S-11/A

As filed with the Securities and Exchange Commission on September 15, 2009

Registration No. 333-160463

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1 TO

FORM S-11

FOR REGISTRATION

UNDER

THE SECURITIES ACT OF 1933 OF SECURITIES

OF CERTAIN REAL ESTATE COMPANIES

Resource Real Estate Opportunity REIT, Inc.

(Exact name of registrant as specified in its charter)

One Crescent Drive, Suite 203

Philadelphia, Pennsylvania 19112

(215) 231-7050

(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)

Alan F. Feldman

Chief Executive Officer

Resource Real Estate Opportunity REIT, Inc.

One Crescent Drive, Suite 203

Philadelphia, Pennsylvania 19112

(215) 231-7050

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Robert H. Bergdolt, Esq.

R. Neil Miller, Esq.

DLA Piper LLP (US)

4141 Parklake Avenue, Suite 300

Raleigh, North Carolina 27612-2350

(919) 786-2000

Approximate date of commencement of proposed sale to public: As soon as practicable after the effectiveness of the registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:  x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  ¨

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  ¨	Smaller reporting company  x
		(Do not check if smaller reporting company)

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission and various states is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED September 15, 2009

Maximum Offering – 82,500,000 Shares of Common Stock

Minimum Offering – 200,000 Shares of Common Stock

Resource Real Estate Opportunity REIT, Inc. is a recently formed Maryland corporation that intends to purchase a diversified portfolio of U.S. commercial real estate and real estate related debt that has been significantly discounted due to the effects of recent economic events and high levels of leverage on U.S. commercial real estate, including properties that may benefit from extensive renovations intended to increase their long-term values. Following years of unprecedented appreciation in commercial real estate values fueled by readily available and inexpensive credit, the commercial real estate market began a significant decline in late 2007 as a result of the massive contraction in the credit and securitization markets. We believe that this decline has produced an attractive environment to acquire commercial real estate and real estate related debt at significantly discounted prices. We have a particular focus on operating multifamily assets, and we intend to target this asset class while also purchasing interests in other types of commercial property assets consistent with our investment objectives. Our targeted portfolio will consist principally of: (i) non-performing or distressed loans, including first- and second-priority mortgage loans, mezzanine loans, B-Notes and other loans, (ii) real estate owned by financial institutions, usually as a result of foreclosure, (iii) value-add multifamily rental properties, and (iv) discounted investment-grade commercial mortgage-backed securities. Because we have not yet identified any specific assets to acquire, we are considered a blind pool. We intend to qualify as a real estate investment trust (“REIT”), beginning with the taxable year that will end December 31, 2009.

We are offering up to 75,000,000 shares of common stock in our primary offering for $10 per share, with volume discounts available to investors who purchase more than $1,000,000 of shares through the same participating broker-dealer. Discounts are also available for other categories of investors. We are also offering up to 7,500,000 shares pursuant to our distribution reinvestment plan at a purchase price initially equal to $9.50 per share. This offering will terminate on or before                      (unless extended by our board of directors for an additional year or as otherwise permitted by applicable securities law).

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 28 to read about risks you should consider before buying shares of our common stock. These risks include the following:

• No public market currently exists for our shares of common stock, and we have no current plans to list our shares on an exchange.

• We set the offering price arbitrarily. This price is unrelated to the book or net value of our assets or to our expected operating income.

• We have no operating history, and our total assets consist of $200,000 cash and we have approximately $652,000 of deferred offering costs. We have not identified any investments to acquire from the proceeds of this offering.

• We are dependent on our advisor and its affiliates to select investments and conduct our operations and this offering. Our advisor has no operating history and no experience operating a public company.

• We will pay substantial fees and expenses to our advisor, its affiliates and broker-dealers, which payments increase the risk that you will not earn a profit on your investment.

• Our executive officers, some of our directors and other key real estate professionals will face conflicts of interest.

• We may lack diversification if we do not raise substantially more than the minimum offering.

• There are restrictions on the ownership and transferability of our shares of common stock. See “Description of Shares—Restriction on Ownership of Shares.”

• We may borrow funds, issue new securities or sell assets to make and cover our declared distributions, all or a portion of which could be deemed a return of capital.

Neither the Securities and Exchange Commission, the Attorney General of the State of New York nor any other state securities regulator has approved or disapproved of our common stock, determined if this prospectus is truthful or complete or passed on or endorsed the merits of this offering. Any representation to the contrary is a criminal offense.

This investment involves a high degree of risk. You should purchase these securities only if you can afford a complete loss of your investment. The use of projections or forecasts in this offering is prohibited. No one is permitted to make any oral or written predictions about the cash benefits or tax consequences you will receive from your investment.

	Price to Public			Selling Commissions			Dealer Manager Fee			Net Proceeds (Before Expenses)
Primary Offering
Per Share	$	10.00	*	$	0.70	*	$	0.30	*	$	9.00
Total Minimum	$	2,000,000	*	$	140,000	*	$	60,000	*	$	1,800,000
Total Maximum	$	750,000,000	*	$	52,500,000	*	$	22,500,000	*	$	675,000,000
Distribution Reinvestment Plan
Per Share	$	9.50		$	0.00		$	0.00		$	9.50
Total Maximum	$	71,250,000		$	0.00		$	0.00		$	71,250,000

* Discounts are available for some categories of investors. Reductions in commissions and fees will result in corresponding reductions in the purchase price.

The dealer manager, Chadwick Securities, Inc., our affiliate, is not required to sell any specific number or dollar amount of shares but will use its best efforts to sell the shares offered. The minimum permitted purchase is $2,500. We will not sell any shares unless we raise gross offering proceeds of $2,000,000 from persons who are not affiliated with us or our advisor by                     . Pending satisfaction of this condition, all subscription payments will be placed in an account held by the escrow agent, TD Bank, N.A., in trust for our subscribers’ benefit, pending release to us. If we do not raise gross offering proceeds of $2,000,000 by                     , we will promptly return all funds in the escrow account (including interest), and we will stop selling shares. We will not deduct any fees if we return funds from the escrow account.

We will not sell any shares to Pennsylvania investors unless we raise $25 million in gross offering proceeds (including sales made to residents of other jurisdictions) from persons not affiliated with us or our advisor. If we do not raise this amount by                     , we will promptly return all funds held in escrow for the benefit of Pennsylvania investors.

The date of this prospectus is                     , 2009.

SUITABILITY STANDARDS

The shares we are offering through this prospectus are suitable only as a long-term investment for persons of adequate financial means and who have no need for liquidity in this investment. Because there is no public market for our shares, you will have difficulty selling your shares.

In consideration of these factors, we have established suitability standards for investors in this offering and subsequent purchasers of our shares. These suitability standards require that a purchaser of shares have either:

• a net worth of at least $250,000; or

• gross annual income of at least $70,000 and a net worth of at least $70,000.

In addition, the states listed below have established suitability requirements that are more stringent than ours and investors in these states are directed to the following special suitability standards:

• Kansas – It is recommended by the office of the Kansas Securities Commissioner that Kansas investors not invest, in the aggregate, more than 10% of their liquid net worth in this and similar direct participation investments. Liquid net worth is defined as that portion of net worth that consists of cash, cash equivalents and readily marketable securities.

• Alabama, Iowa, Kentucky, Massachusetts, Michigan, Pennsylvania and Tennessee – Investors must have a liquid net worth of at least 10 times their investment in us.

• Ohio – Investors must have a liquid net worth of at least 10 times their investment in us and our affiliates.

In addition, because the minimum offering amount is less than $50,000,000, Pennsylvania investors are cautioned to carefully evaluate our ability to fully accomplish our stated objectives and to inquire as to the current dollar volume of subscriptions.

For purposes of determining the suitability of an investor, net worth in all cases should be calculated excluding the value of an investor’s home, home furnishings and automobiles. In the case of sales to fiduciary accounts, these suitability standards must be met by the fiduciary account, by the person who directly or indirectly supplied the funds for the purchase of the shares if such person is the fiduciary or by the beneficiary of the account.

Our sponsor, those selling shares on our behalf and participating broker-dealers and registered investment advisors recommending the purchase of shares in this offering must make every reasonable effort to determine that the purchase of shares in this offering is a suitable and appropriate investment for each stockholder based on information provided by the stockholder regarding the stockholder’s financial situation and investment objectives. See “Plan of Distribution — Suitability Standards” for a detailed discussion of the determinations regarding suitability that we require.

i

TABLE OF CONTENTS

SUITABILITY STANDARDS	i
PROSPECTUS SUMMARY	1
RISK FACTORS	28
Risks Related to an Investment in Us	28
Risks Related to Conflicts of Interest	33
Risks Related to This Offering and Our Corporate Structure	36
Risks Related to Investments in Real Estate	40
Risks Related to Investments in Real Estate Related Debt Assets	53
Risks Associated with Debt Financing	59
Risks Related to U.S. Government Programs	61
Federal Income Tax Risks	66
Retirement Plan Risks	72
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	73
ESTIMATED USE OF PROCEEDS	74
MANAGEMENT	77
Board of Directors	77
Executive Officers and Directors	78
Board Committees	79
Compensation of Directors	80
Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents	80
Our Advisor	81
The Advisory Agreement	82
Initial Investment by Our Advisor	83
Other Affiliates	84
Management Decisions	88
MANAGEMENT COMPENSATION	88
STOCK OWNERSHIP	93
CONFLICTS OF INTEREST	94
Our Affiliates’ Interests in Other Resource Real Estate Programs	94
Receipt of Fees and Other Compensation by Our Advisor and its Affiliates	96
Fiduciary Duties Owed by Some of Our Affiliates to Our Advisor and Our Advisor’s Affiliates	97
Affiliated Dealer Manager	98
Affiliated Property Manager	98
Certain Conflict Resolution Measures	98
INVESTMENT OBJECTIVES AND POLICIES	103
Target Portfolio	104
Target Asset Classes	104
Discounted Real Estate Related Debt	105
REO	110
Value-Add Multifamily Rental Properties	111
Our Multifamily Focus	113
Multifamily Real Estate Acquisition Strategy	114
Real Estate Asset Management Strategy	116
Discounted Commercial Mortgage-Backed Securities	119
Other Possible Investments and Activities	121
Co-Investment Strategy	121
Tenant-in-Common Interests in Properties (TICs)	121
Disposition Policies	122
Borrowing Policies	122
Exit Strategy – Liquidation or Listing Policy	123
Charter-Imposed Investment Limitations	123
Investment Limitations Under the Investment Company Act of 1940	125
Disclosure Policies with Respect to Future Probable Acquisitions	128
Changes in Investment Objectives and Policies	129

ii

PLAN OF OPERATION	129
General	129
Results of Operations	130
Liquidity and Capital Resources	130
Distributions	132
Income Taxes	132
Critical Accounting Policies	132
PRIOR PERFORMANCE SUMMARY	136
Acquisition Summary	137
Public Programs	137
Private Programs	140
Adverse Business Developments or Conditions	146
FEDERAL INCOME TAX CONSIDERATIONS	147
Taxation of Resource Real Estate Opportunity REIT, Inc.	148
Taxation of Stockholders	163
Backup Withholding and Information Reporting	168
Other Tax Considerations	168
ERISA CONSIDERATIONS	169
Prohibited Transactions	169
Plan Asset Considerations	170
Other Prohibited Transactions	172
Annual Valuation	172
DESCRIPTION OF SHARES	174
General	174
Common Stock	174
Convertible Stock	174
Preferred Stock	176
Distributions	176
Restriction on Ownership of Shares	177
Transfer Agent and Registrar	179
Meetings and Special Voting Requirements	179
Advance Notice for Stockholder Nominations for Directors and Proposals of New Business	179
Inspection of Books and Records	180
Control Share Acquisitions	180
Business Combinations	181
Subtitle 8	182
Tender Offer by Stockholders	182
Distribution Reinvestment Plan	183
Share Redemption Program	185
Restrictions on Roll-Up Transactions	190
THE OPERATING PARTNERSHIP AGREEMENT	191
General	191
Capital Contributions	191
Operations	192
Distributions and Allocations of Profits and Losses	192
Rights, Obligations and Powers of the General Partner	192
Exchange Rights	193
Change in General Partner	194
Transferability of Interests	194
Amendment of Limited Partnership Agreement	194
PLAN OF DISTRIBUTION	195
General	195
Compensation of Dealer Manager and Participating Broker-Dealers	195
Subscription Procedures	198
Suitability Standards	200
Minimum Purchase Requirements	200

iii

Special Notice to Pennsylvania Investors	201
SUPPLEMENTAL SALES MATERIAL	201
LEGAL MATTERS	201
EXPERTS	202
WHERE YOU CAN FIND MORE INFORMATION	202
Index to Consolidated Financial Statements	F-1
Appendix A – Prior Performance Tables	A-1
Appendix B – Form of Subscription Agreement	B-1
Appendix C – Distribution Reinvestment Plan	C-1

iv

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus, including the information set forth in “Risk Factors,” for a more complete understanding of this offering. Except where the context suggests otherwise, the terms “we,” “us” and “our” refer to Resource Real Estate Opportunity REIT, Inc. and its subsidiaries; “Operating Partnership” refers to our operating partnership, Resource Real Estate Opportunity OP, LP; “advisor” refers to Resource Real Estate Opportunity Advisor, LLC; “Resource Real Estate Opportunity Manager” refers to our property manager, Resource Real Estate Opportunity Manager, LLC; “Resource Real Estate” refers to our sponsor, Resource Real Estate, Inc.; and “Resource America” refers to Resource America, Inc., the parent corporation of our sponsor.

What is Resource Real Estate Opportunity REIT, Inc.?

Resource Real Estate Opportunity REIT, Inc. is a recently formed Maryland corporation that intends to purchase a diversified portfolio of U.S. commercial real estate and real estate related debt that has been significantly discounted due to the effects of recent economic events and high levels of leverage on U.S. commercial real estate, including properties that may benefit from extensive renovations intended to increase their long-term values. Following years of unprecedented appreciation in commercial real estate values fueled by readily available and inexpensive credit, the commercial real estate market began a significant decline in late 2007 as a result of the massive contraction in the credit and securitization markets. We believe that this decline has produced an attractive environment to acquire commercial real estate and real estate related debt at significantly discounted prices. We have a particular focus on operating multifamily assets, and we intend to target this asset class while also purchasing interests in other types of commercial property assets consistent with our investment objectives. Our targeted portfolio will consist of commercial real estate assets, principally (i) non-performing or distressed loans, including but not limited to first- and second-priority mortgage loans, mezzanine loans, B-Notes and other loans, (ii) real estate owned by financial institutions (“REO”), usually as a result of foreclosure, (iii) value-add multifamily rental properties, (iv) discounted investment-grade commercial mortgage-backed securities and (v) and other real estate related assets we purchase either directly or with a co-investor or joint venture partner. Our mailing address is One Crescent Drive, Suite 203, Philadelphia, Pennsylvania 19112. Our telephone number is (215) 231-7050, our fax number is
(215) 640-6320 and our email address is info@resourcereit.com. We also maintain an Internet site at http://www.resourcereit.com at which there is additional information about us and our affiliates, but the contents of that site are not incorporated by reference in or otherwise a part of this prospectus.

We intend to qualify as a REIT beginning with the taxable year that will end December 31, 2009.

We were incorporated in the State of Maryland on June 3, 2009 and we currently do not own any real estate assets. Because we have not yet identified any specific assets to acquire, we are considered to be a blind pool.

Our external advisor, Resource Real Estate Opportunity Advisor, LLC, will conduct our operations and manage our portfolio of real estate investments, all subject to the supervision of our board of directors. We have no paid employees.

1

What is a REIT?

In general, a REIT is an entity that:

• combines the capital of many investors to acquire or provide financing for real estate investments;

• allows individual investors to invest in a professionally managed, large-scale, diversified real estate portfolio through the purchase of interests, typically shares, in the REIT;

• is required to pay distributions to investors of at least 90% of its annual REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain); and

• avoids the “double taxation” treatment of income that normally results from investments in a corporation because a REIT is not generally subject to federal corporate income taxes on that portion of its income distributed to its stockholders, provided certain income tax requirements are satisfied.

However, under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), REITs are subject to numerous organizational and operational requirements. If we fail to qualify for taxation as a REIT in any year after electing REIT status, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify. Even if we qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our income and property and to federal income and excise taxes on our undistributed income.

What are your competitive strengths?

We believe we distinguish ourselves from our competitors through the following competitive advantages:

• Extensive Experience in Discounted Real Estate Assets. Since 1991, Resource Real Estate, our sponsor, and its affiliates have been active in the discounted real estate asset market, acquiring assets with over $600 million in value. Historically, Resource Real Estate’s affiliates focused on the purchase of non-performing commercial real estate loans at discounts to their outstanding loan balances and the appraised value of their underlying properties. Resource Real Estate and its affiliates have a breadth of experience in the acquisition, ownership, management and resolution of discounted real estate assets. Furthermore, Resource Real Estate has recently formed joint ventures with a number of institutional investors and as a result, also has extensive experience acquiring, managing and resolving discounted real estate in the current economic cycle.

• Significant Experience in Multifamily Rental Properties. Resource Real Estate manages a portfolio of over $1.7 billion in aggregate principal amount of mortgage assets, discounted mortgage loans and related property interests, which includes a portfolio of multifamily rental properties consisting of over 17,000 multifamily units and other real estate assets located throughout the United States. Resource Real Estate and its over 350 employees will provide our advisor with institutional knowledge and operational support necessary to underwrite, acquire, aggressively manage and dispose of multifamily rental properties.

• Proven Experience Sponsoring Publicly Traded REITs. Resource America, the parent company of our sponsor and a Nasdaq Global Select traded company (Nasdaq: REXI) that, as of June 30, 2009, managed over $14.3 billion of assets, has sponsored two New York Stock Exchange publicly traded REITs, Resource Capital Corp. (“Resource Capital”) in 2005 and

2

RAIT Financial Trust, Inc. (“RAIT Financial”) in 1998. Resource Capital (NYSE: RSO) is externally managed by affiliates of our sponsor. Although sponsored by Resource America, RAIT Financial (NYSE: RAS) is no longer managed or owned by Resource America.

• Unique Alignment of Management’s Interests with Stockholders. In order to more closely align our investment objectives and goals with those of our advisor, prior to the termination of our initial public offering, our advisor has agreed to invest at least 1% of the amount invested from the sale of shares to non-affiliated investors up to a total of $250,000,000 in investments.

• Long-standing Contacts in the Financial Services Industry. Resource Financial Institutions Group, Inc. (“Resource Financial”), an affiliate of our sponsor, is a specialized asset management company that invests in banks, thrifts and other financial services companies throughout the United States. As of June 30, 2009, Resource Financial and its affiliates managed $4.2 billion in bank investments. Resource Financial will provide our advisor with several sources of contacts in the financial services industry, including investment banks, brokerage firms, commercial banks and loan originators. Our advisor believes these contacts may also be a source of appropriate real estate investments for us.

What are the market opportunities for Resource Real Estate Opportunity REIT?

We believe that the current economic downturn and parallel credit crisis have produced an attractive environment to acquire U.S. commercial real estate and real estate related debt.

Following years of unprecedented appreciation in commercial real estate values fueled by readily available and inexpensive credit, the commercial real estate market began a significant decline in late 2007 as a result of the massive contraction in the credit and securitization markets. This began a dramatic repricing process. The sudden contraction in available capital was exacerbated as financial institutions and other motivated sellers rotated out of real estate to de-lever their balance sheets in order to remain solvent or to meet regulatory capital requirements. As the broader economy entered recession in late 2007, commercial real estate fundamentals began to deteriorate, which placed additional pressure on commercial real estate values. Employment is usually a lagging indicator of overall macroeconomic conditions, and industry-wide multifamily property performance generally lags the performance of the overall job market. Therefore, we expect significant pressure upon occupancy and rental growth rates to continue in the multifamily sector beyond the time where general macroeconomic growth is regained. We expect commercial real estate fundamentals to remain depressed in the short-term and that there will be a scarcity of capital to refinance debt maturities in the medium- to long-term.

We expect that the combination of the high levels of leverage in the multifamily sector of commercial real estate and the management intensive nature of multifamily rental properties will create specific problems for multifamily borrowers without very strong internal multifamily specific asset and property management capabilities. Overall, the multifamily sector has the highest 30-day commercial mortgage-backed securities delinquency rate (5.4% as of July 1, 2009 versus 1.76% as of July 1, 2008) of all property types, according to Trepp, LLC (“Trepp”), a national provider of commercial mortgage-backed securities and commercial mortgage information, analytics and technology to the global securities and investment management industries. In addition, Real Capital Analytics (“RCA”) reported that in 2009 (through July) there had been $8.1 billion of distressed multifamily properties added to the total amount of distressed multifamily properties for sale, and there is $17.7 billion of distressed multifamily assets in the United States in aggregate as of July 1, 2009. Furthermore, RCA reports that there is $60.5 billion of total distressed U.S. real estate as of July 1, 2009, but that only $4.1 billion has been resolved in 2009. We believe that the default rate in the multifamily sector will remain higher than normal due to the combination of high amounts of leverage placed on properties and the intensity of asset property management required by multifamily operators to service their debt costs. We believe that Resource Real Estate’s extensive

3

capabilities in managing multifamily properties will allow us to capitalize on the distress in the multifamily sector.

We believe that the confluence of these factors has caused and will continue to cause an “over-correction” in the repricing of certain U.S. commercial real estate and real estate related debt. Continued price deterioration is expected to drive real estate capitalization rates above historical averages, presenting an attractive entry point in the commercial real estate cycle. We believe that Resource Real Estate and its affiliates’ deep experience in investing in discounted and distressed real estate, coupled with Resource Real Estate and its affiliates’ extensive experience in underwriting and acquiring multifamily properties, asset and property management abilities and deep contacts in the banking industry should allow us to capitalize on these investment opportunities.

There is and will continue to be a vast inventory of commercial real estate-related assets that needs to be recapitalized as part of the industry’s deleveraging. We expect this process to take several years. According to Property and Portfolio Research estimates, over $1.8 trillion of commercial real estate debt will mature over the next four years, with over $400 billion maturing in each of the years 2010 through 2013. We believe there are significant opportunities for well-capitalized investors to acquire existing sub-performing and non-performing commercial mortgage loans, REO, properties that could benefit from significant renovations after years of limited capital investment and other commercial real estate related debt investments. We expect to identify and capitalize on what we believe to be mispricings in the market while employing conservative underwriting criteria and to capitalize on continued dislocation as (i) the economic downturn further depresses the commercial real estate market, (ii) existing commercial real estate debt instruments reach maturity with no clear refinancing source as a result of a lack of capital or principal in excess of current real estate market values and (iii) structural issues associated with complex real estate debt products are resolved.

Specifically, we see attractive opportunities to acquire whole mortgage loans, including performing, sub-performing and non-performing loans and loan portfolios, from financial institutions and government agencies. In particular, we believe that the Federal Deposit Insurance Corporation (“FDIC”) will provide attractive investment opportunities in mortgage loans through its liquidation of the assets of failed depository institutions for which it is appointed receiver. According to the FDIC, as of June 19, 2009, 40 depository institutions have failed in 2009, with more than $35 billion in combined assets. In 2008, 25 depository institutions failed, with approximately $373 billion in assets, as compared to 2007 in which only three banks failed, with approximately $2.6 billion of assets. The FDIC has begun disposing of failed banks’ assets primarily through open auctions, a process similar to that utilized during the Resolution Trust Corporation era of 1989 to 1995. We believe that our affiliate, Resource Financial, a management company that invests in banks, thrifts and other financial services companies, maintains deep contacts in the banking industry that will be a source of appropriate real estate investments for us.

The current dislocation in the commercial mortgage-backed securities market has created an opportunity to acquire bonds that we believe are mispriced relative to their underlying collateral value. Commercial mortgage-backed securities yields have widened significantly due to the fact that many traditional buyers of commercial mortgage-backed securities in the last five years are no longer active market participants for various reasons, including margin call sales, forced sales by regulated investors and general scarcity of investment capital and credit. We expect the dislocation to persist due to near term risks, such as volatility in trading spreads, downgrade risks and the deterioration of underlying commercial property fundamentals. Further, many fixed income investors do not have the required commercial real estate and structured securities expertise to properly assess the fundamental value of commercial mortgage-backed securities, which we believe will lead to a continued commercial mortgage-backed securities supply and demand imbalance and provide attractive commercial mortgage-backed securities investment opportunities for an extended period of time. As a result, we believe favorable opportunities to invest in commercial mortgage-backed securities will continue for several years, and that Resource Real Estate’s commercial mortgage-backed securities team with over 35 years of experience in the sector may allow us to capitalize on this market in the future.

4

The sales market for all multifamily properties has significantly contracted in 2009. According to RCA, estimated multifamily sales volume for the first quarter of 2009 was $1.8 billion, versus $13.3 billion in the first quarter of 2008. While the numbers of multifamily buyers have exited the market, there remains a vast inventory of unrenovated properties built during the building boom in the 1980’s. We believe that the large inventory of unrenovated multifamily properties combined with fewer buyers in the market will cause higher capitalization rates to exceed their historical averages presenting a strong entry point to acquire assets in need of value added renovations. Increases in rental demand over the next five years are expected on account of favorable trends among rental cohorts, including a resumption in growth in population aged 20 to 29 (“echo boomers” or “Generation Y”) after two decades of decline. We believe that this combination of fewer multifamily buyers, the large inventory of unrenovated older multifamily properties and a growing 20 to 29 aged population, presents us with a significant opportunity to acquire older, unrenovated properties at higher than average capitalization rates, renovate the properties and earn higher rents from renters in the Generation Y age cohort who have historically demanded greater finishes and amenities in products and services than earlier generations.

Are there any risks involved in an investment in your shares?

Investing in our common stock involves a high degree of risk. You should carefully review the “Risk Factors” section of this prospectus beginning on page 28, which contains a detailed discussion of the material risks that you should consider before you invest in our common stock. Some of the more significant risks relating to an investment in our shares include the following:

• No public market currently exists for our shares of common stock and we have no current plans to list our shares on an exchange. If you are able to sell your shares, you would likely have to sell them at a substantial discount from their public offering price.

• We established the offering price of our shares on an arbitrary basis. This price may not be indicative of the price at which our shares would trade if they were listed on an exchange or actively traded, and this price bears no relationship to the book or net value of our assets or to our expected operating income.

• We have no operating history and, as of the date of this prospectus, our total assets consist of $200,000 of cash and we have approximately $652,000 of deferred offering costs. Because we have not identified any real estate assets to acquire with proceeds from this offering, you will not have an opportunity to evaluate our investments before we make them, making an investment in us more speculative.

• We are dependent on our advisor to select investments and conduct our operations. Our advisor has no operating history and no experience operating a public company. This inexperience makes our future performance difficult to predict.

• Our executive officers, some of our directors and other key real estate professionals are also officers, directors, managers and/or key professionals of our advisor, our dealer manager and other affiliated Resource Real Estate entities. As a result, they will face conflicts of interest, including significant conflicts created by our advisor’s compensation arrangements with us and other programs sponsored by Resource Real Estate and conflicts in allocating time among us and these other programs. These conflicts could result in action or inaction that is not in the best interests of our stockholders.

• We will pay substantial fees to and expenses of our advisor, its affiliates and participating broker-dealers, which payments increase the risk that you will not earn a profit on your investment. For a summary of these fees, see “Prospectus Summary—What are the fees that you will pay to the advisor and its affiliates?”

5

• Our advisor and its affiliates will receive fees in connection with transactions involving the acquisition and management of our investments. These fees will be based on the cost of the investment, and not based on the quality of the investment or the quality of the services rendered to us. This may influence our advisor to recommend riskier transactions to us.

• There is no limit on the amount we can borrow to acquire a single real estate investment, but pursuant to our charter, we may not leverage our assets with debt financing in excess of 75% of the aggregate value of our assets unless a majority of our independent directors find substantial justification for borrowing a greater amount. For purposes of the portfolio as a whole, based on current lending market conditions, we believe we will leverage our assets with debt financing at a level of approximately 35% of the aggregate asset value. If we hold distressed assets and stabilize them, we believe that we may be able to and we expect to increase this level of debt financing on such assets.

• Our charter prohibits the ownership of more than 9.8% of our common stock, unless exempted by our board of directors, which may inhibit transfers of our common stock and large investors from desiring to purchase your shares of common stock. This ownership limit shall be applicable beginning on June 30, 2010.

• Prior to the commencement of this offering, our advisor will exchange 4,500 shares of common stock for 45,000 shares of our convertible stock, which we may refer to as “convertible stock” or “promote shares.” Under limited circumstances, these shares may be converted into shares of our common stock, resulting in dilution of our stockholders’ interest in us. Generally, our convertible stock will convert into shares of common stock on one of two events. First, it will convert if we have paid distributions to common stockholders such that aggregate distributions are equal to 100% of the price at which we sold our outstanding shares of common stock plus an amount sufficient to produce a 10% cumulative, non-compounded, annual return at that price. Alternatively, the convertible stock will convert if we list our shares of common stock on a national securities exchange and, on the 31st trading day after listing, the value of our company based on the average trading price of our shares of common stock since the listing, plus prior distributions, combine to meet the same 10% return threshold for our common stockholders. Our advisor can influence whether and when our common stock is listed for trading on a national securities exchange or our assets are liquidated, and their interests in our convertible stock could influence their judgment with respect to listing or liquidation.

• We may lack property diversification if we do not raise substantially more than the minimum offering.

• We may borrow funds, issue new securities or sell assets to make and cover our declared distributions, all or a portion of which could be deemed a return of capital.

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

• Our failure to qualify as a REIT for federal income tax purposes would reduce the amount of income we have available for distribution and limit our ability to make distributions to our stockholders.

What are your investment objectives?

Our principal investment objectives are to:

• preserve, protect and return your capital contribution;

6

• realize growth in the value of our investments;

• increase cash distributions to you through increased cash flow from operations or targeted asset sales; and

• enable you to realize a return of your investment by either liquidating our assets or listing our shares on a national securities exchange within three to six years after the termination of this primary offering.

See the “Investment Objectives and Policies” section of this prospectus for a more complete description of our investment policies and charter-imposed investment restrictions.

What is the role of the board of directors?

We operate under the direction of our board of directors, the members of which are accountable to us and our stockholders as fiduciaries. We will have five members of our board of directors, three of which will be independent of our advisor and its affiliates. Our charter requires that a majority of our directors be independent of our advisor and creates a committee of our board consisting solely of all of our independent directors. This committee, which we call the conflicts committee, is responsible for reviewing the performance of our advisor and must approve other matters set forth in our charter. See “Conflicts of Interest—Certain Conflict Resolution Measures.” Our directors are elected annually by the stockholders.

Who is your advisor?

Resource Real Estate Opportunity Advisor, LLC is our advisor. Our advisor is a recently organized limited liability company that was formed in the State of Delaware on June 8, 2009. Our advisor has no operating history and no experience managing a public company. However, our advisor will provide substantive advisory services to us and will be supported by our sponsor, Resource Real Estate, Inc., and its personnel in providing such services to us. See below for a description of our sponsor, Resource Real Estate, Inc.

Will your advisor make an investment in us?

Yes. In order to more closely align our investment objectives and goals with those of our advisor, prior to the termination of this offering, our advisor will invest at least 1% of the amount invested from the sale of shares to non-affiliated investors up to investments totaling $250,000,000. Previously, our advisor invested $200,000 in us through the purchase of 20,000 shares of our common stock at $10.00 per share. Prior to the commencement of this offering, our advisor will exchange 4,500 shares of common stock for 45,000 shares of our convertible stock.

What will the advisor do?

Our advisor will manage our day-to-day operations and our portfolio of real estate investments, and will provide asset-management, marketing, investor relations and other administrative services on our behalf, all subject to the supervision of our board of directors. Our advisor may cause us to enter into a management agreement with Resource Real Estate Opportunity Manager, our affiliate, to provide property management services, as applicable, for most, if not all, of the properties or other real estate related assets in each case where our advisor is able to control the operational management of such properties. Resource Real Estate Opportunity Manager may subcontract with an affiliate or third-party to provide day-to-day property management, construction management and/or other property specific functions, as applicable, for the properties it manages.

7

Our sponsor, Resource Real Estate, and its team of real estate professionals, including Jonathan Z. Cohen, Alan F. Feldman and Kevin M. Finkel, acting through our advisor, will make most of the decisions regarding the selection, negotiation, financing and disposition of real estate investments. A majority of our board of directors and a majority of the conflicts committee approves all proposed real estate property investments and certain significant real estate related debt investments.

What is the experience of your sponsor?

Resource Real Estate and its affiliates have a significant amount of experience in buying, managing, operating and disposing of discounted real estate investments and a number of relationships in the real estate and financial services markets that together put our advisor in a unique position to operate and manage our company. Specifically, our advisor believes that the following entities and factors highlight the resources that it may use to compete in the discounted real estate asset marketplace:

• Resource Real Estate and its affiliates have been active in the discounted real estate asset market since 1991, acquiring and disposing of assets representing over $600 million in value. Historically, Resource Real Estate’s affiliates focused on the purchase of non-performing commercial real estate loans at discounts to their outstanding loan balances and the appraised value of their underlying properties. Resource Real Estate and its affiliates have formed joint ventures with a number of institutional investors which have invested approximately $116.3 million in assets similar to those which will be acquired by us. As a result of many programs and products, Resource Real Estate has a breadth of experience in the acquisition, ownership, management and resolution of discounted real estate assets. Our advisor intends to use Resource Real Estate’s knowledge and experience in the discounted real estate asset marketplace to assist us in meeting our investment objectives.

• Resource Real Estate manages a portfolio of over $1.0 billion in aggregate principal amount of mortgage assets, discounted mortgage loans and related property interests as of June 30, 2009 in addition to its $648.7 million portfolio of multifamily rental properties and other real estate assets. Resource Real Estate will provide our advisor with institutional knowledge and operational support necessary to underwrite, acquire, manage and dispose of the discounted real estate assets we intend to acquire.

• Resource Real Estate has a staff of real estate professionals, including acquisition professionals, asset managers, property managers, attorneys and accountants with significant experience in acquiring, operating and disposing of discounted real estate assets. Many of the senior managers and attorneys who will be working with our advisor are the same individuals who worked on the acquisition and resolution of the discounted real estate assets acquired in the early 1990’s by affiliates of our sponsor.

• Resource Financial, an affiliate of our sponsor, is a specialized asset management company that invests in banks, thrifts and other financial services companies. As of June 30, 2009, Resource Financial and its affiliates manage $4.2 billion in bank investments. Resource Financial will provide our advisor with several sources of contacts in the financial services industry, including investment banks, brokerage firms, commercial banks and loan originators. Our advisor believes these contacts may also be a source of appropriate real estate investments for us.

• Resource Real Estate Management, Inc., d/b/a “Resource Residential,” an affiliate of our sponsor, is a property management company that manages over 50 multifamily rental properties for our sponsor in 14 states with over 12,000 units. It has over 300 employees. The senior managers and employees of Resource Residential, acting through Resource Real

8

Estate Opportunity Manager, will assist in providing property management as well as construction management services to us.

Who is the parent of your sponsor?

Resource America is the parent corporation of our sponsor. Resource America is a publicly traded corporation listed on the Nasdaq Global Select Market under the symbol “REXI.” Resource America is a specialized asset management company that evaluates, originates, services and manages investment opportunities through its commercial finance, real estate and financial fund management operating segments. As a specialized asset manager, Resource America seeks to develop investment funds for outside investors for which it provides asset management services, typically under long-term management and operating arrangements either through a contract with, or as the manager or general partner of the sponsored fund. As of June 30, 2009, Resource America managed $14.3 billion in assets.

What is Resource America’s experience with sponsoring other REITs?

Resource America has sponsored two publicly traded REITs, Resource Capital in 2005 and RAIT Financial in 1998. Resource Capital is listed on the New York Stock Exchange under the symbol “RSO” and is externally managed by affiliates of our sponsor. RAIT Financial is listed on the New York Stock Exchange under the symbol “RAS,” and is no longer managed or owned by Resource America.

Why is your sponsor focusing this program on multifamily rental property investments?

Our sponsor has focused on the multifamily sector, which includes student housing and senior residential, with its last 10 funds and will focus this program on multifamily rental property investments because apartments have traditionally produced the highest risk-adjusted investment returns compared to other property sectors. Over the past 30 years, apartments have produced higher returns with lower volatility than the other major real estate sectors, which includes office, retail industrial, hospitality and healthcare. Furthermore, multifamily rental properties have demonstrated returns during recessionary periods that are higher than those of other major property classes, and have been an effective inflation hedge due to the short term of the typical apartment lease, which is generally 12 months or less. Our sponsor also believes that some of the key factors for investing in multifamily rental properties include stable access to debt, due in part to the lending activities of Fannie Mae and Freddie Mac, government-sponsored entities, lower cost of debt capital and the ability to support more debt with the same level of risk.

Our sponsor also has an affiliated property management subsidiary with experience in leasing, managing, and rehabilitating multifamily rental properties. We believe that, in general, the multifamily property management industry generally has not maintained pace with the increasing demands of multifamily residents for higher levels of customer services and the need to deploy more technology and modern sales and marketing techniques to acquire new residents. Therefore, in 2007, our sponsor introduced our “Experience-Based Management ^sm” (“EBM^sm”) strategy through Resource Residential, our multifamily property management affiliate. Our EBM^sm strategy offers multifamily property management that is based around the overall experience provided to potential and existing residents, in addition to the first-class services provided to them. We believe that the customer service leaders in the hospitality and retail industries provide applicable templates for the types of experiences and customer services that today’s renters demand. Some of the notable property management initiatives include:

• A well planned “leasing experience” for potential renters that is provided by choreographing the visual experience in leasing centers and model apartments through architectural, lighting and design improvements, specifically chosen music and clean and fresh scents during the leasing process to increase sales closure rates; and

9

• Web-based leasing portals with real-time unit availability, pricing and virtual tours that allow prospective renters to lease apartments online. Furthermore, our web based portals offer existing residents online options such as the ability to pay rent with credit cards or direct withdrawals from their savings or checking accounts.

In addition, we believe revenue enhancing and cost cutting technologies can improve the overall operating efficiencies of our properties and contribute to stronger profitability.

What is your investment approach for this real estate program?

Our investment approach is to purchase the following types of real estate investments from banks, mortgage companies, brokers, sellers, other REITs and other financial institutions in order to generate gains to you from the potential appreciation in the value of our commercial real estate assets and generate current income, principally: (i) non-performing or distressed loans, including but not limited to first- and second-priority mortgage loans, mezzanine loans, B-Notes and other loans; (ii) real estate owned by financial institutions; (iii) value-add multifamily rental properties, (iv) discounted investment-grade commercial mortgage-backed securities and (v) other real estate related assets we purchase either directly or with a co-investor or joint venture partner. We anticipate holding approximately 50% of our total assets in categories (i) and (ii) listed above, 25% of our total assets in category (iii) listed above and 25% of our total assets in category (iv) listed above. If we are only able to raise the minimum offering or an amount substantially less than our maximum offering, we intend to focus on categories (i) and (ii). We seek to acquire these assets at a discount to their perceived value and we may sell or refinance them when market conditions warrant. With respect to the discounted loans, we may either negotiate full or discounted payoffs with the borrowers, restructure the loans or acquire title to the underlying properties through receipt of a deed in lieu or through a foreclosure proceeding. With respect to value-add properties, selected REO properties and properties we acquire or control through foreclosure or restructuring, we expect to enhance their value by instituting significant renovations to update their appearance, aggressively market them, and increase occupancy in order to realize significant capital appreciation as well as increased current income. Upon stabilization, we may refinance or sell the properties. We expect to hold the commercial mortgage-backed securities until their maturity, a beneficial selling opportunity or the earlier liquidation of our assets.

What types of real estate related debt investments do you expect to make?

When acquiring real estate related debt investments, we expect to focus on acquiring or originating first mortgages, second mortgages, mezzanine loans, B-Notes and other subordinate loans, with acquisition costs of between $5 million and $100 million each that are secured directly or indirectly by multifamily rental or other properties. As part of our investment strategy, we intend to focus on acquiring non-performing and distressed loans on a discounted basis with the intent of acquiring the underlying property and, if appropriate, repositioning the underlying property to enhance the value of the property and our overall portfolio. We may also acquire commercial mortgage-backed securities, including whole- or partial-pool interests directly or with co-investors issued by commercial entities and government-sponsored entities. Although we have no present intention to do so, we may also acquire or originate bridge loans, wraparound mortgage loans, construction loans and loans on leasehold interests.

What types of real property might you acquire?

We intend to focus on acquiring equity ownership interests in multifamily rental properties or in entities owning such properties. We expect to invest across the United States because of the broad experience and the background of our advisor and its affiliates in acquiring, managing and disposing of real estate investments. We may also invest in properties other than multifamily rental properties. For example, some of the properties may include a building (or a portion of a building) that serves as a hotel

10

and/or includes a certain portion of units as condominiums. In these cases, we may find an opportunity where the building’s value may be significantly increased if the hotel is converted to apartments, condominiums are converted to apartments or some other combination that involves a conversion of the current building’s use into an alternative, more attractive use. Lastly, if we believe we can enhance a property’s value and generate an attractive return for our stockholders, we may also consider acquiring office, retail, industrial, mixed-use, hospitality and healthcare properties.

Will you use leverage?

We may use leverage for our acquisitions and may obtain such leverage in one of three ways: (1) REIT level financing; (2) individual investment financing and (3) seller financing. Although there is no limit on the amount we can borrow to acquire a single real estate investment, we may not leverage our assets with debt financing in excess of 75% of the aggregate value of our assets unless a majority of our independent directors find substantial justification for borrowing a greater amount. Moreover, based on current lending market conditions, we do not expect to leverage our assets in excess of 35% of the aggregate value of our assets. If we hold distressed assets and stabilize them, we believe that we may be able to and we expect to increase this level of debt financing on such assets.

First, we may obtain REIT level financing through a line of credit from third-party financial institutions or other commercial lenders. Our advisor anticipates that our assets will serve as collateral for this type of debt incurred to acquire real estate investments. We have not yet entered into negotiations or agreements with any lenders with respect to providing debt financing and therefore have no current sources of financing. Our REIT level financing may be recourse financing.

Second, we may also finance the acquisition costs of individual real estate investments, as well as the acquisition costs of all or a group of real estate investments acquired by us, by causing our subsidiaries to borrow directly from third-party financial institutions or other commercial lenders. Under these circumstances, our advisor anticipates that certain properties acquired will serve as collateral for the debt we incur to acquire those particular properties and that we will seek to obtain nonrecourse financing for the acquisition of the properties. However, there is no guarantee that our advisor will be successful in obtaining financing arrangements on a property-by-property basis and that the loans would be nonrecourse to us. Finally, we may also obtain seller financing at the property level with respect to specific assets that we acquire.

How will you structure the ownership and operation of your assets?

We plan to own substantially all of our assets and conduct our operations through Resource Real Estate Opportunity OP, LP, which we refer to as our Operating Partnership in this prospectus. We are the sole general partner of the Operating Partnership and, as of the date of this prospectus, our wholly owned subsidiary, RRE Opportunity Holdings, LLC, is the sole limited partner of the Operating Partnership. Because we plan to conduct substantially all of our operations through the Operating Partnership, we are considered an UPREIT.

What is an “UPREIT”?

UPREIT stands for “Umbrella Partnership Real Estate Investment Trust.” An UPREIT is a REIT that holds all or substantially all of its properties through a partnership in which the REIT holds a general partner and/or limited partner interest, approximately equal to the value of capital raised by the REIT through sales of its capital stock. Using an UPREIT structure may give us an advantage in acquiring properties from persons who may not otherwise sell their properties because of unfavorable tax results. Generally, a sale of property directly to a REIT is a taxable transaction to the selling property owner. In an UPREIT structure, a seller of a property who desires to defer taxable gain on the sale of his property may transfer the property to the UPREIT in exchange for limited partnership units in the partnership and defer

11

taxation of gain until the seller later exchanges his limited partnership units on a one-for-one basis for REIT shares or for cash pursuant to the terms of the limited partnership agreement.

What conflicts of interest will your advisor face?

Our advisor and its affiliates will experience conflicts of interest in connection with the management of our business. All of our executive officers, our non-independent directors and our key real estate professionals will face these conflicts because of their affiliation with our advisor and other Resource Real Estate-sponsored programs. Some of the material conflicts that our advisor and its affiliates will face include the following:

• Our sponsor and its team of real estate professionals at our advisor must determine which investment opportunities to recommend to us or another Resource Real Estate-sponsored program or joint venture or affiliate of our sponsor;

• Our sponsor, Resource America, Resource Capital and our company employ many of the same real estate professionals and, from time to time, those individuals will serve in their capacities at those other entities;

• Our sponsor and its team of real estate professionals at our advisor may structure the terms of joint ventures between us and other Resource Real Estate-sponsored programs;

• Our advisor and its affiliates must determine which property and leasing managers to retain and may retain Resource Real Estate Manager, an affiliate, to manage and lease some or all of our properties and to manage our real estate related debt investments;

• Our sponsor and its team of real estate professionals at our advisor and its affiliates (including our dealer manager, Chadwick Securities) will have to allocate their time between us and other real estate programs and activities in which they are involved;

• Our advisor and its affiliates will receive fees in connection with transactions involving the purchase, management and sale of our assets regardless of the quality of the asset acquired or the services provided to us;

• Our advisor and its affiliates, including our dealer manager, Chadwick Securities, will also receive fees in connection with our offerings of equity securities;

• The negotiations of the advisory agreement, the dealer manager agreement and the management agreement (including the substantial fees our advisor and its affiliates will receive thereunder) will not be at arm’s length; and

• We may seek stockholder approval to internalize our management by acquiring assets and the key real estate professionals at our advisor and its affiliates for consideration that would be negotiated at that time. The payment of such consideration could result in dilution to your interest in us and could reduce the net income per share and funds from operations per share attributable to your investment. Additionally, in an internalization transaction, the real estate professionals at our advisor that become our employees may receive more compensation than they receive from our advisor or its affiliates. These possibilities may provide incentives to our advisor or these individuals to pursue an internalization transaction rather than an alternative strategy, even if such alternative strategy might otherwise be in our stockholders’ best interests.

12

See the “Conflicts of Interest” section of this prospectus for a detailed discussion of the various conflicts of interest relating to your investment, as well as the procedures that we have established to mitigate a number of these potential conflicts.

What is the ownership structure of the company and the Resource Real Estate entities that perform service for you?

The following chart shows the ownership structure of the various Resource Real Estate entities that perform or are likely to perform important services for us.

* Please note that as of the date of this prospectus, all entities listed above were wholly owned by the entity displayed immediately above that entity.

What are the fees that you will pay to the advisor and its affiliates?

Our advisor and its affiliates will receive compensation and reimbursement for services relating to this offering and the investment and management of our assets. The most significant items of compensation are included in the table below. Selling commissions and dealer manager fees may vary for different categories of purchasers. This table assumes the shares are sold through distribution channels associated with the highest possible selling commissions and dealer manager fees and assumes a $9.50 price for each share sold through our distribution reinvestment plan. No selling commissions or dealer manager fees are payable on shares sold through our distribution reinvestment plan.

13

Form of Compensation	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering
Organization and Offering Stage
Selling Commissions	Up to 7.0% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers, except no selling commissions are payable on shares sold under the distribution reinvestment plan. Chadwick Securities, our dealer manager, will reallow 100% of commissions earned to participating broker-dealers.	$140,000/$52,500,000
Dealer Manager Fee	Up to 3.0% of gross offering proceeds, except no dealer manager fee is payable on shares sold under the distribution reinvestment plan. Chadwick Securities may reallow to any participating broker-dealer up to 1.0% of the gross offering proceeds attributable to that participating broker-dealer as a marketing fee and in special cases the dealer manager may increase the reallowance. See “Plan of Distribution.”	$60,000/$22,500,000
Other Organization and Offering Expenses	With respect to our primary offering, we will reimburse our advisor for organization and offering expenses it may incur on our behalf but only to the extent that the reimbursement of the organization and offering expenses will not exceed 2.5% of gross offering proceeds. If we raise the maximum offering amount in the primary offering and under the distribution reinvestment plan, we expect organization and offering expenses (other than selling commissions and the dealer manager fee) to be $11,046,576 or 1.35% of gross offering proceeds. These organization and offering expenses include all actual expenses (other than selling commissions and the dealer manager fee) to be incurred on our behalf and paid by us in connection with the offering.	$50,000/$11,046,576
Acquisition and Development Stage
Acquisition Fees	2.0% of the cost of investments acquired by us, or the amount funded by us to acquire or originate loans, including acquisition and origination expenses and any debt attributable to such investments. Acquisition fees will also include any amounts incurred or reserved for capital expenditures that will be used to provide funds for capital improvements and repairs applied to any real property investment acquired where we plan to add value.	$52,489 (minimum offering assuming leverage of 35% of the cost of our investment)/$19,928,271 (maximum offering assuming leverage of 35% of the cost of our investment)

14

Form of Compensation	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering
Acquisition Expenses	Reimbursement for all out-of-pocket expenses incurred in connection with the selection and acquisition of properties and making loans or other real estate related debt investments, whether or not we ultimately acquire the property or make the loan or other real estate related debt investment.	Actual amounts are dependent upon acquisition activity and therefore cannot be determined at the present time.
Debt Financing Fee	0.5% of the amount of any debt financing obtained. In no event will the debt financing fee be paid more than once in respect of the same debt. For example, upon refinancing, our advisor would only receive 0.5% of the incremental amount of additional debt financing obtained in the refinancing.	Actual amounts are dependent upon the amount of any debt financed and therefore cannot be determined at the present time.
Construction Management Fee	5.0% of actual aggregate cost to construct improvements, or to repair, rehab or reconstruct a property; provided, however, that the sum of the construction management fee paid to our property manager and its affiliates and the acquisition fee described above and acquisition expenses may not exceed 6.0% of the contract price of the property unless our board of directors determines that such fee is commercially competitive, fair and reasonable to us.	Actual amounts are dependent upon usual and customary construction management fees for particular projects and therefore the amount cannot be determined at the present time.
Operational Stage
Property Management/Debt Servicing Fees	With respect to real property investments, 4.5% of the actual gross cash receipts from the operation of the property; provided that for properties that are less than 75% occupied, the property manager will receive a minimum property management fee for the first 12 months of ownership in an amount equal to $40 per unit per month for multifamily rental properties or $0.05 per square foot per month for other types of properties. With respect to real estate related debt investments managed by our property manager or its affiliates, 2.75% of gross interest paid on these investments. The fee attributable on our real estate related debt investments will cover our property manager’s services in monitoring the performance of our real estate related debt investments, including (i) collecting amounts owed to us, (ii) reviewing on an as-needed basis the properties serving, directly or indirectly, as collateral for the real estate related debt investments, the owners of those properties and the markets in general and (iii) maintaining escrow accounts, monitoring advances, monitoring loan covenants, and reviewing insurance compliance. For properties or debt investments managed by third parties,	Actual amounts are dependent upon gross revenues of specific properties and actual management fees or property management fees or will be dependent upon the total equity and debt capital we raise and the results of our operations and therefore cannot be determined at the present time.

15

Form of Compensation	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering
	the property manager will receive the property management or debt servicing fee and pay the third party directly from that fee an amount for managing the property or debt investment. Our property manager or its affiliates will not collect both a fee for managing a debt investment and a separate fee for managing the real estate property underlying such debt investment for the same time period. Our property manager may, in its discretion, from time to time defer payment of and accrue all or any portion of these property management and debt servicing fees.
Asset Management Fee	Monthly fee equal to one-twelfth of 1.0% of the higher of the cost or independently appraised value of each asset, without deduction for depreciation, bad debts or other non-cash reserves. For purposes of this calculation, “cost” will equal the amount actually paid and/or budgeted (including acquisition fees and expenses) to purchase each asset we acquire, including any debt attributable to the asset, provided that, with respect to any properties we develop, construct or improve, cost will include the amount expended by us for the development, construction or improvement of an asset. For purposes of this calculation, “value” will equal the value of an asset established by the most recent independent valuation report, if available. The asset management fee will be based only on the portion of the cost or value attributable to our investment in an asset if we do not own all or a majority of an asset, do not manage or control the asset, and do not provide substantial services in the management of the asset.	The actual amounts are dependent upon the total equity and debt capital we raise and the results of our operations; we cannot determine these amounts at the present time.
Other Operating Expenses	We reimburse the expenses incurred by our advisor in connection with its provision of services to us, including our allocable share of costs for advisor personnel and overhead, including allocable personnel salaries and other employment expenses. However, we will not reimburse our advisor or its affiliates for employee costs in connection with services for which our advisor earns acquisition fees or disposition fees.	Actual amounts are dependent upon the results of our operations; we cannot determine these amounts at the present time.
Disposition Fees	For substantial assistance in connection with the sale of investments, we will pay our advisor or its affiliates the lesser of (i) one-half of the aggregate brokerage commission paid or, if none is paid, the amount that customarily would be paid at a market rate or (ii) 2.75% of the contract sales price of each real estate investment, loan, debt-related security, or other investment sold (including mortgage-backed securities or collateralized debt obligations issued by a subsidiary of ours as part of a securitization transaction). The conflicts committee will determine whether the advisor or its affiliate has provided substantial assistance to us in connection with the sale of an asset. We will not pay a disposition fee upon the maturity, prepayment or workout of	Actual amounts are dependent upon aggregate asset value and therefore cannot be determined at the present time.

16

Form of Compensation	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering
	a loan or other real estate related debt investment; however, if we take ownership of a property as a result of a workout or foreclosure of a loan or we provide substantial assistance during the course of a workout, we will pay a disposition fee upon the sale of such property or disposition of such loan or other real estate related debt investment.
Common Stock Issuable Upon Conversion of Convertible Stock	Our convertible stock will convert into shares of common stock on one of two events. First, it will convert if we have paid distributions to common stockholders such that aggregate distributions are equal to 100% of the price at which we sold our outstanding shares of common stock plus an amount sufficient to produce a 10% cumulative, non-compounded, annual return at that price. Alternatively, the convertible stock will convert if we list our shares of common stock on a national securities exchange and, on the 31st trading day after listing, the value of our company based on the average trading price of our shares of common stock since the listing, plus prior distributions, combine to meet the same 10% return threshold for our common stockholders. Each of these two events is a “Triggering Event.” Upon a Triggering Event, our convertible stock will, unless our advisory agreement with our advisor has been terminated or not renewed on account of a material breach by our advisor, generally be converted into a number of shares of common stock equal to 1/50,000 of the quotient of (A) the lesser of (i) 25% of the amount, if any, by which (1) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (2) the sum of the aggregate issue price of those outstanding shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, or (ii) 15% of the amount, if any, by which (I) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (II) the sum of the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, divided by (B) the value of the company divided by the number of outstanding shares of common stock, in each case, as of the date of the event triggering the conversion. However, if our advisory agreement with our advisor expires without renewal or is terminated (other than because of a material breach by our advisor) prior to a Triggering Event, then upon a Triggering Event the holder of the convertible stock will be entitled to a prorated portion of the number of shares of common stock	Actual amounts depend on the value of our company at the time the convertible stock converts or becomes convertible and therefore cannot be determined at the present time.

17

Form of Compensation	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering
	determined by the foregoing calculation, where such proration is based on the percentage of time we were advised by our advisor.

How many real estate investments do you currently own?

We currently do not own any properties or other real estate investments. Because we have not yet identified any specific assets to acquire, we are considered to be a blind pool. As acquisitions become probable, we will supplement this prospectus to provide information regarding the likely acquisition to the extent material to an investment decision with respect to our common stock. We will also describe material changes to our portfolio, including the closing of property acquisitions, by means of a supplement to this prospectus.

Will you acquire properties or other assets in joint ventures?

Probably. Among other reasons, joint venture investments permit us to own interests in large assets without unduly restricting the diversity of our portfolio. We may also want to acquire properties and other investments through joint ventures in order to diversify our portfolio by investment size, investment type or investment risk. In determining whether to invest in a particular joint venture, our advisor will evaluate the real estate assets that such joint venture owns or is being formed to own under the same criteria as our other investments. We may enter into joint ventures with affiliates of our advisor or with third parties.

What steps will you take to make sure you purchase environmentally compliant properties?

We will attempt to obtain or review a Phase I environmental assessment of each property we purchase or with respect to a property underlying a real estate related debt investment that we purchase and, in our discretion, may obtain additional or alternative environmental assessments. In addition, we will attempt to obtain a representation from the seller that, to its knowledge, the property is not contaminated with hazardous materials. We will not close the purchase of any property unless we are generally satisfied with the environmental status of the property.

Will you register as an investment company?

We do not intend to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”), because we expect that most of our investments will be held by our Operating Partnership through wholly owned or majority-owned subsidiaries that will rely on the exception from the definition of an investment company under Section 3(c)(5)(C) of the Investment Company Act. (With this ownership structure, we believe that neither we nor our Operating Partnership is likely to be considered an investment company under Section 3(a)(1) of the Investment Company Act.) The position of the Securities and Exchange Commission (“SEC”) staff generally requires entities relying on Section 3(c)(5)(C) of the Investment Company Act to maintain at least 55% of their assets in “qualifying real estate assets” (that is, real estate, mortgage loans and other qualifying interests in real estate) and at least another 25% of their assets in “real estate related assets.” Depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities,

18

mezzanine loans, preferred equity investments, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets. Our ownership of these investments, therefore, may be limited by provisions of the Investment Company Act and SEC staff interpretations.

If I buy shares, will I receive distributions and how often?

We have not paid any distributions as of the date of this prospectus. We intend to elect to be taxed as a REIT and to operate as a REIT beginning with our taxable year ending December 31, 2009. To maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our common stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. We will make distributions with respect to the shares of common stock in our sole discretion. No distributions will be made with respect to shares of convertible stock. Once we begin making distributions, we intend to pay distributions on a monthly basis based on daily record dates.

Generally, our policy will be to pay distributions based on current and projected cash flow from operations after giving consideration to amounts excluded from cash flow from operations under GAAP but paid for our of offering proceeds, such as acquisition fees and acquisition expenses. We expect to have little, if any, cash flow from operations available for distribution until we make substantial investments. We expect that at least during the early stages of our development and from time to time during our operational stage, we may declare distributions in anticipation of cash flow that we expect to receive during a later period and we will pay these distributions in advance of our actual receipt of these funds. In these instances, to the extent permitted by Maryland law, we expect to use the proceeds from this offering or the proceeds from the issuance of securities in the future to pay distributions. We may also fund such distributions from third-party borrowings or from advances from our advisor or sponsor or from our advisor’s deferral of its asset management fee, although we have no present intention to do so.

We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders.

May I reinvest my distributions in shares of Resource Real Estate Opportunity REIT, Inc.?

Yes. We have adopted a distribution reinvestment plan. You may participate in our distribution reinvestment plan by checking the appropriate box on the subscription agreement or by filling out an enrollment form we will provide to you at your request. The purchase price for shares purchased under the distribution reinvestment plan will initially be $9.50. Once we establish an estimated value per share that is not based on the price to acquire a share in the primary offering, shares issued pursuant to our distribution reinvestment plan will be priced at the estimated value per share of our common stock, as determined by our advisor or another firm chosen for that purpose. We expect to establish an estimated value per share not based on the price to acquire a share in the primary offering after the completion of our offering stage; however, the time frame before which we establish an estimated value per share may be different depending on regulatory requirements or if necessary to assist broker dealers who sell shares in this offering. We will consider our offering stage complete when 18 months have passed since our last sale of shares in a public offering of equity securities, whether that last sale was in this initial public offering or a public follow-on offering. No selling commissions or dealer manager fees will be payable on shares sold under our distribution reinvestment plan. We may amend or terminate the distribution reinvestment plan for any reason at any time upon 10 days’ written notice to the participants. For more information regarding the distribution reinvestment plan, see “Description of Shares—Distribution Reinvestment Plan.”

19

Will the distributions I receive be taxable as ordinary income?

Yes and No. Generally, distributions that you receive, including distributions that are reinvested pursuant to our distribution reinvestment plan, will be taxed as ordinary income to the extent they are from current or accumulated earnings and profits. Participants in our distribution reinvestment plan will also be treated for tax purposes as having received an additional distribution to the extent that they purchase shares under the distribution reinvestment plan at a discount to fair market value. As a result, participants in our distribution reinvestment plan may have tax liability with respect to their share of our taxable income, but they will not receive cash distributions to pay such liability.

We expect that some portion of your distributions will not be subject to tax in the year in which it is received because depreciation expense reduces the amount of taxable income but does not reduce cash available for distribution. Because multifamily rental properties are depreciated over 27.5 years, versus 39 years for other types of commercial real estate properties, the amount of taxable income in your distributions will be reduced as compared to companies holding other types of commercial real estate properties. The portion of your distribution that is not subject to tax immediately is considered a return of capital for tax purposes and will reduce the tax basis of your investment. Distributions that constitute a return of capital, in effect, defer a portion of your tax until your investment is sold or we are liquidated, at which time you will be taxed at capital gains rates. However, because each investor’s tax considerations are different, we suggest that you consult with your tax advisor. You should also review the section of the prospectus entitled “Federal Income Tax Considerations.”

How will you use the proceeds raised in this offering?

We intend to use substantially all of the net proceeds from our primary offering of 75,000,000 shares to acquire a diversified portfolio of discounted U.S. commercial real estate assets, principally (i) non-performing or distressed loans, including but not limited to first- and second-priority mortgage loans, mezzanine loans, B-Notes and other loans, (ii) real estate owned by financial institutions, (iii) value-add multifamily rental properties, (iv) discounted investment-grade commercial mortgage-backed securities and (v) other real estate related assets. Depending primarily upon the number of shares we sell in this offering and assuming a $10.00 purchase price for shares sold in the primary offering, we estimate that we will use 85.29% to 86.36% of the gross proceeds from the primary offering, or between $8.53 and $8.64 per share, for investments, assuming the minimum and maximum offering amounts, respectively. We intend to use the remainder to pay offering expenses, including selling commissions and the dealer manager fee, to maintain a working capital reserve and to pay a fee to our advisor for its services in connection with the selection and acquisition of our real estate investments. Until we invest the proceeds of this offering in real estate investments, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments will not earn as high of a return as we expect to earn on our real estate investments, and we may not be able to invest the proceeds in real estate promptly.

We expect to use substantially all of the net proceeds from the sale of shares under our distribution reinvestment plan for general corporate purposes, including, but not limited to, the repurchase of shares under our share redemption program; capital expenditures, resident amenities, unit improvement costs and leasing costs related to our investments in multifamily value-add or other properties; reserves required by any financings of our investments; future funding obligations under any real estate loan receivable we acquire; acquisition of assets, which would include payment of acquisition fees to our advisor; and the repayment of debt.

20

	200,000 Shares		82,500,000 Shares
	Minimum Offering ($10.00/share)		Primary Offering (75,000,000 shares) ($10.00/share)			Div. Reinv. Plan (7,500,000 shares) ($9.50/share)
	$	%	$		%	$	%
Gross Offering Proceeds	2,000,000	100.00	750,000,000		100.00	71,250,000	100.00
Selling Commissions	140,000	7.00	52,500,000		7.00	0	0.00
Dealer Manager Fee	60,000	3.00	22,500,000		3.00	0	0.00
Other Organization and Offering Expenses	50,000	2.50	10,627,826		1.42	418,750	0.59
Acquisition Fees (1)	34,118	1.71	12,953,376	(1)	1.73	0	0.00
Initial Working Capital Reserve	10,000	0.50	3,750,000		0.50	0	0.00
Amount Available for Investment	1,705,882	85.29	647,668,798		86.36	70,831,250	99.41

(1) If we raise the maximum offering amount and our debt financing is equal to 35% of the cost of our real estate investments, then acquisition fees would be $19,928,271.

(2) To the extent offering proceeds are used to pay distributions in anticipation of future cash flow from operating activities, the maximum amount available for investment will be correspondingly reduced. See “Risks Related to This Offering and Our Corporate Structure.”

What kind of offering is this?

We are offering up to 82,500,000 shares of common stock on a “best efforts” basis. We are offering 75,000,000 of these shares in our primary offering at $10 per share, with volume discounts available to investors who purchase more than $1,000,000 in shares through the same participating broker-dealer. Discounts are also available for investors who purchase shares through certain distribution channels. We are also offering up to 7,500,000 shares of common stock under our distribution reinvestment plan at a purchase price initially equal to $9.50 per share.

Prior to the commencement of this offering, we will exchange 4,500 shares of common stock held by our advisor for 45,000 shares of our non-participating, non-voting, convertible stock. The convertible stock is non-voting, is not entitled to any distributions and is a separate class of stock from the common stock to be issued in this offering. Any reference in this prospectus to our “common stock” means the class of common stock offered hereby. Any reference in this prospectus to our “convertible stock” means the class of non-participating, non-voting, convertible stock to be issued to our advisor.

How does a “best efforts” offering work? What happens if you don’t raise at least $2,000,000 in gross offering proceeds?

When shares are offered on a “best efforts” basis, the dealer manager will be required to use only its best efforts to sell the shares in the offering and has no firm commitment or obligation to purchase any of the shares. Therefore, we may not sell all or any of the shares that we are offering.

We will not sell any shares unless we raise a minimum of $2,000,000 in gross offering proceeds from persons who are not affiliated with us or our advisor. Pending satisfaction of this condition, all subscription payments will be placed in an account held by the escrow agent in trust for our subscribers’ benefit, pending release to us. You are entitled to receive the interest earned on your subscription payment while it is held in the escrow account. Once we have raised the minimum offering amount and instructed

21

the escrow agent to disburse the funds in the account, funds representing the gross purchase price for the shares will be distributed to us and we will disburse to you any interest earned on your subscription payment while it was held in the escrow account. If we do not raise $2,000,000 in gross offering proceeds by                     , we will terminate this offering and promptly return all subscribers’ funds in the escrow account (plus interest). Funds in escrow will be invested in short-term investments that mature on or before the termination of the escrow period or that can be readily sold or otherwise disposed of for cash by such date without any dissipation of the offering proceeds invested. We will not deduct any fees if we return funds from the escrow account. Because of the higher minimum offering requirement for Pennsylvania investors (described below), subscription payments made by Pennsylvania investors will not count toward the $2,000,000 minimum offering for all other jurisdictions.

Notwithstanding our $2,000,000 minimum offering amount for all other jurisdictions, we will not sell any shares to Pennsylvania investors unless we raise a minimum of $25 million in gross offering proceeds (including sales made to residents of other jurisdictions). Pending satisfaction of this condition, all subscription payments by Pennsylvania investors will be placed in a separate account held by the escrow agent in trust for Pennsylvania subscribers’ benefit, pending release to us. If we have not reached this $25 million threshold within 120 days of the date that we first accept a subscription payment from a Pennsylvania investor, we will, within 10 days of the end of that 120-day period, notify Pennsylvania investors in writing of their right to receive refunds, with interest. If you request a refund within 10 days of receiving that notice, we will arrange for the escrow agent to promptly return by check your subscription amount with interest. Amounts held in the Pennsylvania escrow account from Pennsylvania investors not requesting a refund will continue to be held for subsequent 120-day periods until we raise at least $25 million or until the end of the subsequent escrow periods. At the end of each subsequent escrow period, we will again notify you of your right to receive a refund of your subscription amount with interest. In the event we do not raise gross offering proceeds of $25 million by                     , we will promptly return all funds held in escrow for the benefit of Pennsylvania investors (in which case, Pennsylvania investors will not be required to request a refund of their investment). Purchases by persons affiliated with us or our advisor will not count toward the Pennsylvania minimum.

How long will this offering last?

The termination date of our primary offering will be             , 2011, unless extended by one year or             , 2012. Should we determine to register a follow-on offering, as permitted by rules promulgated by the SEC, we may extend the offering up to an additional 180 days beyond                     , 2012. If we continue our primary offering beyond two years from the date of this prospectus, we will provide that information in a prospectus supplement. We may continue to offer shares under our distribution reinvestment plan beyond two years from the date of this prospectus until we have sold 7,500,000 shares through the reinvestment of distributions. In many states, we will need to renew the registration statement or file a new registration statement to continue the offering beyond one year from the date of this prospectus. We may terminate this offering at any time.

If our board of directors determines that it is in our best interest, we may conduct additional offerings upon the termination of this offering. Our charter does not restrict our ability to conduct offerings in the future.

Who can buy shares?

An investment in our shares is only suitable for persons who have adequate financial means and who will not need immediate liquidity from their investment. Residents of most states can buy shares in this offering provided that they have either (1) a net worth of at least $70,000 and an annual gross income of at least $70,000 or (2) a net worth of at least $250,000. For the purpose of determining suitability, net worth does not include an investor’s home, home furnishings or personal automobiles. The minimum suitability standards are more stringent for certain investors. See “Suitability Standards.”

22

Who might benefit from an investment in our shares?

An investment in our shares may be beneficial for you if you meet the minimum suitability standards described in this prospectus, seek to diversify your personal portfolio with a real estate-based investment, seek to preserve capital, seek to obtain the benefits of potential long-term capital appreciation, seek to receive current income and are able to hold your investment for a time period consistent with our liquidity strategy. On the other hand, we caution persons who require immediate liquidity or guaranteed income, or who seek a short-term investment, that an investment in our shares will not meet those needs.

Is there any minimum investment required?

Yes. We require a minimum investment of at least $2,500. After you have satisfied the minimum investment requirement, any additional purchases must be in increments of at least $100. The investment minimum for subsequent purchases does not apply to shares purchased pursuant to our distribution reinvestment plan.

Are there any special restrictions on the ownership or transfer of shares?

Yes. Our charter contains restrictions on the ownership of our shares that prevent any one person from owning more than 9.8% of our aggregate outstanding shares unless exempted by our board of directors. These restrictions are designed to enable us to comply with ownership restrictions imposed on REITs by the Internal Revenue Code. This ownership limit shall be applicable beginning on June 30, 2010. Our charter also limits your ability to sell your shares unless (i) the prospective purchaser meets the suitability standards in our charter regarding income or net worth and (ii) unless you are transferring all of your shares and the transfer complies with the minimum purchase requirements.

Are there any special considerations that apply to employee benefit plans subject to ERISA or other retirement plans that are investing in shares?

Yes. The section of this prospectus entitled “ERISA Considerations” describes the effect the purchase of shares will have on individual retirement accounts and retirement plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code. ERISA is a federal law that regulates the operation of certain tax-advantaged retirement plans. Any retirement plan trustee or individual considering purchasing shares for a retirement plan or an individual retirement account should carefully read this section of the prospectus.

We may make some investments that generate “excess inclusion income” which, when passed through to our tax-exempt stockholders, can be taxed as unrelated business taxable income or, in certain circumstances, can result in a tax being imposed on us. Although we do not expect the amount of such income to be significant, there can be no assurance in this regard.

May I make an investment through my IRA, SEP or other tax-deferred account?

Yes. You may make an investment through your individual retirement account (“IRA”), a simplified employee pension (“SEP”) plan or other tax-deferred account. In making these investment decisions, you should consider, at a minimum, (1) whether the investment is in accordance with the documents and instruments governing your IRA, plan or other account, (2) whether the investment satisfies the fiduciary requirements associated with your IRA, plan or other account, (3) whether the investment will generate unrelated business taxable income (“UBTI”) to your IRA, plan or other account, (4) whether there is sufficient liquidity for such investment under your IRA, plan or other account, (5) the need to value the

23

assets of your IRA, plan or other account annually or more frequently, and (6) whether the investment would constitute a prohibited transaction under applicable law.

How do I subscribe for shares?

If you choose to purchase shares in this offering, you will need to complete and sign a subscription agreement (in the form attached to this prospectus as Appendix B) for a specific number of shares and pay for the shares at the time of your subscription.

If I buy shares in this offering, how may I later sell them?

Our board of directors has adopted a share redemption program that may enable you to sell your shares to us after you have held them for at least one year, subject to the significant conditions and limitations of the program. In its sole discretion, our board of directors could choose to terminate the program or to amend its provisions without stockholder approval. The purchase price for such shares redeemed under the redemption program will be as set forth below until we establish an estimated value per share of our common stock. We expect to establish an estimated value per share after the completion of our offering stage; however, the time frame before which we establish an estimated value per share may be different depending on regulatory requirements or if necessary to assist broker-dealers who sell shares in this offering. We will consider our offering stage complete when 18 months have passed without our having sold shares in a public offering of equity securities, whether that last sale was in this initial public offering or a public follow-on offering. Except for redemptions sought upon a stockholder’s death or qualifying disability or redemptions sought upon a stockholder’s confinement to a long-term care facility, the purchase price for shares redeemed under the redemption program will equal:

• prior to the time we establish an estimated value per share, the amount by which (a) the lesser of (1) 90% of the average gross price per share the original purchaser or purchasers of your shares paid to us, which we refer to as the “issue price,” for all of your shares (as adjusted for any stock combinations, splits, recapitalizations and the like with respect to our shares of common stock) or (2) 90% of the offering price of shares in our most recent primary offering, exceeds (b) the aggregate amount of net sale proceeds per share, if any, distributed to investors prior to the redemption date as a result of the sale of one or more of our investments; or

• after we establish an estimated value per share, the lesser of (1) 100% of the average issue price per share for all of your shares (as adjusted for any stock combinations, splits, recapitalizations and the like with respect to our shares of common stock) or (2) 90% of the estimated value per share, as determined by our advisor or another firm chosen for that purpose.

Subject to the limitations described in this prospectus and provided that the redemption request is made within 270 days of the event giving rise to the following special circumstances, we will also waive the one-year holding requirement (a) upon the request of the estate, heir or beneficiary of a deceased stockholder or (b) upon the disability of a stockholder or upon a stockholder’s confinement to a long-term care facility, provided that the condition causing such disability or need for long-term care was not preexisting on the date that such person became a stockholder. Our board of directors reserves the right in its sole discretion at any time to (1) waive the one-year holding period in the event of other exigent circumstances affecting a stockholder such as bankruptcy or a mandatory distribution requirement under a stockholder’s IRA, (2) reject any request for redemption, (3) change the purchase price for redemptions, or (4) otherwise amend the terms of our redemption share program.

The purchase price per share for shares redeemed upon the death or qualifying disability of the stockholder or upon such stockholder’s confinement to a long-term care facility, until we establish an

24

estimated value per share of our common stock, will be equal to the amount by which (a) the average issue price per share for all of your shares (as adjusted for any stock combinations, splits, recapitalizations and the like, with respect to the shares of common stock) exceeds (b) the aggregate amount of net sale proceeds per share, if any, distributed to investors prior to the redemption date as a result of the sale of one or more of our investments. Thereafter, the purchase price will be the estimated value per share, as determined by our advisor or another firm chosen for that purpose.

We intend to redeem shares quarterly under the program. We will not redeem in excess of 5% of the weighted-average number of shares outstanding during the 12-month period immediately prior to the effective date of redemption. Generally, the cash available for redemption will be limited to proceeds from our distribution reinvestment plan plus, if we had positive operating cash flow from the previous fiscal year, 1% of all operating cash flow from the previous fiscal year. These limitations apply to all redemptions, including redemptions sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility. You will have no right to request redemption of your shares if the shares are listed for trading on a national securities exchange.

In general, a stockholder or his estate, heir or beneficiary may present to us fewer than all of the shares then owned for redemption, except that the minimum number of shares that must be presented for redemption shall be at least 25% of the holder’s shares. However, as little as 10% of a stockholder’s shares may be presented for redemption if the holder’s redemption request is made within 270 days of the event giving rise to the special circumstances described in this sentence, where redemption is being requested (1) on behalf of a deceased stockholder; (2) by a stockholder with a qualifying disability, who is deemed by our board of directors to be permanently disabled or who is seeking redemption upon confinement to a long-term care facility; (3) by a stockholder due to other involuntary, exigent circumstances, such as bankruptcy; or (4) by a stockholder due to a mandatory distribution under such stockholder’s IRA; provided, however, that any future redemption request by such stockholder must present for redemption at least 25% of such stockholder’s remaining shares. In the case of stockholders who undertake a series of partial redemptions, appropriate adjustments in the purchase price for the redeemed shares will be made so that the blended price per share for all redeemed shares is reflective of the issue price per share of all shares owned by such stockholder through the dates of each redemption.

In connection with a request for redemption, the stockholder or his estate, heir or beneficiary will be required to certify to us that the stockholder acquired the shares to be repurchased either (1) directly from us or (2) from the original investor by way of (i) a bona fide gift not for value to, or for the benefit of, a member of the investor’s immediate or extended family (including the investor’s spouse, parents, siblings, children or grandchildren and including relatives by marriage), (ii) a transfer to a custodian, trustee or other fiduciary for the account of the investor or members of the investor’s immediate or extended family in connection with an estate planning transaction, including by bequest or inheritance upon death or (iii) operation of law. See “Description of Shares—Share Redemption Program.”

When will the company seek to liquidate its assets or list its shares of common stock?

We anticipate providing our stockholders with a liquidity event or events by some combination of the following: (i) liquidating all, or substantially all, of our assets and distributing the net proceeds to our stockholders; or (ii) listing of our shares for trading on an exchange. Our board anticipates evaluating a liquidity event within three to six years after we terminate this primary offering, subject to then prevailing market conditions. If we do not begin the process of liquidating our assets or listing our shares within six years of the termination of this primary offering, our charter requires that we hold a stockholder meeting to vote on a proposal for our orderly liquidation unless a majority of our board of directors and a majority of our independent directors vote to defer the meeting beyond the sixth anniversary of the termination of this offering. Prior to any stockholder meeting, our directors would evaluate whether to recommend the proposal to our stockholders and, if they so determine, would recommend the proposal and their reasons for doing so. The proposal would include information regarding appraisals of our portfolio. If our stockholders did not approve the proposal, we would obtain new appraisals and resubmit the proposal to

25

our stockholders up to once every two years upon the written request of stockholders owning 10% of our outstanding common stock.

Once we commence liquidation, we would begin an orderly sale of our properties and other assets. The precise timing of such sales will depend on the prevailing real estate and financial markets, the economic conditions in the areas where our properties are located and the federal income tax consequences to our stockholders. In making the decision to liquidate or apply for listing of our shares, our directors will try to determine whether liquidating our assets or listing our shares will result in greater value for stockholders.

Will I be notified of how my investment is doing?

Yes, we will provide you with periodic updates on the performance of your investment in us, including:

• detailed quarterly dividend reports;

• an annual report;

• supplements to the prospectus, provided periodically; and

• three quarterly financial reports.

We will provide this information to you via one or more of the following methods, in our discretion and with your consent, if necessary:

• U.S. mail or other courier;

• facsimile;

• electronic delivery; or

• posting on our web site at www.resourcereit.com.

To assist the Financial Industry Regulatory Authority (“FINRA”) members and their associated persons that participate in this offering of our common stock, we are required to disclose in each annual report distributed to stockholders a per-share estimated value of our common stock, the method by which it was developed, and the date of the data used to develop the estimated value. In addition, our advisor prepares annual statements of estimated share values to assist fiduciaries of retirement plans subject to the annual reporting requirements of ERISA in the preparation of their reports relating to an investment in our shares. Our advisor has indicated that it intends to use the most recent price paid to acquire a share in this offering (ignoring purchase price discounts for certain categories of purchasers) as its estimated per share value of our shares. However, this estimated value is likely to be higher than the price at which you could resell your shares because (1) our public offering involves the payment of underwriting compensation and other directed selling efforts, which payments and efforts are likely to produce a higher sales price than could otherwise be obtained, and (2) there is no public market for our shares. Moreover, this estimated value is likely to be higher than the amount you would receive per share if we were to liquidate at this time because of the up-front fees that we pay in connection with the issuance of our shares as well as the recent reduction in the demand for real estate as a result of recent credit market disruptions and economic events. Our advisor expects to continue to use the most recent public offering price for a share of our common stock as the estimated per share value reported in our annual reports on Form 10-K until we have completed our offering stage. We will consider our offering stage complete when 18 months have passed since our last sale of shares in a public offering of equity securities, whether that last sale was in this initial public offering or a public follow-on offering. (For purposes of this definition, we do not consider “public

26

equity offerings” to include offerings on behalf of selling stockholders or offerings related to a distribution reinvestment plan, employee benefit plan or the redemption of interests in the Operating Partnership).

After the 18-month period described above (or possibly sooner if our board so directs), we expect the estimated share values provided by our advisor and reported in our annual reports will be based on estimates of the values of our assets net of our liabilities. We do not currently anticipate that our advisor will obtain new or updated appraisals for our properties in connection with such estimates, and accordingly, its estimated share values should not be viewed as estimates of the amount of net proceeds that would result from a sale of our properties at that time. We expect that any estimates of the value of our properties will be performed by our advisor; however, our board of directors could direct our advisor to engage one or more third-party valuation firms in connection with such estimates.

When will I get my detailed tax information?

Your Form 1099-DIV tax information, if required, will be mailed by January 31 of each year.

Who can help answer my questions about the offering?

If you have more questions about the offering, or if you would like additional copies of this prospectus, you should contact your registered representative or contact:

Chadwick Securities, Inc.

1845 Walnut Street, 10th Floor

Philadelphia, Pennsylvania 19103

Telephone: (866) 469-0129

Fax: (866) 545-7693

27

RISK FACTORS

An investment in our common stock involves various risks and uncertainties. You should carefully consider the following risk factors in conjunction with the other information contained in this prospectus before purchasing our common stock. The risks discussed in this prospectus could adversely affect our business, operating results, prospects and financial condition. This could cause the value of our common stock to decline and could cause you to lose all or part of your investment. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Risks Related to an Investment in Us

There is no public trading market for your shares; therefore, it will be difficult for you to sell your shares.

