	2,223,551
Industrial (1)	13,200		94,989			19,883			128,072
Cost	$	232,947	$	1,815,908		$	302,768		$	2,351,623
Accumulated depreciation/amortization	—		(77,877		)	(56,507		)	(134,384		)
Net Amount	$	232,947	$	1,738,031		$	246,261		$	2,217,239
As of December 31, 2010:
Office	$	184,557	$	1,478,777		$	244,967		$	1,908,301
Industrial (1)	5,950		32,328			7,297			45,575
Cost	$	190,507	$	1,511,105		$	252,264		$	1,953,876
Accumulated depreciation/amortization	—		(47,307		)	(33,166		)	(80,473		)
Net Amount	$	190,507	$	1,463,798		$	219,098		$	1,873,403

_____________________

⁽¹⁾ Includes an investment in the rights to a ground lease. The ground lease expires in February 2050.

As of June 30, 2011, the following property represented more than 10% of the Company's total assets:

Property	Location	Rentable Square Feet	Total Real Estate, Net (in thousands)		Percentage of Total Assets		Annualized Base Rent (in thousands) (1)		Average Annualized Base Rent per sq. ft.		Occupancy
300 N. LaSalle Building	Chicago, IL	1,302,901	$	598,205	21.9	%	$	43,874	$	34.15	98.6	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2011, adjusted to straight-line any contractual tenant concessions, rent increases and rent decreases from the lease's inception through the balance of the lease term.

Operating Leases

The Company's real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of June 30, 2011, the leases had remaining terms (excluding options to extend) of up to 17.7 years with a weighted-average remaining term (excluding options to extend) of 6.4 years. The leases 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. Generally, upon the execution of a lease, the Company requires security deposits from tenants in the form of a cash deposit and/or a letter of credit. 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 receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $3.7 million and $2.7 million as of June 30, 2011 and December 31, 2010, respectively.

During the six months ended June 30, 2011 and 2010, the Company recognized deferred rent from tenants of $10.9 million and $1.7 million, respectively, net of lease incentive amortization. As of June 30, 2011 and December 31, 2010, the cumulative deferred rent balance was $27.5 million and $15.5 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $4.9 million and $3.9 million of unamortized lease incentives as of June 30, 2011 and December 31, 2010, respectively.

As of June 30, 2011, the future minimum rental income from the Company’s properties under non-cancelable operating leases was as follows (in thousands):

July 1, 2011 through December 31, 2011	$	106,268
2012	205,142
2013	189,273
2014	175,787
2015	150,986
Thereafter	836,220
	$	1,663,676

As of June 30, 2011, 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) (in thousands)		Percentage of Annualized Base Rent
Legal Services	57	$	50,872	22.9	%
Finance	71	44,804		20.2	%
Other Professional Services	70	33,252		15.0	%
		$	128,928	58.1	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2011, adjusted to straight-line any contractual tenant concessions, rent increases and rent decreases from the lease's inception through the balance of the lease term.

No other tenant industries accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time. During the six months ended June 30, 2011, the Company recorded bad debt expense related to its tenant receivables of $57,000. During the six months ended June 30, 2010, the Company reduced its bad debt reserve and recorded a net recovery of bad debt related to its tenant receivables of $11,000. As of June 30, 2011, the Company had a bad debt reserve of approximately $91,000, which represents less than 1% of annualized base rent. As of June 30, 2011, the Company had two tenants with a rent balance outstanding over 90 days.

As of June 30, 2011, the Company had a concentration of credit risk related to the following tenant lease that represents more than 10% of the Company's annualized base rent:

Net Rentable Sq. Ft.

Annualized Base Rent Statistics

Tenant

Property

Tenant Industry

Square Feet

% of Portfolio

Annualized Base Rent  (1) (in thousands)

% of Portfolio Annualized Base Rent

Annualized Base Rent per Square Foot

Lease Expiration (2)

Kirkland & Ellis

300 N. LaSalle Building

Legal Services

687,857

6.9

%

$

25,351

11.4

%

$

36.86

2/28/2029

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2011, adjusted to straight-line any contractual tenant concessions, rent increases and rent decreases from the lease's inception through the balance of the lease term.

⁽²⁾ Represents the expiration date of the lease at June 30, 2011 and does not take into account any tenant renewal options.

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Pro Forma Financial Information

6 Months Ended

Jun. 30, 2011

PRO FORMA FINANCIAL INFORMATION [Abstract]

Pro Forma Financial Information [Text Block]

PRO FORMA FINANCIAL INFORMATION

The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the three and six months ended June 30, 2011 and 2010. The Company acquired four individual office properties and a portfolio of four industrial properties during the six months ended June 30, 2011, all of which were accounted for as business combinations. The following unaudited pro forma information for the three and six months ended June 30, 2011 and 2010 has been prepared to give effect to the acquisition of I-81 Industrial Portfolio and CityPlace Tower as if the acquisitions occurred on January 1, 2010. 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 on this date, nor does it purport to predict the results of operations for future periods (in thousands, except share and per share amounts).

