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, 2015

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.)
800 Newport Center Drive, Suite 700 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 7, 2015, there were 190,100,430 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, 2015

INDEX

PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014	2
		Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	3
		Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	4
		Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2014 and the Six Months Ended June 30, 2015 (unaudited)	5
		Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2015 and 2014	6
		Condensed Notes to Consolidated Financial Statements as of June 30, 2015 (unaudited)	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
	Item 4.	Controls and Procedures	44
PART II.	OTHER INFORMATION		45
	Item 1.	Legal Proceedings	45
	Item 1A.	Risk Factors	45
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
	Item 3.	Defaults upon Senior Securities	46
	Item 4.	Mine Safety Disclosures	46
	Item 5.	Other Information	46
	Item 6.	Exhibits	47
SIGNATURES			48

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, 2015			December 31, 2014
	(unaudited)
Assets
Real estate:
Land	$	207,501		$	207,501
Buildings and improvements	1,048,280			1,074,148
Tenant origination and absorption costs	91,913			109,378
Total real estate held for investment, cost	1,347,694			1,391,027
Less accumulated depreciation and amortization	(144,250		)	(168,041		)
Total real estate held for investment, net	1,203,444			1,222,986
Real estate held for sale, net	—			93,682
Total real estate, net	1,203,444			1,316,668
Real estate loans receivable, net	72,620			72,940
Total real estate and real estate-related investments, net	1,276,064			1,389,608
Cash and cash equivalents	191,363			179,021
Rents and other receivables, net	45,106			41,231
Above-market leases, net	8,919			10,271
Assets related to real estate held for sale	—			4,289
Deferred financing costs, prepaid expenses and other assets	32,724			33,096
Total assets	$	1,554,176		$	1,657,516
Liabilities and stockholders’ equity
Notes payable:
Notes payable	$	700,911		$	726,959
Notes payable related to real estate held for sale	—			63,652
Total notes payable	700,911			790,611
Accounts payable and accrued liabilities	17,005			23,183
Due to affiliate	43			38
Distributions payable	4,582			6,456
Below-market leases, net	7,011			8,904
Liabilities related to real estate held for sale	—			3,024
Other liabilities	12,968			15,773
Total liabilities	742,520			847,989
Commitments and contingencies (Note 12)
Redeemable common stock	7,477			10,000
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, 190,131,064 and 190,561,603 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively	1,901			1,905
Additional paid-in capital	1,690,014			1,690,010
Cumulative distributions in excess of net income	(887,411		)	(890,751		)
Accumulated other comprehensive loss	(325		)	(1,637		)
Total stockholders’ equity	804,179			799,527
Total liabilities and stockholders’ equity	$	1,554,176		$	1,657,516

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,
	2015		2014		2015		2014
Revenues:
Rental income	$	34,271	$	62,049	$	71,095	$	127,264
Tenant reimbursements	3,711		15,893		7,603		32,562
Interest income from real estate loans receivable	1,374		1,986		2,736		9,950
Interest income from marketable securities	—		89		—		89
Other operating income	1,847		2,699		3,699		5,306
Total revenues	41,203		82,716		85,133		175,171
Expenses:
Operating, maintenance, and management	8,114		16,784		18,264		34,980
Real estate taxes and insurance	5,202		12,015		10,423		24,334
Asset management fees to affiliate	3,022		5,631		6,108		11,335
General and administrative expenses	1,045		1,513		2,168		2,802
Depreciation and amortization	14,802		18,509		27,741		47,352
Interest expense	5,605		15,213		12,452		29,848
Impairment charge on real estate	—		—		4,486		1,075
Total expenses	37,790		69,665		81,642		151,726
Other income:
Other interest income	55		21		102		54
Gain on sales of real estate, net	11		46,647		27,418		46,647
Total other income	66		46,668		27,520		46,701
Net income	$	3,479	$	59,719	$	31,011	$	70,146
Net income per common share, basic and diluted	$	0.02	$	0.31	$	0.16	$	0.37
Weighted-average number of common shares outstanding, basic and diluted	190,364,308		191,328,706		190,446,527		191,939,971

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 COMPREHENSIVE INCOME

(unaudited)

(in thousands)

	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015		2014
Net income	$	3,479	$	59,719		$	31,011	$	70,146
Other comprehensive income:
Unrealized losses on derivative instruments	—		(1,390		)	—		(2,396		)
Unrealized losses on marketable securities	—		(67		)	—		(67		)
Reclassification of realized losses recognized on interest rate swaps (effective portion)	620		1,939			1,312		4,124
Reclassification of unrealized losses due to hedge ineffectiveness	—		—			—		822
Reclassification of realized losses related to swap terminations	—		364			—		521
Total other comprehensive income	620		846			1,312		3,004
Total comprehensive income	$	4,099	$	60,565		$	32,323	$	73,150

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 STOCKHOLDERS’ EQUITY

For the Year Ended December 31, 2014 and the Six Months Ended June 30, 2015 (unaudited)

(dollars in thousands)

						Additional Paid-in Capital			Cumulative Distributions and Net Income (Loss)			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Common Stock
	Shares		Amounts
Balance, December 31, 2013	192,269,969		$	1,923		$	1,647,214		$	(369,342	)	$	(10,313	)	$	1,269,482
Net income	—		—			—			445,507			—			445,507
Other comprehensive income	—		—			—			—			8,676			8,676
Issuance of common stock	2,749,008		28			26,857			—			—			26,885
Redemptions of common stock	(4,457,374	)	(46		)	(44,613		)	—			—			(44,659		)
Transfers from redeemable common stock	—		—			60,552			—			—			60,552
Distributions declared	—		—			—			(966,916		)	—			(966,916		)
Balance, December 31, 2014	190,561,603		$	1,905		$	1,690,010		$	(890,751	)	$	(1,637	)	$	799,527
Net income	—		—			—			31,011			—			31,011
Other comprehensive income	—		—			—			—			1,312			1,312
Redemptions of common stock	(430,539	)	(4		)	(2,519		)	—			—			(2,523		)
Transfers from redeemable common stock	—		—			2,523			—			—			2,523
Distributions declared	—		—			—			(27,671		)	—			(27,671		)
Balance, June 30, 2015	190,131,064		$	1,901		$	1,690,014		$	(887,411	)	$	(325	)	$	804,179

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.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Six Months Ended June 30,
	2015			2014
Cash Flows from Operating Activities:
Net income	$	31,011		$	70,146
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	27,741			47,352
Impairment charge on real estate	4,486			1,075
Noncash interest expense (income) on real estate-related investments	6			(112		)
Deferred rent	(2,552		)	(3,717		)
Bad debt expense	78			390
Amortization of above- and below-market leases, net	(562		)	1,532
Amortization of deferred financing costs	1,100			2,759
Reclassification of realized losses on derivative instruments	—			521
Unrealized losses due to hedge ineffectiveness	—			822
Unrealized (gains) losses on derivative instruments	(638		)	40
Gain on sales of real estate, net	(27,418		)	(46,647		)
Changes in operating assets and liabilities:
Restricted cash for operational expenditures	49			—
Rents and other receivables	(1,382		)	(1,830		)
Prepaid expenses and other assets	(9,267		)	(6,314		)
Accounts payable and accrued liabilities	(1,195		)	482
Due to affiliates	5			—
Other liabilities	(733		)	(8,152		)
Net cash provided by operating activities	20,729			58,347
Cash Flows from Investing Activities:
Proceeds from sale of real estate	122,920			247,884
Improvements to real estate	(9,843		)	(11,509		)
Investments in marketable securities	—			(173,002		)
Principal repayments on real estate loans receivable	314			61
Proceeds from early payoff or sale of real estate loans receivable	—			111,688
Net cash provided by investing activities	113,391			175,122
Cash Flows from Financing Activities:
Principal payments on notes payable	(89,700		)	(162,952		)
Payments of deferred financing costs	(10		)	(11		)
Payments to redeem common stock	(2,523		)	(42,217		)
Distributions paid to common stockholders	(29,545		)	(35,417		)
Net cash used in financing activities	(121,778		)	(240,597		)
Net increase (decrease) in cash and cash equivalents	12,342			(7,128		)
Cash and cash equivalents, beginning of period	179,021			175,042
Cash and cash equivalents, end of period	$	191,363		$	167,914
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	12,128		$	26,315
Supplemental Disclosure of Noncash Transactions:
Decrease in distributions payable	$	(1,874	)	$	(448	)
Increase in accrued improvements to real estate	$	1,243		$	2,484
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$	—		$	26,885

See accompanying condensed notes to consolidated financial statements.

6

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, 2015

(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 invested in a diverse portfolio of real estate and real estate-related investments. As of June 30, 2015, the Company owned 12 real estate properties (consisting of 10 office properties, one office/flex property and an office campus consisting of eight office buildings) and two 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, 2015 (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. The Company terminated its dividend reinvestment plan effective May 29, 2014.

The Company sold 182,681,633 shares of common stock in its primary offering for gross offering proceeds of $1.8 billion. The Company sold 30,903,504 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $298.2 million. Also as of June 30, 2015, the Company had redeemed 23,474,074 shares sold in the Offering for $232.1 million.

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, 2014. 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, 2014 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”). 

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto 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 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 six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

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, 2015

(unaudited)

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. 

Use of Estimates

The preparation of the consolidated financial statements and condensed notes thereto 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.  During the six months ended June 30, 2015, the Company sold one office property.  As a result, certain assets and liabilities were reclassified to held for sale on the consolidated balance sheets for all periods presented. Additionally, as of June 30, 2015, the Company reclassified two properties that were previously classified as held for sale to held for investment.

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 six months ended June 30, 2015 and 2014, respectively.

Distributions declared per common share were $0.073 and $0.145 for the three and six months ended June 30, 2015, respectively. Distributions declared per common share assumes each share was issued and outstanding each day that was a record date for distributions during the six months ended June 30, 2015. These distributions declared consisted of the following:

• On January 15, 2015, the Company’s board of directors declared January 2015 and February 2015 distributions in the amounts of $0.02488493 and $0.02247671, respectively, per share of common stock to stockholders of record as of the close of business on January 29, 2015 and February 26, 2015, respectively.

• On March 6, 2015, the Company’s board of directors declared March 2015 and April 2015 distributions in the amounts of $0.02488493 and $0.02408219, respectively, per share of common stock to stockholders of record as of the close of business on March 20, 2015 and April 20, 2015, respectively.

• On May 13, 2015, the Company’s board of directors declared May 2015 and June 2015 distributions in the amounts of $0.02488493 and $0.02408219, respectively, per share of common stock to stockholders of record as of the close of business on May 20, 2015 and June 19, 2015, respectively.

Distributions declared per common share were $0.162 and $0.322 for the three and six months ended June 30, 2014, respectively. Distributions declared per common share assumes each share was issued and outstanding each day during the three and six months ended June 30, 2014. For each day that was a record date for distributions during the three and six months ended June 30, 2014, distributions were calculated at a rate of $0.00178082 per share per day. Each day during the period from January 1, 2014 through June 30, 2014 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.”

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, 2015

(unaudited)

Recently Issued Accounting Standards Update

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification.  ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. On July 9, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements, but does not expect the adoption of ASU No. 2014-09 to have a material impact on its financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”). The amendments in ASU No. 2014-15 require management to evaluate, for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued when applicable) and, if so, provide related disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect the adoption of ASU No. 2014-15 to have a significant impact on its financial statements.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU No. 2015-01”). The amendments in ASU No. 2015-01 eliminate from GAAP the concept of extraordinary items.  Although the amendments will eliminate the requirements in Subtopic 225-20 for reporting entities to consider whether an underlying event or transaction is extraordinary, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU No. 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU No. 2015-01 to have a significant impact on its financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs (“ASU No. 2015-03”). The amendments in ASU No. 2015-03 require debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. ASU No. 2015-03 is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of debt issuance costs. ASU No. 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and is to be applied retrospectively. Early adoption is permitted for financial statements that have not been previously issued. The adoption of ASU No. 2015-03 would change the presentation of debt issuance costs as the Company presents debt issuance costs as deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets. 

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, 2015

(unaudited)

3. REAL ESTATE HELD FOR INVESTMENT

As of June 30, 2015, the Company’s portfolio of real estate held for investment was composed of ten office properties, one office/flex property and an office campus consisting of eight office buildings, encompassing in the aggregate approximately 5.2 million rentable square feet. As of June 30, 2015, the Company’s real estate portfolio was 89% occupied. The following table summarizes the Company’s real estate portfolio held for investment as of June 30, 2015 (in thousands):

Property	Date Acquired	City	State	Property Type	Total Real Estate at Cost (1)		Accumulated Depreciation and Amortization (1)			Total Real Estate, Net (1)
100 & 200 Campus Drive Buildings	09/09/2008	Florham Park	NJ	Office	$	197,451	$	(44,589	)	$	152,862
300-600 Campus Drive Buildings	10/10/2008	Florham Park	NJ	Office	146,700		(3,042		)	143,658
350 E. Plumeria Building	12/18/2008	San Jose	CA	Office/Flex	36,413		(7,349		)	29,064
Willow Oaks Corporate Center	08/26/2009	Fairfax	VA	Office	103,547		(20,237		)	83,310
Pierre Laclede Center	02/04/2010	Clayton	MO	Office	68,489		(1,328		)	67,161
Horizon Tech Center	06/17/2010	San Diego	CA	Office	28,200		(440		)	27,760
Union Bank Plaza	09/15/2010	Los Angeles	CA	Office	185,992		(2,786		)	183,206
Emerald View at Vista Center	12/09/2010	West Palm Beach	FL	Office	30,614		(4,911		)	25,703
Granite Tower	12/16/2010	Denver	CO	Office	154,883		(28,313		)	126,570
Gateway Corporate Center	01/26/2011	Sacramento	CA	Office	45,079		(8,157		)	36,922
Fountainhead Plaza	09/13/2011	Tempe	AZ	Office	119,384		(4,104		)	115,280
Corporate Technology Centre	03/28/2013	San Jose	CA	Office	230,942		(18,994		)	211,948
					$	1,347,694	$	(144,250	)	$	1,203,444

_____________________

⁽¹⁾ Amounts presented are net of impairment charges.

As of June 30, 2015, the following properties 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
Corporate Technology Centre	San Jose, CA	610,083	$	211,948	13.6	%	$	18,537	$	30.38	100	%
Union Bank Plaza	Los Angeles, CA	627,334	183,206		11.8	%	23,217		38.75		96	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), 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, 2015

(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, 2015, the leases had remaining terms, excluding options to extend, of up to 14.3 years with a weighted-average remaining term of 4.3 years. Some of the leases have provisions to extend the term of the leases, options for early termination for all or part of the leased premises 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 a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. 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 $2.5 million and $2.5 million as of June 30, 2015 and December 31, 2014, respectively.

During the six months ended June 30, 2015 and 2014, the Company recognized deferred rent from tenants, net of lease incentive amortization, of $2.6 million and $3.7 million, respectively. As of June 30, 2015 and December 31, 2014, the cumulative deferred rent balance was $42.4 million and $39.4 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $4.1 million and $4.0 million of unamortized lease incentives as of June 30, 2015 and December 31, 2014, respectively.

As of June 30, 2015, the future minimum rental income from the Company’s properties under non-cancelable operating leases was as follows (in thousands):

July 1, 2015 through December 31, 2015	$	62,393
2016	125,634
2017	117,028
2018	101,102
2019	80,835
Thereafter	369,600
	$	856,592

As of June 30, 2015, the Company had over 250 tenants over a diverse range of industries and geographic areas. 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
Finance	31	$	30,170	22.1	%
Computer System Design & Programming	10	25,792		18.9	%
		$	55,962	41.0	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

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, 2015

(unaudited)

No other tenant industries accounted for more than 10% of annualized base rent. The Company had not identified any material tenant credit issues as of June 30, 2015. During the six months ended June 30, 2015 and 2014, the Company recorded bad debt expense of $0.1 million and $0.4 million, respectively. As of June 30, 2015, the Company had a bad debt expense reserve of approximately $0.2 million, which represented less than 1% of its annualized base rent.

As of June 30, 2015, the Company had a concentration of credit risk related to the following tenant lease that represented more than 10% of the Company’s annualized base rent:

					Annualized Base Rent Statistics
Tenant	Property	Tenant Industry	Square Feet	% of Portfolio (Net Rentable Sq. Ft.)	Annualized Base Rent (in thousands) (1)		% of Portfolio Annualized Base Rent	Annualized Base Rent per Sq. Ft.		Lease Expiration (2)
Union Bank	Union Bank Plaza	Finance	408,260	8.8%	$	16,742	12.3%	$	41.01	09/30/2016 / 01/31/2022

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), 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 as of June 30, 2015 and does not take into account any tenant renewal or termination options.

Geographic Concentration Risk

As of June 30, 2015, the Company’s net investments in real estate in California and New Jersey represented 31.5% and 19.1% of the Company’s total assets, respectively.  As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California and New Jersey real estate markets.  Any adverse economic or real estate developments in these markets, 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 and its ability to make distributions to stockholders.

Impairment of Real Estate

During the six months ended June 30, 2015, the Company recorded impairment charges of $4.5 million with respect to two real estate properties that were reclassified from held for sale to held for investment. The impairment charge was recorded to adjust the carrying values of the properties for any depreciation and amortization expense that would have been recognized if the properties had always been classified as held for investment, which otherwise would have been recorded through depreciation and amortization expense.

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, 2015

(unaudited)

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

As of June 30, 2015 and December 31, 2014, 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) were as follows (in thousands):

	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	June 30, 2015			December 31, 2014			June 30, 2015			December 31, 2014			June 30, 2015			December 31, 2014
Cost	$	91,913		$	109,378		$	15,815		$	17,281		$	(23,237	)	$	(24,917	)
Accumulated Amortization	(40,207		)	(49,302		)	(6,896		)	(7,010		)	16,226			16,013
Net Amount	$	51,706		$	60,076		$	8,919		$	10,271		$	(7,011	)	$	(8,904	)

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, 2015 and 2014 were 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,
	2015			2014			2015			2014			2015		2014
Amortization	$	(3,732	)	$	(6,164	)	$	(651	)	$	(2,702	)	$	822	$	1,676

	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,
	2015			2014			2015			2014			2015		2014
Amortization	$	(7,365	)	$	(15,230	)	$	(1,399	)	$	(5,077	)	$	1,961	$	3,545

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, 2015

(unaudited)

5. REAL ESTATE LOANS RECEIVABLE

As of June 30, 2015 and December 31, 2014, the Company, through indirect wholly owned subsidiaries, had invested in or originated 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, 2015 (1)		Book Value as of June 30, 2015 (2)		Book Value as of December 31, 2014 (2)		Contractual Interest Rate (3)	Annualized Effective Interest Rate (3)	Maturity Date (4)
Sheraton Charlotte Airport Hotel First Mortgage
Charlotte, North Carolina	07/11/2011	Hotel	Mortgage	$	14,276	$	14,286	$	14,353	7.5%	7.6%	08/01/2018
Summit I & II First Mortgage (5)
Reston, Virginia	01/17/2012	Office	Mortgage	58,319		58,334		58,587		7.5%	7.6%	02/01/2017
				$	72,595	$	72,620	$	72,940

_____________________

⁽¹⁾ Outstanding principal balance as of June 30, 2015 represents original principal balance outstanding under the loan, increased for any subsequent fundings and reduced for any principal paydowns.

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

⁽³⁾ Contractual interest rate is the stated interest rate on the face of the loan. Annualized effective interest rate is calculated as the actual interest income recognized in 2015, using the interest method, annualized and divided by the average amortized cost basis of the investment during 2015. The contractual interest rates and annualized effective interest rates presented are as of June 30, 2015.

⁽⁴⁾ Maturity dates are as of June 30, 2015; subject to certain conditions, the maturity dates of certain real estate loans receivable may be extended beyond the maturity date shown.

⁽⁵⁾ Subsequent to June 30, 2015, the borrower under the Summit I & II First Mortgage paid off the entire principal balance outstanding of $58.3 million plus accrued interest. See Note 13, “Subsequent Events — Payoff of Summit I & II First Mortgage.”

The following summarizes the activity related to real estate loans receivable for the six months ended June 30, 2015 (in thousands):

Real estate loans receivable - December 31, 2014	$	72,940
Principal repayments received on real estate loans receivable	(314		)
Amortization of closing costs and origination fees on real estate loans receivable	(6		)
Real estate loans receivable - June 30, 2015	$	72,620

For the three and six months ended June 30, 2015 and 2014, interest income from real estate loans receivable consisted of the following (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Contractual interest income	$	1,377		$	1,989		$	2,742		$	4,921
Prepayment fee received on real estate loan receivable	—			—			—			4,917
Amortization of closing costs and origination fees	(3		)	(3		)	(6		)	112
Interest income from real estate loans receivable	$	1,374		$	1,986		$	2,736		$	9,950

As of June 30, 2015 and December 31, 2014, interest receivable from real estate loans receivable was $0.5 million and $0.5 million, respectively, and was included in rents and other receivables.

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, 2015

(unaudited)

6. REAL ESTATE SALES

In accordance with ASU No. 2014-08, Presentation of Financial Statements (Topic 205)and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU No. 2014-08”), results of operations from properties that are classified as held for sale in the ordinary course of business on or subsequent to January 1, 2014 would generally be included in continuing operations on the Company’s consolidated statements of operations. Results of operations from properties that were classified as held for sale in financial statements issued prior to January 1, 2014 will remain in discontinued operations on the Company’s consolidated statements of operations. Prior to the adoption of ASU No. 2014-08, the results of operations of properties held for sale or to be disposed of and the aggregate net gains recognized upon their disposition were presented as discontinued operations in the accompanying consolidated statements of operations for all periods presented.

During the six months ended June 30, 2015, the Company disposed of one office property. During the year ended December 31, 2014, the Company disposed of nine office properties, one industrial property, a portfolio of four industrial properties and a leasehold interest in one industrial property. The results of operations for the properties sold during the six months ended June 30, 2015 and the year ended December 31, 2014 are included in continuing operations on the Company’s consolidated statements of operations. The following table summarizes certain revenue and expenses related to the Company’s real estate properties that were sold during the year ended December 31, 2014 and six months ended June 30, 2015, which were included in continuing operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Revenues
Rental income	$	—	$	28,036	$	1,835	$	58,889
Tenant reimbursements	—		11,438		140		23,492
Other operating income	—		914		126		1,884
Total revenues	—		40,388		2,101		84,265
Expenses
Operating, maintenance, and management	—		8,467		536		17,913
Real estate taxes and insurance	—		7,354		230		14,600
Asset management fees to affiliate	—		2,597		108		5,240
General and administrative expenses	—		343		—		384
Depreciation and amortization	—		4,292		—		17,956
Interest expense	—		8,359		411		15,531
Impairment charge on real estate	—		—		—		1,075
Total expenses	$	—	$	31,412	$	1,285	$	72,699

During the six months ended June 30, 2014, the Company recorded an impairment charge of $1.1 million related to a real estate property held for sale as of that date. The impairment charge represents the difference between the carrying value of the real estate and the fair value of the real estate (based on a purchase and sale agreement which the Company had entered into) less costs to sell.

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, 2015

(unaudited)

The following summary presents the major components of assets and liabilities related to real estate held for sale as of June 30, 2015 and December 31, 2014 (in thousands). No real estate properties were held for sale as of June 30, 2015.

	June 30, 2015		December 31, 2014
Assets related to real estate held for sale
Total real estate, at cost and net of impairment charge	$	—	$	116,264
Accumulated depreciation and amortization	—		(22,582		)
Real estate held for sale, net	—		93,682
Other assets	—		4,289
Total assets related to real estate held for sale	$	—	$	97,971
Liabilities related to real estate held for sale
Notes payable	—		63,652
Other liabilities	—		3,024
Total liabilities related to real estate held for sale	$	—	$	66,676

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, 2015

(unaudited)

7. NOTES PAYABLE

As of June 30, 2015 and December 31, 2014, the Company’s notes payable, including notes payable related to real estate held for sale, consisted of the following (dollars in thousands):

	Principal as of June 30, 2015		Principal as of December 31, 2014		Contractual Interest Rate as of June 30, 2015(1)	Effective Interest Rate as of June 30, 2015(1)	Payment Type	Maturity Date (2)
Amended and Restated Portfolio Revolving Loan Facility (3)	$	75,438	$	75,438	One-month LIBOR + 1.80% (3)	3.1%	Interest Only	06/21/2017
Union Bank Plaza Mortgage Loan (4)	105,000		105,000		One-month LIBOR + 1.75%	3.5%	Interest Only	09/15/2015
Emerald View at Vista Center Mortgage Loan	19,800		19,800		One-month LIBOR + 2.25%	4.6%	Interest Only	01/01/2016
Portfolio Mortgage Loan #1 (5)	95,033		184,733		One-month LIBOR + 2.15%	3.5%	Interest Only	01/27/2016
Fountainhead Plaza Mortgage Loan	80,000		80,000		One-month LIBOR + 1.90%	2.9%	Interest Only	12/01/2015
Portfolio Mortgage Loan #3 (6)	107,640		107,640		One-month LIBOR + 1.75% - 1.85%	2.4%	Interest Only	03/01/2016
Corporate Technology Centre Mortgage Loan (7)	140,000		140,000		3.50%	3.5%	(7)	04/01/2020
300-600 Campus Drive Revolving Loan (8)	78,000		78,000		One-month LIBOR + 2.05% (8)	2.9%	Interest Only	08/01/2016
	$	700,911	$	790,611

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2015. Effective interest rate is calculated as the actual interest rate in effect as of June 30, 2015 (consisting of the contractual interest rate and the effect of interest rate swaps and contractual floor rates, if applicable), using interest rate indices as of June 30, 2015, 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, 2015; subject to certain conditions, the maturity dates of certain loans may be extended beyond the maturity date shown.