There is no current public market for our shares and we currently have no plans to list our shares on a national securities exchange. Our charter limits your ability to transfer or sell your shares unless the prospective stockholder meets the applicable suitability and minimum purchase standards. Our charter also prohibits the ownership of more than 9.8% of our stock, unless exempted by our board of directors, which may inhibit large investors from desiring to purchase your shares. This ownership limit shall be applicable beginning on June 30, 2010. Moreover, our share redemption program includes numerous restrictions that limit your ability to sell your shares to us, and our board of directors may amend, suspend or terminate our share redemption program without notice. We describe these restrictions in detail under “Description of Shares — Share Redemption Program.” Therefore, it will be difficult for you to sell your shares promptly or at all. If you are able to sell your shares, you would likely have to sell them at a substantial discount to their public offering price. It is also likely that your shares would not be accepted as the primary collateral for a loan. You should purchase our shares only as a long-term investment because of the illiquid nature of the shares.

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

Our ability to achieve our investment objectives and to pay distributions depends upon the performance of our advisor in the acquisition of our investments, including the determination of any financing arrangements, and the ability of our advisor to source loan origination opportunities for us. Competition from competing entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Additionally, disruptions and dislocations in the credit markets have materially impacted the cost and availability of debt to finance real estate acquisitions, which is a key component of our acquisition strategy. This lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage to other entities that have greater financial resources than we do. We will also depend upon the performance of our property managers to effectively manage our properties and real estate related assets. Rising vacancies across real estate properties have resulted in increased pressure on real estate investors and their property managers to maintain adequate occupancy levels. In order to do so, we may have to offer inducements, such as free rent and resident amenities, to compete for residents. We are also subject to competition in seeking to acquire real estate related debt investments. The more shares we sell in this offering, the greater our challenge will be to invest all of the net offering proceeds on attractive terms. Except for investments that may be described in one or more supplements to this prospectus, you will have no opportunity to evaluate the economic merits or the terms of our investments. You must rely entirely on the management abilities of our advisor, the property managers that our advisor selects and the oversight of our board of directors. We can give no assurance that our advisor will be successful in obtaining suitable investments on financially attractive terms or that, if our advisor makes investments on our behalf, our objectives will be achieved. If we, through our advisor, are unable to find suitable investments promptly, we will hold the proceeds from this offering in an interest-bearing account or invest the proceeds in short-term assets. If we would continue to be unsuccessful in locating suitable investments, we may ultimately decide to liquidate.

28

In the event we are unable to timely locate suitable investments, we may be unable or limited in our ability to pay distributions and we may not be able to meet our investment objectives.

Disruptions in the financial markets and deteriorating economic conditions could adversely impact our ability to implement our business strategy and generate returns to you.

As of the date of this prospectus, the capital and credit markets have been experiencing extreme volatility and disruption for nearly two years. Turmoil in the capital markets has constrained equity and debt capital available for investment in the commercial real estate market, resulting in fewer buyers seeking to acquire commercial properties, increases in cap rates and lower property values. Furthermore, deteriorating economic conditions have negatively impacted commercial real estate fundamentals. As of the date of this prospectus, risks of defaults on loans and foreclosures on mortgages have increased over the past two years. Financial market and economic conditions may deteriorate further; we cannot foresee when these conditions will stabilize or improve.

We intend to acquire a diversified portfolio of real estate properties and real estate related assets that has been significantly discounted. Current economic conditions greatly increase the risks of these investments. The value of collateral securing any loan investment we may make could decrease further. In addition, revenues on the properties and other assets underlying any loan investments we may make could decrease, making it more difficult for borrowers to meet their payment obligations to us. More generally, the risks arising from the current financial market and economic conditions are applicable to all of the investments we may make, including commercial real estate related debt. They apply to mortgage-backed securities, the performance of which depends on the performance, non-performance and ability to successfully restructure or foreclose upon the underlying loans. They also apply to the debt and equity securities of companies that have investment objectives similar to ours.

A protracted economic downturn could have a negative impact on our portfolio. Borrowers often use increases in the value of their existing properties to support the purchase of or investment in additional properties. Although our discount and value-add investment strategies do not rely on precisely the same concepts, if real property or other real estate related asset values continue to decline after we acquire them, we may have a difficult time making new acquisitions or generating returns on your investment.

We expect to finance some of our investments in part with debt. As a result of the ongoing credit market turmoil, we may not be able to obtain debt financing on attractive terms. As such, we may be forced to use a greater proportion of our offering proceeds to finance our acquisitions and originations, reducing the number of investments we would otherwise make. If the current debt market environment persists, we may modify our investment strategy in order to optimize our portfolio performance. Our options would include limiting or eliminating the use of debt and focusing on those investments that do not require the use of leverage to meet our portfolio goals.

All of the factors described above could adversely impact our ability to implement our business strategy and make distributions to our investors and could decrease the value of an investment in us.

If we raise substantial offering proceeds in a short period of time, we may not be able to invest all of the net offering proceeds promptly, which may cause our distributions and your investment returns to be lower than they otherwise would.

We could suffer from delays in locating suitable investments. The more money we raise in this offering, the more difficult it will be to invest the net offering proceeds promptly. Therefore, the large size of this offering increases the risk of delays in investing our net offering proceeds. Our reliance on our advisor to locate suitable investments for us at times when the management of our advisor is simultaneously seeking to locate suitable investments for other affiliated programs could also delay the investment of the proceeds of this offering. Delays we encounter in the selection, acquisition and development of income-producing properties would likely limit our ability to pay distributions to our stockholders and reduce our stockholders’ overall returns.

29

Because this is a blind-pool offering, you will not have the opportunity to evaluate our investments before we make them, which makes your investment more speculative.

Because we have not yet acquired or identified any investments that we may make, we are not able to provide you with any information to assist you in evaluating the merits of any specific properties or other investments that we may acquire, except for investments that may be described in one or more supplements to this prospectus. We will seek to invest substantially all of the offering proceeds available for investment from the primary offering, after the payment of fees and expenses, in the acquisition of or investment in interests in real estate properties and real estate related assets. However, because you will be unable to evaluate the economic merit of specific real estate projects before we invest in them, you will have to rely entirely on the ability of our advisor to select suitable and successful investment opportunities. Furthermore, our board of directors will have broad discretion in implementing policies regarding tenant or mortgagor creditworthiness and you will not have the opportunity to evaluate potential residents, principally due to the short-lease term nature of multifamily rental properties, or tenants in the case of other property classes, managers or borrowers. These factors increase the risk that your investment may not generate returns comparable to our competitors.

If we do not raise substantial funds, we will be limited in the number and type of investments we may make, and the value of your investment in us will fluctuate with the performance of the specific properties we acquire.

This offering is being made on a “best efforts” basis and no individual, firm or corporation has agreed to purchase any of our stock. The amount of proceeds we raise in this offering may be substantially less than the amount we would need to achieve a broadly diversified property portfolio. If we are unable to raise substantially more than the minimum offering amount, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments that we make. In that case, the likelihood that any single asset’s performance would materially reduce our overall profitability will increase. We are not limited in the number or size of our investments or the percentage of net proceeds we may dedicate to a single investment. In addition, any inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, and our net income and the distributions we make to stockholders would be reduced.

Neither we nor our advisor have a prior operating history and our sponsor, Resource Real Estate, has only limited experience operating a public company, which makes our future performance difficult to predict.

We are a recently formed company, as is our advisor. Neither of us has an operating history. We were incorporated in the State of Maryland on June 3, 2009. As of the date of this prospectus, we have not made any investments in real estate or otherwise, and our total assets consist of $200,000 cash and we have approximately $652,000 of deferred offering costs. You should not assume that our performance will be similar to the past performance of other real estate investment programs sponsored by affiliates of our advisor. Although the parent of our sponsor, Resource America, has extensive public company experience by sponsoring two NYSE-listed REITs and our sponsor has experience sponsoring one public real estate fund, we are the first publicly offered blind pool real estate investment program sponsored by our sponsor. For this reason, you should be especially cautious when drawing conclusions about our future performance and you should not assume that it will be similar to the prior performance of other Resource America- or Resource Real Estate-sponsored programs. Our lack of an operating history and differences from other Resource America- or Resource Real Estate-sponsored programs significantly increase the risk and uncertainty you face in making an investment in our shares.

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

We are dependent on our advisor to manage our operations and our portfolio of real estate assets. Our advisor has no operating history and it will depend upon the fees and other compensation that it will

30

receive from us in connection with the purchase, management and sale of assets to conduct its operations. Any adverse changes in the financial condition of our advisor or our relationship with our advisor could hinder its ability to successfully manage our operations and our portfolio of investments.

Our ability to achieve our investment objectives and to conduct our operations is dependent upon the performance of our advisor, which is a subsidiary of our sponsor and its parent company, Resource America. Our sponsor’s business is sensitive to trends in the general economy, as well as the commercial real estate and credit markets. The current macroeconomic environment and accompanying credit crisis has negatively impacted the value of commercial real estate assets, contributing to a general slow down in our sponsor’s industry, which our sponsor anticipates will continue through 2009. To the extent that any decline in our sponsor’s revenues and operating results impacts the performance of our advisor, our results of operations, and financial condition could also suffer.

The loss of or the inability to hire additional or replacement key real estate and debt finance professionals at Resource Real Estate could delay or hinder implementation of our investment strategies, which could limit our ability to make distributions and decrease the value of your investment.

Our success depends to a significant degree upon the contributions of Messrs. Feldman and Finkel each of whom would be difficult to replace. Neither we nor our advisor have employment agreements with these individuals. Messrs. Feldman and Finkel may not remain associated with Resource Real Estate. If any of these persons were to cease their association with us, our operating results could suffer. We do not intend to maintain key person life insurance on any person. We believe that our future success depends, in large part, upon Resource Real Estate and its affiliates’ ability to retain highly skilled managerial, operational and marketing professionals. Competition for such professionals is intense, and Resource Real Estate and its affiliates may be unsuccessful in attracting and retaining such skilled individuals. If Resource Real Estate loses or is unable to obtain the services of highly skilled professionals, our ability to implement our investment strategies could be delayed or hindered and the value of your investment may decline.

Our ability to implement our investment strategy is dependent, in part, upon the ability of Chadwick Securities, our dealer manager, to successfully conduct this offering, which makes an investment in us more speculative.

We have retained Chadwick Securities, Inc., an affiliate of our advisor, to conduct this offering. The success of this offering, and our ability to implement our business strategy, is dependent upon the ability of Chadwick Securities to build and maintain a network of broker-dealers to sell our shares to their clients. If Chadwick Securities is not successful in establishing, operating and managing this network of broker-dealers, our ability to raise proceeds through this offering will be limited and we may not have adequate capital to implement our investment strategy. If we are unsuccessful in implementing our investment strategy, you could lose all or a part of your investment.

If we make distributions from sources other than our cash flow from operations, we will have less funds available for the acquisition of properties and your overall return may be reduced.

Our organizational documents permit us to make distributions from any source. If we fund distributions from borrowings, sales of properties or the net proceeds from this offering, we will have less funds available for the acquisition of real estate properties and real estate related assets and your overall return may be reduced. Further, to the extent distributions exceed cash flow from operations, a stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize capital gain.

31

Future interest rate increases in response to inflation may inhibit our ability to conduct our business and acquire or dispose of real property, real estate-related debt investments or debt financing at attractive prices and your overall return may be reduced.

During 2008 and into 2009, the U.S. economy and financial markets have experienced periods of significant disruption. We will be exposed to inflation risk as income from any long-term leases on real property or real estate-related debt investments as these investments are expected to be a primary source of our cash flows from operations. Although inflation has been generally low in recent years, high inflation, based on certain items like government spending, may in the future tighten credit and increase prices. Because a significant majority of our multifamily leases will be short-term, to the extent we acquire other types of properties, we expect that there will be provisions in certain of our resident leases that may offer some protection from the impact of inflation. However, these lease protections and certain protections we may utilize for other assets may not re-set frequently enough to cover inflation. Further, if interest rates rise, such as during an inflationary period, the cost of acquisition capital to purchasers may also rise, which could adversely impact our ability to dispose of our assets at attractive sales prices. Should we be required to acquire, hold or dispose of our assets during a period of inflation, our overall return may be reduced.

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

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

We may change our targeted investments without stockholder consent.

We expect to allocate a majority of our portfolio to investments in multifamily rental properties, which includes student housing and senior residential, and debt secured by multifamily rental properties, but we may also purchase investments in condominium, office, retail, industrial, mixed-use, hospitality and healthcare properties and other real estate asset classes throughout the United States. Also, except as described in this prospectus, we are not restricted as to the following:

• where we may acquire real estate investments in the United States;

• the percentage of our proceeds that may be invested in properties as compared with the percentage of our proceeds that we may invest in real estate related debt investments, commercial mortgage-backed securities or mortgage loans, each of which may be leveraged and will have differing risks and profit potential; or

• the percentage of our proceeds that may be invested in any one real estate investment (the greater the percentage of our subscription proceeds invested in one asset, the greater the potential adverse effect on us if that asset is unprofitable).

Though this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments described in this

32

prospectus. A change in our targeted investments or investment guidelines could adversely affect the value of our common stock and our ability to make distributions to you.

Risks Related to Conflicts of Interest

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

All of our executive officers, some of our directors and other key real estate professionals are also officers, directors, managers and/or key professionals of our advisor, our dealer manager and other affiliated Resource Real Estate entities. Our advisor and its affiliates will receive substantial fees from us. These fees could influence our advisor’s advice to us as well as the judgment of affiliates of our advisor. Among other matters, these compensation arrangements could affect their judgment with respect to:

• the continuation, renewal or enforcement of our agreements with our advisor and its affiliates, including the advisory agreement, the dealer manager agreement and the management agreement;

• offerings of equity by us, which entitle Chadwick Securities to dealer manager fees and will likely entitle our advisor to increased acquisition and asset management fees;

• sales of properties and other investments, which entitle our advisor to disposition fees and the possible issuance to our advisor of shares of our common stock through the conversion of our convertible stock;

• acquisitions of properties and other investments and originations of loans, which entitle our advisor to acquisition and asset management fees, and, in the case of acquisitions or investments from other Resource Real Estate-sponsored programs, might entitle affiliates of our advisor to disposition fees in connection with its services for the seller;

• borrowings to acquire properties and other investments and to originate loans, which borrowings will increase the acquisition and asset management fees payable to our advisor;

• whether and when we seek to list our common stock on a national securities exchange, which listing could entitle our advisor to the issuance of shares of our common stock through the conversion of our convertible stock;

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

• whether and when we seek to sell the company or its assets, which sale could entitle our advisor to disposition fees and to the issuance of shares of our common stock through the conversion of our convertible stock.

The fees our advisor receives in connection with the acquisition and management of assets are based on the cost of the investment, and not based on the quality of the investment or the quality of the services rendered to us. This may influence our advisor to recommend riskier transactions to us. In addition, the conversion feature of our convertible stock could cause us to make different investment or disposition decisions than we would otherwise make, in order to avoid the stock conversion.

33

Resource Real Estate Opportunity Advisor will face conflicts of interest relating to the acquisition of assets and such conflicts may not be resolved in our favor, which could limit our ability to make distributions and reduce your overall investment return.

We rely on our sponsor and other key real estate professionals at our advisor to identify suitable investment opportunities for us. The executive officers and several of the other key real estate professionals at our advisor are also the key real estate professionals at the advisors to other Resource Real Estate-sponsored programs and joint ventures. As such, Resource Real Estate-sponsored programs and joint ventures rely on many of the same real estate professionals as will future programs. Many investment opportunities that are suitable for us may also be suitable for other Resource Real Estate programs and joint ventures. When these real estate professionals direct an investment opportunity to any Resource Real Estate-sponsored program or joint venture, they, in their sole discretion, will offer the opportunity to the program or joint venture for which the investment opportunity is most suitable based on the investment objectives, portfolio and criteria of each program or joint venture. For so long as we are externally advised, our charter provides that it shall not be a proper purpose of the corporation for us to purchase real estate or any significant asset related to real estate unless our advisor has recommended the investment to us. Thus, the real estate professionals of Resource Real Estate Opportunity Advisor could direct attractive investment opportunities to other entities. Such events could result in us investing in properties that provide less attractive returns, which may reduce our ability to make distributions to you. For a detailed description of the conflicts of interest that our advisor will face, see generally “Conflicts of Interest” and “Conflicts of Interest—Certain Conflict Resolution Measures.”

Resource Real Estate Opportunity Advisor will face conflicts of interest relating to joint ventures that we may form with affiliates of Resource Real Estate Opportunity Advisor, which conflicts could result in a disproportionate benefit to the other venture partners at our expense.

If approved by the unanimous vote of our conflicts committee, we may enter into joint venture agreements with other Resource Real Estate-sponsored programs or affiliated entities for the acquisition, development or improvement of properties or other investments. Resource Real Estate Opportunity Advisor, our advisor, and the advisors to the other Resource Real Estate-sponsored programs, have the same executive officers and key employees; and these persons will face conflicts of interest in determining which Resource Real Estate program or investor should enter into any particular joint venture agreement. These persons may also face a conflict in structuring the terms of the relationship between our interests and the interests of the Resource Real Estate-affiliated co-venturer and in managing the joint venture. Any joint venture agreement or transaction between us and a Resource Real Estate-affiliated co-venturer will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers. The Resource Real Estate-affiliated co-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. These co-venturers may thus benefit to our and your detriment.

Resource Real Estate Opportunity Advisor, the real estate professionals assembled by our advisor, their affiliates and our officers will face competing demands relating to their time and this may cause our operations and your investment to suffer.

We rely on Resource Real Estate Opportunity Advisor, the real estate professionals our advisor has assembled and their affiliates and officers for the day-to-day operation of our business. Resource Real Estate Opportunity Advisor, its real estate professionals and affiliates, including our officers and employees, have interests in other Resource Real Estate programs and engage in other business activities. As a result of their interests in other Resource Real Estate programs and the fact that they have engaged in and they will continue to engage in other business activities, they will face conflicts of interest in allocating their time among us, Resource Real Estate Opportunity Advisor and other Resource Real Estate-sponsored programs and other business activities in which they are involved. During times of intense activity in other programs and ventures, there is a risk that they may devote less time and fewer resources to our business than are necessary or appropriate to manage our business. If this occurs, the returns on our investments, and the value of your investment, may decline.

34

Our executive officers, some of our directors and the key real estate professionals assembled by our advisor face conflicts of interest related to their positions in Resource Real Estate Opportunity Advisor and its affiliates, including our dealer manager, which could hinder our ability to implement our business strategy and to generate returns to you.

Our executive officers, some of our directors and the key real estate professionals assembled by our advisor are also executive officers, directors, managers and key professionals of our advisor, our dealer manager and other affiliated Resource Real Estate entities. As a result, they owe fiduciary duties to each of these entities, their members and limited partners, which fiduciary duties may from time to time conflict with the fiduciary duties that they owe to us and our stockholders. Their loyalties to these other entities could result in actions or inactions that are detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities. If we do not successfully implement our business strategy, we may be unable to generate the cash needed to make distributions to you and to maintain or increase the value of our assets.

Your investment will be diluted upon conversion of the convertible stock.

Prior to the commencement of this offering, our advisor will exchange 4,500 shares of common stock for 45,000 shares of our convertible stock. Under limited circumstances, these shares may be converted into shares of our common stock, resulting in dilution of our stockholders’ interest in us. Our convertible stock will convert into shares of common stock on one of two events. First, it will convert if we have paid distributions to common stockholders such that aggregate distributions are equal to 100% of the price at which we sold our outstanding shares of common stock plus an amount sufficient to produce a 10% cumulative, non-compounded, annual return at that price. Alternatively, the convertible stock will convert if we list our shares of common stock on a national securities exchange and, on the 31st trading day after listing, the value of our company based on the average trading price of our shares of common stock since the listing, plus prior distributions, combine to meet the same 10% return threshold for our common stockholders. Each of these two events is a “Triggering Event.” Upon a Triggering Event, our convertible stock will, unless our advisory agreement with our advisor has been terminated or not renewed on account of a material breach by our advisor, generally be converted into a number of shares of common stock equal to 1/50,000 of the quotient of (A) the lesser of (i) 25% of the amount, if any, by which (1) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (2) the sum of the aggregate issue price of those outstanding shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, or (ii) 15% of the amount, if any, by which (I) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (II) the sum of the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, divided by (B) the value of the company divided by the number of outstanding shares of common stock, in each case, as of the date of the event triggering the conversion. However, if our advisory agreement with our advisor expires without renewal or is terminated (other than because of a material breach by our advisor) prior to a Triggering Event, then upon a Triggering Event the holder of the convertible stock will be entitled to a prorated portion of the number of shares of common stock determined by the foregoing calculation, where such proration is based on the percentage of time we were advised by our advisor. As a result, following conversion, the holder of the convertible stock will be entitled to a portion of amounts distributable to our stockholders, which such amounts distributable to the holder could be significant. See “Description of Shares — Convertible Stock.”

Our advisor can influence whether our common stock is listed for trading on a national securities exchange. Accordingly, our advisor can influence the conversion of the convertible stock issued to it and the resulting dilution of other stockholders’ interests.

35

Risks Related to This Offering and Our Corporate Structure

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

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. To help us comply with the REIT ownership requirements of the Internal Revenue Code, our charter prohibits a person from directly or constructively owning more than 9.8% of our outstanding shares, unless exempted by our board of directors. This ownership limit shall be applicable beginning on June 30, 2010. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all, or substantially all, of our assets) that might provide a premium price for holders of our common stock.

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

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

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

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

• limitations on capital structure;

• restrictions on specified investments;

• prohibitions on transactions with affiliates; and

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

We do not intend to register as an investment company under the Investment Company Act because we expect that most of our investments will be held by our Operating Partnership through wholly owned or majority-owned subsidiaries that will rely on the exception from the definition of an investment company under Section 3(c)(5)(C) of the Investment Company Act. (With this ownership structure, we believe that neither we nor our Operating Partnership is likely to be considered an investment company under Section 3(a)(1) of the Investment Company Act.) The position of the SEC staff generally requires entities relying on Section 3(c)(5)(C) of the Investment Company Act to maintain at least 55% of their assets in “qualifying real estate assets” (that is, real estate, mortgage loans and other qualifying interests in real estate) and at least another 25% of their assets in “real estate related assets.” Depending on the

36

characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, preferred equity investments, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets. Our ownership of these investments, therefore, may be limited by provisions of the Investment Company Act and SEC staff interpretations. See “Investment Objectives and Policies—Investment Limitations to Avoid Registration as an Investment Company.”

To maintain compliance with the Investment Company Act exception described above, our subsidiaries may be unable to sell assets we would otherwise want them to sell and may need to sell assets we would otherwise wish them to retain. In addition, our subsidiaries may have to acquire additional assets that they might not otherwise have acquired or may have to forego opportunities to make investments that we would otherwise want them to make and would be important to our investment strategy. Moreover, SEC staff interpretations with respect to various types of assets are subject to change and may not be determinative to a court, which increases the risk of non-compliance and the risk that we may be forced to make adverse changes to our portfolio.

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

Rapid changes in the values of our assets may make it more difficult for us to maintain our qualification as a REIT or our exception from the definition of an investment company under the Investment Company Act.

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

You will have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a stockholder.

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

You may not be able to sell your shares under our share redemption program and, if you are able to sell your shares under the program, you may not be able to recover the amount of your investment in our shares.

Our board of directors has approved the share redemption program, but may amend, suspend or terminate our share redemption program at any time without notice. Our board of directors may reject any request for redemption of shares. Further, there are many limitations on your ability to sell your shares pursuant to the share redemption program. Any stockholder requesting repurchase of their shares pursuant to our share redemption program will be required to certify to us that such stockholder acquired the shares

37

by either (1) a purchase directly from us or (2) a transfer from the original investor by way of (i) a bona fide gift not for value to, or for the benefit of, a member of the stockholder’s immediate or extended family, (ii) a transfer to a custodian, trustee or other fiduciary for the account of the stockholder or his or her immediate or extended family in connection with an estate planning transaction, including by bequest or inheritance upon death or (iii) operation of law.

In addition, our share redemption program contains other restrictions and limitations. Shares will be redeemed on a quarterly basis, pro rata among all stockholders requesting redemption in such quarter, with a priority given to redemptions upon the death or qualifying disability of a stockholder or redemptions sought upon a stockholder’s confinement to a long-term care facility; next, to stockholders who demonstrate, in the discretion of our board of directors, another involuntary, exigent circumstance, such as bankruptcy; next, to stockholders subject to a mandatory distribution requirement under such stockholder’s IRA; and, finally, to other redemption requests. You must hold your shares for at least one year prior to seeking redemption under the share redemption program, except that our board of directors may waive this one-year holding requirement with respect to redemptions sought upon the qualifying death or disability of a stockholder or redemptions sought upon a stockholder’s confinement to a long-term care facility or for other exigent circumstances and that if a stockholder is redeeming all of his or her shares the board of directors may waive the one-year holding requirement with respect to shares purchased pursuant to the distribution reinvestment plan. We will not redeem more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption. Our board of directors will determine from time to time, and at least quarterly, whether we have sufficient excess cash to repurchase shares. Generally, the cash available for redemption will be limited to proceeds from our distribution reinvestment plan plus 1% of the operating cash flow from the previous fiscal year (to the extent positive).

Other than redemptions following the death or qualifying disability of a stockholder or redemptions sought upon a stockholder’s confinement to a long-term care facility, the purchase price for such shares we repurchase under our proposed redemption program will equal (1) prior to the time we establish an estimated value per shares or our common stock, the amount by which (a) the lesser of (i) 90% of the average issue price for all of your shares (as adjusted for any stock combinations, splits, recapitalizations and the like with respect to our common stock) or (ii) 90% of the offering price of shares in our most recent offering exceeds (b) the aggregate amount of net sale proceeds per share, if any, distributed to stockholders prior to the redemption date as a result of the sale of one or more of our investments; or (2) after we establish an estimated value per share of common stock, the lesser of (a) 100% of the average issue price per share for all of your shares (as adjusted for any stock combinations, splits, recapitalizations and the like with respect to our common stock) or (b) 90% of estimated value per share, as determined by our advisor or another firm chosen for that purpose. Accordingly, you may receive less by selling your shares back to us than you would receive if our investments were sold for their estimated values and such proceeds were distributed in our liquidation.

Therefore, in making a decision to purchase shares of our common stock, you should not assume that you will be able to sell any of your shares back to us pursuant to our share redemption program. For a more detailed description of the share redemption program, see “Description of Shares—Share Redemption Program.”

The offering price of our shares was established on an arbitrary basis; the actual value of your investment may be substantially less than what you pay.

We established the offering price of our shares on an arbitrary basis. The selling price of our shares bears no relationship to our book or asset values or to any other established criteria for valuing shares. Because the offering price is not based upon any independent valuation, the offering price may not be indicative of the proceeds that you would receive upon liquidation. Further, this estimated value is likely to be higher than the price at which you could resell your shares because (1) our offerings involve the payment of underwriting compensation and other directed selling efforts, which payments and efforts are likely to produce a higher sales price than could otherwise be obtained, and (2) there is no public market for our shares. Moreover, this estimated value is likely to be higher than the amount you would receive per

38

share if we were to liquidate at this time because of the up-front fees that we pay in connection with the issuance of our shares, as well as the reduction in the demand for real estate as a result of the credit market disruptions and economic slowdown.

We may not meet the minimum offering requirements for this offering; therefore, you may not have access to your funds for one year from the date of this prospectus.

If the minimum offering requirements are not met within one year from the date of this prospectus, this offering will terminate and subscribers who have delivered their funds into escrow will not have access to those funds until such time. In addition, the interest rate on the funds delivered into escrow may be less than the rate of return you could have achieved from an alternative investment.

Because the dealer manager is one of our affiliates, you will not have the benefit of an independent review of us or the prospectus customarily undertaken in underwritten offerings; the absence of an independent due diligence review increases the risks and uncertainty you face as a stockholder.

The dealer manager, Chadwick Securities, is one of our affiliates and will not make an independent review of us or this offering. Accordingly, you do not have the benefit of an independent review of the terms of this offering. Further, the due diligence investigation of us by the dealer manager cannot be considered to be an independent review and, therefore, may not be as meaningful as a review conducted by an unaffiliated broker-dealer.

Your interest in us will be diluted if we issue additional shares, which could reduce the overall value of your investment.

Potential investors in this offering do not have preemptive rights to any shares we issue in the future. Our charter will authorize us to issue 1,010,050,000 shares of capital stock, of which 1,000,000,000 shares are designated as common stock, 50,000 shares are designated as convertible stock and 10,000,000 are designated as preferred stock. Our board of directors may increase the number of authorized shares of capital stock without stockholder approval. After you purchase shares in this offering, our board may elect to (1) sell additional equity securities in future public or private offerings; (2) issue shares of our common stock upon the exercise of the options we may grant to our independent directors or to Resource Real Estate Opportunity Advisor or Resource Real Estate Opportunity Manager employees; (3) issue shares to our advisor, its successors or assigns, in payment of an outstanding obligation or as consideration in a related-party transaction; (4) issue shares of common stock upon the conversion of our convertible stock; or (5) issue shares of our common stock to sellers of properties we acquire in connection with an exchange of limited partnership interests of Resource Real Estate Opportunity OP, LP. To the extent we issue additional equity interests after you purchase shares in this offering, your percentage ownership interest in us will be diluted. Further, depending upon the terms of such transactions, most notably the offering price per share, which may be less than the price paid per share in any offering under this prospectus, and the value of our properties, existing stockholders may also experience a dilution in the book value of their investment in us.

Payment of fees to Resource Real Estate Opportunity Advisor and its affiliates will reduce cash available for investment and distribution and increases the risk that you will not be able to recover the amount of your investment in our shares.

Resource Real Estate Opportunity Advisor and its affiliates will perform services for us in connection with the selection and acquisition or origination of our investments, the management and leasing of our properties and the administration of our other investments. We will pay them substantial fees for these services, which will result in immediate dilution to the value of your investment and will reduce the amount of cash available for investment or distribution to stockholders. Depending primarily upon the number of shares we sell in this offering and assuming a $10.00 purchase price for shares sold in the primary offering and a $9.50 purchase price for shares sold under the distribution reinvestment plan, we estimate that we will use 85.29% to 87.49% of our gross offering proceeds, or between $8.53 and $8.75 per

39

share, for investments and the repurchase of shares of our common stock under our share redemption program.

During the early stages of our operations or beyond, we may be unable to fully cover our declared distributions with current or future cash flow from operating activities and be required to use alternative funding sources to make these distributions, which will reduce the funds available for investment and could be deemed a return of capital for tax purposes.

During the offering stages of this initial public offering or beyond, we may set distribution rates at levels we believe we will be able to cover with anticipated future cash flows from operating activities. In order to make these initial cash distributions, we may be required to use alternative funding sources, such as borrowings, issuing new securities, selling assets or offering proceeds. Should we use offering proceeds at any time to fund distributions to our stockholders, the maximum amount available for our investments will be correspondingly reduced. To the extent we use offering proceeds at any time to fund these distributions, a portion of each distribution may be deemed a return of capital for tax purposes. There is no assurance that we will declare or make distributions or do so at any particular rate.

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

If we need additional capital in the future to improve or maintain our properties or for any other reason, we will have to obtain financing from sources beyond our cash flow from operations, such as borrowings, property sales or future equity offerings. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both, which would limit our ability to make distributions to you and could reduce the value of your investment.

Our board of directors could opt into certain provisions of the Maryland General Corporation Law in the future, which may discourage others from trying to acquire control of us and may prevent our stockholders from receiving a premium price for their stock in connection with a business combination.

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

Risks Related to Investments in Real Estate

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

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

40

• downturns in national, regional and local economic conditions;

• competition;

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

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

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

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

• changes in governmental regulations, including those involving tax, real estate usage, environmental and zoning laws; and

• periods of high interest rates and tight money supply.

Any of the above factors, or a combination thereof, could result in a decrease in the value of our investments, which would have an adverse effect on our results of operations, reduce the cash available for distributions and the return on your investment.

We will be subject to the risks associated with acquiring discounted real estate assets.

We will be subject to the risks generally incident to the ownership of discounted real estate assets. Such assets may be purchased at a discount from historical cost due to substantial deferred maintenance, abandonment, undesirable locations or markets, or poorly structured financing of the real estate or debt instruments underlying the assets, which has since lowered their value. Further, the continuing instability in the financial markets has limited the availability of lines of credit and the degree to which people and entities have access to cash to pay rents or debt service on the underlying the assets. Such illiquidity has the effect of increasing vacancies, increasing bankruptcies and weakening interest rates commercial entities can charge consumers, which can all decrease the value of already discounted real estate assets. Should conditions worsen, the continued inability of the underlying real estate assets to produce income may weaken our return on our investments, which in turn, may weaken your return on investment.

Further, irrespective of the instability the financial markets may have on the return produced by discounted real estate assets, the evolving efforts to correct the instability make the valuation of such assets highly unpredictable. Though we intend to purchase real estate assets at a discount from historical cost, the fluctuation in market conditions make judging the future performance of such assets difficult. There is a risk that we may not purchase real estate assets at absolute discounted rates and that such assets may continue to decline in value.

Residents of multifamily rental properties or tenants of other property classes we intend to acquire as discounted real estate assets who have experienced personal financial problems or a downturn in their business may delay enforcement of our rights, and we may incur substantial costs attempting to protect our investment.

The discounted real estate assets may involve investments in commercial leases with residents or tenants who have experienced a downturn in their residential or business leases and with residents or tenants who have experienced difficulties with their personal financial situations such as a job loss, bankruptcy or bad credit rating, resulting in their failure to make timely rental payments or their default under their leases or debt instruments. In the event of any default by residents or tenants at our properties,

41

we may experience delays in enforcing our rights and may incur substantial costs attempting to protect our investment.

The bankruptcy or insolvency of any resident or tenant also may adversely affect the income produced by our properties. If any resident or tenant becomes a debtor in a case under the U.S. Bankruptcy Code, our actions may be restricted by the bankruptcy court and our financial condition and results of operations could be adversely affected.

Our operating costs of our properties will not necessarily decrease if our income decreases.

Certain expenses associated with ownership and operation of a property may be intentionally increased to enhance the short- and long-term success of the property in the form of capital gain and current income, such as:

• increased staffing levels;

• enhanced technology applications; and

• increased marketing efforts.

Certain expenses associated with the ownership and operation of a property are not necessarily reduced by events which adversely affect the income from the property, such as:

• real estate taxes;

• insurance costs; and

• maintenance costs.

For example, if the leased property loses tenants or rents are reduced, then those costs described in the preceding sentence are not necessarily reduced. As a result, our cost of owning and operating leased properties may, in the future, exceed the income the property generates even though the property’s income exceeded its costs at the time it was acquired. This would decrease the amount of cash available to us to distribute to you and could negatively affect your return on investment.

We will be subject to the risks associated with acquiring bank-owned properties, commonly referred to as REO (“real estate owned” by a bank after foreclosure).

We will be subject to the risks generally incident to the acquisition and ownership of REO. An investment in REO assets may be riskier than traditional real estate transactions. For example, such additional risks may include:

• REO assets often will require certain additional planned capital expenditures to repair and maintain the property in order to prepare the tenant property for sale, due to the previous owners and potential mistreatment of the property;

• REO assets may result in the purchaser discovering additional latent defects with the property requiring additional unplanned expenditures not initially budgeted for as part of the redevelopment and repositioning capital expenditures; and

• The timing and closing of an REO acquisition may be delayed and we may incur additional costs because of the bank’s lack of adequate staff assigned to the bank’s REO portfolio or the deliberate process of following the bank’s specific rules and requirements for obtaining its approval prior to closing the transaction.

42

The risks associated with REO may adversely affect our results of operations, reduce the cash available for distributions and the return on your investment.

We will compete with third parties in acquiring, managing and selling properties and other investments, which could reduce our profitability and the return on your investment.

We believe that the current market for properties that meet our investment objectives is extremely competitive and many of our competitors have greater resources than we do. We will compete with numerous other entities engaged in real estate investment activities, including individuals, corporations, banks and insurance company investment accounts, other REITs, real estate limited partnerships, the U.S. Government and other entities, to acquire, manage and sell real estate properties and real estate related assets. Many of our expected competitors enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments may increase.

Competition with these entities may result in the following:

• greater demand for the acquisition of real estate properties and real estate related assets, which results in increased prices we must pay for our real estate properties and real estate related assets;

• delayed investment of our capital;

• decreased availability of financing to us; or

• reductions in the size or desirability of the potential tenant base for one or more properties that we lease.

If such events occur, you may experience a lower return on your investment.

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

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

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

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

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

Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce our returns on that investment and therefore your return on investment.

Properties that have significant vacancies, especially discounted real estate assets, may experience delays in leasing up or could be difficult to sell, which could diminish our return on these properties.

A property may incur vacancies either by the expiration of tenant leases or the continued default of tenants under their leases. Further, our potential investments in value-add multifamily rental properties or

43

other types of discounted properties may have significant vacancies at the time of acquisition. If vacancies continue for a prolonged period of time beyond the expected lease up stage that we anticipate will follow any redevelopment or repositioning efforts, we may suffer reduced revenues resulting in less cash available for distributions. In addition, the resale value of the property could be diminished because the market value of a particular property depends principally upon the value of the cash flow generated by the leases associated with that property. Such a reduction on the resale value of a property could also reduce your return on investment.

We may have difficulty re-leasing underperforming or discounted properties because of the location or reputation of the property.

The nature of discounted real estate assets carries the risk that the properties underlying certain real estate investments may be located in areas of slow, stagnant, or declining economic growth. Such areas may experience high levels of crime and unemployment. In addition to the risks these conditions impose on the current tenants and owners of properties underlying the real estate investments, these conditions may harm the reputation of the property making it difficult to attract future more productive tenants and owners to the areas where the real estate properties are located. The inability to re-lease or re-sell property abandoned, foreclosed upon, or purchased in these areas may result in an unproductive use of our resources and could negatively affect our performance and your return on investment.

Because we will rely on Resource Real Estate Opportunity Manager, its affiliates and third parties to manage the day-to-day affairs of any properties we may acquire, should the staff of a particular property perform poorly, our operating results for that property will similarly be hindered and our net income may be reduced.

Poor performance by those sales, leasing and other management staff members operating a particular property will necessarily translate into poor results of operations for that particular property. Should Resource Real Estate Opportunity Manager fail to identify problems in the day-to-day management of a particular property and/or fail to take the appropriate corrective action in a timely manner, our operating results may be hindered and our net income reduced.

If we are unable to sell a property for the price, on the terms or within the time frame we desire, it could limit our ability to pay cash distributions to you.

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

Government entities, community associations and contractors may cause unforeseen delays and increase costs to redevelop and reposition value-add properties that we may acquire, which may reduce our net income and cash available for distributions to you.

We may seek to or be required to incur substantial capital obligations to redevelop or reposition existing properties that we acquire at a discount as a result of neglect of the previous owners or tenants of the properties and to sell the properties. Our advisor and its key real estate professionals will do their best to acquire properties that do not require excessive redevelopment or modifications and that do not contain hidden defects or problems. There could, however, be unknown and excessive costs, expenses and delays associated with a discounted property’s redevelopment, repositioning or value-add upgrades. We will be subject to risks relating to the uncertainties associated with rezoning for redevelopment and other concerns

44

of governmental entities, community associations and our construction manager’s ability to control costs and to build in conformity with plans and the established timeframe. We will pay a construction management fee to a construction manager which may be Resource Real Estate Opportunity Manager or its affiliates, if new capital improvements are required.

If we are unable to increase rental rates or sell the redeveloped property at a price consistent with our value-add projections due to local market or economic conditions to offset the cost of the redevelopment or repositioning the property, the return on your investment may suffer. To the extent we acquire discounted properties in major metropolitan areas where the local government has imposed rent controls, we may be prohibited from increasing the rental rates to a level sufficient to cover the particular property’s redevelopment costs and expenses.

Costs of responding to both known and previously undetected environmental contamination and hazardous conditions may decrease our cash flows and limit our ability to make distributions.

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

Some of these laws and regulations may impose joint and several liability on the tenants, current or previous owners or operators of real property for the costs to investigate or remediate contaminated properties, whether the contamination occurred prior to purchase, or whether the acts causing the contamination were legal. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Our tenants’ operations, the condition of properties at the time we buy them, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties.

Environmental laws also may impose liens on a property or restrictions on the manner in which a property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials and lead-based paint. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances.

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

Properties acquired by us may have toxic mold that could result in substantial liabilities to us.

Litigation and concern about indoor exposure to certain types of toxic molds has been increasing as the public becomes aware that exposure to mold can cause a variety of health effects and symptoms, including allergic reactions. It is impossible to eliminate all mold and mold spores in the indoor environment. Although we will attempt to acquire properties and loans secured by properties that do not contain mold, there can be no assurance that some of the properties acquired by us will contain mold. The difficulty in discovering indoor toxic mold growth could lead to an increased risk of lawsuits by affected

45

persons and the risk that the cost to remediate toxic mold will exceed the value of the property. There is a risk that we may acquire properties that contain toxic mold and such properties may negatively affect our performance and your return on investment.

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

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

Our costs associated with and the risk of failing to comply with the Americans with Disabilities Act, the Fair Housing Act and other tax credit programs may adversely affect cash available for distributions.

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

The multifamily rental properties we acquire must comply with Title III of the Disabilities Act, to the extent that such properties are “public accommodations” and/or “commercial facilities” as defined by the Disabilities Act. Compliance with the Disabilities Act could require removal of structural barriers to handicapped access in certain public areas of our apartment communities where such removal is readily achievable. The Disabilities Act does not, however, consider residential properties, such as multifamily rental properties, to be public accommodations or commercial facilities, except to the extent portions of such facilities, such as the leasing office, are open to the public.

We also must comply with the Fair Housing Amendment Act of 1988 (“FHAA”), which requires that multifamily rental properties first occupied after March 13, 1991 be accessible to handicapped residents and visitors. Compliance with the FHAA could require removal of structural barriers to handicapped access in a community, including the interiors of apartment units covered under the FHAA. Recently there has been heightened scrutiny of multifamily rental properties for compliance with the requirements of the FHAA and Disabilities Act and an increasing number of substantial enforcement actions and private lawsuits have been brought against multifamily rental properties to ensure compliance with these requirements. Noncompliance with the FHAA and Disabilities Act could result in the imposition of fines, awards of damages to private litigants, payment of attorneys’ fees and other costs to plaintiffs, substantial litigation costs and substantial costs of remediation.

46

Certain of our properties may be subject to the low income housing tax credits, historic preservation tax credits or other similar tax credit rules at the federal, state or municipal level. The application of these tax credit rules are extremely complicated and noncompliance with these rules may have adverse consequences for us. Noncompliance with applicable tax regulations may result in the loss of future or other tax credits and the fractional recapture of these tax credits already taken. Accordingly, noncompliance with these tax credit rules and related restrictions may adversely affect our ability to distribute any cash to our investors.

Our properties may be dispersed geographically and across various markets and sectors.

We may acquire and operate properties in different locations throughout the United States and in different markets and sectors. The success of our properties will depend largely on our ability to hire various managers and service providers in each area, market and sector where the properties are located or situated. See “Investment Objectives and Policies—Real Estate Asset Management Strategy.”

Newly constructed and existing multifamily rental properties or similar properties that compete with any properties we may acquire in any particular location could adversely affect the operating results of our properties and our cash available for distribution.

We may acquire properties in locations that experience increases in construction of multifamily rental or other properties that compete with our properties. This increased competition and construction could:

• make it more difficult for us to find residents to lease units in our apartment communities;

• force us to lower our rental prices in order to lease units in our apartment communities; and/or

• substantially reduce our revenues and cash available for distribution.

Our efforts to upgrade multifamily rental properties to increase occupancy and raise rental rates through redevelopment and repositioning may fail, which may reduce our net income and the cash available for distributions to you.

The success of our ability to upgrade any multifamily rental properties that we may acquire and realize capital gains and current income for you on these investments materially depends upon the status of the economy where the multifamily rental property is located. Our revenues will be lower if the rental market cannot bear the higher rental rate that accompanies the upgraded multifamily rental property due to job losses or other economic hardships. Should the local market be unable to substantiate a higher rental rate for a multifamily rental property that we upgraded, we may not realize the premium rental we had assumed by a given upgrade and we may realize reduced rental income or a reduced gain or even loss upon the sale of the property. These events could cause us to reduce the cash available for distributions.

A concentration of our investments in any one property sector may leave our profitability vulnerable to a downturn or slowdown in such sector.

At any one time, a majority of our investments are likely to be in the multifamily sector. Vacancy rates in multifamily rental properties and other commercial real estate properties may be related to jobless rates. As a result, we will be subject to risks inherent in investments in a single type of property. If our investments are substantially in any one property sector, then the potential effects on our revenues, and as a result, on cash available for distribution, resulting from increased jobless rates as well as a general downturn or slowdown in such property sector could be more pronounced than if we had more fully diversified our investments.

47

Increased competition and the increased affordability of single- family and multifamily homes and condominiums for sale or rent could limit our ability to retain residents, lease apartment units or increase or maintain rents.

Any multifamily rental property that we may acquire will most likely compete with numerous housing alternatives in attracting residents, including single-family and multifamily homes and condominiums. Due to the current recession, competitive housing in a particular area and the increasing affordability of single-family and multifamily homes and condominiums to buy caused by declining mortgage interest rates and generous federal and state government programs to promote home ownership could adversely affect our ability to fully occupy any multifamily rental properties we may acquire. Further, single-family homes and condominiums available for rent could also adversely effect our ability to retain our residents, lease apartment units and increase or maintain rental rates.

Short-term multifamily leases expose us to the effects of declining market rent, which could adversely impact our ability to make cash distributions.

We expect that substantially all of our apartment leases will be for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term or earlier in certain situations, such as when a resident loses his/her job, without penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.

If we acquire student housing properties as part of our value-add multifamily portfolio, these properties would be subject to an annual leasing cycle, short lease-up period, seasonal cash flows, changing university admission and housing policies and other risks inherent in the student housing industry.

Similar to multifamily rental properties, if we acquire student housing, we expect to generally lease such properties under short-term, 12-month leases, and in certain cases, under nine-month or shorter-term semester leases. As a result, we may experience significantly reduced cash flows during the summer months at properties leased under leases having terms shorter than 12 months. Student housing properties are also typically leased during a limited leasing season that usually begins in January and ends in August of each year. We are therefore highly dependent on the effectiveness of our marketing and leasing efforts and personnel during this season.

Changes in university admission policies or overall student enrollment levels could also adversely affect the investment return on student housing properties. For example, if a university reduces the number of student admissions or requires that a certain class of students, such as freshman, live in a university owned facility, the demand for beds at our properties may be reduced and our occupancy rates may decline. We will also be required to form relationships directly or through third parties with colleges and universities for referrals of prospective student-residents or for mailing lists of prospective student-residents and their parents. Any failure to maintain good relationships with these colleges and universities could therefore have a material adverse effect on us. Federal and state laws require colleges to publish and distribute reports of on-campus crime statistics, which may result in negative publicity and media coverage associated with crimes occurring on or in the vicinity of our on-campus properties.

If we acquire student housing properties, we may face significant competition from university-owned on-campus student housing, from other off-campus student housing properties and from traditional multifamily housing located within close proximity to universities.

On-campus student housing has certain inherent advantages over off-campus student housing in terms of physical proximity to the university campus and integration of on-campus facilities into the academic community. Colleges and universities can generally avoid real estate taxes and borrow funds at lower interest rates than us and other private sector operators.

48

If we invest in senior residential properties as part of our value-add multifamily portfolio, we may incur liability for failing to comply with the FHAA and the Housing for Older Persons Act or certain state regulations.

Any senior residential properties we acquire will be required to qualify as housing for older persons and will be required to comply with the appropriate federal and state laws governing age and owner occupancy. Noncompliance with the FHAA and the Housing for Older Persons Act and certain state registration requirements could result in fines, awards of damages to private litigants, payment of attorneys’ fees and other substantial costs of remediation.

The condominium industry is subject to extensive regulation and other unique risks.

We may invest in condominium properties to convert the condominiums into multifamily rental units or market and sell the condominium units at discounted prices. These activities are subject to extensive laws and regulations of local, state and federal governments. These laws and regulations vary by municipality and state and their requirements can be burdensome and costly.

Further, condominium associations often serve as mini-governments in the form and manner by which they govern the activities and services impacting the residents of the condominium building. Our lack of control over any condominium association, where we own the building, could raise additional risks of undue delay and/or unexpected costs to successfully sell the discounted condominium units or convert them into multifamily rental units. In addition, condominium buildings and their associations may also be subject to litigation from contractors, other condominium owners or other third parties and may be subject to other unknown liabilities or payable not readily discoverable upon initial due diligence.

Changing market conditions, especially in the greater metropolitan areas may adversely impact our ability to sell condominium units at expected prices, or at all, which could hinder our results of operations and reduce our net income.

If we acquire a condominium building for conversion or to sell units at a discount, there could be a significant amount of time before we can redevelop or reposition the condominium units available for conversion or sale. The market value of a condominium unit being redeveloped or repositioned can vary significantly during this time due to changing market conditions. If we acquire condominiums or attempt to convert multifamily or hotel properties into condominiums, lower prices of condominium units and sales activities in major metropolitan markets or other markets where these properties may be located could adversely affect our results of operations and net income. Although demand in major metropolitan geographic areas historically has been strong, increased purchase price appreciation may reduce the likelihood of consumers seeking to purchase new residences, which would likely harm our ability to sell units in residential condominium buildings. If the prices of condominium units or sales activity decline in the key markets in which we may operate, our costs may not decline at all or at the same rate and, as a result, our business, results of operations and financial condition would be adversely affected.

Condominium purchasers may be unwilling or unable to purchase condominium units at times when mortgage-financing costs are high or as credit quality declines.

The majority of our potential purchasers for discounted condominium units will finance their purchases through third-party lenders. In general, housing demand is adversely affected by increases in interest rates, demand for increased down payments and by decreases in the availability of mortgage financing as a result of declining customer credit quality or other issues. Further, there are additional constraints on certain government-sponsored entities, such as Fannie Mae and Freddie Mac, for potential condominium purchasers in projects where a substantial number of units remain unsold in a particular condominium project. Even though we closely monitor the mortgage market for prospective buyers for condominium units, if mortgage interest rates increase or the average down payment requirement increases, the ability or willingness of prospective buyers to finance condominium unit purchases may be adversely affected.

49

If we acquire condominium properties or mixed-use properties that combine hotel, multifamily or condominiums, a fire or other accident could occur in a single unit that causes the entire building to be uninhabitable.

We may experience greater risks in the condominium and mixed-use property investments because there could be a higher likelihood of an accident occurring in a building containing numerous individuals where we do not have the same ability to monitor or review the building as other property classes. A fire or other accident in a single unit could in turn cause the entire building to be uninhabitable. Even if there is insurance on the building, it may not be enough to cover all of the losses as a result of a fire or other accident.

If we acquire office, retail or certain other property types, the loss of anchor tenants for such properties could adversely affect our profitability.

We may acquire office properties and, as with our retail properties, we are subject to the risk that significant tenants may be unable to make their lease payments or may decline to extend a lease upon its expiration. A lease termination by a tenant that occupies a large area of space in one of our office properties (commonly referred to as an anchor tenant) could impact leases of other tenants. Other tenants may be entitled to modify the terms of their existing leases in the event of a lease termination by an anchor tenant or the closure of the business of an anchor tenant that leaves its space vacant, even if the anchor tenant continues to pay rent. Any such modifications or conditions could be unfavorable to us as the property owner and could decrease rents or expense recoveries. In the event of default by an anchor tenant, we may experience delays and costs in enforcing our rights as landlord to recover amounts due to us under the terms of our agreements with those parties.

If we acquire retail properties or mixed-use properties with a retail component, the economic downturn in the United States may continue to have an adverse impact on the retail industry generally. Slow or negative growth in the retail industry will result in defaults by retail tenants, which could have an adverse impact on our results of operations.

The retail industry is facing reductions in sales revenues and increased bankruptcies throughout the United States. Adverse economic conditions may result in an increase in distressed or bankrupt retail companies, which in turn would result in an increase in defaults by tenants at our commercial properties. Additionally, slow economic growth is likely to hinder new entrants into the retail market, which may make it difficult for us to fully lease our properties. Tenant defaults and decreased demand for retail space would have an adverse impact on the value of our retail properties and our results of operations.

Any retail tenants we may have will face competition from numerous retail channels, which may reduce our profitability and ability to pay distributions.

Retailers will face continued competition from discount or value retailers, factory outlet centers, wholesale clubs, mail order catalogues and operators, television shopping networks and shopping via the Internet. Such competition could adversely affect our tenants and, consequently, our revenues and funds available for distribution.

If we acquire certain office, retail, industrial or healthcare properties, we may enter into long-term leases with these tenants, which may not result in fair market lease rates over time.

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

50

If we invest in industrial properties or lease our properties to tenants that engage in industrial activities, the potential liability as a result of, and the cost of compliance with, environmental matters is greater that other property classes.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances.

We may invest in properties historically used for industrial, manufacturing and commercial purposes. Some of these properties are more likely to contain, or may have contained, underground storage tanks for the storage of petroleum products and other hazardous or toxic substances. All of these operations create a potential for the release of petroleum products or other hazardous or toxic substances.

Leasing properties to tenants that engage in industrial, manufacturing, and commercial activities will cause us to be subject to increased risk of liabilities under environmental laws and regulations. The presence of hazardous or toxic substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings.

The hospitality industry is seasonal, which may adversely affect the results of operations of any hospitality properties we may acquire.

The hospitality industry is seasonal in nature, and, as a result, any hotel, lodging or other resort properties we may acquire could be adversely affected by significant weather changes. To the extent we invest materially in the hospitality sector, the seasonality of the hospitality industry can be expected to cause quarterly fluctuations in our revenues. In addition, our earnings may be adversely affected by factors outside our control, such as extreme or unexpectedly mild weather conditions or natural disasters, terrorist attacks or alerts, outbreaks of contagious diseases and pandemics, airline strikes, economic factors and other considerations affecting travel.

If we acquire hospitality, healthcare or certain other types of properties, we will be dependent on the third-party managers of those properties.

In order to qualify as a REIT, we will generally not be able to operate any hospitality, healthcare or certain other types of properties that we acquire or participate in the decisions affecting the daily operations of these properties. Depending on the particular property, we may lease any hospitality or healthcare property we acquire to a TRS in which we may own up to a 100% interest. Our TRS will enter into management agreements with eligible independent contractors that are not our subsidiaries or otherwise controlled by us to manage properties, such as hotels. For example, independent hotel or assisted living center operators, under management agreements with one or more of our TRSs, will control the daily operations of those types of properties.

We will depend on these independent management companies to adequately operate our hospitality or healthcare properties as provided in the management agreements. We will not have the authority to require any hospitality or healthcare property to be operated in a particular manner or to govern any particular aspect of the daily operations of such properties (for instance, setting room rates for hotels). Thus, even if we believe our hospitality or healthcare properties are being operated inefficiently or in a manner that does not result in satisfactory occupancy rates, revenue per available room and average daily rates, we may not be able to force the management company to change its method of operation of these types of properties. We can only seek redress if a management company violates the terms of the applicable management agreement with the TRS, and then only to the extent of the remedies provided for under the terms of the management agreement. In the event that we need to replace any of our management companies, we may be required by the terms of the management agreement to pay substantial termination fees and may experience significant disruptions at affected properties such as hotels and assisted living facilities.

51

Poor general economic conditions and reductions in discretionary consumer spending may adversely impact the hospitality properties we may acquire and lower the return on your investment.

The operations of certain properties in which we may invest, such as limited or full service hotels, lodging facilities and all-inclusive resort properties, will depend upon a number of factors relating to discretionary consumer spending. Unfavorable local, regional or national economic developments or uncertainties regarding future economic prospects as a result of terrorist attacks, military activity or natural disasters could reduce consumer spending in the markets in which we own properties and adversely affect the operation of those properties. In an economic downturn, consumer discretionary spending levels generally decline, at times resulting in disproportionately large reductions in expenditures on travel and other leisure activities. Certain of the classes of properties, such as hospitality, that we may acquire may be unable to maintain their profitability during periods of adverse economic conditions or low consumer confidence, which could in turn affect the ability of operators to make scheduled payments to us.

If we acquire hospitality, healthcare or certain other types of properties, we may have to make significant capital expenditures to maintain them.

Hospitality and healthcare properties in particular may have an ongoing need for renovations and other capital improvements, including replacements of furniture, fixtures and equipment. Generally, we will be responsible for the costs of these capital improvements, which gives rise to the following risks:

• cost overruns and delays;

• renovations can be disruptive to operations and can displace revenue at the hospitality and healthcare properties, including revenue lost while rooms under renovation are out of service;

• the cost of funding renovations and the possibility that financing for these renovations may not be available on attractive terms; and

• the risk that the return on our investment in these capital improvements will not be what we expect.

If we have insufficient cash flow from operations to fund needed capital expenditures, then we will need to borrow to fund future capital improvements.

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

There are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from or are in a position to make referrals in connection with government-sponsored healthcare programs, including the Medicare and Medicaid programs. Any lease arrangements we may enter into with certain tenants could also be subject to these fraud and abuse laws concerning Medicare and Medicaid. Examples of these laws include the Federal Anti-Kickback Statute, the Federal Physician Self-Referral Prohibition, the False Claims Act, and the Civil Monetary Penalties Law.

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

52

may have a material adverse effect on our business, financial condition and results of operations and our ability to make cash distributions.

If we acquire healthcare properties, adverse trends in healthcare provider operations may negatively affect our lease revenues and our ability to make cash distributions.

The healthcare industry is currently experiencing:

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

• changes in third-party reimbursement policies;

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

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

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

These factors may adversely affect the economic performance of some or all of our healthcare-related tenants and, in turn, reduce our lease revenues and our cash available for distribution.

Risks Related to Investments in Real Estate Related Debt Assets

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

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

Investing in mezzanine debt, B-Notes, commercial mortgage-backed securities or other subordinated debt involves greater risks of loss than senior loans secured by the same properties.

We may invest in mezzanine debt, B-Notes, commercial mortgage-backed securities and other subordinated debt. These types of investments carry a higher degree of risk of loss than senior secured debt investments, because in the event of default and foreclosure, holders of senior liens will be paid in full before subordinated investors and, depending on the value of the underlying collateral, there may not be sufficient assets to pay all or any part of amounts owed to subordinated investors. Moreover, mezzanine debt, B-Notes, commercial mortgage-backed securities and other subordinate debt investments may have higher loan to value ratios than conventional senior lien financing, resulting in less equity in the collateral and increasing the risk of loss of principal. If a borrower defaults or declares bankruptcy, we may be subject to agreements restricting or eliminating our rights as a creditor, including rights to call a default, foreclose on collateral, accelerate maturity or control decisions made in bankruptcy proceedings. In addition, the prices of lower credit quality securities are generally less sensitive to interest rate changes than more highly rated investments, but more sensitive to economic downturns or individual issuer

53

developments. An economic downturn, for example, could cause a decline in the price of lower credit quality securities because the ability of obligors of instruments underlying the securities to make principal and interest payments may be impaired.

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

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

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

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

Government action may reduce recoveries on defaulted loans.

Legislative or regulatory initiatives by federal, state or local legislative bodies or administrative agencies, if enacted or adopted, could delay foreclosure, provide new defenses to foreclosure or otherwise impair our ability to foreclose on real estate related debt investments in default. Various jurisdictions have considered or are currently considering such actions, and the nature or extent of the limitation on foreclosure that may be enacted cannot be predicted. Bankruptcy courts could, if this legislation is enacted, reduce the amount of the principal balance on a mortgage loan that is secured by a lien on the mortgaged property, reduce the interest rate, extend the term to maturity or otherwise modify the terms of a bankrupt borrower’s mortgage loan.

Property owners filing for bankruptcy may adversely affect us.

The filing of a petition in bankruptcy automatically stops or “stays” any actions to enforce the terms of all debt of the debtor, including a mortgage loan. The length of the stay and the costs associated with it will generally have an adverse impact on our profitability. Further, the bankruptcy court may take other actions that prevent us from foreclosing on the property. Any bankruptcy proceeding will, at a minimum, delay us in achieving our investment objectives and may adversely affect our profitability.

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

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

54

typically are secured by a single property, and so reflect the increased risks associated with a single property compared to a pool of properties.

Our potential ownership of a B-Note with controlling class rights may, if the financing fails to perform according to its terms, cause us to pursue remedies, which may include foreclosure on, or modification of, the note. In some cases, however, the owner of the A-Note may be able to foreclose or modify the note against our wishes as owner of the B-Note. As a result, our economic and business interests may diverge from the interests of the owner of the A-Note. In this regard, B-Notes share certain credit characteristics with second mortgages, because both are subject to greater credit risk with respect to the underlying mortgage collateral than the first mortgage or A-Note.

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

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

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

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

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

Inaccurate assumptions regarding real estate investments acquired by us creates greater risk of loss.

We will need to make assumptions regarding the viability of a particular real estate investment prior to its acquisition. We may acquire a real estate investment at a discounted price that reflects certain forward-looking assumptions that may turn out to be overly optimistic. Whether due to increased vacancies, market or economic conditions, difficulty in re-leasing, downturns in business, a changed competitive environment or unavailability of capital, the properties and instruments underlying the investments may decline in value as compared to the discounted purchase price at which we acquired such asset. Furthermore, the payments due from the real estate investments may slow or cease altogether due to declines in the value or productivity of the assets underlying the instruments. If we are unable to make real estate investment acquisitions on terms and at prices that meet our projections and assumptions, our ability to generate revenue may be materially impacted, and your return on investment may be negatively affected.

55

The commercial mortgage-backed securities in which we may invest are subject to the risks of default.

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

The yields on the commercial mortgage-backed securities we may acquire depend on the timely payment of interest and principal due on the underlying mortgage loans. Mortgage loans on commercial properties often are structured so that a substantial portion of the loan principal is not amortized over the loan term but is payable at maturity (as a “balloon payment”), and repayment of the loan principal thus often depends upon the future availability of real estate financing from the existing or an alternative lender and/or upon the current value and salability of the real estate. Therefore, the unavailability of real estate financing or sale opportunities may lead to default.

In the event of a default, the trustee for the benefit of the holders of commercial mortgage-backed securities has recourse only to the underlying pool of mortgage loans and, if a loan is in default, to the mortgaged property securing such mortgage loan. After the trustee has exercised all of the rights of a lender under a defaulted mortgage loan and the related mortgaged property has been liquidated, no further remedy will be available. The owner of commercial mortgage-backed securities does not have a contractual relationship with the borrowers of the underlying commercial mortgage loans. The commercial mortgage-backed securities holder typically has no right directly to enforce compliance by the borrowers with the terms of the loan agreement, nor any rights of set-off against the borrower, nor will it have the right to object to certain changes to the underlying loan agreements, nor to move directly against the collateral supporting the related loans.

There will be conflicts of interest among the holders of various classes or tranches of commercial mortgage-backed securities, which in the event of default, pay off, extension or modification or liquidation could adversely impact us depending on whether we hold a senior class or the controlling class of commercial mortgage-backed securities.

The pooling and service agreements that we may enter into generally provide for allocation, among the various classes of commercial mortgage-backed securities, of collections on the underlying commercial mortgage loans, as well as losses and other shortfalls. Most such agreements provide that the underlying commercial mortgage loans are serviced by a master servicer and a special servicer. Subject to the standard for recoverability set forth in the related agreement, each series of commercial mortgage-backed securities generally provides for the servicer or other party to make advances of delinquent payments on the underlying commercial mortgage loans (which advances are intended as liquidity and not credit support) and also provides for the servicer or special servicer to make servicing advances as required. Typically, the agreements provide that the “controlling class” (generally, the most subordinate class then outstanding that has a principal balance at least equal to the minimum amount provided in such agreement) will have certain rights, including the right to appoint a representative, approve certain actions and appoint the special servicer. As part of our commercial mortgage-backed securities strategy, we generally expect to hold a senior class of commercial mortgage-backed securities, where the risk of loss for a default and liquidation of the assets may be minimal, but we will not have certain rights, such as appointment of the special servicer, and not hold the controlling class.

There are unique risks to investing in discounted commercial mortgage-backed securities that could adversely impact our return on these investments.

Because we intend to purchase the commercial mortgage-backed securities at a discount from its principal balance, if payments and other collections of principal on the mortgage loans in the trust occur at a rate slower than we anticipated at the time of your purchase, then our actual yield to maturity may be lower than assumed at the time of purchase. There can be no assurance that principal distributions on the mortgages underlying the commercial mortgage-backed securities will be made at any particular rate. Accordingly, the rate of payment of principal of the commercial mortgage-backed securities, and

56

consequently their actual maturities and weighted-average lives, may occur earlier or later than anticipated by investors, and the yields to maturity of the commercial mortgage-backed securities may be affected.

In addition, if the commercial mortgage-backed bond is forced to restructure, the special servicer is significantly limited in its workout ability because it will usually have a finite date by which a restructuring of the commercial mortgage-backed securities must take place as the loan cannot be extended beyond the final maturity date of the notes. Further, if the commercial mortgage-backed bond is restructured in a manner that harms the interests of the junior or controlling class holders, who may lose their entire investment, they may litigate. The costs and delay associated with litigation would adversely affect the return on our commercial mortgage-backed securities investment.

We may not control the special servicing of the mortgage loans included in the commercial mortgage-backed securities in which we may invest and, in such cases, the special servicer may take actions that could adversely affect our interests.

With respect to each series of the commercial mortgage-backed securities in which we may invest, overall control over the special servicing of the related underlying mortgage loans that are in default or as to which default is reasonably foreseeable may be held by a “controlling class,” which has the right to appoint the special servicer, which is often an affiliate of, or otherwise related to, the holders of the controlling class. The special servicer is responsible for servicing the troubled commercial mortgage loans and has the power to consent to amendments or waivers with respect to the loan or to institute foreclosure proceedings. The controlling class generally is either (i) the most junior class of certificates or (ii) the most subordinate class of interest in a particular mortgage loan, provided that in each case the principal balance of that class is not reduced to less than 25% of its initial principal balance as a result of actual realized losses and “appraisal reduction amounts.” We may not have the right to appoint the special servicer because we do not hold the controlling class. In connection with the servicing of the specially serviced mortgage loans, the related special servicer may, at the direction of the controlling class, grant waivers or consent to amendments, foreclose on the underlying commercial property or take actions with respect to the specially serviced mortgage loans that could reduce collections on the specially serviced mortgage loans or extend the maturity of such loans and adversely affect our interests. However, the special servicer is not permitted to take actions that are prohibited by law or violate the applicable servicing standard, which generally requires them to maximize the net present value of the loan for the benefit of all certificateholders, or the terms of the mortgage loan documents.

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

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

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

Real estate securities may become non-performing after acquisition for a wide variety of reasons. Such non-performing real estate investments may require a substantial amount of workout negotiations and/or restructuring, which may entail, among other things, a substantial reduction in the interest rate and a substantial write-down of such loan or asset. However, even if a restructuring is successfully accomplished, upon maturity of such real estate security, replacement “takeout” financing may not be available. We may find it necessary or desirable to foreclose on some of the collateral securing one or

57

more of our investments. Intercreditor provisions may substantially interfere with our ability to do so. Even if foreclosure is an option, the foreclosure process can be lengthy and expensive. Borrowers often resist foreclosure actions by asserting numerous claims, counterclaims and defenses, including, without limitation, lender liability claims and defenses, in an effort to prolong the foreclosure action. In some states, foreclosure actions can take up to several years or more to litigate. At any time during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure action and further delaying the foreclosure process. Foreclosure litigation tends to create a negative public image of the collateral property and may result in disrupting ongoing leasing and management of the property. Foreclosure actions by senior lenders may substantially affect the amount that we may earn or recover from an investment.

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

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

Prepayments can adversely affect the yields on our investments.

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

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

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

58

(v) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations and (vi) the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic downturn. These risks may adversely affect the value of outstanding debt securities and preferred and common equity securities and the ability of the issuers thereof to make principal, interest and/or distribution payments to us.

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

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

Risks Associated with Debt Financing

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

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

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

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

59

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

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

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

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

Financial and real estate market disruptions during 2008 and into 2009 could adversely affect the multifamily property sector’s ability to obtain financing from Fannie Mae and Freddie Mac, which could adversely impact us.

Fannie Mae and Freddie Mac are major sources of financing for the multifamily sector and both experienced significant losses in 2008 and the first quarter 2009 due to credit-related expenses, securities impairments and fair value losses. If new U.S. government regulations (i) heighten Fannie Mae’s and Freddie Mac’s underwriting standards, (ii) adversely affect interest rates and (iii) reduce the amount of capital they can make available to the multifamily sector, it could reduce or remove entirely a vital resource for multifamily financing. Any potential reduction in loans, guarantees and credit-enhancement arrangements from Fannie Mae and Freddie Mac could jeopardize the effectiveness of the multifamily sector’s available financing and decrease the amount of available liquidity and credit that could be used to acquire and diversify our portfolio of multifamily assets.

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

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

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

We expect that we will incur additional indebtedness in the future. Increases in interest rates may increase our interest costs, which would reduce our cash flows and our ability to pay distributions. In addition, if we need to repay existing debt during periods of higher interest rates, we might have to sell one or more of our investments in order to repay the debt, which sale at that time might not permit realization of the maximum return on such investments.

60

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

Although, based on current lending market conditions, we do not expect to incur debt financing in excess of 35% on a portfolio basis of our total assets, our charter limits our leverage so as to not exceed 75% of the cost of our tangible assets (before deducting depreciation or other noncash reserves), and we may exceed this limit with the approval of the conflicts committee of our board of directors. High debt levels would cause us to incur higher interest charges and higher debt service payments and may also be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of your investment. See “Investment Objectives and Policies — Borrowing Policies.”

Risks Related to U.S. Government Programs

We operate in a highly competitive market for investment opportunities and competition with the U.S. government and others for discounted real estate assets may limit our ability to acquire desirable assets and could also affect the pricing of these assets.

In light of the Emergency Economic Stabilization Act of 2008 or the EESA, we may also compete for the purchase of discounted real estate assets with the U.S. government. The EESA authorized the U.S. Secretary of the Treasury to create a Troubled Asset Relief Program (“TARP”), to among other things, purchase up to $700 billion in residential and commercial mortgage related assets from financial institutions. The degree of U.S. government competition is yet unclear due to the evolving nature of the incentives and programs to be implemented, and the qualifications of the assets to be purchased as a part of the U.S. government’s efforts to ease the burden such discounted assets place on financial institutions. In addition, the American Recovery and Reinvestment Act of 2009 (“ARRA”), was signed into law in February 2009. ARRA includes a variety of programs intended to stimulate the economy, but also imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients.

Like the possible entry of new competitors, including competitors that historically have focused on the acquisition of different asset types, and the expected increase in competition from current market participants, the potential increase in competition from the U.S. government may reduce our access to discounted real estate asset opportunities. Aggressive pricing by our competitors could raise the price of such discounted real estate assets above levels that we are willing to pay, which could reduce the amount of such assets suitable for us to purchase or, if purchased by us, reduce the profits, if any, generated by such assets. If we are unable to purchase discounted real estate assets at favorable prices or at all, our revenues and our ability to cover operating expenses may be adversely impacted and reduce your return on investment.

We may face competition from Public-Private Investment Funds or PPIFs.

On March 23, 2009, the U.S. Treasury, in conjunction with the FDIC, announced the creation of the Public-Private Investment Program or PPIP. The PPIP is designed to encourage the transfer of certain illiquid legacy real estate related assets off of the balance sheets of financial institutions and is composed of two programs, the Legacy Loans Program and the Legacy Securities Program. As proposed, PPIFs under the Legacy Loans Program may be established to purchase troubled loans from insured depository institutions. At present, the Legacy Loans Program has been postponed. However, the U.S. Treasury has chosen a limited number of pre-qualified unaffiliated third party fund managers to form PPIFs for the Legacy Securities Program. These PPIFs under the Legacy Securities Program have been established to purchase legacy non-agency residential mortgage-backed securities and legacy commercial mortgage-backed securities that were originally AAA-rated and issued prior to 2009. The Legacy Securities Program is expected to have a term of no more than 10 years, unless extended. Legacy Loans and Legacy Securities PPIFs will have access to equity capital from the U.S. Treasury as well as debt financing provided or guaranteed by the U.S. government. The PPIP may increase competition from PPIFs and reduce our access to discounted real estate asset opportunities and commercial mortgage-backed securities.

61

Our business may not benefit from the actions of the U.S. government, the Federal Reserve and the U.S. Treasury, including the establishment of the TALF, or from further government or market developments, any of which could materially and adversely impact our business.

In November 2008, the Federal Reserve first announced the TALF program has been expanded in size and scope. Under the TALF, the FRBNY makes loans (which, with certain exceptions, are non-recourse) to borrowers to fund their purchase of eligible assets, currently certain asset-backed securities. The nature of the eligible assets has been expanded several times. Beginning in June 2009, the TALF was expanded to include certain high quality newly issued commercial mortgage-backed securities as eligible assets and beginning in July 2009, the TALF was further expanded to include certain highly rated legacy commercial mortgage-backed securities issued before January 1, 2009. At present, TALF loans secured by commercial mortgage-backed securities have either three-year or five-year terms, have interest due monthly, are exempt from mark to market rules and margin calls related to a decrease in the underlying collateral value, are pre-payable in whole or in part, and prohibit the substitution of any underlying collateral. Borrowers currently have the option to select five-year loans for certain eligible assets, including commercial mortgage-backed securities. Payments of principal on the collateral underlying a TALF loan are required to be applied to reduce the loan’s principal amount pro rata based upon the original loan-to-value ratio. Terms of the general TALF program may be modified by the FRBNY at any time. Accordingly, we may not be able to acquire assets through the TALF on favorable terms or at all.

The U.S. Congress and/or various states and local legislatures may enact additional legislation or regulatory action designed to address the current economic crisis or for other purposes that could have a material adverse effect on our ability to execute our business strategies. It is not possible to predict how the TALF, PPIP or other recent U.S. government actions will impact the financial markets, including current significant levels of volatility, or our future investments. To the extent the market does not respond favorably to these initiatives or they do not function as intended, they may not provide our business the positive impact we anticipate. We can provide no assurance that we will be eligible to use these programs or, if eligible, will be able to utilize them successfully. Further, the incentives provided by these programs may increase competition for, and the pricing of, our assets.

In addition, the U.S. government, the Federal Reserve, the U.S. Treasury and other governmental and regulatory bodies have taken or are considering taking other actions to address the financial crisis. There can be no assurances that such actions will have a beneficial impact on the financial markets, including current extreme levels of volatility. Additionally, we cannot predict whether or when such actions may occur, and such actions could have a material adverse impact on our business, results of operations and financial condition.

There is no assurance that we will be able to obtain any TALF loans.

The TALF is operated by the FRBNY. If we choose to seek access to the TALF, the FRBNY has complete discretion regarding the extension of credit under the TALF and is under no obligation to make any loans to us even if we meet all of the applicable criteria. Requests for TALF loans may surpass the amount of funding authorized by the Federal Reserve and the U.S. Treasury, resulting in an early termination of the TALF. Depending on the demand for TALF loans and the general state of the credit markets, the Federal Reserve and the U.S. Treasury may decide to modify the terms and conditions of the TALF. Such actions may adversely affect our ability to obtain TALF loans and use the loan leverage to enhance returns, and may otherwise affect expected returns on our investments.

We could lose our eligibility as a TALF borrower, which would adversely affect our ability to participate in the TALF.

Any U.S. company is permitted to participate in the TALF, provided, that it maintains an account relationship with a primary dealer. A U.S. company, as defined for the purposes of the TALF, excludes certain entities that are controlled by a non-U.S. government or are managed by an investment manager controlled by a non-U.S. government. For these purposes, an entity controls a company if, among other things, such entity owns, controls, or holds with power to vote 25% or more of a class of voting securities,

62

or total equity, of the company. The application of these rules under the TALF is not clear. For instance, it is uncertain how a change of control subsequent to a stockholders’ purchase of shares of common stock which results in such stockholder being owned or controlled by a non-U.S. government will be treated for purposes of the 25% limitation.

If for any reason we are deemed not to be eligible to participate in the TALF, all of our outstanding TALF loans will become immediately due and payable and we will not be eligible to obtain future TALF loans.

We may not be able to acquire sufficient amounts of assets to obtain financing under the TALF consistent with our investment strategy.

Assets to be used as collateral for TALF loans must meet strict eligibility criteria with respect to characteristics such as issuance date, maturity, and credit rating and with respect to the origination date of the underlying collateral. These restrictions may limit the availability of eligible assets, and we may be unable to acquire sufficient amounts of assets to obtain financing under the TALF consistent with our investment strategy.

To the extent we rely on TALF financing for a portion of our assets, we will be dependent on the activities of our primary dealers.

To obtain TALF loans, we must execute a customer agreement with at least one primary dealer which will act on our behalf under the agreement with the FRBNY. The primary dealer will submit aggregate loan request amounts on behalf of its customers in the form and manner specified by the FRBNY. Each primary dealer is required to apply its internal customer identification program and due diligence procedures to each borrower and represent that each borrower is an eligible borrower for purposes of the TALF, and to provide the FRBNY with information sufficient to describe the dealer’s customer risk assessment methodology. These customer agreements may impose additional requirements that could affect our ability to obtain TALF loans. Each primary dealer is expected to have relationships with other TALF borrowers, and a primary dealer may allocate more resources toward assisting other borrowers with whom it has other business dealings. Primary dealers are also responsible for distributing principal and interest after receipt thereof from The Bank of New York Mellon, as custodian for the TALF. Once funds or collateral are transferred to a primary dealer or at the direction of a primary dealer, neither the custodian nor the FRBNY has any obligation to account for whether the funds or collateral are transferred to the borrower. We will therefore be exposed to bankruptcy risk of our primary dealers.

Termination of a customer agreement may adversely affect our related TALF borrowings.

In certain circumstances, a primary dealer may have the right to terminate its customer agreement with respect to any TALF loans made through such primary dealer and force us to find another primary dealer with respect to such loans, transfer the loan to another eligible borrower under the TALF, or to repay the loan or surrender the collateral to the NY Fed. In such circumstances, we may not realize our anticipated return on the assets used as collateral for such TALF loans.

We may be adversely affected if one of our stockholders has been previously rejected for the TALF.

Primary dealers may require us to represent under our customer agreements with them that neither we nor any person that holds an ownership interest in us has previously had a loan request under the TALF rejected by the FRBNY. We may not be able to determine if one of our stockholders has previously had a loan request under the TALF rejected by the FRBNY. A failure to comply with this representation may expose us to liability to the primary dealer. An inability to make this representation and warranty may prevent us from participating in the TALF.

63

We may be subject to enhanced interest rate risk on fixed rate TALF loans, which can adversely affect our net income.

We expect interest rates on fixed rate TALF loans will be set at a premium over the then-current three-year or five-year LIBOR swap rate. All commercial mortgage-backed securities TALF loans must be fixed rate loans. As a result, we may be exposed to (1) timing risk between the dates on which payments are received on assets financed through the TALF and the dates on which interest payments are due on the TALF loans and (2) asset/liability repricing risk, due to differences in the dates and indices on which floating rates on the financed assets and on the related TALF loans are reset.

Under certain conditions, we may be required to provide full recourse for TALF loans or to make indemnification payments.

To participate in the TALF, we must execute a customer agreement with a primary dealer authorizing it, among other things, to act as our agent under TALF and to act on our behalf under the agreement with the FRBNY and with The Bank of New York Mellon as administrator and as the FRBNY’s custodian of the commercial mortgage-backed securities. Under such agreements, we will be required to represent to the primary dealer and to the FRBNY that, among other things, we are an eligible borrower and that the commercial mortgage-backed securities that we pledge meet the TALF eligibility criteria. The FRBNY will have full recourse to us for repayment of the loan for any breach of these representations. Further, the FRBNY may have full recourse to us for repayment of a TALF loan if the eligibility criteria for collateral under the TALF are considered continuing requirements and the pledged collateral no longer satisfies such criteria. In addition, we will be required to pay to our primary dealers fees under the customer agreements and to indemnify our primary dealers for certain breaches under the customer agreements and to indemnify the FRBNY and its custodian for certain breaches under the agreement with the FRBNY. Payments made to satisfy such full recourse requirements and indemnities could have a material adverse effect on our net income and our distributions to our stockholders, including any proceeds of this offering and the concurrent private placement that we have not yet invested in commercial mortgage-backed securities or distributed to our stockholders.

We may need to surrender eligible TALF assets to repay TALF loans at maturity.

Each TALF loan must be repaid within three to five years. If we do not have sufficient funds to repay interest and principal on the related TALF loan at maturity and if these assets cannot be sold or refinanced for an amount equal to or greater than the amount owed on such loan, we must surrender the assets to the FRBNY in lieu of repayment. If we are forced to sell any assets to repay a TALF loan, we may not be able to obtain a favorable price. If we default on our obligation to pay a TALF loan or other default events occur and the FRBNY elects to liquidate the assets used as collateral to secure such TALF loan, the proceeds from such sale will be applied, first, to any enforcement costs, second, to unpaid principal and, finally, to unpaid interest. Under the terms of the TALF, if assets are surrendered to the FRBNY in lieu of repayment, all assets that collateralize that loan must be surrendered. In these situations, we would forfeit any equity that we held in these assets.