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2011		2010		2011		2010
Revenues	$	81,059	$	36,066	$	158,961	$	67,627
Depreciation and amortization	$	30,502	$	14,317	$	60,230	$	26,763
Net income	$	8,309	$	6,109	$	13,575	$	10,477
Net income per common share, basic and diluted	$	0.04	$	0.05	$	0.07	$	0.08
Weighted-average number of common shares outstanding, basic and diluted	189,748,321		132,076,612		189,748,321		124,540,718

The pro forma information for the three and six months ended June 30, 2011 were adjusted to exclude $1.3 million and $3.3 million of acquisition costs related to the above properties incurred in 2011, respectively.

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Tenant Origination and Absorption Costs, Above Market Lease Assets and Below Market Lease Liabilities

6 Months Ended

Jun. 30, 2011

TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE MARKET LEASE ASSETS AND BELOW MARKET LEASE LIABILITIES [Abstract]

Intangible Assets Disclosure [Text Block]

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

As of June 30, 2011 and December 31, 2010, the Company's tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) are as follows (in thousands):

	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	June 30, 2011			December 31, 2010			June 30, 2011			December 31, 2010			June 30, 2011			December 31, 2010
Cost	$	302,768		$	252,264		$	63,935		$	51,024		$	(50,544	)	$	(44,100	)
Accumulated Amortization	(56,507		)	(33,166		)	(6,312		)	(2,568		)	12,919			8,613
Net Amount	$	246,261		$	219,098		$	57,623		$	48,456		$	(37,625	)	$	(35,487	)

Increases (decreases) in net income as a result of amortization of the Company's tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and six months ended June 30, 2011 and 2010 are as follows (in thousands):

	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	For the Three Months Ended June 30,						For the Three Months Ended June 30,						For the Three Months Ended June 30,
	2011			2010			2011			2010			2011		2010
Amortization expense	$	(14,008	)	$	(6,620	)	$	(2,084	)	$	(270	)	$	2,361	$	1,718

	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	For the Six Months Ended June 30,						For the Six Months Ended June 30,						For the Six Months Ended June 30,
	2011			2010			2011			2010			2011		2010
Amortization expense	$	(27,134	)	$	(12,200	)	$	(3,858	)	$	(396	)	$	4,540	$	3,611

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Consolidated Statements of Stockholders' Equity (USD $) In Thousands, except Share data	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Cumulative Distributions and Net Income (Loss) [Member]	Accumulated Other Comprehensive Loss [Member]
Balance, value at Dec. 31, 2009	$ 774,562	$ 932	$ 810,006	$ (36,376)	$ 0
Balance, shares at Dec. 31, 2009		93,167,161
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	5,508	0	0	5,508	0
Unrealized losses on derivative instruments	(2,130)	0	0	0	(2,130)
Total comprehensive income	3,378
Issuance of common stock, shares		85,838,625
Issuance of common stock, value	853,275	858	852,417	0	0
Redemptions of common stock, shares		(2,265,921)
Redemptions of common stock, value	(21,260)	(23)	(21,237)	0	0
Transfers to redeemable common stock	(22,046)	0	(22,046)	0	0
Distributions declared	(81,843)	0	0	(81,843)	0
Commissions on stock sales and related dealer manager fees to affiliate	(74,346)	0	(74,346)	0	0
Other offering costs	(7,391)	0	(7,391)	0	0
Balance, value at Dec. 31, 2010	1,424,329	1,767	1,537,403	(112,711)	(2,130)
Balance, shares at Dec. 31, 2010	176,739,865	176,739,865
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	9,081	0	0	9,081	0
Unrealized losses on derivative instruments	(6,643)	0	0	0	(6,643)
Total comprehensive income	2,438
Issuance of common stock, shares		14,003,417
Issuance of common stock, value	137,197	140	137,057	0	0
Redemptions of common stock, shares		(994,961)
Redemptions of common stock, value	(9,464)	(10)	(9,454)	0	0
Transfers to redeemable common stock	(23,871)	0	(23,871)	0	0
Distributions declared	(60,593)	0	0	(60,593)	0
Commissions on stock sales and related dealer manager fees to affiliate	(8,864)	0	(8,864)	0	0
Other offering costs	(829)	0	(829)	0	0
Balance, value at Jun. 30, 2011	$ 1,460,343	$ 1,897	$ 1,631,442	$ (164,223)	$ (8,773)
Balance, shares at Jun. 30, 2011	189,748,321	189,748,321

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Organization

6 Months Ended

Jun. 30, 2011

ORGANIZATION [Abstract]

Organization [Text Block]

ORGANIZATION

KBS Real Estate Investment Trust II, Inc. (the “Company”) was formed on July 12, 2007 as a Maryland corporation that elected to be taxed 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 directly owns a 0.1% partnership interest in the Operating Partnership. The Company's wholly-owned subsidiary, KBS REIT Holdings II LLC, a Delaware limited liability company formed on August 23, 2007 (“KBS REIT Holdings II”), owns the remaining 99.9% partnership interest in the Operating Partnership and is its sole limited partner.