⁽³⁾ As of June 30, 2015, the Amended and Restated Portfolio Revolving Loan Facility was secured by 350 E. Plumeria Building and Pierre Laclede Center.

⁽⁴⁾ As of June 30, 2015, $105.0 million of the Union Bank Plaza Mortgage Loan 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.

⁽⁵⁾ As of June 30, 2015, Portfolio Mortgage Loan #1 was secured by Horizon Tech Center, Granite Tower and Gateway Corporate Center. On February 13, 2015, in connection with the disposition of National City Tower, the Company repaid $89.7 million of principal due under this loan and National City Tower was released as security from Portfolio Mortgage Loan #1.

⁽⁶⁾ As of June 30, 2015, the principal balance of Portfolio Mortgage Loan #3 consisted of the $107.6 million non-revolving portion. The revolving portion of $41.6 million remained available for future disbursements, subject to certain terms and conditions contained in the loan documents. As of June 30, 2015, the Portfolio Mortgage Loan #3 was secured by the 100 & 200 Campus Drive Buildings and Willow Oaks Corporate Center.

⁽⁷⁾ Monthly payments are initially interest-only. Beginning on May 1, 2017, monthly payments for Corporate Technology Centre Mortgage Loan include principal and interest with principal payments calculated using an amortization schedule of 30 years for the balance of the loan term, with the remaining principal balance, all accrued and unpaid interest and any other amounts due at maturity.

⁽⁸⁾ As of June 30, 2015, the principal balance of the 300-600 Campus Drive Revolving Loan consisted of $78.0 million of the non-revolving portion. The remaining non-revolving portion of $17.0 million and the revolving portion of $25.0 million remained available for future disbursements, subject to certain terms and conditions contained in the loan documents.

As of June 30, 2015 and December 31, 2014, the Company’s deferred financing costs were $2.1 million and $3.1 million, respectively, net of amortization, and are included in deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets.

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, 2015

(unaudited)

During the three and six months ended June 30, 2015, the Company incurred $5.6 million and $12.5 million of interest expense, respectively. During the three and six months ended June 30, 2014, the Company incurred $15.2 million and $29.8 million of interest expense, respectively. As of June 30, 2015 and December 31, 2014, $1.9 million and $2.2 million, respectively, of interest expense were payable. Included in interest expense for the three and six months ended June 30, 2015 were $0.5 million and $1.1 million of amortization of deferred financing costs, respectively. Included in interest expense for the three and six months ended June 30, 2014 were $1.9 million and $2.8 million of amortization of deferred financing costs, respectively. Interest expense incurred as a result of the Company’s interest rate swap agreements were $1.0 million and $2.8 million for the three and six months ended June 30, 2015, respectively. Interest expense incurred as a result of the Company’s interest rate swap agreements was $2.4 million and $5.5 million for the three and six months ended June 30, 2014, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of June 30, 2015 (in thousands):

July 1, 2015 through December 31, 2015	$	185,000
2016	300,473
2017	77,218
2018	2,750
2019	2,848
Thereafter	132,622
	$	700,911

Certain of the Company’s notes payable contain financial debt covenants. As of June 30, 2015, the Company was in compliance with these debt covenants.

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, 2015

(unaudited)

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 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.

The following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of June 30, 2015 and December 31, 2014. The notional amount 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):

Derivative Instruments	June 30, 2015		December 31, 2014		Reference Rate as of June 30, 2015	Weighted-Average  Fix Pay Rate	Weighted-Average Remaining Term  in Years
	Number of Instruments	Notional Amount	Number of Instruments	Notional Amount
Interest Rate Swaps (1)	9	$519,175	11	$596,575	One-month LIBOR/ Fixed at 0.50% - 2.39%	1.27%	0.9

_____________________

⁽¹⁾ During the six months ended June 30, 2015, the Company terminated one interest rate swap agreement and paid an aggregate breakage fee of $0.2 million. Also, one of the Company’s interest rate swaps expired during the six months ended June 30, 2015. As of June 30, 2015 and December 31, 2014, none of the Company’s interest rate swaps were designated as cash flow hedges.

The following table sets forth the fair value of the Company’s derivative instruments as well as their classification on the consolidated balance sheets as of June 30, 2015 and December 31, 2014 (dollars in thousands):

Derivative Instruments	Balance Sheet Location	June 30, 2015				December 31, 2014
		Number of Instruments	Fair Value			Number of Instruments	Fair Value
Interest Rate Swaps	Deferred financing costs, prepaid expenses and other assets, at fair value	—	$	—		2	$	122
Interest Rate Swaps	Other liabilities, at fair value	9	$	(2,678	)	9	$	(4,749	)

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, 2015

(unaudited)

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 comprehensive income (loss) and as other comprehensive income in the accompanying consolidated statements of stockholders’ equity. Amounts in other comprehensive income (loss) will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow.  The change in fair value of the ineffective portion is recognized directly in earnings. With respect to swap agreements that were terminated for which it remains probable that the original hedged forecasted transactions (i.e., LIBOR-based debt service payments) will occur, the loss related to the termination of these swap agreements is included in accumulated other comprehensive income (loss) and is reclassified into earnings over the period of the original forecasted hedged transaction. The change in fair value of a derivative instrument that is not designated as a cash flow hedge is recorded as interest expense in the accompanying consolidated statements of operations. The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations (in thousands):

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2015			2014		2015			2014
Derivatives designated as hedging instruments (1)
Amount of loss recognized on interest rate swaps (effective portion)	$	620		$	1,939	$	1,312		$	4,124
Unrealized losses due to hedge ineffectiveness	—			—		—			822
Reclassification of realized losses related to swap terminations	—			364		—			521
	620			2,303		1,312			5,467
Derivatives not designated as hedging instruments
Realized loss recognized on interest rate swaps	951			—		1,940			—
Unrealized (gains) losses on interest rate swaps	(607		)	55		(638		)	40
Losses related to swap terminations	—			—		170			—
	344			55		1,472			40
Increase in interest expense as a result of derivatives	$	964		$	2,358	$	2,784		$	5,507

_____________________

⁽¹⁾ All of the Company’s interest rate swap agreements were initially designated as cash flow hedges. During 2014, the Company dedesignated all of its interest rate swap instruments due to the anticipated early repayment of debt in connection with asset sales, and therefore, certain hedged forecasted transactions were no longer probable beyond the projected asset sale date.

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, 2015

(unaudited)

9. FAIR VALUE DISCLOSURES

Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

• Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

• Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model‑derived valuations in which significant inputs and significant value drivers are observable in active markets; and

• Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

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 assets and liabilities for which it is practicable to estimate the fair value:

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

Real estate loans receivable: The Company’s real estate loans receivable 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. The Company classifies these inputs as Level 3 inputs.

Derivative instruments: The Company’s derivative instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments is determined 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 risks to the contracts, are incorporated in the fair values to account for potential nonperformance risk.

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, 2015

(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. The Company classifies these inputs as Level 3 inputs.

The following were the face values, carrying amounts and fair values of the Company’s real estate loans receivable and notes payable as of June 30, 2015 and December 31, 2014, which carrying amounts do not generally approximate the fair values (in thousands):

	June 30, 2015						December 31, 2014
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial assets:
Real estate loans receivable	$	72,595	$	72,620	$	73,906	$	72,908	$	72,940	$	73,414
Financial liabilities:
Notes payable	$	700,911	$	700,911	$	701,759	$	790,611	$	790,611	$	794,439

Disclosure of the fair values of financial instruments is based on pertinent information available to the Company as of the period end 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.

As of June 30, 2015, the Company measured the following 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)
Recurring Basis:
Liability derivatives	$	2,678	$	—	$	2,678	$	—

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, 2015

(unaudited)

10. RELATED PARTY TRANSACTIONS

The Company has entered into the Advisory Agreement with the Advisor. This agreement entitles the Advisor to specified fees upon the provision of certain services with regard to the management of the Company’s investments, among other services, and the disposition of investments, as well as reimbursement of certain costs incurred by the Advisor in providing services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the Advisory Agreement. The Company has also entered into a fee reimbursement agreement with the Dealer Manager pursuant to which the Company agreed to reimburse the Dealer Manager for certain fees and expenses it incurs for administering the Company’s participation in the Depository Trust & Clearing Corporation Alternative Investment Product Platform with respect to certain accounts of the Company’s investors serviced through the platform. 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., KBS Legacy Partners Apartment REIT, Inc., KBS Strategic Opportunity REIT II, Inc. and KBS Growth & Income REIT, Inc.

On January 6, 2014, the Company, together with KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc., KBS Legacy Partners Apartment REIT, Inc., KBS Strategic Opportunity REIT II, Inc., the Dealer Manager, the Advisor and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each of the various entities covered by the program, and is billed directly to each entity. The allocation of these shared coverage costs is proportionate to the pricing by the insurance marketplace for the first tiers of directors and officers liability coverage purchased individually by each REIT. The Advisor’s and the Dealer Manager’s portion of the shared lower tiers’ cost is proportionate to the respective entities’ prior cost for the errors and omissions insurance. In June 2015, KBS Growth & Income REIT, Inc. was added to the insurance program at terms similar to those described above.

During the six months ended June 30, 2015 and 2014, no other business transactions occurred between the Company and KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc., KBS Legacy Partners Apartment REIT, Inc., KBS Strategic Opportunity REIT II, Inc. and KBS Growth & Income REIT, Inc.

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, 2015 and 2014, respectively, and any related amounts payable as of June 30, 2015 and December 31, 2014 (in thousands):

	Incurred								Payable as of
	Three Months Ended June 30,				Six Months Ended June 30,				June 30,		December 31,
	2015		2014		2015		2014		2015		2014
Expensed
Asset management fees	$	3,022	$	5,631	$	6,108	$	11,335	$	—	$	—
Reimbursement of operating expenses (1)	40		37		79		73		43		38
Disposition fees (2)	—		2,563		1,239		2,563		—		—
	$	3,062	$	8,231	$	7,426	$	13,971	$	43	$	38

_____________________

⁽¹⁾ The Advisor may seek reimbursement for certain employee costs under the Advisory Agreement. The Company reimburses 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 amounts totaled $35,000 and $37,000 for the three months ended June 30, 2015 and 2014, respectively, and $68,000 and $73,000 for the six months ended June 30, 2015 and 2014, respectively, and were the only type of employee costs reimbursed under the Advisory Agreement for the six months ended June 30, 2015 and 2014. 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⁾ Disposition fees with respect to real estate sold are included in the gain on sale of real estate, net in the accompanying consolidated statements of operations.  Disposition fees with respect to real estate loans receivable sold are included in the gain on payoff or sale of real estate loans receivable in the accompanying consolidated statements of operations.

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, 2015

(unaudited)

11. SEGMENT INFORMATION

The Company presently operates in two reportable 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 or originated mortgage loans and an A-Note. All revenues earned from the Company’s two reporting segments were from external customers and there were no intersegment sales or transfers. The Company does not allocate corporate-level accounts to its reporting segments. Corporate-level accounts include corporate general and administrative expenses, asset management fees, 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 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 interest expense. 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, asset management fees 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. During the year ended December 31, 2014, the Company revised its definition of NOI to exclude asset management fees, which the Company does not consider to be controllable in connection with the management of each property or real estate-related asset and is viewed by the chief operating decision makers as a corporate-level administrative expense. NOI for all prior periods presented has been adjusted to conform to the current period definition.

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, 2015

(unaudited)

The following tables summarize total revenues and NOI for each reportable segment for the three and six months ended June 30, 2015 and 2014 and total assets and total liabilities for each reportable segment as of June 30, 2015 and December 31, 2014 (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014
Revenues:
Real estate segment (1)	$	39,829	$	80,641	$	82,397	$	165,132
Real estate-related segment	1,374		1,986		2,736		9,950
Total segment revenues	41,203		82,627		85,133		175,082
Corporate-level	—		89		—		89
Total revenues	$	41,203	$	82,716	$	85,133	$	175,171
Interest Expense:
Real estate segment (1)	$	5,605	$	14,626	$	12,452	$	28,855
Real estate-related segment	—		587		—		993
Total interest expense	$	5,605	$	15,213	$	12,452	$	29,848
NOI:
Real estate segment (1)	$	20,912	$	37,216	$	41,270	$	77,014
Real estate-related segment	1,370		1,399		2,724		8,906
Total segment NOI	22,282		38,615		43,994		85,920
Corporate-level	—		89		—		89
Total NOI	$	22,282	$	38,704	$	43,994	$	86,009
	As of June 30,		As of December 31,
	2015		2014
Assets:
Real estate segment	$	1,300,394	$	1,317,990
Real estate-related segment	73,638		73,457
Total segment assets	1,374,032		1,391,447
Real estate held for sale	—		97,971
Corporate-level (2)	180,144		168,098
Total assets	$	1,554,176	$	1,657,516
Liabilities:
Real estate segment	$	737,456	$	774,173
Real estate-related segment	—		2
Total segment liabilities	737,456		774,175
Real estate held for sale	—		66,676
Corporate-level (3)	5,064		7,138
Total liabilities	$	742,520	$	847,989

_____________________

⁽¹⁾ Amounts include properties sold. See Note 6, “Real Estate Sales” for more information.

⁽²⁾ Total corporate-level assets consisted primarily of cash and cash equivalents of approximately $180.0 million and $167.8 million as of June 30, 2015 and December 31, 2014, respectively.

⁽³⁾ As of June 30, 2015 and December 31, 2014, corporate-level liabilities consisted primarily of distributions payable.

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, 2015

(unaudited)

The following table reconciles the Company’s net income to its NOI for the three and six months ended June 30, 2015 and 2014 (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
Net income	$	3,479		$	59,719		$	31,011		$	70,146
Gain on sale of real estate, net	(11		)	(46,647		)	(27,418		)	(46,647		)
Other interest income	(55		)	(21		)	(102		)	(54		)
Asset management fees to affiliate	3,022			5,631			6,108			11,335
General and administrative expenses	1,045			1,513			2,168			2,802
Depreciation and amortization	14,802			18,509			27,741			47,352
Impairment charge on real estate	—			—			4,486			1,075
NOI	$	22,282		$	38,704		$	43,994		$	86,009

12. COMMITMENTS AND CONTINGENCIES

Economic Dependency

The Company is dependent on the Advisor for certain services that are essential to the Company, including the 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 any of these services, the Company will be required to obtain such services from other sources.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Compliance with existing environmental laws is not expected to have a material adverse effect on the Company’s financial condition and results of operations as of June 30, 2015.

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 the Company’s 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.

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, 2015

(unaudited)

13. SUBSEQUENT EVENTS

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

Distributions Paid

On July 1, 2015, the Company paid distributions of $4.6 million, which related to distributions declared for June 2015 in the amount of $0.02408219 per share of common stock to stockholders of record as of the close of business on June 19, 2015. On August 3, 2015, the Company paid distributions of $4.7 million, which related to distributions declared for July 2015 in the amount of $0.02488493 per share of common stock to stockholders of record as of the close of business on July 20, 2015.

Distributions Declared

On August 11, 2015, the Company’s board of directors declared an August 2015 distribution in the amount of $0.02488493 per share of common stock to stockholders of record as of the close of business on August 20, 2015, which the Company expects to pay in September 2015, and a September 2015 distribution in the amount of $0.02408219 per share of common stock to stockholders of record as of the close of business on September 21, 2015, which the Company expects to pay in October 2015.

Payoff of Summit I & II First Mortgage

On January 17, 2012, the Company, through an indirect wholly owned subsidiary, originated a first mortgage loan in the amount of up to $58.8 million (the “Summit I & II First Mortgage”) to fund the acquisition of two six-story Class B+ office buildings located in Reston, Virginia. On August 4, 2015, the borrower of the Summit I & II First Mortgage exercised its prepayment option, pursuant to which the borrower paid off the entire principal balance outstanding and accrued interest in the amount of $58.7 million, and paid a yield maintenance premium of $0.9 million. The Summit I & II First Mortgage had an original maturity date of February 1, 2017 and bore interest at a fixed rate of 7.5%.

27

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:

• All of our executive officers and 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 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-sponsored programs and KBS-advised investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in unanticipated actions.

• We pay substantial fees to and expenses of our advisor and its affiliates. 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 from time to time may use proceeds from financings, if necessary, to fund a portion of our distributions during our operational stage. We also expect to fund other distributions from the net proceeds from the sale of real estate and from the receipt of principal payments from, or the sale of, our real estate-related loans receivable.

• We depend on tenants for the revenue generated by our real estate investments and, accordingly, the revenue generated by our real estate investments is dependent upon the success and economic viability of our tenants. Revenues from our properties could decrease due to a reduction in occupancy (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.

• Our investments in real estate and our mortgage loan 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 investment could decrease. Such events would make it more difficult for the borrower under our loan investment to meet its 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.

• Disruptions in the financial markets and uncertain economic conditions could adversely affect our ability to implement our business strategy and generate returns to our stockholders.

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

• Our share redemption program provides only for redemptions sought upon a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined in the share redemption program document, and, together with redemptions sought in connection with a stockholder’s death, “special redemptions”). The dollar amounts available for such redemptions are determined by the board of directors and may be reviewed and adjusted from time to time. Additionally, redemptions are further subject to limitations described in our share redemption program. We currently do not expect to have funds available for ordinary redemptions in the future.

28

PART I. FINANCIAL INFORMATION (CONTINUED)

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

• Since we have terminated our dividend reinvestment plan, we may have to use a greater proportion of our cash flow from operations to meet cash requirements for general corporate purposes, including, but not limited to, capital expenditures, tenant improvement costs and leasing costs related to our real estate properties; reserves required by financings of our real estate properties; the repayment of debt; and special redemptions under our share redemption program. This may reduce cash available for distributions.

• During the six months ended June 30, 2015, we disposed of one office property, and during the year ended December 31, 2014, we sold 15 real estate properties and received loan repayments on three of our real estate loans receivable. As a result of our disposition activity, our general and administrative expenses, which are not directly related to the size of our portfolio, will increase as a percentage of our cash flow from operations and this increase could be significant.

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, 2014, as filed with the Securities and Exchange Commission (the “SEC”).

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 we intend to continue to operate in such a manner. We 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 our advisor, KBS Capital Advisors LLC, pursuant to an advisory agreement. KBS Capital Advisors conducts our operations and manages our portfolio of real estate and real estate-related investments. Our advisor owns 20,000 shares of our common stock. We have no paid employees.

As of June 30, 2015, we owned 12 real estate properties (consisting of 10 office properties, one office/flex property and an office campus consisting of eight office buildings) and two real estate loans receivable.

On September 27, 2007, we filed a registration statement on Form S-11 with 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 terminated the offering under our dividend reinvestment plan effective May 29, 2014. We sold 30,903,504 shares of common stock under our dividend reinvestment plan for gross offering proceeds of $298.2 million. Also as of June 30, 2015, we had redeemed 23,474,074 shares sold in our offering for $232.1 million.

Market Outlook – Real Estate and Real Estate Finance Markets

The following discussion is based on management’s beliefs, observations and expectations with respect to the real estate and real estate finance markets.

The global capital markets remain volatile as the world’s economic growth has been affected by geopolitical and economic events in Europe, the Middle East and Asia throughout the summer of 2015, such as the Greek sovereign debt crisis and the fall of the Chinese stock markets. The rise of the Islamic State and the struggle between the Ukrainian government and pro-Russian rebels have kept the U.S. and its allies engaged in international conflicts. The slowdown in global economic growth, and in particular the slowing of the Chinese economy, has had a ripple effect through the energy and commodity markets. Decreasing demand for commodities and in particular oil, has led to a steep price decline in most commodity market prices which has, in turn, threatened the economies of commodity dependent nations. In the United States, the Federal Reserve seeks to normalize interest rates with the anticipated increase in rates in 2015. In this type of economic environment the level of uncertainty and volatility has increased. While the U.S. economy has rebounded from the recent recession, the remainder of the world’s industrialized and emerging economies have struggled to maintain even low levels of economic growth.

Central bank interventions continue to bolster the global economy. In 2012, Japan embarked on a massive quantitative easing (“QE”) program designed to kickstart its economy. To date, the program has led to lower Japanese interest rates, a run up in the Japanese stock markets and a devaluation of the yen. In Europe, the European Central Bank (ECB) announced its own QE program in January 2015. The long awaited announcement has led to lower European interest rates and a weakening of the Euro against other currencies. In China, the central government has struggled to control its shadow banking system. Recent crackdowns on corruption and the intervention of the government into the country’s falling stock market have increased the level of investor uncertainty.

29

PART I. FINANCIAL INFORMATION (CONTINUED)

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

The Federal Reserve has maintained an accommodative monetary policy since the beginning of the 2008 financial crisis. Through a variety of monetary tools and programs, the Federal Reserve injected trillions of U.S. dollars into the global financial markets. The U.S. QE program focused on the purchase of U.S. treasury bonds and mortgage backed securities. In October 2014, the Federal Reserve concluded the most recent phase of QE. The end of this program shifted investor focus to the timing of an eventual interest rate increase by the Federal Reserve. While it is unclear whether such an increase will happen in 2015 or 2016, it now appears likely that an increase is in the Federal Reserve’s plans.

In the United States, recent economic data has shown moderate economic growth. The labor force participation rate continues to be low and personal income growth has remained stagnant. However, slow and steady growth in the labor markets has driven unemployment down to 5.3% as of June 2015. Consumer spending in the United States has increased, and is being driven by lower debt service burdens, record high stock market valuations, rebounding home prices and a dramatic decrease in the cost of gasoline. Consumer confidence levels are starting to reach levels last seen in the 1990s. U.S. gross domestic product (“U.S. GDP”) has continued to grow at a moderate annualized rate. On an annual basis, U.S. GDP growth in 2014 was 2.4%, which was an improvement over 2013’s growth rate of 1.5%. In the second half of 2014, the U.S. dollar began to appreciate against the currencies of other nations. However, the effects of a strong dollar and weak international economic growth began to materialize in the form of reduced corporate earnings in the fourth quarter of 2014. This trend continued in the first quarter of 2015, where U.S. GDP increased at an annual rate of 0.6%.

The U.S. dollar has remained a safe haven currency and the U.S. commercial real estate market has benefited from an inflow of foreign capital. Initially, gateway markets such as New York City and San Francisco benefited from a high demand for commercial properties. In 2014, the commercial real estate market recovery spread to secondary and tertiary markets, and most asset classes. The U.S. commercial real estate market has gained favor as an alternative investment class and capital flows continue to improve. In 2015, commercial property values have continued to rise and the U.S. commercial real estate market is currently on pace to set a record in transaction volume. However, the recovery in commercial real estate is expected to remain uneven across geographies and among property types.

As the dollar strengthens, the flow of capital into the United States could be curtailed. International demand for U.S. assets has been driven, in part, by the perception that U.S. real assets and the U.S. dollar are safe havens from some market risks. A decrease in flow of capital into the United States could lead to a decrease in the demand for U.S. commercial real estate assets, and result in a decline in commercial real estate values.

After several years of improving market conditions, the recovery in the U.S. residential real estate market has slowed. The initial recovery was driven by low interest rates, pent-up demand from the consumer sector and institutional investors in the form of buy-to-rent portfolios. In 2015, investor demand for homes has slowed and the housing market appears to be heading into a consolidation phase as several institutional investors seek an exit to repay investors. All cash purchases of homes, an indicator of institutional investor activity, has dropped dramatically. New home construction numbers have been driven largely by the construction of multifamily projects.

Overall, despite indications of recovery in the United States, uncertainties abound. China’s export-based economy has slowed and the Japanese government continues to experiment with QE. The EU is faced with the economic collapse of Greece, another recession and military conflict in the Ukraine. In the United States, the Federal Reserve completed the latest phase of QE in 2014 and is now faced with the impact of a strong dollar and the anticipation of increasing interest rates. In the short-term, we anticipate that market conditions will continue to remain strong and volatile. When combined with a challenging global macro-economic environment, these conditions may interfere with the implementation of our business strategy and/or force us to modify it.