The terms and conditions of the TALF may change, which could adversely affect our investments.

The terms and conditions of the TALF, including asset and borrower eligibility, could be changed at any time. Any such modifications may adversely affect the market value of any of our assets financed through the TALF and otherwise or our ability to obtain additional TALF financing. The TALF is scheduled to expire on March 31, 2010 for asset-backed securities other than commercial mortgage-backed securities and legacy commercial mortgage-backed securities, and on June 30, 2010 for newly issued commercial mortgage-backed securities, unless extended. If the TALF is prematurely discontinued or reduced while our assets financed through the TALF are still outstanding, there may be no market for these assets and the market value of these assets would be adversely affected.

64

FRBNY consent is required to exercise our voting rights on the collateral.

As a requirement of the TALF, we must agree not to exercise or refrain from exercising any voting, consent or waiver rights under any TALF collateral without the consent of the FRBNY. During the continuance of a collateral enforcement event, the FRBNY will have the right to exercise voting rights in the collateral.

Our ability to receive the interest earnings on assets used as collateral for TALF loans may be limited, which could significantly reduce our anticipated returns and materially negatively impact our results of operations and our ability to make or sustain distributions to our stockholders.

Interest payments that are received from the assets used as collateral for a TALF loan must be applied to pay interest on the related TALF loan before any interest payments can be distributed to us. To the extent there are interest payments from the collateral in excess of the required interest payment on the related TALF Loan, the amount of such excess interest that will be distributed to us will be limited. For example, for a five-year TALF loan, the excess of interest distributions from the collateral over the TALF loan interest payable will be remitted to us only until such excess equals 25% per annum of the haircut amount in the first three loan years, 10% in the fourth loan year, and 5% in the fifth loan year, and the remainder of such excess will be applied to the related TALF loan principal. For a three-year TALF loan for legacy commercial mortgage-backed securities, such net carry will be remitted to us in each loan year until it equals 30% per annum of the original haircut amount, with the remainder applied to the principal. Our ability to benefit from the excess interest could have a material adverse effect on our results of operation.

We may be required to use our earnings to keep the TALF loans current. If the interest on the collateral pledged to support a TALF loan is not sufficient to cover the interest payment on such loan, we will have a grace period of 30 days to make the interest payment. If the loan remains delinquent after the grace period, the FRBNY will enforce its rights to the collateral.

To the extent that proceeds from our TALF assets are received by the TALF custodian prior to the monthly date on which they are distributed to the borrowers, such proceeds will be held by the custodian and all interest earned on such proceeds will be retained by the FRBNY. If such proceeds were immediately distributed to the borrowers, the borrowers would be able to invest such proceeds in short-term investments and the income from such investments would be available to distribute to stockholders.

Our ability to transfer assets purchased using the TALF financing is restricted.

To the extent we are able to purchase assets using TALF financing, such assets will be pledged to the FRBNY as collateral for the TALF loans. If we sell or transfer any of these assets, we must either repay the related TALF loan or obtain the consent of the FRBNY to assign our obligations under the related TALF loan to the applicable assignee. The FRBNY in its discretion may restrict or prevent us from assigning our loan obligations to a third party, including a third party that meets the criteria of an eligible borrower. In addition, the FRBNY will not consent to any assignments after the termination date for making new loans, which is March 31, 2010 for asset-backed securities other than commercial mortgage-backed securities and legacy commercial mortgage-backed securities, and June 30, 2010 for newly issued commercial mortgage-backed securities, unless extended by the Federal Reserve.

These restrictions may limit our ability to trade or otherwise dispose of our assets, and may adversely affect our ability to take advantage of favorable market conditions and make distributions to stockholders.

65

Downgrades of legacy commercial mortgage-backed securities and/or changes in the rating methodology and assumptions for future commercial mortgage-backed securities issuances may decrease the availability of the TALF to finance commercial mortgage-backed securities.

On May 26, 2009, Standard & Poor’s Investors Service, inc., or S&P, which rates a substantial majority of commercial mortgage-backed securities issuances, issued a request for comment regarding its proposed changes to its methodology and assumptions for rating commercial mortgage-backed securities, and in so doing indicated that the proposed changes would result in downgrades of a considerable amount of commercial mortgage-backed securities (including super-senior tranches). Specifically, S&P indicated that “it is likely that the proposed changes, which represent a significant change to the criteria for rating high investment-grade classes, will prompt a considerable amount of downgrades in recently issued (2005-2008 vintage) CMBS.” S&P noted that its preliminary findings indicate that approximately 25%, 60% and 90% of the most senior tranches (by count) within the 2005, 2006, and 2007 vintages, respectively, may be downgraded. The current TALF guidelines issued by the FRBNY indicate that in order to be eligible for the TALF, legacy commercial mortgage-backed securities must not have a rating below the highest investment-grade rating category from any TALF commercial mortgage-backed securities-eligible rating agency, which includes S&P. Other rating agencies may take similar actions with regard to their ratings of commercial mortgage-backed securities. As a result, downgrades of legacy commercial mortgage-backed securities may limit substantially the availability of the TALF for legacy commercial mortgage-backed securities. Further, changes to the methodology and assumptions in rating commercial mortgage-backed securities by rating agencies, including S&P’s proposed changes, may decrease the amount or availability of new issue commercial mortgage-backed securities rated in the highest investment-grade rating category.

Federal Income Tax Risks

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

DLA Piper LLP (US) will render an opinion to us that we will be organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code for our taxable year ending December 31, 2009 and that our proposed method of operations will enable us to meet the requirements for qualification and taxation as a REIT beginning with our taxable year ending December 31, 2009. This opinion will be based upon, among other things, our representations as to the manner in which we are and will be owned and the manner in which we will invest in and operate assets. However, our qualification as a REIT will depend upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Internal Revenue Code. DLA Piper LLP (US) will not review our compliance with the REIT qualification standards on an ongoing basis, and we may fail to satisfy the REIT requirements in the future. Also, this opinion will represent the legal judgment of DLA Piper LLP (US) based on the law in effect as of the date of the opinion. The opinion of DLA Piper LLP (US) will not be binding on the Internal Revenue Service or the courts. Future legislative, judicial or administrative changes to the federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT.

If we fail to qualify as a REIT for any taxable year after electing REIT status, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends paid deduction and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax. For a discussion of the REIT qualification tests and other considerations relating to our election to be taxed as REIT, see “Federal Income Tax Considerations.”

You may have current tax liability on distributions you elect to reinvest in our common stock.

If you participate in our distribution reinvestment plan, you will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the

66

extent the amount reinvested was not a tax-free return of capital. In addition, you will be treated for tax purposes as having received an additional distribution to the extent the shares are purchased at a discount to fair market value. As a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of the shares of common stock received. See “Description of Shares — Distribution Reinvestment Plan — Tax Consequences of Participation.”

Failure to qualify as a REIT would subject us to federal income tax, which would reduce the cash available for distribution to you.

We expect to operate in a manner that is intended to cause us to qualify as a REIT for federal income tax purposes commencing with our taxable year ending on December 31, 2009. However, the federal income tax laws governing REITs are extremely complex, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Qualifying as a REIT requires us to meet various tests regarding the nature of our assets and our income, the ownership of our outstanding stock, and the amount of our distributions on an ongoing basis. While we intend to operate so that we will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, including the tax treatment of certain investments we may make, and the possibility of future changes in our circumstances, no assurance can be given that we will so qualify for any particular year. If we fail to qualify as a REIT in any calendar year and we do not qualify for certain statutory relief provisions, we would be required to pay federal income tax on our taxable income. We might need to borrow money or sell assets to pay that tax. Our payment of income tax would decrease the amount of our income available for distribution to you. Furthermore, if we fail to maintain our qualification as a REIT and we do not qualify for certain statutory relief provisions, we no longer would be required to distribute substantially all of our REIT taxable income to our stockholders. Unless our failure to qualify as a REIT were excused under federal tax laws, we would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost.

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

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

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

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

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

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

67

Our investments in debt instruments may cause us to recognize “phantom income” for federal income tax purposes even though no cash payments have been received on the debt instruments.

It is expected that we may acquire debt instruments in the secondary market for less than their face amount. The amount of such discount will generally be treated as “market discount” for federal income tax purposes. Moreover, pursuant to our involvement in public-private joint ventures, other similar programs recently announced by the federal government, or otherwise, we may acquire distressed debt investments that are subsequently modified by agreement with the borrower. If the amendments to the outstanding debt are “significant modifications” under the applicable Treasury regulations, the modified debt may be considered to have been reissued to us in a debt-for-debt exchange with the borrower. This deemed reissuance may prevent the modified debt from qualifying as a good REIT asset if the underlying security has declined in value.

In general, we will be required to accrue original issue discount on a debt instrument as taxable income in accordance with applicable federal income tax rules even though no cash payments may be received on such debt instrument.

In the event a borrower with respect to a particular debt instrument encounters financial difficulty rendering it unable to pay stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income. Similarly, we may be required to accrue interest income with respect to subordinate mortgage-backed securities at the stated rate regardless of when their corresponding cash payments are received.

As a result of these factors, there is a significant risk that we may recognize substantial taxable income in excess of cash available for distribution. In that event, we may need to borrow funds or take other action to satisfy the REIT distribution requirements for the taxable year in which this “phantom income” is recognized.

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

We generally must distribute annually at least 90% of our REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order for federal corporate income tax not to apply to earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws. We intend to make distributions to our stockholders to comply with the REIT requirements of the Internal Revenue Code.

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

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

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

68

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

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

Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors.

If (1) all or a portion of our assets are subject to the rules relating to taxable mortgage pools, (2) we are a “pension-held REIT,” (3) a tax-exempt stockholder has incurred debt to purchase or hold our common stock, or (4) the residual interests in any real estate mortgage investment conduits (“REMICs”), we acquire (if any) generate “excess inclusion income,” then a portion of the distributions to and, in the case of a stockholder described in clause (3), gains realized on the sale of common stock by such tax-exempt stockholder may be subject to federal income tax as unrelated business taxable income under the Internal Revenue Code. See “Federal Income Tax Considerations—Taxation of Resource Real Estate Opportunity REIT, Inc.—Taxable Mortgage Pools.”

Classification of a securitization or financing arrangement we enter into as a taxable mortgage pool could subject us or certain of you to increased taxation.

We intend to structure our securitization and financing arrangements as to not create a taxable mortgage pool. However, if we have borrowings with two or more maturities and (1) those borrowings are secured by mortgages or mortgage-backed securities and (2) the payments made on the borrowings are related to the payments received on the underlying assets, then the borrowings and the pool of mortgages or mortgage-backed securities to which such borrowings relate may be classified as a taxable mortgage pool under the Internal Revenue Code. If any part of our investments were to be treated as a taxable mortgage pool, then our REIT status would not be impaired, provided we own 100% of such entity, but a portion of the taxable income we recognize may, under regulations to be issued by the Treasury Department, be characterized as “excess inclusion” income and allocated among our stockholders to the extent of and generally in proportion to the distributions we make to each stockholder. Any excess inclusion income would:

• not be allowed to be offset by a stockholder’s net operating losses;

• be subject to a tax as unrelated business income if a stockholder were a tax-exempt stockholder;

• be subject to the application of federal income tax withholding at the maximum rate (without reduction for any otherwise applicable income tax treaty) with respect to amounts allocable to foreign stockholders; and

69

• be taxable (at the highest corporate tax rate) to us, rather than to you, to the extent the excess inclusion income relates to stock held by disqualified organizations (generally, tax-exempt companies not subject to tax on unrelated business income, including governmental organizations).

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

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

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

Complying with REIT requirements may force us to liquidate otherwise attractive investments.

To qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and mortgage-backed securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total assets can be represented by securities of one or more taxable REIT subsidiaries. See “Federal Income Tax Considerations—Taxation of Resource Real Estate Opportunity REIT, Inc.” If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

Liquidation of assets may jeopardize our REIT qualification.

To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.

Characterization of any repurchase agreements we enter into to finance our investments as sales for tax purposes rather than as secured lending transactions would adversely affect our ability to qualify as a REIT.

We may enter into repurchase agreements with a variety of counterparties to achieve our desired amount of leverage for the assets in which we invest. When we enter into a repurchase agreement, we generally sell assets to our counterparty to the agreement and receive cash from the counterparty. The counterparty is obligated to resell the assets back to us at the end of the term of the transaction. We believe that for federal income tax purposes we will be treated as the owner of the assets that are the subject of

70

repurchase agreements and that the repurchase agreements will be treated as secured lending transactions notwithstanding that such agreement may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could successfully assert that we did not own these assets during the term of the repurchase agreements, in which case we could fail to qualify as a REIT if tax ownership of these assets was necessary for us to meet the income and/or asset tests discussed in “Federal Income Tax Considerations—Taxation of Resource Real Estate Opportunity REIT, Inc.”

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from transactions intended to hedge our interest rate, inflation and/or currency risks will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges (i) interest rate risk on liabilities incurred to carry or acquire real estate or (ii) risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests, and such instrument is properly identified under applicable Treasury Regulations. Income from hedging transactions that do not meet these requirements will generally constitute nonqualifying income for purposes of both the REIT 75% and 95% gross income tests. See “Federal Income Tax Considerations – Income Tests – Derivatives and Hedging Transactions.” As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.

Ownership limitations may restrict change of control or business combination opportunities in which you might receive a premium for your shares.

In order for us to qualify as a REIT for each taxable year after 2009, no more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of any calendar year. “Individuals” for this purpose include natural persons, and certain other entities including private foundations. To preserve our REIT qualification, our charter generally prohibits any person from directly or indirectly owning more than 9.8% in value or in number of shares, whichever is more restrictive, of any class or series of the outstanding shares of our capital stock. This ownership limit shall be applicable beginning on June 30, 2010. This ownership limitation could have the effect of discouraging a takeover or other transaction in which holders of our common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests.

Our ownership of and relationship with our taxable REIT subsidiaries will be limited and a failure to comply with the limits would jeopardize our REIT status and may result in the application of a 100% excise tax.

A REIT may own up to 100% of the stock of one or more taxable REIT subsidiaries. A taxable REIT subsidiary may earn income that would not be qualifying income if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a taxable REIT subsidiary. A corporation of which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a taxable REIT subsidiary. Overall, no more than 25% of the value of a REIT’s assets may consist of stock or securities of one or more taxable REIT subsidiaries. A domestic taxable REIT subsidiary will pay federal, state and local income tax at regular corporate rates on any income that it earns. In addition, the taxable REIT subsidiary rules limit the deductibility of interest paid or accrued by a taxable REIT subsidiary to its parent REIT to assure that the taxable REIT subsidiary is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a taxable REIT subsidiary and its parent REIT that are not conducted on an arm’s-length basis. We cannot assure you that we will be able to comply with the 25% value limitation on ownership of taxable REIT subsidiary stock and securities on an ongoing basis so as to maintain REIT status or to avoid application of the 100% excise tax imposed on certain non-arm’s length transactions.

71

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

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

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

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

Dividends payable by REITs do not qualify for the reduced tax rates.

Legislation enacted in 2003 and modified in 2005 generally reduces the maximum tax rate for dividends payable to domestic stockholders that are individuals, trusts and estates to 15% (through 2010). Dividends payable by REITs, however, are generally not eligible for the reduced rates. Although this legislation does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates, to perceive investments in REITs to be relatively less attractive than investments in stock of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock.

Retirement Plan Risks

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

There are special considerations that apply to employee benefit plans subject to ERISA (such as profit sharing, Section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code (such as an IRA) that are investing in our shares. Fiduciaries investing the assets of such a plan or account in our common stock, please see “ERISA Considerations” in this prospectus for a discussion of some of these considerations. Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Internal Revenue Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to equitable remedies. In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested.

72

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements in this prospectus constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Forward-looking statements we make in this prospectus are subject to various risks and uncertainties that could cause actual results to vary from our forward-looking statements, including:

• the factors described in this prospectus, including those set forth under the sections captioned “Risk Factors” and “Investment Objectives and Policies;”

• our future operating results;

• our business prospects;

• changes in our business strategy;

• availability, terms and deployment of capital;

• availability of qualified personnel;

• changes in our industry, interest rates, the debt securities market or the general economy;

• changes in governmental regulations, tax rates and similar matters;

• actions and initiatives of the U.S. government relating to discounted or troubled assets, including the establishment and impact of the PPIP and TALF, and the impact of these policies;

• availability of investment opportunities in real estate properties and real estate related assets;

• the degree and nature of our competition;

• the adequacy of our cash reserves and working capital; and

• the timing of cash flows, if any, from our investments.

Except as otherwise required by federal securities laws, we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

73

ESTIMATED USE OF PROCEEDS

The following table sets forth information about how we intend to use the proceeds raised in this offering assuming that we sell the minimum of 200,000 shares, a mid-point range of 41,250,000 shares and the maximum of 82,500,000 shares, respectively, of common stock. Many of the amounts set forth below represent management’s best estimate since they cannot be precisely calculated at this time. Depending primarily upon the number of shares we sell in this offering and assuming a $10.00 purchase price for shares sold in the primary offering, we estimate that we will use 85.29% to 86.36% of the gross proceeds from the primary offering, or between $8.53 and $8.64 per share, for investments, assuming the minimum and maximum offering amounts, respectively, while the remainder of the gross proceeds from the primary offering will be used to pay offering expenses, including selling commissions and the dealer manager fee, to maintain a working capital reserve and, upon investment in properties and other assets, to pay a fee to our advisor for its services in connection with the selection and acquisition of our real estate investments.

We expect to use substantially all of the net proceeds from the sale of shares under our distribution reinvestment plan for general corporate purposes, including, but not limited to, the repurchase of shares under our share redemption program; capital expenditures, tenant improvement costs and leasing costs related to our investments in real estate properties; reserves required by any financings of our investments; future funding obligations under any real estate loan receivable we acquire; acquisition of assets, which would include payment of acquisition fees to our advisor; and the repayment of debt. We cannot predict with any certainty how much, if any, distribution reinvestment plan proceeds will be available for specific purposes. To the extent proceeds from our distribution reinvestment plan are used for investments in real estate, sales under our distribution reinvestment plan will result in greater fee income for our advisor because of acquisition fees. See “Management Compensation.”

74

	200,000 Shares		41,250,000 Shares
	Minimum Offering ($10.00/share)		Primary Offering (37,500,000 shares) ($10.00/share)		Div. Reinv. Plan (3,750,000 shares) ($9.50/share)
	$	%	$	%	$	%
Gross Offering Proceeds	2,000,000	100.00	375,000,000	100.00	35,625,000	100.00
Selling Commissions	140,000	7.00	26,250,000	7.00	0	0.00
Dealer Manager Fee	60,000	3.00	11,250,000	3.00	0	0.00
Other Organization and Offering Expenses (1)	50,000	2.50	6,445,576	1.72	249,125	0.70
Acquisition Fees (2)	34,118	1.71	6,454,499	1.72	0	0.00
Initial Working Capital Reserve (3)	10,000	0.50	1,875,000	0.50	0	0.00
Amount Available for Investment (4)	1,705,882	85.29	322,724,925	86.06	35,375,875	99.30

	82,500,000 Shares
	Primary Offering (75,000,000 shares) ($10.00/share)		Div. Reinv. Plan (7,500,000 shares) ($9.50/share)
	$	%	$	%
Gross Offering Proceeds	750,000,000	100.00	71,250,000	100.00
Selling Commissions	52,500,000	7.00	0	0.00
Dealer Manager Fee	22,500,000	3.00	0	0.00
Other Organization and Offering Expenses (1)	10,627,826	1.42	418,750	0.59
Acquisition Fees (2)	12,953,376	1.73	0	0.00
Initial Working Capital Reserve (3)	3,750,000	0.50	0	0.00
Amount Available for Investment (4)	647,668,798	86.36	70,831,250	99.41

(1) Includes all actual expenses (other than selling commissions and the dealer manager fee) to be incurred on our behalf and paid by us in connection with the offering, including our legal, accounting, printing, mailing and filing fees, charges of our escrow holder and transfer agent, charges of our advisor for processing subscription agreements, reimbursement of the bona fide invoiced due diligence expenses of broker-dealers, amounts to reimburse our advisor for salaries of its employees and other costs in connection with preparing supplemental sales materials, our costs of conducting bona fide training and education meetings held by us, including the travel, meal and lodging costs of non-registered officers of the issuer and our advisor to attend such meetings, and cost reimbursement for non-registered officers and employees of the issuer and our advisor to attend retail seminars conducted by broker-dealers. Our advisor has agreed to reimburse us to the extent other organization and offering expenses incurred by us exceed 2.5% of aggregate gross offering proceeds.

(2) This table assumes that we will use all net proceeds from the sale of shares under our distribution reinvestment plan to repurchase shares under our share redemption program. To the extent we use such net proceeds to invest in real estate, our advisor would earn the related acquisition fees.

For all investments, we will pay our advisor an acquisition fee equal to 2% of the cost of the investment, including acquisition expenses and any debt attributable to such investment. We may also incur customary third-party acquisition expenses in connection with the acquisition (or attempted acquisition) of a real estate investment. See note 4 below.

This table excludes debt proceeds. To the extent we fund our investments with debt, as we expect, the amount available for investment and the amount of acquisition fees will be proportionately greater. For example, if we raise the maximum offering amount and our debt financing is equal to 35% of the cost of our real estate investments, then acquisition fees would be $19,928,271.

75

(3) We may establish reserves for construction, redevelopment, maintenance and repairs of our real estate properties from gross offering proceeds, out of cash flow generated by operating properties or out of the net cash proceeds received by us from any sale or exchange of properties.

(4) We intend to use substantially all of the net proceeds from this offering of up to 75,000,000 shares to acquire a diversified portfolio of discounted U.S. commercial real estate assets (including fees, costs and reserves for construction, maintenance, redevelopment and repairs to our real estate properties), principally (i) non-performing or distressed loans, including but not limited to first- and second-priority mortgage loans, mezzanine loans, B-Notes and other loans, (ii) real estate owned by financial institutions, (iii) value-add multifamily rental properties, (iv) discounted investment-grade commercial mortgage-backed securities and (v) other real estate related assets. We anticipate holding approximately 50% of our total assets in categories (i) and (ii) listed above, 25% of our total assets in category (iii) listed above and 25% of our total assets in category (iv) listed above. If we are only able to raise the minimum offering or an amount substantially less than our maximum offering, we intend to focus on categories (i) and (ii).

Amount available for investment will include customary third-party acquisition expenses, such as legal fees and expenses, costs of appraisals, accounting fees and expenses, title insurance premiums and other closing costs and miscellaneous expenses relating to the acquisition of real estate investments. Until required in connection with investment in real estate, substantially all of the net proceeds of the offering and, thereafter, our working capital reserves, may be invested in short-term, highly liquid investments, including government obligations, bank certificates of deposit, short-term debt obligations and interest-bearing accounts or other authorized investments as determined by our board of directors. Amount available for investment may also include anticipated capital improvement expenditures and tenant leasing costs. To the extent offering proceeds are used to pay distributions in anticipation of future cash flow from operating activities, the amount available for investment will be correspondingly reduced. See “Risks Related to This Offering and Our Corporate Structure.”

76

MANAGEMENT

Board of Directors

We operate under the direction of our board of directors, the members of which are accountable to us and our stockholders as fiduciaries. The board is responsible for the management and control of our affairs. The board has retained our advisor, Resource Real Estate Opportunity Advisor, to manage our day-to-day operations and the acquisition and distribution of our real estate investments, subject to the board’s supervision. Because of the numerous conflicts of interest created by the relationships among us, our advisor and various affiliates, many of the responsibilities of the board have been delegated to a committee that consists solely of independent directors. This committee is the conflicts committee and is discussed below and under “Conflicts of Interest.”

Our charter provides that a majority of the directors must be independent directors. We will have three independent directors. An “independent director” is a person who is not one of our officers or employees or an officer or employee of our advisor or its affiliates and has not been so for the previous two years. Serving as a director of, or having an ownership interest in, another Resource Real Estate-sponsored program will not, by itself, preclude independent-director status.

Each director will serve until the next annual meeting of stockholders and until his successor has been duly elected and qualified. The presence, in person or by proxy, of stockholders entitled to cast a majority of all the votes entitled to be cast at any stockholder meeting constitutes a quorum. With respect to the election of directors, each candidate nominated for election to the board of directors must receive a majority of the votes present, in person or by proxy, in order to be elected. Therefore, if a nominee receives fewer “for” votes than “withhold” votes in an election, then the nominee will not be elected.

Although our board of directors may increase or decrease the number of directors, a decrease may not have the effect of shortening the term of any incumbent director. Any director may resign at any time or may be removed with or without cause by the stockholders upon the affirmative vote of at least a majority of all the votes entitled to be cast at a meeting called for the purpose of the proposed removal. The notice of the meeting will indicate that the purpose, or one of the purposes, of the meeting is to determine if the director shall be removed.

Unless otherwise provided by Maryland law, the board of directors is responsible for selecting its own nominees and recommending them for election by the stockholders, provided that the conflicts committee nominates replacements for any vacancies among the independent director positions. Unless filled by a vote of the stockholders as permitted by Maryland General Corporation Law, a vacancy that results from the removal of a director will be filled by a vote of a majority of the remaining directors. Any vacancy on the board of directors for any other cause will be filled by a majority of the remaining directors, even if such majority is less than a quorum.

Our directors are accountable to us and our stockholders as fiduciaries. This means that our directors must perform their duties in good faith and in a manner each director believes to be in our and our stockholders’ best interests. Further, our directors must act with such care as a prudent person in a similar position would use under similar circumstances, including exercising reasonable inquiry when taking actions. However, our directors and executive officers are not required to devote all of their time to our business and must only devote such time to our affairs as their duties may require. We do not expect that our directors will be required to devote a substantial portion of their time to us in discharging their duties.

In addition to meetings of the various committees of the board, which committees we describe below, we expect our directors to hold at least four regular board meetings each year. Although we have no present intention to do so, our board has the authority to fix the compensation of all officers that it selects and may pay compensation to directors for services rendered to us in any other capacity.

Our general investment and borrowing policies are set forth in this prospectus. Our directors may establish further written policies on investments and borrowings and will monitor our administrative procedures, investment operations and performance to ensure that our executive officers and advisor follow these policies and that these policies continue to be in the best interests of our stockholders. Unless modified by our directors, we will follow the policies on investments and borrowings set forth in this prospectus.

77

Executive Officers and Directors

The following table sets forth information regarding our directors and executive officers. All of our executive officers are employees of Resource Real Estate, our sponsor. Neither we nor our advisor expect that we will have any employees, and our executive officers are not exclusively dedicated to our operations.

Name*	Age	Positions
Alan F. Feldman	45	Chief Executive Officer and Director
Kevin M. Finkel	37	Chief Operating Officer and President
Steven R. Saltzman	46	Chief Financial Officer, Senior Vice President and Treasurer
Shelle Weisbaum	48	Chief Legal Officer, Senior Vice President and Secretary
David E. Bloom	44	Senior Vice President
Jonathan Z. Cohen	38	Director
†		Independent Director
†		Independent Director
†		Independent Director

* The address of each executive officer and director listed is One Crescent Drive, Suite 203, Philadelphia, Pennsylvania 19112.

† To be named by amendment.

Alan F. Feldman has been our Chief Executive Officer and Director since our formation in June 2009. Mr. Feldman has also served as the Chief Executive Officer and Manager of our advisor since its formation in 2009. In addition, Mr. Feldman has served as a Director and Chief Executive Officer of Resource Real Estate since 2004, President and a Director of Resource Real Estate Management, LLC since 2005 and a Senior Vice President of Resource America since 2002. From 1998 to 2002, Mr. Feldman was a Vice President at Lazard Freres & Co., an investment banking firm, specializing in real estate matters. From 1992 through 1998, Mr. Feldman was an Executive Vice President of the Pennsylvania Real Estate Investment Trust and its predecessor, The Rubin Organization. From 1990 to 1992, Mr. Feldman was a Director at Strouse, Greenberg & Co., a regional full service real estate company. From 1986 through 1988, Mr. Feldman was an engineer at Squibb Corporation. Mr. Feldman received a Bachelor of Science degree and Master of Science degree from Tufts University, and a Master of Business Administration, Real Estate and Finance concentration degree from The Wharton School, University of Pennsylvania.

Kevin M. Finkel has been our Chief Operating Officer and President since our formation in June 2009. Mr. Finkel has also served as President and Manager of our advisor since its formation in 2009. In addition, Mr. Finkel has served as Executive Vice President since 2007 and Director of Acquisitions since 2004 of Resource Real Estate. Mr. Finkel joined Resource America in 2002, and has been a Vice President of Resource America since 2006. Prior to joining Resource Capital, Mr. Finkel was an Associate at Lehman Brothers. Prior to working at Lehman Brothers, Mr. Finkel was an investment banker at Barclays Capital and Deutsche Bank Securities. Mr. Finkel received a Bachelor of Arts degree with Honors in Economics from the University of Pennsylvania, and a Master of Business Administration degree from the UCLA Anderson School of Management.

Steven R. Saltzman has been our Chief Financial Officer, Senior Vice President and Treasurer since our formation in June 2009. Mr. Saltzman has also served as Chief Financial Officer and Senior Vice President for our advisor since its formation in 2009. In addition, Mr. Saltzman has served as Vice President and Controller of Resource Real Estate since 2004 and Vice President of Finance of Resource Real Estate Management, LLC since 2006. From 1999 to 2003, Mr. Saltzman was Controller at WP Realty, Inc., a regional developer and property manager specializing in community shopping centers. Mr. Saltzman began his real estate career in 1988 as a Property Controller at The Rubin Organization, a predecessor to the Pennsylvania Real Estate Investment Trust. Mr. Saltzman began his professional career at Price Waterhouse from 1985 to 1988. Mr. Saltzman earned a Bachelor of

78

Science degree from The Wharton School, University of Pennsylvania. Mr. Saltzman is both a Certified Public Accountant and a Certified Management Accountant.

Shelle Weisbaum has been our Chief Legal Officer, Senior Vice President and Secretary since our formation in June 2009. Ms. Weisbaum has also served as Chief Legal Officer, Senior Vice President, Secretary and Treasurer of our advisor since its formation in 2009. Ms. Weisbaum has also served as Vice President, General Counsel and Secretary of Resource Real Estate, Inc. and Vice President and Secretary of Resource Real Estate Management, LLC since 2006. Ms. Weisbaum joined Resource Real Estate in 2006 from Ledgewood, where she practiced commercial real estate law from 1998 to 2006 as an associate and later a partner of the firm. Prior to Ledgewood, from 1987 to 1998, Ms. Weisbaum was Vice President and Assistant General Counsel at the Philadelphia Stock Exchange. Ms. Weisbaum received a Bachelor of Science degree in Business Administration from Boston University and a Juris Doctor degree from Temple University.

David E. Bloom has been our Senior Vice President since our formation in June 2009. Mr. Bloom has also served as the Senior Vice President of our advisor since its formation in 2009. In addition, Mr. Bloom has served as President and a Director of Resource Real Estate since 2004, and as Senior Vice President of Resource America, a position he has held since September 2001. Mr. Bloom joined Resource America from Colony Capital, LLC, a Los Angeles-based real estate fund, where he was a Senior Vice President, as well as a Principal of Colony Capital Asia Pacific from 1999 to 2001. From 1998 to 1999, Mr. Bloom was a Director at Sonnenblick-Goldman Company, a New York based real estate investment bank. From 1992 to 1998, Mr. Bloom practiced law in the real estate and corporate departments of Wilkie Farr & Gallagher in New York and Drinker Biddle & Reath in Philadelphia. Prior to practicing law, Mr. Bloom began his real estate career in 1987 as an Acquisitions and Development Associate with Strouse, Greenberg & Company, a regional full-service real estate company. Mr. Bloom received a Bachelor of Arts degree in American Public Policy from Ursinus College and a Juris Doctor degree from Rutgers University School of Law.

Jonathan Z. Cohen has been one of our Directors since our formation in June 2009. Mr. Cohen has also served as a Manager of our advisor since its formation in 2009. In addition, Mr. Cohen has served as Chairman and a Director of Resource Real Estate Management, LLC since 2005. Mr. Cohen has been President since 2003 and Chief Executive Officer since 2004 of Resource America and has also served as Chairman and a Director of Resource Financial since 2005. Mr. Cohen was Executive Vice President of Resource America from 2001 to 2003, Senior Vice President of Resource America from 1999 to 2001 and a Vice President from 1998 to 1999. Mr. Cohen also is Vice Chairman of Atlas America, Inc. and Atlas Pipeline Partners GP, LLC, affiliates of Resource America. Mr. Cohen received his Bachelor of Arts degree from the University of Pennsylvania, and his Juris Doctor degree from American University’s Washington College of Law.

Board Committees

Our board of directors will have two standing committees, consisting solely of independent directors: the audit committee and the conflicts committee.

Audit Committee

Among other things, the audit committee will assist the board in overseeing:

• our accounting and financial reporting processes;

• the integrity and audits of our financial statements;

• our compliance with legal and regulatory requirements;

• the qualifications and independence of our independent auditors; and

• the performance of our internal and independent auditors.

79

The audit committee is also responsible for engaging independent public accountants, reviewing with the independent public accountants the plans and results of the audit engagement, and considering and approving the audit and non-audit services and fees provided by the independent public accountants.

Conflicts Committee

In order to reduce or eliminate certain potential conflicts of interest, our charter creates a conflicts committee of our board of directors consisting solely of all of our independent directors, that is, all of our directors who are not affiliated with our advisor. Our charter authorizes the conflicts committee to act on any matter permitted under Maryland law. Both the board of directors and the conflicts committee must act upon those conflict-of-interest matters that cannot be delegated to a committee under Maryland law. Our charter also empowers the conflicts committee to retain its own legal and financial advisors. See “Conflicts of Interest—Certain Conflict Resolution Measures.”

Our charter requires that the conflicts committee discharge the board’s responsibilities relating to the nomination of independent directors and the compensation of our independent directors. Our conflicts committee will also discharge the board’s responsibilities relating to the compensation of our executives. Subject to the limitations in our charter and with stockholder approval, the conflicts committee may also create stock-award plans.

Compensation of Directors

Any member of our board of directors who is also an employee of our advisor or Resource Real Estate does not receive additional compensation for serving on our board of directors. Each independent director receives an annual retainer of $25,000. In addition, the chairman of our audit committee will receive an additional annual retainer of $5,000. We will pay independent directors for attending board and committee meetings as follows:

• $1,000 in cash for each board meeting attended.

• $1,000 in cash for each committee meeting attended, except that the chairman of the committee will be paid $2,000 for each meeting attended.

• $500 in cash for each teleconference meeting of the board.

• $500 in cash for each teleconference meeting of any committee, except that the chairman of the committee will be paid $1,000 for each teleconference meeting of the committee.

We also reimburse our directors for their travel expenses incurred in connection with their attendance at board and committee meetings.

Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents

Our charter limits the liability of our directors and officers to us and our stockholders for monetary damages and requires us to indemnify our directors, officers, our advisor and its affiliates for losses they may incur by reason of their service in that capacity if all of the following conditions are met:

• the party seeking exculpation or indemnification has determined, in good faith, that the course of conduct that caused the loss or liability was in our best interests;

• the party seeking exculpation or indemnification was acting on our behalf or performing services for us;

• in the case of an independent director, the liability or loss was not the result of gross negligence or willful misconduct by the independent director;

80

• in the case of a non-independent director, Resource Real Estate Opportunity Advisor or one of its affiliates, the liability or loss was not the result of negligence or misconduct by the party seeking exculpation or indemnification; and

• the indemnification is recoverable only out of our net assets and not from the common stockholders.

The SEC takes the position that indemnification against liabilities arising under the Securities Act is against public policy and unenforceable. Furthermore, our charter prohibits the indemnification of our directors, our advisor, its affiliates or any person acting as a broker-dealer for liabilities arising from or out of a violation of state or federal securities laws, unless one or more of the following conditions are met:

• there has been a successful adjudication on the merits of each count involving alleged securities law violations;

• such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or

• a court of competent jurisdiction approves a settlement of the claims against the indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the SEC and of the published position of any state securities regulatory authority in which the securities were offered as to indemnification for violations of securities laws.

Our charter further provides that the advancement of funds to our directors and to our advisor and its affiliates for reasonable legal expenses and other costs incurred in advance of the final disposition of a proceeding for which indemnification is being sought is permissible only if all of the following conditions are satisfied: the proceeding relates to acts or omissions with respect to the performance of duties or services on our behalf; the legal proceeding was initiated by a third party who is not a common stockholder or, if by a common stockholder acting in his or her capacity as such, a court of competent jurisdiction approves such advancement; and the person seeking the advancement undertakes to repay the amount paid or reimbursed by us, together with the applicable legal rate of interest thereon, if it is ultimately determined that such person is not entitled to indemnification.

We will also purchase and maintain insurance on behalf of all of our directors and executive officers against liability asserted against or incurred by them in their official capacities with us, whether or not we are required or have the power to indemnify them against the same liability. We may incur significant costs to purchase this insurance on behalf of our directors and officers.

Our Advisor

Our advisor is Resource Real Estate Opportunity Advisor, LLC. Our advisor is a recently organized limited liability company that was formed in the State of Delaware on June 8, 2009. Our advisor has no operating history and no experience managing a public company. Our advisor has contractual and fiduciary responsibilities to us and our stockholders. All of our officers and some of our directors are also officers and managers of our advisor.

81

The directors and managers of our advisor are as follows:

Name*	Positions
Alan F. Feldman	Chief Executive Officer and Manager
Kevin M. Finkel	President and Manager
Steven R. Saltzman	Chief Financial Officer and Senior Vice President
Shelle Weisbaum	Chief Legal Officer, Senior Vice President and Secretary
David E. Bloom	Senior Vice President
Jeffrey F. Brotman	Senior Vice President
Jonathan Z. Cohen	Manager

The background of Messrs. Feldman, Finkel, Saltzman, Bloom and Cohen and Ms. Weisbaum are described in the “Management—Executive Officers and Directors” section of this prospectus.

Jeffrey F. Brotman has been the Senior Vice President and Director of our advisor since its formation in 2009. Mr. Brotman was the Chairman of the Board of Directors of TRM Corporation (a publicly traded consumer services company) from September 2006 to September 2008 and was TRM’s President and Chief Executive Officer from March 2006 through June 2007. He also has been Executive Vice President of Resource America since June 2007. Mr. Brotman was a co-founder of Ledgewood, a Philadelphia based law firm and was affiliated with the firm from 1992 until June 2007, serving as its managing partner from 1995 until March 2006. Mr. Brotman is also a certified public accountant and an Adjunct Professor at the University of Pennsylvania Law School.

The Advisory Agreement

Under the terms of the advisory agreement, our advisor will use its reasonable efforts to present to us investment opportunities that provide a continuing and suitable investment program for us consistent with our investment policies and objectives as adopted by our board of directors. Pursuant to the advisory agreement, our advisor will manage our day-to-day operations, retain the property managers for our property investments (subject to the authority of our board of directors and officers) and perform other duties, including, but not limited to, the following:

• finding, presenting and recommending investment opportunities to us consistent with our investment policies and objectives;

• making certain real estate related debt investment decisions for us, subject to the limitations in our charter and the direction and oversight of our board of directors;

• structuring the terms and conditions of our investments, sales and joint ventures;

• acquiring properties and other investments on our behalf in compliance with our investment objectives and policies;

• sourcing and structuring our loan originations;

• arranging for financing and refinancing of properties and our other investments;

• entering into leases and service contracts for our real properties;

• supervising and evaluating each loan servicer’s and property manager’s performance;

82

• reviewing and analyzing the operating and capital budgets of properties underlying our investments and properties we may acquire;

• entering into service contracts for our loans;

• assisting us in obtaining insurance;

• generating an annual budget for us;

• reviewing and analyzing financial information for each of our assets and the overall portfolio;

• formulating and overseeing the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing and disposition of our properties and other investments;

• performing investor-relations services;

• maintaining our accounting and other records and assisting us in filing all reports required to be filed with the SEC, the IRS and other regulatory agencies;

• engaging and supervising the performance of our agents, including our registrar and transfer agent; and

• performing any other services reasonably requested by us.

See “Management Compensation” for a detailed discussion of the fees payable to our advisor under the advisory agreement. We also describe in that section our obligation to reimburse our advisor for organization and offering expenses, the costs of providing services to us (other than for services for which it earns acquisition or disposition fees for sales of properties or other investments) and payments made by our advisor in connection with potential investments, whether or not we ultimately acquire the investment.

On September 14, 2009, the advisory agreement became effective. The advisory agreement has a one-year term but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of our advisor and us. It will be the duty of our board of directors to evaluate the performance of our advisor before entering into or renewing an advisory agreement. Our advisory agreement will automatically terminate upon any listing of our shares for trading on a national securities exchange. Additionally, either party may terminate the advisory agreement without penalty upon 60 days’ written notice and, in such event, our advisor must cooperate with us and our directors in making an orderly transition of the advisory function. In the event that our advisory agreement with our advisor is not renewed or terminates (other than because of a material breach by our advisor) prior to the occurrence of one of the events that trigger the conversion of our convertible stock, the number of shares of common stock that our advisor will receive upon the occurrence of that triggering event will be prorated to account for the actual amount of time that the advisory agreement was effective. For more information regarding the terms of the advisory agreement, see “Management Compensation.”

Our advisor and its affiliates expect to engage in other business ventures, and, as a result, they will not dedicate their resources exclusively to our business. However, pursuant to the advisory agreement, our advisor must devote sufficient resources to our business to discharge its obligations to us. Our advisor may assign the advisory agreement to an affiliate upon our approval. We may assign or transfer the advisory agreement to a successor entity.

Initial Investment by Our Advisor

Our advisor has invested $200,000 in us through the purchase of 20,000 shares of our common stock at $10.00 per share. As of the date of this prospectus, this constitutes 100% of our issued and outstanding common stock. Our advisor may not sell any of these shares during the period it serves as our advisor. Our advisor currently has no options or warrants to acquire any shares; however, prior to the termination of this offering, our advisor has committed to invest an amount equal to 1% of the amount invested from the sale of shares to non-affiliated investors

83

up to investments totaling $250,000,000. Our advisor has agreed to abstain from voting any shares it acquires in any vote for the election of directors or any vote regarding the approval or termination of any contract with our advisor or any of its affiliates. Our advisor is directly owned and controlled by Resource Real Estate, our sponsor. In the event the advisory agreement is terminated, the shares owned by our advisor would not be automatically redeemed. Our advisor would, however, be able to participate in the share redemption program, subject to all of the restrictions of the share redemption program applicable to all other common stockholders.

In addition, prior to the commencement of this offering, our advisor will exchange 4,500 shares of common stock for 45,000 shares of our convertible stock. Under certain circumstances, these shares may be converted into shares of our common stock. No additional consideration is due upon the conversion of the convertible stock. Our convertible stock will convert into shares of common stock on one of two events. First, it will convert if we have paid distributions to common stockholders such that aggregate distributions are equal to 100% of the price at which we sold our outstanding shares of common stock plus an amount sufficient to produce a 10% cumulative, non-compounded, annual return at that price. Alternatively, the convertible stock will convert if we list our shares of common stock on a national securities exchange and, on the 31st trading day after listing, the value of our company based on the average trading price of our shares of common stock since the listing, plus prior distributions, combine to meet the same 10% return threshold for our common stockholders. Each of these two events is a “Triggering Event.” Upon a Triggering Event, our convertible stock will, unless our advisory agreement with our advisor has been terminated or not renewed on account of a material breach by our advisor, generally be converted into a number of shares of common stock equal to 1/50,000 of the quotient of (A) the lesser of (i) 25% of the amount, if any, by which (1) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (2) the sum of the aggregate issue price of those outstanding shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, or (ii) 15% of the amount, if any, by which (I) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (II) the sum of the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, divided by (B) the value of the company divided by the number of outstanding shares of common stock, in each case, as of the date of the event triggering the conversion. However, if our advisory agreement with our advisor expires without renewal or is terminated (other than because of a material breach by our advisor) prior to a Triggering Event, then upon a Triggering Event the holder of the convertible stock will be entitled to a prorated portion of the number of shares of common stock determined by the foregoing calculation, where such proration is based on the percentage of time we were advised by our advisor. We believe that the convertible stock provides an incentive for our advisor to increase the overall return to our investors. The conversion of the convertible stock into common shares will result in an economic benefit for the holder of those shares and dilution of the other stockholders’ interests. See “Description of Shares — Convertible Stock.”

Other Affiliates

Our Sponsor

Resource Real Estate, Inc. is our sponsor and an affiliate of our advisor and Resource Real Estate Opportunity Manager, which will manage our real estate investments. Our advisor and Resource Real Estate are indirect subsidiaries of Resource America, Inc. Resource America is a specialized asset management company that evaluates, originates, services and manages investment opportunities through its commercial finance, real estate and financial fund management operating segments. As of June 30, 2009, Resource America and Resource Real Estate collectively managed a portfolio of over $14.3 billion of assets for its own account and for third-party investors, including real estate investments valued at approximately $1.7 billion, which includes over 17,000 multifamily residential units, including both equity and debt investments, and approximately 1.2 million square feet of office, retail and industrial space. Resource Real Estate and Resource America have a number of partnerships and joint ventures with institutional partners in which such partnerships or joint ventures acquire, hold, manage and sell real estate and real estate related debt investments. In addition to capital, Resource Real Estate or Resource America, as applicable, has provided one or more of the following services to each of these partnerships or joint ventures; asset management, property and construction management or acquisitions and disposition advice. Listed below are

84

examples of such real estate related institutional capital partnerships that have been formed with Resource Real Estate:

• Two joint ventures with a privately held, registered investment advisor specializing in alternative investments to foundations, endowments, pension plans, insurance companies and other institutional investors. The joint ventures were formed to acquire discounted real estate and real estate related debt investments and Resource Real Estate provides acquisitions advice, asset, property and construction management and disposition services;

• A partnership with an institutional investment firm with over $8 billion in assets that invests funds for pension plans, unions, corporations, endowments, foundations, and charitable organizations. The partnership was formed to own five multifamily rental properties and Resource Real Estate provides acquisitions advice, asset, property and construction management and disposition services;

• A partnership with a private real estate investment firm with more than $250 million of equity under management and investments of over $750 million. The partnership was formed to acquire two value-add multifamily rental properties and Resource Real Estate provides acquisitions advice, asset, property and construction management and disposition services;

• A joint venture with an international investment company with over 15€ billion of assets under management and who is one of Central Europe’s leading sponsors of international real estate funds. Resource America holds mezzanine debt in connection with a $128 million office building majority owned by the institutional partner and Resource America provides asset oversight management; and

• A partnership with one of Washington, D.C.’s largest full-service real estate companies that owns and developed more than 80 buildings in the Washington, D.C. metropolitan area aggregating over 20 million square feet and $6 billion in current cost. The partnership was formed to own a $167 million office building in which Resource America owns a minority interest and provides asset oversight management.

Resource America and its affiliates have also purchased seven properties and then sold tenant-in-common interests in those properties while an affiliate managed these properties. With a different investment objective planned than most other investments, the tenant-in-common interests were sold to facilitate Section 1031 like-kind exchanges for investors to defer income taxes.

Resource Real Estate is a full service real estate firm which employs over 350 people throughout the United States. Resource Real Estate’s principal services and functions include acquisitions, asset management, loan management, property management, construction management, restructuring, finance and dispositions. As of June 30, 2009, Resource Real Estate’s portfolio of performing assets, distressed assets, real estate owned by financial institutions and equity investments, valued at approximately $1.7 billion, encompasses assets in 28 states and includes over 100 individual assets. In addition to the current assets under management, Resource Real Estate managed 47 additional distressed real estate asset resolutions since 1991, representing over $600 million in value. These included multifamily, office, retail and hotel classes of real estate assets. All references to Resource Real Estate throughout this prospectus include predecessor affiliates of Resource America involved in real estate.

Resource Real Estate and its affiliates have significant experience in evaluating and investing in diverse asset classes, including commercial mortgage-backed securities, mortgages, leases, bank loans, equipment leases and trust preferred securities and has developed a disciplined credit culture that is the backbone of its financial services businesses. Resource Real Estate and its affiliates have been active in the discounted asset market since 1991. Historically, Resource Real Estate’s real estate operations focused on the purchase of non-performing commercial real estate loans at discounts to their outstanding loan balances and the appraised value of their underlying properties. As a result of many programs and products, Resource Real Estate and its affiliates have a breadth of knowledge and experience in the ownership, management and resolution of discounted assets. Our

85

advisor intends to use this breadth of knowledge and experience in the discounted asset marketplace to assist us to meet our investment objectives.

Resource Real Estate and its affiliates have a significant amount of experience and a number of relationships in the real estate and financial services markets that together put our advisor in a unique position to operate and manage our company. Specifically, our advisor believes that the following entities and factors highlight the resources that our advisor may use to compete in the discounted real estate asset marketplace:

• Resource Real Estate managed a portfolio of over $1.0 billion in aggregate principal amount of mortgage assets, discounted mortgage loans and related property interests as of June 30, 2009 in addition to its $648.7 million portfolio of multifamily properties and other real estate assets. Resource Real Estate will provide our advisor with institutional knowledge and operational support necessary to underwrite, acquire, manage and dispose of the discounted real estate investments we intend to acquire. Resource Real Estate also manages a portfolio of approximately $75 million of commercial mortgage-backed securities led by a portfolio management team with combined 35 years of experience in real estate structured finance at commercial real estate firms, commercial banks and insurance companies.

• Resource Real Estate and its affiliates have been active in the discounted real estate asset market since 1991. Historically, Resource Real Estate’s affiliates focused on the purchase of non-performing commercial real estate loans at discounts to their outstanding loan balances and the appraised value of their underlying properties. As a result of many programs and products, Resource Real Estate and its affiliates have a breadth of knowledge and experience in the acquisition, ownership, management and resolution of discounted real estate assets. Our advisor intends to use this breadth of knowledge and experience in the discounted real estate asset marketplace to assist us in meeting our investment objectives.

• Resource Real Estate Opportunity Manager, LLC, a wholly owned subsidiary of Resource Real Estate, is a Delaware limited liability company that was formed in 2009 for the purpose of managing real estate investments of our advisor and its affiliates either for their own account or for other real estate programs similar to us. Although Resource Real Estate Opportunity Manager is a relatively new company, its officers and directors and the employees of its affiliates have experience in managing real estate properties, such as the real estate investments we will acquire.

• Resource Residential, an affiliate of our sponsor, is a real estate property management company focused on providing the highest quality property management services to the residents of its multifamily properties managed by the company. Resource Residential manages apartment communities with an aggregate value of approximately $648.7 million, which includes over 12,000 apartments in over 50 properties located in 14 states throughout the country. Resource Residential employs over 300 professionals whose main objective is to optimize the net operating income of the properties it manages.

• Resource Financial, an affiliate of our sponsor, is a specialized asset management company that focuses on equity and equity-linked securities or other equity or debt interests in banks, thrifts and other financial services entities located in the United States. Resource Financial will provide our advisor with several sources of contacts to the financial services industry, including investment banks, brokerage firms, commercial banks and loan originators. As of June 30, 2009, Resource Financial and its affiliates manage $4.2 billion in bank investments. Resource Financial bases its origination capability on relationships that its asset management professionals have developed with these sources over their professional careers, as well as its presence in the marketplace as sponsor, originator, holder or acquirer for investment entities or its own account. Our advisor believes Resource Financial and its affiliates will provide us with contacts that will source appropriate real estate investments for us.

86

Property Manager

We may engage our property manager, Resource Real Estate Opportunity Manager, LLC, to manage and lease particular properties and manage our real estate related debt investments. Our property manager is a wholly owned subsidiary of Resource Real Estate. The officers and managers of our property manager are as follows:

Name	Positions
Alan F. Feldman	Chief Executive Officer and Manager
Kevin M. Finkel	President and Manager
Steven R. Saltzman	Chief Financial Officer and Senior Vice President
Shelle Weisbaum	Chief Legal Officer, Senior Vice President and Secretary
David E. Bloom	Senior Vice President
Jonathan Z. Cohen	Manager

For more information regarding the background and experience of Messrs. Feldman, Finkel, Saltzman, Bloom and Cohen and Ms. Weisbaum see “Management—Executive Officers and Directors.”

Dealer Manager

We have retained Chadwick Securities, Inc., an affiliate of our advisor, to conduct this offering. Chadwick Securities will provide wholesaling, sales, promotional and marketing assistance services to us in connection with the distribution of the shares offered pursuant to this prospectus. The principal business of Chadwick Securities is participating in and facilitating the distribution of securities of programs sponsored by affiliates of Resource America, including Resource Real Estate-sponsored programs. This is the fifth offering in which Chadwick Securities has served as dealer manager for Resource Real Estate-sponsored programs.

Below is a brief description of the background and experience of the executive officers of Chadwick Securities.

Darshan V. Patel has been the President of Chadwick Securities, Inc. since 2004. Mr. Patel has also served as Chief Legal Officer and Secretary of Resource Capital Partners since 2002. Mr. Patel also is Vice President of Resource America since 2005, Chief Legal Officer of Resource Real Estate since 2004, and Associate General Counsel for Resource America since 2001. From 1998 to 2001, Mr. Patel was associated with the law firm of Berman, Paley, Goldstein & Kannry practicing commercial litigation and real estate. From 1996 to 1998, Mr. Patel was associated with the law firm of Glynn & Associates practicing litigation and real estate. Mr. Patel received a Bachelor of Arts degree from Boston University. He also received a Juris Doctor degree from American University’s Washington College of Law.

Donna Zanghi has been the Vice President of Chadwick Securities, Inc. since 2004. Ms. Zanghi has also been a Vice President of Resource America, Inc. since 2006 and an employee of Resource America, Inc. since 1995. Her primary duties relate to her position as Vice President and Chief Financial & Operations Principal (FINRA Series 27 license) for Chadwick Securities, Inc, a registered broker dealer and a wholly owned subsidiary of Resource America, Inc. She also holds a Uniform Securities Agent (FINRA Series 63 license). Since November 1995, when she joined Resource America, Inc, she has worked in various corporate financial and accounting related capacities including Internal Auditor. She has also previously served as Controller and as Chief Financial Officer of several operating subsidiaries. She has been a Certified Public Accountant in Pennsylvania since 1986 and is currently a member of the Pennsylvania Institute of Certified Public Accountants. Prior to her joining the Company, she was a Vice President and Controller of a privately held real estate company since May 1984, and prior thereto, from July 1980 until May 1984, was an auditor for Arthur Andersen & Co. She holds a Masters in Business Administration degree from the University of Notre Dame and a Bachelor of Arts degree, Cum Laude, from Villanova University.

87

Management Decisions

The primary responsibility for the management decisions of our advisor reside with Jonathan Z. Cohen, Alan F. Feldman and Kevin M. Finkel and the primary responsibility for the selection of investments, the negotiation for these investments and asset-management decisions will reside in the senior investment committee of our advisor. A majority of our board of directors and a majority of the conflicts committee approves all proposed real estate property investments and certain significant real estate related debt investments.

MANAGEMENT COMPENSATION

Although we have executive officers who will manage our operations, we have no paid employees. Our advisor and the real estate professionals at our advisor will manage our day-to-day affairs and our portfolio of real estate properties and real estate related debt investments, subject to the board’s supervision. The following table summarizes all of the compensation and fees that we will pay to our advisor and its affiliates, including amounts to reimburse their costs in providing services. Selling commissions and dealer manager fees may vary for different categories of purchasers as described under “Plan of Distribution.” This table assumes the shares are sold through distribution channels associated with the highest possible selling commissions and dealer manager fees (with no discounts to any categories of purchasers) and assumes a $9.50 price for each share sold through our distribution reinvestment plan. No selling commissions or dealer manager fees are payable on shares sold through our distribution reinvestment plan.

Form of Compensation and Recipient	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering (1)
Organization and Offering Stage
Selling Commissions – Chadwick Securities (2)	Up to 7.0% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers, except no selling commissions are payable on shares sold under the distribution reinvestment plan. Chadwick Securities, our dealer manager, will reallow 100% of commissions earned to participating broker-dealers.	$140,000/$52,500,000
Dealer Manager Fee – Chadwick Securities (2)	Up to 3.0% of gross offering proceeds, except no dealer manager fee is payable on shares sold under the distribution reinvestment plan. Chadwick Securities may reallow to any participating broker-dealer up to 1.0% of the gross offering proceeds attributable to that participating broker-dealer as a marketing fee and in special cases the dealer manager may increase the reallowance. See “Plan of Distribution.”	$60,000/$22,500,000
Other Organization and Offering Expenses – Resource Real Estate Opportunity Advisor and Chadwick Securities (3)	With respect to our primary offering, we will reimburse our advisor for organization and offering expenses it may incur on our behalf but only to the extent that the reimbursement of the organization and offering expenses will not exceed 2.5% of gross offering proceeds. If we raise the maximum offering amount in the primary offering and under the distribution reinvestment plan, we expect organization and offering expenses (other than selling commissions and the dealer manager fee) to be $11,046,576 or 1.35% of gross offering proceeds. These organization and offering expenses include all actual expenses (other than selling commissions	$50,000/$11,046,576

88

Form of Compensation and Recipient	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering (1)
	and the dealer manager fee) to be incurred on our behalf and paid by us in connection with the offering.
Acquisition and Development Stage
Acquisition Fees – Resource Real Estate Opportunity Advisor or its affiliates (4)	2.0% of the cost of investments acquired by us, or the amount funded by us to acquire or originate loans, including acquisition and origination expenses and any debt attributable to such investments. Acquisition fees will also include any amounts incurred or reserved for capital expenditures that will be used to provide funds for capital improvements and repairs applied to any real property investment acquired where we plan to add value.	$52,489 (minimum offering assuming leverage of 35% of the cost of our investment)/ $19,928,271 (maximum offering assuming leverage of 35% of the cost of our investment)
Acquisition Expenses – Resource Real Estate Opportunity Advisor or its affiliates (4)	Reimbursement for all out-of-pocket expenses incurred in connection with the selection and acquisition of properties and making loans or other real estate related debt investments, whether or not we ultimately acquire the property or make the loan or other real estate related debt investment.	Actual amounts are dependent upon acquisition activity and therefore cannot be determined at the present time.
Debt Financing Fee – Resource Real Estate Opportunity Advisor or its affiliates	0.5% of the amount of any debt financing obtained. In no event will the debt financing fee be paid more than once in respect of the same debt. For example, upon refinancing, our advisor would only receive 0.5% of the incremental amount of additional debt financing obtained in the refinancing.	Actual amounts are dependent upon the amount of any debt financed and therefore cannot be determined at the present time.
Construction Management Fee – Resource Real Estate Opportunity Manager or its affiliates	5.0% of actual aggregate cost to construct improvements, or to repair, rehab or reconstruct a property; provided, however, that the sum of the construction management fee paid to our property manager and its affiliates and the acquisition fee described above and acquisition expenses may not exceed 6.0% of the contract price of the property unless our board of directors determines that such fee is commercially competitive, fair and reasonable to us.	Actual amounts are dependent upon usual and customary construction management fees for particular projects and therefore the amount cannot be determined at the present time.
Operational Stage
Property Management/Debt Servicing Fees – Resource Real Estate Opportunity Manager or its affiliates	With respect to real property investments, 4.5% of the actual gross cash receipts from the operation of the property; provided that for properties that are less than 75% occupied, the property manager will receive a minimum property management fee for the first 12 months of ownership in an amount equal to $40 per unit per month for multifamily rental properties or $0.05 per square foot per month for other	Actual amounts are dependent upon gross revenues of specific properties and actual management fees or property management fees or will be dependent upon the total equity and

89

Form of Compensation and Recipient	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering (1)
	types of properties. With respect to real estate related debt investments managed by our property manager or its affiliates, 2.75% of gross interest paid on these investments. The fee attributable on our real estate related debt investments will cover our property manager’s services in monitoring the performance of our real estate related debt investments, including (i) collecting amounts owed to us, (ii) reviewing on an as-needed basis the properties serving, directly or indirectly, as collateral for the real estate related debt investments, the owners of those properties and the markets in general and (iii) maintaining escrow accounts, monitoring advances, monitoring loan covenants and reviewing insurance compliance. For properties or debt investments managed by third parties, the property manager will receive the property management fee and pay the third party directly from that fee an amount for managing the property or debt investment. Our property manager or its affiliates will not collect both a fee for managing a debt investment and a separate fee for managing the real estate property underlying such debt investment for the same time period. Our property manager may, in its discretion, from time to time defer payment of and accrue all or any portion of these property management fees.	debt capital we raise and the results of our operations and therefore cannot be determined at the present time.
Asset Management Fee – Resource Real Estate Opportunity Advisor or its affiliates (5)	Monthly fee equal to one-twelfth of 1.0% of the higher of the cost or independently appraised value of each asset, without deduction for depreciation, bad debts or other non-cash reserves. For purposes of this calculation, “cost” will equal the amount actually paid and/or budgeted (including acquisition fees and expenses) to purchase each asset we acquire, including any debt attributable to the asset, provided that, with respect to any properties we develop, construct or improve, cost will include the amount expended by us for the development, construction or improvement of an asset. For purposes of this calculation, “value” will equal the value of an asset established by the most recent independent valuation report, if available. The asset management fee will be based only on the portion of the cost or value attributable to our investment in an asset if we do not own all or a majority of an asset, do not manage or control the asset, and do not provide substantial services in the management of the asset.	The actual amounts are dependent upon the total equity and debt capital we raise and the results of our operations; we cannot determine these amounts at the present time.

90

Form of Compensation and Recipient	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering (1)
Other Operating Expenses – Resource Real Estate Opportunity Advisor or its affiliates (6)	We reimburse the expenses incurred by our advisor in connection with its provision of services to us, including our allocable share of costs for advisor personnel and overhead, including allocable personnel salaries and other employment expenses. However, we will not reimburse our advisor or its affiliates for employee costs in connection with services for which our advisor earns acquisition fees or disposition fees.	Actual amounts are dependent upon the results of our operations; we cannot determine these amounts at the present time.
Disposition Fees – Resource Real Estate Opportunity Advisor or its affiliates (7)	For substantial assistance in connection with the sale of investments, we will pay our advisor or its affiliates the lesser of (i) one-half of the aggregate brokerage commission paid or, if none is paid, the amount that customarily would be paid at market rate or (ii) 2.75% of the contract sales price of each real estate investment, loan, debt-related security, or other investment sold (including mortgage-backed securities or collateralized debt obligations issued by a subsidiary of ours as part of a securitization transaction). The conflicts committee will determine whether the advisor or its affiliate has provided substantial assistance to us in connection with the sale of an asset. We will not pay a disposition fee upon the maturity, prepayment or workout of a loan or other real estate related debt investment; however, if we take ownership of a property as a result of a workout or foreclosure of a loan or we provide substantial assistance during the course of a workout, we will pay a disposition fee upon the sale of such property or disposition of such loan or other real estate related debt investment.	Actual amounts are dependent upon aggregate asset value and therefore cannot be determined at the present time.
Common Stock Issuable Upon Conversion of Convertible Stock – Resource Real Estate Opportunity Advisor	Our convertible stock will convert into shares of common stock on one of two events. First, it will convert if we have paid distributions to common stockholders such that aggregate distributions are equal to 100% of the price at which we sold our outstanding shares of common stock plus an amount sufficient to produce a 10% cumulative, non-compounded, annual return at that price. Alternatively, the convertible stock will convert if we list our shares of common stock on a national securities exchange and, on the 31st trading day after listing, the value of our company based on the average trading price of our shares of common stock since the listing, plus prior distributions, combine to meet the same 10% return threshold for our common stockholders. Each of these two events is a “Triggering Event.” Upon a Triggering Event, our convertible stock will, unless our advisory agreement with our advisor has been terminated or not renewed on account of a material breach by our advisor, generally be converted into a number of shares of common stock equal to 1/50,000 of the quotient of (A) the lesser of (i) 25% of the amount, if any, by which (1) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through	Actual amounts depend on the value of our company at the time the convertible stock converts or becomes convertible and therefore cannot be determined at the present time.

91

Form of Compensation and Recipient	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering (1)
	such date on the then outstanding shares of our common stock exceeds (2) the sum of the aggregate issue price of those outstanding shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, or (ii) 15% of the amount, if any, by which (I) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (II) the sum of the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, divided by (B) the value of the company divided by the number of outstanding shares of common stock, in each case, as of the date of the event triggering the conversion. However, if our advisory agreement with our advisor expires without renewal or is terminated (other than because of a material breach by our advisor) prior to a Triggering Event, then upon a Triggering Event the holder of the convertible stock will be entitled to a prorated portion of the number of shares of common stock determined by the foregoing calculation, where such proration is based on the percentage of time we were advised by our advisor.

(1) The estimated minimum dollar amounts are based on the sale of the minimum of 200,000 shares to the public and the estimated maximum dollar amounts are based on the sale of the maximum of 82,500,000 shares to the public, including 7,500,000 shares through our distribution reinvestment plan.

(2) All or a portion of the selling commissions will not be charged with regard to shares sold to certain categories of purchasers. A reduced dealer manager fee is payable with respect to certain volume discount sales. See “Plan of Distribution.”

(3) These expenses include our legal, accounting, printing, mailing and filing fees, charges of our escrow holder, charges of our transfer agent, charges of our advisor for processing subscription agreements, reimbursement of bona fide invoiced due diligence expenses of broker-dealers, reimbursement of our advisor for salaries of its employees and other costs in connection with preparing supplemental sales materials, the issuer’s costs of conducting bona fide training and education meetings held by us, including travel, meal and lodging costs of non-registered officers of the issuer and our advisor to attend such meetings, and the issuer’s costs of attending retail seminars conducted by broker-dealers, including travel, meal and lodging costs for non-registered officers of the issuer and our advisor to attend such seminars.

After raising at least $2,000,000 in gross offering proceeds from persons who are not affiliated with us or our advisor, we expect to begin incurring some organization and offering expenses directly. After the termination of the primary offering and again after termination of the offering under our distribution reinvestment plan, our advisor has agreed to reimburse us to the extent total organization and offering expenses (other than selling commissions and the dealer manager fee) borne by us exceed 2.5% of the gross proceeds raised in the applicable offering.

(4) Because the acquisition fees we pay our advisor are a percentage of the purchase price of an investment, this fee will be greater to the extent we fund acquisitions through (i) the incurrence of debt (which we expect to represent 35% of the purchase price of our investments if we sell the maximum number of shares offered hereby), (ii) retained cash flow

92

from operations, (iii) issuances of equity in exchange for properties and other assets and (iv) proceeds from the sale of shares under our distribution reinvestment plan.

In addition to acquisition fee, we will reimburse our advisor for amounts it pays to third parties in connection with the selection, acquisition or development of a property or acquisition or origination of a loan, whether or not we ultimately acquire the property or originate the loan. Under our charter, a majority of the independent directors would have to approve any increase in the acquisition fees payable to our advisor. Our charter also limits our ability to make or purchase property or other investments if the total of all acquisition fees and expenses relating to the investment exceeds 6% of the contract purchase price or 6% of the total funds advanced.

(5) The asset management fee will be based on cost plus any amounts budgeted to develop, construct or improve the property. For example, if we purchase a value-add multifamily property that costs $2 million initially with the plan to invest another $1 million in the property to upgrade it, the total budgeted cost for this property would be $3 million for purposes of calculating the asset management fee.

(6) Commencing four fiscal quarters after the acquisition of our first real estate investment, our advisor must reimburse us the amount by which our aggregate total operating expenses for the four fiscal quarters then ended exceed the greater of 2% of our average invested assets or 25% of our net income, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors. “Average invested assets” means the average monthly book value of our assets during the 12-month period before deducting depreciation, bad debts or other non-cash reserves. “Total operating expenses” means all expenses paid or incurred by us, as determined under GAAP, that are in any way related to our operation, including advisory fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and stock exchange listing of our stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based on the gain in the sale of our assets; and (f) acquisition fees, acquisition expenses (including expenses relating to potential investments that we do not close), disposition fees on the resale of property and other expenses connected with the acquisition, disposition and ownership of real estate interests, loans or other property (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property).

(7) Our charter limits the maximum amount of the disposition fees payable to the advisor and its affiliates to 3% of the contract sales price. To the extent this disposition fee is paid upon the sale of any assets other than real property, it will count against the limit on “total operating expenses” described in note 5 above.

STOCK OWNERSHIP

The following table sets forth the beneficial ownership of our common stock as of the date of this prospectus for each person or group that holds more than 5% of our common stock, for each director and executive officer and for our directors and executive officers as a group. To our knowledge, each person that beneficially owns our shares has sole voting and dispositive power with regard to such shares.

Name of Beneficial Owner (1)	Number of Shares Beneficially Owned (2)	Percent of All Shares
Resource Real Estate Opportunity Advisor, LLC	20,000	100.0	%
Alan F. Feldman, Chief Executive Officer and Director	—	—
Kevin M. Finkel, Chief Operating Officer and President	—	—
Steven R. Saltzman, Chief Financial Officer, Senior Vice President and Treasurer	—	—
Shelle Weisbaum, Chief Legal Officer, Senior Vice President and Secretary	—	—
David E. Bloom, Senior Vice President	—	—
Jonathan Z. Cohen, Director	—	—
Independent Director (3)	—	—
Independent Director (3)	—	—
Independent Director (3)	—	—
All directors and executive officers as a group	—	—	%

93

(1) The address of each beneficial owner listed is One Crescent Drive, Suite 203, Philadelphia, Pennsylvania 19112.

(2) As of the date of this prospectus our advisor owns all of our issued and outstanding stock. Prior to the commencement of this offering, our advisor will exchange 4,500 shares of common stock for 45,000 shares of our convertible stock. The actual number of shares of common stock which will be issuable upon conversion of the convertible stock, if any, is indeterminable at this time. Our advisor is owned and controlled by Resource Real Estate, Inc.

(3) To be named by amendment.

CONFLICTS OF INTEREST

We are subject to various conflicts of interest arising out of our relationship with our advisor, Resource Real Estate Opportunity Advisor, and its affiliates, some of whom serve as our executive officers and directors. We discuss these conflicts below and conclude this section with a discussion of the corporate governance measures we have adopted to ameliorate some of the risks posed by these conflicts.

Our Affiliates’ Interests in Other Resource Real Estate Programs

General

Upon commencement of this offering, all of our executive officers, some of our directors and other key real estate professionals at our advisor will also be officers, directors, managers and/or key professionals at our advisor, our dealer manager and other Resource Real Estate entities that are the sponsors of other real estate programs, including programs that have investment objectives that are similar to ours. These individuals will have legal and financial obligations with respect to those programs that are similar to their obligations to us, and we expect that they will organize other real estate partnerships and programs in the future.

As described in the “Prior Performance Summary,” affiliates of our advisor have sponsored or co-sponsored the following real estate programs with investment objectives similar to ours:

1. SR Real Estate Investors, L.P.;

2. SR Real Estate Investors II, L.P.;

3. Resource Real Estate Investors, L.P.;

4. Resource Real Estate Investors II, L.P.;

5. Resource Real Estate Investors III, L.P.;

6. Resource Real Estate Investors IV, L.P.;

7. Resource Real Estate Investors V, L.P.;

8. Resource Real Estate Investors 6, L.P.;

9. Resource Real Estate Investors 7, L.P.; and

10. Resource Real Estate Opportunity Fund L.P.

Conflicts of interest may arise between us and the programs that have not yet been liquidated and between us and future programs. Specifically, we are not currently in direct competition with any of our sponsor’s prior programs to raise funds through an offering or to acquire assets other than with Resource Real Estate Opportunity Fund L.P. However, we may in the future compete with Resource Capital Corp. for capital and acquisition opportunities. However, while Resource Real Estate Opportunity Fund L.P. and Resource Capital Corp. invest in real estate related debt assets, those debt asset investments are not our sole investment focus.

94

Allocation of Investment Opportunities

We rely on our advisor, and its executive officers and real estate professionals to identify suitable investment opportunities. Our advisor’s executive officers and real estate professionals are also key employees of Resource America and the advisors to other Resource Real Estate-sponsored programs. As such, the other Resource Real Estate-sponsored programs, especially those that are currently raising offering proceeds, if any, and Resource America rely on many of the same key real estate professionals for their investment opportunities. Many investment opportunities that are suitable for us may also be suitable for other Resource Real Estate programs or Resource America. When these real estate professionals direct an investment opportunity to any Resource Real Estate-sponsored program, they, in their sole discretion, will offer the opportunity to the program for which the investment opportunity is most suitable based on the investment objectives, portfolio and criteria of each program. As a result, these Resource Real Estate professionals could direct attractive investment opportunities to other entities. For so long as we are externally advised, our charter provides that it shall not be a proper purpose of the corporation for us to purchase real estate or any significant asset related to real estate unless the advisor has recommended the investment to us. See “— Certain Conflict Resolution Measures.”

Joint Ventures with Affiliates

We may enter into joint venture agreements with other Resource Real Estate-sponsored programs or Resource America for the acquisition, development or improvement of properties or other investments. See “Investment Objectives and Policies—Co-Investment Strategy.” Our advisor and the advisors to the private Resource Real Estate-sponsored programs and affiliated entities, have the same executive officers and key employees, and these persons will face conflicts of interest in determining which Resource Real Estate program should enter into any particular joint venture agreement. These persons may also face a conflict in structuring the terms of the relationship between our interests and the interests of the Resource Real Estate-affiliated co-venturer and in managing the joint venture. Any joint venture agreement or transaction between us and a Resource Real Estate-affiliated co-venturer will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers. The Resource Real Estate-affiliated co-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. These co-venturers may thus benefit to our and your detriment. See “Risk Factors—Risks Related to Investments in Real Estate.”

Competition for Tenants and Others

Conflicts of interest may exist to the extent that we acquire properties in the same geographic areas where other Resource Real Estate programs or affiliated entities own properties. In such a case, a conflict could arise in the leasing of properties or apartment units in the event that we and another Resource Real Estate program or affiliated entity were to compete for the same tenants in negotiating leases, or a conflict could arise in connection with the resale of properties in the event that we and another Resource Real Estate program or affiliated entity were to attempt to sell similar properties at the same time. See “Risk Factors — Risks Related to Conflicts of Interest.” Conflicts of interest may also exist at such time as we or any of our affiliates managing property on our behalf seek to employ developers, contractors, building managers or other third parties. Our advisor and its affiliates, including the advisors of other Resource Real Estate programs and affiliated entities, will seek to reduce conflicts that may arise with respect to properties available for sale or rent by making prospective purchasers or tenants aware of all such properties. Our advisor and the advisors of other Resource Real Estate programs and affiliated entities will also seek to reduce conflicts relating to the employment of developers, contractors or building managers by making prospective service providers aware of all properties in need of their services. However, our advisor and the advisors of other Resource Real Estate programs and affiliated entities cannot fully avoid these conflicts because they may establish differing terms for resales or leasing of the various properties or differing compensation arrangements for service providers at different properties.

Allocation of Our Officers’ and Affiliates’ Time

We rely on our officers to operate and oversee our operations. As a result of our officers’ responsibilities and duties owed to other Resource Real Estate-sponsored programs and our sponsor’s parent, Resource America, our officers will face conflicts of interest in allocating their time among us and other real estate programs and

95

activities. Specifically, Alan Feldman, Kevin Finkel, Steven Saltzman and Shelle Weisbaum intend to devote approximately 60% of their time to us and the other 40% to other Resource Real Estate-sponsored programs and Resource America, serving those other entities in substantially the same capacity as they serve us. David Bloom intends to devote approximately 20% of his time to us, with the remaining 80% to other Resource Real Estate-sponsored programs and Resource America in a similar capacity as he serves us.

We also rely on our advisor, its affiliates and its key real estate professionals for the day-to-day operation of our business. Our advisor and its affiliates will also face conflicts of interest in allocating their time among us and other real estate programs and activities. Our advisor, its affiliates and its key real estate professionals have interests in other Resource Real Estate programs and the fact that they have engaged in and they will continue to engage in other business activities, our advisor and its affiliates and key employees will face conflicts of interest in allocating their time among us and other Resource Real Estate-sponsored programs and activities in which they are involved. However, our advisor believes that it and its affiliates have sufficient personnel to fully discharge their responsibilities to all of the Resource Real Estate programs and ventures in which they are involved.

Receipt of Fees and Other Compensation by Our Advisor and its Affiliates

Our advisor and its affiliates will receive substantial fees from us, which fees will not be negotiated at arm’s length. These fees could influence our advisor’s advice to us, as well as the judgment of affiliates of our advisor, some of whom also serve as our executive officers and directors and the key real estate professionals at our advisor. Among other matters, these compensation arrangements could affect their judgment with respect to:

• the continuation, renewal or enforcement of our agreements with our advisor and its affiliates, including the advisory agreement, the dealer manager agreement and the management agreement;

• offerings of equity by us, which entitle Chadwick Securities to dealer manager fees and will likely entitle our advisor to increased acquisition and asset management fees;

• sales of properties and other investments, which entitle our advisor to disposition fees and the possible issuance to our advisor of shares of our common stock through the conversion of our convertible stock;

• acquisitions of properties and other investments, which entitle our advisor to acquisition, asset management fees and possibly property management fees and, in the case of acquisitions of investments from other Resource Real Estate-sponsored programs, might entitle affiliates of our advisor to disposition fees in connection with its services for the seller;

• borrowings to acquire properties and other investments and to originate loans, which borrowings will increase the acquisition and asset management fees payable to our advisor as well as entitle the advisor to a debt financing fee;

• whether we seek stockholder approval to internalize our management, which may entail acquiring assets (such as office space, furnishings and technology costs) and negotiating compensation for key real estate professionals at our advisor and its affiliates that may result in these individuals receiving more compensation from us than they currently receive from our advisor and its affiliates, could result in diluting your interest in us, could reduce the net income per share and funds from operations per share attributable to your investment and may provide incentives to our advisor to pursue an internalization transaction rather than an alternative strategy;

• whether and when we seek to list our common stock on a national securities exchange, which listing could entitle our advisor to the issuance of shares of our common stock through the conversion of our convertible stock and could provide benefits to our advisor and its affiliates over liquidation by seeking stockholder approval to internalize our management prior to listing; and

96

• whether and when we seek to sell the company or its assets, which sale could entitle our advisor to the issuance of shares of our common stock through the conversion of our convertible stock.

Prior to the commencement of this offering, our advisor will exchange 4,500 shares of common stock for 45,000 shares of convertible stock. Under limited circumstances, these shares may be converted into shares of our common stock, thereby resulting in dilution of the stockholders’ interest in us. Our convertible stock will convert into shares of common stock on one of two events. First, it will convert if we have paid distributions to common stockholders such that aggregate distributions are equal to 100% of the price at which we sold our outstanding shares of common stock plus an amount sufficient to produce a 10% cumulative, non-compounded, annual return at that price. Alternatively, the convertible stock will convert if we list our shares of common stock on a national securities exchange and, on the 31st trading day after listing, the value of our company based on the average trading price of our shares of common stock since the listing, plus prior distributions, combine to meet the same 10% return threshold for our common stockholders. Each of these two events is a “Triggering Event.” Upon a Triggering Event, our convertible stock will, unless our advisory agreement with our advisor has been terminated or not renewed on account of a material breach by our advisor, generally be converted into a number of shares of common stock equal to 1/50,000 of the quotient of (A) the lesser of (i) 25% of the amount, if any, by which (1) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (2) the sum of the aggregate issue price of those outstanding shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, or (ii) 15% of the amount, if any, by which (I) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (II) the sum of the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, divided by (B) the value of the company divided by the number of outstanding shares of common stock, in each case, as of the date of the event triggering the conversion. However, if our advisory agreement with our advisor expires without renewal or is terminated (other than because of a material breach by our advisor) prior to a Triggering Event, then upon a Triggering Event the holder of the convertible stock will be entitled to a prorated portion of the number of shares of common stock determined by the foregoing calculation, where such proration is based on the percentage of time we were advised by our advisor.

Our advisor can influence whether we terminate the advisory agreement or allow it to expire without renewal or whether our common shares are listed for trading on a national securities exchange. Accordingly, our advisor can influence both the conversion of the convertible stock issued to it and the resulting dilution of other stockholders’ interests. There will be no distributions paid on shares of convertible stock. For a description of the convertible stock see “Description of Shares — Convertible Stock.”

Fiduciary Duties Owed by Some of Our Affiliates to Our Advisor and Our Advisor’s Affiliates

Our executive officers, some of our directors and the key real estate professionals at our advisor are also officers, directors, managers and/ or key professionals for:

• Resource Real Estate Opportunity Advisor, our advisor;

• Resource Real Estate Opportunity Manager, one of our possible property managers;

• Chadwick Securities, our dealer manager; and

• other Resource Real Estate-sponsored programs (see the “Prior Performance Summary” section of this prospectus).

As a result, they owe fiduciary duties to each of these programs, their stockholders, members and limited partners. These fiduciary duties may from time to time conflict with the fiduciary duties that they owe to us.

97

Affiliated Dealer Manager

Since Chadwick Securities, our dealer manager, is an affiliate of our advisor, you will not have the benefit of an independent due diligence review and investigation of the type normally performed by an independent underwriter in connection with the offering of securities. See “Plan of Distribution.”

Affiliated Property Manager

Since properties we acquire may be managed and leased by Resource Real Estate Opportunity Manager. To the extent we retain Resource Real Estate Opportunity Manager, we will not have the benefit of independent property management. See “Management—Other Affiliates.”