The Company owns a diverse portfolio of real estate and real estate-related investments. As of June 30, 2011, the Company owned 25 real estate properties (consisting of 18 office properties, one office/flex property, a portfolio of four industrial properties and two individual industrial properties), a leasehold interest in one industrial property and six real estate loans 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 renewed with the Advisor on May 21, 2011 (the “Advisory Agreement”). The Advisory Agreement may be renewed for an unlimited number of one-year periods upon the mutual consent of the Advisor and the Company. Either party may terminate the Advisory Agreement upon 60 days' written notice. The Advisor owns 20,000 shares of the Company's common stock.

Upon commencing its initial public offering (the “Offering”), 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 pursuant to a dealer manager agreement, as amended and restated on April 30, 2010 (the “Dealer Manager Agreement”). The Company ceased offering shares of common stock in its primary offering on December 31, 2010 and terminated its primary offering on March 22, 2011 upon the completion of review of subscriptions submitted in accordance with its processing procedures. The Company continues to offer shares of common stock under its dividend reinvestment plan.

The Company sold 182,681,633 shares of common stock in its primary offering for gross offering proceeds of $1.8 billion. As of June 30, 2011, the Company had sold 10,507,453 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $99.8 million. Also as of June 30, 2011, the Company had redeemed 3,460,765 shares sold in the Offering for $32.6 million.

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Related Party Transactions

6 Months Ended

Jun. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

RELATED PARTY TRANSACTIONS

The Company has entered into the Advisory Agreement with the Advisor and the Dealer Manager Agreement with the Dealer Manager. These agreements entitle the Advisor and/or the Dealer Manager to specified fees upon the provision of certain services with regard to the Offering, the investment of funds in real estate and real estate-related investments and the management of those investments, 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 and certain costs incurred by the Advisor in providing services to the Company. The Advisor and Dealer Manager also serve as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc. and KBS Legacy Partners Apartment REIT, Inc. During the six months ended June 30, 2011 and 2010, no transactions occurred between the Company and these other KBS-sponsored programs.

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and six months ended June 30, 2011 and 2010, respectively, and any related amounts payable as of June 30, 2011 and December 31, 2010 (in thousands):

	Incurred									Payable as of
	Three Months Ended June 30,					Six Months Ended June 30,				June 30,		December 31,
	2011			2010		2011		2010		2011		2010
Expensed
Asset management fees	$	5,003		$	1,788	$	9,557	$	3,307	$	—	$	—
Reimbursement of operating expenses (1)	12			1		23		2		5		9
Acquisition fees	951			482		3,000		1,588		—		—
Additional Paid-in Capital
Selling commissions	(2		)	11,113		5,748		17,556		—		—
Dealer manager fees	(2		)	5,627		3,116		9,630		—		—
Reimbursable other offering costs	8			934		316		1,498		—		364
Capitalized
Origination fees	—			290		—		1,084		—		—
Disposition fees (2)	450			—		450		—		—		—
	$	6,420		$	20,235	$	22,210	$	34,665	$	5	$	373

_____________________

⁽¹⁾ The Advisor may seek reimbursement for certain employee costs under the Advisory Agreement. Commencing July 1, 2010, the Company has reimbursed the Advisor for the Company's allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These were the only employee costs reimbursed under the Advisory Agreement through June 30, 2011. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company's executive officers.

⁽²⁾ For the three and six months ended June 30, 2011, the Company capitalized $0.5 million of disposition fees related to the sale and transfer of the Company's interest in Note A of the One Kendall Square First Mortgage. Since the Note A and Note B tranches of the One Kendall Square First Mortgage do not qualify as participating interests, as defined in ASC 860, the Company accounted for the sale of its interest in Note A as a secured borrowing with a pledge of collateral and continued to record the Company's entire $87.5 million interest in the One Kendall Square First Mortgage as a real estate loan receivable. Additionally, as Note A did not qualify as a participating interest, the transfer of Note A is recorded as a note payable in the accompanying consolidated balance sheets. The disposition fees are included in deferred financing costs, prepaid expenses and other assets in the accompanying consolidated balance sheets.

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Subsequent Events

6 Months Ended

Jun. 30, 2011

Subsequent Events [Abstract]

Subsequent Events [Text Block]

SUBSEQUENT EVENTS

The Company evaluates subsequent events up until the date the consolidated financial statements are issued.