Impact on Our Real Estate Investments

The economic events that have occurred since the onset of the recession in 2008 have no precedent. While current forecasts for the U.S. economy are positive, there is a level of uncertainty inherent to this outlook. Currently, both the investing and leasing environments are highly competitive. While there has been an increase in the amount of capital flowing into U.S. real estate markets, which has resulted in an increase in real estate values in certain markets, the uncertainty regarding the economic environment has made businesses reluctant to make long-term commitments or changes in their business plans. Possible future declines in rental rates, slower or potentially negative net absorption of leased space and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows. Historically low interest rates could help offset some of the impact of these potential 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 remaining life of many of our investments. Interest rates have become more volatile as the global capital markets react to increasing economic and geopolitical risks.

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-Related Investment

Our real estate-related investment is directly secured by commercial real estate. As a result, our real estate-related investment, in general, has been and likely will continue to be impacted by the same factors impacting our real estate investments. The higher yields and the improving credit position of many U.S. tenants and borrowers have attracted global capital. However, the real estate and capital markets are fluid, and the positive trends can reverse quickly. Economic conditions remain relatively unstable and can have a negative impact on the performance of collateral securing our loan investment, and therefore may impact the ability of our borrower under our loan to make contractual interest payments to us.

As of June 30, 2015, we had fixed-rate real estate loans receivable with an aggregate outstanding principal balance of $72.6 million and an aggregate carrying value (including unamortized origination and closing costs) of $72.6 million that mature in 2017 and 2018. Subsequent to June 30, 2015, the borrower under the Summit I & II First Mortgage paid off the entire principal balance outstanding plus accrued interest. See “ —Subsequent Events — Payoff of Summit I & II First Mortgage.”

Impact on Our Financing Activities

In light of the risks associated with potentially volatile operating cash flows from some of our real estate properties, we may have difficulty refinancing some of our debt obligations prior to or at maturity or we may not be able to refinance these obligations at terms as favorable as the terms of our existing indebtedness. Recent financial market conditions have improved from the bottom of the economic cycle, but material risks are still present. Market conditions can change quickly, potentially negatively impacting the value of our investments.

As of June 30, 2015, we had debt obligations in the aggregate principal amount of $700.9 million with a weighted-average remaining term of 1.6 years. We had a total of $140.0 million of fixed rate notes payable and $560.9 million of variable rate notes payable as of June 30, 2015. The interest rates on $519.2 million of our variable rate notes payable are effectively fixed through interest rate swap agreements. As of June 30, 2015, we had a total of $407.5 million of debt obligations scheduled to mature within 12 months of that date.

Liquidity and Capital Resources

Our principal demands for funds during the short- and long-term are and will be for: the payment of operating expenses, capital expenditures and general and administrative expenses; payments under debt obligations; special redemptions of common stock pursuant to our share redemption program; and payments of distributions to stockholders. To date, we have had five primary sources of capital for meeting our cash requirements:

• Proceeds from our now terminated primary offering;

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

• Debt financings;

• Proceeds from the sale of real estate and the repayment or sale of real estate-related investments; and

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

We ceased offering shares of common stock in our primary offering on December 31, 2010 and terminated our dividend reinvestment plan effective May 29, 2014. We intend to use our cash on hand, cash flow generated by our real estate and real estate-related investment, proceeds from debt financing, proceeds from the sale of real estate properties and principal repayments on or the sale of our real estate loan receivable as our primary sources of immediate and long-term liquidity. As of June 30, 2015, we had an aggregate of $66.6 million available for future disbursements under two credit facilities, subject to certain conditions and restrictions set forth in the respective loan agreements.

Our share redemption program provides only for special redemptions. During each calendar year, such special redemptions are limited to an annual dollar amount determined by the board of directors, which may be reviewed during the year and increased or decreased upon ten business days’ notice to our stockholders. Special redemptions are made at a price per share equal to the most recent estimated value per share of our common stock as of the applicable redemption date. We currently do not expect to make ordinary redemptions in the future. On December 2, 2014, our board of directors approved an annual dollar limitation of $10.0 million in the aggregate for the calendar year 2015 (subject to review and adjustment during the year by the board of directors), and further subject to the limitations described in the share redemption program. As of June 30, 2015, we had $7.5 million available for special redemptions for the remainder of 2015.

31

PART I. FINANCIAL INFORMATION (CONTINUED)

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

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, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from our 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, 2015, our real estate held for investment was 89% occupied and our bad debt reserve was less than 1% of annualized base rent.

Our real estate-related investments generate cash flow in the form of interest income, which is reduced by the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from our real estate-related investments is primarily dependent on the operating performance of the underlying collateral and the borrower’s ability to make debt service payments. As of June 30, 2015, the borrowers under our real estate loans receivable were current on their debt service payments to us. Subsequent to June 30, 2015, the borrower under the Summit I & II First Mortgage paid off the entire principal balance outstanding plus accrued interest. See “ —Subsequent Events — Payoff of Summit I & II First Mortgage.”

During the six months ended June 30, 2015, we disposed of one office property.

For the six months ended June 30, 2015, our cash needs for capital expenditures and the payment of debt obligations were met with the proceeds from the payoff or sale of real estate loans receivable and proceeds from the sales of real estate properties from prior periods. Operating cash needs during the same period were met with 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, 2015 using cash flows from operations and cash on hand. We believe that our cash on hand, cash flow from operations, availability under our credit facilities, proceeds from the sales of real estate properties and the repayment of or the sale of our real estate loan receivable will be sufficient to meet our liquidity needs for the foreseeable future.

On December 4, 2014, our board of directors approved an estimated value per share of our common stock of $5.86 based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding, all as of September 30, 2014. For a full description of the assumptions, methodologies and limitations used to value our assets and liabilities in connection with the calculation of our estimated value per share, see our Current Report on Form 8-K dated December 2, 2014 and filed with the SEC on December 4, 2014.

Our cash flow from operations has decreased and will continue to decrease as a result of our disposition activity, and we have adjusted our distribution policy with respect to the amount of monthly distribution payments to take into account our disposition activity and current real estate investments. We may continue to make strategic asset sales as opportunities become available in the market. Any future special distributions we make from the proceeds of future dispositions will reduce our estimated value per share and this reduction will be reflected in our updated estimated value per share, which we expect to update in December of each year, or more frequently.

Cash Flows from Operating Activities

As of June 30, 2015, we owned 12 real estate properties (consisting of 10 office properties, one office/flex property and an office campus consisting of eight office buildings) and two real estate loans receivable. During the six months ended June 30, 2015, net cash provided by operating activities was $20.7 million, compared to $58.3 million during the six months ended June 30, 2014. Net cash provided by operating activities decreased in 2015 primarily as a result of the sale of real estate properties and the payoff or sale of real estate loans receivable. We anticipate additional asset sales in the future, which would further reduce net cash provided by operating activities.

Cash Flows from Investing Activities

Net cash provided by investing activities was $113.4 million for the six months ended June 30, 2015, and primarily consisted of the following:

• $122.9 million of proceeds from the sale of one office property;

• $9.8 million used for improvements to real estate; and

• $0.3 million of proceeds from principal repayments on real estate loans receivable.

32

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Cash Flows from Financing Activities

During the six months ended June 30, 2015, net cash used in financing activities was $121.8 million and consisted primarily of the following:

• $89.7 million of principal payments on notes payable;

• $29.5 million of cash distributions; and

• $2.5 million of cash used for redemptions of common stock.

In addition to using our capital resources to meet our debt service obligations, for capital expenditures and for operating costs, we use our capital resources to make certain payments to our advisor. We paid our advisor fees in connection with the acquisition and origination of our assets and pay our advisor fees in connection with the management and disposition of our assets and for certain costs incurred by our advisor in providing services to us. Among the fees payable to our advisor is an asset management fee. With respect to investments in real estate, we pay our advisor a monthly asset management fee equal to one-twelfth of 0.75% of the amount paid or allocated to acquire the investment, plus the cost of any subsequent development, construction or improvements to the property. This amount includes any portion of the investment that was debt financed and is inclusive of acquisition fees and expenses related thereto. In the case of investments made through joint ventures, the asset management fee will be determined based on our proportionate share of the underlying investment. With respect to investments in loans and any investments other than real estate, we pay our advisor a monthly asset management fee calculated, each month, as one-twelfth of 0.75% of the lesser of (i) the amount paid or allocated to acquire or fund the loan or other investment (which amount includes any portion of the investment that was debt financed and is inclusive of acquisition or origination fees and expenses related thereto) and (ii) the outstanding principal amount of such loan or other investment, plus the acquisition or origination fees and expenses related to the acquisition or funding of such investment, as of the time of calculation. We also reimbursed our advisor and our dealer manager for certain offering costs related to our now terminated dividend reinvestment plan and will continue to reimburse our advisor and our dealer manager for certain stockholder services.

As of June 30, 2015, we had $191.4 million of cash and cash equivalents and up to $66.6 million available for future disbursements under two credit facilities, subject to certain conditions and restrictions set forth in the respective loan agreements, to meet our operational and capital needs.

In order to execute our investment strategy, we primarily utilized secured 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 limit 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. As of June 30, 2015, our borrowings and other liabilities were approximately 41% of both the cost (before deducting depreciation or other noncash reserves) and book value (before deducting depreciation) of our tangible assets, respectively.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of June 30, 2015 (in thousands):

			Payments Due During the Years Ending December 31,
Contractual Obligations	Total		Remainder of 2015		2016-2017		2018-2019		Thereafter
Outstanding debt obligations (1)	$	700,911	$	185,000	$	377,691	$	5,598	$	132,622
Interest payments on outstanding debt obligations (2)	36,190		9,940		15,217		9,490		1,543

_____________________

⁽¹⁾ Amounts include principal payments only.

⁽²⁾ Projected interest payments are based on the outstanding principal amounts, maturity dates and interest rates in effect as of June 30, 2015 (consisting of the contractual interest rate and the effect of interest rate floors and swaps, if applicable). We incurred interest expense of $11.8 million, excluding unrealized gain on an interest rate swap agreement of $0.6 million, swap termination expense of $0.2 million and amortization of deferred financing costs totaling $1.1 million during the six months ended June 30, 2015.

33

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Results of Operations

Overview

As of June 30, 2014, we owned 17 office properties, one office/flex property, a portfolio of four industrial properties, an office campus consisting of eight office buildings and two real estate loans receivable. Subsequent to June 30, 2014, we sold seven office properties and a portfolio of four industrial properties. As a result, as of June 30, 2015, we owned 10 office properties, one office/flex property, an office campus consisting of eight office buildings and two real estate loans receivable. The results of operations presented for the six months ended June 30, 2015 and 2014 are not directly comparable due to the dispositions of real estate properties and the payoff or sale of real estate loans receivable subsequent to January 1, 2014. In general, we expect income and expenses to decrease in future periods due to disposition activity.

Comparison of the three months ended June 30, 2015 versus the three months ended June 30, 2014

The following table provides summary information about our results of operations for the three months ended June 30, 2015 and 2014 (dollar amounts in thousands):

	Three Months Ended June 30,				Increase (Decrease)			Percentage Change		$ Change Due to Dispositions (1)			$ Change Due to Properties  or Loans Held Throughout Both Periods (2)
	2015		2014
Rental income	$	34,271	$	62,049	$	(27,778	)	(45	)%	$	(28,036	)	$	258
Tenant reimbursements	3,711		15,893		(12,182		)	(77	)%	(11,457		)	(725		)
Interest income from real estate loans receivable	1,374		1,986		(612		)	(31	)%	(602		)	(10		)
Interest income from marketable securities	—		89		(89		)	(100	)%	—			(89		)
Other operating income	1,847		2,699		(852		)	(32	)%	(914		)	62
Operating, maintenance and management costs	8,114		16,784		(8,670		)	(52	)%	(8,565		)	(105		)
Real estate taxes and insurance	5,202		12,015		(6,813		)	(57	)%	(7,320		)	507
Asset management fees to affiliate	3,022		5,631		(2,609		)	(46	)%	(2,658		)	49
General and administrative expenses	1,045		1,513		(468		)	(31	)%	n/a			n/a
Depreciation and amortization	14,802		18,509		(3,707		)	(20	)%	(4,292		)	585
Interest expense	5,605		15,213		(9,608		)	(63	)%	(8,359		)	(1,249		)
Gain on sale of real estate, net	11		46,647		(46,636		)	100	%	(46,636		)	—

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the three months ended June 30, 2015 compared to the three months ended June 30, 2014 related to investments disposed of on or after April 1, 2014.

⁽²⁾ Represents the dollar amount increase (decrease) for the three months ended June 30, 2015 compared to the three months ended June 30, 2014 related to real estate and real estate-related investments owned by us throughout both periods presented.

Rental income and tenant reimbursements decreased from $77.9 million for the three months ended June 30, 2014 to $38.0 million for the three months ended June 30, 2015, primarily due to the dispositions of real estate properties.  Overall, we expect rental income and tenant reimbursements to decrease in future periods due to anticipated dispositions of real estate properties. For the three months ended June 30, 2015 and 2014, rental income and tenant reimbursements from our real estate properties sold were $0 and $39.5 million, respectively.

Interest income from our real estate loans receivable, recognized using the interest method, decreased from $2.0 million for the three months ended June 30, 2014 to $1.4 million for the three months ended June 30, 2015, primarily as a result of the payoff or sale of real estate loans receivable subsequent to April 1, 2014. Interest income from real estate loans receivable in future periods compared to historical periods will decrease as a result of payoffs or sales of our real estate loans receivable. Subsequent to June 30, 2015, the borrower under the Summit I & II First Mortgage paid off the entire principal balance outstanding plus accrued interest. See “ —Subsequent Events — Payoff of Summit I & II First Mortgage.”

34

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Operating, maintenance and management costs decreased from $16.8 million for the three months ended June 30, 2014 to $8.1 million for the three months ended June 30, 2015. The decrease was primarily due to the dispositions of real estate properties subsequent to April 1, 2014. Operating, maintenance and management costs may increase in future periods, as compared to historical periods, as a result of inflation. Overall, we expect operating, maintenance and management costs to decrease in future periods due to anticipated dispositions of real estate properties. For the three months ended June 30, 2015 and 2014, operating, maintenance and management costs from our real estate properties sold were $0 and $8.5 million, respectively.

Real estate taxes and insurance decreased from $12.0 million for the three months ended June 30, 2014 to $5.2 million for the three months ended June 30, 2015. This decrease was primarily due to the dispositions of real estate properties subsequent to April 1, 2014, partially offset by an increase due to higher property tax estimates for two of our real estate properties held throughout both periods. We expect real estate taxes and insurance to decrease in future periods due to anticipated dispositions of real estate properties. For the three months ended June 30, 2015 and 2014, real estate taxes and insurance from our real estate properties sold were $0 and $7.4 million, respectively.

Asset management fees with respect to our real estate and real estate-related investments decreased from $5.6 million for the three months ended June 30, 2014 to $3.0 million for the three months ended June 30, 2015, due to the dispositions of real estate properties and the payoff or sale of real estate loans receivable subsequent to April 1, 2014. All asset management fees incurred as of June 30, 2015 have been paid. We expect asset management fees to decrease in future periods due to anticipated asset sales. For the three months ended June 30, 2015 and 2014, asset management fees from our real estate properties sold were $0 and $2.6 million, respectively.

Depreciation and amortization decreased from $18.5 million for the three months ended June 30, 2014 to $14.8 million for the three months ended June 30, 2015 primarily due to the dispositions of real estate properties subsequent to April 1, 2014, partially offset by a net increase in depreciation and amortization for properties held throughout both periods. We expect depreciation and amortization to decrease in future periods due to anticipated dispositions of real estate properties and to an overall decrease in amortization of tenant origination costs related to lease expirations. For the three months ended June 30, 2015 and 2014, depreciation and amortization from our real estate properties sold or held for sale was $0 and $4.3 million, respectively.

Interest expense decreased from $15.2 million for the three months ended June 30, 2014 to $5.6 million for the three months ended June 30, 2015. The decrease in interest expense is primarily due to an overall decrease to our total debt outstanding due to loan payoffs or reductions in connection with dispositions of real estate properties and in part due to a decrease in the average loan balance of our existing notes payable related to properties held throughout both periods. Included in interest expense is the amortization of deferred financing costs of $1.9 million and $0.5 million for the three months ended June 30, 2014 and 2015, respectively. Also included in interest expense during the three months ended June 30, 2014 was $0.5 million of termination fees related to the payoff of loans secured by the real estate properties sold during the three months ended June 30, 2014. As of June 30, 2015, we had dedesignated all of our interest rate swap agreements. As a result, changes to the fair value of our interest rate swap agreements will be recognized directly in earnings as interest expense. During the three months ended June 30, 2015, we recorded $0.6 million of unrealized gain on interest rate swaps. In general, we expect interest expense to decrease in future periods due to debt repayments related to assets sold and anticipated asset sales, which may be offset by certain fees and costs that may be incurred due to the prepayment of certain loans. Our interest expense in future periods will also vary based on fluctuations in one-month LIBOR (for our variable rate debt, to the extent that such variable rate debt is not subject to an interest rate swap agreement) and our level of future borrowings, which will depend on the availability and cost of debt financing, draws on our credit facilities and any debt repayments we make. For the three months ended June 30, 2015 and 2014, interest expense from our real estate properties sold was $0 and $8.4 million, respectively.

We recognized a gain on sale of real estate of $46.6 million related to the disposition of three office properties, one industrial property and a leasehold interest in one industrial property during the three months ended June 30, 2014. We did not dispose of any real estate properties during the three months ended June 30, 2015.

35

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Comparison of the six months ended June 30, 2015 versus the six months ended June 30, 2014

The following table provides summary information about our results of operations for the six months ended June 30, 2015 and 2014 (dollar amounts in thousands):

	Six Months Ended June 30,				Increase (Decrease)			Percentage Change		$ Change Due to Dispositions (1)			$ Change Due to Properties  or Loans Held Throughout Both Periods (2)
	2015		2014
Rental income	$	71,095	$	127,264	$	(56,169	)	(44	)%	$	(57,054	)	$	885
Tenant reimbursements	7,603		32,562		(24,959		)	(77	)%	(23,351		)	(1,608		)
Interest income from real estate loans receivable	2,736		9,950		(7,214		)	(73	)%	(7,197		)	(17		)
Interest income from marketable securities	—		89		(89		)	(100	)%	—			(89		)
Other operating income	3,699		5,306		(1,607		)	(30	)%	(1,759		)	152
Operating, maintenance and management costs	18,264		34,980		(16,716		)	(48	)%	(17,366		)	650
Real estate taxes and insurance	10,423		24,334		(13,911		)	(57	)%	(14,381		)	470
Asset management fees to affiliate	6,108		11,335		(5,227		)	(46	)%	(5,321		)	94
General and administrative expenses	2,168		2,802		(634		)	(23	)%	n/a			n/a
Depreciation and amortization	27,741		47,352		(19,611		)	(41	)%	(17,956		)	(1,655		)
Interest expense	12,452		29,848		(17,396		)	(58	)%	(15,119		)	(2,277		)
Impairment charge on real estate	4,486		1,075		3,411			317	%	(1,075		)	4,486
Gain on sale of real estate, net	27,418		46,647		(19,229		)	(41	)%	(19,229		)	—

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 related to investments disposed of on or after January 1, 2014.

⁽²⁾ Represents the dollar amount increase (decrease) for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 related to real estate and real estate-related investments owned by us throughout both periods presented.

Rental income and tenant reimbursements decreased from $159.8 million for the six months ended June 30, 2014 to $78.7 million for the six months ended June 30, 2015, primarily due to the dispositions of real estate properties.  Overall, we expect rental income and tenant reimbursements to decrease in future periods due to the dispositions of real estate properties and anticipated dispositions of real estate properties. For the six months ended June 30, 2015 and 2014, rental income and tenant reimbursements from our real estate properties sold were $2.0 million and $82.4 million, respectively.

Interest income from our real estate loans receivable, recognized using the interest method, decreased from $10.0 million for the six months ended June 30, 2014 to $2.7 million for the six months ended June 30, 2015, primarily as a result of the payoff or sale of real estate loans receivable subsequent to January 1, 2014. In addition, we received a prepayment fee for the early repayment of a note receivable during the six months ended June 30, 2014. Interest income from real estate loans receivable in future periods compared to historical periods will decrease as a result of payoffs or sales of our real estate loans receivable. Subsequent to June 30, 2015, the borrower under the Summit I & II First Mortgage paid off the entire principal balance outstanding plus accrued interest. See “ —Subsequent Events — Payoff of Summit I & II First Mortgage.”

Operating, maintenance and management costs decreased from $35.0 million for the six months ended June 30, 2014 to $18.3 million for the six months ended June 30, 2015. The decrease was primarily due to the dispositions of real estate properties subsequent to January 1, 2014, partially offset by an increase in utility expenses for real estate properties held throughout both periods. Operating, maintenance and management costs may increase in future periods, as compared to historical periods, as a result of inflation. Overall, we expect operating, maintenance and management costs to decrease in future periods due to the dispositions of real estate properties and anticipated dispositions of real estate properties. For the six months ended June 30, 2015 and 2014, operating, maintenance and management costs from our real estate properties sold were $0.5 million and $17.9 million, respectively.

36

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Real estate taxes and insurance decreased from $24.3 million for the six months ended June 30, 2014 to $10.4 million for the six months ended June 30, 2015. This decrease was primarily due to the dispositions of real estate properties subsequent to January 1, 2014, partially offset by an increase due to higher property tax estimates for two of our real estate properties held throughout both periods. We expect real estate taxes and insurance to decrease in future periods due to the dispositions of real estate properties and anticipated dispositions of real estate properties. For the six months ended June 30, 2015 and 2014, real estate taxes and insurance from our real estate properties sold were $0.2 million and $14.6 million, respectively.

Asset management fees with respect to our real estate and real estate-related investments decreased from $11.3 million for the six months ended June 30, 2014 to $6.1 million for the six months ended June 30, 2015, due to the dispositions of real estate properties and the payoff or sale of real estate loans receivable subsequent to January 1, 2014. All asset management fees incurred as of June 30, 2015 have been paid. We expect asset management fees to decrease in future periods due to anticipated asset sales. For the six months ended June 30, 2015 and 2014, asset management fees from our real estate properties sold were $0.1 million and $5.2 million, respectively.

Depreciation and amortization decreased from $47.4 million for the six months ended June 30, 2014 to $27.7 million for the six months ended June 30, 2015 due to (i) the dispositions of real estate properties subsequent to January 1, 2014, (ii) the reclassification of two real estate properties from held for sale to held for investment, which resulted in a portion of the depreciation and amortization expense being classified as an impairment charge during the six months ended June 30, 2015 and (iii) a decrease in amortization of tenant origination and absorption costs for properties held throughout both periods. We expect depreciation and amortization to decrease in future periods due to the disposition of real estate properties and anticipated dispositions of real estate properties and to an overall decrease in amortization of tenant origination costs related to lease expirations. For the six months ended June 30, 2015 and 2014, depreciation and amortization from our real estate properties sold or held for sale was $0 and $18.0 million, respectively.

Interest expense decreased from $29.8 million for the six months ended June 30, 2014 to $12.5 million for the six months ended June 30, 2015. The decrease in interest expense is primarily due to an overall decrease to our total debt outstanding due to loan payoffs or reductions in connection with dispositions of real estate properties and in part due to a decrease in the average loan balance of our existing notes payable related to properties held throughout both periods. Included in interest expense is the amortization of deferred financing costs of $2.8 million and $1.1 million for the six months ended June 30, 2014 and 2015, respectively. Also included in interest expense during the six months ended June 30, 2014 was $0.9 million of unrealized swap losses primarily due to hedge ineffectiveness as a result of anticipated early repayment of debt in connection with asset sales and $0.5 million of termination fees related to the payoff of loans secured by the real estate properties sold during the six months ended June 30, 2014. As of June 30, 2015, we had dedesignated all of our interest rate swap agreements. As a result, changes to the fair value of our interest rate swap agreements will be recognized directly in earnings as interest expense. During the six months ended June 30, 2015, we recorded $0.6 million of unrealized gain on interest rate swaps. In general, we expect interest expense to decrease in future periods due to debt repayments related to assets sold and anticipated asset sales, which may be offset by certain fees and costs that may be incurred due to the prepayment of certain loans. Our interest expense in future periods will also vary based on fluctuations in one-month LIBOR (for our variable rate debt, to the extent that such variable rate debt is not subject to an interest rate swap agreement) and our level of future borrowings, which will depend on the availability and cost of debt financing, draws on our credit facilities and any debt repayments we make. For the six months ended June 30, 2015 and 2014, interest expense from our real estate properties sold was $0.4 million and $15.5 million, respectively.