Certain Conflict Resolution Measures

Conflicts Committee

In order to reduce or eliminate certain potential conflicts of interest, our charter creates a conflicts committee of our board of directors composed of all of our independent directors. An “independent director” is a person who is not one of our officers or employees or an officer or employee of our advisor or its affiliates and has not been so for the previous two years and meets the other requirements set forth in our charter. Serving as a director of, or having an ownership interest in, another Resource Real Estate-sponsored program will not, by itself, preclude independent-director status. Our charter authorizes the conflicts committee to act on any matter permitted under Maryland law. Both the board of directors and the conflicts committee must act upon those conflict-of-interest matters that cannot be delegated to a committee under Maryland law. Our charter also empowers the conflicts committee to retain its own legal and financial advisors. Among the matters we expect the conflicts committee to act upon are:

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

• public offerings of securities;

• sales of real property;

• investments in real property;

• investments in assets in other than real property if the value exceeds the lesser of (i) $10 million or (ii) 10% of the total assets of the company at the time of acquisition;

• establishment of investment guidelines with respect to investments in assets other than real property where the value is the lesser of (i) $10 million or (ii) 10% of the total assets of the company at the time of acquisition and the oversight of our advisor’s compliance with such guidelines;

• transactions with affiliates;

• compensation of our officers and directors who are affiliated with our advisor;

• whether and when we seek to list our shares of common stock on a national securities exchange;

• whether and when we seek to become self-managed, which decision could lead to our acquisition of entities affiliated with our advisor at a substantial price; and

• whether and when we seek to sell the company or substantially all of its assets.

98

A majority of our board of directors and a majority of the conflicts committee approves all proposed real estate property investments and certain significant real estate related debt investments as described above.

Resolution of Potential Conflicts of Interest in Allocation of Investment Opportunities

Our advisor is required to use commercially reasonable efforts to present a continuing and suitable investment program to us that is consistent with our investment policies and objectives, but neither our advisor nor its affiliates are obligated generally to present any particular investment opportunity to us even if the opportunity is of a character that, if presented to us, could be taken by us. Our advisor’s ultimate parent, Resource America, also invests in real estate and real estate related assets and sponsors other programs that do so. In the event that an investment is identified by our advisor or its affiliates that is appropriate both for us and Resource America or a program sponsored by Resource America, but the amount available is less than the amount sought by us and Resource America or the program sponsored by Resource America, the investment may be allocated among us and the other party in proportion to the relative amounts of the investment sought by each. If, however, the other party is Resource America (as opposed to a program sponsored by Resource America or Resource Capital), then we must be offered the opportunity to take a majority share of any proposed co-owned multifamily properties or debt related to multifamily properties. Such co-investments must be approved by the unanimous vote of our conflicts committee.

Our co-investment rights are subject to the availability of capital for investment. If the portion of the investment allocable to one of us would be too small or too large for it to be appropriate for one of us, either because of economic or market inefficiency, regulatory constraints, such as REIT qualification or exclusion from regulation under the Investment Company Act, or otherwise, that portion will be reallocated to the other party. In addition, rather than splitting an investment between us and a program sponsored by Resource America, it is also possible that opportunities will be allocated on an alternating basis with the view that, overall, we and programs sponsored by Resource America would be treated equitably.

An affiliate of our advisor is the external manager of Resource Capital, a publicly traded REIT sponsored by Resource America. Pursuant to the management agreement between Resource Capital and its external manager, Resource Capital’s manager and its manager’s affiliates are permitted to advise other programs; however, such other programs, if they are REITs, may not invest primarily in domestic mortgage-backed securities. Although Resource Capital’s manager need not offer Resource Capital the opportunity to participate in every investment that is consistent with Resource Capital’s investment objectives, its manager and its manager’s affiliates are contractually obligated to allocate investment opportunities that are suitable for both Resource Capital and other programs they sponsor on an equitable basis.

Resource Capital invests in the following asset classes: commercial real estate related assets such as whole loans, A-Notes, B-Notes, mezzanine loans and mortgage-related securities and commercial finance assets such as other asset-backed securities, senior secured corporate loans, equipment leases and notes, trust preferred securities, debt tranches of collateralized debt obligations. Because Resource Capital does not invest in real property, our real property investments, such as potential investments in value-add multifamily rental properties and REO, will not have to be allocated between us and Resource Capital. Further, Resource Capital’s investment parameters have historically focused on, and are expected to continue to focus on, performing loans rather than non-performing or distressed loans that we expect to invest in; therefore, we expect that there will only be limited circumstances where an investment opportunity is likely to be suitable for both Resource Capital and us.

Resource Real Estate and our advisor may make exceptions to these general policies when other circumstances make application of the policies inequitable or uneconomic.

Other Charter Provisions Relating to Conflicts of Interest

In addition to the creation of the conflicts committee, our charter contains many other restrictions relating to conflicts of interest including the following:

Advisor Compensation. The conflicts committee will evaluate at least annually whether the compensation that we contract to pay to our advisor and its affiliates is reasonable in relation to the nature and quality of services

99

performed and whether such compensation is within the limits prescribed by the charter. The conflicts committee will supervise the performance of our advisor and its affiliates and the compensation we pay to them to determine whether the provisions of our compensation arrangements are being carried out. This evaluation will be based on the following factors as well as any other factors deemed relevant by the conflicts committee:

• the amount of the fees and any other compensation, including stock-based compensation, paid to our advisor and its affiliates in relation to the size, composition and performance of our investments;

• whether the expenses incurred by us are reasonable in light of our investment performance, net assets, net income and the fees and expenses of other comparable unaffiliated REITs;

• the success of our advisor in generating appropriate investment opportunities;

• the rates charged to other companies, including other REITs, by advisors performing similar services;

• additional revenues realized by our advisor and its affiliates through their relationship with us, including whether we pay them or they are paid by others with whom we do business;

• the quality and extent of service and advice furnished by our advisor and its affiliates;

• the performance of our investment portfolio; and

• the quality of our portfolio relative to the investments generated by our advisor and its affiliates for their own account and for their other clients.

Under our charter, we can only pay our advisor a disposition fee in connection with the sale of a property or other asset if it provides a substantial amount of the services in the effort to sell the property or asset and the commission does not exceed 3% of the sales price of the property or other asset. Although our charter limits this commission to 3% of the sales price, our advisory agreement provides for a 2.75% fee. Any increase in this fee would require the approval of a majority of the members of our conflicts committee. Moreover, our charter also provides that the commission, when added to all other disposition fees paid to unaffiliated parties in connection with the sale, may not exceed the lesser of a competitive real estate commission or 6% of the sales price of the property or other asset. To the extent this disposition fee is paid upon the sale of any assets other than real property, it will count against the limit on “total operating expenses” described below. We do not intend to sell properties or other assets to affiliates. However, if we do sell an asset to an affiliate, our organizational documents would not prohibit us from paying our advisor a disposition fee. Before we sold an asset to an affiliate, our charter would require that the conflicts committee conclude, by a unanimous vote, that the transaction is fair and reasonable to us.

Our charter also requires that any gain from the sale of assets that we may pay our advisor or an entity affiliated with our advisor be reasonable. Such an interest in gain from the sale of assets is presumed reasonable if it does not exceed 15% of the balance of the net sale proceeds remaining after payment to common stockholders, in the aggregate, of an amount equal to 100% of the original issue price of the common stock, plus an amount equal to 6% of the original issue price of the common stock per year cumulative.

If we ever decided to become self-managed by acquiring entities affiliated with our advisor, our charter would require that the conflicts committee conclude, by a majority vote, that such internalization transaction is fair and reasonable to us and on terms and conditions no less favorable to us than those available from third parties.

Our charter also limits the amount of acquisition fees and acquisition expenses we can incur to a total of 6% of the contract purchase price for the property or, in the case of a loan, 6% of the funds advanced. This limit may only be exceeded if the conflicts committee approves (by majority vote) the fees and expenses and finds the transaction to be commercially competitive, fair and reasonable to us. Although our charter permits combined acquisition fees and expenses to equal 6% of the purchase price, our advisory agreement limits the acquisition fee to 2% of the purchase price (including any acquisition expenses and any debt attributable to such investments). Any

100

increase in the acquisition fee stipulated in the advisory agreement would require the approval of a majority of the members of the conflicts committee.

Term of Advisory Agreement. Each contract for the services of our advisor may not exceed one year, although there is no limit on the number of times that we may retain a particular advisor. The conflicts committee or our advisor may terminate our advisory agreement with our advisor without cause or penalty on 60 days’ written notice.

Our Acquisitions. We will not purchase or lease properties in which our advisor, any of our directors or officers or any of their affiliates has an interest without a determination by the unanimous consent of the conflicts committee that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the property to the affiliated seller or lessor, unless there is substantial justification for the excess amount. Generally, the purchase price that we will pay for any property will be based on the fair market value of the property as determined by a majority of our directors. In the cases where a majority of our independent directors require and in all cases in which the transaction is with any of our directors or affiliates, we will obtain an appraisal of fair market value by an independent expert selected by our independent directors. We may obtain an appraisal in other cases, however, we will rely on our own independent analysis and not on appraisals in determining whether to invest in a particular property. Appraisals are estimates of value and should not be relied upon as measures of true worth or realizable value.

Mortgage Loans Involving Affiliates. Our charter prohibits us from investing in or making mortgage loans in which the transaction is with our advisor, our directors or officers or any of their affiliates, unless an independent expert appraises the underlying property. We must keep the appraisal for at least five years and make it available for inspection and duplication by any of our stockholders. In addition, we must obtain a mortgagee’s or owner’s title insurance policy or commitment as to the priority of the mortgage or the condition of the title. Our charter prohibits us from making or investing in any mortgage loans that are subordinate to any mortgage or equity interest of our advisor, our directors or officers or any of their affiliates.

Other Transactions Involving Affiliates. The conflicts committee (by unanimous vote) must conclude that all other transactions, including joint ventures, between us and our advisor, any of our officers or directors or any of their affiliates are fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties and, with respect to joint ventures, on substantially the same terms and conditions as those received by other joint ventures.

Limitation on Operating Expenses. Commencing four fiscal quarters after the acquisition of our first real estate asset, our advisor must reimburse us the amount by which our aggregate total operating expenses for the four fiscal quarters then ended exceed the greater of 2% of our average invested assets or 25% of our net income, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors. “Average invested assets” means the average monthly book value of our assets during the 12-month period before deducting depreciation, bad debts or other non-cash reserves. “Total operating expenses” means all expenses paid or incurred by us, as determined under GAAP, that are in any way related to our operation, including advisory fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and stock exchange listing of our stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based on the gain from the sale of our assets; and (f) acquisition fees, acquisition expenses (including expenses relating to potential investments that we do not close), disposition fees on the resale of property and other expenses connected with the acquisition, origination, disposition and ownership of real estate interests, loans or other property (other than disposition fees on the sale of assets other than real property), including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property.

Issuance of Options and Warrants to Certain Affiliates. Until our shares of common stock are listed on a national securities exchange, we will not issue options or warrants to purchase our capital stock to our advisor, our directors, our sponsor or any of their affiliates, except on the same terms as such options or warrants are sold to the general public. We may issue options or warrants to persons other than our advisor, our directors, our sponsor and

101

their affiliates prior to listing our common stock on a national securities exchange, but not at exercise prices less than the fair market value of the underlying securities on the date of grant and not for consideration (which may include services) that in the judgment of the conflicts committee has a market value less than the value of such option or warrant on the date of grant.

Repurchase of Our Shares. Our charter prohibits us from paying a fee to our advisor or our directors or officers or any of their affiliates in connection with our repurchase of our capital stock.

Loans. We will not make any loans to our advisor or to our directors or officers or any of their affiliates (other than mortgage loans complying with the limitations described above). In addition, we will not borrow from these affiliates unless a majority of the conflicts committee approves the transaction as being fair, competitive and commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties. These restrictions on loans will only apply to advances of cash that are commonly viewed as loans, as determined by the board of directors. By way of example only, the prohibition on loans would not restrict advances of cash for legal expenses or other costs incurred as a result of any legal action for which indemnification is being sought nor would the prohibition limit our ability to advance reimbursable expenses incurred by directors or officers or our advisor or its affiliates.

Reports to Stockholders. Our charter requires that we prepare an annual report and deliver it to our common stockholders within 120 days after the end of each fiscal year. Our directors are required to take reasonable steps to ensure that the annual report complies with our charter provisions. Among the matters that must be included in the annual report or included in a proxy statement delivered with the annual report are:

• financial statements prepared in accordance with GAAP that are audited and reported on by independent certified public accountants;

• the ratio of the costs of raising capital during the year to the capital raised;

• the aggregate amount of advisory fees and the aggregate amount of other fees paid to our advisor and any affiliates of our advisor by us or third parties doing business with us during the year;

• our total operating expenses for the year stated as a percentage of our average invested assets and as a percentage of our net income;

• a report from the conflicts committee that our policies are in the best interests of our common stockholders and the basis for such determination; and

• a separately stated, full disclosure of all material terms, factors and circumstances surrounding any and all transactions involving us and our advisor, a director or any affiliate thereof during the year, which disclosure has been examined and commented upon in the report by the conflicts committee with regard to the fairness of such transactions.

Voting of Shares Owned by Affiliates. Before becoming a common stockholder, our advisor, our directors and officers and their affiliates must agree not to vote their shares regarding (i) the removal of any of these affiliates or (ii) any transaction between them and us.

Ratification of Charter Provisions. Our board of directors and the conflicts committee have reviewed and ratified our charter by the vote of a majority of their respective members, as required by our charter.

Allocation of Investment Opportunities

Many investment opportunities that are suitable for us may also be suitable for other Resource Real Estate-sponsored programs, including Resource Capital and Resource America. Our advisor and its affiliates share the same executive officers and key real estate professionals. When these Resource Real Estate professionals direct an

102

investment opportunity to any Resource Real Estate-sponsored program, they, in their sole discretion, will have to determine the program for which the investment opportunity is most suitable based on the investment objectives, portfolio and criteria of each program. Our advisory agreement with our advisor requires that this determination be made in a manner that is fair without favoring any other Resource Real Estate-sponsored program. In determining the Resource Real Estate-sponsored program for which an investment opportunity would be most suitable, Resource Real Estate professionals will consider the following factors:

• the investment objectives and criteria of each program;

• the cash requirements of each program;

• the effect of the investment on the diversification of each program’s portfolio by type of investment, risk of investment, type of commercial property, geographic location of properties, and tenants of properties;

• the policy of each program relating to leverage;

• the anticipated cash flow of the property or asset to be acquired;

• the income tax effects of the purchase on each program;

• the size of the investment; and

• the amount of funds available to each program and the length of time such funds have been available for investment.

If a subsequent event or development, such as a delay in the closing of a property or investment or a delay in the construction of a property, causes any investment, in the opinion of the Resource Real Estate professionals, to be more appropriate for another Resource Real Estate program, they may offer the investment to another Resource Real Estate program. It may also be appropriate for our advisor to allocate a portion of an investment to us and another portion to other programs sponsored by affiliates of our advisor via a co-investment. See “Certain Conflict Resolution Measures”–“Resolution of Potential Conflicts of Interest in Allocation of Investment Opportunities” above.

Our advisory agreement requires that our advisor inform the conflicts committee each quarter of the investments that have been purchased by other Resource Real Estate programs for whom our advisor or one of its affiliates serves as an investment adviser so that the conflicts committee can evaluate whether we are receiving our fair share of opportunities. Our advisor’s success in generating investment opportunities for us and the fair allocation of opportunities among Resource Real Estate programs are important factors in the conflicts committee’s determination to continue or renew our arrangements with our advisor and its affiliates. The conflicts committee has a duty to ensure that favorable investment opportunities are not disproportionately allocated to other Resource Real Estate-sponsored programs. For so long as we are externally advised, our charter provides that it shall not be a proper purpose of the corporation for us to purchase real estate or any significant asset related to real estate unless the advisor has recommended the investment to us.

INVESTMENT OBJECTIVES AND POLICIES

Our principal investment approach is to purchase a diversified portfolio of U.S. commercial real estate and real estate related debt that has been significantly discounted due to the effects of recent economic events and high levels of leverage on U.S. commercial real estate, including properties that may benefit from extensive renovations that may increase their long-term values. Following years of unprecedented appreciation in commercial real estate values fueled by readily available and inexpensive credit, the commercial real estate market began a significant decline in late 2007 as a result of the massive contraction in the credit and securitization markets. We believe that this decline has produced an attractive environment to acquire commercial real estate and real estate related debt at

103

significantly discounted prices. We have a particular focus on operating multifamily assets, and we intend to target this asset class while also purchasing interests in other types of commercial property assets consistent with our investment objectives.

Target Portfolio

Our target portfolio consists of the following:

• Discounted Real Estate Related Debt and REO. We intend to acquire (a) real estate related debt investments, including first- and second-priority mortgage loans, mezzanine loans, B-Notes, participation interests, and other loans, debt or securities related to or secured by real estate assets and (b) real estate owned (“REO”) by financial institutions, usually as a result of foreclosure, that has been significantly discounted due to the effects of economic events. The real estate related debt investments will typically include loans that are non-performing, distressed, on the verge of default, in default or in foreclosure proceedings. The REO will typically include real estate that has recently been acquired by the financial institutions through a foreclosure or similar proceeding and which the financial institution does not desire to or cannot keep on its books.

• Value-Add Multifamily Rental Properties. We intend to acquire Class B or B-, older, well-located multifamily rental properties that are in need of extensive exterior and interior renovations and updating in order to increase their long-term value as well as their cash flow. We will seek to improve these properties to a Class B+ level, maintaining their competitive price advantage over newer Class A apartments by using our Experience-Based Management^sm (“EBM^sm”) strategy.

• Discounted Commercial Mortgage-Backed Securities. We intend to acquire investment-grade commercial mortgage-backed securities at discounted values and hold the investments until the earlier of maturity or when opportunities arise to sell at higher prices in the secondary market.

Although the above outlines our target portfolio, we may make adjustments based on, among other things, prevailing real estate market conditions and the availability of attractive investment opportunities. We will not forego an attractive investment because it does not fit within our targeted asset class or portfolio composition. We may use the proceeds of this offering to purchase or invest in any type of real estate or real estate related debt investment that we determine is in the best interest of our stockholders, subject to the investment limitations set forth in our charter.

We may acquire interests in real estate in either of the two following manners:

• as the sole investor, by either paying cash or by financing the purchase with a loan from a third-party lender; or

• as a joint venture partner under co-investment agreements with either (i) affiliates of our advisor, including affiliated investment programs, or (ii) institutional third parties.

We have not identified any real estate investments for acquisition as of the date of this prospectus.

Target Asset Classes

We may invest in a range of real estate assets if we believe we can enhance the property value and generate an attractive return for our stockholders. Classes of real estate in which we may invest include, in order of our expected focus, the following:

• Multifamily Rental Properties – Conventional multifamily rental properties, such as garden-style, mid-rise and high-rise properties, as well as student housing and senior residential (typically requiring at least one resident of each unit to be 55 or older);

104

• Condominium Properties – Failed condominium complexes that may be suitable as conversions to apartments or where individual condominium units may be sold at discounted, market-clearing prices;

• Office Properties – Multi- and single-tenant properties, single-level, mid- and high-rise properties, flex space and mixed-use properties, all capable of serving a variety of industries in both commercial business districts and suburban locations;

• Retail and Shopping Centers – Retail and shopping centers, including regional and super-regional facilities, indoor shopping malls, “big box” retail centers, outlet retailers, high street and “strip center” shopping plazas, offering a variety of products and services and a diverse tenant mix, and serving a range of demographic markets;

• Business and Industrial Parks – Manufacturing, warehouse and distribution facilities, single- and multi-tenant properties and mixed-use office/industrial parks, each of varying sizes and intensity levels, and serving a variety of potential tenants and proposed uses;

• Hospitality Properties – Limited-service, extended-stay and full-service lodging facilities, as well as all-inclusive resorts, which may be standalone facilities or complementary to one of our other asset classes; and

• Healthcare Properties – Independent-living/continuing-care retirement communities, assisted-living facilities, skilled nursing facilities, hospitals, long-term acute care hospitals and medical office buildings.

We have no present intention to engage in major new development projects, but we anticipate that we will participate actively in redeveloping or repositioning our acquisitions to enhance the value of the asset for our portfolio and to generate attractive returns for our stockholders. For purposes of these types of investments, we may utilize one of our to-be-formed taxable REIT subsidiaries (“TRSs”), which will be organized to allow us to maintain our REIT status.

Discounted Real Estate Related Debt

General

Resource Real Estate and its affiliates have an extensive history of investing in discounted and distressed commercial real estate debt that dates back to 1991, representing over $600 million in value. The officers and employees of Resource America and Resource Residential, affiliates of our advisor, have extensive experience in the acquisition, management (including workouts) and disposition of both non-performing and performing real estate related debt investments. In addition, in early 2005, Resource Real Estate formed a team dedicated to originating and acquiring commercial whole loans, mezzanine loans and B-Notes. Resource Real Estate’s acquisition, asset management and finance teams acquire, originate and manage those real estate related debt instruments. We expect to invest a majority of our assets in real estate related debt investments secured, directly or indirectly, by multifamily rental properties, a real estate sector where Resource Real Estate has extensive experience and managing capabilities.

When acquiring real estate related debt investments, we expect to focus on acquiring first mortgages, second mortgages, mezzanine loans, B-Notes and other subordinate loans, with acquisition costs of between $5 million and $100 million each that are secured directly or indirectly by multifamily rental properties. Based on our advisor’s and its affiliates’ experience, we, or a third party we contract with, may originate, invest in and service mortgages and other loan assets. We intend to focus on acquiring non-performing, sub-performing and otherwise distressed loans at a discount to their unpaid balance. Once acquired, we may accept a discounted payoff from the borrowers, negotiate a workout of the loan terms with the borrowers, negotiate a deed in lieu of foreclosure, or foreclose on the investments to gain ownership of the underlying real estate and subsequently finance and/or sell the investments after the asset’s stabilization, if required, to optimize value.

105

The purchase price that we will pay for any real estate related debt investment will be largely based on the fair market value of the underlying real estate as determined by a majority of our directors. In the cases where a majority of our independent directors require, and in all cases in which the transaction is with any of our affiliates, we will obtain an appraisal of fair market value by an independent expert selected by our independent directors; however, we will rely on our own independent analysis and not on appraisals in determining whether to invest in a particular asset.

We generally intend to hold our discounted real estate related debt investments for two to six years, which we believe is the optimal period to enable us to capitalize on the potential for increased income and capital appreciation; however, economic and market conditions, and changes in REIT regulations, may cause us to adjust our expected holding period in order to maximize our potential returns. We cannot predict the various market conditions that will exist at any given time in the future. Because of this uncertainty, we cannot assure you that we will be able to sell our real estate related debt investments at a profit, which could adversely affect our ability to realize any potential appreciation on our investments.

Types of Real Estate Related Debt

First and Second Mortgages. First mortgage loans are secured by first-priority mortgages or deeds of trust on real property and are senior to other creditors with respect to the underlying property. Although we have no present intention to do so, we may also invest in construction loans, which similarly are in a first-priority position. Second mortgage loans are secured by second-priority mortgages or deeds of trust on real property that are subject to prior mortgage indebtedness.

Mezzanine Loans. We may invest in mezzanine loans that are secured by 100% of the equity securities of a special purpose vehicle that owns real estate encumbered by a first mortgage loan. The mezzanine loans may include provisions wherein we receive a stated interest rate on the loan as well as a preferred equity interest, such as a percentage of gross revenues or a percentage of the increase in the fair market value of the underlying property, payable on the earlier of the maturity of the loan or the refinancing or sale of the underlying property.

To protect and enhance returns in the event of premature payment, our mezzanine loans may have provisions such as prepayment lockouts, penalties and minimum profit hurdles. In addition, the mezzanine loans may include other collateral to secure our investment, including letters of credit, personal guarantees of the principals of the borrower or additional collateral unrelated to the underlying property.

Subordinate Interests in Whole Loans (B-Notes). We may also acquire subordinated interests in first mortgage real estate loans (whole loans) from third parties that are directly secured by a property, which are referred to in this prospectus as “B-Notes.” B-Notes are loans that are secured by a first mortgage, but are subordinated to a senior lien interest in the property, which is referred to in this prospectus as an “A-Note.” In addition to the interest payable on a B-Note, the borrower under the note may be charged fees or we may be entitled to receive additional income from payments by the borrower in excess of the price we paid to acquire the note. Otherwise, we, as a B-Note lender, will have the same obligations, collateral and borrower as the A-Note lender, but we typically will be subordinated in recovery to the A-Note lender if the borrower defaults.

We may also buy a whole loan and sell an A-Note to an unaffiliated party and we would retain a B-Note. In this case, we would keep any profit made from the sale of the A-Note.

Other Loans. Although we have no present intention to do so, we may originate or invest in bridge loans, acquisition loans, refinancing loans, wraparound mortgage loans, construction loans and loans on leasehold interests secured by real estate assets. Furthermore, we may originate participating loans that entitle us to a contingent share in the cash flows or appreciation of the underlying property.

106

Acquisition Strategy for Discounted Real Estate Related Debt

Acquisition Criteria. When evaluating potential acquisitions and dispositions of mortgages or other loans, we generally consider the following criteria with respect to the borrower:

• acquisition price in relation to perceived asset value;

• potential value of the underlying properties;

• the balance sheet and any other financial statements of the borrower provided to us, which generally will have been reported on by nationally or regionally known accounting firms;

• the borrower’s experience;

• the borrower’s payment history;

• whether the borrower has any judgments or bankruptcy’s on its record;

• the borrower’s operating history; and

• recourse to the borrower, if any.

With respect to the property serving, directly or indirectly, as collateral for the loan, we generally will consider the property’s:

• location;

• operating history;

• business plan;

• market position;

• occupancy trends; and

• functionality.

With respect to structuring or evaluating the terms of a loan, including payment and collateral terms and conditions, we generally will consider the borrower’s:

• equity;

• loan-to-value levels;

• debt service coverage ratio levels;

• legal structure and rights; and

• credit ratings.

107

Conditions to Closing Debt Investments

Our advisor will perform a diligence review on each property underlying any mortgage, loan or other debt security that we purchase. We will generally seek to condition our obligation to close the purchase of any debt investment on the delivery of certain documents from the seller. However, the information available to us at the time of making any particular investment decision may be limited and we may not have access to certain detailed due diligence information regarding any particular real estate asset. Specifically, the facts and circumstances surrounding certain distressed debt investments vary based on the prior individual or institutional owner, the scheduled timing or deadline for the sale and therefore, these circumstances do not always afford us the opportunity to perform as complete a diligence review as we would otherwise prefer and normally conduct for a non-distressed asset. See “Risk Factors—Risks Related to Investments in Real Estate.” Such documents are expected to include all documents listed below under “Conditions to Closing Real Estate Investments,” where available, and would also include for our real estate related debt investments:

• any default notices and correspondence;

• loan documents and files for the real estate related debt investment;

• underlying documents demonstrating the security of the loan, such as the mortgage, deed of trust, pledge of interests or other evidence of security;

• comprehensive interest rate, credit risk and liability assessments and documentation, as available; and

• such other loan documentation as may be appropriate.

Asset Management Strategy for Discounted Real Estate Related Debt

Once we acquire a real estate related debt investment that is non-performing, we will employ, as applicable, one or more of the following asset management strategies:

• attempt to negotiate a full or discounted payoff of the loan with the borrower;

• attempt to negotiate a workout of the loan terms, which may include a forbearance agreement;

• attempt to acquire the underlying property via a deed in lieu of foreclosure; and

• commence foreclosure proceedings to acquire ownership of the underlying property.

If we acquire ownership of a property securing any discounted real estate related debt asset, we will seek to stabilize the operations of the property through aggressive property management as well as to expend capital on required deferred maintenance or property improvements in an attempt to increase cash flow from the property and ultimately to refinance the property or sell the property should market conditions support a sales price that we believe optimizes the overall return for our investment in the asset.

108

Experience Buying, Improving and Selling Discounted Real Estate Related Debt

In the past, our sponsor and its affiliates have also bought discounted real estate debt and disposed of it either in the form of debt or real property (subsequently obtained through foreclosure proceedings) for its own account through various credit and economic cycles. Details about all such investments sold or otherwise disposed of by our sponsor or its affiliates in the last 10 years are shown in the table below. All such investments were purchased as first mortgage loans on the underlying properties described below.

				Selling Price, Net of Closing Costs
Property	Location	Date of Sale	Years Held	Cash Received		Mortgage balance at time of sale (1)			Purchase money taken back by program (2)			Total		Total Acquisition Costs (3)			Net Cash (4)
Sunrise/Rancho	Rancho, CA	1999	4	$	2,907,481	$	(2,400,000	)	$	2,069,745		$	2,577,226	$	(1,328,246	)	$	1,248,980
Centreville Square	Centreville, VA	1999	1		9,953,693					2,763,618			12,717,311		(7,900,783	)		4,816,528
Benson Court	Margate, NJ	2000	7		300,000		(850,000	)		1,992,341			1,442,341		(700,000	)		742,341
Amberwood	Forrestville, MD	2000	2		1,850,000		(5,200,000	)		5,200,000			1,850,000		(1,300,000	)		550,000
1606 New Hampshire	Washington DC	2001	6		1,634,569		(686,716	)		1,070,033			2,017,886		(854,783	)		1,163,103
Philadelphia Stock Exchange	Philadelphia, PA	2001	3		41,822,625		(63,679,076	)		87,400,474			65,544,023		(58,250,000	)		7,294,023
Washington Square	West Chester, PA	2001	3		1,059,367					1,204,733			2,264,100		(1,516,488	)		747,612
Crestwood Apartments	Bensalem, PA	2002	4		1,774,386		(3,765,539	)		6,657,761			4,666,608		(4,234,558	)		432,050
Greenway Village	Berlin, NJ	2002	4		2,700,000		(1,773,350	)		1,613,301			2,539,951		(2,507,625	)		32,326
Sheridan Building	Philadelphia, PA	2002	4		1,350,000					5,574,116			6,924,116		(3,619,644	)		3,304,472
1212 South Michigan	Chicago, IL	2002	4		24,000,000					4,513,729			28,513,729		(17,320,143	)		11,193,586
Treetops	Pittsburgh, PA	2003	11		5,057,544					(1,005,710	)		4,051,834		(1,764,000	)		2,287,834
1301 Connecticut	Washington DC	2003	8		6,652,107		(5,747,001	)		22,649,477			23,554,583		(8,000,000	)		15,554,583
Smythe Stores	Philadelphia, PA	2003	7		409,475					1,655,406			2,064,881		(1,007,554	)		1,057,327
Mill Spring Apartments	Sharon Hills, PA	2003	7		776,126					1,729,490			2,505,616		(2,528,976	)		(23,360	)
Lofts at Red Hill	Red Hill, PA	2003	6		262,700					233,083			495,783		(400,000	)		95,783
Woodcrest Pavilion	Cherry Hill, NJ	2004	8		2,548,572					2,131,649			4,680,221		(2,527,417	)		2,152,804
Crafts House Apartments	Philadelphia, PA	2004	8		900,000		(986,852	)		1,825,731			1,738,879		(1,031,525	)		707,354
Axewood Office Complex	Ambler, PA	2004	7		1,300,000					2,011,004			3,311,004		(2,478,919	)		832,085
Deerfield Beach Apartments	Pompano Beach, FL	2004	7		3,341,441					2,100,776			5,442,217		(2,797,861	)		2,644,356
Countryside Village	Seabrook, NJ	2004	7		5,281,632		(7,750,000	)		24,085,124			21,616,756		(7,374,894	)		14,241,862
The Loewy Building	Winston- Salem, NC	2004	7		3,089,753		(1,308,994	)		3,371,686			5,152,445		(3,050,369	)		2,102,076
Winthrop Square	New London, CT	2004	7		1,200,000		(8,133,216	)		11,834,844			4,901,628		(4,760,894	)		140,734
NorthCal Property	Los Angeles, CA	2005	9		3,321,765		(1,977,126	)		3,268,974			4,613,613		(2,005,000	)		2,608,613
The Granite Building	Pittsburgh, PA	2006	13		925,000					725,523			1,650,523		(1,082,325	)		568,197
Malco Industrial Center	South Pasadena, CA	2006	11		2,373,861		(2,273,000	)		3,594,970			3,695,831		(1,650,000	)		2,045,831
Locke Mill Plaza Condos	North Concord, NC	2006	11		68,308		(3,000,000	)		3,099,873			168,181		(1,278,143	)		(1,109,962	)

109

				Selling Price, Net of Closing Costs
Property	Location	Date of Sale	Years Held	Cash Received	Mortgage balance at time of sale (1)		Purchase money taken back by program (2)		Total	Total Acquisition Costs (3)		Net Cash (4)
Redick Hotel	Omaha, NE	2006	9	3,964,685	(2,400,000	)	1,708,012		3,272,697	(3,545,421	)	(272,724	)
Alex. Brown Building	Baltimore, MD	2006	8	19,898,710	(70,268,965	)	150,143,936		99,773,681	(87,411,397	)	12,362,284
Pensacola Place	Chicago, IL	2006	8	9,000,000	(10,000,000	)	23,843,965		22,843,965	(18,114,910	)	4,729,055
1521 Locust Street	Philadelphia, PA	2007	10	2,411,720			999,470		3,411,189	(1,582,088	)	1,829,101
Richmond Kmart	Richmond, VA	2007	10	946,433			3,893,773		4,840,205	(3,961,430	)	878,775
Kodiak Apartments	Byron, MN	2008	1	4,896,828			319,332		5,216,159	(2,939,304	)	2,276,855
Oakridge Apartments	Ypsilanti, MI	2008	1	2,580,931			86,164		2,667,095	(2,189,297	)	477,798
Ridgeway Estates	Pine Island, MN	2008	1	1,867,862			98,163		1,966,025	(1,414,381	)	551,644
The Hills Apartments	Inver Grove Heights, MN	2008	1	3,260,235			(96,487	)	3,163,748	(2,793,285	)	370,463
Clemens Place	Hartford, CT	2009	11	8,897,089	(11,940,000	)	29,649,155		26,606,244	(14,548,344	)	12,057,900
Windsor Square Apartments	Gary, IN	2009	2	985,108			(382,062	)	603,045	(449,777	)	153,268

⁽¹⁾ Includes both financing secured through a mortgage, and financing obtained by selling a participation in the investment. If the investment does not have a mortgage balance at the time of sale, we did not foreclose on the property, but sold the debt investment.

⁽²⁾ Includes cash activity from operating activities funded by or distributed to the program as well as funds obtained through financing or sale of participations where applicable.

⁽³⁾ Includes all costs related to original purchase of first mortgage investment as well as any costs incurred to maintain the investment, including capital improvements and operating costs (e.g., real estate taxes).

⁽⁴⁾ Excess (deficiency) of property operating cash receipts, including sale proceeds, over cash expenditures.

REO

General

We expect to acquire commercial properties owned by banks, mortgage companies or other financial institutions following foreclosure and in which the mortgage loans or other lender liens no longer exist. We expect that the total acquisition cost for the equity interest in the commercial properties, will be at a significant discount to the amount of unpaid balance on the debt that was foreclosed upon for such commercial properties. We also expect to focus on multifamily rental properties, but may buy other classes of commercial REO. We may sell or refinance the real estate when market conditions warrant, which may be after stabilization, if required, or we may lease and operate the properties with the purpose of generating cash flow until our advisor determines that a disposition of the properties is in our best interest.

REO Acquisition Strategy

When evaluating potential acquisitions and dispositions of REO, we generally will consider the property’s:

• location;

• operating history;

• business plan;

• market position;

110

• occupancy trends; and

• functionality.

Conditions to Closing REO Investments

See “Real Estate Asset Management Strategy—Conditions to Closing Real Estate Investments” below.

REO Asset Management Strategy

We will seek to stabilize the operations of REO property through aggressive property management and to expend capital on required deferred maintenance or property improvements in an attempt to increase cash flow from the property and ultimately to refinance the property or sell the property should market conditions support a sales price that we believe optimizes the overall return for our investment in the asset. Once we acquire an REO asset, we will hire Resource Real Estate Opportunity Manager as the property manager; however, in certain cases, Resource Real Estate Opportunity Manager may subcontract for certain property management services. The property manager will be responsible for leasing and operating the properties. Resource Real Estate Opportunity Manager will receive a property management fee and a construction management fee for its services, as applicable. Additionally, Resource Real Estate Opportunity Manager will institute its daily leasing rate optimization program, review the delinquency reports and take action as necessary to assure that the tenants are paying their rents and will commence an aggressive marketing program to decrease vacancies. All of these programs are designed to increase the near term cash flow potential as well as the longer-term value of the properties.

Value-Add Multifamily Rental Properties

General

Resource Real Estate has a dedicated acquisition team that includes personnel who have been integral to the acquisition of value-add properties for the multifamily funds offered by our sponsor over the past seven years. We intend to buy apartment properties with the potential for near-term capital appreciation. These assets generally will be Class B or B- properties built in the 1970s and 1980s in cities demonstrating a stable multifamily supply and the ability to attract a young, creative and educated labor force. According to the U.S. Census Bureau, during the 20-year period from 1970 to 1989, over 9.3 million housing units were completed in the United States within structures containing five or more units, which is substantially higher than the approximately 5.0 million units completed between 1990 to 2009. Apartments completed between 1970 and 1989 are now 20 to 39 years old and many of these apartments have not had substantial renovations in their lifetimes. Therefore, we believe that there is a large inventory of unrenovated apartments built in the 1970s and 1980s to acquire and renovate as part of our value-add multifamily strategy.

We will seek to acquire multifamily rental properties that are well-located in generally affluent, inner ring, in-fill communities across the United States. We will seek properties where there is an opportunity to improve net operating income and overall property value by renovating the exterior of the property and the interior units, instituting quality property management by Resource Residential, and aggressively marketing the property to decrease vacancies, enhance the credit quality of the resident base and increase effective rental rates. Once acquired, we intend to implement our EBM^sm strategy.

We generally intend to hold our value-added multifamily rental properties for two to six years, which we believe is the optimal period to enable us to capitalize on the potential for increased income and capital appreciation. However, economic and market conditions, and changes in REIT regulations, may cause us to adjust our expected holding period in order to maximize our potential returns. When acquiring 100% of the equity interests in properties, we expect to focus on properties with acquisition costs of between $5 million and $100 million each, including financing; however, when acquiring partial equity interests in properties, we expect that the total acquisition costs for 100% of the equity interests in each property by all of the co-owners, including us, will not exceed $100 million, including financing.

111

We may also invest in properties that have characteristics similar to multifamily rental properties such as condominiums, student housing, senior residential (typically requiring at least one resident of each unit to be 55 or older) or hotels. Some of the properties may include a certain portion of units as condominiums or a building (or a portion of a building) that serves as a hotel. In these cases, we may find an opportunity where the property’s value may be significantly increased if the condominiums are converted to apartments, the hotel is converted to apartments, or some other combination that involves a conversion of the current building’s use into an alternative, more attractive use.

Acquisition Strategy for Value-Add Multifamily Rental Properties

When evaluating potential acquisitions of value-add multifamily rental properties, we look for older, Class B and Class B- properties that are in need of some refurbishment to update them to be more attractive to today’s apartment resident. For each specific property we will consider, among other items:

• location, construction quality, condition, design of the property and the redevelopment or repositioning required to add value;

• purchase price, expected cash-on-cash yield and overall expected internal rate of return;

• purchase price relative to historical and recent sales of similar properties in the market, including cap rate, price per unit and price per square foot;

• purchase price relative to replacement cost of the property;

• current and projected cash flow from the property and ability to increase cash flow; and

• potential for capital appreciation from any redevelopment or repositioning activity.

The properties we expect to seek will often be in need of:

• exterior renovations, such as new paint or siding, windows, pavement, signage and landscaping improvements;

• interior unit renovations, such as new carpet and flooring, interior paint with accent colors, cabinets, countertops, appliances and lighting fixtures, in order to make them more attractive to renters;

• amenity enhancements or additions, such as leasing centers, fitness centers, swimming pools, business centers, clubhouses, dog runs and tanning salons;

• security enhancements, such as controlled access, improved outdoor lighting, recorded and/or monitored security cameras, monitored security alarms in units, security patrols and courtesy law enforcement officers living on site; and

• rebranding of the property, including the renaming of the property.

We will seek to improve these properties to a Class B+ level, maintaining their competitive price advantage over newer Class A apartments.

We consider Class A properties to be apartments built in the last five years with the highest level of common area and interior unit finishes such as slab granite kitchen and bathroom countertops, stone flooring such as travertine, oversized windows with glass transoms, attached garages, and 10-foot tall ceilings. Class B assets are generally well maintained, professionally managed apartments generally built over the period from six to 25 years ago and which have standard common area interior unit finishes, such as carpet and vinyl flooring, Formica

112

countertops, detached garages and 8-foot tall ceilings. Class B- properties will often have original common area and interior unit finishes, such as older carpet and vinyl styles, older original appliances and brass lighting packages and hardware, and single-panel doors. An upgraded Class B+ property will have undergone recent upgrades and renovations to the common and interior finishes such as new Berber carpet and vinyl plank flooring, new Formica stone-like countertops, new wood cabinets, new stainless steel appliance packages, modern brushed chrome lighting packages and hardware and six panel doors. Class B+ properties generally maintain a rental price advantage over their Class A competitors.

Conditions to Closing Value-Add Multifamily Rental Properties

See “Real Estate Asset Management Strategy—Conditions to Closing Real Estate Investments” below.

Asset Management Strategy for Value-Add Multifamily Rental Properties

Once we acquire value-add multifamily rental properties, we will hire Resource Real Estate Opportunity Manager as the property manager; however, in certain cases, Resource Real Estate Opportunity Manager may subcontract for certain property management services. The property manager will be responsible for leasing and operating the properties. With respect to the value-add multifamily rental properties, Resource Real Estate Opportunity Manager will formulate a renovation plan after consideration of the condition of the property, the neighborhood and the expected level of return that can be achieved from the renovations. Examples of renovations may include building a new clubhouse, painting and/or siding the exterior, and replacing carpeting and flooring, kitchen and bath appliances, kitchen cabinetry and lighting. Resource Real Estate Opportunity Manager will receive a property management fee and a construction management fee for its services as applicable.

Our Multifamily Focus

Our sponsor and its affiliates have been investing in all major real estate asset classes over the last 20 years; however, our sponsor has focused specifically on the multifamily sector with its last 10 funds, and we expect to continue this focus as multifamily rental properties have traditionally produced the highest risk-adjusted investment returns compared to other property sectors. According to Torto Wheaton Research, over the past 30 years, multifamily rental properties have produced higher returns with lower volatility than the other major real estate sectors, which includes office, retail, industrial, mixed-use, hospitality and healthcare properties. Furthermore, multifamily rental properties have demonstrated returns during recessionary periods that are higher than those of other major property classes, and have been an effective inflation hedge due to the short term of the typical apartment lease, which is generally 12 months or less.

A recent publication entitled A Case for Investing in U.S. Apartments, Torto Wheaton Research^©, (March, 2009) elaborated on many of the reasons our sponsor has focused on the multifamily sector. The key factors for investing in multifamily rental properties are summarized below:

• a long track record of having the highest risk-adjusted investment returns compared to other property types; relatively more resilient during economic downturns, delivering higher returns than other property classes during recessionary periods;

• efficient cash distribution, due to relatively low capital expenditures and technical improvements;

• stable access to debt, due in part to the lending activities of Fannie Mae and Freddie Mac, government-sponsored enterprises, lower cost of debt capital and the ability to support more debt with the same level of risk;

• operating in a favorable, transparent and market-driven regulatory and taxation environment, with shorter leases than other property types, allowing quicker adjustment to changing market environments;

113

• wide variation in terms of age, size, quality and location, creating a broad spectrum of opportunities and possible investment strategies, thereby providing greater liquidity than other sectors; 23,000 investment-grade apartment properties in the United States;

• market fundamentals expected to remain positive over the next five to seven years, with demand expected to expand and new supply expected to subside, creating conditions favorable for moderate rent and revenue growth in most locations;

• over a four-year period ending in 2008, the addition of about three million households to national rental demand as a result of new household formation, a declining homeownership rate and a subsequent increase in the propensity to rent for two significant cohorts – the “echo boomers” and foreign immigrants;

• expected increases in rental demand over the next five years on account of favorable trends among rental cohorts, including a resumption in growth in population aged 20 to 29 (“echo boomers” or “Generation Y”) after two decades of decline, which group has the highest propensity to rent; and

• apartments under-weighted in institutional real estate portfolios.

Multifamily Real Estate Acquisition Strategy

Cities with Strong Multifamily Real Estate Fundamentals

When evaluating potential acquisitions of investments in multifamily rental properties, we generally consider whether the market where the investment is located is one that has the potential for growth by analyzing (i) the apartment supply and demand, (ii) the employment situation and (iii) the demographic make-up of the area. Specifically, we consider the following with respect to both the overall market and the submarket:

• barriers to entry that would limit competition, such as zoning laws, physical barriers to new supply and local redevelopment or repositioning construction costs, among other factors;

• properties under development that could pose competition and the potential for the construction of new competing properties in the area;

• exposure to specific sectors of the economy and prospects for overall employment growth in the sectors of high exposure;

• employment and household growth and net migration of the relevant market’s population;

• tax and regulatory environment, specifically for any potential rent controls and landlord-tenant law, of the community in which the property is located;

• income levels and employment growth trends in relevant markets;

• educational levels of the relevant market’s population;

• occupancy and demand by residents for properties of a similar type in the vicinity;

• historical, current and forecasted effective rental rates and growth for properties of a similar type in the vicinity;

• historical, recent and expected sales metrics for sales of properties of a similar type in the vicinity, specifically cap rates, cost per unit and cost per square foot;

114

• historic and potential for capital appreciation generally;

• likelihood of interest from institutional investors in the market;

• prospects for liquidity through sale, financing or refinancing of the property;

• synergy with existing operations in the area, if any; and

• typical terms of resident leases for multifamily rental properties and the potential for rent increases.

Cities that Attract a Young, Creative and Educated Workforce

When evaluating potential acquisitions of multifamily rental properties, we also look for cities that have a “buzz.” According to Richard Florida, author of The Rise of the Creative Class and How It’s Transforming Work, Leisure, Community and Everyday Life (Basic Books, 2002), these are cities that attract young, creative people such as doctors, lawyers, scientists, engineers, entrepreneurs and computer programmers in their mid 20’s to mid 30’s due to the cultural lifestyle and available jobs. Examples of such areas include Austin, Texas, San Francisco, California and Raleigh-Durham, North Carolina.

We evaluate the prospects of a particular city to attract young, high-paid workers from the “echo boomer,” or “Gen Y,” demographic over the next 15 years. We believe that this demographic will be the most vital component of the demand for multifamily units over the next 15 years in the United States. We believe that the development of a large pool of young, educated workers from Gen Y will be the key to a city’s ability to attract new employers who rely upon this large and creative workforce and that a young creative workforce will attract jobs, not vice versa. In the United States, industries, from technology to entertainment, journalism to finance, high-end manufacturing to the arts, are becoming increasingly reliant upon a highly educated workforce as opposed to a less educated workforce that can only provide general manual labor in manufacturing or basic skills in the service sector of the economy. Because this fast-growing, highly educated and well-paid segment of the workforce are in such high demand from American companies, we believe that acquiring multifamily assets in cities with a preponderance of this demographic will position us to benefit from Gen Y’s demand for multifamily housing from all socioeconomic renter classes, including the service providers to the young, creative workforce.

We believe that this young and educated workforce will be attracted to cities that offer an environment strongly suited to their particular likings. Rather than measuring a city’s quality-of-life to this demographic by evaluating a city’s offerings of professional sports entertainment, symphonies, ballets, operas or museums, we evaluate what we believe that this demographic is demanding, a diverse array of cultural and recreational opportunities, such as the city’s music scene, ethnic and cultural diversity, outdoor recreation opportunities and the city’s nightlife. Rather than focusing on cities that are trying to attract this new demographic and jobs that come with them by building generic high-tech office parks or subsidizing professional sports teams, we look for cities that have a “buzz” and are attracting this creative demographic.

By investing in cities that attract the “creative class,” we believe that long-term job growth will be stronger and will assist in lifting incomes for renters in all classes, allowing rents to rise.

Cities Located within Megaregions

When evaluating potential acquisitions of multifamily rental properties, we also look for cities that are located within megaregions. Tim Gulden, a researcher at the University of Maryland’s Center for International and Security Studies defined a megaregion as a contiguous lighted area that includes at least one major city center and its metropolitan region when viewed from a satellite image and has annual estimated economic productivity of more than $100 billion. (See Megaregions: The Important of Place, Richard Florida (Harvard Business Review, March, 2008.)) An example of a megaregion would be the Boston-New York-Washington corridor, which would include, for example, cities and suburban areas in and around Philadelphia and Baltimore. What was previously thought of as

115

cities, and then as regions, are now joining together in chains of regions, which are integrated economic areas whose scale dwarfs the economic units of the past.

Affluent Locations within Cities

As described in David Brook’s book On Paradise Drive, How We Live Now (And Always Have) in the Future Tense (Simon & Schuster, 2004), most American cities have developed in rings that can be described in the following categories listed in their progressive order starting in the city center and then moving outward:

• Urban Core – the city center and central business district of a city where numerous entertainment offerings are located, such as restaurants, bars and theaters;

• “Crunchy” Suburbs – areas just outside the urban core where small pockets of gentrification have occurred in older sections of American cities, often attracting a bohemian demographic group;

• Moneyed Suburbs – inner-ring wealthy suburbs with older but very high-end single-family homes;

• Immigrant Enclaves – commercial areas with extensive inexpensive retail and fast food offerings and inexpensive housing options utilized by many first-generation immigrant groups;

• Suburbs – The expansive areas of post-war-constructed single-family housing, large shopping malls and newer office complexes; and

• Exurbs – The newest area of extensive housing developed largely during the 1990s and 2000s, which was previously farmland, forest or desert on the edge of cities.

We will seek to acquire multifamily rental properties in and around the “moneyed suburbs,” including the outer portions of the “crunchy suburbs” and the inner portions of the suburbs. We believe that these areas offer greater long-term stability versus other areas of cities. In general, we will seek to acquire properties in areas with high levels of average household income relative to the population of that city, and in areas that are in-fill with high barriers to entry for new multifamily developments.

Real Estate Asset Management Strategy

General

Our advisor’s investment approach includes active and aggressive management of each asset acquired. Our advisor believes that active management is critical to creating value. Prior to the purchase of an individual asset or portfolio, our asset managers will work closely with our advisor’s acquisition and underwriting teams to develop an asset management strategy. This is a forecast of the action items to be taken and the capital needed to achieve the anticipated returns. Our advisor will review asset management strategies weekly to anticipate changes or opportunities in the market during a given phase of a real estate cycle. Our asset management strategies will be designed with a goal of realistic yet aggressive enhancement of value throughout the investment period.

In an effort to keep an asset in compliance with our underwriting standards, our advisor’s acquisition team will remain involved through the investment life cycle of the acquired asset and will actively consult with our asset managers throughout the hold period. In addition, our advisor’s executive officers will periodically review the operating performance of investments against projections, and will provide the oversight necessary to detect and resolve issues as they arise.

116

Experience-Based Management^sm Strategy

Resource Residential, a wholly owned subsidiary of our sponsor, is a multifamily property management company currently managing over 50 multifamily rental properties for our sponsor in 14 states with over 12,000 units. Resource Residential has over 350 employees separated into the following divisions: Operations, Revenue Management, Construction Management, Property Maintenance, Marketing, Training, Information Technology, Human Resources and Accounting. Resource Residential is headquartered in Philadelphia, Pennsylvania and has an office in Omaha, Nebraska. Furthermore, Resource Residential operates regional property management hubs in Tampa, Florida; Savannah, Georgia; Nashville, Tennessee; Cincinnati, Ohio; Detroit, Michigan; Kansas City, Missouri; Little Rock, Arkansas; Houston, Texas; and Phoenix, Arizona. The senior managers and employees of Resource Residential, acting through Resource Real Estate Opportunity Manager, will assist in providing property management as well as construction management services to us.

We believe that, in general, the multifamily property management industry generally has not maintained pace with the increasing demands of multifamily residents for higher levels of customer services and the need to deploy more modern sales and marketing techniques to acquire new residents. Therefore, in 2007, our sponsor introduced our EBM^sm strategy through Resource Residential. Our EBM^sm strategy offers multifamily property management that is based around the overall experience provided to potential and existing renters, in addition to the first-class services provided to them. We believe that the customer service leaders in the hospitality and retail industries provide applicable templates for the types of experiences and customer services that today’s renters demand. Some of the notable property management initiatives include:

• A well planned “leasing experience” for potential renters that is provided by choreographing the visual experience in leasing centers and model apartments through architectural, lighting and design improvements, specifically chosen music and clean and fresh scents during the leasing process to increase sales closure rates; and

• Web-based leasing portals with real-time unit availability, pricing and virtual tours that allow prospective renters to lease apartments online. Furthermore, our web-based portals offer existing residents online options, such as the ability to pay rent with credit cards or direct withdrawals from their savings or checking accounts.

In addition, we believe revenue enhancing and cost cutting technologies can improve the overall operating efficiencies of our properties and contribute to stronger profitability. Two notable technologies that are utilized throughout our portfolio are:

• Revenue management utilizing yield-management software and a centralized revenue-management division to optimize daily rental rates based on evaluating hundreds of variables utilizing a quadratic program solver designed exclusively for multifamily rental properties. Yield-management software seeks to rent at higher effective rents during high demand periods, provide systematic forecasts of future demand, identify and react to softening markets, add discipline to unit pricing, drive consistency in pricing, embed corporate strategy into pricing, and enforce pricing policy compliance across the portfolio. When analyzing future demand, the forecast model considers items such as seasonality, recent demand levels, lease application lead times, traffic, differences by lease term, renewal demand behavior, future supply, early termination adjustments and unit type granularity. When analyzing pricing and profitability, the model also considers community exposure, lease velocity, demand and supply forecasts, lease expiration management, vacancy losses and the costs to ready a unit for re-leasing, demand for new or renewed leases, competitor rents, amenity upgrades and corporate strategy on one-time concessions versus a lower rent throughout a lease term; and

• Expense management utilizing an automated Purchase Order (“PO”) system which is linked to property-management software. Through the PO system, expenses are approved based on dollar

117

amount and the variance from the budget by the regional manager, senior regional manager or president, if applicable.

We believe that in addition to our EBM^sm strategy, the utilization of technology can generate significant additional revenue-enhancing options at our properties, including the ability to provide and charge for premium units and upgrade packages.

Conditions to Closing Real Estate Investments

Our advisor will perform a diligence review on each property that we purchase. We will generally seek to condition our obligation to close the purchase of any property on the delivery of certain documents from the seller. However, the information available to us at the time of making any particular investment decision may be limited and we may not have access to certain detailed due diligence information regarding any particular real estate asset. Specifically, the facts and circumstances surrounding certain REO and value-add investments vary based on the prior individual or institutional owner, the scheduled timing or deadline for a foreclosure or bank sale and other factors. Therefore, these circumstances do not always afford us the opportunity to perform as complete a diligence review as we would otherwise prefer and normally conduct for a stabilized, income-producing property. See “Risk Factors—Risks Related to Investments in Real Estate.” Such documents, where available, include, but are not limited to:

• any current or prior code violations;

• bank or other financial institution statements with bank deposit receivables for the last six months;

• business licenses, license fees, permits and permit bills;

• capital expenditure history through the current year to date, including detail of any exterior work;

• certificates of occupancy;

• contracts and service agreements, including equipment leases;

• correspondence with federal, state or municipal government offices, branches or agencies;

• detailed rent roll for the most recent month, including concessions, security deposits, waivers of material conditions or other special conditions, including updated rent rolls as appropriate;

• environmental, asbestos, soil, engineering reports, appraisals and wetland reports;

• form leases;

• general ledger for the past 12 months;

• historical operating statements from ownership for the past three years, with month and year-to-date data for the last year and the current year;

• income tax returns with income schedules for the last three years;

• insurance invoices for the last two years and insurance losses, claims or other material correspondence regarding claims for the last five years;

• list of any pending litigation affecting either the property or the residents;

118

• monthly occupancy reports for the past two years;

• multifamily resident and other property class tenant leases;

• personal property inventory;

• personnel list, wages and benefits;

• plans and specifications, including as-built, architectural drawings and soil compaction studies;

• surveys;

• tax bills and assessment notices for the property and any personalty for the past four years, including any correspondence relating to tax appeals and reassessments;

• tenant and vendor correspondence files;

• termite and other pest inspections reports;

• title commitment and recorded documents;

• unexpired warranties; and

• utility bills (gas, electric, water and sewer) for the past year, as well as the current year.

In order to be as thorough as reasonably possible in our due diligence, our advisor will typically obtain additional third-party reports. We may obtain reports with respect to property condition, soils, mechanical- and electrical-plumbing, structural, roof, air quality and mold, radon, seismic, lease audit, net operating income audit and others. We will generally not purchase any property unless and until we obtain a new, or review a recent, Phase I environmental site assessment and are generally satisfied with the environmental status of the property. In certain instances where it is not feasible to obtain a Phase I environmental site assessment, we will endeavor to obtain as much environmental information as necessary to make an informed decision.

Discounted Commercial Mortgage-Backed Securities

Resource Real Estate created a team dedicated to investing in and managing the firm’s commercial mortgage-backed securities portfolio in early 2007. Since that time, RRE has purchased approximately $75 million, face value, of commercial mortgage-backed securities. The team responsible for the firm’s investments in the sector has a combined total of 35 years in the sector, as well as previous real estate debt and equity experience. Commercial mortgage-backed securities team members’ previous experience includes co-managing a $20 billion commercial mortgage-backed securities portfolio at a major pension fund, managing a commercial mortgage securitization program and conducting commercial mortgage-backed securities research at a major U.S. commercial bank.

We expect to acquire debt obligations that represent claims to cash flows from pools of commercial mortgage loans from banks, broker-dealers and other financial institutions, which are referred to in this prospectus as commercial mortgage-backed securities, in the range of $1 million to $7 million, par value, per commercial mortgage-backed securities investment. These commercial mortgage-backed obligations allow the cash flow from a pool of mortgages to be segregated into different bonds offering different maturity, risk and return characteristics, which can be sold to investors with different investment objectives. We anticipate that we will purchase such securities obligations from a bank, broker-dealer or other financial institution at a discount because the sellers may be underperforming or the market for such securities has become illiquid. We expect to hold these securities for approximately six years or less depending on the maturity date of the obligation.

119

We anticipate attractive opportunities to acquire select commercial mortgage-backed securities at attractive yields during the term of this offering. As a result of the re-pricing of risk premiums and liquidity constraints, commercial mortgage-backed securities implied spreads have widened considerably since the end of 2007. Even the most senior AAA- or Aaa-rated commercial mortgage-backed securities are trading at levels that imply credit losses much higher than historical levels. To the extent available to us, we may acquire commercial mortgage-backed securities through financing through private sources or government-sponsored programs, such as the TALF, which is described in “Plan of Operation—Liquidity and Capital Resources.” Through the efforts of other U.S. government-sponsored programs, we expect investor confidence to return, spreads to tighten and pricing to stabilize at more reasonable levels in the near term.

To the extent the TALF program is available to us, we generally expect to invest in newly originated or legacy commercial mortgage-backed securities financed under the TALF, which may not be junior to other securities with claims on the same pool of underlying commercial mortgage loans. TALF commercial mortgage-backed securities must have a credit rating in the highest long-term investment-grade rating category from at least two TALF commercial mortgage-backed securities -eligible rating agencies and must not have a credit rating below the highest investment-grade rating category from any TALF commercial mortgage-backed securities-eligible agency. We may seek to utilize TALF financing for up to 20% of our total assets. However, there can be no assurance we will be able to utilize the TALF to finance the acquisition of newly issued or legacy commercial mortgage-backed securities at any level or that the financing terms will be attractive. We believe that our advisor can further create value through careful security selection and proprietary cash-flow analysis.

Commercial Mortgage-Backed Securities Acquisition Strategy

When evaluating potential acquisitions of commercial mortgage-backed securities, we generally utilize the following strategy when acquiring, managing and deciding when to dispose of commercial mortgage-backed securities investments:

• utilize third-party software and research for analysis, including Trepp, Realpoint and Moody’s;

• maintain a proprietary database of over 100 of the most recent commercial mortgage-backed securities deals (those that are most likely to fit within our investment parameters) showing the merits of each deal;

• format and review loan-by-loan summary of each deal;

• analyze loan summaries for top 50 loans in each commercial mortgage-backed securities pool;

• apply conservative “stress cases” to each potential acquisition to assign default probabilities and loss severities based on analyzing loan-specific market and tenant health, value assumptions and cash flow sensitivities;

• review rating agency initial and surveillance commentary for each deal;

• track each purchased transaction monthly via remittance reports and servicer watchlists as well as market and deal-specific research published by each bank; and

• formulate hold/sell decisions based on market spreads and deal characteristics.

We may be able to take advantage of financing available through the recently announced TALF program. Under the TALF, the FRBNY will provide non-recourse loans to borrowers to fund their purchase of eligible assets, which will include certain high-quality commercial mortgage-backed securities. However, the FRBNY may limit the volume of TALF loans secured by commercial mortgage-backed securities. The TALF program is scheduled to

120

expire on December 31, 2009, but may be extended. There can be no assurance we will be able to utilize the TALF to finance the acquisition of commercial mortgage-backed securities or that the financing terms will be attractive.

Other Possible Investments and Activities

Although we have no present intention to acquire equity securities or other investments in non-real estate companies, we are not prohibited from making such investments. Further, we may make investments in real estate companies and other companies that hold real estate assets for the purpose of exercising control over and acquiring such company.

We may issue our securities, including units in our operating partnership, in exchange for real estate investments. We do not intend to make loans to other persons (other than the loans described above). We do not intend to underwrite securities of other issuers. Nor do we have any intention to engage in the purchase and sale of any types of investments other than interests in real estate properties and real estate related debt investments.

Co-Investment Strategy

Instead of acquiring full ownership of a debt or equity real estate investment, we may acquire partial, indirect interests in some of our debt or equity real estate investments by entering into co-investment agreements with other co-owners of the real estate investments, which may be independent third parties or affiliates of our advisor, including Resource America or investors in existing or new real estate investment programs sponsored by our advisor or its affiliates. Our ownership percentage of each of the new entities will generally be pro rata to the amount of money we apply to the purchase price (including financing, if applicable), and the acquisition, construction, development or renovation expenses, if any, of the real estate investment owned by the new entity relative to the total amounts applied, unless we and the other co-owners negotiate some other method of allocating the ownership of the real estate investment between us and the other co-owners.

Our co-investment partners may have business or economic objectives that are inconsistent with ours. Also, when more than one person controls a real estate investment, there may be a stalemate on decisions, including decisions regarding cash distributions, reserves, or a proposed sale or refinancing of the real estate investment, and the other parties to the co-investment agreement may have the right to make those decisions instead of us. If we co-invest with Resource America, we expect, in most cases, to have control of the co-investment and majority ownership.

Tenant-in-Common Interests in Properties (TICs)

Resource Real Estate has no current intention of syndicating tenant-in-common (“TIC”) investment programs; however, we retain the right to acquire TICs in the future. Therefore, instead of acquiring full equity ownership of a property, we may acquire TIC interests in properties that will be subject to certain agreements with one or more other TIC interest equity owners of the properties, which may be either affiliates of our advisor or independent third-party investors. Our investments may be in existing or new TIC investments advised by affiliates of our advisor, including Resource Real Estate. Under the TIC interest agreements, an owner of an undivided TIC interest in a property is generally obligated only for its share of expenses, and is entitled only to its share of income, from the property. Thus, as a TIC interest owner in a property, we would be required to pay only our share of expenses, including real estate taxes and management fees that will be payable to affiliates of our advisor, and generally will share all profits and losses generated by the property pro rata in proportion to our respective TIC interest. The TIC interest agreements will cover such areas as the:

• selling or refinancing of the property;

• managing the property;

• distributions of the property’s net revenues, if any; and

121

• operating the property, including leasing guidelines and rent levels.

We will not acquire TIC interests in a property unless Resource Real Estate Opportunity Manager or another affiliate of our advisor has asset management control over the property. See “Risk Factors.”

Disposition Policies

We are not required to hold a real estate investment for any particular minimum term before it is sold, refinanced or otherwise disposed of. After we have paid down the acquisition financing on a property, if and when the property has increased in value, we may refinance the property and distribute the proceeds, after fees, expenses and payment of other obligations and reserves, to our stockholders. The determination as to whether and when a particular real estate investment should be sold, refinanced or otherwise disposed of, will be made by our advisor after a consideration of relevant factors, including:

• performance of the real estate investment;

• market conditions;

• the structure of the current financing and currently available refinancing;

• achieving our principal investment objectives;

• the potential for future capital appreciation;

• cash flow; and

• federal income tax considerations.

In addition, with respect to refinancing properties, our advisor will consider the amount of our initial cash investment and whether the property is subject to financing that comes due in a relatively short term.

For information regarding the disposition fees our advisor will receive upon the sale of our real estate investments, see “Management Compensation.”

Borrowing Policies

We intend to make equity investments with cash but intend to leverage strategically to enhance our returns. Although there is no limit on the amount we can borrow to acquire a single real estate investment, we may not leverage our assets with debt financing in excess of 75% of the aggregate value of our assets unless a majority of our independent directors find substantial justification for borrowing a greater amount. On a total portfolio basis, however, based on current lending market conditions, we anticipate that we will not leverage our assets with debt financing in excess of 35% of the aggregate value of our assets. If we hold distressed assets and stabilize them, we believe that we may be able to and we expect to increase this level of debt financing on such assets.

First, we may obtain REIT level financing through a line of credit from third-party financial institutions or other commercial lenders. Our advisor anticipates that our assets will serve as collateral for this type of debt incurred to acquire real estate investments. We have not yet entered into negotiations or agreements with any lenders with respect to providing debt financing and therefore have no current sources of financing. Our REIT level financing may be recourse financing.

In addition to debt financing at the REIT level, we may also finance the acquisition costs of individual real estate investments, as well as the acquisition costs of all or a group of real estate investments acquired by us, by causing our subsidiaries to borrow directly from third-party financial institutions or other commercial lenders.

122

Under these circumstances, our advisor anticipates that certain properties acquired will serve as collateral for the debt we incur to acquire those particular properties and that we will seek to obtain nonrecourse financing for the acquisition of the properties. However, there is no guarantee that our advisor will be successful in obtaining financing arrangements on a property-by-property basis and that the loans would be nonrecourse to us. Finally, we may also obtain seller financing with respect to specific assets that we acquire.

We anticipate that other sources of debt financing will eventually become available on reasonably attractive terms, at which time we expect to use leverage to expand our portfolio of debt investments. We may deploy leverage, if available, including by utilizing government programs such as the TALF.

Under the TALF, the FRBNY, makes non-recourse loans to borrowers to fund their purchase of asset backed securities, or ABS, collateralized by certain eligible assets, which initially excluded commercial mortgage-backed securities and residential mortgage-backed securities. Beginning in June 2009, the TALF was expanded to include certain high quality newly issued commercial mortgage-backed securities as eligible assets and beginning in July 2009, the TALF was further expanded to include certain highly rated legacy commercial mortgage-backed securities issued before January 1, 2009. However, the FRBNY may limit the volume of TALF loans secured by legacy commercial mortgage-backed securities.

We believe that the expansion of the TALF to include highly rated newly issued and legacy commercial mortgage-backed securities may provide us with attractively priced limited-recourse term borrowings that we could use to purchase commercial mortgage-backed securities that are eligible for funding under this program. We may seek to utilize TALF financing for up to 20% of our total assets. However, there can be no assurance we will be able to utilize the TALF to finance the acquisition of newly issued or legacy commercial mortgage-backed securities at any level or that the financing terms will be attractive.

Exit Strategy – Liquidation or Listing Policy

We anticipate providing our stockholders with a liquidity event or events by some combination of the following: (i) liquidating all, or substantially all, of our assets and distributing the net proceeds to our stockholders; or (ii) listing our shares for trading on an exchange. Our board anticipates evaluating a liquidity event within three to six years after we terminate this primary offering, subject to then prevailing market conditions. If we do not begin the process of liquidating our assets or listing our shares within six years of the termination of this primary offering, our charter requires that we hold a stockholder meeting to vote on a proposal for our orderly liquidation unless a majority of our board of directors and a majority of our independent directors vote to defer the meeting beyond the sixth anniversary of the termination of this offering. Prior to any stockholder meeting, our directors would evaluate whether to recommend the proposal to our stockholders and, if they so determine, would recommend the proposal and their reasons for doing so. The proposal would include information regarding appraisals of our portfolio. If our stockholders did not approve the proposal, we would obtain new appraisals and resubmit the proposal to our stockholders up to once every two years upon the written request of stockholders owning 10% of our outstanding common stock.

Market conditions and other factors could cause us to delay the commencement of our liquidation or to delay the listing of our shares on a national securities exchange beyond six years from the termination of this offering. Once we commence liquidation, we would begin an orderly sale of our properties and other assets. We are under no obligation to conclude our liquidation within a set time because the precise timing of the sale of our assets will depend on the prevailing real estate and financial markets, the economic conditions in the areas in where our properties are located and federal income tax consequences to our stockholders, and we cannot assure you that we will be able to liquidate our assets. After commencing a liquidation, we would continue in existence until all of our assets are sold. In making the decision to liquidate or apply for listing of our shares, our directors will try to determine whether liquidating our assets or listing our share shares will result in greater value for stockholders.

Charter-Imposed Investment Limitations

Our charter places numerous limitations on us with respect to the manner in which we may invest our funds or issue securities. Pursuant to our charter, we will not:

123

• borrow in excess of 75% of the aggregate cost of tangible assets we own, unless approved by a majority of the conflicts committee;

• invest more than 10% of our total assets in unimproved property or mortgage loans on unimproved property, which we define as property not acquired for the purpose of producing rental or other operating income or on which there is no development or construction in progress or planned to commence within one year;

• make or invest in mortgage loans unless an appraisal is available concerning the underlying property, except for those mortgage loans insured or guaranteed by a government or government agency;

• make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans on such property would exceed an amount equal to 85% of the appraised value of such property as determined by appraisal, unless substantial justification exists for exceeding such limit because of the presence of other underwriting criteria;

• make an investment if the related acquisition and origination fees and expenses are not reasonable or exceed 6% of the contract purchase price for the asset or, in the case of a loan we originate, 6% of the funds advanced, provided that in either case the investment may be made if a majority of the conflicts committee determines that the transaction is commercially competitive, fair and reasonable to us;

• acquire equity securities unless a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction approve such investment as being fair, competitive and commercially reasonable, provided that investments in equity securities in “publicly traded entities” that are otherwise approved by a majority of our directors (including a majority of our independent directors) shall be deemed fair, competitive and commercially reasonable if we acquire the equity securities through a trade that is effected in a recognized securities market (a “publicly traded entity” shall mean any entity having securities listed on a national securities exchange or included for quotation on an inter-dealer quotation system) and provided further that this limitation does not apply to (i) acquisitions effected through the purchase of all of the equity securities of an existing entity, (ii) the investment in wholly owned subsidiaries of ours or (iii) investments in asset-backed securities;

• invest in real estate contracts of sale, otherwise known as land sale contracts, unless the contract is in recordable form and is appropriately recorded in the chain of title;

• invest in commodities or commodity futures contracts, except for futures contracts when used solely for the purpose of hedging in connection with our ordinary business of investing in real estate assets and mortgages;

• issue equity securities on a deferred payment basis or other similar arrangement;

• issue debt securities in the absence of adequate cash flow to cover debt service unless the historical debt service coverage (in the most recently completed fiscal year), as adjusted for known changes, is sufficient to service that higher level of debt as determined by the board of directors or a duly authorized executive officer;

• issue equity securities that are assessable after we have received the consideration for which our board of directors authorized their issuance; or

124

• issue equity securities redeemable solely at the option of the holder, which restriction has no effect on our share redemption program or the ability of our Operating Partnership to issue redeemable partnership interests.

In addition, our charter includes many other investment limitations in connection with conflict-of-interest transactions, which limitations are described above under “Conflicts of Interest.” Our charter also includes restrictions on roll-up transactions, which are described under “Description of Shares.”

Investment Limitations Under the Investment Company Act of 1940

Reasons for Expectation that neither We nor Our Operating Partnership nor Any of the Subsidiaries of Our Operating Partnership Will Be an Investment Company

Neither we nor our Operating Partnership nor any of the subsidiaries of our Operating Partnership intend to register as an investment company under the Investment Company Act. We expect that most of our assets will be held, directly or indirectly, through wholly owned or majority-owned subsidiaries of our Operating Partnership. We further expect that most of these subsidiaries will be able to rely on Section 3(c)(5)(C) of the Investment Company Act for an exception from the definition of an investment company. The other subsidiaries of our Operating Partnership should be able to rely on the exceptions for private investment companies pursuant to Section 3(c)(1) and Section 3(c)(7) of the Investment Company Act. Depending upon the composition of our portfolio, we expect that we and our Operating Partnership will either (i) not meet the definition of an investment company under Section 3(a)(1) or (ii) meet the exception from the definition of an investment company under Section 3(c)(6).

The SEC staff’s position on Section 3(c)(5)(C) generally requires that an issuer maintain at least 55% of its assets in “mortgages and other liens on and interests in real estate” (“Qualifying Assets”); at least 80% of its assets in Qualifying Assets plus real estate related assets (“Real Estate Related Assets”); and no more than 20% of the value of its assets in other than Qualifying Assets and Real Estate Related Assets (“Miscellaneous Assets”). To constitute a Qualifying Asset under this 55% requirement, a real estate interest must meet various criteria; therefore, certain of our subsidiaries will be limited by the provisions of the Investment Company Act with respect to the value of the assets that they may own at any given time.

Under Section 3(a)(1) of the Investment Company Act, an issuer is not deemed to be an “investment company” if:

• it neither is, nor holds itself out as being, engaged primarily, nor proposes to engage primarily, in the business of investing, reinvesting or trading in securities (the “Holding-Out Test”); and

• it neither is engaged nor proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and does not own or propose to acquire “investment securities” having a value exceeding 40% of the value of its total assets on an unconsolidated basis (the “40% Test”). “Investment securities” excludes U.S. government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) (relating to private investment companies).

Depending on the nature of our portfolio, we believe that we and our Operating Partnership may be able to satisfy both tests above. With respect to the 40% Test, we expect that most of the entities through which we and our Operating Partnership own our assets will be wholly owned subsidiaries that are not themselves investment companies and are not relying on the exceptions from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) (relating to private investment companies). If, however, the value of the subsidiaries of our Operating Partnership that must rely on Section 3(c)(1) or Section 3(c)(7) is greater than 40% of the value of the assets of our Operating Partnership (which is most likely to occur if such subsidiaries do not own a sufficient amount of Qualifying Assets or Real Estate Related Assets to rely on Section 3(c)(5)(C)), then we and our Operating Partnership may seek to rely on Section 3(c)(6) if we and our Operating Partnership are “primarily engaged,” through wholly owned and majority-owned subsidiaries, in the business of purchasing or otherwise acquiring

125

mortgages and other interests in real estate. Although the SEC staff has issued little interpretive guidance with respect to Section 3(c)(6), we believe that we and our Operating Partnership may rely on Section 3(c)(6) if 55% of the assets of our Operating Partnership consist of, and at least 55% of the income of our Operating Partnership is derived from, Qualifying Assets owned by wholly owned or majority-owned subsidiaries of our Operating Partnership.

With respect to the Holding-Out Test, we and our Operating Partnership are holding companies and do not intend to invest or trade in securities ourselves. Rather, the securities that we have been formed to purchase will be purchased through wholly owned subsidiaries of our Operating Partnership, each of which will rely on an exception from registration under the Investment Company Act. We intend for our public statements to reference our proposed ownership structure and to inform investors that we will not hold securities directly and that we are not an investment company. Although the SEC staff has issued little guidance with respect to the Holding-Out Test, we are not aware of any court decisions or SEC staff interpretations finding a holding company that satisfies the 40% Test to nevertheless be an investment company under the Holding-Out Test.

Regardless of whether we and our Operating Partnership must rely on Section 3(c)(6) to avoid registration as an investment company, we expect to limit the investments that we make, directly or indirectly, in assets that are not Qualifying Assets and in assets that are not Real Estate Related Assets. We discuss below how we will treat our potential investments and our interests in the subsidiaries of our Operating Partnership that own them under the Investment Company Act.

Real Property

We will treat an investment in real property as a Qualifying Asset.

Mortgage Loans

We will treat a first mortgage loan as a Qualifying Asset provided that the loan is fully secured, i.e., the value of the real estate securing the loan is greater than the value of the note evidencing the loan. If the loan is not fully secured, the entire value of the loan will be classified as a Real Estate Related Asset. We will treat mortgage loans that are junior to a mortgage owned by another lender (“Second Mortgages”) as Qualifying Assets if the real property fully secures the Second Mortgage.

Participations

A participation interest in a loan will be treated as a Qualifying Asset only if the interest is a participation in a mortgage loan, such as an A-Note or a B-Note, that meets certain criteria. Although the SEC staff has not taken a position with respect to A-Notes, we will treat an A-Note as a Qualifying Asset if the A-Note is fully secured and the subsidiary owning the A-Note is the controlling investor with the ability to foreclose on the mortgage. We will treat a B-Note as a Qualifying Asset when our subsidiary’s investment in the B-Note meets the criteria recently set forth in an SEC no-action letter, that is:

• the B-Note is a participation interest in a mortgage loan that is fully secured by real property;

• our subsidiary as B-Note holder has the right to receive its proportionate share of the interest and the principal payments made on the mortgage loan by the borrower, and our subsidiary’s returns on the B-Note are based on such payments;

• our subsidiary invests in the B-Note only after performing the same type of due diligence and credit underwriting procedures that it would perform if it were underwriting the underlying mortgage loan;

• our subsidiary as B-Note holder has approval rights in connection with any material decisions pertaining to the administration and servicing of the mortgage loan and with respect to any material modification to the mortgage loan agreements; and

126

• in the event that the mortgage loan becomes non-performing, our subsidiary as B-Note holder has effective control over the remedies relating to the enforcement of the mortgage loan, including ultimate control of the foreclosure process, by having the right to: (a) appoint the special servicer to manage the resolution of the loan; (b) advise, direct or approve the actions of the special servicer; (c) terminate the special servicer at any time without cause; (d) cure the default so that the mortgage loan is no longer non-performing; and (e) purchase the A-Note at par plus accrued interest, thereby acquiring the entire mortgage loan.

If these conditions are not met, we will treat the B-Note as a Real Estate Related Asset.

Mezzanine Loans

We intend for a portion of our investments to consist of real estate loans secured by 100% of the equity securities of a special purpose entity that owns real estate (“Mezzanine Loans”). We will treat our Mezzanine Loans as Qualifying Assets when our subsidiary’s investment in the loan meets the criteria set forth in an SEC no-action letter, that is:

• the loan is made specifically and exclusively for the financing of real estate;

• the loan is underwritten based on the same considerations as a second mortgage and after our subsidiary performs a hands-on analysis of the property being financed;

• our subsidiary as lender exercises ongoing control rights over the management of the underlying property;

• our subsidiary as lender has the right to readily cure defaults or purchase the mortgage loan in the event of a default on the mortgage loan;

• the true measure of the collateral securing the loan is the property being financed and any incidental assets related to the ownership of the property; and

• our subsidiary as lender has the right to foreclose on the collateral and through its ownership of the property-owning entity become the owner of the underlying property.

Convertible Mortgages

A convertible mortgage is a mortgage loan coupled with an option to purchase the underlying real estate. Although the SEC staff has not taken a position with respect to convertible mortgages, we intend to treat a convertible mortgage as two assets: a mortgage and an option. We will value the mortgage as though the option did not exist and treat it as either a Qualifying Asset or a Real Estate Related Asset according to the positions set forth above. We will assign the option an independent value and treat the option as a Real Estate Related Asset.

Fund-Level or Corporate-Level Debt

If one of our subsidiaries provides financing to an entity that is primarily engaged in the real estate business, we will treat such loan as a Real Estate Related Asset or a Miscellaneous Asset depending on the nature of the business and assets of the borrower.

Other Real Estate Related Loans

We will treat the other real estate related loans described in this prospectus, i.e., bridge loans, wraparound mortgage loans, construction loans, pre-development loans, land loans, investments in distressed debt and loans on leasehold interests, as Qualifying Assets if such loans are fully secured by real estate With respect to construction

127

loans, we will treat only the amount outstanding at any given time as a Qualifying Asset or Real Estate Related Asset, depending upon whether the value of the property securing the loan at that time exceeds the outstanding loan amount plus any amounts owed on loans senior or equal in priority to our construction loan.

Real Estate Related Debt Securities

We will treat a residential or commercial mortgage-backed security as a Qualifying Asset if the certificate represents all of the beneficial interests in a pool of mortgages, referred to as a “whole pool” certificate. However, we expect to treat a partial pool certificate as a Real Estate Related Asset unless counsel advises us that the SEC’s Division of Investment Management has provided guidance (whether formal or informal) that a partial pool certificate may be treated as a Qualifying Asset and that our partial pool certificate meets the criteria stipulated by the SEC.

We do not generally expect investments in CDOs to be Qualifying Assets. We will treat a CDO investment as a Real Estate Related Asset if the entity that issues the CDOs primarily owns debt obligations related to real estate.