Distributions Paid

On July 15, 2011, the Company paid distributions of $10.1 million, which related to distributions declared for each day in the period from June 1, 2011 through June 30, 2011.

Distributions Declared

On July 8, 2011, the Company's board of directors declared distributions based on daily record dates for the period from August 1, 2011 through August 31, 2011, which the Company expects to pay in September 2011. On August 10, 2011, the Company's board of directors declared distributions based on daily record dates for the period from September 1, 2011 through September 30, 2011, which the Company expects to pay in October 2011, and distributions based on daily record dates for the period October 1, 2011 through October 31, 2011, which the Company expects to pay in November 2011. Investors may choose to receive cash distributions or purchase additional shares through the Company's dividend reinvestment plan.

Distributions for these periods will be 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.

Investments and Financings Subsequent to June 30, 2011

CityPlace Tower Mortgage Loan

On July 6, 2011, the Company, through an indirect wholly owned subsidiary (the “CityPlace Tower Borrower”), entered into a mortgage loan with Metropolitan Life Insurance Company, which is unaffiliated with the Company or the Advisor, for $71.0 million secured by the CityPlace Tower (the “CityPlace Tower Mortgage Loan”). The CityPlace Tower Mortgage Loan matures on August 1, 2015, with an option to extend the maturity date to August 1, 2016, subject to certain conditions. The CityPlace Tower Mortgage Loan bears interest at a fixed rate of 3.59% during the initial term of the loan and a variable rate of 200 basis points over one-month LIBOR during the extension. Monthly payments on the CityPlace Tower Mortgage Loan are interest-only, with the entire principal amount, plus any outstanding interest and fees, due at maturity.

REIT Properties II is providing a limited guaranty of the CityPlace Tower Mortgage Loan with respect to certain potential costs, expenses, losses, damages and other sums, including interest thereon, which may result from certain actions or inactions by the CityPlace Tower Borrower. REIT Properties II is also providing a guaranty of the principal balance and any interest or other sums outstanding under the CityPlace Tower Mortgage Loan in the event of certain voluntary or involuntary bankruptcy or insolvency proceedings related to the CityPlace Tower Borrower.

Origination of Sheraton Charlotte Airport Hotel First Mortgage

On July 11, 2011, the Company, through an indirect wholly owned subsidiary, originated a first mortgage loan in the amount of $14.5 million (the “Sheraton Charlotte Airport Hotel First Mortgage”) from a borrower unaffiliated with the Company or the Advisor. The borrower used the proceeds from the loan to refinance its existing debt. Payments under the Sheraton Charlotte Airport Hotel First Mortgage are interest-only payments for the first two years, followed by principal and interest payments with principal calculated using an amortization schedule of 30 years for the balance of the term. The Sheraton Charlotte Airport Hotel First Mortgage note bears interest at a fixed rate of 7.5%. The Sheraton Charlotte Airport Hotel First Mortgage matures on August 1, 2018 and may be prepaid in whole (but not in part) subject to a formula-based yield maintenance premium for the majority of the term of the loan and may be prepaid in whole (but not in part) without prepayment penalty on or after June 1, 2018.

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Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Real estate:
Land	$ 232,947	$ 190,507
Buildings and improvements	1,815,908	1,511,105
Tenant origination and absorption costs	302,768	252,264
Total real estate, cost	2,351,623	1,953,876
Less accumulated depreciation and amortization	(134,384)	(80,473)
Total real estate, net	2,217,239	1,873,403
Real estate loans receivable, net	341,164	336,759
Total real estate and real estate-related investments, net	2,558,403	2,210,162
Cash and cash equivalents	54,133	82,413
Restricted cash	162	937
Rents and other receivables, net	33,442	20,582
Above-market leases, net	57,623	48,456
Deferred financing costs, prepaid expenses and other assets	21,727	17,104
Total assets	2,725,490	2,379,654
Liabilities and stockholders’ equity
Notes payable	1,101,270	828,157
Accounts payable and accrued liabilities	24,475	20,287
Due to affiliates	5	373
Distributions payable	10,129	9,179
Below-market leases, net	37,625	35,487
Other liabilities	24,466	18,536
Total Liabilities	1,197,970	912,019
Commitments and contingencies (Note 13)
Redeemable common stock	67,177	43,306
Stockholders’ equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding	0	0
Common stock, $.01 par value; 1,000,000,000 shares authorized, 189,748,321 and 176,739,865 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively	1,897	1,767
Additional paid-in capital	1,631,442	1,537,403
Cumulative distributions in excess of net income	(164,223)	(112,711)
Accumulated other comprehensive loss	(8,773)	(2,130)
Total stockholders’ equity	1,460,343	1,424,329
Total liabilities and stockholders’ equity	$ 2,725,490	$ 2,379,654