During the six months ended June 30, 2015, we recognized an impairment charge on real estate properties held for investment of $4.5 million with respect to two of our real estate properties that were reclassified from held for sale to held for investment during the six months ended June 30, 2015. The impairment charge was recorded to adjust the carrying values of the properties for any depreciation and amortization expense that would have been recognized if the properties had always been classified as held for investment, which otherwise would have been recorded through depreciation and amortization expense. During the six months ended June 30, 2014, we recognized an impairment charge of $1.1 million on a real estate property that was sold. The impairment charge represents the difference between the carrying value of the real estate and the estimated sales price of the real estate (based on a purchase and sale agreement into which we entered) less costs to sell.

We recognized a gain on sale of real estate of $27.4 million related to the disposition of one office property during the six months ended June 30, 2015. During the six months ended June 30, 2014, we recognized a gain on sale of real estate of $46.6 million related to the disposition of three office properties, one industrial property and a leasehold interest in one industrial property.

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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. We compute FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. FFO represents net income, excluding 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), impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated partnerships and joint ventures. We believe FFO facilitates comparisons of operating performance between periods and among other REITs. However, 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. 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 provides a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities, and when compared year over year, FFO reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs, which may not be immediately apparent from net income or loss.

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. 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 relating to debt investments; impairments of 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 as interpreted by management. 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.

We believe that MFFO is helpful as a measure of ongoing operating performance because it excludes non-operating items included in FFO.  MFFO excludes non-cash items such as straight-line rental revenue.  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 provides comparability in evaluating the operating performance of our portfolio with other non-traded REITs which typically have limited lives with short and defined acquisition periods and targeted exit strategies.  MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.

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, FFO and MFFO do 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; however, neither FFO nor MFFO reflect adjustments for the operations of properties and real estate-related investments sold or held for sale during the periods presented. During periods of significant disposition activity, FFO and MFFO are much more limited measures of future performance and dividend sustainability. In connection with our presentation of FFO and MFFO, we are providing information related to the proportion of MFFO related to properties and real estate-related investments sold or held for sale as of June 30, 2015.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Although MFFO includes other adjustments, the exclusion of straight-line rent, the amortization of above- and below-market leases, the amortization of discounts and closing costs, prepayment fees received on notes receivable, termination fees on derivative instruments, unrealized gains (losses) on derivative instruments and prepayment fees related to the extinguishment of debt are the most significant adjustments for the periods presented.  We have excluded these items based on the following economic considerations:

• Adjustments for straight-line rent.  These are adjustments to rental revenue as required by GAAP to recognize contractual lease payments on a straight-line basis over the life of the respective lease.  We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the current economic impact of our in-place leases, also providing investors with a useful supplemental metric that addresses core operating performance by removing rent we expect to receive in a future period or rent that was received in a prior period;

• Amortization of above- and below-market leases.  Similar to depreciation and amortization of real estate assets and lease related costs that are excluded from FFO, GAAP implicitly assumes that the value of intangible lease assets and liabilities diminishes predictably over time and requires that these charges be recognized currently in revenue.  Since real estate values and market lease rates in the aggregate have historically risen or fallen with local market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate;

• Amortization of discounts and closing costs.  Discounts and closing costs related to debt investments are amortized over the term of the loan as an adjustment to interest income.  This application results in income recognition that is different than the underlying contractual terms of the debt investments.  We have excluded the amortization of discounts and closing costs related to our debt investments in our calculation of MFFO to more appropriately reflect the economic impact of our debt investments, as discounts will not be economically recognized until the loan is repaid and closing costs are essentially the same as acquisition fees and expenses on real estate (discussed below).  We believe excluding these items provides investors with a useful supplemental metric that directly addresses core operating performance;

• Prepayment fees received on notes receivable.  Prepayment fees related to notes receivable are included in interest income from real estate loans receivable.  Although these amounts increase net income, we exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate-related investments on a comparative basis;

• Termination fees on derivative instruments. Termination fees on derivative instruments are included in interest expense. Although these amounts reduce net income, we exclude them from MFFO to more appropriately reflect the economic impact of our interest rate swap agreements;

• Unrealized gains (losses) on derivative instruments.  These adjustments include unrealized gains (losses) from mark-to-market adjustments on interest rate swaps and losses due to hedge ineffectiveness.  The change in fair value of interest rate swaps not designated as a hedge and the change in fair value of the ineffective portion of interest rate swaps are non-cash adjustments recognized directly in earnings and are included in interest expense.  We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the economic impact of our interest rate swap agreements; and

• Prepayment fees related to the extinguishment of debt. Prepayment fees related to the extinguishment of debt are generally included in interest expense. Although these amounts reduce net income, we exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis.

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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 calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the following table, along with our calculation of MFFO, for the three and six months ended June 30, 2015 and 2014, 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,
	2015			2014			2015			2014
Net income	$	3,479		$	59,719		$	31,011		$	70,146
Depreciation of real estate assets	8,617			9,171			15,803			24,047
Amortization of lease-related costs	6,185			9,338			11,938			23,305
Impairment charge on real estate	—			—			4,486			1,075
Gain on sale of real estate, net	(11		)	(46,647		)	(27,418		)	(46,647		)
FFO	18,270			31,581			35,820			71,926
Straight-line rent and amortization of above- and below-market leases	(852		)	(22		)	(3,114		)	(2,185		)
Amortization of discounts and closing costs	3			3			6			(112		)
Prepayment fee received on note receivable	—			—			—			(4,917		)
Termination fees on derivative instruments	—			364			170			521
Unrealized (gain) losses on derivative instruments	(607		)	55			(638		)	862
Prepayment fees related to the extinguishment of debt	—			546			—			546
MFFO	$	16,814		$	32,527		$	32,244		$	66,641

Our calculation of MFFO above includes amounts related to the operations of 16 real estate properties sold and three real estate loans receivable sold or paid off between January 1, 2014 and June 30, 2015. Please refer to the table below with respect to the proportion of MFFO related to real estate properties sold or real estate-related investments sold or paid off as of June 30, 2015 (in thousands).

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014
MFFO by component:
Assets held for investment	$	16,782	$	17,315	$	31,423	$	32,953
Real estate properties sold	32		14,680		821		31,742
Real estate loans receivable sold or paid off	—		532		—		1,946
MFFO	$	16,814	$	32,527	$	32,244	$	66,641

FFO and MFFO may also 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.

40

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Distributions

Distributions declared, distributions paid and cash flow from operations were as follows for the first and second quarters of 2015 (in thousands, except per share amounts):

Period	Distributions Declared (1)		Distributions Declared Per Share(1)(2)		Distributions Paid (3)		Cash Flow From Operations
First Quarter 2015	$	13,764	$	0.072	$	15,479	$	5,891
Second Quarter 2015	13,907		0.073		14,066		14,838
	$	27,671	$	0.145	$	29,545	$	20,729

_____________________

⁽¹⁾ “Distributions Declared” and “Distributions Declared Per Share” consist of the following:

• On January 15, 2015, our board of directors declared January 2015 and February 2015 distributions in the amounts of $0.02488493 and $0.02247671, respectively, per share of common stock to stockholders of record as of the close of business on January 29, 2015 and February 26, 2015, respectively. These distributions totaled approximately $4.7 million and $4.3 million, respectively.

• On March 6, 2015, our board of directors declared March 2015 and April 2015 distributions in the amounts of $0.02488493 and $0.02408219, respectively, per share of common stock to stockholders of record as of the close of business on March 20, 2015 and April 20, 2015, respectively. These distribution totaled approximately $4.7 million and $4.6 million, respectively.

• On May 13, 2015, our board of directors declared May 2015 and June 2015 distributions in the amounts of $0.02488493 and $0.02408219, respectively, per share of common stock to stockholders of record as of the close of business on May 20, 2015 and June 19, 2015, respectively. These distribution totaled approximately $4.7 million and $4.6 million, respectively.

⁽²⁾ Assumes share was issued and outstanding each day that was a record date during the period presented.

⁽³⁾ Other than special distributions, distributions generally are paid on a monthly basis, on or about the first business day of the following month.

For the six months ended June 30, 2015, we paid aggregate distributions of $29.5 million, all of which were paid in cash. FFO and cash flow from operations for the six months ended June 30, 2015 were $35.8 million and $20.7 million, respectively. We funded our total distributions paid with $19.9 million of current period cash flow from operations and $9.6 million of cash on hand. For purposes of determining the source of our distributions paid, we assume first that we use cash flow from operations from the relevant periods to fund distribution payments. See the reconciliation of FFO to net income above.

Over the long term, we expect that our distributions will generally be paid from cash flow from operations and FFO from current or prior periods (except with respect to distributions related to sales of our assets and distributions related to the repayment of principal under our mortgage loan investment).

During the six months ended June 30, 2015, we disposed of one office property, and during the year ended December 31, 2014, we sold 15 real estate properties and received loan repayments on three of our real estate loans receivable. Our cash flow from operations has decreased and will continue to decrease as a result of our disposition activity, and we have adjusted our distribution policy with respect to the amount of monthly distribution payments to take into account our disposition activity and current real estate investments. We may continue to make strategic asset sales as opportunities become available in the market. Any future special distributions we make from the proceeds of future dispositions will reduce our estimated value per share and this reduction will be reflected in our updated estimated value per share, which we expect to update in December of each year, or more frequently.

Our operating performance and ability to pay distributions from our cash flow from operations and/or the disposition of our assets 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,” “Liquidity and Capital Resources” 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, 2014, as filed with the SEC. Those factors include: the future operating performance of our investments in the existing real estate and the financial environment; the success and economic viability of our tenants; the ability of our borrower and its sponsor to continue to make debt service payments and/or to repay the loan upon maturity; our ability to refinance existing indebtedness at comparable terms; changes in interest rates on our variable rate debt obligations; our ability to successfully dispose of some of our assets; and the sources and amounts of cash we have available for distributions.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

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, 2014 filed with the SEC. There have been no significant changes to our policies during 2015.

Subsequent Events

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

Distributions Paid

On July 1, 2015, we paid distributions of $4.6 million, which related to distributions declared for June 2015 in the amount of $0.02408219 per share of common stock to stockholders of record as of the close of business on June 19, 2015. On August 3, 2015, we paid distributions of $4.7 million, which related to distributions declared for July 2015 in the amount of $0.02488493 per share of common stock to stockholders of record as of the close of business on July 20, 2015.

Distributions Declared

On August 11, 2015, our board of directors declared an August 2015 distribution in the amount of $0.02488493 per share of common stock to stockholders of record as of the close of business on August 20, which we expect to pay in September 2015, and a September 2015 distribution in the amount of $0.02408219 per share of common stock to stockholders of record as of the close of business on September 21, 2015, which we expect to pay in October 2015.

Payoff of Summit I & II First Mortgage

On January 17, 2012, we, through an indirect wholly owned subsidiary, originated a first mortgage loan in the amount of up to $58.8 million (the “Summit I & II First Mortgage”) to fund the acquisition of two six-story Class B+ office buildings located in Reston, Virginia. On August 4, 2015, the borrower of the Summit I & II First Mortgage exercised its prepayment option, pursuant to which the borrower paid off the entire principal balance outstanding and accrued interest in the amount of $58.7 million, and paid a yield maintenance premium of $0.9 million. The Summit I & II First Mortgage had an original maturity date of February 1, 2017 and bore interest at a fixed rate of 7.5%.

42

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, to fund the financing and refinancing of our real estate and real estate-related investment portfolio, and to fund our operations. 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 variable 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 of distributions to our stockholders and that the losses may exceed the amount we invested in the instruments.

We borrow funds and made real estate-related 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. As of June 30, 2015, the fair value and carrying value of our fixed rate real estate loans receivable were $73.9 million and $72.6 million, respectively. The fair value estimate of our real estate loans receivable is calculated 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. As of June 30, 2015, the fair value of our fixed rate debt was $140.3 million and the carrying value of our fixed rate debt was $140.0 million. The fair value estimate of our fixed rate debt was calculated 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 as of June 30, 2015. 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 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 variable rate instruments. As of June 30, 2015, we were exposed to market risks related to fluctuations in interest rates on $41.7 million of variable rate debt outstanding, after giving consideration to the impact of interest rate swap agreements on approximately $519.2 million of our variable rate debt. Based on interest rates as of June 30, 2015, if interest rates were 100 basis points higher during the 12 months ending June 30, 2016, interest expense on our variable rate debt would increase by $0.4 million. As of June 30, 2015, one-month LIBOR was 0.18650% and if this index was reduced to 0% during the 12 months ending June 30, 2016, interest expense on our variable rate debt would decrease by $78,000.

The weighted-average annual effective interest rate of our fixed rate real estate loans receivable as of June 30, 2015 was 7.6%. The weighted-average annual effective interest rate represents the effective interest rate as of June 30, 2015, using the interest method, which 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 as of June 30, 2015 were 3.5% and 3.1%, respectively. The weighted-average interest rate represents the actual interest rate in effect as of June 30, 2015 (consisting of the contractual interest rate and the effect of interest rate swaps and floors, if applicable), using interest rate indices as of June 30, 2015, where applicable.

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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 principal executive officer and principal 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 principal executive officer and principal 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 principal executive officer and our principal 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 the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

44

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, 2014 filed with the SEC.

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) Not applicable.

c) Our share redemption program provides only for redemptions sought upon a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined in the share redemption program document, and together with redemptions sought in connection with a stockholder’s death, “special redemptions”). Such redemptions are subject to the limitations described in the share redemption program document, including:

• During each calendar year, special redemptions are limited to an annual dollar amount determined by the board of directors, which may be reviewed during the year and increased or decreased upon ten business days’ notice to our stockholders. We may provide notice by including such information (a) in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the Securities and Exchange Commission or (b) in a separate mailing to the stockholders. On December 2, 2014, the board of directors approved the dollar amount limitation for special redemptions for calendar year 2015 of $10.0 million in the aggregate, as may be reviewed and adjusted from time to time by the board of directors.

• 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 General Corporation Law, as amended from time to time, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.

If we cannot repurchase all shares presented for redemption in any month because of the limitations on redemptions set forth in our share redemption program, then we will honor redemption requests on a pro rata basis, except that if a pro rata redemption would result in a stockholder owning less than the minimum purchase requirement described in our currently effective, or our most recently effective, registration statement as such registration statement has been amended or supplemented, then we would redeem all of such stockholder’s shares.

Pursuant to the share redemption program, redemptions made in connection with special redemptions are made at a price per share equal to the most recent estimated value per share of our common stock as of the applicable redemption date.

The only redemptions we made under our share redemption program during the six months ended June 30, 2015 were those that qualified as, and met the requirements for, special redemptions under our share redemption program and we fulfilled all special redemption requests eligible for redemption under our share redemption program. We funded redemptions during the six months ended June 30, 2015 with proceeds from the sale of real estate properties and existing cash on hand.

We may amend, suspend or terminate our share redemption program with 30 days’ notice to our stockholders, provided that we may increase or decrease the funding available for the redemption of shares under the program upon ten business 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. We do not currently expect to have funds available for ordinary redemptions in the future.

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PART II. OTHER INFORMATION (CONTINUED)

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

During the six months ended June 30, 2015, we 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 2015	27,535	$	5.86	(3)
February 2015	30,945	$	5.86	(3)
March 2015	57,839	$	5.86	(3)
April 2015	32,867	$	5.86	(3)
May 2015	157,802	$	5.86	(3)
June 2015	123,551	$	5.86	(3)
Total	430,539

_____________________

⁽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), on March 11, 2011 (which amendment became effective on April 10, 2011), on May 18, 2012 (which amendment became effective on June 17, 2012), on June 29, 2012 (which amendment became effective on July 29, 2012), on October 18, 2012 (which amendment became effective on November 17, 2012), on March 8, 2013 (which amendment became effective on April 7, 2013), on October 17, 2013 (which amendment became effective on November 16, 2013) and on May 19, 2014 (which amendment became effective on June 18, 2014).

⁽²⁾ In accordance with our share redemption program, the redemption price for special redemptions is equal to the most recent estimated value per share of our common stock as of the redemption date. On December 4, 2014, our board of directors approved an estimated value per share of our common stock of $5.86 (unaudited) based on the estimated value of our assets less the estimated value of our liabilities divided by the number of shares outstanding, as of September 30, 2014. The change in the redemption price became effective for the December 2014 redemption date and is effective until the estimated value per share is updated. We expect to utilize our advisor and/or an independent valuation firm to update the estimated value per share in December of each year, or more frequently. For a full description of the methodologies used to value our assets and liabilities in connection with the calculation of the estimated value per share, see our Current Report on Form 8-K dated December 2, 2014 and filed with the SEC on December 4, 2014.

⁽³⁾ We limit the dollar value of shares that may be redeemed under the share redemption program as described above. For the six months ended June 30, 2015, we redeemed $2.5 million of shares, which represented all redemption requests received in good order and eligible for redemption through the June 2015 redemption date. Based on the redemption limitations described above and redemptions through June 30, 2015, we may redeem up to $7.5 million of shares in connection with special redemptions for the remainder of 2015.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

46

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
10.1	Advisory Agreement, by and between the Company and KBS Capital Advisors LLC, dated May 21, 2015
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
99.1	Eighth Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed May 19, 2014
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

47

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.
Date:	August 12, 2015	By:	/S/ CHARLES J. SCHREIBER, JR.
			Charles J. Schreiber, Jr.
			Chairman of the Board, Chief Executive Officer and Director
			(principal executive officer)
Date:	August 12, 2015	By:	/S/ JEFFREY K. WALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer
			(principal financial officer)

48

EX-10.1

Exhibit 10.1

ADVISORY AGREEMENT

between

KBS REAL ESTATE INVESTMENT TRUST II, INC.

and

KBS CAPITAL ADVISORS LLC

May 21, 2015

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		20
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		21
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
	15.01 Indemnification	23
	15.02 Limitation on Indemnification	24
	15.03 Limitation on Payment of Expenses	24

i

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	25
	16.08 Titles Not to Affect Interpretation	26
	16.09 Counterparts	26

ii

ADVISORY AGREEMENT

This Advisory Agreement, dated as of May 21, 2015 (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 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 which it is, directly or indirectly, a co-venturer or partner, such amount shall be the Company’s proportionate share thereof.

“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

3

debt associated with such Properties that is attributable to the Company’s investment in the Joint Venture or partnership.

“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.

7

“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.

8

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;

9

(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

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respect to the making of investments consistent with the investment objectives 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 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

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a computation of the Disposition Fee. Generally, the Disposition Fee payable to the Advisor shall 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”),

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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) 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.

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.

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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 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,

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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 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;

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(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.

Notwithstanding the foregoing, the Company shall not indemnify the Advisor 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

23

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 Advisor 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 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:

24

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.

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.

25

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 12, 2015	By:	/S/ CHARLES J. SCHREIBER, JR.
			Charles J. Schreiber, Jr.
			Chairman of the Board, Chief Executive Officer and Director
			(principal executive officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey K. Waldvogel, 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 12, 2015	By:	/S/ JEFFREY K. WALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer
			(principal 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, 2015, 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 12, 2015	By:	/S/ CHARLES J. SCHREIBER, JR.
			Charles J. Schreiber, Jr.
			Chairman of the Board, Chief Executive Officer and Director
			(principal executive officer)

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, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jeffrey K. Waldvogel, 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 12, 2015	By:	/S/ JEFFREY K. WALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer
			(principal financial officer)

XML

REAL ESTATE HELD FOR INVESTMENT (Concentration of Credit Risk for Tenant Leases) (Details) - Jun. 30, 2015 $ in Thousands		USD ($) ft² $ / ft²
Real Estate Properties [Line Items]
Annualized Base Rent	[1]	$ 55,962
Union Bank Plaza [Member]
Real Estate Properties [Line Items]
Square Feet | ft²		408,260
% of Portfolio (Net Rentable Sq. Ft.)		8.80%
Annualized Base Rent	[1]	$ 16,742
% of Portfolio Annualized Base Rent		12.30%
Annualized Base Rent per Sq. Ft. | $ / ft²		41.01
Union Bank Plaza [Member] | Option One [Member]
Real Estate Properties [Line Items]
Lease Expiration		Sep. 30, 2016
Union Bank Plaza [Member] | Option Two [Member]
Real Estate Properties [Line Items]
Lease Expiration		Jan. 31, 2022

[1] Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

XML

FAIR VALUE DISCLOSURES (Schedule of Assets and Liabilities at Fair Value) (Details) - Recurring Basis [Member] $ in Thousands	Jun. 30, 2015 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability derivatives	$ 2,678
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability derivatives	0
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability derivatives	2,678
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability derivatives	$ 0

XML

NOTES PAYABLE (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Debt Instrument [Line Items]
Interest expense	$ 5,605	$ 15,213	$ 12,452	$ 29,848
Interest payable, current	1,900		1,900		$ 2,200
Amortization of deferred financing costs	500	1,900	1,100	2,759
Additional interest expense related to the effective portion of cash flow hedges	1,000	$ 2,400	2,800	$ 5,500
Deferred Financing Costs, Prepaid Expenses and Other Assets, at Fair Value [Member]
Debt Instrument [Line Items]
Deferred financing costs	$ 2,100		$ 2,100		$ 3,100

XML

RELATED PARTY TRANSACTIONS (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Related Party Transaction [Line Items]
Administrative fees		$ 35	$ 37	$ 68	$ 73
Advisor and Dealer Manager [Member]
Related Party Transaction [Line Items]
Incurred		3,062	8,231	7,426	13,971
Payable as of		43		43		$ 38
Advisor and Dealer Manager [Member] | Expensed [Member] | Asset Management Fees [Member]
Related Party Transaction [Line Items]
Expenses		3,022	5,631	6,108	11,335
Payable as of		0		0		0
Advisor and Dealer Manager [Member] | Expensed [Member] | Reimbursement of Operating Expenses [Member]
Related Party Transaction [Line Items]
Expenses	[1]	40	37	79	73
Payable as of	[1]	43		43		38
Advisor and Dealer Manager [Member] | Expensed [Member] | Dispositon Fees [Member]
Related Party Transaction [Line Items]
Expenses	[2]	0	$ 2,563	1,239	$ 2,563
Payable as of	[2]	$ 0		$ 0		$ 0

[1] The Advisor may seek reimbursement for certain employee costs under the Advisory Agreement. The Company reimburses 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 amounts totaled $35,000 and $37,000 for the three months ended June 30, 2015 and 2014, respectively, and $68,000 and $73,000 for the six months ended June 30, 2015 and 2014, respectively, and were the only type of employee costs reimbursed under the Advisory Agreement for the six months ended June 30, 2015 and 2014. 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] Disposition fees with respect to real estate sold are included in the gain on sale of real estate, net in the accompanying consolidated statements of operations. Disposition fees with respect to real estate loans receivable sold are included in the gain on payoff or sale of real estate loans receivable in the accompanying consolidated statements of operations.