Joint Venture Interests

When measuring Section 3(c)(6) and Section 3(c)(5)(C) compliance, we will calculate asset values on an unconsolidated basis, which means that when assets are held through another entity, we will treat the value of our interest in the entity as follows:

1. If we own less than a majority of the voting securities of the entity, then we will treat the value of our interest in the entity as Real Estate Related Assets if the entity engages in the real estate business, such as a REIT relying on Section 3(c)(5)(C), and otherwise as Miscellaneous Assets.

2. If we own a majority of the voting securities of the entity, then we will allocate the value of our interest in the entity among Qualifying Assets, Real Estate Related Assets and Miscellaneous Assets in proportion to the entity’s ownership of Qualifying Assets, Real Estate Related Assets and Miscellaneous Assets.

3. If we are the general partner or managing member of a entity, then (i) we will treat the value of our interest in the entity as in item 2 above if we are actively involved in the management and operation of the venture and our consent is required for all major decisions affecting the venture and (ii) we will treat the value of our interest in the entity as in item 1 above if we are not actively involved in the management and operation of the venture or our consent is not required for all major decisions affecting the venture.

Absence of No-Action Relief

If certain of our subsidiaries fail to own a sufficient amount of Qualifying Assets or Real Estate Related Assets, we could be characterized as an investment company. We have not sought a no-action letter from the SEC staff regarding how our investment strategy fits within the exceptions from registration under the Investment Company Act on which we and our subsidiaries intend to rely. To the extent that the SEC’s Division of Investment Management provides more specific or different guidance regarding the treatment of assets as Qualifying Assets or Real Estate Related Assets, we may be required to adjust our investment strategy accordingly. Any additional guidance from the SEC’s Division of Investment Management could provide additional flexibility to us, or it could further inhibit our ability to pursue the investment strategy we have chosen.

Disclosure Policies with Respect to Future Probable Acquisitions

As of the date of this prospectus, we have not acquired or contracted to acquire any specific assets. Affiliates of our advisor are continually evaluating various potential investments and engaging in discussions and

128

negotiations with sellers, developers and potential tenants regarding the purchase and development of properties and other investments for us and other programs sponsored by Resource Real Estate. While this public offering is pending, if we believe that a reasonable probability exists that we will acquire a material asset, including assets the purchase price of which exceeds 10% of our total assets (based on our most recent balance sheet that gives effect to any previous acquisitions that were probable or completed since the date of the last balance sheet), this prospectus will be supplemented to disclose the probability of acquiring the asset. We expect that this will normally occur upon the satisfaction or expiration of major contingencies in the applicable purchase agreement, depending on the particular circumstances surrounding each potential investment. A supplement to this prospectus will describe any improvements proposed to be constructed thereon and other information that we consider appropriate for an understanding of the transaction. Further data will be made available after any pending acquisition is consummated, also by means of a supplement to this prospectus, if appropriate.

You should understand that the disclosure of any proposed acquisition cannot be relied upon as an assurance that we will ultimately consummate such acquisition or that the information provided concerning the proposed acquisition will not change between the date of the supplement and any actual purchase.

Changes in Investment Objectives and Policies

You will have no voting rights with respect to the establishment, implementation or alteration of the investment objectives and our policies, all of which are the responsibility of our board of directors and advisor. However, we will not make any changes in the investment objectives and policies that would constitute a fundamental change without filing a post-effective amendment with the SEC describing such change in investment objectives and policies.

PLAN OF OPERATION

General

As of the date of this prospectus, we have not commenced operations. We are a recently formed Maryland corporation that intends to purchase a diversified portfolio of discounted U.S. commercial real estate and real estate related debt that has been significantly discounted due to the effects of recent economic events and high levels of leverage on U.S. commercial real estate, including properties that may benefit from extensive renovations that may increase their long-term values. Following years of unprecedented appreciation in commercial real estate values fueled by readily available and inexpensive credit, the commercial real estate market began a significant decline in late 2007 as a result of the massive contraction in the credit and securitization markets. We believe that this decline has produced an attractive environment to acquire commercial real estate and real estate related debt at significantly discounted prices. We have a particular focus on operating multifamily assets, and we intend to target this asset class while also purchasing interests in other types of commercial property assets consistent with our investment objectives. Our targeted portfolio will consist of commercial real estate assets, principally (i) non-performing or distressed loans, including but not limited to first- and second-priority mortgage loans, mezzanine loans, B-Notes and other loans, (ii) real estate owned by financial institutions (“REO”), (iii) value-add multifamily rental properties, (iv) discounted investment-grade commercial mortgage-backed securities and (v) other real estate related assets we purchase either directly or with a co-investor or joint venture partner. We anticipate holding approximately 50% of our total assets in categories (i) and (ii) listed above, 25% of our total assets in category (iii) listed above and 25% of our total assets in category (iv) listed above. If we are only able to raise the minimum offering or an amount substantially less than our maximum offering, our plan of operation will be scaled down considerably and we would expect to acquire a limited number of assets from categories (i) and (ii). We may also make loans to third-parties secured by real estate assets. Although this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego a good investment because it does not precisely fit our expected portfolio composition. Thus, to the extent that our advisor presents us with good investment opportunities that allow us to meet the REIT requirements under the Internal Revenue Code, our portfolio composition may vary from what we initially expect. As of the date of this prospectus, we have not commenced operations nor have we identified any properties or other investments in which there is a reasonable probability that we will invest.

129

Resource Real Estate Opportunity Advisor is our advisor. Our advisor will manage our day-to-day operations and our portfolio of real estate assets. Our advisor also has the authority to make certain real estate related debt investment decisions, subject to the limitations in our charter and the direction and oversight of our board of directors. Our advisor will also provide asset-management, marketing, investor-relations and other administrative services on our behalf.

We intend to make an election to be taxed as a REIT under the Internal Revenue Code, beginning with the taxable year ending December 31, 2009. If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year after electing REIT status, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and cash available for distribution. However, we believe that we will be organized and will operate in a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes beginning with our taxable year ending December 31, 2009, and we intend to continue to operate so as to remain qualified as a REIT for federal income tax purposes thereafter.

Results of Operations

We were formed on June 3, 2009 and, as of the date of this prospectus, we have not commenced operations as we are in our organizational and development stage. We will not commence any significant operations until we have raised the minimum offering amount of $2,000,000 from persons who are not affiliated with us or our advisor. As we have not acquired any properties or other assets, our management is not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting our targeted portfolio, the multifamily residential housing industry and real estate generally, which may reasonably be expected to have a material impact on either capital resources or the revenues or incomes to be derived from the operation of our assets.

Liquidity and Capital Resources

We are offering and selling to the public in our primary offering up to $750,000,000 in shares of common stock, $0.01 par value per share, at $10.00 per share. We are also offering up to $71,250,000 in shares of our common stock to be issued pursuant to our distribution reinvestment plan under which our stockholders may elect to have distributions reinvested in additional shares at $9.50 per share.

Prior to the commencement of this initial public offering, we are offering and selling in a private placement offering to accredited investors up to $50,000,000 in shares of common stock at $10.00 per share, with volume discounts available to investors who purchase more than $1,000,000 of shares through the same participating broker-dealer. Discounts are also available for other categories of investors. The minimum permitted purchase in our private placement offering is $2,500. In addition, for every $10,000 an eligible investor invests to purchase shares of common stock in our private placement offering, we will offer to sell such investor one share of convertible stock. The private placement offering will terminate on the earlier of (i) the date we accept subscriptions with an aggregate purchase price exceeding $50,000,000, (ii) the effective date of this initial public offering, or (iii) December 31, 2010. We may terminate the private placement offering at any time. We are dependent upon the net proceeds from this offering and our private placement offering to conduct our proposed operations. We will obtain the capital required to purchase real estate investments and conduct our operations from the proceeds of this offering and any future offerings we may conduct, from secured or unsecured financings from banks or other lenders, from proceeds from the sale of assets and from any undistributed funds from our operations. In addition, our advisor has and will advance funds to us for certain accrued organization and offering costs. As of the date of this prospectus, we have not identified any additional sources of financing and have not made any investments in real estate or otherwise, and our total assets consist of $200,000 cash. For information regarding the anticipated use of proceeds from this offering, see “Estimated Use of Proceeds.”

We will not sell any shares in this offering unless we raise a minimum of $2,000,000 in gross offering proceeds from persons who are not affiliated with us or our advisor. If we are unable to raise substantially more funds in the offering than the minimum offering amount, we will make fewer investments resulting in less

130

diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate with the performance of the specific assets we acquire. Further, we will have certain fixed operating expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able to raise substantial funds in this offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make distributions.

We intend to make reserve allocations as necessary to aid our objective of preserving capital for our investors by supporting the maintenance and viability of property we acquire in the future. If reserves and any other available income become insufficient to cover our operating expenses and liabilities, it may be necessary to obtain additional funds by borrowing, refinancing properties or liquidating our investment in one or more properties. There is no assurance that such funds will be available or, if available, that the terms will be acceptable to us.

We currently have no outstanding debt. Once we have fully invested the proceeds of this offering, based on current lending market conditions, we expect to incur debt financing on a total portfolio basis of up to 35% of the cost of our real estate investments (before deducting depreciation or other non-cash reserves) plus the value of our other assets. If we hold distressed assets and stabilize them, we believe that we may be able to and we expect to increase this level of debt financing on such assets. Our charter does not limit us from incurring debt until our borrowings would exceed 75% of the cost (before deducting depreciation or other non-cash reserves) of our tangible assets, though we may exceed this limit under certain circumstances. We expect our short-term liquidity for acquisitions and operating expenses will be sourced from the net proceeds of this offering. We believe our primary liquidity source for acquisitions and long-term funding will include the net proceeds of this offering and capital from any future joint venture partners. Subject to maintaining our qualification as a REIT and our Investment Company Act exemption, we may also pursue a number of potential other funding sources, including mortgage loans, portfolio level credit lines and government financing (such as TALF).

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

The Term Asset-Backed Securities Loan Facility

Under the TALF, the FRBNY makes non-recourse loans to borrowers to fund their purchase of asset backed securities, or ABS, collateralized by certain eligible assets, which initially excluded commercial mortgage-backed securities and residential mortgage-backed securities. Beginning in June 2009, the TALF was expanded to include certain high quality newly issued commercial mortgage-backed securities as eligible assets and beginning in July 2009, the TALF was further expanded to include certain highly rated legacy commercial mortgage-backed securities issued before January 1, 2009. However, the FRBNY may limit the volume of TALF loans secured by legacy commercial mortgage-backed securities.

We believe that the expansion of the TALF to include highly rated newly issued and legacy commercial mortgage-backed securities may provide us with attractively priced limited-recourse term borrowings that we could use to purchase commercial mortgage-backed securities that are eligible for funding under this program. We may seek to utilize TALF financing for up to 20% of our total assets. However, there can be no assurance we will be able to utilize the TALF to finance the acquisition of newly issued or legacy commercial mortgage-backed securities at any level or that the financing terms will be attractive.

131

Distributions

We have not paid any distributions as of the date of this prospectus. We intend to elect to be taxed as a REIT and to operate as a REIT beginning with our taxable year ending December 31, 2009. To maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our common stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. We will make distributions with respect to the shares of common stock in our sole discretion. No distributions will be made with respect to the convertible stock. Once we begin making distributions, we intend to pay distributions on a monthly basis based on daily record dates.

Generally, our policy will be to pay distributions based on current and projected cash flow from operations after giving consideration to amounts excluded from cash flow from operations under GAAP but paid for out of offering proceeds, such as acquisition fees and acquisition expenses. We expect to have little, if any, cash flow from operations available for distribution until we make substantial investments. We expect that at least during the early stages of our development, and from time to time during our operational stage, we may declare distributions in anticipation of cash flow that we expect to receive during a later period and we will pay these distributions in advance of our actual receipt of these funds. In these instances, to the extent permitted by Maryland law, we expect to use the proceeds from this offering or the proceeds from the issuance of securities in the future to pay distributions. We may also fund such distributions from third-party borrowings or from advances from our advisor or sponsor or from our advisor’s deferral of its asset management fee, although we have no present intention to do so.

We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders.

Income Taxes

We intend to elect to be taxed as a REIT under the Internal Revenue Code and intend to operate as such beginning with our taxable year ending December 31, 2009. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to our stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we intend to organize and operate in such a manner as to qualify for treatment as a REIT.

Critical Accounting Policies

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

132

Real Estate Assets

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

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

Real Estate Purchase Price Allocation. We will record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We will amortize any capitalized above-market or below-market lease values as an increase or reduction to rental income over the remaining non-cancelable terms of the respective leases, which we expect will range from one month to ten years.

We will measure the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. Management’s estimates of value are expected to be made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors to be considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.

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

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

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

133

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

Valuation of Real Estate Assets. We will continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, we will assess the recoverability of the assets by estimating whether we will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. If based on this analysis we do not believe that we will be able to recover the carrying value of the asset, we will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset.

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

Real Estate Loans Receivable

Real estate loans receivable will be recorded at cost and reviewed for potential impairment at each balance sheet date. A loan receivable is considered impaired when it becomes probable, based on current information, that we will be unable to collect all amounts due according to the loan’s contractual terms. The amount of impairment, if any, is measured by comparing the recorded amount of the loan to the present value of the expected cash flows or the fair value of the collateral. If a loan was deemed to be impaired, we would record a reserve for loan losses through a charge to income for any shortfall. Failure to recognize impairment would result in the overstatement of the carrying values of our real estate loans receivable and an overstatement of our net income.

Revenue Recognition

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

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

The specific timing of a sale will be measured against various criteria in SFAS 66 related to the terms of the transaction and any continuing involvement associated with the property. If the criteria for profit recognition under the full-accrual method are not met, we will defer gain recognition and account for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery methods, as appropriate, until the appropriate criteria are met.

Interest income from loans receivable will be recognized based on the contractual terms of the debt instrument. Fees related to any buy-down of the interest rate will be deferred as prepaid interest income and amortized over the term of the loan as an adjustment to interest income. Closing costs related to the purchase of a loan receivable will be amortized over the term of the loan and accreted as an adjustment against interest income.

134

Recent Accounting Pronouncements

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). SFAS 165 requires an entity that expects to widely distribute its financial statements to its shareholders and other users to evaluate subsequent events through the issuance date of the respective financial statements. In addition, SFAS 165 requires companies to reflect in their financial statements the effects of subsequent events that provide additional evidence about conditions at the balance-sheet date (recognized subsequent events). The Statement prohibits companies from reflecting in their financial statements the effects of subsequent events that provide evidence about conditions that arose after the balance-sheet date (nonrecognized subsequent events), but requires information about the events to be disclosed if the financial statements would otherwise be misleading. These disclosures include the nature of the event and either an estimate of its financial effect or a statement that an estimate cannot be made. SFAS 165 is effective for interim and annual financial periods ending after June 15, 2009 and should be applied prospectively. We adopted SFAS 165 for the period ended June 30, 2009. It did not have a material impact on our financial statements.

In April 2009, the FASB issued FASB Staff Position (“FSP”) SFAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP 141(R)-1”). FSP FAS 141(R)-1 amends the provisions in Statement 141R for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. The FSP eliminates the distinction between contractual and noncontractual contingencies, including the initial recognition and measurement criteria, in Statement 141R and instead carries forward most of the provisions in FASB Statement No. 141, Business Combinations, for acquired contingencies. The FSP also amends the subsequent measurement and accounting guidance, and disclosure requirements in Statement 141R. No subsequent accounting guidance is provided in the FSP, and the Board expects an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. The FSP is effective for contingent assets or contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We will evaluate the impact of FSP 141 (R)-1 on our consolidated financial statements in the event future business combinations are consummated.

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The adoption of FSP 142-3 did not have a material impact on our consolidated financial statements.

In February 2008, the FASB issued FSP No. SFAS 157-2, “Effective Date of FASB Statement No. 157,” (FSP SFAS 157-2). FSP SFAS 157-2 amends SFAS 157, to delay the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis. For items within its scope, FSP SFAS 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of FSP SFAS 157-2 did not have a material impact on our consolidated financial statements.

In October 2008, the FASB issued FSP No. SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”) which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 for financial assets carried at fair value, and years beginning after November 15, 2008 for non-financial assets not carried at fair value. The adoption of FSP SFAS 157-3 did not have a material impact on our consolidated financial statements.

135

In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”) amends SFAS No. 157 and provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset and liability have significantly decreased, as well as provides guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP SFAS 157-4 did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued FSP SFAS 107-1/APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1”). FSP FAS 107-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP applies to all financial instruments within the scope of Statement 107 held by publicly traded companies, as defined by APB 28, and requires that a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. FSP 107-1 shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of FSP SFAS 107-1 did not have a material impact on our consolidated financial statements.

PRIOR PERFORMANCE SUMMARY

The information presented in this Prior Performance Summary and in the Prior Performance Tables included in this prospectus as Appendix A represents the summary historical experience of real estate programs sponsored by (a) Resource Real Estate, our sponsor, through June 30, 2009, except for Table III, which is through December 31, 2008, and (b) Resource America, our sponsor’s ultimate parent, through June 30, 2009. We define such a program as a fund in which passive investors pool their money and rely on the efforts of Resource Real Estate or Resource America and their affiliates to manage the fund and to acquire real estate that was not identified at the time of the commencement of the fund’s offering. Investors in our company should not assume that they will experience returns comparable to those experienced by investors in these prior real estate programs.

From 2002 through June 30, 2009, Resource Real Estate sponsored eight real estate investment programs and co-sponsored two additional real estate investment programs with an unaffiliated third party. These ten programs were formed for the purpose of acquiring and operating commercial and residential real estate properties, primarily consisting of multifamily apartment properties as well as retail, office and industrial properties in the United States. All but one of the programs are private programs that have no public reporting requirements. All of the programs have investment objectives similar to our own. From 1997 through June 30, 2009, Resource America, Inc., the ultimate parent of Resource Real Estate, had sponsored two publicly traded REITs; Resource Capital (NYSE: RSO) in 2005 and RAIT Financial (NYSE: RAS) in 1998. Resource Capital is externally managed by affiliates of our sponsor. Although sponsored by Resource America, RAIT Financial is no longer managed or owned by Resource America. We do not include information regarding RAIT Financial in this summary or in the related prior performance tables because RAIT Financial was sponsored by Resource America more than 10 years ago.

From inception through June 30, 2009, the public real estate program sponsored by Resource Real Estate referenced above raised gross offering proceeds of $35,000,000 from 578 investors (excluding Resource Capital Partners’ investment). Through June 30, 2009, the public real estate program purchased interests in five real estate properties for a total investment of $60,300,000. All of the properties are multifamily residential and none of the properties were newly constructed when purchased. As of June 30, 2009, none of these interests in real estate properties had been sold.

From inception through June 30, 2009, the private programs sponsored by Resource Real Estate referenced above raised gross offering proceeds of $166,876,000 from 2,689 investors. Through June 30, 2009, the private programs purchased interests in 37 real estate properties for a total investment of $378,515,500. All of the 37

136

properties purchased were multifamily residential and none of the properties were newly constructed when purchased. As of June 30, 2009, two of these real estate properties had been sold.

From inception through June 30, 2009, Resource Capital, a public real estate program sponsored by Resource America that invests in commercial real estate related assets such as whole loans, A-Notes, B-Notes, mezzanine loans and mortgage-related securities and commercial finance assets such as other asset-backed securities, senior secured corporate loans, equipment leases and notes, trust preferred securities, debt tranches of collateralized debt obligations, raised gross offering proceeds of $377.2 million from private and public investors. Through June 30, 2009, Resource Capital had a total of $307.9 million of capital commitments. As of June 30, 2009, five of its real estate related investments had been paid off.

Acquisition Summary

Between 2003 and June 30, 2009, Resource Real Estate and its affiliates sponsored or co-sponsored programs that acquired 42 properties, all of which were multifamily residential properties. Information regarding the location of each property is summarized below.

Public Programs
Location	No. of Properties
Maine	2
Texas	3
Total	5
Private Programs
Location	No. of Properties
Arkansas	6
California	3
Georgia	4
Kansas	4
Kentucky	1
Maine	1
New Mexico	3
North Carolina	1
Pennsylvania	1
Tennessee	1
Texas	12
Total	37
All Programs – Method of Financing at Acquisition	No. of Properties
All debt	0
All cash	0
Combination of cash and debt	42
Total	42

For more detailed information regarding acquisitions, please see Table VI contained in Part II of the registration statement, which is not part of this prospectus. We will provide a copy of Table VI to you upon written request and without charge.

Public Programs

Resource Real Estate Investors 6, L.P.

Resource Real Estate Investors 6, L.P., or RREI VI, is a Delaware limited partnership formed on July 26, 2007 to purchase, own, operate and subsequently sell all or a portion of a number of unspecified real estate

137

investments. RREI VI sold 3,508,814 units to 578 investors (excluding Resource Capital Partners’ investment) in a private placement offering, which began on October 1, 2007 and ended on May 19, 2008 and raised $35,000,000 (excluding Resource Capital Partners’ investment) of gross offering proceeds. Resource Real Estate has served as the sponsor and its affiliate has served as the manager of RREI VI since its inception. Please see Table III. Annual Operating Results of Prior Real Estate Programs under Appendix A “Prior Performance Tables” to this Memorandum.

As of June 30, 2009, $466,399 of investment management fees due to Resource Capital Partners, Inc. has been accrued. In the RREI VI program, the investment management fees are required to be accrued until the investors receive the applicable priority return for the program. In addition, $228,184 of the property management fee and $59,019 of debt management fees due to affiliates of our sponsor have been accrued.

During 2008 RREI VI exceeded 500 security holders and had assets of more than $10,000,000, which combination triggered its obligation to file a registration statement with the SEC. The required Form 10 registration statement for RREI VI was timely filed on April 30, 2009. Pursuant to Section 12(g)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Form 10 went effective by lapse of time on June 29, 2009. RREI VI has a planned liquidation date of eight years from its offering commencement date with the possibility of two one-year extensions.

As of June 30, 2009, RREI VI had purchased five properties, amounting to a total investment by RREI VI of $60,300,000 (RREI VI’s purchase price, including RREI VI’s aggregate share of debt financing at acquisition). Of the five properties, three were in Texas and two were in Maine. As of June 30, 2009, none of these properties had been sold. The properties, which are described below, are all multifamily residential properties.

As of June 30, 2009, RREI VI owned interests in the following properties:

Property Name	Ownership Interest		Purchase Date	Share of Purchase Price (1)		Share of Acquisition Costs (2)		Share of Mortgage Debt at Purchase		No. of Units	Location
Memorial Towers	100.0	%	12/18/07	$	9,250,000	$	311,000	$	7,400,000	112	Houston, TX
Villas of Henderson Pass	100.0	%	12/27/07	$	13,350,000	$	376,000	$	10,800,000	228	San Antonio, TX
Foxcroft	100.0	%	01/29/08	$	12,000,000	$	335,000	$	8,760,000	104	Scarborough, ME
Coach Lantern	100.0	%	01/29/08	$	10,800,000	$	366,000	$	7,884,000	90	Scarborough, ME
Park Hill	100.0	%	02/29/08	$	14,900,000	$	429,000	$	10,430,000	288	San Antonio, TX

⁽¹⁾ Purchase price does not include acquisition costs.

⁽²⁾ Acquisition costs include property acquisition fees, legal costs, due diligence fees, transfer taxes, filing fees and other costs incurred in connection with the closing.

As of June 30, 2009, RREI VI has purchased three subordinated notes, amounting to a total investment by RREI VI of $2,571,000. The notes, which are described below, are all secured by multifamily, residential properties.

Underlying Property Name	Location	Ownership Interest		Purchase Date	Purchase Price (1)		Face Value		Maturity Date	Interest Rate
Acacia	San Bernardino, CA	100.0	%	12/11/07	$	1,679,000	$	2,000,000	8/11/16	10.27	%
Hillwood	Montgomery, AL	100.0	%	12/5/07	$	378,000	$	400,000	1/8/17	10.97	%
Southern Cove	Las Vegas, NV	100.0	%	12/5/07	$	514,000	$	500,000	5/8/17	12.75	%

⁽¹⁾ Purchase price reflects discount and includes acquisition costs.

138

RREI VI is subject to upfront commissions, fees and expenses associated with its offering and it has fee arrangements with Resource Real Estate and its affiliates. Please see Table I. Experience in Raising and Investing Funds and Table II. Compensation to Sponsor under Appendix A “Prior Performance Tables” to this prospectus.

Upon request, prospective investors may obtain from us without charge copies of any public reports prepared in connection with RREI VI, including a copy of the most recent Annual Report on Form 10-K filed with the SEC. For a reasonable fee, we will also furnish upon request copies of the exhibits to the Form 10-K. In addition, the SEC maintains a web site at www.sec.gov that contains reports, proxy and other information that RREI VI files electronically with the SEC.

Resource Capital Corp.

Resource Capital is a Maryland corporation that was formed on January 31, 2005 to invest in commercial real estate related assets such as whole loans, A-Notes, B-Notes, mezzanine loans and mortgage-related securities and commercial finance assets such as other asset-backed securities, senior secured corporate loans, equipment leases and notes, trust preferred securities, debt tranches of collateralized debt obligations. Resource Capital’s common stock has traded on the New York Stock Exchange since February 7, 2006. As of June 30, 2009, Resource Capital had 24,911,944 shares of stock outstanding and had no planned liquidation date. Please see Table III. Annual Operating Results of Prior Real Estate Programs under Appendix A “Prior Performance Tables” to this prospectus.

As of June 30, 2009, Resource Capital had a total of $307.9 million of capital commitments invested as follows:

Type of Loans Made	Total Dollar Amount of Investments Funded or Originated (1) (2)
Whole Loans	$	494,479,649
Other Real Estate Related Investments	$	296,877,319

(1) Investments Funded or Originated consist of loans and securities at carrying value as of June 30, 2009.

(2) Investments Funded or Originated includes the effect of leverage utilized in financing the investment portfolio.

As of June 30, 2009, Resource Capital has disposed of its interest in the following real estate related investments:

Date	Investment	Total Dollar Amount Invested		Total Proceeds from Sale of Investment (1)
2006	Investment A-Agency RMBS Portfolio 1	$	125,380,429	$	124,189,742
2006	Investment B-Agency RMBS Portfolio 2	$	763,414,282	$	753,194,880
2007	Investment C-ABS/RMBS CDO Sale of Preference Equity 10% interest	$	2,700,000	$	5,000
2007	Investment C-ABS/RMBS CDO Sale of Preference Equity 90% interest	$	24,300,000	$	10
2007	Investment D-Self Originated Loan-50% interest	$	20,131,750	$	20,131,750
2007	Investment E-Self Originated Loan-50% interest	$	10,160,000	$	10,160,000
2007	Investment F-Self Originated Loan-50% interest	$	10,955,900	$	10,955,900
2008	Investment G-Purchased Security	$	10,000,000	$	8,000,000
2009	Investment H-Self Originated Loan-100% interest	$	16,290,200	$	7,758,000
2009	Investment I-Self Originated Loan-100% interest	$	13,550,000	$	5,895,000

⁽¹⁾ All were loans or securities that were sold during the period indicated above.

Upon request, prospective investors may obtain from us without charge copies of any public reports prepared in connection with Resource Capital, including a copy of the most recent Annual Report on Form 10-K filed with the SEC. For a reasonable fee, we will also furnish upon request copies of the exhibits to the Form 10-K. In addition, the SEC maintains a web site at www.sec.gov that contains reports, proxy and other information that Resource Capital files electronically with the SEC.

139

Private Programs

Over the 10-year period ending June 30, 2009, Resource Real Estate and its affiliates sponsored seven private real estate investment programs (not including RREI VI, which was a private program but is now a public reporting company) and co-sponsored two additional private real estate investment programs. The first of these programs was formed in 2002. Each of the nine real estate programs described below has a planned liquidation date of eight years from its respective offering commencement dates with the possibility of two one-year extensions, except Resource Real Estate Opportunity Fund, which has a planned liquidation date of four years from its offering commencement date also with the possibility of two one-year extensions. Please see Table III. Annual Operating Results of Prior Real Estate Programs under Appendix A “Prior Performance Tables” to this prospectus.

As of June 30, 2009, no private program had liquidated all of its assets.

SR Real Estate Investors, L.P. and SR Real Estate Investors II, L.P.

SR Real Estate Investors, L.P. (“SR I”) is a Delaware limited partnership formed on October 9, 2002 to purchase, own, operate and subsequently sell all or a portion of a number of unspecified real estate investments. SR Real Estate Investors II, L.P. (“SR II”) is a Delaware limited partnership formed on September 5, 2003 for the same purposes as SR I. Resource Real Estate was the co-sponsor of both programs and its affiliates have served as the manager of both programs since their inception. SR I issued 800 units to 156 investors in a private placement offering, which began on October 28, 2002 and ended on April 15, 2003 and raised $19,200,000 of gross offering proceeds (excluding the investment by Resource Capital Partners). SR II issued 782 units to 88 investors in a private placement offering, which began on September 15, 2003 and ended on May 31, 2004 and raised $4,050,000 of gross offering proceeds (excluding the investment by Resource Capital Partners). Resource Real Estate and Sage Real Estate Advisors have served as co-sponsors of SR I and SR II since its inception. On June 30, 2006, AR Real Estate Investors, LLC (“AR”) acquired 99.9% of the limited partnership interests of SR I and SR II. Effective July 1, 2006, SR I and SR II were consolidated into AR. Resource Capital Partners, Inc., an affiliate of the sponsor, is the managing member of AR and owns 10% of AR.

As of June 30, 2009, $604,233 of asset management fees due to Resource Capital Partners, Inc. has been accrued. In the AR program, the asset management fees are required to be accrued until the investors receive the applicable priority return for the program.

As of June 30, 2009, SR I and SR II (now AR) had acquired interests in six properties. As of June 30, 2009, two of these properties had been sold. The properties, which are described below, are all multifamily residential properties. The four remaining properties are located in Texas, Pennsylvania, New Mexico and California and amounted to a total investment by AR of $67,884,000 (AR’s aggregate share of purchase price, including AR’s aggregate share of debt financing at acquisition).

As of June 30, 2009, AR owned interests in the following properties:

Property Name	Ownership Interest		Purchase Date	Share of Purchase Price (1)		Share of Acquisition Costs (2)		Share of Mortgage Debt at Purchase		No. of Units		Location
Tanglewood Court	100.0	%(3)	06/18/03	$	36,200,000	$	1,051,000	$	32,500,000	634		Houston, TX
Nittany Pointe	100.0	%	03/31/03	$	14,750,000	$	310,000	$	12,750,000	624	(4)	Altoona, PA
Summit	100.0	%	12/16/03	$	11,775,000	$	303,000	$	9,400,000	170		Albuquerque, NM
Portland Courtyard	90.0	%(5)	09/11/03	$	5,159,000	$	627,000	$	4,560,000	48		Los Angeles, CA

⁽¹⁾ Purchase price does not include acquisition costs.

⁽²⁾ Acquisition costs include property acquisition fees, legal costs, due diligence fees, transfer taxes, filing fees and other costs incurred in connection with the closing.

140

⁽³⁾ Tanglewood was originally owned 80% by AR and 20% by third parties. On February 29, 2008, AR acquired the 20% interest owned by the third parties.

⁽⁴⁾ Nittany Pointe is a student housing complex with 156 units containing 624 beds, which is rented per bed.

⁽⁵⁾ An unaffiliated third party owns the other 10%.

As of June 30, 2009, SR I and SR II had sold their interests in the following properties:

Property Name	Date of Purchase	Date of Sale	Ownership Interest		Gain (Loss) on Sale
Summerview	06/22/04	07/15/05	51.6	%(1)	$	1,687,000
Chinoe Creek	05/12/03	06/22/09	100.0	%	$	203,000

⁽¹⁾ Resource Real Estate Investors, L.P. owned 18%, an affiliated entity owned 20.4% and an unaffiliated entity owned 10%.

Resource Real Estate Investors, L.P.

Resource Real Estate Investors, L.P. (“RREI I”) is a Delaware limited partnership formed on January 30, 2004 to purchase, own, operate and subsequently sell all or a portion of a number of unspecified real estate investments. RREI I issued 738,655 units to 135 investors in a private placement offering, which began on May 3, 2004 and ended on December 31, 2004 and raised $7,300,000 of gross offering proceeds (excluding the investment by Resource Capital Partners). Resource Real Estate has served as the sponsor and its affiliate has served as the manager of RREI I since its inception. Please see Table III. Annual Operating Results of Prior Real Estate Programs under Appendix A “Prior Performance Tables” to this prospectus.

As of June 30, 2009, $245,604 of investment management fees due to Resource Capital Partners, Inc. has been accrued. In the RREI I program, up to 50% of the investment management fees are required to be accrued until the investors receive the applicable priority return for the program. In addition, Resource Capital Partners, Inc. advanced $313,504 in 2008 for distributions to investors in RREI I.

As of June 30, 2009, RREI I had purchased interests in four properties. As of June 30, 2009, one of these properties has been sold. The properties, which are described below, are all multifamily residential properties. Of the four properties, two were in California, one was in North Carolina and one was in New Mexico and amounted to an investment by RREI I of $19,672,500 (RREI I’s aggregate share of purchase price, including RREI I’s aggregate share of debt financing at acquisition).

As of June 30, 2009, RREI I owned interests in the following properties:

Property Name	Ownership Interest		Purchase Date	Share of Purchase Price (1)		Share of Acquisition Costs (2)		Share of Mortgage Debt at Purchase		No. of Units		Location
Falls at Duraleigh( 3)	51.0	%	12/21/04	$	9,307,500	$	192,000	$	7,905,000	396		Raleigh, NC
Avalon	90.0	%(5)	01/06/05	$	5,265,000	$	190,000	$	5,000,000	72	(4)	Los Angeles, CA
Sage Canyon	100.0	%	03/31/05	$	5,100,000	$	184,000	$	4,320,000	105		Albuquerque, NM

⁽¹⁾ Purchase price does not include acquisition costs.

⁽²⁾ Acquisition costs include property acquisition fees, legal costs, due diligence fees, transfer taxes, filing fees and other costs incurred in connection with the closing.

⁽³⁾ Resource Real Estate Investors II, L.P., an affiliated private program owns the other 49%.

⁽⁴⁾ Avalon is a student housing complex with 15 units containing 72 beds, which is rented per bed.

⁽⁵⁾ An unaffiliated third party owns the other 10%.

141

As of June 30, 2009, RREI I had sold its interest in the following property:

Property Name	Date of Purchase	Date of Sale	Ownership Interest(1)		Gain (Loss) on Sale
Summerview	06/22/04	07/15/05	18.0	%	$	500,000

⁽¹⁾ SR I and SR II owned 51.6%, an affiliated entity owned 20.4% and an unaffiliated entity owned 10%.

Resource Real Estate Investors II, L.P.

Resource Real Estate Investors II, L.P. (“RREI II”) is a Delaware limited partnership formed on February 3, 2005 to purchase, own, operate and subsequently sell all or a portion of a number of unspecified real estate investments. RREI II issued 1,362,222 units to 270 investors in a private placement offering, which began on February 15, 2005 and ended on July 15, 2005 and raised $13,458,888 of gross offering proceeds (excluding the investment by Resource Capital Partners). Resource Real Estate has served as the sponsor and its affiliate has served as the manager of RREI II since its inception. Please see Table III. Annual Operating Results of Prior Real Estate Programs under Appendix A “Prior Performance Tables” to this prospectus.

As of June 30, 2009, $563,046 of investment management fees due to Resource Capital Partners, Inc. has been accrued. In the RREI II program, the investment management fees are required to be accrued until the investors receive the applicable priority return for the program. In addition, $139,513 of the property management fee due to affiliates of our sponsor has been accrued.

As of June 30, 2009, RREI II had purchased interests in seven properties, amounting to an investment by RREI II of $35,996,000 (RREI II’s aggregate share of purchase price, including RREI II’s aggregate share of debt financing at acquisition). Of the seven properties, four were in Arkansas, one was in New Mexico, one was in North Carolina and one was in Kansas. As of June 30, 2009, none of these properties had been sold. The properties, which are described below, are all multifamily residential properties.

As of June 30, 2009, RREI II owned interests in the following properties:

Property Name	Ownership Interest		Purchase Date	Share of Purchase Price (1)		Share of Acquisition Costs (2)		Share of Mortgage Debt at Purchase		No. of Units	Location
Falls at Duraleigh( 3)	49.0	%	12/21/04	$	8,942,000	$	184,000	$	7,595,000	396	Raleigh, NC
Cuestas	100.0	%	03/31/05	$	7,300,000	$	178,000	$	5,680,000	104	Las Cruces, NM
Oak Park(4)	25.3	%	06/30/05	$	8,004,000	$	63,000	$	6,079,000	511	Lenexa, KS
Berkley(5)	25.0	%	09/22/05	$	2,849,000	$	20,000	$	2,183,000	252	Little Rock, AR
Fairfield(5)	25.0	%	09/22/05	$	3,812,000	$	26,000	$	2,920,000	337	Little Rock, AR
Pleasant Pointe(5)	25.0	%	09/22/05	$	2,703,000	$	19,000	$	2,070,000	259	Little Rock, AR
Valley Crossing(5)	25.0	%	09/22/05	$	2,386,000	$	16,000	$	1,827,000	211	Little Rock, AR

⁽¹⁾ Purchase price does not include acquisition costs.

⁽²⁾ Acquisition costs include property acquisition fees, legal costs, due diligence fees, transfer taxes, filing fees and other costs incurred in connection with the closing.

⁽³⁾ Resource Real Estate Investors, L.P., an affiliated private program, owns the other 51%.

⁽⁴⁾ Unaffiliated tenant-in-common owners own the other 74.7%.

⁽⁵⁾ Unaffiliated tenant-in-common owners own the other 75%.

142

Resource Real Estate Investors III, L.P.

Resource Real Estate Investors III, L.P. (“RREI III”), is a Delaware limited partnership formed on July 19, 2005 to purchase, own, operate and subsequently sell all or a portion of a number of unspecified real estate investments. RREI III issued 2,379,831 units to 422 investors in a private placement offering, which began on August 18, 2005 and ended on June 16, 2006 and raised $23,750,000 of gross offering proceeds (excluding the investment by Resource Capital Partners). Resource Real Estate has served as the sponsor and its affiliate has served as the manager of RREI III since its inception. Please see Table III. Annual Operating Results of Prior Real Estate Programs under Appendix A “Prior Performance Tables” to this prospectus.

As of June 30, 2009, $763,455 of investment management fees due to Resource Capital Partners, Inc. has been accrued. In the RREI III program, the investment management fees are required to be accrued until the investors receive the applicable priority return for the program. In addition, $351,482 of the property management fee due to affiliates of our sponsor has been accrued. Resource Capital Partners, Inc. advanced $41,579 in 2008 for distributions to investors in RREI III.

As of June 30, 2009, RREI III had purchased interests in six properties, amounting to an investment by RREI III of $61,800,000 (RREI III’s aggregate share of purchase price, including RREI III’s aggregate share of debt financing at acquisition). Of the six properties, three were in Texas, two were in Kansas and one was in Georgia. As of June 30, 2009, none of these properties have been sold. The properties, which are described below, are all multifamily residential properties.

As of June 30, 2009, RREI III owned interests in the following properties:

Property Name	Ownership Interest		Purchase Date	Share of Purchase Price (1)		Share of Acquisition Costs (2)		Share of Mortgage Debt at Purchase		No. of Units	Location
Highland Park(3)	25.0	%	11/30/05	$	6,006,000	$	40,000	$	4,880,000	370	Overland Park, KS
Lodge at Overland( 3)	25.0	%	11/30/05	$	8,294,000	$	55,000	$	6,740,000	548	Overland Park, KS
Santa Fe	100.0	%	01/27/06	$	9,800,000	$	271,000	$	8,080,000	272	El Paso, TX
Foxglove	100.0	%	01/27/06	$	7,400,000	$	204,000	$	6,000,000	178	El Paso, TX
Howell Bridge	100.0	%	09/20/06	$	19,300,000	$	391,000	$	12,900,000	256	Duluth, GA
Grove at White Oak	100.0	%	09/28/06	$	11,000,000	$	295,000	$	9,000,000	156	Houston, TX

⁽¹⁾ Purchase price does not include acquisition costs.

⁽²⁾ Acquisition costs include property acquisition fees, legal costs, due diligence fees, transfer taxes, filing fees and other costs incurred in connection with the closing.

⁽³⁾ Unaffiliated tenant-in-common owners own the other 75%.

Resource Real Estate Investors IV, L.P.

Resource Real Estate Investors IV, L.P. (“RREI IV”) is a Delaware limited partnership formed on May 26, 2006 to purchase, own, operate and subsequently sell all or a portion of a number of unspecified real estate investments. RREI IV issued 2,834,940 units to 481 investors in a private placement offering, which began on July 17, 2006 and ended on December 31, 2006 and raised $28,268,716 of gross offering proceeds (excluding the investment by Resource Capital Partners). Resource Real Estate has served as the sponsor and its affiliate has served as the manager of RREI IV since its inception. Please see Table III. Annual Operating Results of Prior Real Estate Programs under Appendix A “Prior Performance Tables” to this prospectus.

143

As of June 30, 2009, $743,828 of investment management fees due to Resource Capital Partners, Inc. has been accrued. In the RREI IV program, the investment management fees are required to be accrued until the investors receive the applicable priority return for the program. In addition, $164,995 of the property management fee due to affiliates of our sponsor has been accrued.

As of June 30, 2009, RREI IV had purchased interests in six properties, amounting to an investment by RREI IV of $56,166,000 (RREI IV’s aggregate share of purchase price, including RREI IV’s aggregate share of debt financing at acquisition). Of the six properties, four were in Texas, one was in Kansas and one was in Tennessee. As of June 30, 2009, none of these properties had been sold. The properties, which are described below, are all multifamily residential properties.

As of June 30, 2009, RREI IV owned interests in the following properties:

Property Name	Ownership Interest		Purchase Date	Share of Purchase Price (1)		Share of Acquisition Costs (2)		Share of Mortgage Debt at Purchase			No. of Units	Location
Regents Center(3)	21.0	%	03/31/06	$	7,770,000	$	45,000	$	5,050,500		424	Overland Park, KS
Heritage Lake(4)	51.4	%	11/22/06	$	13,121,000	$	540,000	$	8,322,330		262	Knoxville, TN
Wyndham(5)	60.0	%	12/18/06	$	10,725,000	$	204,000	$	7,953,000	(6)	448	Houston, TX
Westchase Crossing( 5)	60.0	%	12/18/06	$	8,775,000	$	166,000	$	6,507,000	(6)	366	Houston, TX
Wind Tree	100.0	%	02/28/07	$	8,925,000	$	285,000	$	7,140,000		256	El Paso, TX
Pear Tree	100.0	%	03/30/07	$	6,850,000	$	237,000	$	5,480,000		156	El Paso, TX

⁽¹⁾ Purchase price does not include acquisition costs.

⁽²⁾ Acquisition costs include property acquisition fees, legal costs, due diligence fees, transfer taxes, filing fees and other costs incurred in connection with the closing.

⁽³⁾ Unaffiliated tenant-in-common owners own the other 79%.

⁽⁴⁾ Unaffiliated tenant-in-common owners own the other 48.6%.

⁽⁵⁾ Unaffiliated tenant-in-common owners own the other 40%.

⁽⁶⁾ The same mortgage loan is secured by both Westchase Crossing and Wyndham.

Resource Real Estate Investors V, L.P.

Resource Real Estate Investors V, L.P. (“RREI V”) is a Delaware limited partnership formed on January 26, 2007 to purchase, own, operate and subsequently sell all or a portion of a number of unspecified real estate investments. RREI V issued 3,333,202 units to 491 investors in a private placement offering, which began on February 19, 2007 and ended on September 21, 2007 and raised $33,247,781 of gross offering proceeds (excluding investment by Resource Capital Partners). Resource Real Estate has served as the sponsor and its affiliate has served as the manager of RREI V since its inception. Please see Table III. Annual Operating Results of Prior Real Estate Programs under Appendix A “Prior Performance Tables” to this prospectus.

As of June 30, 2009, $637,115 of investment management fees due to Resource Capital Partners, Inc. has been accrued. In the RREI V program, the investment management fees are required to be accrued until the investors receive the applicable priority return for the program. In addition, $197,536 of the property management fee and $101,547 of debt management fees due to affiliates of our sponsor have been accrued.

As of June 30, 2009, RREI V had purchased interests in five properties, amounting to an investment by RREI V of $67,947,000 (RREI V’s aggregate share of purchase price, including RREI V’s aggregate share of debt financing at acquisition). Of the five properties, two were in Arkansas, two were in Georgia and one was in Texas. As of June 30, 2009, none of these properties had been sold. The properties, which are described below, are all multifamily residential properties.

144

As of June 30, 2009, RREI V owned interests in the following properties:

Property Name	Ownership Interest		Purchase Date	Share of Purchase Price (1)		Share of Acquisition Costs (2)		Share of Mortgage Debt at Purchase			No. of Units	Location
Chenal Lakes(3)	51.0	%	05/10/07	$	17,232,747	$	260,000	$	13,872,000	(4)	456	Little Rock, AR
Brightwaters(3)	51.0	%	05/10/07	$	8,114,253	$	122,000	$	6,528,000	(4)	256	Little Rock, AR
Magnolia Villas	100.0	%	06/28/07	$	11,300,000	$	341,000	$	9,040,000		144	Savannah, GA
West Wind Landing	100.0	%	06/28/07	$	18,600,000	$	489,000	$	14,880,000		192	Savannah, GA
Ryan’s Crossing	100.0	%	09/28/07	$	12,700,000	$	425,000	$	8,255,000		248	El Paso, TX

⁽¹⁾ Purchase price does not include acquisition costs.

⁽²⁾ Acquisition costs include property acquisition fees, legal costs, due diligence fees, transfer taxes, filing fees and other costs incurred in connection with the closing.

⁽³⁾ Unaffiliated tenant-in-common owners own the other 49%.

⁽⁴⁾ The same mortgage loan is secured by both Chenal Lakes and Brightwater.

As of June 30, 2009, RREI V has purchased one subordinated note, amounting to a total investment by RREI V of $2,575,000. The note, which is described below, is secured by a multifamily, residential property.

Underlying Property Name	Location	Ownership Interest		Purchase Date	Purchase Price (1)		Face Value		Maturity Date	Interest Rate
Morgan	Rockville, MD	100.0	%	6/12/07	$	2,575,000	$	2,550,000	01/11/12	10.75	%

⁽¹⁾ Purchase price includes acquisition costs.

Resource Real Estate Investors 7, L.P.

Resource Real Estate Investors 7, L.P. (“RREI VII”) is a Delaware limited partnership formed on March 28, 2008 to purchase, own, operate and subsequently sell all or a portion of a number of unspecified real estate investments. RREI VII issued 2,756,906 units to 513 investors in a private placement offering, which began on June 16, 2008 and is currently still open. RREI has raised $27,454,241 of gross offering proceeds (excluding investment by Resource Capital Partners) as of June 30, 2009. Resource Real Estate has served as the sponsor and its affiliate has served as the manager of RREI VII since its inception. Please see Please see Table III. Annual Operating Results of Prior Real Estate Programs under Appendix A “Prior Performance Tables” to this prospectus.

As of June 30, 2009, $176,285 of investment management fees due to Resource Capital Partners, Inc. has been accrued. In the RREI VII program, the investment management fees are required to be accrued until the investors receive the applicable priority return for the program. In addition, $117,295 of the property management fee due to affiliates of our sponsor has been accrued.

As of June 30, 2009, RREI VII had purchased interests in five properties, amounting to an investment by RREI VII of $51,300,000 (RREI VII’s aggregate share of purchase price, including RREI VII’s aggregate share of debt financing at acquisition). Of the five properties, three were in Texas, one was in Maine and one was in Georgia. As of June 30, 2009, none of these properties had been sold. The properties, which are described below, are all multifamily residential properties.

145

As of June 30, 2009, RREI VII owned interests in the following properties:

Property Name	Ownership Interest		Purchase Date	Share of Purchase Price (1)		Share of Acquisition Costs (2)		Share of Mortgage Debt at Purchase		No. of Units	Location
Tamarlane (3)	100.0	%	07/31/08	$	12,250,000	$	383,000	$	9,925,000	115	Portland, ME
Bent Oaks	100.0	%	12/10/08	$	7,650,000	$	252,000	$	6,120,000	146	Austin, TX
Woodhollow	100.0	%	12/12/08	$	6,550,000	$	215,000	$	5,240,000	108	Austin, TX
Cape Cod	100.0	%	12/10/08	$	8,150,000	$	257,000	$	6,362,000	212	San Antonio, TX
Woodland Hills	100.0	%	12/19/08	$	16,700,000	$	457,000	$	13,590,000	228	Decatur, GA

⁽¹⁾ Purchase price does not include acquisition costs.

⁽²⁾ Acquisition costs include property acquisition fees, legal costs, due diligence fees, transfer taxes, filing fees and other costs incurred in connection with the closing.

⁽³⁾ On April 23, 2008, an affiliate of our sponsor acquired 100% ownership interest in Tamarlane. On July 31, 2008, RREI VII acquired Tamarlane from this affiliate.

Resource Real Estate Opportunity Fund L.P.

Resource Real Estate Opportunity Fund, L.P. (“Opportunity Fund”) is a Delaware limited partnership formed on December 23, 2008 to purchase, own, operate and subsequently sell all or a portion of a number of unspecified real estate investments. Opportunity Fund issued 1,105,296 units to 131 investors in a private placement offering, which began on January 19, 2009 and is still currently open. Opportunity Fund has raised $11,017,308 of gross offering proceeds as of June 30, 2009. Resource Real Estate has served as the sponsor and its affiliate has served as the manager of Opportunity Fund since its inception.

As of June 30, 2009, Opportunity Fund purchased one mortgage note amounting to a total investment of $7,022,000. The note, which is described below, is secured by multifamily residential condominium units.

Underlying Property Name

Location

Ownership Interest

Purchase Date

Purchase Price (1)

Face Value

Maturity Date

Interest Rate

Mill Creek Terrace

Kansas City, MO

100.0

%

6/26/09

$

7,022,000

$

12,471,000

n/a

(2)

n/a

(2)

⁽¹⁾ Purchase price includes acquisition costs.

⁽²⁾ The note has matured.

Adverse Business Developments or Conditions

The recession that began in the United States in December 2007 has made it more difficult for multifamily property owners, including the multifamily real estate funds sponsored by our sponsor, to increase rental rates to planned levels and maintain occupancy rates during periods of unprecedented nationwide job losses. In addition to the pressures placed upon the properties during a period of global economic contraction, prior to the creation of Resource Residential and deployment of its Experience-Based Management ^sm strategy, weaker third -party property management affected the performance of the properties in the public and private funds. Prior to the fourth quarter of 2007, Resource Real Estate exclusively hired third-party property managers to manage the funds’ properties. We believe third-party property managers are generally less effective than in-house property managers due to the fact that they do not have the same compensation incentive to meet an owner’s goals and projections. By relying on third -party management, it took longer to stabilize occupancy in properties after acquisition than was expected. Starting in the fourth quarter of 2007, Resource Real Estate formed a new subsidiary, Resource Real Estate Management, Inc., d/b/a Resource Residential, to be the property manager of all of the properties owned by its funds in order to better control the performance of the properties. See “Investment Objectives and Policies—Real Estate Asset Management Strategy—Experienced-Based Multifamily Management Strategy.” Finally, operating cash flow available after distributions has been affected by timing issues with rent collection and the payment of expenses such as real estate taxes under appeal, causing either excess or deficit cash flows after distributions for a given period.

146

For some of those private and public programs detailed below and as noted in Prior Performance Table III, in some circumstances, mainly due to the reasons discussed above and as is typical in the early years for a real estate fund, some Resource Real Estate-sponsored programs had limited cash flow deficiencies and distributions to investors represented returns of capital because the distributions to investors were in excess of cash generated from operations, sales and refinancings for the corresponding period. Cash deficiencies after cash distributions are shown on Prior Performance Table III.

The following lists adverse business developments for investment programs sponsored by our sponsor: Distributions in RREI I have been funded in prior years from a combination of operating cash flow, sale proceeds and reserves through January 2008 and, since that date, from operating cash flow and advances from its general partner. Distributions in RREI II have been funded from a combination of operating cash flow and reserves. Distributions in RREI III have been funded from a combination of operating cash flow and reserves. Cash flow deficiencies occurred at one of the fund properties due to third -party property management that did not meet our high standards prior to 2008 and the delay in receiving tax refunds from tax appeals on two fund properties located in Texas. As of July, 2009, RREI III has funded distributions solely from operating cash flow. Distributions in RREI IV have been funded from a combination of operating cash flow and reserves. Cash flow deficiencies occurred within RREI IV due to third -party property management that did not meet our high standards prior to 2008 and the delay in receiving tax refunds from tax appeals on two properties located in Texas. As of June 2009, RREI IV has funded distributions solely from operating cash flow. Distributions in RREI V have been funded from a combination of operating cash flow and reserves. Cash flow deficiencies have occurred at some of the properties in the fund due to poor third -party property management that did not meet our high standards prior to 2008. As of June 2009, RREI V has funded distributions solely from operating cash flow. Finally, distributions in RREI VI have been funded from a combination of operating cash flow and reserves. Cash flow deficiencies have occurred due to a drop in occupancy at one of the fund properties due to sizable layoffs at a large employer located across the street from that property. Cash flow deficiencies are expected to continue also due to the recent restructuring of a subordinated debt investment held by the fund that was in default.

Excess operating cash flow after distributions may be retained by the program as reserves to fund anticipated and unanticipated future expenditures or to cover reductions in cash flow resulting from anticipated or unanticipated rent shortfalls. Subsequent to the quickening of the global and national economic contraction in late 2008, a more conservative distribution policy was enacted for many of our private and public programs. As a part of our more conservative distribution policies, monthly distributions were reduced to 3% for RREI I, RREI II, RREI III, RREI IV and RREI V in January 2009. Excess cash flow after distributions each month was retained by each of those programs as reserves to cover anticipated and unanticipated future expenditures and reductions in cash flow. Where distributions are made that exceed the cash flow generated from operations of the programs, the distributions are made either from cash reserves held by the program to be used for distributions or loans from Resource Capital Partners, Inc. or its affiliates.

FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material U.S. federal income tax consequences of an investment in our common stock. The law firm of DLA Piper LLP (US) has acted as our tax counsel and reviewed this summary. For purposes of this section under the heading “Federal Income Tax Considerations,” references to “Resource Real Estate Opportunity REIT, Inc.,” “we,” “our” and “us” mean only Resource Real Estate Opportunity REIT, Inc. and not its subsidiaries or other lower-tier entities, except as otherwise indicated. This summary is based upon the Internal Revenue Code, the regulations promulgated by the U.S. Treasury Department, rulings and other administrative pronouncements issued by the IRS, and judicial decisions, all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. We have not sought and do not currently expect to seek an advance ruling from the IRS regarding any matter discussed in this prospectus. The summary is also based upon the assumption that we and our subsidiaries and affiliates will operate in accordance with their applicable organizational documents. This summary is for general information only and does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular investor in light of its investment or tax circumstances or to investors subject to special tax rules, such as:

147

• financial institutions;

• insurance companies;

• broker-dealers;

• regulated investment companies;

• partnerships and trusts;

• persons who hold our stock on behalf of other persons as nominees;

• persons who receive our stock through the exercise of employee stock options (if we ever have employees) or otherwise as compensation;

• persons holding our stock as part of a “straddle,” “hedge,” “conversion transaction,” “constructive ownership transaction,” “synthetic security” or other integrated investment;

• “S” corporations;

and, except to the extent discussed below:

• tax-exempt organizations; and

• foreign investors.

This summary assumes that investors will hold their common stock as a capital asset, which generally means as property held for investment.

The federal income tax treatment of holders of our common stock depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. In addition, the tax consequences to any particular stockholder of holding our common stock will depend on the stockholder’s particular tax circumstances. For example, a stockholder that is a partnership or trust that has issued an equity interest to certain types of tax-exempt organizations may be subject to a special entity-level tax if we make distributions attributable to “excess inclusion income.” See “—Taxation of Resource Real Estate Opportunity REIT, Inc.—Taxable Mortgage Pools and Excess Inclusion Income.” A similar tax may be payable by persons who hold our stock as nominees on behalf of tax-exempt organizations. You are urged to consult your tax advisor regarding the federal, state, local and foreign income and other tax consequences to you in light of your particular investment or tax circumstances of acquiring, holding, exchanging, or otherwise disposing of our common stock.

Taxation of Resource Real Estate Opportunity REIT, Inc.

We intend to elect to be taxed as a REIT, commencing with our taxable year ending December 31, 2009. We believe that we have been organized and expect to operate in such a manner as to qualify for taxation as a REIT.

The law firm of DLA Piper LLP (US), acting as our tax counsel in connection with this offering, will render an opinion that we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code, and that our proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT for our taxable year ended December 31, 2009. It must be emphasized that the opinion of DLA Piper LLP (US) will be based on various assumptions relating to our organization and operation and will be conditioned upon fact-based representations and covenants made by our management regarding our organization, assets, and income, and the past, present and future conduct of our business operations. While we intend to operate so that we will qualify as a REIT, given the highly complex nature of the

148

rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, no assurance can be given by DLA Piper LLP (US) or by us that we will qualify as a REIT for any particular year. The opinion will be expressed as of the date issued and will not cover subsequent periods. Counsel will have no obligation to advise us or our stockholders of any subsequent change in the matters stated, represented or assumed, or of any subsequent change in the applicable law. You should be aware that opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not challenge the conclusions set forth in such opinions.

Qualification and taxation as a REIT depends on our ability to meet on a continuing basis, through actual operating results, distribution levels, and diversity of stock and asset ownership, various qualification requirements imposed upon REITs by the Internal Revenue Code, the compliance with which will not be reviewed by DLA Piper LLP (US). Our ability to qualify as a REIT also requires that we satisfy certain asset tests, some of which depend upon the fair market values of assets that we own directly or indirectly. Such values may not be susceptible to a precise determination. Accordingly, no assurance can be given that the actual results of our operations for any taxable year will satisfy such requirements for qualification and taxation as a REIT.

Taxation of REITs in General

As indicated above, our qualification and taxation as a REIT depends upon our ability to meet, on a continuing basis, various qualification requirements imposed upon REITs by the Internal Revenue Code. The material qualification requirements are summarized below under “—Requirements for Qualification—General.” While we intend to operate so that we qualify as a REIT, no assurance can be given that the IRS will not challenge our qualification, or that we will be able to operate in accordance with the REIT requirements in the future. See “—Failure to Qualify.”

Provided that we qualify as a REIT, generally we will be entitled to a deduction for distributions that we pay to our stockholders and therefore will not be subject to federal corporate income tax on our taxable income that is currently distributed to our stockholders. This treatment substantially eliminates the “double taxation” at the corporate and stockholder levels that generally results from investment in a corporation. In general, the income that we generate is taxed only at the stockholder level upon distribution to our stockholders.

For tax years through 2010, most domestic stockholders that are individuals, trusts or estates are taxed on corporate distributions at a maximum rate of 15% (the same as long-term capital gains). With limited exceptions, however, distributions from us or from other entities that are taxed as REITs are generally not eligible for this rate and will continue to be taxed at rates applicable to ordinary income, which will be as high as 35% through 2010. See “—Taxation of Stockholders—Taxation of Taxable Domestic Stockholders—Distributions.”

Any net operating losses and other tax attributes generally do not pass through to our stockholders, subject to special rules for certain items such as the capital gains that we recognize. See “—Taxation of Stockholders.”

If we qualify as a REIT, we will nonetheless be subject to federal tax in the following circumstances:

• We will be taxed at regular corporate rates on any undistributed taxable income, including undistributed net capital gains.

• We may be subject to the “alternative minimum tax” on our items of tax preference, including any deductions of net operating losses.

• If we have net income from prohibited transactions, which are, in general, sales or other dispositions of inventory or property held primarily for sale to customers in the ordinary course of business, other than foreclosure property, such income will be subject to a 100% tax. See “—Prohibited Transactions” and “—Foreclosure Property” below.

• If we elect to treat property that we acquire in connection with a foreclosure of a mortgage loan or

149

certain leasehold terminations as “foreclosure property,” we may thereby avoid the 100% tax on gain from a resale of that property (if the sale would otherwise constitute a prohibited transaction), but the income from the sale or operation of the property may be subject to corporate income tax at the highest applicable rate (currently 35%).

• If we derive “excess inclusion income” from an interest in certain mortgage loan securitization structures (i.e., a “taxable mortgage pool” or a residual interest in a REMIC), we could be subject to corporate level federal income tax at a 35% rate to the extent that such income is allocable to specified types of tax-exempt stockholders known as “disqualified organizations” that are not subject to unrelated business income tax. See “—Taxable Mortgage Pools and Excess Inclusion Income” below. “Disqualified organizations” are any organization described in Section 860E(e)(5) of the Code, including: (i) the United States; (ii) any state or political subdivision of the United States; (iii) any foreign government; and (iv) certain other organizations.

• If we should fail to satisfy the 75% gross income test or the 95% gross income test, as discussed below, but nonetheless maintain our qualification as a REIT because we satisfy other requirements, we will be subject to a 100% tax on an amount based on the magnitude of the failure, as adjusted to reflect the profit margin associated with our gross income.

• If we should violate the asset tests (other than certain de minimis violations) or other requirements applicable to REITs, as described below, and yet maintain our qualification as a REIT because there is reasonable cause for the failure and other applicable requirements are met, we may be subject to an excise tax. In that case, the amount of the excise tax will be at least $50,000 per failure, and, in the case of certain asset test failures, will be determined as the amount of net income generated by the assets in question multiplied by the highest corporate tax rate (currently 35%) if that amount exceeds $50,000 per failure.

• If we should fail to distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT capital gain net income for such year, and (c) any undistributed taxable income from prior periods, we would be subject to a nondeductible 4% excise tax on the excess of the required distribution over the sum of (i) the amounts that we actually distributed and (ii) the amounts we retained and upon which we paid income tax at the corporate level.

• We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record keeping requirements intended to monitor our compliance with rules relating to the composition of a REIT’s stockholders, as described below in “—Requirements for Qualification—General.”

• A 100% tax may be imposed on transactions between us and a TRS (as described below) that do not reflect arm’s-length terms.

• If we acquire appreciated assets from a corporation that is not a REIT (i.e., a corporation taxable under subchapter C of the Internal Revenue Code) in a transaction in which the adjusted tax basis of the assets in our hands is determined by reference to the adjusted tax basis of the assets in the hands of the subchapter C corporation, we may be subject to tax on such appreciation at the highest corporate income tax rate then applicable if we subsequently recognize gain on a disposition of any such assets during the 10-year period following their acquisition from the subchapter C corporation.

• The earnings of our subsidiaries, including any subsidiary we may elect to treat as a TRS, are subject to federal corporate income tax to the extent that such subsidiaries are subchapter C corporations.

In addition, we and our subsidiaries may be subject to a variety of taxes, including payroll taxes and state and local and foreign income, property and other taxes on our assets and operations. We could also be subject to tax in situations and on transactions not presently contemplated.

150

Requirements for Qualification—General

The Internal Revenue Code defines a REIT as a corporation, trust or association:

(1) that is managed by one or more trustees or directors;

(2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;

(3) that would be taxable as a domestic corporation but for its election to be subject to tax as a REIT;

(4) that is neither a financial institution nor an insurance company subject to specific provisions of the Internal Revenue Code;

(5) the beneficial ownership of which is held by 100 or more persons;

(6) in which, during the last half of each taxable year, not more than 50% in value of the outstanding stock is owned, directly or indirectly, by five or fewer “individuals” (as defined in the Internal Revenue Code to include specified tax-exempt entities);

(7) which elects to be taxed as a REIT, or has made such election for a previous taxable year, and satisfies all relevant filing and other administrative requirements that must be met to elect and maintain REIT qualification; and

(8) which meets other tests described below, including with respect to the nature of its income and assets.

The Internal Revenue Code provides that conditions (1) through (4) must be met during the entire taxable year, and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a shorter taxable year. Conditions (5) and (6) need not be met during a corporation’s initial tax year as a REIT (which, in our case, will be 2009). Our charter provides restrictions regarding the ownership and transfer of our shares, which are intended to assist us in satisfying the share ownership requirements described in conditions (5) and (6) above.

We believe that we will issue in this offering common stock with sufficient diversity of ownership to satisfy requirements 5 and 6. In addition, our charter restricts the ownership and transfer of our stock so that we should continue to satisfy these requirements. The provisions of our charter restricting the ownership and transfer of the common stock are described in “Description of Shares—Restrictions on Ownership of Shares.”

To monitor compliance with the share ownership requirements, we generally are required to maintain records regarding the actual ownership of our shares. To do so, we must demand written statements each year from the record holders of significant percentages of our stock pursuant to which the record holders must disclose the actual owners of the shares (i.e., the persons required to include our distributions in their gross income). We must maintain a list of those persons failing or refusing to comply with this demand as part of our records. We could be subject to monetary penalties if we fail to comply with these record-keeping requirements. If you fail or refuse to comply with the demands, you will be required by Treasury regulations to submit a statement with your tax return disclosing your actual ownership of our shares and other information.

In addition, a corporation generally may not elect to become a REIT unless its taxable year is the calendar year. We intend to adopt December 31 as our year-end, and thereby satisfy this requirement.

The Internal Revenue Code provides relief from violations of the REIT gross income requirements, as described below under “—Income Tests,” in cases where a violation is due to reasonable cause and not to willful neglect, and other requirements are met, including the payment of a penalty tax that is based upon the magnitude of the violation. In addition, certain provisions of the Internal Revenue Code extend similar relief in the case of certain

151

violations of the REIT asset requirements (see “—Asset Tests” below) and other REIT requirements, again provided that the violation is due to reasonable cause and not willful neglect, and other conditions are met, including the payment of a penalty tax. If we fail to satisfy any of the various REIT requirements, there can be no assurance that these relief provisions would be available to enable us to maintain our qualification as a REIT, and, if such relief provisions are available, the amount of any resultant penalty tax could be substantial.

Effect of Subsidiary Entities

Ownership of Partnership Interests. An unincorporated domestic entity, such as a partnership, limited liability company, or trust that has a single owner generally is not treated as an entity separate from its parent for federal income tax purposes. An unincorporated domestic entity with two or more owners generally is treated as a partnership for federal income tax purposes. If we are a partner in an entity that is treated as a partnership for federal income tax purposes, Treasury regulations provide that we are deemed to own our proportionate share of the partnership’s assets, and to earn our proportionate share of the partnership’s income, for purposes of the asset and gross income tests applicable to REITs. Our proportionate share of a partnership’s assets and income is based on our capital interest in the partnership (except that for purposes of the 10% value test, our proportionate share of the partnership’s assets is based on our proportionate interest in the equity and certain debt securities issued by the partnership). In addition, the assets and gross income of the partnership are deemed to retain the same character in our hands. Thus, our proportionate share of the assets and items of income of any of our subsidiary partnerships will be treated as our assets and items of income for purposes of applying the REIT requirements. For any period of time that we own 100% of our Operating Partnership, all of the Operating Partnership’s assets and income will be deemed to be ours for federal income tax purposes.

Disregarded Subsidiaries. If we own a corporate subsidiary that is a “qualified REIT subsidiary,” that subsidiary is generally disregarded for federal income tax purposes, and all of the subsidiary’s assets, liabilities and items of income, deduction and credit are treated as our assets, liabilities and items of income, deduction and credit, including for purposes of the gross income and asset tests applicable to REITs. A qualified REIT subsidiary is any corporation, other than a TRS (as described below), that is directly or indirectly wholly owned by a REIT. Thus, in applying the requirements described herein, any qualified REIT subsidiary that we own will be ignored, and all assets, liabilities, and items of income, deduction and credit of such subsidiary will be treated as our assets, liabilities, and items of income, deduction and credit. If we own 100% of the equity interests in a CDO issuer or other securitization vehicle that is treated as a corporation for tax purposes, that CDO issuer or other securitization vehicle would be a qualified REIT subsidiary, unless we and the CDO issuer or other securitization vehicle jointly elect to treat the CDO issuer or other securitization vehicle as a TRS. It is anticipated that CDO financings we enter into, if any, will be treated as qualified REIT subsidiaries. Other entities that are wholly owned by us, including single member limited liability companies that have not elected to be taxed as corporations for federal income tax purposes, are also generally disregarded as separate entities for federal income tax purposes, including for purposes of the REIT income and asset tests. Disregarded subsidiaries, along with any partnerships in which we hold an equity interest, are sometimes referred to herein as “pass-through subsidiaries.”

In the event that a disregarded subsidiary of ours ceases to be wholly owned—for example, if any equity interest in the subsidiary is acquired by a person other than us or another disregarded subsidiary of ours—the subsidiary’s separate existence would no longer be disregarded for federal income tax purposes. Instead, the subsidiary would have multiple owners and would be treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect our ability to satisfy the various asset and gross income requirements applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% of the securities of another corporation. See “—Asset Tests” and “—Income Tests.”

Taxable Corporate Subsidiaries. In the future we may jointly elect with any of our subsidiary corporations, whether or not wholly owned, to treat such subsidiary corporations as taxable REIT subsidiaries (“TRSs”). A REIT is permitted to own up to 100% of the stock of one or more TRSs. A TRS is a fully taxable corporation that may earn income that would not be qualifying income if earned directly by the parent REIT. The subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation with respect to which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. We generally may not own more than 10% of the securities of a taxable corporation, as measured by voting power or

152

value, unless we and such corporation elect to treat such corporation as a TRS. Overall, no more than 25% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs.

The separate existence of a TRS or other taxable corporation is not ignored for federal income tax purposes. Accordingly, a TRS or other taxable corporation generally would be subject to corporate income tax on its earnings, which may reduce the cash flow that we and our subsidiaries generate in the aggregate, and may reduce our ability to make distributions to our stockholders.

We are not treated as holding the assets of a TRS or other taxable subsidiary corporation or as receiving any income that the subsidiary earns. Rather, the stock issued by a taxable subsidiary to us is an asset in our hands, and we treat the distributions paid to us from such taxable subsidiary, if any, as income. This treatment can affect our income and asset test calculations, as described below. Because we do not include the assets and income of TRSs or other taxable subsidiary corporations in determining our compliance with the REIT requirements, we may use such entities to undertake indirectly activities that the REIT rules might otherwise preclude us from doing directly or through pass-through subsidiaries. For example, we may use TRSs or other taxable subsidiary corporations to conduct activities that give rise to certain categories of income such as management fees or activities that would be treated in our hands as prohibited transactions.

Certain restrictions imposed on TRSs are intended to ensure that such entities will be subject to appropriate levels of U.S. federal income taxation. First, a TRS with a debt-equity ratio in excess of 1.5 to 1 may not deduct interest payments made in any year to an affiliated REIT to the extent that such payments exceed, generally, 50% of the TRS’s adjusted taxable income for that year (although the TRS may carry forward to, and deduct in, a succeeding year the disallowed interest amount if the 50% test is satisfied in that year). In addition, if amounts are paid to a REIT or deducted by a TRS due to transactions between the REIT and a TRS that exceed the amount that would be paid to or deducted by a party in an arm’s-length transaction, the REIT generally will be subject to an excise tax equal to 100% of such excess. We intend to scrutinize all of our transactions with any of our subsidiaries that are treated as a TRS in an effort to ensure that we do not become subject to this excise tax; however, we cannot assure you that we will be successful in avoiding this excise tax.

We may own TRSs that are organized outside of the United States. For example, we may hold certain investments and instruments through TRSs to the extent that direct ownership by us could jeopardize our compliance with the REIT qualification requirements, and we may make TRS elections with respect to certain offshore issuers of CDOs and/or other instruments to the extent that we do not own 100% of the offshore issuer’s equity. Special rules apply in the case of income earned by a taxable subsidiary corporation that is organized outside of the United States. Depending upon the nature of the subsidiary’s income, the parent REIT may be required to include in its taxable income an amount equal to its share of the subsidiary’s income, without regard to whether, or when, such income is distributed by the subsidiary. See “—Income Tests” below. A TRS that is organized outside of the United States may, depending upon the nature of its operations, be subject to little or no federal income tax. There is a specific exemption from federal income tax for non-U.S. corporations that restrict their activities in the United States to trading stock and securities (or any activity closely related thereto) for their own account, whether such trading (or such other activity) is conducted by the corporation or its employees through a resident broker, commission agent, custodian or other agent. We currently expect that any offshore TRSs will rely on that exemption or otherwise operate in a manner so that they will generally not be subject to federal income tax on their net income at the entity level.

Income Tests

In order to qualify as a REIT, we must satisfy two gross income requirements on an annual basis. First, at least 75% of our gross income for each taxable year, excluding gross income from sales of inventory or dealer property in “prohibited transactions,” generally must be derived from investments relating to real property or mortgages on real property, including interest income derived from mortgage loans secured by real property (including certain types of mortgage-backed securities), “rents from real property,” distributions received from other REITs, and gains from the sale of real estate assets, any amount includible in gross income with respect to a regular or residual interest in a REMIC, unless less than 95% of the REMIC’s assets are real estate assets, in which case only a proportionate amount of such income will qualify, and as well as specified income from temporary

153

investments. Second, at least 95% of our gross income in each taxable year, excluding gross income from prohibited transactions and certain hedging transactions, must be derived from some combination of such income from investments in real property (i.e., income that qualifies under the 75% income test described above), as well as other distributions, interest, and gain from the sale or disposition of stock or securities, which need not have any relation to real property.

Gross income from the sale of inventory property is excluded from both the numerator and the denominator in both income tests. Income and gain from hedging transactions that we enter into to hedge indebtedness incurred or to be incurred to acquire or carry real estate assets will generally be excluded from both the numerator and the denominator for purposes of both gross income tests. We intend to monitor the amount of our non-qualifying income and manage our investment portfolio to comply at all times with the gross income tests but we cannot assure you that we will be successful in this effort.

The term “interest,” as defined for purposes of both gross income tests, generally excludes any amount that is based in whole or in part on the income or profits of any person. However, interest generally includes the following: (i) an amount that is based on a fixed percentage or percentages of gross receipts or sales and (ii) an amount that is based on the income or profits of a borrower where the borrower derives substantially all of its income from the real property securing the debt by leasing substantially all of its interest in the property, but only to the extent that the amounts received by the borrower would be qualifying “rents from real property” if received directly by a REIT.

If a loan contains a provision that entitles a REIT to a percentage of the borrower’s gain upon the sale of the real property securing the loan or a percentage of the appreciation in the property’s value as of a specific date, income attributable to that loan provision will be treated as gain from the sale of the property securing the loan, which generally is qualifying income for purposes of both gross income tests.

Interest on debt secured by a mortgage on real property or on interests in real property is generally qualifying income for purposes of the 75% gross income test. However, if the highest principal amount of a loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of the date the REIT agreed to originate or acquire the loan, a portion of the interest income from such loan will not be qualifying income for purposes of the 75% gross income test, but will be qualifying income for purposes of the 95% gross income test. Note that a “significant modification” of a debt instrument will result in a new debt instrument which requires new tests of the value of the underlying real estate. The portion of the interest income that will not be qualifying income for purposes of the 75% gross income test will be equal to the portion of the principal amount of the loan that is not secured by real property (i.e., the amount by which the loan exceeds the value of the real estate that is security for the loan).

Interest, including original issue discount or market discount that we accrue on our real estate related debt investments generally will be qualifying income for purposes of both gross income tests. However, many of our investments will not be secured by mortgages on real property or interests in real property. Our interest income from those investments will be qualifying income for purposes of the 95% gross income test but not the 75% gross income test. In addition, as discussed above, if the fair market value of the real estate securing any of our investments is less than the principal amount of the underlying loan as of a certain testing date, a portion of the income from that investment will be qualifying income for purposes of the 95% gross income test but not the 75% gross income test.

To the extent that the terms of a loan provide for contingent interest that is based on the cash proceeds realized upon the sale of the property securing the loan (a “shared appreciation provision”), income attributable to the participation feature will be treated as gain from sale of the underlying property, which generally will be qualifying income for purposes of both the 75% and 95% gross income tests provided that the real property is not held as inventory or dealer property or primarily for sale to customers in the ordinary course of business. To the extent that we derive interest income from a mortgage loan or income from the rental of real property (discussed below) where all or a portion of the amount of interest or rental income payable is contingent, such income generally will qualify for purposes of the gross income tests only if it is based upon the gross receipts or sales and not on the net income or profits of the borrower or lessee. This limitation does not apply, however, where the borrower or lessee leases substantially all of its interest in the property to tenants or subtenants to the extent that the rental

154

income derived by the borrower or lessee, as the case may be, would qualify as rents from real property had we earned the income directly.

We and our subsidiaries may invest in mezzanine loans, which are loans secured by equity interests in an entity that directly or indirectly owns real property, rather than by a direct mortgage of the real property. The IRS has issued Revenue Procedure 2003-65, which provides a safe harbor applicable to mezzanine loans. Under the Revenue Procedure, if a mezzanine loan meets each of the requirements contained in the Revenue Procedure, (1) the mezzanine loan will be treated by the IRS as a real estate asset for purposes of the asset tests described below, and (2) interest derived from the mezzanine loan will be treated as qualifying mortgage interest for purposes of the 75% income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. We intend to structure any investments in mezzanine loans in a manner that generally complies with the various requirements applicable to our qualification as a REIT. However, the extent that any of our mezzanine loans do not meet all of the requirements for reliance on the safe harbor set forth in the Revenue Procedure, there can be no assurance that the IRS will not challenge the tax treatment of these loans.

We and our subsidiaries may also invest in REMICs, and we may invest in other types of commercial mortgage-backed securities. See below under “—Asset Tests” for a discussion of the effect of such investments on our qualification as a REIT.

We may also hold certain participation interests, including B-Notes, in mortgage loans and mezzanine loans originated by other lenders. B-Notes are interests in underlying loans created by virtue of participations or similar agreements to which the originator of the loans is a party, along with one or more participants. The borrower on the underlying loans is typically not a party to the participation agreement. The performance of this investment depends upon the performance of the underlying loans and, if the underlying borrower defaults, the participant typically has no recourse against the originator of the loans. The originator often retains a senior position in the underlying loans and grants junior participations which absorb losses first in the event of a default by the borrower. We generally expect to treat our participation interests as qualifying real estate assets for purposes of the REIT asset tests described below and interest that we derive from such investments as qualifying mortgage interest for purposes of the 75% income test. The appropriate treatment of participation interests for federal income tax purposes is not entirely certain, however, and no assurance can be given that the IRS will not challenge our treatment of our participation interests. In the event of a determination that such participation interests do not qualify as real estate assets, or that the income that we derive from such participation interests does not qualify as mortgage interest for purposes of the REIT asset and income tests, we could be subject to a penalty tax, or could fail to qualify as a REIT. See “—Taxation of REITs in General,” “—Requirements for Qualification—General,” “—Asset Tests” and “—Failure to Qualify.”

It is expected that we may acquire debt instruments in the secondary market for less than their face amount. The amount of such discount will generally be treated as “market discount” for federal income tax purposes. Moreover, pursuant to our involvement in public-private joint ventures, other similar programs recently announced by the federal government, or otherwise, we may acquire distressed debt investments that are subsequently modified by agreement with the borrower. If the amendments to the outstanding debt are “significant modifications” under the applicable Treasury regulations, the modified debt may be considered to have been reissued to us in a debt-for-debt exchange with the borrower. This deemed reissuance may prevent the modified debt from qualifying as a good REIT asset if the underlying security has declined in value.

In general, we will be required to accrue original issue discount on a debt instrument as taxable income in accordance with applicable federal income tax rules even though no cash payments may be received on such debt instrument. With respect to market discount, although generally we are not required to accrue the discount annually as taxable income (absent an election to do so), interest payments with respect to any debt incurred to purchase the investment may not be deductible and a portion of any gain realized on the disposition of the debt instrument may be treated as ordinary income rather than capital gain.

If we eventually collect less on a debt instrument than the amount we paid for it plus the market discount we had previously reported as income, there would potentially be an ordinary bad debt deduction (rather than capital loss) but this is not free from doubt, and may depend on the characteristics of the underlying obligation, and the amount of cash we collect on maturity, etc. Our ability to benefit from that bad debt deduction (or capital loss)

155

would depend on our having taxable income (or capital gain) in that later taxable year. REITs may not carry back net operating losses, so this possible “income early, loss later” phenomenon could adversely affect us and our shareholders if it were persistent and in significant amounts.

Finally, in the event that any debt instruments acquired by us are delinquent as to mandatory principal and interest payments, or in the event a borrower with respect to a particular debt instrument acquired by us encounters financial difficulty rendering it unable to pay stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income. Similarly, we may be required to accrue interest income with respect to subordinate mortgage-backed securities at the stated rate regardless of whether corresponding cash payments are received.

Due to each of these potential timing differences between income recognition or expense deduction and cash receipts or disbursements, there is a significant risk that we may recognize substantial taxable income in excess of cash available for distribution. In that event, we may need to borrow funds or take other action to satisfy the REIT distribution requirements for the taxable year in which this “phantom income” is recognized. See “—Annual Distribution Requirements.”

Rents received by us will qualify as “rents from real property” in satisfying the gross income requirements described above only if several conditions are met. If rent is partly attributable to personal property leased in connection with a lease of real property, the portion of the rent that is attributable to the personal property will not qualify as “rents from real property” unless it constitutes 15% or less of the total rent received under the lease. In addition, the amount of rent must not be based in whole or in part on the income or profits of any person. Amounts received as rent, however, generally will not be excluded from rents from real property solely by reason of being based on fixed percentages of gross receipts or sales. Moreover, for rents received to qualify as “rents from real property,” we generally must not operate or manage the property or furnish or render services to the tenants of such property, other than through an “independent contractor” from which we derive no revenue. We are permitted, however, to perform services that are “usually or customarily rendered” in connection with the rental of space for occupancy only and which are not otherwise considered rendered to the occupant of the property. In addition, we may directly or indirectly provide noncustomary services to tenants of our properties without disqualifying all of the rent from the property if the payments for such services do not exceed 1% of the total gross income from the properties. For purposes of this test, we are deemed to have received income from such non-customary services in an amount at least 150% of the direct cost of providing the services. Moreover, we are generally permitted to provide services to tenants or others through a TRS without disqualifying the rental income received from tenants for purposes of the income tests. Also, rental income will qualify as rents from real property only to the extent that we do not directly or constructively hold a 10% or greater interest, as measured by vote or value, in the lessee’s equity.

We may directly or indirectly receive distributions from TRSs or other corporations that are not REITs or qualified REIT subsidiaries. These distributions generally are treated as dividend income to the extent of the earnings and profits of the distributing corporation. Such distributions will generally constitute qualifying income for purposes of the 95% gross income test, but not for purposes of the 75% gross income test. Any distributions that we receive from a REIT, however, will be qualifying income for purposes of both the 95% and 75% income tests.

We may receive various fees in connection with our operations relating to the origination or purchase of whole loans secured by first mortgages and other loans secured by real property. The fees will generally be qualifying income for purposes of both the 75% and 95% gross income tests if they are received in consideration for entering into an agreement to make a loan secured by real property and the fees are not determined by income and profits. Other fees generally are not qualifying income for purposes of either gross income test and will not be favorably counted for purposes of either gross income test. Any fees earned by any TRS will not be included for purposes of the gross income tests. We and our subsidiaries may enter into hedging transactions with respect to one or more of our assets or liabilities. Hedging transactions could take a variety of forms, including interest rate swap agreements, interest rate cap agreements, options, futures contracts, forward rate agreements or similar financial instruments. Except to the extent provided by Treasury regulations, any income from a hedging transaction we entered into (1) in the normal course of our business primarily to manage risk of interest rate, inflation and/or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets, which is clearly identified as specified in Treasury regulations before

156

the closing of the day on which it was acquired, originated, or entered into, including gain from the sale or disposition of such a transaction, and (2) primarily to manage risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% income tests which is clearly identified as such before the closing of the day on which it was acquired, originated, or entered to, will not constitute gross income for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of the 75% or 95% gross income tests. We intend to structure any hedging transactions in a manner that does not jeopardize our qualification as a REIT.

If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may still qualify as a REIT for such year if we are entitled to relief under applicable provisions of the Internal Revenue Code. These relief provisions will be generally available if (1) our failure to meet these tests was due to reasonable cause and not due to willful neglect and (2) following our identification of the failure to meet the 75% or 95% gross income test for any taxable year, we file a schedule with the IRS setting forth each item of our gross income for purposes of the 75% or 95% gross income test for such taxable year in accordance with Treasury regulations yet to be issued. It is not possible to state whether we would be entitled to the benefit of these relief provisions in all circumstances. If these relief provisions are inapplicable to a particular set of circumstances, we will not qualify as a REIT. As discussed above under “—Taxation of REITs in General,” even where these relief provisions apply, the Internal Revenue Code imposes a tax based upon the amount by which we fail to satisfy the particular gross income test.

Asset Tests

At the close of each calendar quarter, we must also satisfy four tests relating to the nature of our assets. First, at least 75% of the value of our total assets must be represented by some combination of “real estate assets,” cash, cash items, U.S. government securities, and, under some circumstances, stock or debt instruments purchased with new capital. For this purpose, real estate assets include interests in real property, such as land, buildings, leasehold interests in real property, stock of other corporations that qualify as REITs, and some kinds of mortgage-backed securities and mortgage loans. Assets that do not qualify for purposes of the 75% test are subject to the additional asset tests described below.

Second, the value of any one issuer’s securities that we own may not exceed 5% of the value of our total assets.

Third, we may not own more than 10% of any one issuer’s outstanding securities, as measured by either voting power or value. The 5% and 10% asset tests do not apply to securities of TRSs and qualified REIT subsidiaries and the 10% asset test does not apply to “straight debt” having specified characteristics and to certain other securities described below. Solely for purposes of the 10% asset test, the determination of our interest in the assets of a partnership or limited liability company in which we own an interest will be based on our proportionate interest in any securities issued by the partnership or limited liability company, excluding for this purpose certain securities described in the Internal Revenue Code. Fourth, the aggregate value of all securities of taxable REIT subsidiaries that we hold may not exceed 25% of the value of our total assets.

Notwithstanding the general rule, as noted above, that for purposes of the REIT income and asset tests we are treated as owning our proportionate share of the underlying assets of a subsidiary partnership, if we hold indebtedness issued by a partnership, the indebtedness will be subject to, and may cause a violation of, the asset tests unless the indebtedness is a qualifying mortgage asset or other conditions are met. Similarly, although stock of another REIT is a qualifying asset for purposes of the REIT asset tests, any non-mortgage debt that is issued by another REIT may not so qualify (such debt, however, will not be treated as “securities” for purposes of the 10% asset test, as explained below).

We believe that most of the real estate related securities that we expect to hold will be qualifying assets for purposes of the 75% asset test. However, our investment in other asset-backed securities, bank loans and other instruments that are not secured by mortgages on real property will not be qualifying assets for purposes of the 75% asset test.

157

Certain relief provisions are available to REITs to satisfy the asset requirements or to maintain REIT qualification notwithstanding certain violations of the asset and other requirements. One such provision allows a REIT which fails one or more of the asset requirements to nevertheless maintain its REIT qualification if (1) the REIT provides the IRS with a description of each asset causing the failure, (2) the failure is due to reasonable cause and not willful neglect, (3) the REIT pays a tax equal to the greater of (a) $50,000 per failure, and (b) the product of the net income generated by the assets that caused the failure multiplied by the highest applicable corporate tax rate (currently 35%), and (4) the REIT either disposes of the assets causing the failure within six months after the last day of the quarter in which it identifies the failure, or otherwise satisfies the relevant asset tests within that time frame.

In the case of de minimis violations of the 10% and 5% asset tests, a REIT may maintain its qualification despite a violation of such requirements if (1) the value of the assets causing the violation does not exceed the lesser of 1% of the REIT’s total assets and $10,000,000, and (2) the REIT either disposes of the assets causing the failure within six months after the last day of the quarter in which it identifies the failure, or the relevant tests are otherwise satisfied within that time frame.

Certain securities will not cause a violation of the 10% asset test described above. Such securities include instruments that constitute “straight debt,” which includes, among other things, securities having certain contingency features. A security does not qualify as “straight debt” where a REIT (or a controlled TRS of the REIT) owns other securities of the same issuer which do not qualify as straight debt, unless the value of those other securities constitute, in the aggregate, 1% or less of the total value of that issuer’s outstanding securities. In addition to straight debt, the Internal Revenue Code provides that certain other securities will not violate the 10% asset test. Such securities include (1) any loan made to an individual or an estate, (2) certain rental agreements pursuant to which one or more payments are to be made in subsequent years (other than agreements between a REIT and certain persons related to the REIT under attribution rules), (3) any obligation to pay rents from real property, (4) securities issued by governmental entities that are not dependent in whole or in part on the profits of (or payments made by) a non-governmental entity, (5) any security (including debt securities) issued by another REIT, and (6) any debt instrument issued by a partnership if the partnership’s income is of a nature that it would satisfy the 75% gross income test described above under “—Income Tests.” In applying the 10% asset test, a debt security issued by a partnership is not taken into account to the extent, if any, of the REIT’s proportionate interest in the equity and certain debt securities issued by that partnership.

Any interests that we hold in a REMIC will generally qualify as real estate assets and income derived from REMIC interests will generally be treated as qualifying income for purposes of the REIT income tests described above. If less than 95% of the assets of a REMIC are real estate assets, however, then only a proportionate part of our interest in the REMIC and income derived from the interest qualifies for purposes of the REIT asset and income tests. If we hold a “residual interest” in a REMIC from which we derive “excess inclusion income,” we will be required to either distribute the excess inclusion income or pay tax on it (or a combination of the two), even though we may not receive the income in cash. To the extent that distributed excess inclusion income is allocable to a particular stockholder, the income (1) would not be allowed to be offset by any net operating losses otherwise available to the stockholder, (2) would be subject to tax as unrelated business taxable income in the hands of most types of stockholders that are otherwise generally exempt from federal income tax, and (3) would result in the application of U.S. federal income tax withholding at the maximum rate (30%), without reduction of any otherwise applicable income tax treaty, to the extent allocable to most types of foreign stockholders. Moreover, any excess inclusion income that we receive that is allocable to specified categories of tax-exempt investors which are not subject to unrelated business income tax, such as government entities, may be subject to corporate-level income tax in our hands, whether or not it is distributed. See “—Taxable Mortgage Pools and Excess Inclusion Income.”

To the extent that we hold mortgage participations or commercial mortgage-backed securities that do not represent REMIC interests, such assets may not qualify as real estate assets, and the income generated from them might not qualify for purposes of either or both of the REIT income tests, depending upon the circumstances and the specific structure of the investment.

We believe that our holdings of securities and other assets will comply with the foregoing REIT asset requirements, and we intend to monitor compliance on an ongoing basis. Certain mezzanine loans we make or

158

acquire may qualify for the safe harbor in Revenue Procedure 2003-65 pursuant to which certain loans secured by a first priority security interest in ownership interests in a partnership or limited liability company will be treated as qualifying assets for purposes of the 75% real estate asset test and the 10% vote or value test. See “—Income Tests.” We may make some mezzanine loans that do not qualify for that safe harbor and that do not qualify as “straight debt” securities or for one of the other exclusions from the definition of “securities” for purposes of the 10% value test. We intend to make such investments in such a manner as not to fail the asset tests described above.

No independent appraisals will be obtained to support our conclusions as to the value of our total assets or the value of any particular security or securities. Moreover, values of some assets, including instruments issued in securitization transactions, may not be susceptible to a precise determination, and values are subject to change in the future. Furthermore, the proper classification of an instrument as debt or equity for federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT asset requirements. Accordingly, there can be no assurance that the IRS will not contend that our interests in our subsidiaries or in the securities of other issuers will not cause a violation of the REIT asset tests.

If we should fail to satisfy the asset tests at the end of a calendar quarter, such a failure would not cause us to lose our REIT qualification if we (1) satisfied the asset tests at the close of the preceding calendar quarter and (2) the discrepancy between the value of our assets and the asset requirements was not wholly or partly caused by an acquisition of non-qualifying assets, but instead arose from changes in the market value of our assets. If the condition described in (2) were not satisfied, we still could avoid disqualification by eliminating any discrepancy within 30 days after the close of the calendar quarter in which it arose or by making use of relief provisions described below.

Annual Distribution Requirements

In order to qualify as a REIT, we are required to make distributions, other than capital gain distributions, to our stockholders in an amount at least equal to:

(a) the sum of

(1) 90% of our “REIT taxable income,” computed without regard to our net capital gains and the dividends paid deduction, and

(2) 90% of our net income, if any, (after tax) from foreclosure property (as described below), minus

(b) the sum of specified items of non-cash income.

In addition, if we were to recognize “built-in-gain” (as defined below) on disposition of any assets acquired from a “C” corporation in a transaction in which our basis in the assets was determined by reference to the “C” corporation’s basis (for instance, if the assets were acquired in a tax-free reorganization), we would be required to distribute at least 90% of the built-in-gain recognized net of the tax we would pay on such gain. “Built-in-gain” is the excess of (a) the fair market value of an asset (measured at the time of acquisition) over (b) the basis of the asset (measured at the time of acquisition).

We generally must make these distributions in the taxable year to which they relate, or in the following taxable year if either (i) declared before we timely file our tax return for the year and if paid with or before the first regular distribution payment after such declaration; or (ii) declared in October, November or December of the taxable year, payable to stockholders of record on a specified day in any such month, and actually paid before the end of January of the following year. The distributions under clause (i) are taxable to the stockholders of our common stock in the year in which paid, and the distributions in clause (ii) are treated as paid on December 31 of the prior taxable year. In both instances, these distributions relate to our prior taxable year for purposes of the 90% distribution requirement.

159

In order for distributions to be counted for this purpose, and to provide a tax deduction for us, the distributions must not be “preferential dividends.” A distribution is not a preferential dividend if the distribution is (1) pro rata among all outstanding shares of stock within a particular class, and (2) in accordance with the preferences among different classes of stock as set forth in our organizational documents.

To the extent that we distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be subject to tax at ordinary corporate tax rates on the retained portion. We may elect to retain, rather than distribute, our net long-term capital gains and pay tax on such gains. In this case, we could elect for our stockholders to include their proportionate shares of such undistributed long-term capital gains in income, and to receive a corresponding credit for their share of the tax that we paid. Our stockholders would then increase their adjusted basis of their stock by the difference between (a) the amounts of capital gain distributions that we designated and that they include in their taxable income, minus (b) the tax that we paid on their behalf with respect to that income.

To the extent that we have available net operating losses carried forward from prior tax years, such losses may reduce the amount of distributions that we must make in order to comply with the REIT distribution requirements. Such losses, however, will generally not affect the character, in the hands of our stockholders, of any distributions that are actually made as ordinary dividends or capital gains. See “—Taxation of Stockholders—Taxation of Taxable Domestic Stockholders—Distributions.”

If we should fail to distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT capital gain net income for such year, and (c) any undistributed taxable income from prior periods, we would be subject to a non-deductible 4% excise tax on the excess of such required distribution over the sum of (x) the amounts actually distributed, plus (y) the amounts of income we retained and on which we have paid corporate income tax.

It is possible that, from time to time, we may not have sufficient cash to meet the distribution requirements due to timing differences between (a) our actual receipt of cash, including receipt of distributions from our subsidiaries, and (b) our inclusion of items in income for federal income tax purposes. Other potential sources of non-cash taxable income include:

• “residual interests” in REMICs or taxable mortgage pools;

• loans or mortgage-backed securities held as assets that are issued at a discount and require the accrual of taxable economic interest in advance of receipt in cash; and

• loans on which the borrower is permitted to defer cash payments of interest, and distressed loans on which we may be required to accrue taxable interest income even though the borrower is unable to make current servicing payments in cash.

In the event that such timing differences occur, in order to meet the distribution requirements, it might be necessary for us to arrange short-term, or possibly long-term, borrowings, or to pay distributions in the form of taxable in-kind distributions of property.

Failure to Qualify

If we fail to satisfy one or more requirements for REIT qualification other than the gross income or asset tests, we could avoid disqualification if our failure is due to reasonable cause and not to willful neglect and we pay a penalty of $50,000 for each such failure. Relief provisions are available for failures of the gross income tests and asset tests, as described above in “—Income Tests” and “—Asset Tests.”

If we fail to qualify for taxation as a REIT in any taxable year, and the relief provisions described above do not apply, we would be subject to tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. We cannot deduct distributions to stockholders in any year in which we are not a REIT, nor

160

would we be required to make distributions in such a year. In this situation, to the extent of current and accumulated earnings and profits, distributions to domestic stockholders that are individuals, trusts and estates will generally be taxable at capital gains rates (through 2010). In addition, subject to the limitations of the Internal Revenue Code, corporate distributees may be eligible for the dividends received deduction. Unless we are entitled to relief under specific statutory provisions, we would also be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year during which we lost qualification. It is not possible to state whether, in all circumstances, we would be entitled to this statutory relief.

Prohibited Transactions

Net income that we derive from a prohibited transaction is subject to a 100% tax. The term “prohibited transaction” generally includes a sale or other disposition of property (other than foreclosure property, as discussed below) that is held primarily for sale to customers in the ordinary course of a trade or business. We intend to conduct our operations so that no asset that we own (or are treated as owning) will be treated as, or as having been, held for sale to customers, and that a sale of any such asset will not be treated as having been in the ordinary course of our business. Whether property is held “primarily for sale to customers in the ordinary course of a trade or business” depends on the particular facts and circumstances. No assurance can be given that any property that we sell will not be treated as property held for sale to customers, or that we can comply with certain safe-harbor provisions of the Internal Revenue Code that would prevent such treatment. The 100% tax does not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will potentially be subject to tax in the hands of the corporation at regular corporate rates, nor does the tax apply to sales which qualify for a safe harbor as described in Section 857(b)(6) of the Internal Revenue Code.

Foreclosure Property

Foreclosure property is real property and any personal property incident to such real property (1) that we acquire as the result of having bid on the property at foreclosure, or having otherwise reduced the property to ownership or possession by agreement or process of law, after a default (or upon imminent default) on a lease of the property or a mortgage loan held by us and secured by the property, (2) for which we acquired the related loan or lease at a time when default was not imminent or anticipated, and (3) with respect to which we made a proper election to treat the property as foreclosure property. We generally will be subject to tax at the maximum corporate rate (currently 35%) on any net income from foreclosure property, including any gain from the disposition of the foreclosure property, other than income that would otherwise be qualifying income for purposes of the 75% gross income test. Any gain from the sale of property for which a foreclosure property election has been made will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property would otherwise constitute inventory or dealer property. To the extent that we receive any income from foreclosure property that does not qualify for purposes of the 75% gross income test, we intend to make an election to treat the related property as foreclosure property.

Derivatives and Hedging Transactions

We and our subsidiaries may enter into hedging transactions with respect to interest rate exposure on one or more of our assets or liabilities. Hedging transactions could take a variety of forms, including the use of derivative instruments such as interest rate swap agreements, interest rate cap agreements, options, futures contracts, forward rate agreements or similar financial instruments. Except to the extent provided by Treasury regulations, any income from a hedging transaction we entered into (1) in the normal course of our business primarily to manage risk of interest rate, inflation and/or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets, which is clearly identified as specified in Treasury regulations before the closing of the day on which it was acquired, originated, or entered into, including gain from the sale or disposition of such a transaction, and (2) primarily to manage risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% income tests which is clearly identified as such before the closing of the day on which it was acquired, originated, or entered into, will not constitute gross income for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of the 75% or 95% gross income tests. We intend to structure any hedging transactions in a manner that

161

does not jeopardize our qualification as a REIT. We may conduct some or all of our hedging activities through our TRS or other corporate entity, the income from which may be subject to federal income tax, rather than by participating in the arrangements directly or through pass-through subsidiaries. No assurance can be given, however, that our hedging activities will not give rise to income that does not qualify for purposes of either or both of the REIT gross income tests, or that our hedging activities will not adversely affect our ability to satisfy the REIT qualification requirements.

Taxable Mortgage Pools and Excess Inclusion Income

An entity, or a portion of an entity, may be classified as a taxable mortgage pool, or TMP, under the Internal Revenue Code if:

• substantially all of its assets consist of debt obligations or interests in debt obligations;

• more than 50% of those debt obligations are real estate mortgages or interests in real estate mortgages as of specified testing dates;

• the entity has issued debt obligations (liabilities) that have two or more maturities; and

• the payments required to be made by the entity on its debt obligations (liabilities) “bear a relationship” to the payments to be received by the entity on the debt obligations that it holds as assets.

Under regulations issued by the U.S. Treasury Department, if less than 80% of the assets of an entity (or a portion of an entity) consist of debt obligations, these debt obligations are considered not to comprise “substantially all” of its assets, and therefore the entity would not be treated as a TMP. Our financing and securitization arrangements may give rise to TMPs with the consequences as described below.

Where an entity, or a portion of an entity, is classified as a TMP, it is generally treated as a taxable corporation for federal income tax purposes. In the case of a REIT, or a portion of a REIT, or a disregarded subsidiary of a REIT, that is a TMP, however, special rules apply. The TMP is not treated as a corporation that is subject to corporate income tax, and the TMP classification does not directly affect the tax qualification of the REIT. Rather, the consequences of the TMP classification would, in general, except as described below, be limited to the stockholders of the REIT.

A portion of the REIT’s income from the TMP, which might be noncash accrued income, could be treated as excess inclusion income. Section 860E(c) of the Code defines the term “excess inclusion” with respect to a residual interest in a REMIC. The IRS, however, has yet to issue guidance on the computation of excess inclusion income on equity interests in a TMP held by a REIT. Generally, however, excess inclusion income with respect to our investment in any TMP and any taxable year will equal the excess of (i) the amount of income we accrue on our investment in the TMP over (ii) the amount of income we would have accrued if our investment were a debt instrument having an issue price equal to the fair market value of our investment on the day we acquired it and a yield to maturity equal to 120% of the long-term applicable federal rate in effect on the date we acquired our interest. The term “applicable federal rate” refers to rates that are based on weighted average yields for treasury securities and are published monthly by the IRS for use in various tax calculations. If we undertake securitization transactions that are TMPs, the amount of excess inclusion income we recognize in any taxable year could represent a significant portion of our total taxable for that year. Under recently issued IRS guidance, the REIT’s excess inclusion income, including any excess inclusion income from a residual interest in a REMIC, must be allocated among its stockholders in proportion to distributions paid. We are required to notify our stockholders of the amount of “excess inclusion income” allocated to them. A stockholder’s share of our excess inclusion income:

• cannot be offset by any net operating losses otherwise available to the stockholder;

• is subject to tax as unrelated business taxable income in the hands of most types of stockholders that are otherwise generally exempt from federal income tax; and

162

• results in the application of U.S. federal income tax withholding at the maximum rate (30%), without reduction for any otherwise applicable income tax treaty or other exemption, to the extent allocable to most types of foreign stockholders.

See “—Taxation of Stockholders.” To the extent that excess inclusion income is allocated from a TMP to a tax-exempt stockholder of a REIT that is not subject to unrelated business income tax (such as a government entity), the REIT will be subject to tax on this income at the highest applicable corporate tax rate (currently 35%). In this case, we are authorized to reduce and intend to reduce distributions to such stockholders by the amount of such tax paid by the REIT that is attributable to such stockholder’s ownership. Treasury regulations provide that such a reduction in distributions does not give rise to a preferential dividend that could adversely affect the REIT’s compliance with its distribution requirements. See “—Annual Distribution Requirements.” The manner in which excess inclusion income is calculated, or would be allocated to stockholders, including allocations among shares of different classes of stock, remains unclear under current law. As required by IRS guidance, we intend to make such determinations using a reasonable method. Tax-exempt investors, foreign investors and taxpayers with net operating losses should carefully consider the tax consequences described above, and are urged to consult their tax advisors.

If a subsidiary partnership of ours that we do not wholly own, directly or through one or more disregarded entities, were a TMP, the foregoing rules would not apply. Rather, the partnership that is a TMP would be treated as a corporation for federal income tax purposes and potentially could be subject to corporate income tax or withholding tax. In addition, this characterization would alter our income and asset test calculations and could adversely affect our compliance with those requirements. We intend to monitor the structure of any TMPs (including whether a TRS election might be made in respect of any such TMP) in which we have an interest to ensure that they will not adversely affect our qualification as a REIT.

Taxation of Stockholders

Taxation of Taxable Domestic Stockholders

Distributions. So long as we qualify as a REIT, the distributions that we make to our taxable domestic stockholders out of current or accumulated earnings and profits that we do not designate as capital gain distributions will generally be taken into account by stockholders as ordinary income and will not be eligible for the dividends received deduction for corporations. With limited exceptions, our distributions are not eligible for taxation at the preferential income tax rates (i.e., the 15% maximum federal rate through 2010) for qualified distributions received by domestic stockholders that are individuals, trusts and estates from taxable C corporations. Such stockholders, however, are taxed at the preferential rates on distributions designated by and received from REITs to the extent that the distributions are attributable to:

• income retained by the REIT in the prior taxable year on which the REIT was subject to corporate level income tax (less the amount of tax);

• distributions received by the REIT from TRSs or other taxable C corporations; or

• income in the prior taxable year from the sales of “built-in gain” property acquired by the REIT from C corporations in carryover basis transactions (less the amount of corporate tax on such income).

Distributions that we designate as capital gain dividends will generally be taxed to our stockholders as long-term capital gains, to the extent that such distributions do not exceed our actual net capital gain for the taxable year, without regard to the period for which the stockholder that receives such distribution has held its stock. We may elect to retain and pay taxes on some or all of our net long-term capital gains, in which case provisions of the Internal Revenue Code will treat our stockholders as having received, solely for tax purposes, our undistributed capital gains, and the stockholders will receive a corresponding credit for taxes that we paid on such undistributed capital gains. See “—Taxation of Resource Real Estate Opportunity REIT, Inc. — Annual Distribution Requirements.” Corporate stockholders may be required to treat up to 20% of some capital gain distributions as ordinary income. Long-term capital gains are generally taxable at maximum federal rates of 15% (through 2010) in

163

the case of stockholders that are individuals, trusts and estates, and 35% in the case of stockholders that are corporations. Capital gains attributable to the sale of depreciable real property held for more than 12 months are subject to a 25% maximum federal income tax rate for taxpayers who are taxed as individuals, to the extent of previously claimed depreciation deductions.

Distributions in excess of our current and accumulated earnings and profits will generally represent a return of capital and will not be taxable to a stockholder to the extent that the amount of such distributions do not exceed the adjusted basis of the stockholder’s shares in respect of which the distributions were made. Rather, the distribution will reduce the adjusted basis of the stockholder’s shares. To the extent that such distributions exceed the adjusted basis of a stockholder’s shares, the stockholder generally must include such distributions in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less. In addition, any distribution that we declare in October, November or December of any year and that is payable to a stockholder of record on a specified date in any such month will be treated as both paid by us and received by the stockholder on December 31 of such year, provided that we actually pay the distribution before the end of January of the following calendar year.

To the extent that we have available net operating losses and capital losses carried forward from prior tax years, such losses may reduce the amount of distributions that we must make in order to comply with the REIT distribution requirements. See “—Taxation of Resource Real Estate Opportunity REIT, Inc.—Annual Distribution Requirements.” Such losses, however, are not passed through to stockholders and do not offset income of stockholders from other sources, nor would such losses affect the character of any distributions that we make, which are generally subject to tax in the hands of stockholders to the extent that we have current or accumulated earnings and profits.

If excess inclusion income from a taxable mortgage pool or REMIC residual interest is allocated to any stockholder, that income will be taxable in the hands of the stockholder and would not be offset by any net operating losses of the stockholder that would otherwise be available. See “Taxation of Resource Real Estate Opportunity REIT, Inc. —Taxable Mortgage Pools and Excess Inclusion Income.” As required by IRS guidance, we intend to notify our stockholders if a portion of a distribution paid by us is attributable to excess inclusion income.

Dispositions of Our Stock. In general, capital gains recognized by individuals, trusts and estates upon the sale or disposition of our stock will be subject to a maximum federal income tax rate of 15% (through 2010) if the stock is held for more than one year, and will be taxed at ordinary income rates (of up to 35% through 2010) if the stock is held for one year or less. Gains recognized by stockholders that are corporations are subject to federal income tax at a maximum rate of 35%, whether or not such gains are classified as long-term capital gains. Capital losses recognized by a stockholder upon the disposition of our stock that was held for more than one year at the time of disposition will be considered long-term capital losses, and are generally available only to offset capital gain income of the stockholder but not ordinary income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year). In addition, any loss upon a sale or exchange of shares of our stock by a stockholder who has held the shares for six months or less, after applying holding period rules, will be treated as a long-term capital loss to the extent of distributions that we make that are required to be treated by the stockholder as long-term capital gain.

If an investor recognizes a loss upon a subsequent disposition of our stock or other securities in an amount that exceeds a prescribed threshold, it is possible that the provisions of Treasury regulations involving “reportable transactions” could apply, with a resulting requirement to separately disclose the loss-generating transaction to the IRS. These regulations, though directed towards “tax shelters,” are broadly written and apply to transactions that would not typically be considered tax shelters. The Internal Revenue Code imposes significant penalties for failure to comply with these requirements. You should consult your tax advisor concerning any possible disclosure obligation with respect to the receipt or disposition of our stock or securities or transactions that we might undertake directly or indirectly. Moreover, you should be aware that we and other participants in the transactions in which we are involved (including their advisors) might be subject to disclosure or other requirements pursuant to these regulations.

164

Passive Activity Losses and Investment Interest Limitations. Distributions that we make and gain arising from the sale or exchange by a domestic stockholder of our stock will not be treated as passive activity income. As a result, stockholders will not be able to apply any “passive losses” against income or gain relating to our stock. To the extent that distributions we make do not constitute a return of capital, they will be treated as investment income for purposes of computing the investment interest limitation.

Taxation of Foreign Stockholders

The following is a summary of certain U.S. federal income and estate tax consequences of the ownership and disposition of our stock applicable to non-U.S. holders. A “non-U.S. holder” is any person other than:

• a citizen or resident of the United States;

• a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia;

• an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or

• a trust if a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. fiduciaries have the authority to control all substantial decisions of the trust.

If a partnership, including for this purpose any entity that is treated as a partnership for U.S. federal income tax purposes, holds our common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock.

The following discussion is based on current law, and is for general information only. It addresses only selected, and not all, aspects of U.S. federal income and estate taxation.

Ordinary Dividends. The portion of distributions received by non-U.S. holders (1) that is payable out of our earnings and profits, (2) which is not attributable to our capital gains and (3) which is not effectively connected with a U.S. trade or business of the non-U.S. holder, will be subject to U.S. withholding tax at the rate of 30%, unless reduced or eliminated by treaty. Reduced treaty rates and other exemptions are not available to the extent that income is attributable to excess inclusion income allocable to the foreign stockholder. Accordingly, we will withhold at a rate of 30% on any portion of a distribution that is paid to a non-U.S. holder and attributable to that holder’s share of our excess inclusion income. See “—Taxation of Resource Real Estate Opportunity REIT, Inc. —Taxable Mortgage Pools and Excess Inclusion Income.” As required by IRS guidance, we intend to notify our stockholders if a portion of a distribution paid by us is attributable to excess inclusion income.

In general, non-U.S. holders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of our stock. In cases where the dividend income from a non-U.S. holder’s investment in our stock is, or is treated as, effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business, the non-U.S. holder generally will be subject to U.S. federal income tax at graduated rates, in the same manner as domestic stockholders are taxed with respect to such distributions. Such income must generally be reported on a U.S. income tax return filed by or on behalf of the non-U.S. holder. The income may also be subject to the 30% branch profits tax in the case of a non-U.S. holder that is a corporation.

Non-Dividend Distributions. Unless our stock constitutes a U.S. real property interest (a “USRPI”), distributions that we make that are not out of our earnings and profits will not be subject to U.S. income tax. If we cannot determine at the time a distribution is made whether or not the distribution will exceed current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to ordinary

165

dividends. The non-U.S. holder may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the distribution was, in fact, in excess of our current and accumulated earnings and profits. If our stock constitutes a USRPI, as described below, distributions that we make in excess of the sum of (a) the stockholder’s proportionate share of our earnings and profits, plus (b) the stockholder’s basis in its stock, will be taxed under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), at the rate of tax, including any applicable capital gains rates, that would apply to a domestic stockholder of the same type (e.g., an individual or a corporation, as the case may be), and the collection of the tax will be enforced by a refundable withholding at a rate of 10% of the amount by which the distribution exceeds the stockholder’s share of our earnings and profits.

Capital Gain Distributions. Under FIRPTA, a distribution that we make to a non-U.S. holder, to the extent attributable to gains from dispositions of USRPIs that we held directly or through pass-through subsidiaries, or USRPI capital gains, will, except as described below, be considered effectively connected with a U.S. trade or business of the non-U.S. holder and will be subject to U.S. income tax at the rates applicable to U.S. individuals or corporations, without regard to whether we designate the distribution as a capital gain distribution. See above under “—Taxation of Foreign Stockholders—Ordinary Dividends,” for a discussion of the consequences of income that is effectively connected with a U.S. trade or business. In addition, we will generally be required to withhold tax equal to 35% of the amount of distributions to the extent the distributions constitute USRPI capital gains. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a non-U.S. holder that is a corporation. A distribution is not a USRPI capital gain if we held an interest in the underlying asset solely as a creditor. Capital gain distributions received by a non-U.S. holder that are attributable to dispositions of our assets other than USRPIs are not subject to U.S. federal income or withholding tax, unless (1) the gain is effectively connected with the non-U.S. holder’s U.S. trade or business, in which case the non-U.S. holder would be subject to the same treatment as U.S. holders with respect to such gain, or (2) the non-U.S. holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, in which case the non-U.S. holder will incur a 30% tax on his or her capital gains.

A capital gain distribution that would otherwise have been treated as a USRPI capital gain will not be so treated or be subject to FIRPTA, and generally will not be treated as income that is effectively connected with a U.S. trade or business, and instead will be treated in the same manner as an ordinary dividend (see “—Taxation of Foreign Stockholders—Ordinary Dividends”), if (1) the capital gain distribution is received with respect to a class of stock that is regularly traded on an established securities market located in the United States, and (2) the recipient non-U.S. holder does not own more than 5% of that class of stock at any time during the year ending on the date on which the capital gain distribution is received. At the time you purchase shares in this offering, our shares will not be publicly traded and we can give you no assurance that our shares will ever be publicly traded on an established securities market. Therefore, these rules will not apply to our capital gain distributions.

Dispositions of Our Stock. Unless our stock constitutes a USRPI, a sale of our stock by a non-U.S. holder generally will not be subject to U.S. taxation under FIRPTA. Our stock will not be treated as a USRPI if less than 50% of our assets throughout a prescribed testing period consist of interests in real property located within the United States, excluding, for this purpose, interests in real property solely in a capacity as a creditor.

Even if the foregoing 50% test is not met, our stock nonetheless will not constitute a USRPI if we are a “domestically-controlled qualified investment entity.” A domestically-controlled qualified investment entity includes a REIT, less than 50% of value of which is held directly or indirectly by non-U.S. holders at all times during a specified testing period. We believe that we will be a domestically-controlled qualified investment entity, and that a sale of our stock should not be subject to taxation under FIRPTA. If our stock constitutes a USRPI and we do not constitute a domestically controlled qualified investment entity, but our stock becomes “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, a non-U.S. holder’s sale of our stock nonetheless would not be subject to tax under FIRPTA as a sale of a USRPI, provided that the selling non-U.S. holder held 5% or less of the outstanding stock at all times during a specified testing period. However, as mentioned above, we can give you no assurance that our shares will ever be publicly traded on an established securities market.

If gain on the sale of our stock were subject to taxation under FIRPTA, the non-U.S. holder would be required to file a U.S. federal income tax return and would be subject to the same treatment as a U.S. stockholder

166

with respect to such gain, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals, and the purchaser of the stock could be required to withhold 10% of the purchase price and remit such amount to the IRS.

Gain from the sale of our stock that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a non-U.S. holder in two cases: (1) if the non-U.S. holder’s investment in our stock is effectively connected with a U.S. trade or business conducted by such non-U.S. holder, the non-U.S. holder will be subject to the same treatment as a U.S. stockholder with respect to such gain, or (2) if the non-U.S. holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, the nonresident alien individual will be subject to a 30% tax on the individual’s capital gain. In addition, even if we are a domestically controlled qualified investment entity, upon disposition of our stock, a non-U.S. holder may be treated as having gain from the sale or exchange of a USRPI if the non-U.S. holder (1) disposes of our common stock within a 30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have been treated as gain from the sale or exchange of a USRPI and (2) acquires, or enters into a contract or option to acquire, other shares of our common stock within 30 days after such ex-dividend date.

Estate Tax. If our stock is owned or treated as owned by an individual who is not a citizen or resident (as specially defined for U.S. federal estate tax purposes) of the United States at the time of such individual’s death, the stock will be includable in the individual’s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise, and may therefore be subject to U.S. federal estate tax.

Taxation of Tax-Exempt Stockholders

Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt from federal income taxation. However, they may be subject to taxation on their unrelated business taxable income (“UBTI”). While some investments in real estate may generate UBTI, the IRS has ruled that dividend distributions from a REIT to a tax-exempt entity do not constitute UBTI. Based on that ruling, and provided that (1) a tax-exempt stockholder has not held our stock as “debt financed property” within the meaning of the Internal Revenue Code (i.e., where the acquisition or holding of the property is financed through a borrowing by the tax-exempt stockholder), and (2) our stock is not otherwise used in an unrelated trade or business, distributions that we make and income from the sale of our stock generally should not give rise to UBTI to a tax-exempt stockholder.

To the extent, however, that we are (or a part of us, or a disregarded subsidiary of ours, is) deemed to be a TMP, or if we hold residual interests in a REMIC, a portion of the distributions paid to a tax-exempt stockholder that is allocable to excess inclusion income may be treated as UBTI. We anticipate that our investments may generate excess inclusion income.

If excess inclusion income is allocable to some categories of tax-exempt stockholders that are not subject to UBTI, such as governmental investors, we will be subject to corporate level tax on such income, and, in that case, we are authorized to reduce and intend to reduce the amount of distributions to those stockholders whose ownership gave rise to the tax. See “—Taxation of Resource Real Estate Opportunity REIT, Inc. —Taxable Mortgage Pools and Excess Inclusion Income.” As required by IRS guidance, we intend to notify our stockholders if a portion of a distribution paid by us is attributable to excess inclusion income.

Tax-exempt stockholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code are subject to different UBTI rules, which generally require such stockholders to characterize distributions that we make as UBTI.

In certain circumstances, a pension trust that owns more than 10% of our stock could be required to treat a percentage of its distributions as UBTI, if we are a “pension-held REIT.” We will not be a pension-held REIT unless either (1) one pension trust owns more than 25% of the value of our stock, or (2) a group of pension trusts, each individually holding more than 10% of the value of our stock, collectively owns more than 50% of our stock.

167

Certain restrictions on ownership and transfer of our stock should generally prevent a tax-exempt entity from owning more than 10% of the value of our stock and should generally prevent us from becoming a pension-held REIT.

Tax-exempt stockholders are urged to consult their tax advisors regarding the federal, state, local and foreign income and other tax consequences of owning our stock.

Backup Withholding and Information Reporting

We will report to our domestic stockholders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld. Under the backup withholding rules, a domestic stockholder may be subject to backup withholding with respect to dividends paid unless the holder is a corporation or comes within other exempt categories and, when required, demonstrates this fact or provides a taxpayer identification number or social security number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A domestic stockholder that does not provide his or her correct taxpayer identification number or social security number may also be subject to penalties imposed by the IRS. Backup withholding is not an additional tax. In addition, we may be required to withhold a portion of a capital gain distribution to any domestic stockholder who fails to certify its non-foreign status.

We must report annually to the IRS and to each non-U.S. stockholder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. stockholder resides under the provisions of an applicable income tax treaty. A non-U.S. stockholder may be subject to backup withholding unless applicable certification requirements are met.

Payment of the proceeds of a sale of our common stock within the U.S. is subject to both backup withholding and information reporting unless the beneficial owner certifies under penalties of perjury that it is a non-U.S. stockholder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person) or the holder otherwise establishes an exemption. Payment of the proceeds of a sale of our common stock conducted through certain U.S. related financial intermediaries is subject to information reporting (but not backup withholding) unless the financial intermediary has documentary evidence in its records that the beneficial owner is a non-U.S. stockholder and specified conditions are met or an exemption is otherwise established. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such holder’s U.S. federal income tax liability provided the required information is furnished to the IRS.

Other Tax Considerations

Legislative or Other Actions Affecting REITs

The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to the federal tax laws and interpretations thereof could adversely affect an investment in our stock.

State, Local and Foreign Taxes

We and our subsidiaries and stockholders may be subject to state, local or foreign taxation in various jurisdictions including those in which we or they transact business, own property or reside. We may own real property assets located in numerous jurisdictions, and may be required to file tax returns in some or all of those jurisdictions. Our state, local or foreign tax treatment and that of our stockholders may not conform to the federal income tax treatment discussed above. We may own foreign real estate assets and pay foreign property taxes, and dispositions of foreign property or operations involving, or investments in, foreign real estate assets may give rise to foreign income or other tax liability in amounts that could be substantial. Any foreign taxes that we incur do not pass through to stockholders as a credit against their U.S. federal income tax liability. Prospective investors should

168

consult their tax advisors regarding the application and effect of state, local and foreign income and other tax laws on an investment in our stock.

ERISA CONSIDERATIONS

The following is a summary of some considerations associated with an investment in our shares by a qualified employee pension benefit plan or an IRA. This summary is based on provisions of ERISA and the Internal Revenue Code, each as amended through the date of this prospectus, and the relevant regulations, opinions and other authority issued by the Department of Labor and the IRS. We cannot assure you that there will not be adverse tax or labor decisions or legislative, regulatory or administrative changes that would significantly modify the statements expressed herein. Any such changes may apply to transactions entered into prior to the date of their enactment.

Each fiduciary of an employee pension benefit plan subject to ERISA (such as a profit sharing, Section 401(k) or pension plan) or any other retirement plan or account subject to Section 4975 of the Internal Revenue Code, such as an IRA, seeking to invest plan assets in our shares must, taking into account the facts and circumstances of each such plan or IRA (each, a “Benefit Plan”), consider, among other matters:

• whether the investment is consistent with the applicable provisions of ERISA and the Internal Revenue Code;

• whether, under the facts and circumstances pertaining to the Benefit Plan in question, the fiduciary’s responsibility to the plan has been satisfied;

• whether the investment will produce an unacceptable amount of UBTI to the Benefit Plan (see “Federal Income Tax Considerations — Taxation of Stockholders — Taxation of Tax-Exempt Stockholders”); and

• the need to value the assets of the Benefit Plan annually.

Under ERISA, a plan fiduciary’s responsibilities include the following duties:

• to act solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits to them, as well as defraying reasonable expenses of plan administration;

• to invest plan assets prudently;

• to diversify the investments of the plan, unless it is clearly prudent not to do so;

• to ensure sufficient liquidity for the plan;

• to ensure that plan investments are made in accordance with plan documents; and

• to consider whether an investment would constitute or give rise to a prohibited transaction under ERISA or the Internal Revenue Code.

ERISA also requires that, with certain exceptions, the assets of an employee benefit plan be held in trust and that the trustee, or a duly authorized named fiduciary or investment manager, have exclusive authority and discretion to manage and control the assets of the plan.

Prohibited Transactions

Generally, both ERISA and the Internal Revenue Code prohibit Benefit Plans from engaging in certain transactions involving plan assets with specified parties, such as sales or exchanges or leasing of property, loans or other extensions of credit, furnishing goods or services, or transfers to, or use of, plan assets. The specified parties

169

are referred to as “parties-in-interest” under ERISA and as “disqualified persons” under the Internal Revenue Code. These definitions generally include both parties owning threshold percentage interests in an investment entity and “persons providing services” to the Benefit Plan, as well as employer sponsors of the Benefit Plan, fiduciaries and other individuals or entities affiliated with the foregoing. For this purpose, a person generally is a fiduciary with respect to a Benefit Plan if, among other things, the person has discretionary authority or control with respect to plan assets or provides investment advice for a fee with respect to plan assets. Under Department of Labor regulations, a person shall be deemed to be providing investment advice if that person renders advice as to the advisability of investing in our shares, and that person regularly provides investment advice to the Benefit Plan pursuant to a mutual agreement or understanding that such advice will serve as the primary basis for investment decisions, and that the advice will be individualized for the Benefit Plan based on its particular needs. Thus, if we are deemed to hold plan assets, our management could be characterized as fiduciaries with respect to such assets, and each would be deemed to be a party-in-interest under ERISA and a disqualified person under the Internal Revenue Code with respect to investing Benefit Plans. Whether or not we are deemed to hold plan assets, if we or our affiliates are affiliated with a Benefit Plan investor, we might be a disqualified person or party-in-interest with respect to such Benefit Plan investor, resulting in a prohibited transaction merely upon investment by such Benefit Plan in our shares.

Plan Asset Considerations

In order to determine whether an investment in our shares by a Benefit Plan creates or gives rise to the potential for either prohibited transactions or a commingling of assets as referred to above, a fiduciary must consider whether an investment in our shares will cause our assets to be treated as assets of the investing Benefit Plan. Neither ERISA nor the Internal Revenue Code defines the term “plan assets”; however, regulations promulgated by the Department of Labor provide guidelines as to whether, and under what circumstances, the underlying assets of an entity will be deemed to constitute assets of a Benefit Plan when the plan invests in that entity (Plan Assets Regulation). Under the Plan Assets Regulation, the assets of an entity in which a Benefit Plan makes an equity investment will generally be deemed to be assets of the Benefit Plan, unless one of the exceptions to this general rule applies.

In the event that our underlying assets were treated as the assets of investing Benefit Plans, our management would be treated as fiduciaries with respect to each Benefit Plan stockholder and an investment in our shares might constitute an ineffective delegation of fiduciary responsibility to Resource Real Estate Opportunity Advisor, our advisor, and expose the fiduciary of the Benefit Plan to co-fiduciary liability under ERISA for any breach by Resource Real Estate Opportunity Advisor of the fiduciary duties mandated under ERISA. Further, if our assets are deemed to be “plan assets,” an investment by an IRA in our shares might be deemed to result in an impermissible commingling of IRA assets with other property.

If our advisor or its affiliates were treated as fiduciaries with respect to Benefit Plan stockholders, the prohibited transaction restrictions of ERISA and the Internal Revenue Code would apply to any transaction involving our assets. These restrictions could, for example, require that we avoid transactions with persons that are affiliated with or related to us or our affiliates or require that we restructure our activities in order to obtain an administrative exemption from the prohibited transaction restrictions. Alternatively, we might have to provide Benefit Plan stockholders with the opportunity to sell their shares to us or we might dissolve.

If a prohibited transaction were to occur, the Internal Revenue Code imposes an excise tax equal to 15% of the amount involved and authorizes the IRS to impose an additional 100% excise tax if the prohibited transaction is not “corrected” in a timely manner. These taxes would be imposed on any disqualified person who participates in the prohibited transaction. In addition, our advisor and possibly other fiduciaries of Benefit Plan stockholders subject to ERISA who permitted the prohibited transaction to occur or who otherwise breached their fiduciary responsibilities (or a non-fiduciary participating in a prohibited transaction) could be required to restore to the Benefit Plan any profits they realized as a result of the transaction or breach and make good to the Benefit Plan any losses incurred by the Benefit Plan as a result of the transaction or breach. With respect to an IRA that invests in our shares, the occurrence of a prohibited transaction involving the individual who established the IRA, or his or her beneficiary, would cause the IRA to lose its tax-exempt status under Section 408(e)(2) of the Internal Revenue Code.

170

The Plan Assets Regulation provides that the underlying assets of an entity such as a REIT will be treated as assets of a Benefit Plan investing therein unless the entity satisfies one of the exceptions to the general rule. We believe that we will satisfy one or more of the exceptions described below.

Exception for “Publicly-Offered Securities.” If a Benefit Plan acquires “publicly-offered securities,” the assets of the issuer of the securities will not be deemed to be “plan assets” under the Plan Assets Regulation. A publicly-offered security must be:

• either (i) part of a class of securities registered under the Exchange Act, or (ii) sold as part of a public offering registered under the Securities Act, and be part of a class of securities registered under the Exchange Act within a specified time period;

• part of a class of securities that is owned by 100 or more persons who are independent of the issuer and one another; and

• “freely transferable.”

Our shares are being sold as part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act of 1933 and are part of a class that will be registered under the Securities Exchange Act of 1934 within the specified period. In addition, we anticipate having in excess of 100 independent stockholders; however, having 100 independent stockholders is not a condition to our selling shares in this offering.

Whether a security is “freely transferable” depends upon the particular facts and circumstances. The Plan Assets Regulation provides several examples of restrictions on transferability that, absent unusual circumstances, will not prevent the rights of ownership in question from being considered “freely transferable” if the minimum investment is $10,000 or less. Where the minimum investment in a public offering of securities is $10,000 or less, the presence of the following restrictions on transfer will not ordinarily affect a determination that such securities are “freely transferable”:

• any restriction on, or prohibition against, any transfer or assignment that would either result in a termination or reclassification of the entity for federal or state tax purposes or that would violate any state or federal statute, regulation, court order, judicial decree or rule of law;

• any requirement that not less than a minimum number of shares or units of such security be transferred or assigned by any investor, provided that such requirement does not prevent transfer of all of the then remaining shares or units held by an investor;

• any prohibition against transfer or assignment of such security or rights in respect thereof to an ineligible or unsuitable investor; and

• any requirement that reasonable transfer or administrative fees be paid in connection with a transfer or assignment.

We have been structured with the intent to satisfy the “freely transferable” requirement set forth in the Plan Assets Regulation with respect to our shares, although there is no assurance that our shares will meet such requirement. Our shares are subject to certain restrictions on transfer intended to ensure that we continue to qualify for federal income tax treatment as a REIT and to comply with state securities laws and regulations with respect to investor suitability. The minimum investment in our shares is less than $10,000; thus, these restrictions should not cause the shares to be deemed not “freely transferable.”

If our common stock is held by 100 or more independent stockholders, and assuming that no other facts and circumstances other than those referred to in the preceding paragraphs exist that restrict transferability of shares of our common stock and the offering takes place as described in this prospectus, shares of our common stock should

171

constitute “publicly-offered securities” and, accordingly, we believe that our underlying assets should not be considered “plan assets” under the Plan Assets Regulation.

Exception for Insignificant Participation by Benefit Plan Investors. The Plan Assets Regulation provides that the assets of an entity will not be deemed to be the assets of a Benefit Plan if equity participation in the entity by employee benefit plans, including Benefit Plans, is not significant. The Plan Assets Regulation provides that equity participation in an entity by Benefit Plan investors is “significant” if at any time 25% or more of the value of any class of equity interest is held by Benefit Plan investors. The term “Benefit Plan investors” is defined for this purpose under ERISA Section 3(42) and includes any employee benefit plan subject to Part 4 of ERISA, any plan subject Section 4975 of the Code, and any entity whose underlying assets include plan assets by reasons of a plan’s investment in such entity. In calculating the value of a class of equity interests, the value of any equity interests held by us or any of our affiliates must be excluded. It is not clear whether we will qualify for this exception since we do expect to have equity participation by “Benefit Plan investors” that may be in excess of 25%, which would be deemed to be significant, as defined above.

Exception for Operating Companies. The Plan Assets Regulation provides an exception with respect to securities issued by an operating company, which includes a “real estate operating company” or a “venture capital operating company.” Generally, we will be deemed to be a real estate operating company if during the relevant valuation periods at least 50% of our assets are invested in real estate that is managed or developed and with respect to which we have the right to participate substantially in management or development activities. To constitute a venture capital operating company, 50% or more of our assets must be invested in “venture capital investments” during the relevant valuation periods. A venture capital investment is an investment in an operating company, including a “real estate operating company,” as to which the investing entity has or obtains direct management rights. If an entity satisfies these requirements on the date it first makes a long-term investment (the “initial investment date”), or at any time during the entity’s first annual valuation period, it will be considered a real estate operating company for the entire period beginning on the initial investment date and ending on the last day of the first annual valuation period. Because this is a blind pool offering, we cannot assure you that we will be a real estate or venture capital operating company within the meaning of the Plan Asset Regulations.

Other Prohibited Transactions

Regardless of whether the shares qualify for the “publicly-offered securities” exception of the Plan Assets Regulation, a prohibited transaction could occur if we, Resource Real Estate Opportunity Advisor, any selected broker-dealer or any of their affiliates is a fiduciary (within the meaning of Section 3(21) of ERISA) with respect to any Benefit Plan purchasing our shares. Accordingly, unless an administrative or statutory exemption applies, shares should not be purchased by a Benefit Plan with respect to which any of the above persons is a fiduciary. A person is a fiduciary with respect to a Benefit Plan under Section 3(21) of ERISA if, among other things, the person has discretionary authority or control with respect to the Benefit Plan or “plan assets” or provides investment advice for a fee with respect to “plan assets.” Under a regulation issued by the Department of Labor, a person shall be deemed to be providing investment advice if that person renders advice as to the advisability of investing in our shares and that person regularly provides investment advice to the Benefit Plan pursuant to a mutual agreement or understanding (written or otherwise) (1) that the advice will serve as the primary basis for investment decisions and (2) that the advice will be individualized for the Benefit Plan based on its particular needs.

Annual Valuation

A fiduciary of an employee benefit plan subject to ERISA is required to determine annually the fair market value of each asset of the plan as of the end of the plan’s fiscal year and to file a report reflecting that value with the Department of Labor. When the fair market value of any particular asset is not available, the fiduciary is required to make a good faith determination of that asset’s fair market value, assuming an orderly liquidation at the time the determination is made. In addition, a trustee or custodian of an IRA must provide an IRA participant with a statement of the value of the IRA each year. In discharging its obligation to value assets of a plan, a fiduciary subject to ERISA must act consistently with the relevant provisions of the plan and the general fiduciary standards of ERISA.

172

Unless and until our shares are listed on a national securities exchange, we do not expect that a public market for our shares will develop. To date, neither the IRS nor the Department of Labor has promulgated regulations specifying how a plan fiduciary should determine the fair market value of shares when the fair market value of such shares is not determined in the marketplace. Therefore, to assist fiduciaries in fulfilling their valuation and annual reporting responsibilities, we intend to have our advisor prepare annual reports of the estimated value of our shares.

We expect that we will engage our advisor to value our shares, though in the future we may hire a third-party valuation firm for that purpose. Until we have completed our offering stage, our advisor has indicated that it intends to use the most recent price paid to acquire a share in the primary offering (ignoring purchase price discounts for certain categories of purchasers) as its estimated per share value of our shares. Although this approach to valuing our shares represents the most recent price at which most investors are willing to purchase shares in this offering, this reported value is likely to differ from the price at which a stockholder could resell his or her shares because (i) there is no public trading market for the shares at this time; (ii) the estimated value does not reflect, and is not derived from, the fair market value of our properties and other assets, nor does it represent the amount of net proceeds that would result from an immediate liquidation of those assets, because the amount of proceeds available for investment from our offerings is net of selling commissions, dealer manager fees, other organization and offering costs and acquisition fees and expenses; (iii) the estimated value does not take into account how market fluctuations affect the value of our investments, including how the current disruptions in the financial and real estate markets may affect the values of our investments; and (iv) the estimated value does not take into account how developments related to individual assets may have increased or decreased the value of our portfolio. We will consider our offering stage complete when 18 months have passed without our having sold shares in a public offering of equity securities, whether that last sale was in this initial public offering or a public follow-on offering. (For purposes of this definition, we do not consider a “public equity offering” to include offerings on behalf of selling stockholders or offerings related to a distribution reinvestment plan, employee benefit plan or the redemption of interests in the Operating Partnership).

When determining the estimated per share value of our shares by methods other than the last price paid to acquire a share in this offering, our advisor, or another firm we choose for that purpose, will estimate the value of our shares based upon a number of assumptions that may not be accurate or complete. We do not currently anticipate obtaining appraisals for our investments and, accordingly, the estimates should not be viewed as an accurate reflection of the fair market value of our investments nor will they represent the amount of net proceeds that would result from an immediate sale of our assets. For these reasons, the estimated valuations should not be utilized for any purpose other than to assist plan fiduciaries in fulfilling their annual valuation and reporting responsibilities. Even after our advisor no longer uses the most recent offering price as the estimated value of our shares, you should be aware of the following:

• the estimated values may not be realized by us or by you upon liquidation (in part because estimated values do not necessarily indicate the price at which assets could be sold and because the estimates may not take into account the expenses of selling our assets);

• you may not realize these values if you were to attempt to sell your shares; and

• the estimated values, or the method used to establish values, may not comply with the ERISA or IRA requirements described above.

173

DESCRIPTION OF SHARES

The following is a summary description of our capital stock. Copies of our charter and bylaws are filed as exhibits to the registration statement of which this prospectus is a part. See “Where You Can Find More Information.”

General

Our charter will provide that we may issue up to 1,010,050,000 shares of capital stock, of which 1,000,000,000 shares are designated as common stock, par value $0.01 per share, 50,000 shares are designated as convertible stock, par value $0.01 per share and 10,000,000 shares are designated as preferred stock, par value $0.01 per share. As of the date of this prospectus, we had 20,000 shares of our common stock outstanding, no shares of convertible stock outstanding and no shares of preferred stock outstanding. In addition, our board of directors may amend our charter to increase or decrease the amount of our authorized shares.

Common Stock

All shares of our common stock have equal rights as to earnings, assets, distributions and voting. We will receive an opinion from DLA Piper LLP (US) that when the shares of our common stock are issued, they will be duly authorized, validly issued, fully paid and non-assessable. Distributions may be paid to the holders of our common stock, if and when authorized by our board of directors and declared by us out of funds legally available therefore, subject to any preferential rights of any preferred stock that we issue in the future. Holders of shares of our common stock will not have preemptive rights, which means that you will not have an automatic option to purchase any new shares that we issue, nor will holders of our shares have any preference, conversion, exchange, sinking fund, redemption or appraisal rights. In the event of our liquidation, dissolutions or winding up, each share of our common stock would be entitled to share ratably in all of our assets that are legally available for distribution after payment of or adequate provision for all our known debts and other liabilities and subject to any preferential rights of holders of preferred stock, if any preferred stock is outstanding at such time. Subject to our charter restrictions on the transfer and ownership of our common stock and except as may be specified otherwise in the terms of any class or series of our common stock, each share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of our directors. Except as provided with respect to any other class or series of stock, the holders of our common stock will possess exclusive voting power. There is no cumulative voting in the election of directors, which means that holders of a majority of our outstanding common shares can elect all of our directors and holders of less than a majority of such shares will be unable to elect any director.

Our board of directors has authorized the issuance of shares of our capital stock without certificates. We expect that, until our shares are listed on a national securities exchange, we will not issue shares in certificated form. Information regarding restrictions on the transferability of our shares that, under Maryland law, would otherwise have been required to appear on our share certificates will instead be furnished to stockholders upon request and without charge. These requests should be delivered or mailed to: Resource Real Estate Opportunity REIT, Inc., c/o Resource Real Estate Opportunity Advisor, LLC, One Crescent Drive, Suite 203, Philadelphia, Pennsylvania 19112.

We maintain a stock ledger that contains the name and address of each stockholder and the number of shares that the stockholder holds. With respect to uncertificated stock, we will continue to treat the stockholder registered on our stock ledger as the owner of the shares until the new owner delivers a properly executed form to us, which form we will provide to any registered holder upon request.

Convertible Stock

Our authorized capital stock will include 50,000 shares of convertible stock, par value $0.0001 per share. Prior to the commencement of this offering, we will issue 45,000 of such shares to our advisor in exchange for 4,500 shares of common stock. No additional consideration is due upon the conversion of the convertible stock. There will be no distributions paid on shares of convertible stock. Except for certain limited circumstances,

174

we may not redeem all or any portion of the outstanding shares of convertible stock. The conversion of the convertible stock into common shares will dilute the value of our shares of common stock.

With certain limited exceptions, shares of convertible stock shall not be entitled to vote on any matter, or to receive notice of, or to participate in, any meeting of stockholders of the company at which they are not entitled to vote. However, the affirmative vote of the holders of more than two-thirds of the outstanding shares of convertible stock is required for the adoption of any amendment, alteration or repeal of a provision of the charter that adversely changes the preferences, limitations or relative rights of the shares of convertible stock.

Upon the occurrence of (A) our making total distributions on the then outstanding shares of our common stock equal to the issue price of those shares (that is, the price paid for those shares) plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares; or (B) the listing of the shares of common stock for trading on a national securities exchange, each outstanding share of our convertible stock will convert into the number of shares of our common stock described below. Before we will be able to pay distributions to our stockholders equal to the aggregate issue price of our then outstanding shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares, we will need to sell a portion of our assets. Thus, the sale of one or more assets will be a practical prerequisite for conversion under clause (A) above.

Upon the occurrence of either such event, each share of convertible stock shall, unless our advisory agreement with our advisor has been terminated or not renewed on account of a material breach by our advisor, generally be converted into a number of shares of common stock equal to 1/50,000 of the quotient of (A) the lesser of (i) 25% of the amount, if any, by which (1) the value of the company (determined in accordance with the provisions of the charter and summarized in the following paragraph) as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (2) the sum of the aggregate issue price of those outstanding shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, or (ii) 15% of the amount, if any, by which (I) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (II) the sum of the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, divided by (B) the value of the company divided by the number of outstanding shares of common stock, in each case, as of the date of the event triggering the conversion. In the case of conversion upon the listing of our shares, the conversion of the convertible stock will not occur until the 31st trading day after the date of such listing. However, if our advisory agreement with our advisor expires without renewal or is terminated (other than because of a material breach by our advisor) prior to each such triggering event described in the foregoing paragraph (an “advisory agreement termination”), then upon either such triggering event the holder of the convertible stock will be entitled to a prorated portion of the number of shares of common stock determined by the foregoing calculation, where such proration is based on the percentage of time we were advised by our advisor.

As used above and in our charter, “value of the company” as of a specific date means our actual value as a going concern on the applicable date based on the difference between (A) the actual value of all of our assets as determined in good faith by our board, including a majority of the independent directors, and (B) all of our liabilities as set forth on our balance sheet for the period ended immediately prior to the determination date, provided that (1) if such value is being determined in connection with a change of control that establishes our net worth, then the value shall be the net worth established thereby and (2) if such value is being determined in connection with the listing of our common stock for trading on a national securities exchange, then the value shall be the number of outstanding shares of common stock multiplied by the closing price of a single share of common stock, averaged over a period of 30 trading days after the date of listing. If the holder of shares of convertible stock disagrees with the value determined by the board, then each of the holder of the convertible stock and us shall name one appraiser and the two named appraisers shall promptly agree in good faith to the appointment of one other appraiser whose determination of the value of the company shall be final and binding on the parties. The cost of such appraisal shall be shared evenly between us and our advisor.

175

Our charter provides that if we:

• reclassify or otherwise recapitalize our outstanding common stock (except to change the par value, or to change from no par value to par value, or to subdivide or otherwise split or combine shares); or

• consolidate or merge with another entity in a transaction in which we are either (1) not the surviving entity or (2) the surviving entity but that results in a reclassification or recapitalization of our common stock (except to change the par value, or to change from no par value to par value, or to subdivide or otherwise split or combine shares),

then we or the successor or purchasing business entity must provide that the holder of each share of our convertible stock outstanding at the time one of the above events occurs will continue to have the right to convert the convertible stock upon an event triggering conversion. After one of the above transactions occurs, the convertible stock will be convertible into the kind and amount of stock and other securities and property received by the holders of common stock in the transaction that occurred, such that upon conversion, the holders of convertible stock will realize as nearly as possible the same economic rights and effects as described above in the description of the conversion of our convertible stock. This right will apply to successive reclassifications, recapitalizations, consolidations, and mergers until the convertible stock is converted.

Our board of directors will oversee the conversion of the convertible stock to ensure that any shares of common stock issuable in connection with the conversion is calculated in accordance with the terms of our charter and to evaluate the impact of the conversion on our REIT status. If, in the good faith judgment of our board, full conversion of the convertible stock would jeopardize our status as a REIT, then only such number of shares of convertible stock (or fraction of a share thereof) shall be converted into a number of shares of common stock such that our REIT status would not be jeopardized. The conversion of the remaining shares of convertible stock will be deferred until the earliest date after our board of directors determines that such conversion will not jeopardize our qualification as a REIT. Any such deferral will not otherwise alter the terms of the convertible stock.

Preferred Stock

Our charter authorizes our board of directors to designate and issue one or more classes or series of preferred stock without stockholder approval. Our board of directors may determine the relative rights, preferences and privileges of each class or series of preferred stock so issued, which may be more beneficial than the rights, preferences and privileges attributable to our common stock. The issuance of preferred stock could have the effect of delaying or preventing a change in control. Our board of directors has no present plans to issue preferred stock but may do so at any time in the future without stockholder approval.

Distributions

We have not paid any distributions as of the date of this prospectus. We intend to elect to be taxed as a REIT and to operate as a REIT beginning with our taxable year ending December 31, 2009. To maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our common stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. We will make distributions with respect to the shares of common stock in our sole discretion. No distributions will be made with respect to the convertible stock. Once we begin making distributions, we intend to pay distributions on a monthly basis based on daily record dates.

Generally, our policy will be to pay distributions based on current and projected cash flow from operations after giving consideration to amounts excluded from cash flow from operations under GAAP but paid for out of offering proceeds, such as acquisition fees and acquisition expenses. We expect to have little, if any, cash flow from operations available for distribution until we make substantial investments. We expect that at least during the early stages of our development, and from time to time during our operational stage, we may declare distributions in

176

anticipation of cash flow that we expect to receive during a later period and we will pay these distributions in advance of our actual receipt of these funds. In these instances, to the extent permitted by Maryland law, we expect to use the proceeds from this offering or the proceeds from the issuance of securities in the future to pay distributions. We may also fund such distributions from third-party borrowings or from advances from our advisor or sponsor or from our advisor’s deferral of its asset management fee, although we have no present intention to do so.

We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders.

Restriction on Ownership of Shares

Ownership Limit

To maintain our REIT qualification, not more than 50% in value of our outstanding shares may be owned, directly or indirectly, by five or fewer individuals (including certain entities treated as individuals under the Internal Revenue Code) during the last half of each taxable year. In addition, at least 100 persons who are independent of us and each other must beneficially own our outstanding shares for at least 335 days per 12-month taxable year or during a proportionate part of a shorter taxable year. Each of the requirements specified in the two preceding sentences shall not apply until after 2009, the first taxable year for which we will make an election to be taxed as a REIT. We may prohibit certain acquisitions and transfers of shares so as to ensure our continued qualification as a REIT under the Internal Revenue Code. However, we cannot assure you that this prohibition will be effective.

To help ensure that we meet these tests, our charter prohibits any person or group of persons from acquiring, directly or indirectly, beneficial ownership of more than 9.8% of our aggregate outstanding shares unless exempted by our board of directors. This ownership limit shall be applicable beginning on June 30, 2010. Our board of directors may waive this ownership limit with respect to a particular person if the board receives evidence that ownership in excess of the limit will not jeopardize our REIT status. For purposes of this provision, we treat corporations, partnerships and other entities as single persons.

This limitation does not apply to the holder(s) of our convertible stock or the common stock issued upon conversion of our convertible stock. However, our board of directors may defer the timing of the conversion of all or a portion of our convertible stock if it determines that full conversion could jeopardize our qualification as a REIT under then applicable federal income tax laws and regulation. Any such deferral will not otherwise alter the terms of the convertible stock, and such stock will convert at the earliest date after our board of directors determines that such conversion will not jeopardize our qualification as a REIT.

Any attempted transfer of our shares that, if effective, would result in a violation of our ownership limit or would result in our shares being owned by fewer than 100 persons will be null and void and will cause the number of shares causing the violation to be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries. The prohibited transferee will not acquire any rights in the shares. The automatic transfer will be deemed to be effective as of the close of business on the business day prior to the date of the attempted transfer. We will designate a trustee of the trust that will not be affiliated with us or the prohibited transferee. We will also name one or more charitable organizations as a beneficiary of the share trust.

Shares held in trust will remain issued and outstanding shares and will be entitled to the same rights and privileges as all other shares of the same class or series. The prohibited transferee will not benefit economically from any of the shares held in trust, will not have any rights to dividends or distributions and will not have the right to vote or any other rights attributable to the shares held in the trust. The trustee will receive all dividends and distributions on the shares held in trust and will hold such dividends or distributions in trust for the benefit of the charitable beneficiary. The trustee may vote any shares held in trust.

Within 20 days of receiving notice from us that any of our shares have been transferred to the trust for the charitable beneficiary, the trustee will sell those shares to a person designated by the trustee whose ownership of the shares will not violate the above restrictions. Upon the sale, the interest of the charitable beneficiary in the shares

177

sold will terminate and the trustee will distribute the net proceeds of the sale to the prohibited transferee and to the charitable beneficiary as follows. The prohibited transferee will receive the lesser of (i) the price paid by the prohibited transferee for the shares or, if the prohibited transferee did not give value for the shares in connection with the event causing the shares to be held in the trust (e.g., a gift, devise or other similar transaction), the market price (as defined in our charter) of the shares on the day of the event causing the shares to be held in the trust and (ii) the price received by the trustee from the sale or other disposition of the shares. Any net sale proceeds in excess of the amount payable to the prohibited transferee will be paid immediately to the charitable beneficiary. If, prior to our discovery that shares have been transferred to the trust, the shares are sold by the prohibited transferee, then (i) the shares shall be deemed to have been sold on behalf of the trust and (ii) to the extent that the prohibited transferee received an amount for the shares that exceeds the amount he was entitled to receive, the excess shall be paid to the prohibited trustee upon demand.

In addition, shares held in the trust for the charitable beneficiary will be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in the transfer to the trust (or, in the case of a devise or gift, the market price at the time of the devise or gift) and (ii) the market price on the date we, or our designee, accept the offer. We will have the right to accept the offer until the trustee has sold the shares. Upon a sale to us, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the prohibited transferee.

Any person who acquires or attempts to acquire shares in violation of the foregoing restrictions or who would have owned the shares that were transferred to any such trust must give us immediate written notice of such event, and any person who proposes or attempts to acquire or receive shares in violation of the foregoing restrictions must give us at least 15 days’ written notice prior to such transaction. In both cases, such persons shall provide to us such other information as we may request in order to determine the effect, if any, of such transfer on our status as a REIT.

The foregoing restrictions will continue to apply until our board of directors determines it is no longer in our best interest to continue to qualify as a REIT. The ownership limit does not apply to any underwriter in an offering of our shares or to a person or persons exempted from the ownership limit by our board of directors based upon appropriate assurances that our qualification as a REIT would not be jeopardized.

Within 30 days after the end of each taxable year, every owner of 5% or more of our outstanding capital stock will be asked to deliver to us a statement setting forth the number of shares owned directly or indirectly by such person and a description of how such person holds the shares. Each such owner shall also provide us with such additional information as we may request in order to determine the effect, if any, of his or her beneficial ownership on our status as a REIT and to ensure compliance with our ownership limit.

These restrictions could delay, defer or prevent a transaction or change in control of our company that might involve a premium price for our shares of common stock or otherwise be in the best interests of our stockholders.

Suitability Standards and Minimum Purchase Requirements

State securities laws and our charter require that purchasers of our common stock meet standards regarding (i) net worth or income and (ii) minimum purchase amounts. These standards are described above at “Suitability Standards” immediately following the cover page of this prospectus and below at “Plan of Distribution — Minimum Purchase Requirements.” Subsequent purchasers, i.e., potential purchasers of your shares, must also meet the net worth or income standards, and unless you are transferring all of your shares, you may not transfer your shares in a manner that causes you or your transferee to own fewer than the number of shares required to meet the minimum purchase requirements, except for the following transfers without consideration: transfers by gift, transfers by inheritance, intrafamily transfers, family dissolutions, transfers to affiliates and transfers by operation of law. These suitability and minimum purchase requirements are applicable until our shares of common stock are listed on a national securities exchange, and these requirements may make it more difficult for you to sell your shares.

178

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is                      .

Meetings and Special Voting Requirements

After the effective date of this initial public offering, an annual meeting of our stockholders will be held each year, at least 30 days after delivery of our annual report. Special meetings of stockholders may be called only upon the request of a majority of our directors, a majority of our independent directors, our chief executive officer, our president or upon the written request of stockholders holding at least 10% of the shares entitled to be cast on any issue proposed to be considered at the special meeting. Upon receipt of a written request of common stockholders holding at least 10% of the shares entitled to be cast stating the purpose of the special meeting, our secretary will provide all of our stockholders written notice of the meeting and the purpose of such meeting. The meeting must be held not less than 15 days or more than 60 days after the distribution of the notice of the meeting. The presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at any stockholder meeting constitutes a quorum. Unless otherwise provided by the Maryland General Corporation Law or our charter, the affirmative vote of a majority of all votes cast is necessary to take stockholder action. With respect to the election of directors, each candidate nominated for election to the board of directors must receive a majority of the votes present, in person or by proxy, in order to be elected. Therefore, if a nominee receives fewer “for” votes than “withhold” votes in an election, then the nominee will not be elected.

Our charter provides that the concurrence of the board is not required in order for the common stockholders to amend the charter, dissolve the corporation or remove directors. However, we have been advised that Section 2-604 of the Maryland General Corporation Law does require board approval in order to amend our charter or dissolve. Without the approval of a majority of the shares of common stock entitled to vote on the matter, the board of directors may not:

• amend the charter to adversely affect the rights, preferences and privileges of the common stockholders;

• amend charter provisions relating to director qualifications, fiduciary duties, liability and indemnification, conflicts of interest, investment policies or investment restrictions;

• cause our liquidation or dissolution after our initial investment in property;

• sell all or substantially all of our assets other than in the ordinary course of business; or

• cause our merger or reorganization.

The term of our advisory agreement with our advisor will end after one year but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of our advisor and us. Our independent directors will annually review our advisory agreement with our advisor. While the stockholders do not have the ability to vote to replace our advisor or to select a new advisor, stockholders do have the ability, by the affirmative vote of a majority of the shares entitled to vote on such matter, to remove a director from our board.

Advance Notice for Stockholder Nominations for Directors and Proposals of New Business

Our bylaws provide that with respect to an annual meeting of stockholders, nominations of individuals for election to the board of directors and the proposal of business to be considered by stockholders may be made only:

• pursuant to our notice of the meeting;

• by the board of directors; or

179

• by a stockholder who gives notice of the nomination or proposal not less than 90 days prior to the first anniversary of the date of the mailing of the notice for the preceding year’s annual stockholders’ meeting.

Our bylaws contain a similar notice requirement in connection with nominations for directors at a special meeting of stockholders called for the purpose of electing one or more directors. Failure to comply with the notice provisions will make stockholders unable to nominate directors or propose new business. The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our board of directors a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our board of directors, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders.

Inspection of Books and Records

As a part of our books and records, we will maintain at our principal office an alphabetical list of the names of our common stockholders, along with their addresses and telephone numbers and the number of shares held by each of them. We will update this stockholder list at least quarterly and it will be available for inspection at our principal office by a common stockholder or his or her designated agent upon request of the stockholder. We will also mail this list to any common stockholder within 10 days of receipt of his or her request. We may impose a reasonable charge for expenses incurred in reproducing such list. Stockholders, however, may not sell or use this list for commercial purposes. The purposes for which stockholders may request this list include matters relating to their voting rights. Each common stockholder who receives a copy of the stockholder list shall keep such list confidential and shall sign a confidentiality agreement to the effect that such stockholder will keep the stockholder list confidential and share such list only with its employees, representatives or agents who agree in writing to maintain the confidentiality of the stockholder list.

If our advisor or our board of directors neglects or refuses to exhibit, produce or mail a copy of the stockholder list as requested, our advisor and/ or board, as the case may be, shall be liable to the common stockholder requesting the list for the costs, including attorneys’ fees, incurred by that stockholder for compelling the production of the stockholder list and any actual damages suffered by any common stockholder for the neglect or refusal to produce the list. It shall be a defense that the actual purpose and reason for the requests for inspection or for a copy of the stockholder list is not for a proper purpose but is instead for the purpose of securing such list of stockholders or other information for the purpose of selling such list or copies thereof, or of using the same for a commercial purpose (such as to solicit the purchase of our shares) other than in the interest of the applicant as a stockholder relative to the affairs of our company. We may require that the stockholder requesting the stockholder list represent that the request is not for a commercial purpose unrelated to the stockholder’s interest in our company. The remedies provided by our charter to stockholders requesting copies of the stockholder list are in addition to, and do not in any way limit, other remedies available to stockholders under federal law, or the law of any state.

Control Share Acquisitions

The Maryland General Corporation Law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock that, if aggregated with all other shares owned by the acquirer or with respect to which the acquirer has the right to vote or to direct the voting of (except solely by virtue of revocable proxy) would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting powers:

• one-tenth or more but less than one-third;

• one-third or more but less than a majority; or

180

• a majority or more of all voting power.

Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, but does not include the acquisition of shares (i) under the laws of descent and distribution, (ii) under the satisfaction of a pledge or other security interest created in good faith and not for the purpose of circumventing this subtitle, or (iii) under a merger, consolidation, or share exchange effected under the control share acquisition statute if the corporation is a party to the merger, consolidation, or share exchange.

A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of stockholders to be held within 50 days of the demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.

If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may repurchase for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to repurchase control shares is subject to certain conditions and limitations. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of these appraisal rights may not be less than the highest price per share paid in the control share acquisition.

The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or to acquisitions approved or exempted by the charter or bylaws of the corporation.

Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of share of our stock. There can be no assurance that this provision will not be amended or eliminated at any time in the future.

Business Combinations

Under the Maryland General Corporation Law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include mergers, consolidations, share exchanges, or, in circumstances specified in the statute, asset transfers or issuances or reclassifications of equity securities. An interested stockholder is defined as:

• any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or

• an affiliate or associate of the corporation who, at any time within the two-year period before the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he or she otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

181

After the five-year prohibition, any business combination between the corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

• 80% of the votes entitled to be cast by holders of outstanding voting stock of the corporation; and

• two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected, or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under the Maryland General Corporation Law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.

The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. We have opted out of these provisions by resolution of our board of directors. However, our board of directors may, by resolution, opt in to the business combination statute in the future.

Subtitle 8

Subtitle 8 of Title 3 of the Maryland General Corporation Law permits a Maryland corporation with a class of equity securities registered under the Exchange Act, and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions:

• a classified board,

• a two-thirds vote requirement for removing a director,

• a requirement that the number of directors be fixed only by vote of the directors,

• a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred, and

• a majority requirement for the calling of a special meeting of stockholders.

We have added provisions to our charter that prohibit us, until such time that our shares of common stock are listed on a national securities exchange, from electing to be subject to the provisions under Subtitle 8. Through provisions in our bylaws unrelated to Subtitle 8, we already vest in our board of directors the exclusive power to fix the number of directorships and fill vacancies on the board. Our bylaws may be amended by our stockholders or the board of directors.

Tender Offer by Stockholders

Our charter provides that any tender offer made by a stockholder, including any “mini-tender” offer, must comply with certain notice and disclosure requirements. These procedural requirements with respect to tender offers apply to any widespread solicitation for shares of our stock at firm prices for a limited time period.

In order for one of our stockholders to conduct a tender offer to another stockholder, our charter requires that the stockholder comply with Regulation 14D of the Exchange Act, and provide the Company notice of such tender offer at least ten business days before initiating the tender offer. Pursuant to our charter, Regulation 14D would require any stockholder initiating a tender offer to provide:

182

• specific disclosure to stockholders focusing on the terms of the offer and information about the bidder;

• the ability to allow stockholders to withdraw tendered shares while the offer remains open;

• the right to have tendered shares accepted on a pro rata basis throughout the term of the offer if the offer is for less than all of our shares; and

• that all stockholders of the subject class of shares be treated equally.

In addition to the foregoing, there are certain ramifications to stockholders should they attempt to conduct a noncompliant tender offer. If any stockholder initiates a tender offer without complying with the provisions set forth above, in our sole discretion, we shall have the right to redeem such noncompliant stockholder’s shares and any shares acquired in such tender offer. The noncomplying stockholder shall also be responsible for all of our expenses in connection with that stockholder’s noncompliance.

Distribution Reinvestment Plan

We have adopted a distribution reinvestment plan pursuant to which you may elect to have your dividends and other distributions reinvested in additional shares of our common stock. The following discussion summarizes the principal terms of this plan. Appendix C to this prospectus contains the full text of our distribution reinvestment plan as is currently in effect.

Eligibility

All of our common stockholders are eligible to participate in our distribution reinvestment plan; however, we may elect to deny your participation in the distribution reinvestment plan if you reside in a jurisdiction or foreign country where, in our judgment, the burden or expense of compliance with applicable securities laws makes your participation impracticable or inadvisable.

At any time prior to the listing of our shares on a national stock exchange, you must cease participation in our distribution reinvestment plan if you no longer meet the suitability standards or cannot make the other investor representations set forth in the then-current prospectus or in the subscription agreement. Participants must agree to notify us promptly when they no longer meet these standards. See the “Suitability Standards” section of this prospectus (immediately following the cover page) and the form of subscription agreement attached hereto as Appendix B.

Election to Participate

You may elect to participate in the distribution reinvestment plan by completing the subscription agreement or other approved enrollment form available from the dealer manager or a participating broker-dealer. Your participation in the distribution reinvestment plan will begin with the next distribution made after receipt of your enrollment form. You can choose to have all or a portion of your distributions reinvested through the distribution reinvestment plan. You may also change the percentage of your distributions that will be reinvested at any time by completing a new enrollment form or other form provided for that purpose. You must make any election to increase your level of participation through your participating broker-dealer or the dealer manager.

Stock Purchases

Shares will be purchased under the distribution reinvestment plan on the monthly distribution payment dates. The purchase of fractional shares is a permissible and likely result of the reinvestment of distributions under the distribution reinvestment plan.

The purchase price for shares purchased under the distribution reinvestment plan will initially be $9.50 per share. Once we establish an estimated value per share that is not based on the price to acquire a share in the primary

183

offering, shares issued pursuant to our distribution reinvestment plan will be priced at the estimated value per share of our common stock, as determined by our advisor or another firm chosen for that purpose. We expect to establish an estimated value per share not based on the price to acquire a share in the primary offering after the completion of our offering stage; however, the time frame before which we establish an estimated value per share may be different depending on regulatory requirements or if necessary to assist broker dealers who sell shares in this offering. We will consider our offering stage complete when 18 months have passed since our last sale of shares in a public offering of equity securities, whether that last sale was in this initial public offering or a public follow-on offering. (For purposes of this definition, we do not consider “public equity offerings” to include offerings on behalf of selling stockholders or offerings related to any distribution reinvestment plan, employee benefit plan or the redemption of interests in our Operating Partnership.)