XML

REAL ESTATE SALES (Revenue and Expenses of Real Estate Held-for-Sale) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenues
Rental income	$ 34,271	$ 62,049	$ 71,095	$ 127,264
Tenant reimbursements	3,711	15,893	7,603	32,562
Total revenues	41,203	82,716	85,133	175,171
Expenses
Operating, maintenance, and management	8,114	16,784	18,264	34,980
Real estate taxes and insurance	5,202	12,015	10,423	24,334
Asset management fees to affiliate	3,022	5,631	6,108	11,335
General and administrative expenses	1,045	1,513	2,168	2,802
Depreciation and amortization	14,802	18,509	27,741	47,352
Interest expense	5,605	15,213	12,452	29,848
Impairment charge on real estate	0	0	4,486	1,075
Total expenses	37,790	69,665	81,642	151,726
Assets Held-for-sale [Member]
Revenues
Rental income	0	28,036	1,835	58,889
Tenant reimbursements	0	11,438	140	23,492
Other operating income	0	914	126	1,884
Total revenues	0	40,388	2,101	84,265
Expenses
Operating, maintenance, and management	0	8,467	536	17,913
Real estate taxes and insurance	0	7,354	230	14,600
Asset management fees to affiliate	0	2,597	108	5,240
General and administrative expenses	0	343	0	384
Depreciation and amortization	0	4,292	0	17,956
Interest expense	0	8,359	411	15,531
Impairment charge on real estate	0	0	0	1,075
Total expenses	$ 0	$ 31,412	$ 1,285	$ 72,699

XML

REAL ESTATE HELD FOR INVESTMENT (Narrative) (Details) $ in Thousands, ft² in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($) ft² property	Jun. 30, 2014 USD ($)	Jun. 30, 2015 USD ($) ft² property	Jun. 30, 2014 USD ($)
Real Estate Properties [Line Items]
Number of real estate properties	12		12
Occupancy	89.00%		89.00%
Impairment charge on real estate | $	$ 0	$ 0	$ 4,486	$ 1,075
Number of real estate properties included in impairment calculation			2
Real Estate Held-for-Investment [Member]
Real Estate Properties [Line Items]
Rentable Square Feet | ft²	5.2		5.2
Impairment charge on real estate | $			$ 4,500
Office Properties [Member]
Real Estate Properties [Line Items]
Number of real estate properties	10		10
Office Properties [Member] | Real Estate Held-for-Investment [Member]
Real Estate Properties [Line Items]
Number of real estate properties	10		10
Office/Flex Properties [Member]
Real Estate Properties [Line Items]
Number of real estate properties	1		1
Office/Flex Properties [Member] | Real Estate Held-for-Investment [Member]
Real Estate Properties [Line Items]
Number of real estate properties	1		1
Office Campus [Member]
Real Estate Properties [Line Items]
Number of real estate properties	1		1
Office Buildings, Campus [Member]
Real Estate Properties [Line Items]
Number of real estate properties	8		8
Office Buildings, Campus [Member] | Real Estate Held-for-Investment [Member]
Real Estate Properties [Line Items]
Number of real estate properties	8		8

XML

SEGMENT INFORMATION (Reconciliation of Net Income (Loss) to Net Operating Income (Loss)) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Segment Reporting [Abstract]
Net income	$ 3,479	$ 59,719	$ 31,011	$ 70,146	$ 445,507
Gain on sale of real estate, net	(11)	(46,647)	(27,418)	(46,647)
Other interest income	(55)	(21)	(102)	(54)
Asset management fees to affiliate	3,022	5,631	6,108	11,335
General and administrative expenses	1,045	1,513	2,168	2,802
Depreciation and amortization	14,802	18,509	27,741	47,352
Impairment charge on real estate	0	0	4,486	1,075
Total net operating income	$ 22,282	$ 38,704	$ 43,994	$ 86,009

XML

REAL ESTATE SALES (Tables)

6 Months Ended

Jun. 30, 2015

Discontinued Operations and Disposal Groups [Abstract]

Schedule of Revenue and Expenses of Real Estate Held-for-Sale

The following table summarizes certain revenue and expenses related to the Company’s real estate properties that were sold during the year ended December 31, 2014 and six months ended June 30, 2015, which were included in continuing operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Revenues
Rental income	$	—	$	28,036	$	1,835	$	58,889
Tenant reimbursements	—		11,438		140		23,492
Other operating income	—		914		126		1,884
Total revenues	—		40,388		2,101		84,265
Expenses
Operating, maintenance, and management	—		8,467		536		17,913
Real estate taxes and insurance	—		7,354		230		14,600
Asset management fees to affiliate	—		2,597		108		5,240
General and administrative expenses	—		343		—		384
Depreciation and amortization	—		4,292		—		17,956
Interest expense	—		8,359		411		15,531
Impairment charge on real estate	—		—		—		1,075
Total expenses	$	—	$	31,412	$	1,285	$	72,699

Schedule of Major Components of Real Estate Held for Sale and Liabilities Related to Real Estate Held for Sale

The following summary presents the major components of assets and liabilities related to real estate held for sale as of June 30, 2015 and December 31, 2014 (in thousands). No real estate properties were held for sale as of June 30, 2015.

	June 30, 2015		December 31, 2014
Assets related to real estate held for sale
Total real estate, at cost and net of impairment charge	$	—	$	116,264
Accumulated depreciation and amortization	—		(22,582		)
Real estate held for sale, net	—		93,682
Other assets	—		4,289
Total assets related to real estate held for sale	$	—	$	97,971
Liabilities related to real estate held for sale
Notes payable	—		63,652
Other liabilities	—		3,024
Total liabilities related to real estate held for sale	$	—	$	66,676

XML

NOTES PAYABLE (Schedule of Maturities of Long-Term Debt) (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Notes Payable [Abstract]
July 1, 2015 through December 31, 2015	$ 185,000
2016	300,473
2017	77,218
2018	2,750
2019	2,848
Thereafter	132,622
Total notes payable	$ 700,911	$ 790,611

XML

REAL ESTATE LOANS RECEIVABLE (Schedule of Real Estate Loans Receivable) (Details) - USD ($) $ in Thousands		6 Months Ended
		Jun. 30, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Mortgage Loans on Real Estate, Outstanding Principal Balance	[1]	$ 72,595
Book Value	[2]	$ 72,620	$ 72,940
Mortgages [Member] | Sheraton Charlotte Airport Hotel First Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Date Acquired		Jul. 11, 2011
Mortgage Loans on Real Estate, Outstanding Principal Balance	[1]	$ 14,276
Book Value	[2]	$ 14,286	14,353
Contractual Interest Rate	[3]	7.50%
Annualized Effective Interest Rate	[3]	7.60%
Maturity Date	[4]	Aug. 01, 2018
Mortgages [Member] | Origination of Summit I & II First Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Date Acquired		Jan. 17, 2012
Mortgage Loans on Real Estate, Outstanding Principal Balance	[1],[5]	$ 58,319
Book Value	[2],[5]	$ 58,334	$ 58,587
Contractual Interest Rate	[3],[5]	7.50%
Annualized Effective Interest Rate	[3],[5]	7.60%
Maturity Date	[4],[5]	Feb. 01, 2017

[1] Outstanding principal balance as of June 30, 2015 represents original principal balance outstanding under the loan, increased for any subsequent fundings and reduced for any principal paydowns.

[2] Book value represents outstanding principal balance, adjusted for unamortized acquisition discounts, origination fees and direct origination and acquisition costs.

[3] Contractual interest rate is the stated interest rate on the face of the loan. Annualized effective interest rate is calculated as the actual interest income recognized in 2015, using the interest method, annualized and divided by the average amortized cost basis of the investment during 2015. The contractual interest rates and annualized effective interest rates presented are as of June 30, 2015.

[4] Maturity dates are as of June 30, 2015; subject to certain conditions, the maturity dates of certain real estate loans receivable may be extended beyond the maturity date shown.

[5] Subsequent to June 30, 2015, the borrower under the Summit I & II First Mortgage paid off the entire principal balance outstanding of $58.3 million plus accrued interest. See Note 13, “Subsequent Events — Payoff of Summit I & II First Mortgage.”

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REAL ESTATE HELD FOR INVESTMENT (Future Minimum Rental Income) (Details) $ in Thousands	Jun. 30, 2015 USD ($)
Real Estate [Abstract]
July 1, 2015 through December 31, 2015	$ 62,393
2016	125,634
2017	117,028
2018	101,102
2019	80,835
Thereafter	369,600
Future minimum rental income	$ 856,592

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DERIVATIVE INSTRUMENTS (Statement of Operations) (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Derivative [Line Items]
Unrealized (gains) losses on interest rate swaps		$ 0	$ 1,390	$ 0	$ 2,396
Interest Rate Swap [Member]
Derivative [Line Items]
Increase in interest expense as a result of derivatives		964	2,358	2,784	5,507
Interest Rate Swap [Member] | Derivatives Designated as Hedging Instrument [Member]
Derivative [Line Items]
Amount of loss recognized on interest rate swaps (effective portion)	[1]	620	1,939	1,312	4,124
Unrealized losses due to hedge ineffectiveness	[1]	0	0	0	822
Reclassification of realized losses related to swap terminations	[1]	0	364	0	521
Increase in interest expense as a result of derivatives	[1]	620	2,303	1,312	5,467
Interest Rate Swap [Member] | Derivatives Not Designated as Hedging Instrument [Member]
Derivative [Line Items]
Realized loss recognized on interest rate swaps		951	0	1,940	0
Unrealized (gains) losses on interest rate swaps		(607)	55	(638)	40
Losses related to swap terminations		0	0	170	0
Increase in interest expense as a result of derivatives		$ 344	$ 55	$ 1,472	$ 40

[1] All of the Company’s interest rate swap agreements were initially designated as cash flow hedges. During 2014, the Company dedesignated all of its interest rate swap instruments due to the anticipated early repayment of debt in connection with asset sales, and therefore, certain hedged forecasted transactions were no longer probable beyond the projected asset sale date.

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REAL ESTATE SALES (Schedule of Major Components of Real Estate Held for Sale and Liabilities Related to Real Estate Held for Sale) (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Discontinued Operations and Disposal Groups [Abstract]
Total real estate, at cost and net of impairment charges	$ 0	$ 116,264
Accumulated depreciation and amortization	0	(22,582)
Real estate held for sale, net	0	93,682
Other assets	0	4,289
Total assets related to real estate held for sale	0	97,971
Notes payable	0	63,652
Other liabilities	0	3,024
Total liabilities related to real estate held for sale	$ 0	$ 66,676

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2015

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, 2014. 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, 2014 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”). 

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto 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 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 six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

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. 

Use of Estimates

The preparation of the consolidated financial statements and condensed notes thereto 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.  During the six months ended June 30, 2015, the Company sold one office property.  As a result, certain assets and liabilities were reclassified to held for sale on the consolidated balance sheets for all periods presented. Additionally, as of June 30, 2015, the Company reclassified two properties that were previously classified as held for sale to held for investment.

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 six months ended June 30, 2015 and 2014, respectively.

Distributions declared per common share were $0.073 and $0.145 for the three and six months ended June 30, 2015, respectively. Distributions declared per common share assumes each share was issued and outstanding each day that was a record date for distributions during the six months ended June 30, 2015. These distributions declared consisted of the following:

• On January 15, 2015, the Company’s board of directors declared January 2015 and February 2015 distributions in the amounts of $0.02488493 and $0.02247671, respectively, per share of common stock to stockholders of record as of the close of business on January 29, 2015 and February 26, 2015, respectively.

• On March 6, 2015, the Company’s board of directors declared March 2015 and April 2015 distributions in the amounts of $0.02488493 and $0.02408219, respectively, per share of common stock to stockholders of record as of the close of business on March 20, 2015 and April 20, 2015, respectively.

• On May 13, 2015, the Company’s board of directors declared May 2015 and June 2015 distributions in the amounts of $0.02488493 and $0.02408219, respectively, per share of common stock to stockholders of record as of the close of business on May 20, 2015 and June 19, 2015, respectively.

Distributions declared per common share were $0.162 and $0.322 for the three and six months ended June 30, 2014, respectively. Distributions declared per common share assumes each share was issued and outstanding each day during the three and six months ended June 30, 2014. For each day that was a record date for distributions during the three and six months ended June 30, 2014, distributions were calculated at a rate of $0.00178082 per share per day. Each day during the period from January 1, 2014 through June 30, 2014 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.”

Recently Issued Accounting Standards Update

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification.  ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. On July 9, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements, but does not expect the adoption of ASU No. 2014-09 to have a material impact on its financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”). The amendments in ASU No. 2014-15 require management to evaluate, for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued when applicable) and, if so, provide related disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect the adoption of ASU No. 2014-15 to have a significant impact on its financial statements.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU No. 2015-01”). The amendments in ASU No. 2015-01 eliminate from GAAP the concept of extraordinary items.  Although the amendments will eliminate the requirements in Subtopic 225-20 for reporting entities to consider whether an underlying event or transaction is extraordinary, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU No. 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU No. 2015-01 to have a significant impact on its financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs (“ASU No. 2015-03”). The amendments in ASU No. 2015-03 require debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. ASU No. 2015-03 is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of debt issuance costs. ASU No. 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and is to be applied retrospectively. Early adoption is permitted for financial statements that have not been previously issued. The adoption of ASU No. 2015-03 would change the presentation of debt issuance costs as the Company presents debt issuance costs as deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets.

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REAL ESTATE LOANS RECEIVABLE (Schedule of Activity Related to Real Estate Loans Receivable) (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Real Estate Loans Receivable [Roll Forward]
Real estate loans receivable - December 31, 2014	[1]			$ 72,940
Principal repayments received on real estate loans receivable				(314)	$ (61)
Amortization of closing costs and origination fees on real estate loans receivable		$ (3)	$ (3)	(6)	$ 112
Real estate loans receivable - June 30, 2015	[1]	$ 72,620		$ 72,620

[1] Book value represents outstanding principal balance, adjusted for unamortized acquisition discounts, origination fees and direct origination and acquisition costs.

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RELATED PARTY TRANSACTIONS (Tables)

6 Months Ended

Jun. 30, 2015

Related Party Transactions [Abstract]

Schedule of Related Party Costs

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, 2015 and 2014, respectively, and any related amounts payable as of June 30, 2015 and December 31, 2014 (in thousands):

	Incurred								Payable as of
	Three Months Ended June 30,				Six Months Ended June 30,				June 30,		December 31,
	2015		2014		2015		2014		2015		2014
Expensed
Asset management fees	$	3,022	$	5,631	$	6,108	$	11,335	$	—	$	—
Reimbursement of operating expenses (1)	40		37		79		73		43		38
Disposition fees (2)	—		2,563		1,239		2,563		—		—
	$	3,062	$	8,231	$	7,426	$	13,971	$	43	$	38

_____________________

⁽¹⁾ The Advisor may seek reimbursement for certain employee costs under the Advisory Agreement. The Company reimburses 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 amounts totaled $35,000 and $37,000 for the three months ended June 30, 2015 and 2014, respectively, and $68,000 and $73,000 for the six months ended June 30, 2015 and 2014, respectively, and were the only type of employee costs reimbursed under the Advisory Agreement for the six months ended June 30, 2015 and 2014. 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⁾ Disposition fees with respect to real estate sold are included in the gain on sale of real estate, net in the accompanying consolidated statements of operations.  Disposition fees with respect to real estate loans receivable sold are included in the gain on payoff or sale of real estate loans receivable in the accompanying consolidated statements of operations.

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FAIR VALUE DISCLOSURES (Tables)

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Schedule of Face Value, Carrying Amounts and Fair Value

The following were the face values, carrying amounts and fair values of the Company’s real estate loans receivable and notes payable as of June 30, 2015 and December 31, 2014, which carrying amounts do not generally approximate the fair values (in thousands):

	June 30, 2015						December 31, 2014
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial assets:
Real estate loans receivable	$	72,595	$	72,620	$	73,906	$	72,908	$	72,940	$	73,414
Financial liabilities:
Notes payable	$	700,911	$	700,911	$	701,759	$	790,611	$	790,611	$	794,439

Schedule of Assets and Liabilities at Fair Value

As of June 30, 2015, the Company measured the following 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)
Recurring Basis:
Liability derivatives	$	2,678	$	—	$	2,678	$	—

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SEGMENT INFORMATION (Schedule of Segment Reporting Information, by Segment) (Details) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2015 USD ($)	Jun. 30, 2014 USD ($)	Jun. 30, 2015 USD ($) segments	Jun. 30, 2014 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)
Segment Reporting Information [Line Items]
Number of reportable segments | segments				2
Revenues		$ 41,203	$ 82,716	$ 85,133	$ 175,171
Interest expense		5,605	15,213	12,452	29,848
Total net operating income		22,282	38,704	43,994	86,009
Assets		1,554,176		1,554,176		$ 1,657,516
Liabilities		742,520		742,520		847,989
Cash and cash equivalents		191,363	167,914	191,363	167,914	179,021	$ 175,042
Corporate-Level [Member]
Segment Reporting Information [Line Items]
Revenues		0	89	0	89
Total net operating income		0	89	0	89
Assets	[1]	180,144		180,144		168,098
Liabilities	[2]	5,064		5,064		7,138
Cash and cash equivalents		180,000		180,000		167,800
Real Estate Segment [Member]
Segment Reporting Information [Line Items]
Revenues	[3]	39,829	80,641	82,397	165,132
Interest expense	[3]	5,605	14,626	12,452	28,855
Total net operating income	[3]	20,912	37,216	41,270	77,014
Assets		1,300,394		1,300,394		1,317,990
Liabilities		737,456		737,456		774,173
Real Estate-Related Segment [Member]
Segment Reporting Information [Line Items]
Revenues		1,374	1,986	2,736	9,950
Interest expense		0	587	0	993
Total net operating income		1,370	1,399	2,724	8,906
Assets		73,638		73,638		73,457
Liabilities		0		0		2
Operating Segments [Member]
Segment Reporting Information [Line Items]
Revenues		41,203	82,627	85,133	175,082
Total net operating income		22,282	$ 38,615	43,994	$ 85,920
Assets		1,374,032		1,374,032		1,391,447
Liabilities		737,456		737,456		774,175
Real Estate Held-for-Sale [Member]
Segment Reporting Information [Line Items]
Assets		0		0		97,971
Liabilities		$ 0		$ 0		$ 66,676

[1] Total corporate-level assets consisted primarily of cash and cash equivalents of approximately $180.0 million and $167.8 million as of June 30, 2015 and December 31, 2014, respectively.

[2] As of June 30, 2015 and December 31, 2014, corporate-level liabilities consisted primarily of distributions payable.

[3] Amounts include properties sold. See Note 6, “Real Estate Sales” for more information.

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REAL ESTATE LOANS RECEIVABLE (Schedule of Interest Income from Real Estate Loans Receivable) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Receivables [Abstract]
Contractual interest income	$ 1,377	$ 1,989	$ 2,742	$ 4,921
Prepayment fee received on real estate loan receivable	0	0	0	4,917
Amortization of closing costs and origination fees	(3)	(3)	(6)	112
Interest income from real estate loans receivable	1,374	$ 1,986	2,736	$ 9,950
Interest receivable	$ 500		$ 500		$ 500

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SEGMENT INFORMATION (Tables)

6 Months Ended

Jun. 30, 2015

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

The following tables summarize total revenues and NOI for each reportable segment for the three and six months ended June 30, 2015 and 2014 and total assets and total liabilities for each reportable segment as of June 30, 2015 and December 31, 2014 (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014
Revenues:
Real estate segment (1)	$	39,829	$	80,641	$	82,397	$	165,132
Real estate-related segment	1,374		1,986		2,736		9,950
Total segment revenues	41,203		82,627		85,133		175,082
Corporate-level	—		89		—		89
Total revenues	$	41,203	$	82,716	$	85,133	$	175,171
Interest Expense:
Real estate segment (1)	$	5,605	$	14,626	$	12,452	$	28,855
Real estate-related segment	—		587		—		993
Total interest expense	$	5,605	$	15,213	$	12,452	$	29,848
NOI:
Real estate segment (1)	$	20,912	$	37,216	$	41,270	$	77,014
Real estate-related segment	1,370		1,399		2,724		8,906
Total segment NOI	22,282		38,615		43,994		85,920
Corporate-level	—		89		—		89
Total NOI	$	22,282	$	38,704	$	43,994	$	86,009
	As of June 30,		As of December 31,
	2015		2014
Assets:
Real estate segment	$	1,300,394	$	1,317,990
Real estate-related segment	73,638		73,457
Total segment assets	1,374,032		1,391,447
Real estate held for sale	—		97,971
Corporate-level (2)	180,144		168,098
Total assets	$	1,554,176	$	1,657,516
Liabilities:
Real estate segment	$	737,456	$	774,173
Real estate-related segment	—		2
Total segment liabilities	737,456		774,175
Real estate held for sale	—		66,676
Corporate-level (3)	5,064		7,138
Total liabilities	$	742,520	$	847,989

_____________________

⁽¹⁾ Amounts include properties sold. See Note 6, “Real Estate Sales” for more information.

⁽²⁾ Total corporate-level assets consisted primarily of cash and cash equivalents of approximately $180.0 million and $167.8 million as of June 30, 2015 and December 31, 2014, respectively.

⁽³⁾ As of June 30, 2015 and December 31, 2014, corporate-level liabilities consisted primarily of distributions payable.

Reconciliation of Net Income (Loss) to Net Operating Income (Loss)

The following table reconciles the Company’s net income to its NOI for the three and six months ended June 30, 2015 and 2014 (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
Net income	$	3,479		$	59,719		$	31,011		$	70,146
Gain on sale of real estate, net	(11		)	(46,647		)	(27,418		)	(46,647		)
Other interest income	(55		)	(21		)	(102		)	(54		)
Asset management fees to affiliate	3,022			5,631			6,108			11,335
General and administrative expenses	1,045			1,513			2,168			2,802
Depreciation and amortization	14,802			18,509			27,741			47,352
Impairment charge on real estate	—			—			4,486			1,075
NOI	$	22,282		$	38,704		$	43,994		$	86,009

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ORGANIZATION (Details) $ in Thousands	6 Months Ended	12 Months Ended	35 Months Ended	86 Months Ended
	Jun. 30, 2015 USD ($) LoansReceivables property shares	Dec. 31, 2014 USD ($) shares	Mar. 22, 2011 USD ($) shares	Jun. 30, 2015 USD ($) LoansReceivables property shares
Organizational Structure [Line Items]
Partnership interest in Operating Partnership	0.10%
Partnership interest in the Operating Partnership and is its sole limited partner	99.90%
Number of real estate properties | property	12			12
Number of real estate loans receivable | LoansReceivables	2			2
Issuance of common stock, value		$ 26,885	$ 1,800,000
Shares of common stock sold under dividend reinvestment plan, value				$ 298,200
Redemptions of common stock, value	$ 2,523	$ 44,659		$ 232,100
Common Stock [Member]
Organizational Structure [Line Items]
Issuance of common stock, shares | shares		2,749,008	182,681,633
Issuance of common stock, value		$ 28
Shares of common stock sold under dividend reinvestment plan, shares | shares				30,903,504
Redemptions of common stock, shares | shares	430,539	4,457,374		23,474,074
Redemptions of common stock, value	$ 4	$ 46
KBS Capital Advisors LLC [Member]
Organizational Structure [Line Items]
Period of Advisory Agreement renewal	1 year
Period of termination notice	60 days
KBS Capital Advisors LLC [Member] | Common Stock [Member]
Organizational Structure [Line Items]
Shares held by affiliate | shares	20,000			20,000
Office Properties [Member]
Organizational Structure [Line Items]
Number of real estate properties | property	10			10
Office/Flex Properties [Member]
Organizational Structure [Line Items]
Number of real estate properties | property	1			1
Office Buildings, Campus [Member]
Organizational Structure [Line Items]
Number of real estate properties | property	8			8

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ORGANIZATION

6 Months Ended

Jun. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION

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 invested in a diverse portfolio of real estate and real estate-related investments. As of June 30, 2015, the Company owned 12 real estate properties (consisting of 10 office properties, one office/flex property and an office campus consisting of eight office buildings) and two 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, 2015 (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. The Company terminated its dividend reinvestment plan effective May 29, 2014.

The Company sold 182,681,633 shares of common stock in its primary offering for gross offering proceeds of $1.8 billion. The Company sold 30,903,504 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $298.2 million. Also as of June 30, 2015, the Company had redeemed 23,474,074 shares sold in the Offering for $232.1 million.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Subsequent Event Type [Domain]	1 Months Ended						3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015 property $ / shares	May. 31, 2015 $ / shares	Apr. 30, 2015 $ / shares	Mar. 31, 2015 $ / shares	Feb. 28, 2015 $ / shares	Jan. 31, 2015 $ / shares	Jun. 30, 2015 property $ / shares	Jun. 30, 2014 $ / shares	Jun. 30, 2015 property $ / shares	Jun. 30, 2014 $ / shares	Dec. 31, 2014 property
Real Estate Properties [Line Items]
Number of real estate properties classified from held-for-sale to held for investment	2						2		2
Distributions declared per common share (usd per share) | $ / shares							$ 0.073	$ 0.162	$ 0.145	$ 0.322
Distribution rate per share per day, declared | $ / shares	$ 0.02408219	$ 0.02488493	$ 0.02408219	$ 0.02488493	$ 0.02247671	$ 0.02488493		$ 0.00178082		$ 0.00178082
Industrial Properties [Member]
Real Estate Properties [Line Items]
Number of real estate properties sold											1
Office Properties [Member]
Real Estate Properties [Line Items]
Number of real estate properties sold									1		9

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REAL ESTATE HELD FOR INVESTMENT (Geographic Concentration Risk) (Details) - Real Estate Properties [Domain]	6 Months Ended
	Jun. 30, 2015
Concentration Risk [Line Items]
Concentration risk, percentage	41.00%
CALIFORNIA [Member] | Assets, Total [Member]
Concentration Risk [Line Items]
Concentration risk, percentage	31.50%
NEW JERSEY [Member] | Assets, Total [Member]
Concentration Risk [Line Items]
Concentration risk, percentage	19.10%

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FAIR VALUE DISCLOSURES (Schedule of Face Value, Carrying Amounts and Fair Value) (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Real estate loan receivable, Face Value	$ 72,595	$ 72,908
Notes payable, Face Value	700,911	790,611
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Real estate loans receivable, Value	72,620	72,940
Notes payable, Value	700,911	790,611
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Real estate loans receivable, Value	73,906	73,414
Notes payable, Value	$ 701,759	$ 794,439

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CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands		Jun. 30, 2015	Dec. 31, 2014
Real estate:
Land		$ 207,501	$ 207,501
Buildings and improvements		1,048,280	1,074,148
Tenant origination and absorption costs		91,913	109,378
Total real estate held for investment, cost		1,347,694	1,391,027
Less accumulated depreciation and amortization		(144,250)	(168,041)
Total real estate held for investment, net		1,203,444	1,222,986
Real estate held for sale, net		0	93,682
Total Real Estate		1,203,444	1,316,668
Real estate loans receivable, net	[1]	72,620	72,940
Total real estate and real estate-related investments, net		1,276,064	1,389,608
Cash and cash equivalents		191,363	179,021
Rents and other receivables, net		45,106	41,231
Above-market leases, net		8,919	10,271
Assets related to real estate held for sale		0	4,289
Deferred financing costs, prepaid expenses and other assets		32,724	33,096
Total assets		1,554,176	1,657,516
Notes payable:
Notes payable		700,911	726,959
Notes payable related to real estate held for sale		0	63,652
Total notes payable		700,911	790,611
Accounts payable and accrued liabilities		17,005	23,183
Due to affiliate		43	38
Distributions payable		4,582	6,456
Below-market leases, net		7,011	8,904
Liabilities related to real estate held for sale		0	3,024
Other liabilities		12,968	15,773
Total liabilities		$ 742,520	$ 847,989
Commitments and contingencies (Note 12)
Redeemable common stock		$ 7,477	$ 10,000
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, 190,131,064 and 190,561,603 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively		1,901	1,905
Additional paid-in capital		1,690,014	1,690,010
Cumulative distributions in excess of net income		(887,411)	(890,751)
Accumulated other comprehensive loss		(325)	(1,637)
Total stockholders’ equity		804,179	799,527
Total liabilities and stockholders’ equity		$ 1,554,176	$ 1,657,516

[1] Book value represents outstanding principal balance, adjusted for unamortized acquisition discounts, origination fees and direct origination and acquisition costs.