Account Statements

You or your designee will receive a confirmation of your purchases under the distribution reinvestment plan no less than quarterly. Your confirmation will disclose the following information:

• each distribution reinvested for your account during the period;

• the date of the reinvestment;

• the number and price of the shares purchased by you; and

• the total number of shares in your account.

In addition, within 90 days after the end of each calendar year, we will provide you with an individualized report on your investment, including the purchase dates, purchase price, number of shares owned and the amount of distributions made in the prior year. We will also provide to all participants in the plan, without charge, all supplements to and updated versions of this prospectus, as required under applicable securities laws.

Fees and Commissions and Use of Proceeds

No selling commissions or dealer manager fees will be payable on shares sold under the distribution reinvestment plan. We expect to use the net proceeds from the sale of shares under our distribution reinvestment plan for general corporate purposes, including, but not limited to, the following:

• the repurchase of shares under our share redemption program;

• capital expenditures, tenant improvement costs and leasing costs related to our investments in real estate properties;

• reserves required by any financings of our investments;

• future funding obligations under any real estate loan receivable we acquire;

• acquisition of assets, which would include payment of acquisition fees to our advisor (see “Management Compensation”); and

• the repayment of debt.

We cannot predict with any certainty how much, if any, distribution reinvestment plan proceeds will be available for specific purposes.

184

Voting

You may vote all shares, including fractional shares that you acquire through the distribution reinvestment plan.

Tax Consequences of Participation

If you elect to participate in the distribution reinvestment plan and are subject to federal income taxation, you will incur a tax liability for distributions allocated to you even though you have elected not to receive the distributions in cash but rather to have the distributions withheld and reinvested pursuant to the distribution reinvestment plan. Specifically, you will be treated as if you have received the distribution from us in cash and then applied such distribution to the purchase of additional shares. In addition, to the extent you purchase shares through our distribution reinvestment plan at a discount to their fair market value, you will be treated for tax purposes as receiving an additional distribution equal to the amount of the discount.

At least until we establish an estimated value per share not based on the last price paid to acquire a share in this offering (or future public offerings), we expect that (i) we will sell shares under the distribution reinvestment plan at $9.50 per share, (ii) no secondary trading market for our shares will develop and (iii) our advisor will estimate the fair market value of a share to be $10.00. Therefore, participants in our distribution reinvestment plan will be treated as having received a distribution of $10.00 for each $9.50 reinvested by them under our distribution reinvestment plan. You will be taxed on the amount of such distribution as a dividend to the extent such distribution is from current or accumulated earnings and profits, unless we have designated all or a portion of the distribution as a capital gain distribution. See “Federal Income Tax Considerations — Taxation of Stockholders.” We will withhold 28% of the amount of dividends or distributions paid if you fail to furnish a valid taxpayer identification number, fail to properly report interest or distributions or fail to certify that you are not subject to withholding.

Termination of Participation

Once enrolled, you may continue to purchase shares under our distribution reinvestment plan until we have sold all of the shares registered in this offering, have terminated this offering or have terminated the distribution reinvestment plan. You may terminate your participation in the distribution reinvestment plan at any time by providing us with written notice. For your termination to be effective for a particular distribution, we must have received your notice of termination at least 10 business days prior to the last day of the fiscal period to which the distribution relates. Any transfer of your shares will effect a termination of the participation of those shares in the distribution reinvestment plan. We will terminate your participation in the distribution reinvestment plan to the extent that a reinvestment of your distributions would cause you to violate the ownership limit contained in our charter, unless you have obtained an exemption from the ownership limit from our board of directors.

Amendment or Termination of Plan

We may amend or terminate the distribution reinvestment plan for any reason at any time upon 10 days’ written notice to the participants. 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 SEC or (b) in a separate mailing to the participants.

Share Redemption Program

Our board of directors has adopted a share redemption program that may enable you to sell your shares to us after you have held them for at least one year, subject to the significant conditions and limitations of the program. In its sole discretion, our board of directors could choose to terminate the program or to amend its provisions without stockholder approval. The purchase price for such shares redeemed under the redemption program will be as set forth below until we establish an estimated value per share of our common stock. We expect to establish an estimated value per share after the completion of our offering stage; however, the time frame before which we establish an estimated value per share may be different depending on regulatory requirements or if necessary to

185

assist broker-dealers who sell shares in this offering. We will consider our offering stage complete when 18 months have passed without our having sold shares in a public offering of equity securities, whether that last sale was in this initial public offering or a public follow-on offering. We would report this redemption price to you in our annual report and the three quarterly reports that we publicly file with the SEC. (For purposes of this definition, we do not consider “public equity offerings” to include offerings on behalf of selling stockholders or offerings related to a distribution reinvestment plan, employee benefit plan or the redemption of interests in the Operating Partnership).

Unless the shares are being redeemed in connection with a stockholder’s death or “qualifying disability” (as defined below) or redemptions sought upon a stockholder’s confinement to a long-term care facility (upon the conditions set forth below), the purchase price per share for shares redeemed under the redemption program will equal (1) prior to the time we establish an estimated value per share, the amount by which (a) the lesser of (i) 90% of the average gross price per share the original purchaser or purchasers of your shares paid to us, which we refer to as the “issue price,” for all of your shares (as adjusted for any stock combinations, splits, recapitalizations and the like with respect to our common stock) or (ii) 90% of the offering price of shares in our most recent public primary offering exceeds (b) the aggregate amount of net sale proceeds per share, if any, distributed to investors prior to the redemption date as a result of the sale of one or more of our investments, or (2) after we establish an estimated value per share, the lesser of (i) 100% of the average issue price per share for all of your shares (as adjusted for any stock combinations, splits, recapitalizations and the like with respect to our common stock) or (ii) 90% of the estimated value per share, as determined by our advisor or another firm chosen for that purpose.

In the event that you redeem all of your shares, any shares that you purchased pursuant to our distribution reinvestment plan may be excluded from the foregoing one-year holding period requirement, in the discretion of our board of directors. In addition, for purposes of the one-year holding period, limited partners of the Operating Partnership who exchange their limited partnership units for shares of our common stock will be deemed to have owned their shares as of the date they were issued their limited partnership units in the Operating Partnership. For a description of the exchange rights of the limited partners of the Operating Partnership, see “The Operating Partnership Agreement—Exchange Rights.”

Subject to the limitations described in this prospectus and provided that the redemption request is made within 270 days of the event giving rise to the following special circumstances, we will also waive the one-year holding requirement (a) upon the request of the estate, heir or beneficiary of a deceased stockholder or (b) upon the qualifying disability of a stockholder or upon a stockholder’s confinement to a long-term care facility, provided that the condition causing such disability or need for long-term care was not preexisting on the date that such person became a stockholder. Our board of directors reserves the right in its sole discretion at any time to (1) waive the one-year holding period in the event of other exigent circumstances affecting a stockholder such as bankruptcy or a mandatory distribution requirement under a stockholder’s IRA, (2) reject any request for redemption, (3) change the purchase price for redemptions, or (4) otherwise amend the terms of our share redemption program.

In addition, and subject to the conditions and limitations described below, we will redeem shares at the prices described below upon the death of a stockholder who is a natural person, including shares held by such stockholder through a revocable grantor trust or an IRA or other retirement or profit-sharing plan, after receiving written notice from the estate of the stockholder, the recipient of the shares through bequest or inheritance, or, in the case of a revocable grantor trust, the trustee of such trust, who shall have the sole ability to request redemption on behalf of the trust. We must receive the written notice within 270 days after the death of the stockholder. If spouses are joint registered holders of shares, the request to redeem the shares may be made if either of the registered holders dies. If the stockholder is not a natural person, such as a trust other than a revocable grantor trust, partnership, corporation or other similar entity, these special redemption rights upon death do not apply.

Furthermore, and subject to the conditions and limitations described below, we will redeem shares at the prices described below held by a stockholder who is a natural person, including shares held by such stockholder through a revocable grantor trust or an IRA or other retirement or profit-sharing plan, with a qualifying disability or upon confinement to a long-term care facility, after receiving written notice from such stockholder, provided that the condition causing the qualifying disability was not preexisting on the date that the person became a stockholder or that the stockholder seeking redemption was not confined to a long-term care facility on the date the person became a stockholder. We must receive written notice within 270 days after the determination of such stockholder’s

186

qualifying disability or, with respect to redemptions sought upon a stockholder’s confinement to a long-term care facility, within 270 days of the earlier of (1) the one-year anniversary of the stockholder’s admittance to the long-term care facility or (2) the date of the determination of the stockholder’s indefinite confinement to the long-term care facility by a licensed physician. If the stockholder is not a natural person, such as a trust (other than a revocable grantor trust), partnership, corporation or other similar entity, these special redemption rights do not apply.

In order for a disability to entitle a stockholder to the special redemption terms described above (a “qualifying disability”), (1) the stockholder would have to receive a determination of disability based upon a physical or mental condition or impairment arising after the date the stockholder acquired the shares to be redeemed, and (2) such determination of disability would have to be made by the governmental agency responsible for reviewing the disability retirement benefits that the stockholder could be eligible to receive (the “applicable governmental agency”). The “applicable governmental agencies” would be limited to the following: (i) if the stockholder paid Social Security taxes and, therefore, could be eligible to receive Social Security disability benefits, then the applicable governmental agency would be the Social Security Administration or the agency charged with responsibility for administering Social Security disability benefits at that time if other than the Social Security Administration; (ii) if the stockholder did not pay Social Security benefits and, therefore, could not be eligible to receive Social Security disability benefits, but the stockholder could be eligible to receive disability benefits under the Civil Service Retirement System (“CSRS”), then the applicable governmental agency would be the U.S. Office of Personnel Management or the agency charged with responsibility for administering CSRS benefits at that time if other than the Office of Personnel Management; or (iii) if the stockholder did not pay Social Security taxes and therefore could not be eligible to receive Social Security benefits but suffered a disability that resulted in the stockholder’s discharge from military service under conditions that were other than dishonorable and, therefore, could be eligible to receive military disability benefits, then the applicable governmental agency would be the Department of Veterans Affairs or the agency charged with the responsibility for administering military disability benefits at that time if other than the Department of Veterans Affairs.

Disability determinations by governmental agencies for purposes other than those listed above, including but not limited to worker’s compensation insurance, administration or enforcement of the Rehabilitation Act or Americans with Disabilities Act, or waiver of insurance premiums would not entitle a stockholder to the special redemption terms described above. Redemption requests following an award by the applicable governmental agency of disability benefits would have to be accompanied by (1) the investor’s initial application for disability benefits and (2) a Social Security Administration Notice of Award, a U.S. Office of Personnel Management determination of disability under CSRS, a Department of Veterans Affairs Administration record of disability-related discharge or such other documentation issued by the applicable governmental agency that we would deem acceptable and would demonstrate an award of the disability benefits.

We understand that the following disabilities do not entitle a worker to Social Security disability benefits:

• disabilities occurring after the legal retirement age;

• temporary disabilities; and

• disabilities that do not render a worker incapable of performing substantial gainful activity.

Therefore, such disabilities would not qualify for the special redemption terms, except in the limited circumstances when the investor would be awarded disability benefits by the other “applicable governmental agencies” described above. However, where a stockholder requests the redemption of his or her share due to a disability, and such stockholder does not have a “qualifying disability” under the terms described above, our board of directors may redeem the stockholder’s shares in its discretion on the special terms available for a qualifying disability.

With respect to redemptions sought upon a stockholder’s confinement to a long-term care facility, a “long-term care facility” shall mean an institution that: (1) either (a) is approved by Medicare as a provider of skilled nursing care or (b) is licensed as a skilled nursing home by the state or territory in which it is located (it must be

187

within the United States, Puerto Rico, or U.S. Virgin Islands) and (2) meets all of the following requirements: (a) its main function is to provide skilled, intermediate or custodial nursing care; (b) it provides continuous room and board to three or more persons; (c) it is supervised by a registered nurse or licensed practical nurse; (d) it keeps daily medical records of all medication dispensed; and (e) its primary service is other than to provide housing for residents. Where a stockholder seeks redemption of his or her shares due to confinement to a long-term care facility, the stockholder must submit a written statement from a licensed physician certifying either (1) the stockholder’s continuous and continuing confinement to a long-term care facility over the course of the last year or (2) that the licensed physician has determined that the stockholder will be indefinitely confined to a long-term care facility. Notwithstanding the above, where a stockholder requests redemption of his or her shares due to confinement to a long-term care facility, and such stockholder does not meet the definition set forth above, our board of directors may redeem the stockholder’s shares in its discretion on the special terms available for confinement to a long-term care facility.

The purchase price per share for redemptions sought upon a stockholder’s death or qualifying disability or confinement to a long-term care facility (provided that the condition causing such qualifying disability was not preexisting on the date that such person became a stockholder or that the stockholder was not confined to a long-term care facility on the date the person became a stockholder), until we establish an estimated value per share of our common stock, will be equal to the amount by which (a) the average issue price per share for all of your shares (as adjusted for any stock combinations, splits, recapitalizations and the like with respect to the common stock) exceeds (b) the aggregate amount of net sale proceeds per share, if any, distributed to investors prior to the redemption date as a result of the sale of one or more of our investments. Thereafter, the purchase price will be the estimated value per share, as determined by our advisor or another firm chosen for that purpose.

Our share redemption program, including redemptions sought upon a stockholder’s death or disability or upon confinement of a stockholder to a long-term care facility, will be available only for stockholders who purchase their shares directly from us or the transferees mentioned below, and is not intended to provide liquidity to any stockholder who acquired his or her shares by purchase from another stockholder. In connection with a request for redemption, the stockholder or his or her estate, heir or beneficiary will be required to certify to us that the stockholder acquired the shares to be repurchased either (1) directly from us or (2) from the original investor by way of (i) a bona fide gift not for value to, or for the benefit of, a member of the investor’s immediate or extended family (including the investor’s spouse, parents, siblings, children or grandchildren and including relatives by marriage), (ii) through a transfer to a custodian, trustee or other fiduciary for the account of the investor or members of the investor’s immediate or extended family in connection with an estate planning transaction, including by bequest or inheritance upon death or (iii) operation of law.

We will generally engage a third party to conduct a Uniform Commercial Code (“UCC”) search to ensure that no liens or encumbrances are held against the shares presented for redemption. We will cover the cost for these searches. Shares that are not subject to liens or encumbrances will be eligible for redemption following the completion of the UCC search. We will not redeem shares that are subject to liens or other encumbrances until the stockholder presents evidence that such liens or encumbrances have been removed.

We intend to redeem shares quarterly under the program. We will not redeem in excess of 5% of the weighted-average number of shares outstanding during the 12-month period immediately prior to the effective date of redemption. Our board of directors will determine at least quarterly whether we have sufficient excess cash to repurchase shares. Generally, the cash available for redemption will be limited to proceeds from our distribution reinvestment plan plus, if we had positive operating cash flow from the previous fiscal year, 1% of all operating cash flow from the previous fiscal year. Our board of directors, in its sole discretion, may suspend, terminate or amend our share redemption program without notice at any time it determines that such suspension, termination or amendment is in our best interest. Our board may also reduce the number of shares purchased under the share redemption program if it determines the funds otherwise available to fund our share redemption program are needed for other purposes. These limitations apply to all redemptions, including redemptions sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility. You will have no right to request redemption of your shares if the shares are listed for trading on a national securities exchange. See “Risk Factors—Risks Related to This Offering and Our Corporate Structure.”

188

A request for redemption may be withdrawn in whole or in part by a stockholder in writing at any time prior to redemption. We cannot guarantee that the funds set aside for the share redemption program will be sufficient to accommodate all requests made in any particular redemption period. If we cannot accommodate a redemption request due to the foregoing limitations, the stockholder or his or her estate, heir or beneficiary can (1) withdraw the request for redemption, or (2) ask that we honor the request at such time, if any, when the limitations no longer prevent redemption. Such pending requests will be honored among all requests for redemptions in any given redemption period, as follows: first, pro rata as to redemptions sought upon a stockholder’s death or disability or sought upon a stockholder’s confinement to a long-term care facility; next, pro rata as to redemptions to stockholders who demonstrate, in the discretion of our board of directors, another involuntary, exigent circumstance, such as bankruptcy; next, pro rata as to redemptions to stockholders subject to a mandatory distribution requirement under their IRAs; and, finally, pro rata as to other redemption requests. Our advisor and its affiliates will defer their own redemption requests, if any, until all other requests for redemption have been met.

In general, a stockholder or his estate, heir or beneficiary may present to us fewer than all of the shares then owned for redemption, except that the minimum number of shares that must be presented for redemption shall be at least 25% of the holder’s shares. However, as little as 10% of your shares may be presented for redemption if your redemption request is made within 270 days of the event giving rise to the special circumstances described in this sentence, where redemption is being requested (1) on behalf of a deceased stockholder; (2) by a stockholder with a qualifying disability, who is deemed by our board of directors to be permanently disabled or who is seeking redemption upon confinement to a long-term care facility; (3) by a stockholder due to other involuntary, exigent circumstances, such as bankruptcy; or (4) by a stockholder due to a mandatory distribution under such stockholder’s IRA; provided, however, that any future redemption request by such stockholder must present for redemption at least 25% of such stockholder’s remaining shares. Except in the case of redemptions due to a mandatory distribution under a stockholder’s IRA, we will treat a redemption request that would cause you to own fewer than 200 shares as a request to redeem all of your shares, and we will vary from pro rata treatment of redemptions as necessary to avoid having stockholders holding fewer than 200 shares. In the case of stockholders who undertake a series of partial redemptions, appropriate adjustments in the purchase price for the redeemed shares will be made so that the blended price per share for all redeemed shares is reflective of the issue price per share of all shares owned by such stockholder through the dates of each redemption.

A stockholder who wishes to have shares redeemed must mail or deliver to us a written request on a form provided by us and executed by the stockholder, its trustee or authorized agent. An estate, heir or beneficiary that wishes to have shares redeemed following the death of a stockholder must mail or deliver to us a written request on a form provided by us, including evidence acceptable to our board of directors of the death of the stockholder, and executed by the executor or executrix of the estate, the heir or beneficiary, or their trustee or authorized agent. A stockholder requesting the redemption of his or her shares due to a qualifying disability or confinement to a long-term care facility must mail or deliver to us a written request on a form provided by us, including the evidence and documentation described above, or evidence acceptable to our board of directors of the stockholder’s disability or confinement to a long-term care facility. If the shares are to be redeemed under the conditions outlined herein, we will forward the documents necessary to affect the redemption, including any signature guaranty we may require.

The effective date of any redemption will be the last day of the calendar month preceding the quarterly determination by our board of directors of the availability of funds for redemption. The shares approved for redemption will accrue no distributions after the effective date of redemption. In making the determination of the availability of funds for redemption, our board of directors will consider only properly completed redemption requests that we received on or before the last day of the calendar month preceding the determination of the availability of funds for redemption. Payment for the shares so approved for redemption, assuming sufficient funds for redemption and the satisfaction of all necessary conditions, will be made no later than 15 days after the date of our directors’ action to determine the shares approved for redemption.

Subject to the restrictions in the Operating Partnership’s limited partnership agreement and any other applicable agreement, we may cause the Operating Partnership to offer to its limited partners (other than our subsidiaries) a partnership unit redemption program equivalent to our share redemption program. Any units redeemed under the partnership unit redemption program will be redeemed upon terms substantially equivalent to

189

the redemption terms of our share redemption program and will be treated as shares for purposes of calculating the annual limitation on the number of shares that may be redeemed under our share redemption program.

Our share redemption program is only intended to provide interim liquidity for our stockholders until a secondary market develops for the shares. No such market presently exists, and we cannot assure you that any market for your shares will ever develop. The shares we purchase under the share redemption program will be cancelled. Neither our advisor, nor any member of our board of directors nor any of their affiliates will receive any fee on the repurchase of shares by us pursuant to the share redemption program. For a discussion of the tax treatment of redemptions, see “Federal Income Tax Considerations—Taxation of Stockholders.”

The foregoing provisions regarding the share redemption program in no way limit our ability to repurchase shares from stockholders by any other legally available means.

Restrictions on Roll-Up Transactions

A Roll-up Transaction is a transaction involving the acquisition, merger, conversion or consolidation, directly or indirectly, of us and the issuance of securities of an entity that is created or would survive after the successful completion of a Roll-up Transaction, which we refer to as a Roll-up Entity. This term does not include:

• a transaction involving our securities that have been for at least 12 months listed on a national securities exchange; or

• a transaction involving only our conversion into a trust or association if, as a consequence of the transaction, there will be no significant adverse change in the voting rights of our common stockholders, the term of our existence, the compensation to our advisor or our investment objectives.

In connection with any proposed Roll-up Transaction, an appraisal of all our assets will be obtained from a competent independent appraiser. Our assets will be appraised on a consistent basis, and the appraisal will be based on an evaluation of all relevant information and will indicate the value of our assets as of a date immediately preceding the announcement of the proposed Roll-up Transaction. If the appraisal will be included in a prospectus used to offer the securities of a Roll-Up Entity, the appraisal will be filed with the SEC and, if applicable, the states in which registration of such securities is sought, as an exhibit to the registration statement for the offering. The appraisal will assume an orderly liquidation of assets over a 12-month period. The terms of the engagement of the independent appraiser will clearly state that the engagement is for our benefit and the benefit of our stockholders. A summary of the appraisal, indicating all material assumptions underlying the appraisal, will be included in a report to our stockholders in connection with any proposed Roll-up Transaction.

In connection with a proposed Roll-up Transaction, the person sponsoring the Roll-up Transaction must offer to our common stockholders who vote “no” on the proposal the choice of:

(1) accepting the securities of the Roll-up Entity offered in the proposed Roll-up Transaction; or

(2) one of the following:

(A) remaining as common stockholders of us and preserving their interests in us on the same terms and conditions as existed previously; or

(B) receiving cash in an amount equal to the stockholders’ pro rata share of the appraised value of our net assets.

We are prohibited from participating in any proposed Roll-up Transaction:

• that would result in our common stockholders having democracy rights in a Roll-up Entity that are less than those provided in our charter and bylaws with respect to the election and removal of directors and

190

the other voting rights of our common stockholders, annual and special meetings of common stockholders, the amendment of our charter and our dissolution;

• that includes provisions that would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-up Entity, except to the minimum extent necessary to preserve the tax status of the Roll-up Entity, or that would limit the ability of an investor to exercise the voting rights of its securities of the Roll-up Entity on the basis of the number of shares of common stock that such investor has held in us;

• in which investors’ rights of access to the records of the Roll-up Entity would be less than those provided in our charter and described in the section of this prospectus entitled “Description of Shares — Meetings and Special Voting Requirements;” or

• in which any of the costs of the Roll-up Transaction would be borne by us if the Roll-up Transaction would not be approved by our common stockholders.

THE OPERATING PARTNERSHIP AGREEMENT

General

Resource Real Estate Opportunity OP, LP, which we refer to as the Operating Partnership, is a newly formed Delaware limited partnership. We expect to own substantially all of our assets and conduct our operations through the Operating Partnership. We are the sole general partner of the Operating Partnership and, as of the date of this prospectus, our wholly owned subsidiary, RRE Opportunity Holdings, LLC, is the sole limited partner of the Operating Partnership. As the sole general partner, we have the exclusive power to manage and conduct the business of the Operating Partnership.

As we accept subscriptions for shares in this offering, we will transfer substantially all of the net proceeds of the offering to our Operating Partnership as a capital contribution in exchange for units of limited partnership interest that will be held by our wholly owned subsidiary, RRE Opportunity Holdings, LLC; however, we will be deemed to have made capital contributions in the amount of the gross offering proceeds received from investors. The Operating Partnership will be deemed to have simultaneously paid the selling commissions and other costs associated with the offering.

As a result of this structure, we are considered an UPREIT, or an umbrella partnership real estate investment trust. An UPREIT is a structure that REITs often use to acquire real property from sellers on a tax-deferred basis because the sellers can generally accept partnership units and defer taxable gain otherwise required to be recognized by them upon the disposition of their properties. Such sellers may also desire to achieve diversity in their investment and other benefits afforded to stockholders in a REIT. For purposes of satisfying the asset and income tests for qualification as a REIT, the REIT’s proportionate share of the assets and income of the Operating Partnership will be deemed to be assets and income of the REIT.

If we ever decide to acquire properties in exchange for units of limited partnership interest in the Operating Partnership, we expect to amend and restate the partnership agreement to provide substantially as set forth below.

Capital Contributions

The partnership agreement will require us to contribute the proceeds of any offering of our shares of stock to the Operating Partnership as an additional capital contribution. If we did contribute additional capital to the Operating Partnership, we would receive additional partnership units and our percentage interest in the Operating Partnership would be increased on a proportionate basis based upon the amount of such additional capital contributions and the value of the Operating Partnership at the time of such contributions. We also expect that the

191

partnership agreement would allow us to cause the Operating Partnership to issue partnership interests for less than their fair market value if we conclude in good faith that such issuance is in the best interest of the Operating Partnership and us. The Operating Partnership would also be able to issue preferred partnership interests in connection with acquisitions of property or otherwise. These preferred partnership interests could have priority over common partnership interests with respect to distributions from the Operating Partnership, including priority over the partnership interests that we would own as a limited partner. If the Operating Partnership would require additional funds at any time in excess of capital contributions made by us or from borrowing, we could borrow funds from a financial institution or other lender and lend such funds to the Operating Partnership on the same terms and conditions as are applicable to our borrowing of such funds.

Operations

The partnership agreement will provide that, so long as we remain qualified as a REIT, the Operating Partnership would be operated in a manner that would enable us to satisfy the requirements for being classified as a REIT for tax purposes. We would also have the power to take actions to ensure that the Operating Partnership would not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code. Classification as a publicly traded partnership could result in the Operating Partnership being taxed as a corporation, rather than as a partnership.

Distributions and Allocations of Profits and Losses

The partnership agreement will provide that the Operating Partnership would distribute cash flow from operations to its partners in accordance with their respective percentage interests on at least a monthly basis in amounts that we determine. The effect of these distributions would be that a holder of one unit of limited partnership interest in our Operating Partnership would receive the same amount of annual cash flow distributions as the amount of annual distributions paid to the holder of one of our shares of common stock.

Similarly, the partnership agreement will provide that the Operating Partnership would allocate taxable income to its partners in accordance with their respective percentage interests. Subject to compliance with the provisions of Sections 704(b) and 704(c) of the Internal Revenue Code and the corresponding Treasury regulations, the effect of these allocations would be that a holder of one unit of limited partnership interest in the Operating Partnership would be allocated taxable income for each taxable year in an amount equal to the amount of taxable income to be recognized by a holder of one of our shares of common stock. Losses, if any, would generally be allocated among the partners in accordance with their respective percentage interests in the Operating Partnership. Losses could not be passed through to our stockholders.

Upon liquidation of the Operating Partnership, after payment of, or adequate provision for, debts and obligations of the Operating Partnership, including partner loans, any remaining assets of the Operating Partnership would be distributed to its partners in accordance with their respective positive capital account balances.

Rights, Obligations and Powers of the General Partner

We will be the sole general partner of the Operating Partnership. As sole general partner, we generally would have complete and exclusive discretion to manage and control the Operating Partnership’s business and to make all decisions affecting its assets. Under the partnership agreement, we would also expect to have the authority to:

• acquire, purchase, own, operate, lease and dispose of any real property and any other assets;

• construct buildings and make other improvements on owned or leased properties;

• authorize, issue, sell, redeem or otherwise purchase any debt or other securities;

• borrow or loan money;

192

• originate loans;

• make or revoke any tax election;

• maintain insurance coverage in amounts and types as we determine is necessary;

• retain employees or other service providers;

• form or acquire interests in joint ventures; and

• merge, consolidate or combine the Operating Partnership with another entity.

Upon commencement of this offering, under the partnership agreement, we expect that the Operating Partnership would pay all of the administrative and operating costs and expenses it incurs in acquiring and operating real properties. The Operating Partnership would also pay all of our administrative costs and expenses and such expenses would be treated as expenses of the Operating Partnership. Such expenses would include:

• all expenses relating to our formation and continuity of existence;

• all expenses relating to the public offering and registration of our securities;

• all expenses associated with the preparation and filing of our periodic reports under federal, state or local laws or regulations;

• all expenses associated with our compliance with applicable laws, rules and regulations; and

• all of our other operating or administrative costs incurred in the ordinary course of business.

The only costs and expenses we could incur that the Operating Partnership would not reimburse would be costs and expenses relating to assets we may own outside of the Operating Partnership. We would pay the expenses relating to such assets directly.

Exchange Rights

We expect that the partnership agreement would also provide for exchange rights. We expect the limited partners of the Operating Partnership would have the right to cause the Operating Partnership to redeem their units of limited partnership interest for cash equal to the value of an equivalent number of our shares, or, at our option, we could purchase their units of limited partnership interest for cash or by issuing one share of our common stock for each unit redeemed. Limited partners, however, would not be able to exercise this exchange right if and to the extent that the delivery of our shares upon such exercise would:

• result in any person owning shares in excess of the ownership limit in our charter (unless exempted by our board of directors);

• result in our shares being owned by fewer than 100 persons;

• result in our shares being “closely held” within the meaning of Section 856(h) of the Internal Revenue Code; or

• cause us to own 10% or more of the ownership interests in a tenant within the meaning of Section 856(d)(2)(B) of the Internal Revenue Code.

193

Furthermore, limited partners could exercise their exchange rights only after their units of limited partnership interest had been outstanding for one year. A limited partner could not deliver more than two exchange notices each calendar year and would not be able to exercise an exchange right for less than 1,000 units of limited partnership interest, unless such limited partner held less than 1,000 units. In that case, he would be required to exercise his exchange right for all of his units.

Change in General Partner

We generally would not be able to withdraw as the general partner of the Operating Partnership or transfer our general partnership interest in the Operating Partnership (unless we transferred our interest to a wholly owned subsidiary). The principal exception to this would be if we merged with another entity and (1) the holders of a majority of partnership units (including those we held) approved the transaction; (2) the limited partners received or had the right to receive an amount of cash, securities or other property equal in value to the amount they would have received if they had exercised their exchange rights immediately before such transaction; (3) we were the surviving entity and our stockholders did not receive cash, securities or other property in the transaction; or (4) the successor entity contributed substantially all of its assets to the Operating Partnership in return for an interest in the Operating Partnership and agreed to assume all obligations of the general partner of the Operating Partnership. If we voluntarily sought protection under bankruptcy or state insolvency laws, or if we were involuntarily placed under such protection for more than 90 days, we would be deemed to be automatically removed as the general partner. Otherwise, the limited partners would not have the right to remove us as general partner.

Transferability of Interests

With certain exceptions, the limited partners would not be able to transfer their interests in the Operating Partnership, in whole or in part, without our written consent as the general partner.

Amendment of Limited Partnership Agreement

We expect amendments to the partnership agreement would require the consent of the holders of a majority of the partnership units including the partnership units we and our affiliates held. Additionally, we, as general partner, would be required to approve any amendment. We expect that certain amendments would have to be approved by a majority of the units held by third-party limited partners.

194

PLAN OF DISTRIBUTION

General

We are publicly offering a minimum 200,000 shares and a maximum of 82,500,000 shares of our common stock on a “best efforts” basis through Chadwick Securities, Inc., our dealer manager. Because this is a “best efforts” offering, Chadwick Securities must use only its best efforts to sell the shares and has no firm commitment or obligation to purchase any of our shares. We are offering up to 75,000,000 shares of common stock in our primary offering at $10 per share, with discounts available for certain categories of purchasers as described below. We are also offering up to 7,500,000 shares pursuant to our distribution reinvestment plan at a purchase price initially equal to $9.50 per share. Once we establish an estimated value per share that is not based on the price to acquire a share in the primary offering, shares issued pursuant to our distribution reinvestment plan will be priced at the estimated value per share of our common stock, as determined by our advisor or another firm chosen for that purpose. We expect to establish an estimated value per share not based on the price to acquire a share in the primary offering after the completion of our offering stage; however, the time frame before which we establish an estimated value per share may be different depending on regulatory requirements or if necessary to assist broker dealers who sell shares in this offering. We will consider our offering stage complete when 18 months have passed since our last sale of shares in a public offering of equity securities, whether that last sale was in this initial public offering or a public follow-on offering. (For purposes of this definition, we do not consider “public equity offerings” to include offerings on behalf of selling stockholders or offerings related to any distribution reinvestment plan, employee benefit plan or the redemption of interests in our Operating Partnership.)

We expect to sell the 75,000,000 shares offered in our primary offering over a two-year period. If we have not sold all of the primary offering shares within two years, we may continue this offering until                     . Under rules promulgated by the SEC, in some circumstances we could continue our primary offering until as late as             . If we decide to continue our primary offering beyond two years from the date of this prospectus, we will provide that information in a prospectus supplement. We may continue to offer shares under our distribution reinvestment plan beyond these dates until we have sold 7,500,000 shares through the reinvestment of distributions. In many states, we will need to renew the registration statement or file a new registration statement to continue the offering beyond one year from the date of this prospectus. We may terminate this offering at any time.

Our dealer manager, Chadwick Securities, registered as a broker-dealer with the SEC in April 2005, and this offering will be the fifth offering conducted by our dealer manager for Resource Real Estate-sponsored programs. Chadwick Securities is indirectly owned and controlled by Resource America and its principal business is to sell the securities of programs sponsored by affiliates of Resource America, including Resource Real Estate-sponsored programs. For additional information about our dealer manager, including information related to its affiliation with us and our advisor, see “Management — Other Affiliates — Dealer Manager,” and “Conflicts of Interest — Affiliated Dealer Manager” and “— Certain Conflict Resolution Measures.”

Compensation of Dealer Manager and Participating Broker-Dealers

Except as provided below, Chadwick Securities will receive selling commissions of 7% of the gross offering proceeds for shares sold in our primary offering. The dealer manager will receive a dealer manager fee of 3% of the gross offering proceeds for shares sold in our primary offering as compensation for acting as the dealer manager, except that a reduced dealer manager fee will be paid with respect to certain volume discount sales. We will not pay any selling commissions or dealer manager fees for shares sold under our distribution reinvestment plan. We will also reimburse the dealer manager for specified out-of-pocket offering-related costs as described below.

We expect the dealer manager to authorize other broker-dealers that are members of FINRA, which we refer to as participating broker-dealers, to sell our shares. Except as provided below, our dealer manager will reallow all of its selling commissions attributable to a participating broker-dealer.

We may also sell shares at a discount to the primary offering price of $10.00 per share through the following distribution channels in the event that the investor:

195

• pays a broker a single fee, e.g., a percentage of assets under management, for investment advisory and broker services, which is frequently referred to as a “wrap fee”;

• has engaged the services of a registered investment adviser with whom the investor has agreed to pay compensation for investment advisory services or other financial or investment advice (other than a registered investment adviser that is also registered as a broker-dealer who does not have a fixed or “wrap fee” feature or other asset fee arrangement with the investor); or

• is investing through a bank acting as trustee or fiduciary.

If an investor purchases shares through one of these channels in our primary offering, we will sell the shares at a 7% discount, or at $9.30 per share, reflecting that selling commissions will not be paid in connection with such purchases. We will receive substantially the same net proceeds for sales of shares through these channels. Neither the dealer manager nor its affiliates will compensate any person engaged as an investment adviser by a potential investor as an inducement for such investment adviser to advise favorably for an investment in us.

The dealer manager may reallow to any participating broker-dealer up to 1% of the gross offering proceeds attributable to that participating broker-dealer as a marketing fee. Our dealer manager may increase the amount of the reallowance in special cases. Whether the reallowance to any participating broker-dealer will exceed 1%, and the extent of any excess, will not depend on the actual amount of gross proceeds raised by that broker-dealer. Rather, the dealer manager expects that any decision to reallow more than 1% of gross offering proceeds from the dealer manager fee would be based solely on projected sales volume of at least $200 million on an annualized basis by the participating broker-dealer at the time it enters into a selling agreement and marketing fee agreement with the dealer manager. For volume discount sales of $3,000,000 or more, the dealer manager fee is reduced as set forth below. The amount of the dealer manager fee reallowed to a participating broker-dealer in that instance will be negotiated on a transaction by transaction basis. The marketing fee paid to participating broker-dealers would be paid by the dealer manager out of its dealer manager fee. In addition to selling commissions and marketing fees, and subject to the limits described below, we may reimburse the dealer manager and broker-dealers for bona fide invoiced due diligence expenses. We estimate this reimbursement will be approximately $825,000.

The table below sets forth the nature and estimated amount of all items viewed as “underwriting compensation” by FINRA, assuming we sell all of the shares offered hereby. To show the maximum amount of dealer manager and participating broker-dealer compensation that we may pay in this offering, this table assumes that all shares are sold through distribution channels associated with the highest possible selling commissions and dealer manager fees.

Dealer Manager and

Participating Broker-Dealer Compensation

Selling commissions (maximum)	$	52,500,000
Dealer manager fee (maximum)		22,500,000
Total	$	75,000,000

Under the rules of FINRA, total underwriting compensation in this offering, including selling commissions, the dealer manager fee and any additional expense reimbursements to our dealer manager and participating broker-dealers (excluding bona fide invoiced due diligence expenses), may not exceed 10% of our gross offering proceeds from our primary offering. In addition to the limits on underwriting compensation, FINRA and many states also limit our total organization and offering expenses to 15% of gross offering proceeds. After the termination of the primary offering and again after termination of the offering under our distribution reinvestment plan, our advisor has agreed to reimburse us to the extent that organization and offering expenses (other than selling commissions and the dealer manager fee) incurred by us exceed 2.5% of our gross proceeds from the applicable offering. However, we expect our total organization and offering expenses to be approximately 1.35% of our gross offering proceeds,

196

assuming we raise the maximum offering amount. Organization and offering expenses include only actual expenses incurred on our behalf and paid by us in connection with the offering.

To the extent permitted by law and our charter, we will indemnify the participating broker-dealers and the dealer manager against some civil liabilities, including certain liabilities under the Securities Act and liabilities arising from breaches of our representations and warranties contained in the dealer manager agreement. See “Management — Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents.”

The dealer manager has agreed to sell up to 5% of the shares offered hereby in our primary offering, or up to 3,750,000 shares, to persons to be identified by us at a discount from the public offering price. We intend to use this “friends and family” program to sell shares to our directors, officers, business associates and others to the extent consistent with applicable laws and regulations. We will require all such purchasers to represent that they are purchasing shares for investment only and to enter into one-year lock-up agreements with respect to the purchased shares. The purchase price for such shares will be $9.30 per share, reflecting that selling commissions in the amount of $0.70 per share will not be payable in connection with such sales. The net proceeds to us from such sales made net of commissions will be substantially the same as the net proceeds we receive from other sales of shares. Purchases under this “friends and family” program will not count toward meeting the minimum offering threshold.

We may sell shares to participating broker-dealers, their retirement plans, their representatives and the family members, IRAs and the qualified plans of their representatives at a purchase price of $9.30 per share, reflecting that selling commissions in the amount of $0.70 per share will not be payable in consideration of the services rendered by such broker-dealers and representatives in the offering. For purposes of this discount, we consider a family member to be a spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in law or brother- or sister-in-law. The net proceeds to us from the sales of these shares will be substantially the same as the net proceeds we receive from other sales of shares.

We are offering volume discounts to investors who purchase $1,000,000 or more of shares through the same participating broker-dealer in our primary offering. The net proceeds to us from a sale eligible for a volume discount will be the same, but the selling commissions and dealer manager fees we will pay will be reduced. Because the dealer manager reallows all selling commissions, the amount of commissions participating broker-dealers receive for such sales will be reduced.

The following table shows the discounted price per share and the reduced selling commissions and dealer manager fees payable for volume sales of our shares.

Dollar Volume Shares Purchased			Sales Commissions (Based on $10.00 Price Per Share)		Dealer Manager Fee (Based on $10.00 Price Per Share)		Price Per Share to Investor
$                0	to	$   999,999	7.0	%	3.0	%	$	10.00
$  1,000,000	to	$1,999,999	6.0	%	3.0	%	$	9.90
$  2,000,000	to	$2,999,999	5.0	%	3.0	%	$	9.80
$  3,000,000	to	$3,999,999	4.0	%	2.5	%	$	9.65
$  4,000,000	to	$9,999,999	3.0	%	2.0	%	$	9.50
$10,000,000	and above		2.0	%	2.0	%	$	9.40

We will apply the reduced selling price, selling commission and dealer manager fee to the entire purchase. All commission rates and dealer manager fees are calculated assuming a price per share of $10.00. For example, a purchase of 250,000 shares in a single transaction would result in a purchase price of $2,450,000 ($9.80 per share), selling commissions of $125,000 and dealer manager fees of $75,000.

To qualify for a volume discount as a result of multiple purchases of our shares you must use the same participating broker-dealer and you must mark the “Additional Investment” space on the subscription agreement. We are not responsible for failing to combine purchases if you fail to mark the “Additional Investment” space.

197

Once you qualify for a volume discount, you will be eligible to receive the benefit of such discount for subsequent purchases of shares in our primary offering through the same participating broker-dealer. If a subsequent purchase entitles an investor to an increased reduction in sales commissions and/or the dealer manager fee, the volume discount will apply only to the current and future investments.

To the extent purchased through the same participating broker-dealer, the following persons may combine their purchases as a “single purchaser” for the purpose of qualifying for a volume discount:

• an individual, his or her spouse, their children under the age of 21 and all pension or trust funds established by each such individual;

• a corporation, partnership, association, joint-stock company, trust fund or any organized group of persons, whether incorporated or not;

• an employees’ trust, pension, profit-sharing or other employee benefit plan qualified under Section 401(a) of the Internal Revenue Code; and

• all commingled trust funds maintained by a given bank.

In the event a person wishes to have his or her order combined with others as a “single purchaser,” that person must request such treatment in writing at the time of subscription setting forth the basis for the discount and identifying the orders to be combined. Any request will be subject to our verification that the orders to be combined are made by a single purchaser. If the subscription agreements for the combined orders of a single purchaser are submitted at the same time, then the commissions payable and discounted share price will be allocated pro rata among the combined orders on the basis of the respective amounts being combined. Otherwise, the volume discount provisions will apply only to the order that qualifies the single purchaser for the volume discount and the subsequent orders of that single purchaser.

Only shares purchased in our primary offering are eligible for volume discounts. Shares purchased through our distribution reinvestment plan will not be eligible for a volume discount nor will such shares count toward the threshold limits listed above that qualify you for the different discount levels.

Volume discounts for California residents will be available in accordance with the foregoing table of uniform discount levels. However, with respect to California residents, no discounts will be allowed to any group of purchasers and no subscriptions may be aggregated as part of a combined order for purposes of determining the dollar amount of shares purchased.

Subscription Procedures

We will not sell any shares unless we raise a minimum of $2,000,000 by                          from persons who are not affiliated with us or our advisor. Until we have raised this amount, all subscription payments will be placed in an account held by the escrow agent, TD Bank, N.A., in trust for subscribers’ benefit, pending release to us. You are entitled to receive the interest earned on your subscription payment while it is held in the escrow account. Once we have raised the applicable minimum offering amount and instructed the escrow agent to disburse the funds in the account, funds representing the gross purchase price for the shares will be distributed to us and we will disburse directly to you any interest earned on your subscription payment while it was held in the escrow account. If we do not raise at least $2,000,000 by                     , we will promptly return all funds in the escrow account (including interest), and we will stop selling shares. We will not deduct any fees if we return funds from the escrow account. Different escrow procedures apply to Pennsylvania investors. Because of the higher minimum offering requirement for Pennsylvania investors, subscription payments made by Pennsylvania investors will not count toward the $2,000,000 minimum offering for all other jurisdictions. See “— Special Notice to Pennsylvania Investors” below.

To purchase shares in this offering, you must complete and sign a subscription agreement (in the form attached to this prospectus as Appendix B) for a specific number of shares and pay for the shares at the time of your

198

subscription. Until such time as we have raised the minimum offering amount, you should make your check payable to “TD Bank, N.A. as Escrow Agent for Resource Real Estate Opportunity REIT, Inc.” Once we have raised $2,000,000, you should make your check payable to “Resource Real Estate Opportunity REIT, Inc.,” except that Pennsylvania investors should follow the instructions below under “—Special Notice to Pennsylvania Investors.” Subscriptions will be effective only upon our acceptance, and we reserve the right to reject any subscription in whole or in part. After we have raised the minimum offering amount, subscription payments will be deposited into a special account in our name under the joint authorization of the dealer manager and us until such time as we have accepted or rejected the subscriptions. We will accept or reject subscriptions within 30 days of our receipt of such subscriptions and, if rejected, we will return all funds to the rejected subscribers within 10 business days. If accepted, the funds will be transferred into our general account. You will receive a confirmation of your purchase. We generally admit stockholders on a daily basis.

You are required to represent in the subscription agreement that you have received a copy of this prospectus. In order to ensure that you have had sufficient time to review this prospectus, we will not accept your subscription until at least five business days after your receipt of this prospectus.

Investors who desire to purchase shares in this offering at regular intervals may be able to do so by electing to participate in the automatic investment program by completing an enrollment form that we will provide upon request. Alabama and Ohio investors are not eligible to participate in the automatic investment program. Only investors who have already met the minimum purchase requirement may participate in the automatic investment program. The minimum periodic investment is $100 per month. We will pay dealer manager fees and selling commissions in connection with sales under the automatic investment program to the same extent that we pay those fees and commissions on shares sold in this offering outside of the automatic investment program. If you elect to participate in both the automatic investment program and our distribution reinvestment plan, distributions earned from shares purchased pursuant to the automatic investment program will automatically be reinvested pursuant to the distribution reinvestment plan. For a discussion of the distribution reinvestment plan, see “Description of Shares — Distribution Reinvestment Plan.”

You will receive a confirmation of your purchases under the automatic investment program no less than quarterly. The confirmation will disclose the following information:

• the amount invested for your account during the period;

• the date of the investment;

• the number and price of the shares purchased by you; and

• the total number of shares in your account.

To qualify for a volume discount as a result of purchases under the automatic investment program, you must notify us in writing when you initially become eligible to receive a volume discount and at each time your purchase of shares through the program would qualify you for an additional reduction in the price of shares under the volume discount provisions described in this prospectus. For a discussion of volume discounts, see “— Compensation of Dealer Manager and Participating Broker-Dealers.”

You may terminate your participation in the automatic investment program at any time by providing us with written notice. If you elect to participate in the automatic investment program, you must agree that if at any time you fail to meet the applicable investor suitability standards or cannot make the other investor representations or warranties set forth in the then current prospectus or in the subscription agreement, you will promptly notify us in writing of that fact and your participation in the plan will terminate. See the “Suitability Standards” section of this prospectus (immediately following the cover page) and the form of subscription agreement attached hereto as Appendix B.

199

Suitability Standards

Our sponsor, those selling shares on our behalf and participating broker-dealers and registered investment advisors recommending the purchase of shares in this offering have the responsibility to make every reasonable effort to determine that your purchase of shares in this offering is a suitable and appropriate investment for you based on information provided by you regarding your financial situation and investment objectives. In making this determination, these persons have the responsibility to ascertain that you:

• meet the minimum income and net worth standards set forth under “Suitability Standards” immediately following the cover page of this prospectus;

• can reasonably benefit from an investment in our shares based on your overall investment objectives and portfolio structure;

• are able to bear the economic risk of the investment based on your overall financial situation;

• are in a financial position appropriate to enable you to realize to a significant extent the benefits described in this prospectus of an investment in our shares; and

• have apparent understanding of:

• the fundamental risks of the investment;

• the risk that you may lose your entire investment;

• the lack of liquidity of our shares;

• the restrictions on transferability of our shares;

• the background and qualifications of our sponsor and their affiliates; and

• the tax consequences of your investment.

Relevant information for this purpose will include at least your age, investment objectives, investment experience, income, net worth, financial situation and other investments as well as any other pertinent factors. Our sponsor, those selling shares on our behalf and participating broker-dealers and registered investment advisors recommending the purchase of shares in this offering must maintain, for a six-year period, records of the information used to determine that an investment in shares is suitable and appropriate for you.

Until our shares of common stock are listed on a national securities exchange, subsequent purchasers, i.e., potential purchasers of your shares, must also meet the net worth or income standards.

Minimum Purchase Requirements

You must initially invest at least $2,500 in our shares to be eligible to participate in this offering. In order to satisfy this minimum purchase requirement, unless otherwise prohibited by state law, a husband and wife may jointly contribute funds from their separate IRAs, provided that each such contribution is made in increments of $100. You should note that an investment in our shares will not, in itself, create a retirement plan and that, in order to create a retirement plan, you must comply with all applicable provisions of the Internal Revenue Code.

If you have satisfied the applicable minimum purchase requirement, any additional purchase must be in amounts of at least $100. The investment minimum for subsequent purchases does not apply to shares purchased pursuant to our distribution reinvestment plan.

200

Unless you are transferring all of your shares, you may not transfer your shares in a manner that causes you or your transferee to own fewer than the number of shares required to meet the minimum purchase requirements, except for the following transfers without consideration: transfers by gift, transfers by inheritance, intrafamily transfers, family dissolutions, transfers to affiliates and transfers by operation of law. These minimum purchase requirements are applicable until our shares of common stock are listed on a national securities exchange, and these requirements may make it more difficult for you to sell your shares.

Special Notice to Pennsylvania Investors

Because the minimum offering of our common stock is less than $50,000,000, we caution you to carefully evaluate our ability to fully accomplish our stated objectives and to inquire as to the current dollar volume of our subscription proceeds. Notwithstanding our $2,000,000 minimum offering amount for all other jurisdictions, we will not sell any shares to Pennsylvania investors unless we raise a minimum of $25 million in gross offering proceeds (including sales made to residents of other jurisdictions) prior to                         . In the event we do not raise gross offering proceeds of $25 million by                     , we will promptly return all funds held in escrow for the benefit of Pennsylvania investors (in which case, Pennsylvania investors will not be required to request a refund of their investment). Pending satisfaction of this condition, all Pennsylvania subscription payments will be placed in a separate account held by the escrow agent, TD Bank, N.A., in trust for Pennsylvania subscribers’ benefit, pending release to us. Purchases by persons affiliated with us or our advisor will not count toward satisfaction of the Pennsylvania minimum.

If we have not reached this $25 million threshold within 120 days of the date that we first accept a subscription payment from a Pennsylvania investor, we will, within 10 days of the end of that 120-day period, notify Pennsylvania investors in writing of their right to receive refunds, with interest. If you request a refund within 10 days of receiving that notice, we will arrange for the escrow agent to promptly return to you by check your subscription amount with interest. Amounts held in the Pennsylvania escrow account from Pennsylvania investors not requesting a refund will continue to be held for subsequent 120-day periods until we raise at least $25 million or until the end of the subsequent escrow periods. At the end of each subsequent escrow period, we will again notify you of your right to receive a refund of your subscription amount with interest. Until we have raised $25 million, Pennsylvania investors should make their checks payable to “TD Bank, N.A. as Escrow Agent for Resource Real Estate Opportunity REIT, Inc.” Once we have reached the Pennsylvania minimum, Pennsylvania investors should make their checks payable to “Resource Real Estate Opportunity REIT, Inc.”

SUPPLEMENTAL SALES MATERIAL

In addition to this prospectus, we may utilize additional sales materials in connection with the offering of the shares, although only when accompanied by or preceded by the delivery of this prospectus. These supplemental sales materials may include information relating to this offering, the past performance of Resource Real Estate-sponsored programs, property brochures and articles and publications concerning real estate. In certain jurisdictions, some or all of our supplemental sales materials may not be permitted.

We are offering shares only by means of this prospectus. Although the information contained in our supplemental sales materials will not conflict with any of the information contained in this prospectus, the supplemental materials do not purport to be complete and should not be considered a part of or as incorporated by reference in this prospectus or the registration statement of which this prospectus is a part.

LEGAL MATTERS

The validity of the shares of our common stock being offered hereby has been passed upon for us by DLA Piper LLP (US), Raleigh, North Carolina. DLA Piper LLP (US) has also reviewed the statements relating to certain federal income tax matters that are likely to be material to U.S. holders of our common stock under the caption “Federal Income Tax Considerations” and has passed upon our qualification as a REIT for federal income tax purposes.

201

EXPERTS

The consolidated financial statements as of June 30, 2009 and for the period from June 3, 2009 (date of inception) to June 30, 2009, included in this registration statement and prospectus have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as experts in accounting and auditing in giving said report.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-11 with the SEC with respect to the shares of our common stock to be issued in this offering. This prospectus is a part of that registration statement and, as permitted by SEC rules, does not include all of the information you can find in the registration statement or the exhibits to the registration statement. For additional information relating to us, we refer you to the registration statement and the exhibits to the registration statement. Statements contained in this prospectus as to the contents of any contract or document are necessarily summaries of such contract or document and in each instance, if we have filed the contract or document as an exhibit to the registration statement, we refer you to the copy of the contract or document filed as an exhibit to the registration statement.

After commencement of this offering, we will file annual, quarterly and special reports, proxy statements and other information with the SEC. We intend to furnish our stockholders with annual reports containing consolidated financial statements certified by an independent public accounting firm. The registration statement is, and any of these future filings with the SEC will be, available to the public over the Internet at the SEC’s web site at http://www.sec.gov. You may read and copy any filed document at the SEC’s public reference room in Washington, D.C. at 100 F. Street, N.E., Room 1580, Washington, D.C. Please call the SEC at (800) SEC-0330 for further information about the public reference room.

There is additional information about us and our affiliates on our Internet site at http://www.resourcereit.com, but the contents of that site are not incorporated by reference in or otherwise a part of this prospectus.

202

     INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF    

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC. AND SUBSIDIARY

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET	F-3
CONSOLIDATED STATEMENT OF OPERATIONS	F-4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY	F-5
CONSOLIDATED STATEMENT OF CASH FLOWS	F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholder

Resource Real Estate Opportunity REIT, Inc.:

We have audited the accompanying consolidated balance sheet of Resource Real Estate Opportunity REIT, Inc. (a Maryland Corporation in the Development Stage) and subsidiary (collectively, the Company) as of June 30, 2009, and the related consolidated statements of operations, changes in stockholder’s equity and cash flows for the period from June 3, 2009 (date of inception) to June 30, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Resource Real Estate Opportunity REIT, Inc. (a Maryland Corporation in the Development Stage) and subsidiary as of June 30, 2009 and the consolidated results of their operations and their cash flows for the period June 3, 2009 (date of inception) to June 30, 2009, in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON, LLP

Philadelphia, Pennsylvania

September 14, 2009

F-2

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Development Stage)

CONSOLIDATED BALANCE SHEET

	June 30, 2009
ASSETS
Cash	$	200,059
Other assets, deferred offering costs		642,905
Total assets	$	842,964
LIABILITY AND STOCKHOLDER’S EQUITY
Liability
Due to related party	$	324,016
Accrued expenses		349,799
Total liabilities		673,815
Stockholder’s equity:
Preferred stock (par value $.01, 10,000,000 shares authorized, 0 issued and outstanding)		—
Convertible stock (aka “promote shares”) (par value $.01, 50,000 shares authorized, 0 issued and outstanding)		—
Common stock (par value $.01, 1,000,000,000 shares authorized, 20,000 issued and outstanding)		200
Additional paid-in-capital		199,800
Accumulated deficit during development stage		(30,851	)
Total stockholder’s equity		169,149
Total liability and stockholder’s equity	$	842,964

The accompanying notes are an integral part of this consolidated financial statement.

F-3

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Development Stage)

CONSOLIDATED STATEMENT OF OPERATIONS

	For the period from June 3, 2009 (date of inception) to June 30, 2009
Interest income	$	59
Operating expenses		(25,910	)
Organizational expenses		(5,000	)
Net loss	$	(30,851	)

The accompanying notes are an integral part of this consolidated financial statement.

F-4

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Development Stage)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY

For the period from June 3, 2009 (date of inception) to June 30, 2009

										Additional Paid in Capital		Accumulated Deficit during Development Stage			Total
	Common Stock			Preferred Stock			Convertible Stock
	Shares	Amount		Shares	Amount		Shares	Amount
Balance at June 3, 2009	—	$	—	—	$	—	—	$	—	$	—	$	—		$	—
Issuance of common stock	20,000		200	—		—	—		—		199,800		—			200,000
Net loss	—		—	—		—	—		—		—		(30,851	)		(30,851	)
Balance at June 30, 2009	20,000	$	200	—	$	—	—	$	—	$	199,800	$	(30,851	)	$	169,149

The accompanying notes are an integral part of this consolidated financial statement.

F-5

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Development Stage)

CONSOLIDATED STATEMENT OF CASH FLOWS

	For the period from June 3, 2009 (date of inception) to June 30, 2009
Cash flows from operating activities
Net loss	$	(30,851	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in other assets, deferred offering costs		(642,905	)
Increase in accrued expenses		349,799
Increase in due to related party		324,016
Net cash provided by operating activities		59
Cash flows from financing activities
Proceeds from issuance of common stock		200,000
Net increase in cash		200,059
Cash at beginning of period		—
Cash at end of period	$	200,059

The accompanying notes are an integral part of this consolidated financial statement.

F-6

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

NOTE A – ORGANIZATION AND PROPOSED BUSINESS OPERATIONS

Resource Real Estate Opportunity REIT, Inc. (the “Company”) was organized in Maryland on June 3, 2009. In its initial public offering, the Company intends to issue up to 75,000,000 shares of common stock in its primary offering for $10 per share, with volume discounts available to investors who purchase more than $1,000,000 of shares through the same participating broker-dealer. Discounts are also available for other categories of investors. The Company also intends to offer up to 7,500,000 shares pursuant to a planned distribution reinvestment plan at a purchase price initially equal to $9.50 per share. In addition, the Company intends to issue up to 5,000,000 shares of common stock in a private placement offering for $10 per share, which offering the Company plans to commence in September 2009 and close prior to the commencement of the initial public offering. The Company is a development stage enterprise, in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 7, “Accounting and Reporting by Development Stage Enterprises.” The Company has adopted a fiscal year ending December 31. Resource Real Estate Opportunity Advisor, LLC (the “Advisor”) ,which is an indirect wholly owned subsidiary of Resource America, Inc.(“RAI”), a publicly traded company (NASDAQ: REXI) operating in the real estate, financial fund management and commercial finance sectors, contributed $200,000 to the Company in exchange for 20,000 shares of common stock on June 17, 2009.

The Company’s objective is to purchase a diversified portfolio of discounted U.S. commercial real estate and real estate related assets in order to generate gains to stockholders from the potential appreciation in the value of the assets and to generate current income for stockholders by distributing cash flow from the Company’s investments. The Company intends to acquire real estate related debt and equity that has been significantly discounted due to the effects of recent economic events and high levels of leverage, as well as stabilized properties that may benefit from extensive renovations that may increase their long-term values. The Company has a particular focus on operating multifamily assets, and it intends to target this asset class while also acquiring interests in other types of commercial property assets consistent with its investment objectives. The Company’s targeted portfolio will consist of commercial real estate assets, principally (i) non-performing or distressed loans, including but not limited to first and second priority mortgage loans, mezzanine loans, B-Notes and other loans, (ii) real estate owned by financial institutions, (iii) value-add multifamily rental properties, (iv) discounted investment-grade commercial mortgage-backed securities and (v) other real estate related assets it purchases either directly or with a co-investor or joint venture partner.

The Company will commence operations upon raising the minimum aggregate of $1,000,000 in gross offering proceeds in its private placement offering. The Company intends to elect and qualify to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ending December 31, 2009. As such, to maintain its REIT qualification for U.S. federal income tax purposes, the Company is generally required to distribute at least 90% of its net income (excluding net capital gains) to its stockholders as well as comply with certain other requirements. Accordingly, the Company generally will not be subject to U.S. federal income taxes to the extent that it annually distributes all of its REIT taxable income to its stockholders. The Company also intends to operate its business in a manner that will permit it to maintain its exemption from registration under the Investment Company Act of 1940, or the 1940 Act.

(continued)

F-7

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary RRE Opportunity Holdings, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

2. Real Estate Investments

The Company records acquired real estate at cost and makes assessments as to the useful lives of depreciable assets. The Company will have to make subjective assessments as to the useful lives of its depreciable assets. The Company will consider the period of future benefit of an asset to determine its appropriate useful life. The Company anticipates the estimated useful lives of its assets by class to be as follows:

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

3. Impairment of Long Lived Assets

For operations related to properties that have been sold or properties that are intended to be sold, the Company will present them as discontinued operations in the statement of operations for all periods presented, and properties intended to be sold to be designated as “held for sale” on the balance sheet.

When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the asset for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income.

(continued)

F-8

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

4. Real Estate Loans Receivable

The real estate loans receivable will be recorded at cost and reviewed for potential impairment at each balance sheet date. A loan receivable is considered impaired when it becomes probable, based on current information, that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The amount of impairment, if any, is measured by comparing the recorded amount of the loan to the present value of the expected cash flows or the fair value of the collateral. If a loan was deemed to be impaired, the Company would record a reserve for loan losses through a charge to income for any shortfall. Failure to recognize impairment would result in the overstatement of the carrying values of its real estate loans receivable and an overstatement of its net income.

5. Allocation of Purchase Price of Acquired Assets

The Company will record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The Company will amortize any capitalized above-market or below-market lease values as an increase or reduction to rental income over the remaining non-cancelable terms of the respective leases, which the Company expects will range from one month to ten years.

The Company will measure the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. Management’s estimates of value are expected to be made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors to be considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.

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

(continued)

F-9

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

5. Allocation of Purchase Price of Acquired Assets – (continued)

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

The Company will amortize the value of in-place leases to expense over the initial term of the respective leases. The value of customer relationship intangibles will be amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense in that period.

6. Revenue Recognition

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

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

The specific timing of a sale will be measured against various criteria related to the terms of the transaction and any continuing involvement associated with the property. If the criteria for profit recognition under the full-accrual method are not met, the Company will defer gain recognition and account for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery methods, as appropriate, until the appropriate criteria are met.

(continued)

F-10

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

6. Revenue Recognition – (continued)

Interest income from loans receivable will be recognized based on the contractual terms of the debt instrument. Fees related to any buydown of the interest rate will be deferred as prepaid interest income and amortized over the term of the loan as an adjustment to interest income. Closing costs related to the purchase of a loan receivable will be amortized over the term of the loan and accreted as an adjustment against interest income.

7. Development Stage Company

The Company complies with the reporting requirements of Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reports by Development Stage Enterprises.” The Company expects to incur organizational, accounting, and offering costs in pursuit of its financing. The offering and other organization costs which are being advanced by the Advisor are not required to be paid before the offering is completed and will be paid out of the proceeds of the offering that are set aside for such purposes. There can be no assurance that the Company’s plans to raise capital will be successful.

8. Use of Estimates

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the financial services industry. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

9. Deferred Offering Costs

The Company complies with the requirements of the SEC Staff Accounting Bulletin (“SAB”) Topic 5A, “Expenses of Offering.” Deferred offering costs consist of legal and other costs of $642,905 incurred through June 30, 2009 that are related to the initial private and public offerings and that will be charged to capital upon completion of the initial public offering or charged to expense if the initial public offering is not completed.

(continued)

F-11

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

10. Income Taxes

The Company intends to elect and qualify to be taxed as a REIT, commencing with its taxable year ending December 31, 2009. Accordingly, the Company will generally not be subject to corporate U.S. federal or state income tax to the extent that it makes qualifying distributions to its stockholders, and provided it satisfies on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income, distribution and stock ownership tests. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year in which it lost its REIT qualification. Accordingly, the Company’s failure to qualify as a REIT could have a material adverse impact on its results of operations and amounts available for distribution to its stockholders.

The dividends paid deduction of a REIT for qualifying dividends to its stockholders is computed using the Company’s taxable income as opposed to net income reported on the financial statements. Taxable income, generally, will differ from net income reported on the financial statements because the determination of taxable income is based on tax provisions and not financial accounting principles.

The Company may elect to treat certain of its subsidiaries as taxable REIT subsidiaries (“TRSs”). In general, the Company’s TRS may hold assets and engage in activities that it cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business. A TRS is subject to U.S. federal, state and local corporate income taxes.

While a TRS will generate net income, a TRS can declare dividends to the Company which will be included the Company’s taxable income and necessitate a distribution to its stockholders. Conversely, if the Company retains earnings at a TRS level, no distribution is required and the Company can increase book equity of the consolidated entity.

11. Net Income Per Share

In accordance with the provisions of SFAS 128, “Earnings per Share,” (“SFAS 128”) the Company calculates basic income per share by dividing net income for the period by weighted-average shares of its common stock outstanding for that period. Diluted income per share takes into account the effect of dilutive instruments, such as stock options and unvested restricted stock, but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. Earnings per share for the period from June 3, 2009 (date of inception) to June 30, 2009 is not presented because it is not a meaningful measure of the Company’s performance.

(continued)

F-12

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

12. Recent Accounting Pronouncements

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). SFAS 165 requires an entity that expects to widely distribute its financial statements to its shareholders and other users to evaluate subsequent events through the issuance date of the respective financial statements. In addition, SFAS 165 requires companies to reflect in their financial statements the effects of subsequent events that provide additional evidence about conditions at the balance-sheet date (recognized subsequent events). The Statement prohibits companies from reflecting in their financial statements the effects of subsequent events that provide evidence about conditions that arose after the balance-sheet date (nonrecognized subsequent events), but requires information about the events to be disclosed if the financial statements would otherwise be misleading. These disclosures include the nature of the event and either an estimate of its financial effect or a statement that an estimate cannot be made. SFAS 165 is effective for interim and annual financial periods ending after June 15, 2009 and should be applied prospectively. The Company adopted SFAS 165 as of June 30, 2009. The Company evaluated its June 30, 2009 financial statements for subsequent events through September 14, 2009, the date the financial statements were available to be issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

In April 2009, the FASB issued FASB Staff Position (“FSP”) SFAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP 141(R)-1”). FSP FAS 141(R)-1 amends the provisions in Statement 141R for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. The FSP eliminates the distinction between contractual and noncontractual contingencies, including the initial recognition and measurement criteria, in Statement 141R and instead carries forward most of the provisions in FASB Statement No. 141, Business Combinations, for acquired contingencies. The FSP also amends the subsequent measurement and accounting guidance, and disclosure requirements in Statement 141R. No subsequent accounting guidance is provided in the FSP, and the Board expects an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. The FSP is effective for contingent assets or contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will evaluate the impact of FSP 141 (R)-1 on its consolidated financial statements in the event future business combinations are consummated.

(continued)

F-13

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

12. Recent Accounting Pronouncements – (continued)

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The adoption of FSP 142-3 did not have a material impact on the Company’s consolidated financial statements.

In February 2008, the FASB issued FSP No. SFAS 157-2, “Effective Date of FASB Statement No. 157,” (FSP SFAS 157-2). FSP SFAS 157-2 amends SFAS 157, to delay the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis. For items within its scope, FSP SFAS 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of FSP SFAS 157-2 did not have a material impact on the Company’s consolidated financial statements.

In October 2008, the FASB issued FSP No. SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”), which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 for financial assets carried at fair value, and years beginning after November 15, 2008 for non-financial assets not carried at fair value. The adoption of FSP SFAS 157-3 did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”) amends SFAS No. 157 and provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset and liability have significantly decreased, as well as provides guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for interim and annual periods ending after June 15, 2009. The adoption of FSP SFAS 157-4 did not have a material impact on the Company’s consolidated financial statements.

(continued)

F-14

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

12. Recent Accounting Pronouncements – (continued)

In April 2009, the FASB issued FSP SFAS 107-1/APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1”). FSP FAS 107-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP applies to all financial instruments within the scope of Statement 107 held by publicly traded companies, as defined by APB 28, and requires that a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. FSP 107-1 shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of FSP SFAS 107-1 did not have a material impact on the Company’s consolidated financial statements.

NOTE C – RELATED PARTY TRANSACTIONS

The Company will be externally managed and advised by the Advisor, a wholly owned subsidiary of Resource Real Estate, Inc. (“RRE”), which is an indirect wholly owned subsidiary of RAI. Pursuant to the terms of the advisory agreement, the Advisor will provide the Company with its management team, including its officers, along with appropriate support personnel. Each of the Company’s officers is an employee of RRE or one of its affiliates. The Company does not expect to have any employees. The Advisor is not obligated to dedicate any specific portion of its time to the Company’s business. The Advisor is at all times subject to the supervision and oversight of the Company’s board of directors and has only such functions and authority as the Company delegates to it.

The Advisor will advance funds to the Company for certain accrued organization and offering costs totaling $324,016 at June 30, 2009. These amounts will be reimbursed to the Advisor from the proceeds from the offering although there can be no assurance that the Company’s plans to raise capital will be successful.

F-15

APPENDIX A

PRIOR PERFORMANCE TABLES

The following Prior Performance Tables (the “Tables”) provide information relating to real estate investment programs (the “Prior Real Estate Programs”) sponsored by Resource Real Estate, Inc. and its affiliates, who control our advisor. All of the Prior Real Estate Programs are closed or completed, except for Resource Real Estate Opportunity Fund L.P. Each of the Prior Real Estate Programs presented has investment objectives somewhat similar to Resource Real Estate Opportunity REIT, Inc. and was formed for the purpose of investing in commercial real estate similar to at least one type in which Resource Real Estate Opportunity REIT, Inc. intends to invest. Other than Resource Real Estate Opportunity Fund L.P. and Resource Capital Corp., all of the Prior Real Estate Programs invested in stabilized, income-producing multifamily rental properties and held the properties for a longer period than we intend to hold properties. Resource Real Estate Opportunity Fund L.P. invested in distressed debt and real estate owned by financial institutions. Resource Capital Corp., a publicly traded REIT that is not currently in offering as of the date of this Memorandum, invests in real estate related debt investments.

Prospective investors should read these Tables carefully together with the summary information concerning the Prior Real Estate Programs as set forth in the “Prior Performance Summary” contained herein.

Investors in Resource Real Estate Opportunity REIT, Inc. will not own any interest in any Prior Real Estate Program and should not assume that they will experience returns, if any, comparable to those experienced by investors in the Prior Real Estate Programs.

Our advisor is responsible for the acquisition, operation, maintenance and resale of the real estate properties and real estate-related debt investments. Resource Real Estate, Inc. controls our advisor and was a sponsor of the Prior Real Estate Programs. The financial results of the Prior Real Estate Programs thus provide an indication of Prior Real Estate Programs for which Resource Real Estate, Inc. was ultimately responsible and the performance of these programs during the periods covered. However, general economic conditions affecting the real estate industry and other factors contribute significantly to financial results.

The tables presented in this section provide summary unaudited information related to the Prior Real Estate Programs. By purchasing shares in this offering, you will not acquire any ownership interest in any funds to which the information in this section relates and you should not assume that you will experience returns, if any, comparable to those experienced by the investors in the real estate funds discussed. Further, the private funds discussed in this section were conducted through privately-held entities that may not have been subject to the up-front commissions, fees and expenses associated with this offering nor all of the laws and regulations that will apply to us as a publicly offered REIT.

The information in this section should be read together with the summary information in this prospectus under “Prior Performance Summary.” The following tables are included in this section:

• Table I – Experience in Raising and Investing Funds;

• Table II – Compensation to Sponsor;

• Table III – Annual Operating Results of Prior Real Estate Programs; and

• Table V – Sale or Disposition of Assets.

For information regarding the acquisitions of our Prior Real Estate Programs during the three years ending December 31, 2006, see Table VI contained in Part II of the registration statement, which is not a part of this prospectus. We will provide a copy of Table VI to you upon written request and without charge.

A-1

TABLE I

(UNAUDITED)

EXPERIENCE IN RAISING AND INVESTING FUNDS

This Table sets forth a summary of the experience of the sponsors of Prior Real Estate Programs that have closed offerings since January 1, 2006 (other than Resource Real Estate Opportunity Fund L.P.) and that have somewhat similar investment objectives to Resource Real Estate Opportunity REIT, Inc. Information is provided with regard to the manner in which the proceeds of the offerings have been applied. Also set forth is information pertaining to the timing and length of these offerings and the time period over which the proceeds have been invested in the properties. All figures are as of June 30, 2009.

	SR Real Estate Investors, L.P.					SR Real Estate Investors II, L.P.					Resource Real Estate Investors, L.P.
Dollar amount offered		$20,000,000					$20,000,000					$20,000,000
Dollar amount raised	$	20,000,000		100.00	%	$	5,262,138		26.31	%	$	8,100,000		40.50	%
Less offering expenses:
Selling commissions and discounts		—		0.00	%		—		0.00	%		(521,024	)	-6.43	%
Underwriting		(192,000	)	-0.96	%		(40,497	)	-0.77	%		(133,776	)	-1.65	%
Organization and offering expenses paid to general partner or its affiliates		(576,000	)	-2.88	%		(77,969	)	-1.48	%		(219,000	)	-2.70	%
Reserves		(885,275	)	-4.43	%		(37,008	)	-0.70	%		(48,600	)	-0.92	%
Proceeds available for investment	$	18,346,725		91.73	%	$	5,106,664		97.05	%	$	7,177,600		88.61	%
Acquisition costs:
Prepaid items		2,613,233		3.23	%		311,872		1.73	%		618,762		2.36	%
Closing costs		1,815,429		2.24	%		483,815		2.69	%		1,071,856		4.08	%
Cash down payment		10,562,300		13.06	%		3,346,330		18.57	%		3,712,925		14.14	%
Debt proceeds		62,348,000		77.06	%		12,868,890		71.43	%		19,606,600		74.66	%
Acquisition fees paid to general partner		2,881,332		3.56	%		446,720		2.48	%		752,295		2.86	%
Property level reserves		684,958		0.85	%		558,424		3.10	%		496,998		1.89	%
Total acquisition cost	$	80,905,252		100.00	%	$	18,016,051		100.00	%	$	26,259,436		100.00	%
Percent leverage		77.06%					71.43%					74.66%
Date offering commenced		10/28/2002					9/15/2003					5/3/2004
Date offering closed		4/15/2003					5/31/2004					12/31/2004
Length of offering (in months)		6					9					8
Months to invest 90% of amount available for investment		14					9					10

A-2

TABLE I

(UNAUDITED)

EXPERIENCE IN RAISING AND INVESTING FUNDS (cont’d)

	Resource Real Estate Investors II, L.P.					Resource Real Estate Investors III, L.P.					Resource Real Estate Investors IV, L.P.
Dollar amount offered		$20,000,000					$25,000,000					$30,000,000
Dollar amount raised	$	14,200,250		71.00	%	$	25,000,000		100.00	%	$	29,593,716		98.65	%
Less offering expenses:
Selling commissions and discounts		(1,009,163	)	-7.11	%		(1,858,736	)	-7.43	%		(2,198,807	)	-7.43	%
Underwriting		(257,428	)	-1.81	%		(469,387	)	-1.88	%		(553,949	)	-1.87	%
Organization and offering expenses paid to general partner or its affiliates		(282,260	)	-1.99	%		(486,563	)	-1.95	%		(466,839	)	-1.58	%
Reserves		(85,202	)	-0.60	%		(428,081	)	-1.71	%		(715,876	)	-2.42	%
Proceeds available for investment	$	12,566,197		88.49	%	$	21,757,233		87.03	%	$	25,658,245		86.70	%
Acquisition costs:
Prepaid items		1,951,468		4.89	%		2,716,635		3.92	%		5,676,748		8.60	%
Closing costs		716,682		1.79	%		2,027,033		2.92	%		2,006,382		3.04	%
Cash down payment		7,465,937		18.69	%		14,450,000		20.83	%		15,674,002		23.73	%
Debt proceeds		28,275,000		70.78	%		47,600,000		68.63	%		40,384,850		61.15	%
Acquisition fees paid to general partner		1,161,994		2.91	%		1,968,313		2.84	%		1,791,560		2.71	%
Property level reserves		376,752		0.94	%		595,251		0.86	%		509,555		0.77	%
Total acquisition cost	$	39,947,833		100.00	%	$	69,357,232		100.00	%	$	66,043,097		100.00	%
Percent leverage		70.78%					68.63%					61.15%
Date offering commenced		2/15/2005					8/18/2005					7/17/2006
Date offering closed		7/15/2005					6/16/2006					12/31/2006
Length of offering (in months)		5					11					6
Months to invest 90% of amount available for investment		9					13					8

A-3

TABLE I

(UNAUDITED)

EXPERIENCE IN RAISING AND INVESTING FUNDS (cont’d)

	Resource Real Estate Investors V, L.P.					Resource Real Estate Investors 6, L.P.					Resource Real Estate Investors 7, L.P.
Dollar amount offered		$35,000,000					$35,000,000					$55,000,000
Dollar amount raised	$	35,000,000		100.00	%	$	36,842,105		105.00	%	$	27,454,241		50.00	%
Less offering expenses:
Selling commissions and discounts		(2,580,051	)	-7.37	%		(2,720,909	)	-7.39	%		(2,114,807	)	-7.70	%
Underwriting		(664,080	)	-1.90	%		(699,180	)	-1.90	%		(528,700	)	-1.93	%
Organization and offering expenses paid to general partner or its affiliates		(831,194	)	-2.37	%		(888,521	)	-2.41	%		(686,356	)	-2.50	%
Reserves		(132,970	)	-0.38	%		(1,490,848	)	-4.05	%		(330,804	)	-1.20	%
Proceeds available for investment	$	30,791,705		87.98	%	$	31,042,647		84.26	%	$	23,793,574		86.67	%
Acquisition costs:
Prepaid items		7,074,835		8.49	%		8,266,675		10.85	%		11,529,374		17.43	%
Closing costs		2,421,000		2.90	%		2,549,563		3.35	%		1,510,219		2.28	%
Cash down payment		17,922,000		21.50	%		17,475,288		22.93	%		10,057,000		15.20	%
Debt proceeds		52,575,000		63.06	%		45,274,000		59.41	%		41,243,000		62.34	%
Acquisition fees paid to general partner		2,265,098		2.72	%		2,123,259		2.79	%		1,821,267		2.75	%
Property level reserves		1,108,772		1.33	%		515,419		0.67	%		—		0.00	%
Total acquisition cost	$	83,366,705		100.00	%	$	76,204,204		100.00	%	$	66,160,860		100.00	%
Percent leverage		63.06%					59.41%					62.34%
Date offering commenced		2/19/2007					10/1/2007					6/16/2008
Date offering closed		8/31/2007					5/19/2008					N/A
Length of offering (in months)		7					8					N/A
Months to invest 90% of amount available for investment		8					5					N/A

A-4

TABLE I

(UNAUDITED)

EXPERIENCE IN RAISING AND INVESTING FUNDS (cont’d)

	Resource Real Estate Opportunity Fund, L.P.
Dollar amount offered		$50,000,000
Dollar amount raised	$	11,017,308		22.00	%
Less offering expenses:
Selling commissions and discounts		(631,036	)	-5.73	%
Underwriting		(218,900	)	-1.99	%
Organization and offering expenses paid to general partner or its affiliates		(276,324	)	-2.51	%
Reserves		—		0.00	%
Proceeds available for investment	$	9,891,048		89.78	%
Acquisition costs:
Prepaid items		—		0.00	%
Closing costs		34,982		0.53	%
Cash down payment		6,530,000		98.49	%
Debt proceeds		—		0.00	%
Acquisition fees paid to general partner		65,300		0.98	%
Property level reserves		—		0.00	%
Total acquisition cost	$	6,630,282		100.00	%
Percent leverage		N/A
Date offering commenced		1/19/2009
Date offering closed		N/A
Length of offering (in months)		N/A
Months to invest 90% of amount available for investment		N/A

A-5

TABLE I

(UNAUDITED)

EXPERIENCE IN RAISING AND INVESTING FUNDS (cont’d)

(ON A PERCENTAGE BASIS)

	with exercised Warrants							without exercised Warrants
	Resource Capital Corp.							Resource Capital Corp.
Dollar amount offered		$147,170,205				(1)			$141,537,000
Dollar amount raised	$	147,170,205		100.00	%	(2	)	$	141,537,000		100.00	%
Less offering expenses:
Selling commissions		0		0.00	%				0		0.00	%
Underwriting		(8,182,185	)	-5.56	%	(3	)		(8,182,185	)	-5.78	%	(3	)
Organization and offering expenses paid		(2,246,655	)	-1.53	%	(4	)		(2,246,655	)	-1.59	%	(4	)
Reserves		—		0.00	%				—		0.00	%
Proceeds available for investment	$	136,741,365		92.91	%			$	131,108,160		92.63	%
Acquisition costs:
Prepaid items		0		0.00	%				0		0.00	%
Closing costs		0		0.00	%				0		0.00	%
Cash down payment		0		0.00	%				0		0.00	%
Debt proceeds		0		0.00	%				0		0.00	%
Acquisition fees paid to general partner		0		0.00	%				0		0.00	%
Property level reserves		—		0.00	%				—		0.00	%
Total acquisition cost	$	—		0.00	%			$	—		0.00	%
Percent leverage		89.43%				(5)			89.43%				(5	)
Date offering commenced		1/31/2006							1/31/2006
Date offering closed		2/6/2006							2/6/2006
Length of offering (in days)		7							7
Months to invest 90% of amount available for investment		16				(6)			16				(6	)

(1) Offering Proceeds with exercised warrants represent stock warrants issued in January 2006 that matured January 2009 and allowed stock purchases to be purchased at $15.00/share (total of 375,547 exercised for proceeds of $5.633 million).