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REAL ESTATE SALES (Narrative) (Details) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015 USD ($)	Jun. 30, 2014 USD ($)	Jun. 30, 2015 USD ($) property	Jun. 30, 2014 USD ($)	Dec. 31, 2014 USD ($) property
Real Estate Properties [Line Items]
Real estate held for sale, net | $	$ 0		$ 0		$ 93,682
Impairment charge on real estate | $	0	$ 0	$ 4,486	$ 1,075
Office Properties [Member]
Real Estate Properties [Line Items]
Number of real estate properties sold			1		9
Industrial Properties [Member]
Real Estate Properties [Line Items]
Number of real estate properties sold					1
Industrial Properties Portfolio- 1 [Member]
Real Estate Properties [Line Items]
Number of real estate properties sold					4
Assets Held-for-sale [Member]
Real Estate Properties [Line Items]
Impairment charge on real estate | $	$ 0	$ 0	$ 0	$ 1,075

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Cumulative Distributions and Net Income (Loss) [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Balance, shares at Dec. 31, 2013		192,269,969
Balance, value at Dec. 31, 2013	$ 1,269,482	$ 1,923	$ 1,647,214	$ (369,342)	$ (10,313)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	445,507			445,507
Other comprehensive income	8,676				8,676
Issuance of common stock, shares		2,749,008
Issuance of common stock, value	26,885	$ 28	26,857
Redemptions of common stock, shares		(4,457,374)
Redemptions of common stock, value	(44,659)	$ (46)	(44,613)
Transfers from/ (to) redeemable common stock	60,552		60,552
Distributions declared	$ (966,916)			(966,916)
Balance, shares at Dec. 31, 2014	190,561,603	190,561,603
Balance, value at Dec. 31, 2014	$ 799,527	$ 1,905	1,690,010	(890,751)	(1,637)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	31,011			31,011
Other comprehensive income	1,312				1,312
Redemptions of common stock, shares		(430,539)
Redemptions of common stock, value	(2,523)	$ (4)	(2,519)
Transfers from/ (to) redeemable common stock	2,523		2,523
Distributions declared	$ (27,671)			(27,671)
Balance, shares at Jun. 30, 2015	190,131,064	190,131,064
Balance, value at Jun. 30, 2015	$ 804,179	$ 1,901	$ 1,690,014	$ (887,411)	$ (325)

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SUBSEQUENT EVENTS (Payoff of Summit I & II First Mortgage) (Details) $ in Thousands	Aug. 04, 2015 USD ($)	Jun. 30, 2015 USD ($)	Dec. 31, 2014 USD ($)	Jan. 17, 2012 USD ($) property
Subsequent Event [Line Items]
Face amount of mortgages		$ 72,595	$ 72,908
Origination of Summit I & II First Mortgage [Member]
Subsequent Event [Line Items]
Face amount of mortgages				$ 58,800
Number of Real Estate Properties Funded in Acquisitions | property				2
Origination of Summit I & II First Mortgage [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Extinguishment of debt	$ 58,700
Yield maintenance premium	$ 900
Contractual interest rate	7.50%

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REAL ESTATE HELD FOR INVESTMENT (Properties Represented More than 10% of Company’s Total Assets) (Details) $ in Thousands		6 Months Ended
		Jun. 30, 2015 USD ($) ft² $ / ft²	Dec. 31, 2014 USD ($)
Real Estate Properties [Line Items]
Total Real Estate, Net		$ 1,203,444	$ 1,222,986
Percentage of Total Assets		41.00%
Annualized Base Rent	[1]	$ 55,962
Occupancy		89.00%
Corporate Technology Centre [Member] | Assets, Total [Member]
Real Estate Properties [Line Items]
Rentable Square Feet | ft²		610,083
Total Real Estate, Net		$ 211,948
Percentage of Total Assets		13.60%
Annualized Base Rent	[1]	$ 18,537
Average Annualized Base Rent per Sq. Ft. | $ / ft²		30.38
Occupancy		100.00%
Union Bank Plaza [Member]
Real Estate Properties [Line Items]
Rentable Square Feet | ft²		408,260
Annualized Base Rent	[1]	$ 16,742
Average Annualized Base Rent per Sq. Ft. | $ / ft²		41.01
Union Bank Plaza [Member] | Assets, Total [Member]
Real Estate Properties [Line Items]
Rentable Square Feet | ft²		627,334
Total Real Estate, Net		$ 183,206
Percentage of Total Assets		11.80%
Annualized Base Rent	[1]	$ 23,217
Average Annualized Base Rent per Sq. Ft. | $ / ft²		38.75
Occupancy		96.00%

[1] Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

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REAL ESTATE HELD FOR INVESTMENT (Tables)

6 Months Ended

Jun. 30, 2015

Real Estate [Abstract]

Schedule of Real Estate Investments

The following table summarizes the Company’s real estate portfolio held for investment as of June 30, 2015 (in thousands):

Property	Date Acquired	City	State	Property Type	Total Real Estate at Cost (1)		Accumulated Depreciation and Amortization (1)			Total Real Estate, Net (1)
100 & 200 Campus Drive Buildings	09/09/2008	Florham Park	NJ	Office	$	197,451	$	(44,589	)	$	152,862
300-600 Campus Drive Buildings	10/10/2008	Florham Park	NJ	Office	146,700		(3,042		)	143,658
350 E. Plumeria Building	12/18/2008	San Jose	CA	Office/Flex	36,413		(7,349		)	29,064
Willow Oaks Corporate Center	08/26/2009	Fairfax	VA	Office	103,547		(20,237		)	83,310
Pierre Laclede Center	02/04/2010	Clayton	MO	Office	68,489		(1,328		)	67,161
Horizon Tech Center	06/17/2010	San Diego	CA	Office	28,200		(440		)	27,760
Union Bank Plaza	09/15/2010	Los Angeles	CA	Office	185,992		(2,786		)	183,206
Emerald View at Vista Center	12/09/2010	West Palm Beach	FL	Office	30,614		(4,911		)	25,703
Granite Tower	12/16/2010	Denver	CO	Office	154,883		(28,313		)	126,570
Gateway Corporate Center	01/26/2011	Sacramento	CA	Office	45,079		(8,157		)	36,922
Fountainhead Plaza	09/13/2011	Tempe	AZ	Office	119,384		(4,104		)	115,280
Corporate Technology Centre	03/28/2013	San Jose	CA	Office	230,942		(18,994		)	211,948
					$	1,347,694	$	(144,250	)	$	1,203,444

_____________________

⁽¹⁾ Amounts presented are net of impairment charges.

Schedules of Concentration of Risk, by Risk Factor

As of June 30, 2015, the Company had a concentration of credit risk related to the following tenant lease that represented more than 10% of the Company’s annualized base rent:

					Annualized Base Rent Statistics
Tenant	Property	Tenant Industry	Square Feet	% of Portfolio (Net Rentable Sq. Ft.)	Annualized Base Rent (in thousands) (1)		% of Portfolio Annualized Base Rent	Annualized Base Rent per Sq. Ft.		Lease Expiration (2)
Union Bank	Union Bank Plaza	Finance	408,260	8.8%	$	16,742	12.3%	$	41.01	09/30/2016 / 01/31/2022

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), 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 as of June 30, 2015 and does not take into account any tenant renewal or termination options.

As of June 30, 2015, the Company had over 250 tenants over a diverse range of industries and geographic areas. 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
Finance	31	$	30,170	22.1	%
Computer System Design & Programming	10	25,792		18.9	%
		$	55,962	41.0	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

As of June 30, 2015, the following properties 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
Corporate Technology Centre	San Jose, CA	610,083	$	211,948	13.6	%	$	18,537	$	30.38	100	%
Union Bank Plaza	Los Angeles, CA	627,334	183,206		11.8	%	23,217		38.75		96	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

Schedule of Future Minimum Rental Income for Company's Properties

As of June 30, 2015, the future minimum rental income from the Company’s properties under non-cancelable operating leases was as follows (in thousands):

July 1, 2015 through December 31, 2015	$	62,393
2016	125,634
2017	117,028
2018	101,102
2019	80,835
Thereafter	369,600
	$	856,592

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REAL ESTATE HELD FOR INVESTMENT (Operating Leases) (Narrative) (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2015 USD ($) Tenants	Jun. 30, 2014 USD ($)	Dec. 31, 2014 USD ($)
Operating Leased Assets [Line Items]
Deferred rent recognized	$ 2,552	$ 3,717
Deferred rent receivables	42,400		$ 39,400
Unamortized lease incentives	$ 4,100		4,000
Number of tenants | Tenants	250
Recorded bad debt expense related to tenant	$ 78	$ 390
Bad debt reserve	200
Other Liabilities, at Fair Value [Member]
Operating Leased Assets [Line Items]
Security deposit liability	$ 2,500		$ 2,500
Maximum [Member]
Operating Leased Assets [Line Items]
Operating lease, term	14 years 3 months 18 days
Bad debt reserve of annualized base rent	1.00%
Weighted Average [Member]
Operating Leased Assets [Line Items]
Operating lease, term	4 years 3 months 18 days

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REAL ESTATE LOANS RECEIVABLE (Tables)

6 Months Ended

Jun. 30, 2015

Receivables [Abstract]

Schedule of Real Estate Loans Receivable

As of June 30, 2015 and December 31, 2014, the Company, through indirect wholly owned subsidiaries, had invested in or originated 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, 2015 (1)		Book Value as of June 30, 2015 (2)		Book Value as of December 31, 2014 (2)		Contractual Interest Rate (3)	Annualized Effective Interest Rate (3)	Maturity Date (4)
Sheraton Charlotte Airport Hotel First Mortgage
Charlotte, North Carolina	07/11/2011	Hotel	Mortgage	$	14,276	$	14,286	$	14,353	7.5%	7.6%	08/01/2018
Summit I & II First Mortgage (5)
Reston, Virginia	01/17/2012	Office	Mortgage	58,319		58,334		58,587		7.5%	7.6%	02/01/2017
				$	72,595	$	72,620	$	72,940

_____________________

⁽¹⁾ Outstanding principal balance as of June 30, 2015 represents original principal balance outstanding under the loan, increased for any subsequent fundings and reduced for any principal paydowns.

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

⁽³⁾ Contractual interest rate is the stated interest rate on the face of the loan. Annualized effective interest rate is calculated as the actual interest income recognized in 2015, using the interest method, annualized and divided by the average amortized cost basis of the investment during 2015. The contractual interest rates and annualized effective interest rates presented are as of June 30, 2015.

⁽⁴⁾ Maturity dates are as of June 30, 2015; subject to certain conditions, the maturity dates of certain real estate loans receivable may be extended beyond the maturity date shown.

⁽⁵⁾ Subsequent to June 30, 2015, the borrower under the Summit I & II First Mortgage paid off the entire principal balance outstanding of $58.3 million plus accrued interest. See Note 13, “Subsequent Events — Payoff of Summit I & II First Mortgage.”

Schedule of Activity Related to Real Estate Loans Receivable

The following summarizes the activity related to real estate loans receivable for the six months ended June 30, 2015 (in thousands):

Real estate loans receivable - December 31, 2014	$	72,940
Principal repayments received on real estate loans receivable	(314		)
Amortization of closing costs and origination fees on real estate loans receivable	(6		)
Real estate loans receivable - June 30, 2015	$	72,620

Schedule of Interest Income from Real Estate Loans Receivable

For the three and six months ended June 30, 2015 and 2014, interest income from real estate loans receivable consisted of the following (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Contractual interest income	$	1,377		$	1,989		$	2,742		$	4,921
Prepayment fee received on real estate loan receivable	—			—			—			4,917
Amortization of closing costs and origination fees	(3		)	(3		)	(6		)	112
Interest income from real estate loans receivable	$	1,374		$	1,986		$	2,736		$	9,950

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash Flows from Operating Activities:
Net income	$ 31,011	$ 70,146
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	27,741	47,352
Impairment charge on real estate	4,486	1,075
Noncash interest expense (income) on real estate-related investments	6	(112)
Deferred rent	(2,552)	(3,717)
Bad debt expense	78	390
Amortization of above- and below-market leases, net	(562)	1,532
Amortization of deferred financing costs	1,100	2,759
Reclassification of realized losses on derivative instruments	0	521
Unrealized losses due to hedge ineffectiveness	0	822
Unrealized (gains) losses on derivative instruments	(638)	40
Gain on sales of real estate, net	(27,418)	(46,647)
Changes in operating assets and liabilities:
Restricted cash for operational expenditures	49	0
Rents and other receivables	(1,382)	(1,830)
Prepaid expenses and other assets	(9,267)	(6,314)
Accounts payable and accrued liabilities	(1,195)	482
Due to affiliates	5	0
Other liabilities	(733)	(8,152)
Net cash provided by operating activities	20,729	58,347
Cash Flows from Investing Activities:
Proceeds from sale of real estate	122,920	247,884
Improvements to real estate	(9,843)	(11,509)
Investments in marketable securities	0	(173,002)
Principal repayments on real estate loans receivable	314	61
Proceeds from early payoff or sale of real estate loans receivable	0	111,688
Net cash provided by investing activities	113,391	175,122
Cash Flows from Financing Activities:
Principal payments on notes payable	(89,700)	(162,952)
Payments of deferred financing costs	(10)	(11)
Payments to redeem common stock	(2,523)	(42,217)
Distributions paid to common stockholders	(29,545)	(35,417)
Net cash used in financing activities	(121,778)	(240,597)
Net increase (decrease) in cash and cash equivalents	12,342	(7,128)
Cash and cash equivalents, beginning of period	179,021	175,042
Cash and cash equivalents, end of period	191,363	167,914
Supplemental Disclosure of Cash Flow Information:
Interest paid	12,128	26,315
Supplemental Disclosure of Noncash Transactions:
Decrease in distributions payable	(1,874)	(448)
Increase in accrued improvements to real estate	1,243	2,484
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$ 0	$ 26,885

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (Unaudited) - $ / shares	Jun. 30, 2015	Dec. 31, 2014
Statement of Financial Position [Abstract]
Preferred stock, par value (usd per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (usd per share)	$ 0.01	$ 0.01
Common stock, shares authorized	1,000,000,000	1,000,000,000
Common stock, shares issued	190,131,064	190,561,603
Common stock, shares outstanding	190,131,064	190,561,603

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2015

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

The Company has entered into the Advisory Agreement with the Advisor. This agreement entitles the Advisor to specified fees upon the provision of certain services with regard to the management of the Company’s investments, among other services, and the disposition of investments, as well as reimbursement of certain costs incurred by the Advisor in providing services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the Advisory Agreement. The Company has also entered into a fee reimbursement agreement with the Dealer Manager pursuant to which the Company agreed to reimburse the Dealer Manager for certain fees and expenses it incurs for administering the Company’s participation in the Depository Trust & Clearing Corporation Alternative Investment Product Platform with respect to certain accounts of the Company’s investors serviced through the platform. 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., KBS Legacy Partners Apartment REIT, Inc., KBS Strategic Opportunity REIT II, Inc. and KBS Growth & Income REIT, Inc.

On January 6, 2014, the Company, together with KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc., KBS Legacy Partners Apartment REIT, Inc., KBS Strategic Opportunity REIT II, Inc., the Dealer Manager, the Advisor and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each of the various entities covered by the program, and is billed directly to each entity. The allocation of these shared coverage costs is proportionate to the pricing by the insurance marketplace for the first tiers of directors and officers liability coverage purchased individually by each REIT. The Advisor’s and the Dealer Manager’s portion of the shared lower tiers’ cost is proportionate to the respective entities’ prior cost for the errors and omissions insurance. In June 2015, KBS Growth & Income REIT, Inc. was added to the insurance program at terms similar to those described above.

During the six months ended June 30, 2015 and 2014, no other business transactions occurred between the Company and KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc., KBS Legacy Partners Apartment REIT, Inc., KBS Strategic Opportunity REIT II, Inc. and KBS Growth & Income REIT, Inc.

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, 2015 and 2014, respectively, and any related amounts payable as of June 30, 2015 and December 31, 2014 (in thousands):

	Incurred								Payable as of
	Three Months Ended June 30,				Six Months Ended June 30,				June 30,		December 31,
	2015		2014		2015		2014		2015		2014
Expensed
Asset management fees	$	3,022	$	5,631	$	6,108	$	11,335	$	—	$	—
Reimbursement of operating expenses (1)	40		37		79		73		43		38
Disposition fees (2)	—		2,563		1,239		2,563		—		—
	$	3,062	$	8,231	$	7,426	$	13,971	$	43	$	38

_____________________

⁽¹⁾ The Advisor may seek reimbursement for certain employee costs under the Advisory Agreement. The Company reimburses 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 amounts totaled $35,000 and $37,000 for the three months ended June 30, 2015 and 2014, respectively, and $68,000 and $73,000 for the six months ended June 30, 2015 and 2014, respectively, and were the only type of employee costs reimbursed under the Advisory Agreement for the six months ended June 30, 2015 and 2014. 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⁾ Disposition fees with respect to real estate sold are included in the gain on sale of real estate, net in the accompanying consolidated statements of operations.  Disposition fees with respect to real estate loans receivable sold are included in the gain on payoff or sale of real estate loans receivable in the accompanying consolidated statements of operations.

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Aug. 07, 2015
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Entity Registrant Name	KBS Real Estate Investment Trust II, Inc.
Entity Central Index Key	0001411059
Entity Filer Category	Non-accelerated Filer
Current Fiscal Year end	--12-31
Entity Common Stock, Shares Outstanding		190,100,430

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SEGMENT INFORMATION

6 Months Ended

Jun. 30, 2015

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

The Company presently operates in two reportable 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 or originated mortgage loans and an A-Note. All revenues earned from the Company’s two reporting segments were from external customers and there were no intersegment sales or transfers. The Company does not allocate corporate-level accounts to its reporting segments. Corporate-level accounts include corporate general and administrative expenses, asset management fees, 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 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 interest expense. 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, asset management fees 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. During the year ended December 31, 2014, the Company revised its definition of NOI to exclude asset management fees, which the Company does not consider to be controllable in connection with the management of each property or real estate-related asset and is viewed by the chief operating decision makers as a corporate-level administrative expense. NOI for all prior periods presented has been adjusted to conform to the current period definition.

The following tables summarize total revenues and NOI for each reportable segment for the three and six months ended June 30, 2015 and 2014 and total assets and total liabilities for each reportable segment as of June 30, 2015 and December 31, 2014 (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014
Revenues:
Real estate segment (1)	$	39,829	$	80,641	$	82,397	$	165,132
Real estate-related segment	1,374		1,986		2,736		9,950
Total segment revenues	41,203		82,627		85,133		175,082
Corporate-level	—		89		—		89
Total revenues	$	41,203	$	82,716	$	85,133	$	175,171
Interest Expense:
Real estate segment (1)	$	5,605	$	14,626	$	12,452	$	28,855
Real estate-related segment	—		587		—		993
Total interest expense	$	5,605	$	15,213	$	12,452	$	29,848
NOI:
Real estate segment (1)	$	20,912	$	37,216	$	41,270	$	77,014
Real estate-related segment	1,370		1,399		2,724		8,906
Total segment NOI	22,282		38,615		43,994		85,920
Corporate-level	—		89		—		89
Total NOI	$	22,282	$	38,704	$	43,994	$	86,009
	As of June 30,		As of December 31,
	2015		2014
Assets:
Real estate segment	$	1,300,394	$	1,317,990
Real estate-related segment	73,638		73,457
Total segment assets	1,374,032		1,391,447
Real estate held for sale	—		97,971
Corporate-level (2)	180,144		168,098
Total assets	$	1,554,176	$	1,657,516
Liabilities:
Real estate segment	$	737,456	$	774,173
Real estate-related segment	—		2
Total segment liabilities	737,456		774,175
Real estate held for sale	—		66,676
Corporate-level (3)	5,064		7,138
Total liabilities	$	742,520	$	847,989

_____________________

⁽¹⁾ Amounts include properties sold. See Note 6, “Real Estate Sales” for more information.

⁽²⁾ Total corporate-level assets consisted primarily of cash and cash equivalents of approximately $180.0 million and $167.8 million as of June 30, 2015 and December 31, 2014, respectively.

⁽³⁾ As of June 30, 2015 and December 31, 2014, 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, 2015 and 2014 (in thousands):

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
Net income	$	3,479		$	59,719		$	31,011		$	70,146
Gain on sale of real estate, net	(11		)	(46,647		)	(27,418		)	(46,647		)
Other interest income	(55		)	(21		)	(102		)	(54		)
Asset management fees to affiliate	3,022			5,631			6,108			11,335
General and administrative expenses	1,045			1,513			2,168			2,802
Depreciation and amortization	14,802			18,509			27,741			47,352
Impairment charge on real estate	—			—			4,486			1,075
NOI	$	22,282		$	38,704		$	43,994		$	86,009

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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenues:
Rental income	$ 34,271	$ 62,049	$ 71,095	$ 127,264
Tenant reimbursements	3,711	15,893	7,603	32,562
Interest income from real estate loans receivable	1,374	1,986	2,736	9,950
Interest income from marketable securities	0	89	0	89
Other operating income	1,847	2,699	3,699	5,306
Total revenues	41,203	82,716	85,133	175,171
Expenses:
Operating, maintenance, and management	8,114	16,784	18,264	34,980
Real estate taxes and insurance	5,202	12,015	10,423	24,334
Asset management fees to affiliate	3,022	5,631	6,108	11,335
General and administrative expenses	1,045	1,513	2,168	2,802
Depreciation and amortization	14,802	18,509	27,741	47,352
Interest expense	5,605	15,213	12,452	29,848
Impairment charge on real estate	0	0	4,486	1,075
Total expenses	37,790	69,665	81,642	151,726
Other income:
Other interest income	55	21	102	54
Gain on sales of real estate, net	11	46,647	27,418	46,647
Total other income	66	46,668	27,520	46,701
Net income	$ 3,479	$ 59,719	$ 31,011	$ 70,146
Net income per common share, basic and diluted (in dollars per share)	$ 0.02	$ 0.31	$ 0.16	$ 0.37
Weighted-average number of common shares outstanding, basic and diluted	190,364,308	191,328,706	190,446,527	191,939,971

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REAL ESTATE LOANS RECEIVABLE

6 Months Ended

Jun. 30, 2015

Receivables [Abstract]

REAL ESTATE LOANS RECEIVABLE

REAL ESTATE LOANS RECEIVABLE

As of June 30, 2015 and December 31, 2014, the Company, through indirect wholly owned subsidiaries, had invested in or originated 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, 2015 (1)		Book Value as of June 30, 2015 (2)		Book Value as of December 31, 2014 (2)		Contractual Interest Rate (3)	Annualized Effective Interest Rate (3)	Maturity Date (4)
Sheraton Charlotte Airport Hotel First Mortgage
Charlotte, North Carolina	07/11/2011	Hotel	Mortgage	$	14,276	$	14,286	$	14,353	7.5%	7.6%	08/01/2018
Summit I & II First Mortgage (5)
Reston, Virginia	01/17/2012	Office	Mortgage	58,319		58,334		58,587		7.5%	7.6%	02/01/2017
				$	72,595	$	72,620	$	72,940

_____________________

⁽¹⁾ Outstanding principal balance as of June 30, 2015 represents original principal balance outstanding under the loan, increased for any subsequent fundings and reduced for any principal paydowns.

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

⁽³⁾ Contractual interest rate is the stated interest rate on the face of the loan. Annualized effective interest rate is calculated as the actual interest income recognized in 2015, using the interest method, annualized and divided by the average amortized cost basis of the investment during 2015. The contractual interest rates and annualized effective interest rates presented are as of June 30, 2015.

⁽⁴⁾ Maturity dates are as of June 30, 2015; subject to certain conditions, the maturity dates of certain real estate loans receivable may be extended beyond the maturity date shown.

⁽⁵⁾ Subsequent to June 30, 2015, the borrower under the Summit I & II First Mortgage paid off the entire principal balance outstanding of $58.3 million plus accrued interest. See Note 13, “Subsequent Events — Payoff of Summit I & II First Mortgage.”

The following summarizes the activity related to real estate loans receivable for the six months ended June 30, 2015 (in thousands):

Real estate loans receivable - December 31, 2014	$	72,940
Principal repayments received on real estate loans receivable	(314		)
Amortization of closing costs and origination fees on real estate loans receivable	(6		)
Real estate loans receivable - June 30, 2015	$	72,620

For the three and six months ended June 30, 2015 and 2014, interest income from real estate loans receivable consisted of the following (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Contractual interest income	$	1,377		$	1,989		$	2,742		$	4,921
Prepayment fee received on real estate loan receivable	—			—			—			4,917
Amortization of closing costs and origination fees	(3		)	(3		)	(6		)	112
Interest income from real estate loans receivable	$	1,374		$	1,986		$	2,736		$	9,950

As of June 30, 2015 and December 31, 2014, interest receivable from real estate loans receivable was $0.5 million and $0.5 million, respectively, and was included in rents and other receivables.

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

6 Months Ended

Jun. 30, 2015

Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Abstract]

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

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

As of June 30, 2015 and December 31, 2014, 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) were as follows (in thousands):

	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	June 30, 2015			December 31, 2014			June 30, 2015			December 31, 2014			June 30, 2015			December 31, 2014
Cost	$	91,913		$	109,378		$	15,815		$	17,281		$	(23,237	)	$	(24,917	)
Accumulated Amortization	(40,207		)	(49,302		)	(6,896		)	(7,010		)	16,226			16,013
Net Amount	$	51,706		$	60,076		$	8,919		$	10,271		$	(7,011	)	$	(8,904	)

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, 2015 and 2014 were 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,
	2015			2014			2015			2014			2015		2014
Amortization	$	(3,732	)	$	(6,164	)	$	(651	)	$	(2,702	)	$	822	$	1,676

	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,
	2015			2014			2015			2014			2015		2014
Amortization	$	(7,365	)	$	(15,230	)	$	(1,399	)	$	(5,077	)	$	1,961	$	3,545

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

6 Months Ended

Jun. 30, 2015

Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Abstract]

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

As of June 30, 2015 and December 31, 2014, 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) were as follows (in thousands):

	Tenant Origination and Absorption Costs						Above-Market Lease Assets						Below-Market Lease Liabilities
	June 30, 2015			December 31, 2014			June 30, 2015			December 31, 2014			June 30, 2015			December 31, 2014
Cost	$	91,913		$	109,378		$	15,815		$	17,281		$	(23,237	)	$	(24,917	)
Accumulated Amortization	(40,207		)	(49,302		)	(6,896		)	(7,010		)	16,226			16,013
Net Amount	$	51,706		$	60,076		$	8,919		$	10,271		$	(7,011	)	$	(8,904	)

Amortization of Tenant Origination and Absorption Costs, Above-Market Leases and Below-Market Lease Liabilities

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, 2015 and 2014 were 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,
	2015			2014			2015			2014			2015		2014
Amortization	$	(3,732	)	$	(6,164	)	$	(651	)	$	(2,702	)	$	822	$	1,676

	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,
	2015			2014			2015			2014			2015		2014
Amortization	$	(7,365	)	$	(15,230	)	$	(1,399	)	$	(5,077	)	$	1,961	$	3,545

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Economic Dependency

The Company is dependent on the Advisor for certain services that are essential to the Company, including the 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 any of these services, the Company will be required to obtain such services from other sources.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Compliance with existing environmental laws is not expected to have a material adverse effect on the Company’s financial condition and results of operations as of June 30, 2015.

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 the Company’s 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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DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

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 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.

The following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of June 30, 2015 and December 31, 2014. The notional amount 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):

Derivative Instruments	June 30, 2015		December 31, 2014		Reference Rate as of June 30, 2015	Weighted-Average  Fix Pay Rate	Weighted-Average Remaining Term  in Years
	Number of Instruments	Notional Amount	Number of Instruments	Notional Amount
Interest Rate Swaps (1)	9	$519,175	11	$596,575	One-month LIBOR/ Fixed at 0.50% - 2.39%	1.27%	0.9

_____________________

⁽¹⁾ During the six months ended June 30, 2015, the Company terminated one interest rate swap agreement and paid an aggregate breakage fee of $0.2 million. Also, one of the Company’s interest rate swaps expired during the six months ended June 30, 2015. As of June 30, 2015 and December 31, 2014, none of the Company’s interest rate swaps were designated as cash flow hedges.

The following table sets forth the fair value of the Company’s derivative instruments as well as their classification on the consolidated balance sheets as of June 30, 2015 and December 31, 2014 (dollars in thousands):

Derivative Instruments	Balance Sheet Location	June 30, 2015				December 31, 2014
		Number of Instruments	Fair Value			Number of Instruments	Fair Value
Interest Rate Swaps	Deferred financing costs, prepaid expenses and other assets, at fair value	—	$	—		2	$	122
Interest Rate Swaps	Other liabilities, at fair value	9	$	(2,678	)	9	$	(4,749	)

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 comprehensive income (loss) and as other comprehensive income in the accompanying consolidated statements of stockholders’ equity. Amounts in other comprehensive income (loss) will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow.  The change in fair value of the ineffective portion is recognized directly in earnings. With respect to swap agreements that were terminated for which it remains probable that the original hedged forecasted transactions (i.e., LIBOR-based debt service payments) will occur, the loss related to the termination of these swap agreements is included in accumulated other comprehensive income (loss) and is reclassified into earnings over the period of the original forecasted hedged transaction. The change in fair value of a derivative instrument that is not designated as a cash flow hedge is recorded as interest expense in the accompanying consolidated statements of operations. The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations (in thousands):

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2015			2014		2015			2014
Derivatives designated as hedging instruments (1)
Amount of loss recognized on interest rate swaps (effective portion)	$	620		$	1,939	$	1,312		$	4,124
Unrealized losses due to hedge ineffectiveness	—			—		—			822
Reclassification of realized losses related to swap terminations	—			364		—			521
	620			2,303		1,312			5,467
Derivatives not designated as hedging instruments
Realized loss recognized on interest rate swaps	951			—		1,940			—
Unrealized (gains) losses on interest rate swaps	(607		)	55		(638		)	40
Losses related to swap terminations	—			—		170			—
	344			55		1,472			40
Increase in interest expense as a result of derivatives	$	964		$	2,358	$	2,784		$	5,507

_____________________

⁽¹⁾ All of the Company’s interest rate swap agreements were initially designated as cash flow hedges. During 2014, the Company dedesignated all of its interest rate swap instruments due to the anticipated early repayment of debt in connection with asset sales, and therefore, certain hedged forecasted transactions were no longer probable beyond the projected asset sale date.

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REAL ESTATE SALES

6 Months Ended

Jun. 30, 2015

Discontinued Operations and Disposal Groups [Abstract]

REAL ESTATE SALES

REAL ESTATE SALES

In accordance with ASU No. 2014-08, Presentation of Financial Statements (Topic 205)and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU No. 2014-08”), results of operations from properties that are classified as held for sale in the ordinary course of business on or subsequent to January 1, 2014 would generally be included in continuing operations on the Company’s consolidated statements of operations. Results of operations from properties that were classified as held for sale in financial statements issued prior to January 1, 2014 will remain in discontinued operations on the Company’s consolidated statements of operations. Prior to the adoption of ASU No. 2014-08, the results of operations of properties held for sale or to be disposed of and the aggregate net gains recognized upon their disposition were presented as discontinued operations in the accompanying consolidated statements of operations for all periods presented.

During the six months ended June 30, 2015, the Company disposed of one office property. During the year ended December 31, 2014, the Company disposed of nine office properties, one industrial property, a portfolio of four industrial properties and a leasehold interest in one industrial property. The results of operations for the properties sold during the six months ended June 30, 2015 and the year ended December 31, 2014 are included in continuing operations on the Company’s consolidated statements of operations. The following table summarizes certain revenue and expenses related to the Company’s real estate properties that were sold during the year ended December 31, 2014 and six months ended June 30, 2015, which were included in continuing operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Revenues
Rental income	$	—	$	28,036	$	1,835	$	58,889
Tenant reimbursements	—		11,438		140		23,492
Other operating income	—		914		126		1,884
Total revenues	—		40,388		2,101		84,265
Expenses
Operating, maintenance, and management	—		8,467		536		17,913
Real estate taxes and insurance	—		7,354		230		14,600
Asset management fees to affiliate	—		2,597		108		5,240
General and administrative expenses	—		343		—		384
Depreciation and amortization	—		4,292		—		17,956
Interest expense	—		8,359		411		15,531
Impairment charge on real estate	—		—		—		1,075
Total expenses	$	—	$	31,412	$	1,285	$	72,699

During the six months ended June 30, 2014, the Company recorded an impairment charge of $1.1 million related to a real estate property held for sale as of that date. The impairment charge represents the difference between the carrying value of the real estate and the fair value of the real estate (based on a purchase and sale agreement which the Company had entered into) less costs to sell.

The following summary presents the major components of assets and liabilities related to real estate held for sale as of June 30, 2015 and December 31, 2014 (in thousands). No real estate properties were held for sale as of June 30, 2015.

	June 30, 2015		December 31, 2014
Assets related to real estate held for sale
Total real estate, at cost and net of impairment charge	$	—	$	116,264
Accumulated depreciation and amortization	—		(22,582		)
Real estate held for sale, net	—		93,682
Other assets	—		4,289
Total assets related to real estate held for sale	$	—	$	97,971
Liabilities related to real estate held for sale
Notes payable	—		63,652
Other liabilities	—		3,024
Total liabilities related to real estate held for sale	$	—	$	66,676

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NOTES PAYABLE

6 Months Ended

Jun. 30, 2015

Notes Payable [Abstract]

NOTES PAYABLE

NOTES PAYABLE

As of June 30, 2015 and December 31, 2014, the Company’s notes payable, including notes payable related to real estate held for sale, consisted of the following (dollars in thousands):

	Principal as of June 30, 2015		Principal as of December 31, 2014		Contractual Interest Rate as of June 30, 2015(1)	Effective Interest Rate as of June 30, 2015(1)	Payment Type	Maturity Date (2)
Amended and Restated Portfolio Revolving Loan Facility (3)	$	75,438	$	75,438	One-month LIBOR + 1.80% (3)	3.1%	Interest Only	06/21/2017
Union Bank Plaza Mortgage Loan (4)	105,000		105,000		One-month LIBOR + 1.75%	3.5%	Interest Only	09/15/2015
Emerald View at Vista Center Mortgage Loan	19,800		19,800		One-month LIBOR + 2.25%	4.6%	Interest Only	01/01/2016
Portfolio Mortgage Loan #1 (5)	95,033		184,733		One-month LIBOR + 2.15%	3.5%	Interest Only	01/27/2016
Fountainhead Plaza Mortgage Loan	80,000		80,000		One-month LIBOR + 1.90%	2.9%	Interest Only	12/01/2015
Portfolio Mortgage Loan #3 (6)	107,640		107,640		One-month LIBOR + 1.75% - 1.85%	2.4%	Interest Only	03/01/2016
Corporate Technology Centre Mortgage Loan (7)	140,000		140,000		3.50%	3.5%	(7)	04/01/2020
300-600 Campus Drive Revolving Loan (8)	78,000		78,000		One-month LIBOR + 2.05% (8)	2.9%	Interest Only	08/01/2016
	$	700,911	$	790,611

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2015. Effective interest rate is calculated as the actual interest rate in effect as of June 30, 2015 (consisting of the contractual interest rate and the effect of interest rate swaps and contractual floor rates, if applicable), using interest rate indices as of June 30, 2015, 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, 2015; subject to certain conditions, the maturity dates of certain loans may be extended beyond the maturity date shown.

⁽³⁾ As of June 30, 2015, the Amended and Restated Portfolio Revolving Loan Facility was secured by 350 E. Plumeria Building and Pierre Laclede Center.

⁽⁴⁾ As of June 30, 2015, $105.0 million of the Union Bank Plaza Mortgage Loan 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.

⁽⁵⁾ As of June 30, 2015, Portfolio Mortgage Loan #1 was secured by Horizon Tech Center, Granite Tower and Gateway Corporate Center. On February 13, 2015, in connection with the disposition of National City Tower, the Company repaid $89.7 million of principal due under this loan and National City Tower was released as security from Portfolio Mortgage Loan #1.

⁽⁶⁾ As of June 30, 2015, the principal balance of Portfolio Mortgage Loan #3 consisted of the $107.6 million non-revolving portion. The revolving portion of $41.6 million remained available for future disbursements, subject to certain terms and conditions contained in the loan documents. As of June 30, 2015, the Portfolio Mortgage Loan #3 was secured by the 100 & 200 Campus Drive Buildings and Willow Oaks Corporate Center.

⁽⁷⁾ Monthly payments are initially interest-only. Beginning on May 1, 2017, monthly payments for Corporate Technology Centre Mortgage Loan include principal and interest with principal payments calculated using an amortization schedule of 30 years for the balance of the loan term, with the remaining principal balance, all accrued and unpaid interest and any other amounts due at maturity.

⁽⁸⁾ As of June 30, 2015, the principal balance of the 300-600 Campus Drive Revolving Loan consisted of $78.0 million of the non-revolving portion. The remaining non-revolving portion of $17.0 million and the revolving portion of $25.0 million remained available for future disbursements, subject to certain terms and conditions contained in the loan documents.

As of June 30, 2015 and December 31, 2014, the Company’s deferred financing costs were $2.1 million and $3.1 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, 2015, the Company incurred $5.6 million and $12.5 million of interest expense, respectively. During the three and six months ended June 30, 2014, the Company incurred $15.2 million and $29.8 million of interest expense, respectively. As of June 30, 2015 and December 31, 2014, $1.9 million and $2.2 million, respectively, of interest expense were payable. Included in interest expense for the three and six months ended June 30, 2015 were $0.5 million and $1.1 million of amortization of deferred financing costs, respectively. Included in interest expense for the three and six months ended June 30, 2014 were $1.9 million and $2.8 million of amortization of deferred financing costs, respectively. Interest expense incurred as a result of the Company’s interest rate swap agreements were $1.0 million and $2.8 million for the three and six months ended June 30, 2015, respectively. Interest expense incurred as a result of the Company’s interest rate swap agreements was $2.4 million and $5.5 million for the three and six months ended June 30, 2014, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of June 30, 2015 (in thousands):

July 1, 2015 through December 31, 2015	$	185,000
2016	300,473
2017	77,218
2018	2,750
2019	2,848
Thereafter	132,622
	$	700,911

Certain of the Company’s notes payable contain financial debt covenants. As of June 30, 2015, the Company was in compliance with these debt covenants.

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FAIR VALUE DISCLOSURES

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

FAIR VALUE DISCLOSURES

FAIR VALUE DISCLOSURES

Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

• Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

• Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model‑derived valuations in which significant inputs and significant value drivers are observable in active markets; and

• Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

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 assets and liabilities for which it is practicable to estimate the fair value:

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

Real estate loans receivable: The Company’s real estate loans receivable 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. The Company classifies these inputs as Level 3 inputs.

Derivative instruments: The Company’s derivative instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments is determined 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 risks 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. The Company classifies these inputs as Level 3 inputs.

The following were the face values, carrying amounts and fair values of the Company’s real estate loans receivable and notes payable as of June 30, 2015 and December 31, 2014, which carrying amounts do not generally approximate the fair values (in thousands):

	June 30, 2015						December 31, 2014
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial assets:
Real estate loans receivable	$	72,595	$	72,620	$	73,906	$	72,908	$	72,940	$	73,414
Financial liabilities:
Notes payable	$	700,911	$	700,911	$	701,759	$	790,611	$	790,611	$	794,439

Disclosure of the fair values of financial instruments is based on pertinent information available to the Company as of the period end 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.

As of June 30, 2015, the Company measured the following 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)
Recurring Basis:
Liability derivatives	$	2,678	$	—	$	2,678	$	—

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REAL ESTATE HELD FOR INVESTMENT (Schedule of Real Estate Investments) (Details) - USD ($) $ in Thousands		6 Months Ended
		Jun. 30, 2015	Dec. 31, 2014
Real Estate Properties [Line Items]
Total Real Estate at Cost (1)		$ 1,347,694	$ 1,391,027
Accumulated Depreciation and Amortization (1)		(144,250)	(168,041)
Total real estate held for investment, net		1,203,444	$ 1,222,986
Office [Member]
Real Estate Properties [Line Items]
Total Real Estate at Cost (1)		1,347,694
Accumulated Depreciation and Amortization (1)	[1]	(144,250)
Total real estate held for investment, net	[1]	$ 1,203,444
100 & 200 Campus Drive Buildings [Member] | Office [Member]
Real Estate Properties [Line Items]
Date Acquired		Sep. 09, 2008
Total Real Estate at Cost (1)		$ 197,451
Accumulated Depreciation and Amortization (1)	[1]	(44,589)
Total real estate held for investment, net	[1]	$ 152,862
300-600 Campus Drive Buildings [Member] | Office [Member]
Real Estate Properties [Line Items]
Date Acquired		Oct. 10, 2008
Total Real Estate at Cost (1)		$ 146,700
Accumulated Depreciation and Amortization (1)	[1]	(3,042)
Total real estate held for investment, net	[1]	$ 143,658
350 E. Plumeria Building [Member] | Office/Flex Properties [Member]
Real Estate Properties [Line Items]
Date Acquired		Dec. 18, 2008
Total Real Estate at Cost (1)		$ 36,413
Accumulated Depreciation and Amortization (1)	[1]	(7,349)
Total real estate held for investment, net	[1]	$ 29,064
Willow Oaks Corporate Center [Member] | Office [Member]
Real Estate Properties [Line Items]
Date Acquired		Aug. 26, 2009
Total Real Estate at Cost (1)		$ 103,547
Accumulated Depreciation and Amortization (1)	[1]	(20,237)
Total real estate held for investment, net	[1]	$ 83,310
Pierre Laclede Center [Member] | Office [Member]
Real Estate Properties [Line Items]
Date Acquired		Feb. 04, 2010
Total Real Estate at Cost (1)		$ 68,489
Accumulated Depreciation and Amortization (1)	[1]	(1,328)
Total real estate held for investment, net	[1]	$ 67,161
Horizon Tech Center [Member] | Office [Member]
Real Estate Properties [Line Items]
Date Acquired		Jun. 17, 2010
Total Real Estate at Cost (1)		$ 28,200
Accumulated Depreciation and Amortization (1)	[1]	(440)
Total real estate held for investment, net	[1]	$ 27,760
Union Bank Plaza [Member] | Office [Member]
Real Estate Properties [Line Items]
Date Acquired		Sep. 15, 2010
Total Real Estate at Cost (1)		$ 185,992
Accumulated Depreciation and Amortization (1)	[1]	(2,786)
Total real estate held for investment, net	[1]	$ 183,206
Emerald View at Vista Center [Member] | Office [Member]
Real Estate Properties [Line Items]
Date Acquired		Dec. 09, 2010
Total Real Estate at Cost (1)		$ 30,614
Accumulated Depreciation and Amortization (1)	[1]	(4,911)
Total real estate held for investment, net	[1]	$ 25,703
Granite Tower [Member] | Office [Member]
Real Estate Properties [Line Items]
Date Acquired		Dec. 16, 2010
Total Real Estate at Cost (1)		$ 154,883
Accumulated Depreciation and Amortization (1)	[1]	(28,313)
Total real estate held for investment, net	[1]	$ 126,570
Gateway Corporate Center [Member] | Office [Member]
Real Estate Properties [Line Items]
Date Acquired		Jan. 26, 2011
Total Real Estate at Cost (1)		$ 45,079
Accumulated Depreciation and Amortization (1)	[1]	(8,157)
Total real estate held for investment, net	[1]	$ 36,922
Fountainhead Plaza [Member] | Office [Member]
Real Estate Properties [Line Items]
Date Acquired		Sep. 13, 2011
Total Real Estate at Cost (1)		$ 119,384
Accumulated Depreciation and Amortization (1)	[1]	(4,104)
Total real estate held for investment, net	[1]	$ 115,280
Corporate Technology Centre [Member] | Office [Member]
Real Estate Properties [Line Items]
Date Acquired		Mar. 28, 2013
Total Real Estate at Cost (1)		$ 230,942
Accumulated Depreciation and Amortization (1)	[1]	(18,994)
Total real estate held for investment, net	[1]	$ 211,948

[1] Amounts presented are net of impairment charges.

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DERIVATIVE INSTRUMENTS (Details) $ in Thousands		6 Months Ended
		Jun. 30, 2015 USD ($) Investments	Dec. 31, 2014 USD ($) Investments
Derivative [Line Items]
Interest rate swap agreements, termination, breakage fees | $		$ 200
Interest Rate Swap [Member]
Derivative [Line Items]
Number of Instruments	[1]	9	11
Notional Amount | $	[1]	$ 519,175	$ 596,575
Weighted-Average Fix Pay Rate	[1]	1.27%
Weighted-Average Remaining Term in Years	[1]	10 months 12 days
Number of instruments terminated	[1]	1
Interest Rate Swap [Member] | Deferred Financing Costs, Prepaid Expenses and Other Assets, at Fair Value [Member]
Derivative [Line Items]
Number of Instruments		0	2
Notional Amount | $		$ 0	$ 122
Interest Rate Swap [Member] | Other Liabilities, at Fair Value [Member]
Derivative [Line Items]
Number of Instruments		9	9
Notional Amount | $		$ 2,678	$ 4,749
Interest Rate Swap [Member] | One-month LIBOR [Member] | Minimum [Member]
Derivative [Line Items]
Reference Rate	[1]	0.50%
Interest Rate Swap [Member] | One-month LIBOR [Member] | Maximum [Member]
Derivative [Line Items]
Reference Rate	[1]	2.39%

[1] During the six months ended June 30, 2015, the Company terminated one interest rate swap agreement and paid an aggregate breakage fee of $0.2 million. Also, one of the Company’s interest rate swaps expired during the six months ended June 30, 2015. As of June 30, 2015 and December 31, 2014, none of the Company’s interest rate swaps were designated as cash flow hedges.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2015

Accounting Policies [Abstract]

Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto 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 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 six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

Principles of Consolidation

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.

Use of Estimates

The preparation of the consolidated financial statements and condensed notes thereto 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.  During the six months ended June 30, 2015, the Company sold one office property.  As a result, certain assets and liabilities were reclassified to held for sale on the consolidated balance sheets for all periods presented. Additionally, as of June 30, 2015, the Company reclassified two properties that were previously classified as held for sale to held for investment.

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 six months ended June 30, 2015 and 2014, respectively.

Distributions declared per common share were $0.073 and $0.145 for the three and six months ended June 30, 2015, respectively. Distributions declared per common share assumes each share was issued and outstanding each day that was a record date for distributions during the six months ended June 30, 2015. These distributions declared consisted of the following:

• On January 15, 2015, the Company’s board of directors declared January 2015 and February 2015 distributions in the amounts of $0.02488493 and $0.02247671, respectively, per share of common stock to stockholders of record as of the close of business on January 29, 2015 and February 26, 2015, respectively.

• On March 6, 2015, the Company’s board of directors declared March 2015 and April 2015 distributions in the amounts of $0.02488493 and $0.02408219, respectively, per share of common stock to stockholders of record as of the close of business on March 20, 2015 and April 20, 2015, respectively.

• On May 13, 2015, the Company’s board of directors declared May 2015 and June 2015 distributions in the amounts of $0.02488493 and $0.02408219, respectively, per share of common stock to stockholders of record as of the close of business on May 20, 2015 and June 19, 2015, respectively.

Distributions declared per common share were $0.162 and $0.322 for the three and six months ended June 30, 2014, respectively. Distributions declared per common share assumes each share was issued and outstanding each day during the three and six months ended June 30, 2014. For each day that was a record date for distributions during the three and six months ended June 30, 2014, distributions were calculated at a rate of $0.00178082 per share per day. Each day during the period from January 1, 2014 through June 30, 2014 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.”

Recently Issued Accounting Standards Update

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification.  ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. On July 9, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements, but does not expect the adoption of ASU No. 2014-09 to have a material impact on its financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”). The amendments in ASU No. 2014-15 require management to evaluate, for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued when applicable) and, if so, provide related disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect the adoption of ASU No. 2014-15 to have a significant impact on its financial statements.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU No. 2015-01”). The amendments in ASU No. 2015-01 eliminate from GAAP the concept of extraordinary items.  Although the amendments will eliminate the requirements in Subtopic 225-20 for reporting entities to consider whether an underlying event or transaction is extraordinary, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU No. 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU No. 2015-01 to have a significant impact on its financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs (“ASU No. 2015-03”). The amendments in ASU No. 2015-03 require debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. ASU No. 2015-03 is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of debt issuance costs. ASU No. 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and is to be applied retrospectively. Early adoption is permitted for financial statements that have not been previously issued. The adoption of ASU No. 2015-03 would change the presentation of debt issuance costs as the Company presents debt issuance costs as deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets.

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NOTES PAYABLE (Tables)

6 Months Ended

Jun. 30, 2015

Notes Payable [Abstract]

Schedule of Long-term Debt Instruments

As of June 30, 2015 and December 31, 2014, the Company’s notes payable, including notes payable related to real estate held for sale, consisted of the following (dollars in thousands):

	Principal as of June 30, 2015		Principal as of December 31, 2014		Contractual Interest Rate as of June 30, 2015(1)	Effective Interest Rate as of June 30, 2015(1)	Payment Type	Maturity Date (2)
Amended and Restated Portfolio Revolving Loan Facility (3)	$	75,438	$	75,438	One-month LIBOR + 1.80% (3)	3.1%	Interest Only	06/21/2017
Union Bank Plaza Mortgage Loan (4)	105,000		105,000		One-month LIBOR + 1.75%	3.5%	Interest Only	09/15/2015
Emerald View at Vista Center Mortgage Loan	19,800		19,800		One-month LIBOR + 2.25%	4.6%	Interest Only	01/01/2016
Portfolio Mortgage Loan #1 (5)	95,033		184,733		One-month LIBOR + 2.15%	3.5%	Interest Only	01/27/2016
Fountainhead Plaza Mortgage Loan	80,000		80,000		One-month LIBOR + 1.90%	2.9%	Interest Only	12/01/2015
Portfolio Mortgage Loan #3 (6)	107,640		107,640		One-month LIBOR + 1.75% - 1.85%	2.4%	Interest Only	03/01/2016
Corporate Technology Centre Mortgage Loan (7)	140,000		140,000		3.50%	3.5%	(7)	04/01/2020
300-600 Campus Drive Revolving Loan (8)	78,000		78,000		One-month LIBOR + 2.05% (8)	2.9%	Interest Only	08/01/2016
	$	700,911	$	790,611

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2015. Effective interest rate is calculated as the actual interest rate in effect as of June 30, 2015 (consisting of the contractual interest rate and the effect of interest rate swaps and contractual floor rates, if applicable), using interest rate indices as of June 30, 2015, 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, 2015; subject to certain conditions, the maturity dates of certain loans may be extended beyond the maturity date shown.

⁽³⁾ As of June 30, 2015, the Amended and Restated Portfolio Revolving Loan Facility was secured by 350 E. Plumeria Building and Pierre Laclede Center.

⁽⁴⁾ As of June 30, 2015, $105.0 million of the Union Bank Plaza Mortgage Loan 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.

⁽⁵⁾ As of June 30, 2015, Portfolio Mortgage Loan #1 was secured by Horizon Tech Center, Granite Tower and Gateway Corporate Center. On February 13, 2015, in connection with the disposition of National City Tower, the Company repaid $89.7 million of principal due under this loan and National City Tower was released as security from Portfolio Mortgage Loan #1.

⁽⁶⁾ As of June 30, 2015, the principal balance of Portfolio Mortgage Loan #3 consisted of the $107.6 million non-revolving portion. The revolving portion of $41.6 million remained available for future disbursements, subject to certain terms and conditions contained in the loan documents. As of June 30, 2015, the Portfolio Mortgage Loan #3 was secured by the 100 & 200 Campus Drive Buildings and Willow Oaks Corporate Center.

⁽⁷⁾ Monthly payments are initially interest-only. Beginning on May 1, 2017, monthly payments for Corporate Technology Centre Mortgage Loan include principal and interest with principal payments calculated using an amortization schedule of 30 years for the balance of the loan term, with the remaining principal balance, all accrued and unpaid interest and any other amounts due at maturity.

⁽⁸⁾ As of June 30, 2015, the principal balance of the 300-600 Campus Drive Revolving Loan consisted of $78.0 million of the non-revolving portion. The remaining non-revolving portion of $17.0 million and the revolving portion of $25.0 million remained available for future disbursements, subject to certain terms and conditions contained in the loan documents.

Schedule of Maturities of Long-term Debt

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of June 30, 2015 (in thousands):

July 1, 2015 through December 31, 2015	$	185,000
2016	300,473
2017	77,218
2018	2,750
2019	2,848
Thereafter	132,622
	$	700,911

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NOTES PAYABLE (Schedule of Long-term Debt Instruments) (Details) - USD ($) $ in Thousands			6 Months Ended
		Feb. 13, 2015	Jun. 30, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Principal Balance			$ 700,911	$ 790,611
Portfolio Mortgage Loan 3 [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Borrowing capacity			41,600
Portfolio Mortgage Loan 3 [Member] | Non-Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Borrowing capacity			107,600
300-600 Campus Drive Revolving Loan [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Borrowing capacity			25,000
300-600 Campus Drive Revolving Loan [Member] | Non-Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Amount outstanding			78,000
Mortgage [Member]
Debt Instrument [Line Items]
Principal Balance			700,911	790,611
Mortgage [Member] | Portfolio Revolving Loan [Member]
Debt Instrument [Line Items]
Principal Balance	[1]		$ 75,438	75,438
Effective Interest Rate	[1],[2]		3.10%
Maturity Date	[1],[3]		Jun. 21, 2017
Mortgage [Member] | Portfolio Revolving Loan [Member] | One-month LIBOR [Member]
Debt Instrument [Line Items]
Basis Spread on Variable Rate	[1],[2]		1.80%
Mortgage [Member] | Union Bank Plaza [Member]
Debt Instrument [Line Items]
Principal Balance	[4]		$ 105,000	105,000
Effective Interest Rate	[2],[4]		3.50%
Maturity Date	[3],[4]		Sep. 15, 2015
Amount outstanding	[5]		$ 105,000
Unused borrowing capacity, amount	[5]		$ 14,300
Mortgage [Member] | Union Bank Plaza [Member] | One-month LIBOR [Member]
Debt Instrument [Line Items]
Basis Spread on Variable Rate	[2],[5]		1.75%
Mortgage [Member] | Emerald View at Vista Center [Member]
Debt Instrument [Line Items]
Principal Balance			$ 19,800	19,800
Effective Interest Rate	[2]		4.60%
Maturity Date	[3]		Jan. 01, 2016
Mortgage [Member] | Emerald View at Vista Center [Member] | One-month LIBOR [Member]
Debt Instrument [Line Items]
Basis Spread on Variable Rate	[2]		2.25%
Mortgage [Member] | Portfolio Mortgage Loan 1 [Member]
Debt Instrument [Line Items]
Principal Balance	[5]		$ 95,033	184,733
Effective Interest Rate	[2],[5]		3.50%
Maturity Date	[3],[5]		Jan. 27, 2016
Extinguishment of debt		$ 89,700
Mortgage [Member] | Portfolio Mortgage Loan 1 [Member] | One-month LIBOR [Member]
Debt Instrument [Line Items]
Basis Spread on Variable Rate	[2],[6]		2.15%
Mortgage [Member] | Fountainhead Plaza [Member]
Debt Instrument [Line Items]
Principal Balance			$ 80,000	80,000
Effective Interest Rate	[2]		2.90%
Maturity Date	[3]		Dec. 01, 2015
Mortgage [Member] | Fountainhead Plaza [Member] | One-month LIBOR [Member]
Debt Instrument [Line Items]
Basis Spread on Variable Rate	[2]		1.90%
Mortgage [Member] | Portfolio Mortgage Loan 3 [Member]
Debt Instrument [Line Items]
Principal Balance	[6]		$ 107,640	107,640
Effective Interest Rate	[2],[6]		2.40%
Maturity Date	[3],[6]		Mar. 01, 2016
Mortgage [Member] | Portfolio Mortgage Loan 3 [Member] | One-month LIBOR [Member] | Minimum [Member]
Debt Instrument [Line Items]
Basis Spread on Variable Rate	[2]		1.75%
Mortgage [Member] | Portfolio Mortgage Loan 3 [Member] | One-month LIBOR [Member] | Maximum [Member]
Debt Instrument [Line Items]
Basis Spread on Variable Rate	[2]		1.85%
Mortgage [Member] | Corporate Technology Centre [Member]
Debt Instrument [Line Items]
Principal Balance	[7]		$ 140,000	140,000
Contractual Interest Rate, Percentage	[2],[7]		3.50%
Effective Interest Rate	[2],[7]		3.50%
Maturity Date	[3],[7]		Apr. 01, 2020
Amortization schedule			30 years
Mortgage [Member] | 300-600 Campus Drive Revolving Loan [Member]
Debt Instrument [Line Items]
Principal Balance	[8]		$ 78,000	$ 78,000
Effective Interest Rate	[2],[8]		2.90%
Maturity Date	[3],[8]		Aug. 01, 2016
Mortgage [Member] | 300-600 Campus Drive Revolving Loan [Member] | Secured Debt [Member]
Debt Instrument [Line Items]
Remaining borrowing capacity			$ 17,000
Mortgage [Member] | 300-600 Campus Drive Revolving Loan [Member] | One-month LIBOR [Member]
Debt Instrument [Line Items]
Basis Spread on Variable Rate	[2]		2.05%

[1] As of June 30, 2015, the Amended and Restated Portfolio Revolving Loan Facility was secured by 350 E. Plumeria Building and Pierre Laclede Center

[2] Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2015. Effective interest rate is calculated as the actual interest rate in effect as of June 30, 2015 (consisting of the contractual interest rate and the effect of interest rate swaps and contractual floor rates, if applicable), using interest rate indices as of June 30, 2015, where applicable. For further information regarding the Company’s derivative instruments, see Note 8, “Derivative Instruments.”

[3] Represents the initial maturity date or the maturity date as extended as of June 30, 2015; subject to certain conditions, the maturity dates of certain loans may be extended beyond the maturity date shown.

[4] As of June 30, 2015, $105.0 million of the Union Bank Plaza Mortgage Loan 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.

[5] As of June 30, 2015, Portfolio Mortgage Loan #1 was secured by Horizon Tech Center, Granite Tower and Gateway Corporate Center. On February 13, 2015, in connection with the disposition of National City Tower, the Company repaid $89.7 million of principal due under this loan and National City Tower was released as security from Portfolio Mortgage Loan #1.

[6] s of June 30, 2015, the principal balance of Portfolio Mortgage Loan #3 consisted of the $107.6 million non-revolving portion. The revolving portion of $41.6 million remained available for future disbursements, subject to certain terms and conditions contained in the loan documents. As of June 30, 2015, the Portfolio Mortgage Loan #3 was secured by the 100 & 200 Campus Drive Buildings and Willow Oaks Corporate Center.

[7] Monthly payments are initially interest-only. Beginning on May 1, 2017, monthly payments for Corporate Technology Centre Mortgage Loan include principal and interest with principal payments calculated using an amortization schedule of 30 years for the balance of the loan term, with the remaining principal balance, all accrued and unpaid interest and any other amounts due at maturity.

[8] As of June 30, 2015, the principal balance of the 300-600 Campus Drive Revolving Loan consisted of $78.0 million of the non-revolving portion. The remaining non-revolving portion of $17.0 million and the revolving portion of $25.0 million remained available for future disbursements, subject to certain terms and conditions contained in the loan documents.

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TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Abstract]
Tenant Origination And Absorption Costs, Cost	$ 91,913		$ 91,913		$ 109,378
Tenant Origination and Absorption Costs, Accumulated Amortization	(40,207)		(40,207)		(49,302)
Tenant Origination and Absorption Costs, Net Amount	51,706		51,706		60,076
Tenant Origination and Absorption Costs, Amortization expense	(3,732)	$ (6,164)	(7,365)	$ (15,230)
Above-Market Lease Assets, Cost	15,815		15,815		17,281
Above-Market Lease Assets, Accumulated Amortization	(6,896)		(6,896)		(7,010)
Above-Market Lease Assets, Net Amount	8,919		8,919		10,271
Above-Market Lease Assets, Amortization expense	(651)	(2,702)	(1,399)	(5,077)
Below-Market Lease Liabilities, Cost	(23,237)		(23,237)		(24,917)
Below-Market Lease Liabilities, Accumulated Amortization	16,226		16,226		16,013
Below-Market Lease Liabilities, Net Amount	(7,011)		(7,011)		$ (8,904)
Below-Market Lease Liabilities, Amortization expense	$ 822	$ 1,676	$ 1,961	$ 3,545

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Statement of Comprehensive Income [Abstract]
Net income	$ 3,479	$ 59,719	$ 31,011	$ 70,146
Other comprehensive income:
Unrealized losses on derivative instruments	0	(1,390)	0	(2,396)
Unrealized losses on marketable securities	0	(67)	0	(67)
Reclassification of realized losses recognized on interest rate swaps (effective portion)	620	1,939	1,312	4,124
Reclassification of unrealized losses due to hedge ineffectiveness	0	0	0	822
Reclassification of realized losses related to swap terminations	0	364	0	521
Total other comprehensive income	620	846	1,312	3,004
Total comprehensive income	$ 4,099	$ 60,565	$ 32,323	$ 73,150

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REAL ESTATE HELD FOR INVESTMENT

6 Months Ended

Jun. 30, 2015

Real Estate [Abstract]

REAL ESTATE HELD FOR INVESTMENT

REAL ESTATE HELD FOR INVESTMENT

As of June 30, 2015, the Company’s portfolio of real estate held for investment was composed of ten office properties, one office/flex property and an office campus consisting of eight office buildings, encompassing in the aggregate approximately 5.2 million rentable square feet. As of June 30, 2015, the Company’s real estate portfolio was 89% occupied. The following table summarizes the Company’s real estate portfolio held for investment as of June 30, 2015 (in thousands):

Property	Date Acquired	City	State	Property Type	Total Real Estate at Cost (1)		Accumulated Depreciation and Amortization (1)			Total Real Estate, Net (1)
100 & 200 Campus Drive Buildings	09/09/2008	Florham Park	NJ	Office	$	197,451	$	(44,589	)	$	152,862
300-600 Campus Drive Buildings	10/10/2008	Florham Park	NJ	Office	146,700		(3,042		)	143,658
350 E. Plumeria Building	12/18/2008	San Jose	CA	Office/Flex	36,413		(7,349		)	29,064
Willow Oaks Corporate Center	08/26/2009	Fairfax	VA	Office	103,547		(20,237		)	83,310
Pierre Laclede Center	02/04/2010	Clayton	MO	Office	68,489		(1,328		)	67,161
Horizon Tech Center	06/17/2010	San Diego	CA	Office	28,200		(440		)	27,760
Union Bank Plaza	09/15/2010	Los Angeles	CA	Office	185,992		(2,786		)	183,206
Emerald View at Vista Center	12/09/2010	West Palm Beach	FL	Office	30,614		(4,911		)	25,703
Granite Tower	12/16/2010	Denver	CO	Office	154,883		(28,313		)	126,570
Gateway Corporate Center	01/26/2011	Sacramento	CA	Office	45,079		(8,157		)	36,922
Fountainhead Plaza	09/13/2011	Tempe	AZ	Office	119,384		(4,104		)	115,280
Corporate Technology Centre	03/28/2013	San Jose	CA	Office	230,942		(18,994		)	211,948
					$	1,347,694	$	(144,250	)	$	1,203,444

_____________________

⁽¹⁾ Amounts presented are net of impairment charges.

As of June 30, 2015, the following properties 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
Corporate Technology Centre	San Jose, CA	610,083	$	211,948	13.6	%	$	18,537	$	30.38	100	%
Union Bank Plaza	Los Angeles, CA	627,334	183,206		11.8	%	23,217		38.75		96	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), 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, 2015, the leases had remaining terms, excluding options to extend, of up to 14.3 years with a weighted-average remaining term of 4.3 years. Some of the leases have provisions to extend the term of the leases, options for early termination for all or part of the leased premises 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 a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. 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 $2.5 million and $2.5 million as of June 30, 2015 and December 31, 2014, respectively.

During the six months ended June 30, 2015 and 2014, the Company recognized deferred rent from tenants, net of lease incentive amortization, of $2.6 million and $3.7 million, respectively. As of June 30, 2015 and December 31, 2014, the cumulative deferred rent balance was $42.4 million and $39.4 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $4.1 million and $4.0 million of unamortized lease incentives as of June 30, 2015 and December 31, 2014, respectively.

As of June 30, 2015, the future minimum rental income from the Company’s properties under non-cancelable operating leases was as follows (in thousands):

July 1, 2015 through December 31, 2015	$	62,393
2016	125,634
2017	117,028
2018	101,102
2019	80,835
Thereafter	369,600
	$	856,592

As of June 30, 2015, the Company had over 250 tenants over a diverse range of industries and geographic areas. 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
Finance	31	$	30,170	22.1	%
Computer System Design & Programming	10	25,792		18.9	%
		$	55,962	41.0	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), 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. The Company had not identified any material tenant credit issues as of June 30, 2015. During the six months ended June 30, 2015 and 2014, the Company recorded bad debt expense of $0.1 million and $0.4 million, respectively. As of June 30, 2015, the Company had a bad debt expense reserve of approximately $0.2 million, which represented less than 1% of its annualized base rent.

As of June 30, 2015, the Company had a concentration of credit risk related to the following tenant lease that represented more than 10% of the Company’s annualized base rent:

					Annualized Base Rent Statistics
Tenant	Property	Tenant Industry	Square Feet	% of Portfolio (Net Rentable Sq. Ft.)	Annualized Base Rent (in thousands) (1)		% of Portfolio Annualized Base Rent	Annualized Base Rent per Sq. Ft.		Lease Expiration (2)
Union Bank	Union Bank Plaza	Finance	408,260	8.8%	$	16,742	12.3%	$	41.01	09/30/2016 / 01/31/2022

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), 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 as of June 30, 2015 and does not take into account any tenant renewal or termination options.

Geographic Concentration Risk

As of June 30, 2015, the Company’s net investments in real estate in California and New Jersey represented 31.5% and 19.1% of the Company’s total assets, respectively.  As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California and New Jersey real estate markets.  Any adverse economic or real estate developments in these markets, 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 and its ability to make distributions to stockholders.

Impairment of Real Estate

During the six months ended June 30, 2015, the Company recorded impairment charges of $4.5 million with respect to two real estate properties that were reclassified from held for sale to held for investment. The impairment charge was recorded to adjust the carrying values of the properties for any depreciation and amortization expense that would have been recognized if the properties had always been classified as held for investment, which otherwise would have been recorded through depreciation and amortization expense.

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SUBSEQUENT EVENTS (Details) - USD ($) $ / shares in Units, $ in Millions				1 Months Ended							3 Months Ended	6 Months Ended
	Aug. 11, 2015	Aug. 03, 2015	Jul. 01, 2015	Jul. 31, 2015	Jun. 30, 2015	May. 31, 2015	Apr. 30, 2015	Mar. 31, 2015	Feb. 28, 2015	Jan. 31, 2015	Jun. 30, 2014	Jun. 30, 2014
Subsequent Event [Line Items]
Distribution rate per share per day, declared					$ 0.02408219	$ 0.02488493	$ 0.02408219	$ 0.02488493	$ 0.02247671	$ 0.02488493	$ 0.00178082	$ 0.00178082
Dividend Paid [Member]
Subsequent Event [Line Items]
Distribution rate per share per day, declared					$ 0.02408219
Subsequent Event [Member] | Dividend Paid [Member]
Subsequent Event [Line Items]
Dividends declared		$ 4.7	$ 4.6
Distribution rate per share per day, declared				$ 0.02488493
Subsequent Event [Member] | Dividend Declared [Member]
Subsequent Event [Line Items]
Distribution rate per share per day, declared	$ 0.02488493
Subsequent Event [Member] | Dividend Declared [Member] | Scenario, Forecast [Member]
Subsequent Event [Line Items]
Distribution rate per share per day, declared	$ 0.02408219

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DERIVATIVE INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Notional and Fair Value of Interest Rate Swaps Designated as Cash Flow Hedges

The following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of June 30, 2015 and December 31, 2014. The notional amount 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):

Derivative Instruments	June 30, 2015		December 31, 2014		Reference Rate as of June 30, 2015	Weighted-Average  Fix Pay Rate	Weighted-Average Remaining Term  in Years
	Number of Instruments	Notional Amount	Number of Instruments	Notional Amount
Interest Rate Swaps (1)	9	$519,175	11	$596,575	One-month LIBOR/ Fixed at 0.50% - 2.39%	1.27%	0.9

_____________________

⁽¹⁾ During the six months ended June 30, 2015, the Company terminated one interest rate swap agreement and paid an aggregate breakage fee of $0.2 million. Also, one of the Company’s interest rate swaps expired during the six months ended June 30, 2015. As of June 30, 2015 and December 31, 2014, none of the Company’s interest rate swaps were designated as cash flow hedges.

Schedule of Derivative Instruments in Statement of Financial Position

The following table sets forth the fair value of the Company’s derivative instruments as well as their classification on the consolidated balance sheets as of June 30, 2015 and December 31, 2014 (dollars in thousands):

Derivative Instruments	Balance Sheet Location	June 30, 2015				December 31, 2014
		Number of Instruments	Fair Value			Number of Instruments	Fair Value
Interest Rate Swaps	Deferred financing costs, prepaid expenses and other assets, at fair value	—	$	—		2	$	122
Interest Rate Swaps	Other liabilities, at fair value	9	$	(2,678	)	9	$	(4,749	)

Schedule of Derivative Instruments in Statement of Operations

The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations (in thousands):

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2015			2014		2015			2014
Derivatives designated as hedging instruments (1)
Amount of loss recognized on interest rate swaps (effective portion)	$	620		$	1,939	$	1,312		$	4,124
Unrealized losses due to hedge ineffectiveness	—			—		—			822
Reclassification of realized losses related to swap terminations	—			364		—			521
	620			2,303		1,312			5,467
Derivatives not designated as hedging instruments
Realized loss recognized on interest rate swaps	951			—		1,940			—
Unrealized (gains) losses on interest rate swaps	(607		)	55		(638		)	40
Losses related to swap terminations	—			—		170			—
	344			55		1,472			40
Increase in interest expense as a result of derivatives	$	964		$	2,358	$	2,784		$	5,507

_____________________

⁽¹⁾ All of the Company’s interest rate swap agreements were initially designated as cash flow hedges. During 2014, the Company dedesignated all of its interest rate swap instruments due to the anticipated early repayment of debt in connection with asset sales, and therefore, certain hedged forecasted transactions were no longer probable beyond the projected asset sale date.

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REAL ESTATE HELD FOR INVESTMENT (Highest Tenant Industry Concentrations- Grater than 10% of Annual Base Rent) (Details) - Jun. 30, 2015 $ in Thousands		USD ($) Tenants
Concentration Risk [Line Items]
Number of Tenants | Tenants		250
Annualized Base Rent	[1]	$ 55,962
Percentage of Annualized Base Rent		41.00%
Industry - Finance [Member]
Concentration Risk [Line Items]
Number of Tenants | Tenants		31
Annualized Base Rent	[1]	$ 30,170
Percentage of Annualized Base Rent		22.10%
Industry - Computer System Design & Programming [Member]
Concentration Risk [Line Items]
Number of Tenants | Tenants		10
Annualized Base Rent	[1]	$ 25,792
Percentage of Annualized Base Rent		18.90%

[1] Annualized base rent represents annualized contractual base rental income as of June 30, 2015, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2015

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

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

Distributions Paid

On July 1, 2015, the Company paid distributions of $4.6 million, which related to distributions declared for June 2015 in the amount of $0.02408219 per share of common stock to stockholders of record as of the close of business on June 19, 2015. On August 3, 2015, the Company paid distributions of $4.7 million, which related to distributions declared for July 2015 in the amount of $0.02488493 per share of common stock to stockholders of record as of the close of business on July 20, 2015.

Distributions Declared

On August 11, 2015, the Company’s board of directors declared an August 2015 distribution in the amount of $0.02488493 per share of common stock to stockholders of record as of the close of business on August 20, 2015, which the Company expects to pay in September 2015, and a September 2015 distribution in the amount of $0.02408219 per share of common stock to stockholders of record as of the close of business on September 21, 2015, which the Company expects to pay in October 2015.

Payoff of Summit I & II First Mortgage

On January 17, 2012, the Company, through an indirect wholly owned subsidiary, originated a first mortgage loan in the amount of up to $58.8 million (the “Summit I & II First Mortgage”) to fund the acquisition of two six-story Class B+ office buildings located in Reston, Virginia. On August 4, 2015, the borrower of the Summit I & II First Mortgage exercised its prepayment option, pursuant to which the borrower paid off the entire principal balance outstanding and accrued interest in the amount of $58.7 million, and paid a yield maintenance premium of $0.9 million. The Summit I & II First Mortgage had an original maturity date of February 1, 2017 and bore interest at a fixed rate of 7.5%.