(2) Offering Proceeds are from January 1, 2006 through June 30, 2009 (Comprised of IPO and Follow-On offering/Greenshoe).

(3) Underwriting Commissions paid to IPO and Follow-On Offering underwriters of RSO.

(4) Public Offering Expenses on a cash-basis paid from January 1, 2006-June 30, 2009.

(5) Leverage Calculation provided is per RCC’s Financial Covenants with counterparties whom request similar information.

(6) Basis of information is February 2006 to close of RREF CDO 2007-1 in June 2007 where final offering proceeds were invested in the CDO Equity.

A-6

TABLE II

(UNAUDITED)

COMPENSATION TO SPONSOR

This Table sets forth the compensation received by affiliates of Resource Real Estate, Inc., including compensation paid out of offering proceeds and compensation paid in connection with the ongoing operations, for Prior Real Estate Programs that have closed offerings since January 1, 2006 (other than Resource Real Estate Opportunity Fund L.P.) and that have somewhat similar investment objectives to Resource Real Estate Opportunity REIT, Inc. All figures are as of June 30, 2009.

	SR Real Estate Investors, L.P.		SR Real Estate Investors II, L.P.		Resource Real Estate Investors, L.P.		Resource Real Estate Investors, II, L.P.		Resource Real Estate Investors, III, L.P.		Resource Real Estate Investors IV, L.P.
Date offering commenced		10/28/2002		9/15/2003		5/3/2004		2/15/2005		8/18/2005		7/17/2006
Date offering closed		4/15/2003		5/31/2004		12/31/2004		7/15/2005		6/16/2006		12/31/2006
Dollar amount raised	$	20,000,000	$	5,262,138	$	8,100,000	$	14,200,250	$	25,000,000	$	29,593,716
Amount paid to sponsor from proceeds of offering:
Underwriting fees		192,000		40,497		133,776		257,428		469,387		553,949
Acquisition fees:
- real estate commissions		—		—		—		—		—		—
- advisory fees for property acquisition		1,501,124		248,950		407,905		667,182		1,135,313		1,084,825
- debt placement fees		1,380,207		197,770		344,390		494,813		833,000		706,735
Other - organization and offering expenses		576,000		77,969		219,000		282,260		486,563		466,839
Dollar amount of cash generated from operations before deducting payments to sponsors		5,815,999		1,404,000		1,002,680		2,923,930		4,276,707		7,210,002
Amount paid to sponsor from operations:
Property management fees		114,052		—		58,613		120,119		185,289		23,452
Partnership management fees		318,302		35,890		54,560		—		—		—
Reimbursements		—		—		—		—		—		—
Leasing commissions		—		—		—		—		—		—
Other (identify and quantify)		—		—		—		—		—		—
Dollar amount of property sales and refinancing before deducting payments to sponsor
- cash		3,414,126		888,490		1,500,583		—		—		—
- notes		—		—		—		—		—		—
Amount paid to sponsor from property sales and refinancing
Real estate commissions		—		—		—		—		—		—
Incentive fees		—		—		—		—		—		—
Other (identify and quantify)		—		—		—		—		—		—

A-7

TABLE II

(UNAUDITED)

COMPENSATION TO SPONSOR (cont’d)

	Resource Real Estate Investors V, L.P.		Resource Real Estate Investors 6, L.P.		Resource Real Estate Investors 7, L.P.		Resource Real Estate Opportunity Fund, L.P.
Date offering commenced		2/19/2007		10/1/2007		6/16/2008		1/19/2009
Date offering closed		8/31/2007		5/23/2008		N/A		N/A
Dollar amount raised	$	35,000,000	$	36,842,105	$	27,454,241	$	11,017,308
Amount paid to sponsor from proceeds of offering:
Underwriting fees		664,080		699,180		528,700		218,900
Acquisition fees:
- real estate commissions		—		—		—		—
- advisory fees for property acquisition		1,345,035		1,330,964		1,099,514		65,300
- debt placement fees		920,063		792,295		721,753		—
Other - organization and offering expenses		831,194		888,521		686,356		276,324
Dollar amount of cash generated from operations before deducting payments to sponsor		4,502,030		1,959,268		233,172		15,170
Amount paid to sponsor from operations:
Property management fees		9,295		—		—		—
Partnership management fees		—		—		—		—
Reimbursements		—		—		—		—
Leasing commissions		—		—		—		—
Other (identify and quantify)		—		—		—		—
Dollar amount of property sales and refinancing before deducting payments to sponsor
- cash		—		—		—		—
- notes		—		—		—		—
Amount paid to sponsor from property sales and refinancing
Real estate commissions		—		—		—		—
Incentive fees		—		—		—		—
Other (identify and quantify)		—		—		—		—

A-8

TABLE II

(UNAUDITED)

COMPENSATION TO SPONSOR (cont’d)

	Resource Capital Corp.
Date offering commenced		1/31/2006
Date offering closed		2/6/2006
Dollar amount raised	$	147,170,205
Amount paid to sponsor from proceeds of offering:
Underwriting fees		—
Acquisition fees:
- real estate commissions		—
- advisory fees for property acquisition		—
- debt placement fees		—
Other - organization and offering expenses		—
Dollar amount of cash generated from operations before deducting payments to sponsor		94,400,631
Amount paid to sponsor from operations:
Property management fees		—
Partnership management fees		—
Reimbursements		2,929,186	(1)
Leasing commissions		—
Other (identify and quantify)		27,546,024	(2)
Dollar amount of property sales and refinancing before deducting payments to sponsor
- cash		—
- notes		—
Amount paid to sponsor from property sales and refinancing:
Real estate commissions		—
Incentive fees		—
Other (identify and quantify)		—

(1) Reimbursements represent Allocated Expenses paid to RAI for Mgr Expenses 3/8/2005-6/30/2009

(2) Other is comprised of the following:

-RCC payment of Base Management Fees (March 2005-June 2009)	17,993,282
-RCC payment of Incentive Mgmt Fees (March 2005-June 2009)	4,694,194
-RCC payment of LEAF Servicing Fees (September 2005-June 2009)	2,978,553
-RCC payment of LEAF Acquisition Fees (September 2005-June 2009)	1,879,994

A-9

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS

This Table sets forth the annual operating results of Prior Real Estate Programs that have closed offerings since January 1, 2004 (other than Resource Real Estate Opportunity Fund L.P.) and that have somewhat similar investment objectives to Resource Real Estate Opportunity REIT, Inc. All results are through December 31, 2008, except results for Resource Capital Corp. are as of June 30, 2009.

Resource Real Estate presents the data in Prior Performance Table III for each program on either a “GAAP basis” or an “income tax basis” depending on the reporting requirements of the particular program. The Table III presentation of Revenues, Expenses and Net Income for the public program has been prepared and presented by Resource Real Estate in conformity with accounting principles generally accepted in the Unites States of America, or GAAP, which incorporates accrual basis accounting. Resource Real Estate presents Table III for all private programs on an income tax basis (which can in turn be presented on either a cash basis or accrual basis), as the only applicable reporting requirement is for the year-end tax information provided to each investor. The Table III data for all private programs are prepared and presented by Resource Real Estate in accordance with the cash method of accounting for income tax purposes.

Although SEC rules and regulations allow Resource Real Estate to record and report results for its private programs on an income tax basis, investors should understand that the results of these private programs may be different if they were reported on a GAAP basis. Some of the major differences between GAAP accounting and income tax accounting (and, where applicable, between cash basis and accrual basis income tax accounting) that impact the accounting for investments in real estate are described below:

• The primary difference between the cash methods of accounting and accrual methods (both GAAP and the accrual method of accounting for income tax purposes) is that the cash method of accounting generally reports income when received and expenses when paid while the accrual method generally requires income to be recorded when earned and expenses recognized when incurred.

• GAAP requires that, when reporting lease revenue, the minimum annual rental revenue be recognized on a straight-line basis over the term of the related lease, whereas the cash method of accounting for income tax purposes requires recognition of income when cash payments are actually received from tenants, and the accrual method of accounting for income tax purposes requires recognition of income when the income is earned pursuant to the lease contract.

• GAAP requires that when an asset is considered held for sale, depreciation ceases to be recognized on that asset, whereas for income tax purposes, depreciation continues until the asset either is sold or is no longer in service.

• GAAP requires that when a building is purchased, certain intangible assets and liabilities (such as above-and below-market leases, tenant relationships and in-place lease costs) are allocated separately from the building and are amortized over significantly shorter lives than the depreciation recognized on the building. These intangible assets and liabilities are not recognized for income tax purposes and are not allocated separately from the building for purposes of tax depreciation.

• GAAP requires that an asset is considered impaired when the carrying amount of the asset is greater than the sum of the future undiscounted cash flows expected to be generated by the asset, and an impairment loss must then be recognized to decrease the value of the asset to its fair value. For income tax purposes, losses are generally not recognized until the asset has been sold to an unrelated party or otherwise disposed of in an arm’s-length transaction.

When a real estate program owns 100% of the property, 100% of the program’s operating results are presented for the relevant years. When a real estate program directly invests in and owns a partial tenant-in-common interest in the property (as an example, 25.0%) and the remaining interest of the property (75.0%) is owned by unaffiliated tenants-in-common, only the operating results relating to the program’s ownership in the property (25.0%) are presented for the relevant years. The allocation is based on the public or private program’s effective ownership in the property.

A-10

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

	SR Real Estate Investors, L.P. (1)
	2003			2004			2005			6/30/2006
Rental Income and Other Income	$	6,169,378		$	12,315,732		$	12,729,828		$	6,571,801
Income/loss on investment in unconsolidated entity		—			(23,502	)		(8,440	)		—
Profit on sale of properties		—			—			1,198,501			—
Less: Operating expenses		(3,211,354	)		(6,492,334	)		(6,494,583	)		(3,954,750	)
Interest expense		(2,145,842	)		(4,105,704	)		(4,089,112	)		(1,929,905	)
Depreciation		(1,470,384	)		(2,914,185	)		(3,100,880	)		(1,654,181	)
Depreciation from pass thru investments		—			(144,459	)		(145,210	)		—
Net Income – GAAP Basis		(658,202	)		(1,364,452	)		90,104			(967,035	)
Taxable Income
- from operations		(339,220	)		(2,124,488	)		(822,912	)		(1,525,284	)
- from gain on sale		—			296,602			1,408,222			(945,804	)
Cash generated from operations		812,182			1,717,694			2,146,133			687,146
Cash generated from equity investments		—			20,490			—			—
Cash generated from sales and refinancing (2)		—			—			3,414,126			—
Cash generated from recapitalization		—			—			—			17,981,681
Cash generated from operations, sales and refinancing		812,182			1,738,184			5,560,259			18,668,827
Add: Investment Management Fees		—			—			—			—
Less: Cash distributions to investors
- from operating cash flow		(680,600	)		(1,584,117	)		(1,598,806	)		(669,642	)
- from reserves		—			—			—			—
- from sales and refinancing		—			—			(3,293,021	)		—
- from liquidating distributions		—			—			—			(17,711,991	)
Cash generated (deficiency) after cash distributions		131,582			154,067			668,432			287,194
Less: Special Items		—			—			—			—
Cash generated (deficiency) after cash distributions and special items		131,582			154,067			668,432			287,194
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		(20	)		(106	)		(49	)		(90	)
- from portfolio interest income		4			1			1			—
- from recapture		—			—			—			—
Capital gain (loss)		—			15			83			(56	)
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		34			78			95			40
- Reserves		—			—			—			—
- Return of capital		—			—			195			1,047
Source (on cash basis)
- Sales		—			—			195			1,047
- Refinancing		—			—			—			—
- Reserves		—			—			—			—
- Real estate operations		34			78			95			40
Amount (in percentage terms) remaining invested in program properties at the end of the last year reported in the Table (original total acquisition cost of properties retained divided by original total acquisition cost of all in program)		100	%		100	%		85.8	%		N/A

(1) On June 30, 2006, AR Real Estate Investors, LLC (“AR”) acquired 99.9% of the limited partnership interests of SR Real Estate Investors, L.P. (“SR I”) and SR Real Estate Investors II, L.P. (“SR II”). Effective July 1, 2006, SR I and SR II were consolidated into AR.

(2) Cash generated solely from sales.

A-11

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

	SR Real Estate Investors, II, L.P. (1)
	2003			2004			2005			6/30/2006
Gross Revenue	$	208		$	9,808		$	26,364		$	11,657
Income/loss on investment in unconsolidated entity		10,960			199,981			504,978			280,786
Profit on sale of properties		—			—			488,278			—
Less: Operating expenses		(6,348	)		(154,884	)		(148,360	)		(68,605	)
Interest expense		—			—			—			—
Depreciation		—			—			—			—
Depreciation from pass thru investments		(8,262	)		(352,409	)		(646,063	)		(308,860	)
Net Income – GAAP Basis		(3,442	)		(297,504	)		225,197			(85,022	)
Taxable Income
- from operations		10,999			(384,859	)		(238,516	)		(387,300	)
- from gain on sale		—			61,028			366,471			(246,135	)
Cash generated from operations		4,820			54,905			382,982			223,838
Cash generated from equity investments					218,834			308,467			174,264
Cash generated from sales and refinancing (2)		—			—			888,490			—
Cash generated from recapitalization		—			—			—			4,142,044
Cash generated from operations, sales and refinancing		4,820			273,739			1,579,939			4,540,146
Add: Investment Management Fees		—			—			—			—
Less: Cash distributions to investors
- from operating cash flow		—			(184,938	)		(416,447	)		(176,186	)
- from reserves		—			—			—			—
- from sales and refinancing		—			—			(856,965	)		—
- from liquidating distributions		—			—			—			(4,015,364	)
Cash generated (deficiency) after cash distributions		4,820			88,801			306,527			348,596
Less: Special Items		—			—			—			—
Cash generated (deficiency) after cash distributions and special items		4,820			88,801			306,527			348,596
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		11			(75	)		(60	)		(91	)
- from portfolio interest income		—			2			6			3
- from recapture		—			—			—			—
Capital gain (loss)		—			12			83			(56	)
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		—			35			95			40
- Reserves		—			—			—			—
- Return of capital		—			784			195			912
Source (on cash basis)
- Sales		—			784			195			912
- Refinancing		—			—			—			—
- Reserves		—			—			—			—
- Real estate operations		—			35			95			40
Amount (in percentage terms) remaining invested in program properties at the end of the last year reported in the Table (original total acquisition cost of properties retained divided by original total acquisition cost of all in program)		100	%		100	%		85.8	%		N/A

(1) On June 30, 2006, AR Real Estate Investors, LLC (“AR”) acquired 99.9% of the limited partnership interests of SR Real Estate Investors, L.P. (“SR I”) and SR Real Estate Investors II, L.P. (“SR II”). Effective July 1, 2006, SR I and SR II were consolidated into AR.

(2) Cash generated solely from sales.

A-12

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

	AR Real Estate Investors, LLC (1)
	2006			2007			2008
Gross Revenue	$	6,742,709		$	13,709,068		$	13,722,918
Income/loss on investment in unconsolidated entity		—			—			—
Profit on sale of properties		—			—			—
Less: Operating expenses		(3,393,214	)		(6,696,002	)		(6,855,617	)
Interest expense		(1,985,724	)		(3,896,101	)		(3,845,269	)
Depreciation		(1,858,270	)		(3,800,753	)		(3,738,876	)
Depreciation from pass thru investments		—			—			—
Net Income – GAAP Basis		(494,499	)		(683,788	)		(716,844	)
Taxable Income
- from operations		421,825			201,164			(404,945	)
- from gain on sale		—			—			—
Cash generated from operations		2,258,480			3,585,144			3,643,184
Cash generated from equity investments		—			—			—
Cash generated from sales and refinancing (2)		—			—			—
Cash generated from recapitalization		—			—			—
Cash generated from operations, sales and refinancing		2,258,480			3,585,144			3,643,184
Add: Investment Management Fees		100,139			194,401			208,272
Less: Cash distributions to investors
- from operating cash flow		(856,720	)		(1,750,400	)		(1,786,089	)
- from reserves		—			—			—
- from sales and refinancing		—			—			—
- from liquidating distributions		—			—			—
Cash generated (deficiency) after cash distributions		1,501,899			2,029,145			2,065,367
Less: Special Items		—			—			—
Cash generated (deficiency) after cash distributions and special items		1,501,899			2,029,145			2,065,367
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		14			7			(16	)
- from portfolio interest income		3			1			—
- from recapture		—			—			—
Capital gain (loss)		—			—			—
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		33			68			70
- Reserves		—			—			—
- Return of capital		—			—			—
Source (on cash basis)
- Sales		—			—			—
- Refinancing		—			—			—
- Reserves		—			—			—
- Real estate operations		33			68			70
Amount (in percentage terms) remaining invested in program properties at the end of the last year reported in the Table (original total acquisition cost of properties retained divided by original total acquisition cost of all in program)		100	%		100	%		100	%

(1) On June 30, 2006, AR Real Estate Investors, LLC (“AR”) acquired 99.9% of the limited partnership interests of SR Real Estate Investors, L.P. (“SR I”) and SR Real Estate Investors II, L.P. (“SR II”). Effective July 1, 2006, SR I and SR II were consolidated into AR.

(2) Cash generated solely from sales.

A-13

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

	Resource Real Estate Investors, L.P.
	2004			2005			2006			2007			2008
Gross Revenue	$	69,367		$	3,342,387		$	3,689,367		$	3,670,367		$	3,701,209
Income/loss on investment in unconsolidated entity		—			(3,765	)		—			—			—
Profit on sale of properties		—			486,532			—			—			—
Less: Operating expenses		(89,132	)		(1,231,746	)		(1,993,588	)		(2,002,642	)		(2,005,338	)
Interest expense		(24,395	)		(1,402,925	)		(1,465,290	)		(1,465,294	)		(1,500,763	)
Depreciation		(41,403	)		(2,106,747	)		(955,054	)		(964,134	)		(984,369	)
Depreciation from pass thru investments		—			(63,782	)		—			—			—
Net Income – GAAP Basis		(85,563	)		(980,046	)		(724,565	)		(761,703	)		(789,261	)
Taxable Income
- from operations		(42,599	)		(764,482	)		(755,318	)		(722,370	)		(789,420	)
- from gain on sale		—			546,583			—			—			—
Cash generated from operations		(111,874	)		129,681			685,055			(206,885	)		393,530
Cash generated from equity investments		—			—			—			—			—
Cash generated from sales and refinancing (1)		—			1,500,583			—			—			—
Cash generated from recapitalization		—			—			—			—			—
Cash generated from operations, sales and refinancing		(111,874	)		1,630,264			685,055			(206,885	)		393,530
Add: Investment Management Fees		—			38,061			42,557			65,994			65,994
Less: Cash distributions to investors
- from operating cash flow		—			(168,344	)		(541,776	)		—			(459,524	)
- from reserves		—			(232,349	)		—			(541,776	)		(82,252	)
- from sales and refinancing		—			(1,499,981	)		—			—			—
- from liquidating distributions		—			—			—			—			—
Cash generated (deficiency) after cash distributions		(111,874	)		(232,349	)		185,836			(682,667	)		(82,252	)
Less: Special Items		—			—			—			—			—
Cash generated (deficiency) after cash distributions and special items		(111,874	)		(232,349	)		185,836			(682,667	)		(82,252	)
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		(11	)		(119	)		(118	)		(112	)		(122	)
- from portfolio interest income		1			1			1			2			3
-from recapture		—			—			—			—			—
Capital gain (loss)		—			83			—			—			—
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		—			26			82			—			70
- Reserves		—			35			—			82			12
- Return of capital		—			227			—			—			—
Source (on cash basis)
- Sales		—			227			—			—			—
- Refinancing		—			—			—			—			—
- Reserves		—			35			—			82			12
- Real estate operations		—			26			82			—			70
Amount (in percentage terms) remaining invested in program properties at the end of the last year reported in the Table (original total acquisition cost of properties retained divided by original total acquisition cost of all in program)		100	%		84.9	%		84.9	%		84.9	%		84.9	%

(1) Cash generated solely from sales.

A-14

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

	Resource Real Estate Investors, II, L.P.
	2005			2006			2007			2008
Gross Revenue	$	594,041		$	815,679		$	872,532		$	848,233
Income/loss on investment in unconsolidated entity		34,431			130,342			210,058			187,192
Profit on sale of properties		—			—			—
Less: Operating expenses		(425,932	)		(650,784	)		(645,463	)		(641,532	)
Interest expense		(260,970	)		(330,237	)		(331,074	)		(331,912	)
Depreciation		(287,629	)		(274,501	)		(240,700	)		(243,781	)
Depreciation from pass thru investments		(832,625	)		(1,385,729	)		(976,726	)		(1,015,032	)
Net Income – GAAP Basis		(1,178,684	)		(1,695,230	)		(1,111,373	)		(1,196,832	)
Taxable Income
- from operations		(640,820	)		(1,309,211	)		(956,248	)		(1,090,820	)
- from gain on sale		—			—			—			—
Cash generated from operations		926,883			(680,056	)		(42,097	)		33,541
Cash generated from equity investments		234,935			769,689			797,337			763,579
Cash generated from sales and refinancing		—			—			—			—
Cash generated from recapitalization		—			—			—			—
Cash generated from operations, sales and refinancing		1,161,818			89,633			755,240			797,120
Add: Investment Management Fees		66,037			142,002			142,002			142,002
Less: Cash distributions to investors
- from operating cash flow		(386,340	)		(231,635	)		(897,242	)		(939,122	)
- from reserves		—			(774,457	)		(108,704	)		(65,217	)
- from sales and refinancing		—			—			—			—
- from liquidating distributions		—			—			—			—
Cash generated (deficiency) after cash distributions		841,515			(774,457	)		(108,704	)		(65,217	)
Less: Special Items		—			—			—			—
Cash generated (deficiency) after cash distributions and special items		841,515			(774,457	)		(108,704	)		(65,217	)
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		(47	)		(98	)		(72	)		(78	)
- from portfolio interest income		2			6			5			1
- from recapture		—			—			—			—
Capital gain (loss)		—			—			—			—
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		27			16			63			66
- Reserves		—			55			8			5
- Return of capital		—			—			—			—
Source (on cash basis)
- Sales		—			—			—			—
- Refinancing		—			—			—			—
- Reserves		—			55			8			5
- Real estate operations		27			16			63			66
Amount (in percentage terms) remaining invested in program properties at the end of the last year reported in the Table (original total acquisition cost of properties retained divided by original total acquisition cost of all in program)		100	%		100	%		100	%		100	%

A-15

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

	Resource Real Estate Investors, III, L.P.
	2005			2006			2007			2008
Gross Revenue	$	21,332		$	4,149,574		$	6,952,194		$	6,921,667
Income/loss on investment in unconsolidated entity		1,849			(7,110	)		34,709			49,408
Profit on sale of properties		—			—			—			—
Less: Operating expenses		(26,410	)		(2,582,210	)		(4,648,977	)		(4,862,867	)
Interest expense		—			(1,135,500	)		(2,162,554	)		(2,167,999	)
Depreciation		—			(1,504,627	)		(2,166,940	)		(1,431,668	)
Depreciation from pass thru investments		(4,484	)		(915,093	)		(465,597	)		(471,755	)
Net Income – GAAP Basis		(7,713	)		(1,994,966	)		(2,457,165	)		(1,963,214	)
Taxable Income
- from operations		(11,187	)		(761,780	)		(1,537,715	)		(2,102,081	)
- from gain on sale		—			—			—			—
Cash generated from operations		87,626			1,259,613			534,977			1,101,128
Cash generated from equity investments		—			349,650			379,212			379,212
Cash generated from sales and refinancing		—			—			—			—
Cash generated from recapitalization		—			—			—			—
Cash generated from operations, sales and refinancing		87,626			1,609,263			914,189			1,480,340
Add: Investment Management Fees		—			138,455			250,000			250,000
Less: Cash distributions to investors
- from operating cash flow		—			(1,054,978	)		(1,164,189	)		(1,637,532	)
- from reserves		—			—			(473,343	)		—
- from sales and refinancing		—			—			—			—
- from liquidating distributions		—			—			—			—
Cash generated (deficiency) after cash distributions		87,626			692,740			(473,343	)		92,808
Less: Special Items		—			—			—			—
Cash generated (deficiency) after cash distributions and special items		87,626			692,740			(473,343	)		92,808
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		(1	)		(45	)		(67	)		(85	)
- from portfolio interest income		4			15			5			1
- from recapture		—			—			—			—
Capital gain (loss)		—			—			—			—
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		—			42			47			65
- Reserves		—			—			19			—
- Return of capital		—			—			—			—
Source (on cash basis)
- Sales		—			—			—			—
- Refinancing		—			—			—			—
- Reserves		—			—			19			—
- Real estate operations		—			42			47			65
Amount (in percentage terms) remaining invested in program properties at the end of the last year reported in the Table (original total acquisition cost of properties retained divided by original total acquisition cost of all in program)		100	%		100	%		100	%		100	%

A-16

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

	Resource Real Estate Investors, IV, L.P.
	2006			2007			2008
Gross Revenue	$	663,428		$	10,310,314		$	10,250,403
Income/loss on investment in unconsolidated entity		30,150			76,987			117,676
Profit on sale of properties		—			—			—
Less: Operating expenses		(260,781	)		(5,115,118	)		(6,520,432	)
Interest expense		(148,591	)		(2,843,510	)		(3,002,570	)
Depreciation		(258,520	)		(4,394,187	)		(2,507,531	)
Depreciation from pass thru investments		(102,891	)		(300,541	)		(295,400	)
Net Income – GAAP Basis		(77,205	)		(2,266,055	)		(1,957,854	)
Taxable Income
- from operations		108,945			(677,543	)		(2,318,338	)
- from gain on sale		—			—			—
Cash generated from operations		804,358			4,322,870			1,520,445
Cash generated from equity investments		42,725			248,076			248,076
Cash generated from sales and refinancing		—			—			—
Cash generated from recapitalization		—			—			—
Cash generated from operations, sales and refinancing		847,083			4,570,946			1,768,521
Add: Investment Management Fees		20,556			279,900			295,404
Less: Cash distributions to investors
- from operating cash flow		(72,770	)		(1,657,945	)		(1,779,891	)
- from reserves		—			—			—
- from sales and refinancing		—			—			—
- from liquidating distributions		—			—			—
Cash generated (deficiency) after cash distributions		794,869			3,192,901			284,034
Less: Special Items		—			—			—
Cash generated (deficiency) after cash distributions and special items		794,869			3,192,901			284,034
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		—			(40	)		(82	)
- from portfolio interest income		4			13			4
- from recapture		—			—			—
Capital gain (loss)		—			—			—
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		3			65			70
- Reserves		—			—			—
- Return of capital		—			—			—
Source (on cash basis)
- Sales		—			—			—
- Refinancing		—			—			—
- Reserves		—			—			—
- Real estate operations		3			65			70
Amount (in percentage terms) remaining invested in program properties at the end of the last year reported in the Table (original total acquisition cost of properties retained divided by original total acquisition cost of all in program)		100	%		100	%		100	%

A-17

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

	Resource Real Estate Investors V, L.P.						Resource Real Estate Investors 6, L.P.						Resource Real Estate Investors 7, L.P.
	2007			2008			2007			2008			2008
Gross Revenue	$	5,828,382		$	10,757,366		$	103,328		$	7,555,547		$	934,142
Income/loss on investment in unconsolidated entity		—			—			—			—			—
Profit on sale of properties		—			—			—			—			—
Less: Operating expenses		(2,193,598	)		(5,217,976	)		(59,098	)		(5,269,225	)		(483,291	)
Interest expense		(2,493,956	)		(4,434,639	)		(27,301	)		(2,454,141	)		(329,048	)
Depreciation		(2,709,880	)		(3,965,730	)		(39,897	)		(3,553,760	)		(316,830	)
Depreciation from pass thru investments		—			—			—			—			—
Net Income – GAAP Basis		(1,569,052	)		(2,860,979	)		(22,968	)		(3,721,579	)		(195,027	)
Taxable Income
- from operations		(492,284	)		(2,450,195	)		3,577			(2,624,767	)		(116,847	)
- from gain on sale		—			—			—			—			—
Cash generated from operations		1,668,063			2,824,672			748,432			1,210,836			233,172
Cash generated from equity investments		—			—			—			—			—
Cash generated from sales and refinancing		—			—			—			—			—
Cash generated from recapitalization		—			—			—			—			—
Cash generated from operations, sales and refinancing		1,668,063			2,824,672			748,432			1,210,836			233,172
Add: Investment Management Fees(		157,506			320,091			2,400			302,933			28,389
Less: Cash distributions to investors
- from operating cash flow		(701,564	)		(2,090,985	)		—			(1,483,077	)		(71,078	)
- from reserves		—			—			—			—			—
- from sales and refinancing		—			—			—			—			—
- from liquidating distributions		—			—			—			—			—
Cash generated (deficiency) after cash distributions		1,124,005			1,053,778			750,832			30,692			190,483
Less: Special Items		—			—			—			—			—
Cash generated (deficiency) after cash distributions and special items		1,124,005			1,053,778			750,832			30,692			190,483
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		(23	)		(81	)		(2	)		(83	)		(22	)
- from portfolio interest income		9			11			2			12			(7	)
- from recapture		—			—			—			—			—
Capital gain (loss)		—			—			—			—			—
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		20			60			—			40			9
- Reserves		—			—			—			—			—
- Return of capital		—			—			—			—			—
Source (on cash basis)
- Sales		—			—			—			—			—
- Refinancing		—			—			—			—			—
- Reserves		—			—			—			—			—
- Real estate operations		20			60			—			40			9
Amount (in percentage terms) remaining invested in program properties at the end of the last year reported in the Table (original total acquisition cost of properties retained divided by original total acquisition cost of all in program)		100	%		100	%		100	%		100	%		100	%

A-18

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

(Dollars in Thousands)

	Resource Capital Corp.
	Six Months Ended 6/30/2009			2008			2007			2006			For the Period 3/8/05 to 12/31/05
Gross Revenues - Interest Income	$	51,896		$	134,341		$	176,995		$	137,075		$	61,387
Profit on sale of properties		—			—			—			—			—
Interest Expense		26,625			79,619			121,564			101,851			43,062
Net Interest Income		25,271			54,722			55,431			35,224			18,325
Management Fees - related party		1,926			6,301			6,554			4,838			3,012
Equity compensation - related party		353			540			1,565			2,432			2,709
Professional services		2,053			3,349			2,911			1,881			580
Insurance		389			641			466			498			395
Other General & Administrative		846			1,848			1,581			1,428			1,032
Income tax (benefit) expense		(1	)		(241	)		338			67			—
Total Expenses		5,566			12,438			13,415			11,144			7,728
Net Operating Income		19,705			42,284			42,016			24,080			10,597
Net realized and unrealized (losses) gains on investments		(15,953	)		(1,637	)		(15,098	)		(8,627	)		311
Gain on deconsolidation		—			—			14,259			—			—
Provisions for loan and lease losses		(27,973	)		(46,160	)		(6,211	)		—			—
Asset Impairments		—			—			(26,277	)		—			—
Gain on the extinguishment of debt		6,900			1,750			—			—			—
Gain on the settlement of loan		—			574			—			—			—
Other income (1)		42			115			201			153			—
Net income (loss)		(17,279	)		(3,074	)		8,890			15,606			10,908
Taxable Income
from operations
from gain on sale
Cash generated from operations		21,402			50,950			23,378			12,872			(14,224	)
Cash generated from (used in) investing activities		22,447			65,706			(665,019	)		183,927			(2,006,070	)
Cash generated from (used in) financing activities		(30,357	)		(66,936	)		680,282			(184,643	)		2,045,864
Total cash generated (used)		13,492			49,720			38,641			12,156			25,570
Less Cash Distributions to Investors from operating cash flow		(17,522	)		(41,166	)		(37,966	)		(24,531	)		(7,841	)
from sales and refinancing		—			—			—			—			—
from other sources		—			—			—			—			—
Cash generated (used) after distributions to investors		(4,030	)		8,554			675			(12,375	)		17,729
Tax and Distribution Data per $1,000 invested
Ordinary Income (loss)
from operations (2)		33			116			114			115			59
from recapture		—			—			—			—			—
Cash distributions to investors
Source (on GAAP Basis)
Operations		51			118			109			101			36
Return of Capital		—			—			—			—			—
Source (on Cash Basis)
Sales		—			—			—			—			—
Refinancing		—			—			—			—			—
Operations		51			118			109			101			36
Other		—			—			—			—			—

(1) Other income is substantially composed of dividend income for 2008 and 2009.

(2) Represents estimated taxable income for 2008 and 2009, final results are not available.

A-19

TABLE V

(UNAUDITED)

SALE OR DISPOSITION OF ASSETS

This Table sets forth summary information on the aggregate sales or disposals of real estate related investments by Resource Capital Corp. during the three years and six months ended June 30, 2009. Resource Capital Corp. did not own or dispose of any real property during such period.

Resource Capital Corp.

Date	Investment	Total Dollar Amount Invested		Total Proceeds from Sale of Investment (1)
2007	Investment A-ABS/RMBS CDO Sale of Preference Equity 10% interest	$	2,700,000	$	5,000
2007	Investment A-ABS/RMBS CDO Sale of Preference Equity 90% interest		24,300,000		10
2007	Investment B-Self Originated Loan-50% interest		20,131,750		20,131,750
2007	Investment C-Self Originated Loan-50% interest		10,160,000		10,160,000
2007	Investment D-Self Originated Loan-50% interest		10,955,900		10,955,900
2008	Investment E-Purchased Security		10,000,000		8,000,000
2009	Investment F-Self Originated Loan-100% interest		16,290,200		7,758,000
2009	Investment G-Self Originated Loan-100% interest		13,550,000		5,895,000

(1) All were loans or securities that were sold during the period indicated above.

A-20

APPENDIX B

FORM OF SUBSCRIPTION AGREEMENT

THIS SUBSCRIPTION AGREEMENT is made and entered into between Resource Real Estate Opportunity REIT, Inc., a Maryland corporation (the “Company”) and the investor(s) whose signature appears below (collectively or individually, the “Investor”). All information required by the Subscription Agreement will remain confidential. The Investor will not be admitted as a stockholder until (1) this Subscription Agreement has been accepted and countersigned by the Company or (2) your admission as a stockholder, which will be evidenced by the Company sending a confirmation of its acceptance. The Company may reject any subscription, in whole or in part, in its sole discretion.

State of Sale: __________________________________

Investment Type:

¨ Initial Investment (Minimum $2,500)

¨ Additional Investment (please complete the information below regarding the previous investment)

Amount of previous investment no. 1: _______________________ Date: _______________________

Investor name: _________________________________________ SSN/Tax ID: _________________

Amount of previous investment no. 2: ________________________ Date: _______________________

Investor name: _________________________________________ SSN/Tax ID: _________________

Amount of Subscription: $____________

Number of Shares of Common Stock: _______________

Instructions

Make your check payable to: “TD Bank, N.A. as Escrow Agent for Resource Real Estate Opportunity REIT, Inc.,” When the minimum subscription amount of $2,000,000 is reached, checks shall be payable to: “Resource Real Estate Opportunity REIT, Inc.” except that Pennsylvania investors should follow the instructions in the final prospectus of Resource Real Estate Opportunity REIT, Inc., as amended and supplemented as of the date hereof (the “Prospectus”), under “Plan of Distribution—Special Note to Pennsylvania Investors.” Minimum Subscription: 250 shares ($2,500). Send Subscription Documents, completed and signed, with check, to:

Darshan V. Patel

Chadwick Securities, Inc.

1845 Walnut Street, 10th Floor

Philadelphia, Pennsylvania 19103

866.469.0129

1. INVESTOR INFORMATION

Please note: Investor information is required for all registration types. If this is a custodial investment through an IRA or otherwise, the custodian must provide the information in the Custodian/Trustee Information section in Section 2.

Investor Name	SSN/Tax ID		DOB
Investor Name	SSN/Tax ID		DOB
Street Address	City	State	Zip

B-1

Optional Mailing Address	City	State	Zip
Phone (day)	Phone (evening)
Email

¨ US Citizen             ¨ US Citizen residing outside of US             ¨ Foreign citizen, country _______________

(CHECK ONE): I am a: Calendar Year Taxpayer ¨         Fiscal Year Taxpayer ¨

2. INVESTMENT TYPE (CHECK ONE)

Non-Qualified-	¨        Tenants-in-Common(1)	¨        C Corporation(2)
	¨        Joint Tenants with Right of Survivorship(1)	¨        S Corporation(2)
	¨        Individual	¨        Community Property(1)
	¨        Trust(2)	¨        Limited Liability Company(2)
	¨        Partnership(2)	¨        Other: __________________
	¨        Uniform Gift to Minors Act: State of _________
	¨        Uniform Transfer to Minors Act: State of _________
Qualified*-	¨        Traditional (Individual) IRA	¨        Pension or Profit Sharing Plan(2)
	¨        Simple IRA	¨        KEOGH Plan(2)
	¨        SEP IRA	¨        Other: __________________
	¨        ROTH IRA
	¨        Beneficial as Beneficiary for: ____________________
	Custodian/Trustee Information – To be completed by custodian
	Name of Custodian:
	Address:
	City, State, ZIP:
	Telephone #:
	Custodian Tax ID #:
	Custodian Account #:

* See “ERISA Considerations” in the Prospectus for a discussion of risks related to an investment in shares by certain tax-exempt or tax-deferred plans.

⁽¹⁾ All parties must sign.

⁽²⁾ Enclose supporting documents (see notes below).

NOTE TO CORPORATIONS:	Please attach a copy of the corporate resolution to purchase shares in the Company and articles of incorporation and by-laws, as amended.
NOTE TO PARTNERSHIPS:	Please attach a copy of the current partnership agreement, as amended.
NOTE TO TRUSTS:	Please attach a copy of the instrument creating the trust, as amended.
NOTE TO ESTATES:	Please attach a copy of the will and current letters testamentary.
NOTE TO LIMITED LIABILITY COMPANIES:	Please attach a copy of the resolution to purchase and articles of organization and operating agreement, as amended.

B-2

3. SUITABILITY (TO BE COMPLETED BY ALL INVESTORS)

Occupation: _______________________________ Annual Income: _______________ Net Worth: ___________________

Investment Objectives: ________________________________________________________________________________

Nature of Other Investments or Securities Holdings: _________________________________________________________

___________________________________________________________________________________________________

4. DISTRIBUTION INFORMATION (CHOOSE ONE OR MORE OF THE FOLLOWING OPTIONS)

If you select more than one option you must indicate the percentage of your distribution to be applied to each and the sum of the allocations must equal 100%.

		% of Distribution
¨	I prefer to participate in the Distribution Reinvestment Plan, as described in the Prospectus.*	____________
¨	Send distributions via check to Investor’s home address (or for Qualified Plans to the address listed in Section 2).	____________
¨	Send distributions via check to alternate payee listed here (not available for qualified plans without custodial approval).	____________

Name: ___________________________________________________________________________________________

Address: _________________________________________________________________________________________

City: _______________________________________________________ State: ______ Zip Code: _________________

Account No.: ______________________________________________________________________________________

		% of Distribution
¨	Direct Deposit (Attach Voided Check) I authorize Resource Real Estate Opportunity REIT, Inc. or its agent (collectively, Resource Real Estate) to deposit my distributions in the checking or savings account identified below. This authority will remain in force until I notify Resource Real Estate in writing to cancel it. In the event that Resource Real Estate deposits funds erroneously into my account, Resource Real Estate is authorized to debit my account for an amount not to exceed the amount of the erroneous deposit.	____________

Financial Institution Name: _______________________________________________ Checking   ¨     Savings  ¨

ABA/Routing Number: ______________________________________________________________________________

Account Number: ___________________________________________________________________________________

* If you elect to participate in the Distribution Reinvestment Plan, you must agree that if at any time you fail to meet the applicable investor suitability standards or cannot make the other investor representations or warranties set forth in the Prospectus or the Subscription Agreement relating to such investment, you will promptly notify the Company in writing of that fact.

B-3

5. INVESTOR SIGNATURES (TO BE COMPLETED BY ALL INVESTORS)

Please carefully read and separately initial each of the representations below. Except in the case of fiduciary accounts, you may not grant any person a power of attorney to make such representations on your behalf. In order to induce the Company to accept this subscription, I hereby represent and warrant to you as follows:

Initials

[                    ] (owner)	[                    ] (co-owner, if any)	1.      I have received the Prospectus for the Company at least five business days before signing the Subscription Agreement.
[                    ] (owner)	[                    ] (co-owner, if any)	2.      I have (i) a minimum net worth (exclusive of home, home furnishings and personal automobiles) of at least $250,000 or (ii) a minimum net worth (as previously described) of at least $70,000 and a minimum annual gross income of at least $70,000, and, if applicable, I meet the higher net worth and gross income requirements imposed by my state of primary residence as set forth in the Prospectus under “Suitability Standards.” I will not purchase additional shares unless I meet the applicable suitability requirements set forth in the Prospectus at the time of purchase.
[                    ] (owner)	[                    ] (co-owner, if any)	3.      I acknowledge that there is no public market for the shares and, thus, my investment in shares is not liquid.
[                    ] (owner)	[                    ] (co-owner, if any)	4.      I am purchasing the shares for my own account.
[                    ] (owner)	[                    ] (co-owner, if any)	5.      I understand that I will not be admitted as a stockholder until my investment has been accepted. The acceptance process includes, but is not limited to, reviewing the Subscription Agreement for completeness and signatures, conducting an Anti-Money Laundering check as required by the USA Patriot Act and payment of the full purchase price of the shares.

B-4

Taxpayer Identification Number Certification – Check the first box below pursuant to its instructions, unless you are a foreign investor or you are investing as a U.S. grantor trust.

Note: If there is a change in circumstances which makes any of the information provided by you in your certification below incorrect, then you are under a continuing obligation so long as you own shares in the Company to notify the Company and furnish the Company a new certificate within thirty (30) days of the change.

¨ Under penalties of perjury, I certify that:

(1) the number provided in my Subscription Agreement is my correct “TIN” (i.e., social security number or employer identification number);

(2) I am not subject to backup withholding because (a) I am exempt from backup withholding under §3406(g)(1) of the Internal Revenue Code and the related regulations, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding; and

(3) I am a U.S. person (which includes U.S. citizens, resident aliens, entities or associations formed in the U.S. or under U.S. law, and U.S. estates and trusts other than grantor trusts.)

Note: You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because you have failed to report all interest and dividends on your tax return.

¨ Foreign Investor. I have provided the Company with the appropriate Form W-8 certification or, if a joint account, each joint account owner has provided the Company the appropriate Form W-8 certification, and if any one of the joint account owners has not established foreign status, that joint account owner has provided the Company with a certified TIN.

¨ U.S. Grantor Trusts. Under penalties of perjury, I certify that:

(1) the trust designated as the Investor on my Subscription Agreement is a United States grantor trust which I can amend or revoke during my lifetime;

(2) under subpart E of subchapter J of the Internal Revenue Code (check only one of the boxes below):

¨  (a)  100% of the trust is treated as owned by me;

¨  (b)  the trust is treated as owned in equal shares by me and my spouse; or

¨  (c)              % of the trust is treated as owned by                                 , and the remainder is treated as owned             % by me and             % by my spouse); and

(3) each grantor or other owner of any portion of the trust as certified by me in (2)(a), (b) or (c) above, has provided the Company with the appropriate Form W-8 or Form W-9 certification.

Note: If you check the box in (2)(c), you must insert the information called for by the blanks.

The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding.

IN WITNESS WHEREOF, I have executed this execution page this                          day of                             , 200    .

X

X

Investor(s) Signature(s)

Title, if applicable

B-5

TO BE COMPLETED BY REGISTERED REPRESENTATIVE (For Commission and Other Purposes)

The Investor’s Registered Representative must sign below to complete the order. The Registered Representative hereby warrants that he or she is duly licensed and may lawfully sell shares of common stock in the state designated as the Investor’s legal residence. The Registered Representative agrees to maintain records of the information used to determine that an investment in shares is suitable and appropriate for the Investor for a period of six years. The undersigned confirms by his or her signature that he or she (i) has reasonable grounds to believe that the information and representations concerning the Investor identified herein are true, correct and complete in all respects; (ii) has discussed such Investor’s prospective purchase of shares with such Investor; (iii) has advised such Investor of all pertinent facts with regard to the liquidity and marketability of the shares and other fundamental risks related to the investment in the shares; (iv) has delivered the Prospectus to such Investor; (v) has reasonable grounds to believe that the Investor is purchasing these shares for his or her own account; and (vi) has reasonable grounds to believe that the purchase of shares is a suitable investment for such Investor, that such Investor meets the suitability standards applicable to such Investor as set forth in the Prospectus, and that such Investor is in a financial position to enable such Investor to realize the benefits of such an investment and to suffer any loss that may occur with respect thereto. I understand this Subscription Agreement is for Resource Real Estate Opportunity REIT, Inc.

Name of Registered Representative and CRD Number	Name of Broker/Dealer
Signature of Registered Representative	Broker/Dealer CRD Number
Registered Representative Office Address:	Broker/Dealer E-mail Address: ________________________
	NOTICE TO BROKER-DEALER
	Only original, completed copies of the Subscription Agreement can be accepted. Send Subscription Documents, completed and signed, with check MADE PAYABLE TO: “TD Bank, N.A. as Escrow Agent for Resource Real Estate Opportunity REIT, Inc.” to:
Phone Number:
Facsimile Number:
E-mail Address:	Darshan V. Patel
	Chadwick Securities, Inc.
	1845 Walnut Street, 10th Floor
Company Name (if other than Broker/Dealer Name)	Philadelphia, Pennsylvania 19103
	When the minimum subscription proceeds of $2,000,000 have been received, checks may be payable to “Resource Real Estate Opportunity REIT, Inc.” except that Pennsylvania investors should follow the instructions in the Prospectus under the “Plan of Distribution—Special Note to Pennsylvania Investors.”

TO BE COMPLETED BY RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

ACCEPTED THIS             day of                     , 200	RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
	By:
	Name:
	Title:

B-6

APPENDIX C

DISTRIBUTION REINVESTMENT PLAN

Resource Real Estate Opportunity REIT, Inc., a Maryland corporation (the “Company”), has adopted a Distribution Reinvestment Plan (the “DRP”), the terms and conditions of which are set forth below. Capitalized terms shall have the same meaning as set forth in the Company’s charter unless otherwise defined herein.

1. Number of Shares Issuable. The number of shares of Common Stock authorized for issuance under the DRP is 7,500,000.

2. Participants. “Participants” are holders of the Company’s shares of Common Stock who elect to participate in the DRP.

3. Distribution Reinvestment. The Company will apply that portion (as designated by a Participant) of the dividends and other distributions (“Distributions”) declared and paid in respect of a Participant’s shares of Common Stock to the purchase of additional shares of Common Stock for such Participant. Such shares will be sold through the broker-dealer and/or dealer manager through whom the Company sold the underlying shares to which the Distributions relate unless the Participant makes a new election through a different distribution channel. The Company will not pay selling commissions on shares of Common Stock purchased in the DRP.

4. Procedures for Participation. Qualifying stockholders may elect to become a Participant by completing and executing the Subscription Agreement, an enrollment form or any other Company-approved authorization form as may be available from the dealer manager or participating broker-dealers. To increase their participation, Participants must complete a new enrollment form and make the election through the dealer manager or the Participant’s broker-dealer, as applicable. Participation in the DRP will begin with the next Distribution payable after receipt of a Participant’s subscription, enrollment or authorization. Shares will be purchased under the DRP on the date that the Company makes a Distribution. Distributions will be paid monthly as authorized and declared by the Company’s board of directors.

5. Purchase of Shares. Until completion of the Company’s offering stage, Participants will acquire Common Stock at a price of $9.50 per share. No later than 18 months after completion of the Company’s offering stage, Participants will acquire Common Stock at a price equal to the estimated value of the Company’s Common Stock, as estimated by the Company’s advisor or other firm chosen by the board of directors for that purpose; provided however, that the time frame before which an estimated value per share is established may be different depending on regulatory requirements or if necessary to assist broker dealers who sell shares in the Company’s offering. The Company’s offering stage will be complete when the Company is no longer publicly offering equity securities and has not done so for one year. For the purpose of determining when the Company’s offering stage is complete, public equity offerings do not include offerings on behalf of selling stockholders or offerings related to any distribution reinvestment plan, employee benefit plan or redemption of interests in Resource Real Estate Opportunity OP, LP, the Company’s operating partnership. Participants in the DRP may purchase fractional shares so that 100% of the Distributions will be used to acquire shares. However, a Participant will not be able to acquire shares under the DRP to the extent such purchase would cause it to exceed limits set forth in the Company’s charter, as amended.

6. Taxation of Distributions. The reinvestment of Distributions in the DRP does not relieve Participants of any taxes that may be payable as a result of those Distributions and their reinvestment pursuant to the terms of this DRP.

7. Share Certificates. The shares issuable under the DRP shall be uncertificated until the board of directors determines otherwise.

8. Voting of DRP Shares. In connection with any matter requiring the vote of the Company’s stockholders, each Participant will be entitled to vote all shares acquired by the Participant through the DRP.

9. Reports. Within 90 days after the end of the calendar year, the Company shall provide each Participant with (i) an individualized report on the Participant’s investment, including the purchase date(s), purchase price and

C-1

number of shares owned, as well as the amount of Distributions received during the prior year; and (ii) all material information regarding the DRP and the effect of reinvesting dividends, including the tax consequences thereof. The Company shall provide such information reasonably requested by the dealer manager or a participating broker-dealer, in order for the dealer manager or participating broker-dealer to meet its obligations to deliver written notification to Participants of the information required by
Rule 10b-10(b) promulgated under the Securities Exchange Act of 1934.

10. Termination by Participant. A Participant may terminate participation in the DRP at any time by delivering to the Company a written notice. To be effective for any Distribution, such notice must be received by the Company at least ten business days prior to the last day of the month to which the Distribution relates. Any transfer of shares by a Participant will terminate participation in the DRP with respect to the transferred shares. Upon termination of DRP participation, Distributions will be distributed to the stockholder in cash.

11. Amendment or Termination of DRP by the Company. The Company may amend or terminate the DRP for any reason upon ten days’ written notice to the Participants.

12. Liability of the Company. The Company shall not be liable for any act done in good faith, or for any good faith omission to act.

13. Governing Law. The DRP shall be governed by the laws of the State of Maryland.

C-2

Until                     , 2009 all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as soliciting dealers.

We have not authorized any dealer, salesperson or other individual to give any information or to make any representations that are not contained in this prospectus. If any such information or statements are given or made, you should not rely upon such information or representation. This prospectus does not constitute an offer to sell any securities other than those to which this prospectus relates, or an offer to sell, or a solicitation of an offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful. This prospectus speaks as of the date set forth below. You should not assume that the delivery of this prospectus or that any sale made pursuant to this prospectus implies that the information contained in this prospectus will remain fully accurate as of any time subsequent to the date of this prospectus.

TABLE OF CONTENTS

	Page
Suitability Standards	i
Prospectus Summary	1
Risk Factors	28
Special Note Regarding Forward-Looking Statements	73
Estimated Use of Proceeds	74
Management	77
Management Compensation	88
Stock Ownership	93
Conflicts of Interest	94
Investment Objectives and Policies	103
Plan of Operation	129
Prior Performance Summary	136
Federal Income Tax Considerations	147
ERISA Considerations	169
Description of Shares	174
The Operating Partnership Agreement	191
Plan of Distribution	195
Supplemental Sales Material	201
Legal Matters	201
Experts	202
Where You Can Find More Information	202
Index to Financial Statements	F-1
Appendix A — Prior Performance Tables	A-1
Appendix B — Form of Subscription Agreement	B-1
Appendix C — Distribution Reinvestment Plan	C-1

Our shares are not FDIC insured, may lose value and are not bank guaranteed. See “Risk Factors” beginning on page 28, to read about risks you should consider before buying shares of our common stock.

Maximum Offering of

82,500,000 Shares

of Common Stock

Minimum Offering of

200,000 Shares

of Common Stock

PROSPECTUS

CHADWICK SECURITIES, INC.

, 2009

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

Item 31. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses payable by Resource Real Estate Opportunity REIT, Inc. (the “Company”) in connection with the distribution of the securities being registered other than selling commissions and the dealer manager fee. All amounts are estimated except the SEC registration fee and FINRA filing fee.

Item	Amount
SEC registration fee	$	45,826
FINRA filing fee		75,500
Legal fees and expenses		2,000,000
Blue sky fees and expenses		104,000
Accounting fees and expenses		1,000,000
Sales and advertising expenses		412,500
Issuer costs regarding bona fide training and education meetings and retail seminars		150,000
Printing		2,202,750
Postage and delivery of materials		825,000
Transfer agent and escrow fees		253,750
Due diligence expenses		825,000
Telephone		107,250
Other expenses related to registration and offering of the securities		3,045,000
Total	$	11,046,576

Item 32. Sales to Special Parties

The Company’s directors and officers and (to the extent consistent with applicable laws and regulations) the employees of Resource Real Estate Opportunity Advisor, LLC and affiliated entities, business associates and others purchasing pursuant to the Company’s “friends and family” program, participating broker-dealers, their retirement plans, their representatives and the family members, IRAs and the qualified plans of their representatives will be allowed to purchase shares in the Company’s primary offering at a discount from the public offering price. The purchase price for such shares will be $9.30 per share, reflecting the fact that selling commissions in the amount of $0.70 per share will not be payable in connection with such sales. Under the terms of our friends and family program, we may offer up to 5% of the maximum aggregate primary offering, or up to 3,750,000 shares, of our common stock. The net proceeds to the Company from such sales made net of commissions will be substantially the same as the net proceeds the Company receives from other sales of share in the primary offering.

Item 33. Recent Sales of Unregistered Securities

In connection with its organization, on June 17, 2009, the Company issued 20,000 shares of its common stock to Resource Real Estate Opportunity Advisor at a purchase price of $10.00 per share for an aggregate purchase price of $200,000. The Company issued these shares in a private transaction exempt from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933.

II-1

Item 34. Indemnification of Directors and Officers

Subject to the significant conditions set forth below, the Company has included in its charter a provision limiting the liability of its directors and officers to the Company and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action.

Subject to the significant conditions set forth below, the charter also provides that the Company shall indemnify a director, officer or the advisor or any of its affiliates against any and all losses or liabilities reasonably incurred by them (other than when sued by or in right of the Company) in connection with or by reason of any act or omission performed or omitted to be performed on behalf of the Company in such capacity.

Under the Company’s charter, the Company shall not indemnify a director, the advisor or any of the advisor’s affiliates (each an “Indemnitee”) for any liability or loss suffered by an Indemnitee, nor shall it exculpate an Indemnitee, unless all of the following conditions are met: (i) an Indemnitee has 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 Indemnitee was acting on behalf of or performing services for the Company; (iii) such liability or loss was not the result of (A) negligence or misconduct by the Indemnitee, excluding an Independent Director, or (B) gross negligence or willful misconduct by an Independent Director; and (iv) such indemnification or agreement to hold harmless is recoverable only out of the Company’s net assets and not from its stockholders. Notwithstanding the foregoing, an Indemnitee shall not be indemnified by the Company for any losses, liability or expenses 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 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; and (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 Securities and Exchange Commission (“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.

The charter provides that the advancement of Company funds to an Indemnitee for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought is permissible only if (in addition to the procedures required by Maryland law) all of the following conditions are satisfied: (i) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company; (ii) the legal action is initiated by a third party who is not a common stockholder or the legal action is initiated by a common stockholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and (iii) the Indemnitee undertakes to repay the advanced funds to the Company, together with the applicable legal rate of interest thereon, if the Indemnitee is found not to be entitled to indemnification.

It is the position of the SEC that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act.

The Company will also purchase and maintain insurance on behalf of all of its directors and executive officers against liability asserted against or incurred by them in their official capacities with the Company, whether or not the Company is required or has the power to indemnify them against the same liability.

Item 35. Treatment of Proceeds from Stock Being Registered

Not applicable.

II-2

Item 36. Financial Statements and Exhibits

(a) Financial Statements. See Index to Consolidated Balance Sheet and Prior Performance Tables.

(b) Exhibits. The following exhibits are filed as part of this registration statement:

Ex.	Description
1.1	Form of Dealer Manager Agreement**
3.1	Amended and Restated Articles of Incorporation
3.2	Form of Bylaws*
4.1	Form of Subscription Agreement, included as Appendix B to prospectus
4.2	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates)**
4.3	Distribution Reinvestment Plan, included as Appendix C to prospectus
4.4	Share Redemption Program**
4.5	Escrow Agreement**
5.1	Opinion of DLA Piper LLP (US) re legality**
8.1	Opinion of DLA Piper LLP (US) re tax matters**
10.1	Advisory Agreement
10.2	Management Agreement
21.1	Subsidiaries of the Company**
23.1	Consent of DLA Piper LLP (US) (included in Exhibit 5.1)**
23.2	Consent of Grant Thornton LLP
24.1	Power of Attorney, included on signature page of the Company’s Registration Statement on Form S-11 (No. 333-160463) filed July 7, 2009

* Previously filed.

** To be filed by amendment.

Item 37. Undertakings

(a) The Registrant undertakes to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the “Act”); (ii) to reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.

(b) The Registrant undertakes (i) that, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof, (ii) that all post-effective amendments will comply with the applicable forms, rules and regulations of the SEC in effect at the time such post-effective amendments are filed, and (iii) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

II-3

(c) The Registrant undertakes that, for the purpose of determining liability under the Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(d) For the purpose of determining liability of the Registrant under the Act to any purchaser in the initial distribution of the securities, the Registrant undertakes that in a primary offering of securities pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) any preliminary prospectus or prospectus of the Registrant relating to the offering required to be filed pursuant to Rule 424, (ii) any free writing prospectus relating to the offering prepared by or on behalf of the Registrant or used or referred to by the Registrant, (iii) the portion of any other free writing prospectus relating to the offering containing material information about the Registrant or its securities provided by or on behalf of the Registrant, and (iv) any other communication that is an offer in the offering made by the Registrant to the purchaser.

(e) The Registrant undertakes to send to each stockholder, at least on an annual basis, a detailed statement of any transaction with the Advisor or its affiliates, and of fees, commissions, compensation and other benefits paid or accrued to the Advisor or its affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed.

(f) The Registrant undertakes to file a sticker supplement pursuant to Rule 424(c) under the Act during the distribution period describing each material property not identified in the prospectus at such time as there arises a reasonable probability that such property will be acquired and to consolidate all such stickers into a post-effective amendment filed at least once every three months with the information contained in such amendment provided simultaneously to the existing stockholders. Each sticker supplement will disclose all compensation and fees received by the Advisor and its affiliates in connection with any such acquisition. The post-effective amendment shall include audited financial statements meeting the requirements of Rule 3-14 of Regulation S-X only for the material properties acquired during the distribution period if such financial statements would be due under Items 2.01 and 9.01 of Form 8-K.

(g) The Registrant undertakes to file, after the end of the distribution period, a current report on Form 8-K containing the financial statements and any additional information required by Rule 3-14 of Regulation S-X, to reflect each commitment (i.e., the signing of a binding purchase agreement) made after the end of the distribution period involving the use of 10% or more (on a cumulative basis) of the net proceeds of the offering and to provide the information contained in such report to the stockholders at least once each quarter after the distribution period of the offering has ended.

(h) The Registrant undertakes to provide to the stockholders the financial statements required by Form 10-K for the first full fiscal year of operations.

(i) Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(j) The Registrant undertakes to provide to the dealer manager at the closings specified in the dealer manager agreement the following: (i) if the securities are certificated, certificates in such denominations and registered in such names as required by the dealer manager to permit prompt delivery to each purchaser or (ii) if the securities are not certificated, a written statement of the information required on certificates that is required to be delivered to stockholders to permit prompt delivery to each purchaser.

II-4

TABLE VI

(UNAUDITED)

ACQUISITIONS OF ASSETS BY PROGRAM

This Table presents summary information on properties acquired since January 1, 2006 by Prior Real Estate Programs having somewhat similar investment objectives to those of Resource Real Estate Opportunity REIT, Inc. This table provides information regarding the general type and location of the properties and the manner in which the properties were acquired. All figures are through December 31, 2008.

	Fund	Location	Type of Property	Number of Units	Total Square Feet of Units	Date of Purchase	Mortgage financing at date of purchase	Cash Down Payment	Contract price plus acquisition fee	Other cash expenditures expensed	Other cash expenditures capitalized	Total Acquisition cost
Santa Fe	R3	El Paso, TX	Multi-Family	272	186,144	1/27/2006	8,080,000	2,409,000	10,112,900	—	376,505	10,489,405
Fox Glove	R3	El Paso, TX	Multi-Family	176	163,232	1/27/2006	6,000,000	1,940,000	7,634,500	—	305,407	7,939,907
Howell Bridge	R3	Atlanta, GA	Multi-Family	256	296,008	9/22/2006	12,900,000	7,727,000	19,887,563	—	2,494,805	22,382,368
Grove at White Oak	R3	Houston, TX	Multi-Family	156	113,960	9/28/2006	9,000,000	3,038,000	11,613,125	—	900,546	12,513,671
Wind Tree	R4	El Paso, TX	Multi-Family	176	154,080	2/28/2007	7,097,500	2,493,000	9,228,194	—	1,694,386	10,922,580
Pear Tree	R4	El Paso, TX	Multi-Family	130	140,039	3/30/2007	5,480,000	1,966,000	7,089,400	—	1,715,817	8,805,217
Magnolia Villas	R5	Savannah, GA	Multi-Family	144	161,200	6/28/2007	9,040,000	3,210,000	11,680,099	—	1,830,254	13,510,353
West Wind	R5	Savannah, GA	Multi-Family	192	215,780	6/28/2007	14,880,000	5,530,000	19,218,868	—	2,635,205	21,854,073
Ryan’s Crossing	R5	El Paso, TX	Multi-Family	248	173,840	9/28/2007	8,255,000	5,734,000	13,098,121	—	2,467,082	15,565,203
Memorial Towers	R6	Houston, TX	Multi-Family	112	109,928	12/18/2007	7,400,000	2,525,000	9,573,123	—	2,264,178	11,837,301

II-5

TABLE VI

(UNAUDITED)

ACQUISITIONS OF PROPERTIES BY PROGRAM (cont’d)

	Fund	Location	Type of Property	Number of Units	Total Square Feet of Units	Date of Purchase	Mortgage financing at date of purchase	Cash Down Payment	Contract price plus acquisition fee	Other cash expenditures expensed	Other cash expenditures capitalized	Total Acquisition cost
Villas of Henderson Pass	R6	San Antonio, TX	Multi-Family	228	167,739	12/27/2007	10,800,000	3,546,000	13,803,723	—	2,305,535	16,109,258
Foxcroft	R6	Scarborough, ME	Multi-Family	104	98,800	1/29/2008	8,760,000	3,994,000	12,385,971	—	1,756,103	14,142,074
Coach Lantern	R6	Scarborough, ME	Multi-Family	90	97,860	1/29/2008	7,884,000	3,583,000	11,152,891	—	1,874,611	13,027,502
Park Hill	R6	San Antonio, TX	Multi-Family	288	202,000	2/29/2008	10,430,000	5,695,000	15,385,087	—	3,123,159	18,508,246
Tamarlane	R7	Portland, ME	Multi-Family	115	101,801	7/31/2008	9,931,000	1,020,469	12,660,300	—	1,793,869	14,454,169
Bent Oaks	R7	Austin, TX	Multi-Family	146	105,993	12/10/2008	6,120,000	1,967,311	7,935,980	—	2,780,308	10,716,288
Cape Cod	R7	San Antonio, TX	Multi-Family	212	145,168	12/10/2008	6,362,000	2,179,635	8,448,135	—	2,690,308	11,138,443
Woodhollow	R7	Austin, TX	Multi-Family	108	96,840	12/12/2008	5,240,000	1,655,325	6,787,899	—	2,012,503	8,800,402
Woodland Hills	R7	Decatur, GA	Multi-Family	228	266,142	12/19/2008	13,590,000	3,914,770	17,288,951	—	3,762,607	21,051,558

II-6

TABLE VI

(UNAUDITED)

ACQUISITION OF ASSETS (cont’d)

This Table sets forth summary information on the aggregate results of the acquisitions of real estate-related investments by Resource Capital Corp. during the three-year period ended June 30, 2009.

Resource Capital Corp.

Year	Total Number of Investments	Total Dollar Amount Invested
2007	49	$	648,431,503
2008	1		20,800,000
2009	—		—

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on the 15 day of September, 2009.

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
BY:	/s/ ALAN F. FELDMAN
	Alan F. Feldman
	Chief Executive Officer and Director

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:

Name	Title	Date
/s/ ALAN F. FELDMAN Alan F. Feldman	Chief Executive Officer and Director (Principal Executive Officer)	September 15, 2009
* Steven R. Saltzman	Chief Financial Officer and Senior Vice President (Principal Financial Officer and Principal Accounting Officer)	September 15, 2009
* Jonathan Z. Cohen	Director	September 15, 2009

* By:	/s/ ALAN F. FELDMAN
	Alan F. Feldman
	Chief Executive Officer and Director

EX-3.1

Exhibit 3.1

ARTICLES OF AMENDMENT AND RESTATEMENT

OF

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

FIRST: Resource Real Estate Opportunity REIT, Inc., a Maryland corporation, desires to amend and restate its charter as currently in effect and as hereinafter amended.

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

ARTICLE I

NAME

The name of the corporation is Resource Real Estate Opportunity REIT, Inc. (the “Corporation”).

ARTICLE II

PURPOSE

Except as provided below, the purposes for which the Corporation is formed are to engage in any lawful act or activity (including, without limitation or obligation, qualifying as a real estate investment trust under Sections 856 through 860, or any successor sections, of the Internal Revenue Code of 1986, as amended (the “Code”)), for which corporations may be organized under the MGCL and the general laws of the State of Maryland as now or hereafter in force. Notwithstanding the foregoing, for so long as the Corporation is externally advised by the Advisor, it shall not be a proper purpose of the Corporation to make any significant investment unless the Advisor has recommended that the Corporation make such investment.

ARTICLE III

PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT

The name and address of the resident agent for service of process of the Corporation in the State of Maryland is The Corporation Trust, Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202. The address of the Corporation’s principal office in the State of Maryland is 300 East Lombard Street, Baltimore, Maryland 21202. The Corporation may have such other offices and places of business within or outside the State of Maryland as the board of directors may from time to time determine.

ARTICLE IV

DEFINITIONS

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

Acquisition Expenses. Expenses including but not limited to legal fees and expenses, travel and communications expenses, cost of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses, title insurance and miscellaneous expenses related to selecting and acquiring properties, or making or investing in loans, whether or not the acquisition or investment is made.

Acquisition Fees. The total of all fees and commissions, excluding Acquisition Expenses, paid by any party to any party in connection with making or investing in loans or the purchase, development or construction of property by the Corporation. Included in the computation of such fees or commissions shall be any real estate commission, selection fee, Development Fee, Construction Fee, nonrecurring management fee, origination fees, loan fees or points or any fee of a similar nature, however designated. Excluded shall be Development Fees and Construction Fees paid to any Person not affiliated with the Sponsor in connection with the actual development and construction of a project.

Advisor. The Person responsible for directing or performing the day-to-day business affairs of the Corporation, including a Person to which an Advisor subcontracts substantially all such functions.

Advisory Agreement. The agreement between the Corporation and the Advisor pursuant to which the Advisor will direct or perform the day-to-day business affairs of the Corporation.

Advisory Agreement Termination. The term shall have the meaning as provided in Section 5.3(c)(iii) herein.

Affiliate. An Affiliate of another Person includes any of the following:

(a) any Person directly or indirectly owning, controlling or holding, with power to vote, 10% or more of the outstanding voting securities of such other Person;

(b) 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;

(c) any Person directly or indirectly controlling, controlled by or under common control with such other Person;

2

(d) any executive officer, director, trustee or general partner of such other Person; and

(e) any legal entity for which such Person acts as an executive officer, director, trustee or general partner.

Average Invested Assets. For a specified period, the average of the aggregate book value of the assets of the Corporation invested, directly or indirectly in equity interests in and loans secured by real estate, before deducting depreciation, bad debts or other non-cash reserves, computed by taking the average of such values at the end of each month during such period.

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

Capital Stock. All classes or series of stock of the Corporation, including, without limitation, Common Stock, Convertible Stock and Preferred Stock.

Change of Control. Any (i) event (including, without limitation, issue, transfer or other disposition of shares of Capital Stock or equity interests in the Operating Partnership, merger, share exchange or consolidation) after which any “person” (as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) is or becomes the “beneficial owner” (as defined in Rule 13d-3 of the Securities Exchange Act of 1934), directly or indirectly, of securities of the Corporation or the Operating Partnership representing greater than 50% of the combined voting power of the Corporation’s or the Operating Partnership’s then outstanding securities, respectively; provided, that, a Change of Control shall not be deemed to occur as a result of any widely distributed public offering of Common Stock or (ii) direct or indirect sale, transfer, conveyance or other disposition (other than pursuant to clause (i)), in one or a series of related transactions, of all or substantially all of the properties or assets of the Corporation or the Operating Partnership, taken as a whole, to any “person” (as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934).

Closing Price. On any date, the last sale price for any class or series of the Corporation’s shares of Capital Stock, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such shares, in either case as reported in the principal consolidated transaction reporting system with respect to shares listed or admitted to trading on the principal national securities exchange on which such Capital Stock is listed or admitted to trading or, if such shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the principal automated quotation system or other quotation service that may then be in use or, if such shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such shares selected by the board of directors.

3

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

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

Common Stockholders. The registered holders of Common Stock.

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

Conflicts Committee. The term shall have the meaning as provided in Section 10.1 herein.

Construction Fee. 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 Purchase Price. The amount actually paid or allocated in respect of the purchase, development, construction or improvement of an asset exclusive of Acquisition Fees and Acquisition Expenses.

Convertible Stock. The term shall have the meaning as provided in Section 5.1 herein.

Conversion Product. The lesser of (i) the product of 0.25 times the amount, if any, by which (A) the sum of the Corporation Value plus total Distributions paid to Common Stockholders through the date of the Triggering Event, exceeds (B) the sum of Invested Capital plus a Stockholders’ Return of 10% as of the date of the Triggering Event or (ii) the product of 0.15 times the amount, if any, by which (A) the sum of the Corporation Value plus total Distributions paid to Common Stockholders through the date of the Triggering Event, exceeds (B) the sum of Invested Capital plus a Stockholders’ Return of 6% as of the date of the Triggering Event.

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

Corporation Value. The actual value of the Corporation as a going concern based on the difference between (a) the actual value of all of its assets as determined in good faith by the board of directors, including a majority of the Independent Directors, and (b) all of its liabilities as set forth on its balance sheet for the period ended immediately prior to the determination date, provided that (i) if the Corporation Value is being determined in connection with a Change of Control that establishes the Corporation’s net worth, then the Corporation Value shall be the net worth established thereby and (ii) if the Corporation Value is being determined in connection with a Listing, then the Corporation Value shall be equal to the number of outstanding shares of Common Stock multiplied by the Closing Price of a single share of Common Stock averaged over a period of 30 trading days during which the shares of Common Stock are listed or quoted for trading after the date of Listing. For purposes hereof, a “trading day” shall be any day on which

4

the NYSE is open for trading, whether or not the shares of Common Stock are then listed on the NYSE and whether or not there is an actual trade of shares of Common Stock on any such day. If the holder of shares of Convertible Stock disagrees as to the Corporation Value as determined by the board of directors, then each of the holder of shares of Convertible Stock and the Corporation shall name one appraiser and the two named appraisers shall promptly agree in good faith to the appointment of one other appraiser whose determination of the Corporation Value shall be final and binding on the parties as to the Corporation Value. The cost of such appraisal shall be split evenly between the Corporation and the holder of shares of Convertible Stock.

Development Fee. A fee for the packaging of the Corporation’s property, including the negotiation and approval of plans and any assistance in obtaining zoning and necessary variances and financing for a specific property, either initially or at a later date.

Distributions. Any dividends or other distributions of money or other property by the Corporation to Common Stockholders, including distributions that may constitute a return of capital for federal income tax purposes but excluding distributions that constitute the redemption of any shares of Common Stock and excluding distributions on any shares of Common Stock before their redemption.

Independent Directors. The directors of the Corporation who are not associated and have not been associated within the last two years, directly or indirectly, with the Sponsor or Advisor of the Corporation.

(a) A director shall be deemed to be associated with the Sponsor or Advisor if he or she:

(i) owns an interest in the Sponsor, Advisor or any of their Affiliates;

(ii) is employed by the Sponsor, Advisor or any of their Affiliates;

(iii) is an officer or director of the Sponsor, Advisor or any of their Affiliates;

(iv) performs services, other than as a director, for the Corporation;

(v) is a director for more than three REITs organized by the Sponsor or advised by the Advisor; or

(vi) has any material business or professional relationship with the Sponsor, Advisor or any of their Affiliates.

(b) Consistent with (a)(v) above, serving as an independent director of or receiving independent director fees from or owning an interest in a REIT or other real estate program organized by the Sponsor or advised or managed by the Advisor or its Affiliates shall not, by itself, cause a director to be deemed associated with the Sponsor or the Advisor.

5

(c) For purposes of determining whether or not a business or professional relationship is material pursuant to (a)(vi) above, the annual gross revenue derived by the director from the Sponsor, Advisor and their Affiliates (excluding fees for serving as an independent director of the Corporation or other REIT or real estate program organized or advised or managed by the Advisor or its Affiliates) shall be deemed material per se if it exceeds 5% of the director’s:

(i) annual gross revenue, derived from all sources, during either of the last two years; or

(ii) net worth, on a fair market value basis.

(d) An indirect relationship shall include circumstances in which a director’s spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in-law or brother- or sister-in-law is or has been associated with the Sponsor, Advisor any of their Affiliates or the Corporation.

Independent Expert. A Person (selected by the Conflicts Committee) with no material current or prior business or personal relationship with the Advisor or a director who is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Corporation.

Initial Investment. An investment of $200,000 by the Advisor or an Affiliate thereof to acquire an equity interest in the Corporation.

Initial Public Offering. The initial public offering of Common Stock registered on Registration Statement No. 333-160463 on Form S-11.

Invested Capital. The amount calculated by multiplying the total number of shares of Common Stock issued by the Corporation by the price paid for each share of Common Stock, reduced by an amount equal to the total number of shares of Common Stock repurchased from Common Stockholders by the Corporation (pursuant to the Corporation’s plan to repurchase such shares of Common Stock) multiplied by the price paid for each such redeemed share of Common Stock when initially purchased from the Corporation.

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

Listing. The commencement of trading of the Common Stock on any securities exchange registered as a national securities exchange under Section 6 of the Securities Exchange Act of 1934. A Listing shall also be deemed to occur on the effective date of a merger in which the consideration received by the Common Stockholders is securities of another issuer that are listed on any securities exchange registered as a national securities exchange under Section 6 of the Securities Exchange Act of 1934.

MGCL. The Maryland General Corporation Law, as amended from time to time.

6

NASAA REIT Guidelines. The Statement of Policy Regarding Real Estate Investment Trusts as revised and adopted by the North American Securities Administrators Association on May 7, 2007.

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

Net Income. For any period, total revenues applicable to such period less the expenses applicable to such period other than additions to reserves for depreciation or bad debts or other similar non-cash reserves. If the Advisor receives an incentive fee, Net Income, for purposes of calculating Total Operating Expenses in Section 8.8, shall exclude the gain from the sale of the Corporation’s assets.

NYSE. The New York Stock Exchange.

Operating Partnership. Resource Real Estate Opportunity OP, LP or such other entity through which the Corporation conducts substantially all of its business.

Organization and Offering Expenses. All expenses incurred by and to be paid from the assets of the Corporation in connection with or preparing the Corporation for registration of and subsequently offering and distributing its shares to the public, including, but not limited to, total underwriting and brokerage discounts and commissions (including fees of the underwriters’ attorneys); any expense allowance granted by the Corporation to the underwriter or any reimbursement of expenses of the underwriter by the Corporation; 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.

Person. An individual, corporation, association, business trust, estate, trust, partnership, limited liability company or other legal entity.

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

Prorated Term. The quotient, the numerator of which is the number of days from and including the effective date of the Initial Public Offering through and including the date of an Advisory Agreement Termination and the denominator of which is the number of days elapsed from and including the effective date of the Initial Public Offering through and including the date of the Triggering Event.

Prospectus. The term shall have the meaning as defined in Section 2(10) of the Securities Act of 1933, as amended (the “Securities Act”), including a preliminary prospectus, an offering circular as described in Rule 253 of the General Rules and Regulations under the Securities Act or, in the case of an intrastate offering, any

7

document by whatever name known utilized for the purpose of offering and selling securities to the public.

REIT. Real estate investment trust under Sections 856 through 860 of the Code.

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

Roll-Up Transaction. A transaction involving the acquisition, merger, conversion or consolidation, either directly or indirectly, of the Corporation and the issuance of securities of a Roll-Up Entity to the Common Stockholders.

Such term does not include:

(a) a transaction involving securities of the Corporation that have been listed on a national securities exchange for at least 12 months; or

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

(i) the voting rights of Common Stockholders;

(ii) the term of existence of the Corporation;

(iii) Sponsor or Advisor compensation; or

(iv) the Corporation’s investment objectives.

SDAT. The State Department of Assessments and Taxation of Maryland.

Sponsor. Any Person directly or indirectly instrumental in organizing, wholly or in part, the Corporation or any Person who will control, manage or participate in the management of the Corporation, and any Affiliate of such Person. Not included is any Person whose only relationship with the Corporation is as that of an independent property manager of the Corporation’s assets and whose only compensation is as such. Sponsor does not include wholly independent third parties such as attorneys, accountants and underwriters whose only compensation is for professional services. A Person may also be deemed a Sponsor of the Corporation (as to be determined by the Conflicts Committee) by:

(a) taking the initiative, directly or indirectly, in founding or organizing the business or enterprise of the Corporation, either alone or in conjunction with one or more other Persons;

(b) receiving a material participation in the Corporation in connection with the founding or organizing of the business of the Corporation, in consideration of services or property, or both services and property;

8

(c) having a substantial number of relationships and contacts with the Corporation;

(d) possessing significant rights to control the Corporation’s properties;

(e) receiving fees for providing services to the Corporation which are paid on a basis that is not customary in the industry; or

(f) providing goods or services to the Corporation on a basis which was not negotiated at arms length with the Corporation.

Stockholders’ Return. As of any date, an aggregate amount equal to a cumulative, non-compounded, annual return on Invested Capital (calculated like simple interest on a daily basis based on a 365-day year); provided, however, that for purposes of calculating the Stockholders’ Return, Invested Capital shall be determined for each day during the period for which the Stockholders’ Return is being calculated net of Distributions attributable to net proceeds from the sale, transfer or other disposition of Company assets but (consistent with the definition of Invested Capital) shall always exclude an amount equal to the total number of shares of Common Stock repurchased from Common Stockholders by the Corporation (pursuant to any Corporation plan to repurchase shares of Common Stock) multiplied by the price paid for each such redeemed share of Common Stock when initially purchased from the Corporation.

Termination Date. The date of termination of the Advisory Agreement.

Total Operating Expenses. All expenses paid or incurred by the Corporation, as determined under generally accepted accounting principles, that are in any way related to the operation of the Corporation or to Corporation business, including advisory fees, but excluding (a) the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and stock exchange listing of the Capital Stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) incentive fees paid in compliance with Section 8.6, notwithstanding the next succeeding clause (f); and (f) 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, mortgage loans or other property (other than commissions on the sale of assets other than real property), including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property.

Triggering Event. The term shall have the meaning as provided in Section 5.3(c)(i) herein.

Unimproved Real Property. The real property of the Corporation that has the following three characteristics:

(a) such property was not acquired for the purpose of producing rental or other operating income;

9

(b) there is no development or construction in progress on such land; and

(c) no development or construction on such land is planned in good faith to commence on such land within one year.

ARTICLE V

STOCK

Section 5.1. Authorized Shares. The Corporation has authority to issue 1,000,000,000 shares of common stock, $0.01 par value per share (“Common Stock”), 50,000 shares of convertible stock, $0.01 par value per share (“Convertible Stock”), and 10,000,000 shares of preferred stock, $0.01 par value per share (“Preferred Stock”). The aggregate par value of all authorized shares of Capital Stock having par value is $10,100,500. The board of directors, with the approval of a majority of the directors and without any action by the stockholders of the Corporation, may amend the charter from time to time to increase or decrease the aggregate number of shares of Capital Stock or the number of shares of Capital Stock of any class or series that the Corporation has the authority to issue.

Section 5.2. Common Stock. Subject to the provisions of Article VI, each share of Common Stock shall entitle the holder thereof to one vote. The board of directors may reclassify any unissued shares of Common Stock from time to time in one or more classes or series of Capital Stock.

Section 5.3. Convertible Stock.

(a) DISTRIBUTION RIGHTS. The holders of the outstanding shares of Convertible Stock shall not be entitled to receive dividends or other distributions on the shares of Convertible Stock.

(b) VOTING RIGHTS.

(i) Except for the voting rights expressly conferred by this Section 5.3(b), the holders of the outstanding shares of Convertible Stock shall not be entitled (1) to vote on any matter, or (2) to receive notice of, or to participate in, any meeting of the Corporation’s stockholders at which they are not entitled to vote.

(ii) The affirmative vote of the holders of at least two-thirds of the outstanding shares of Convertible Stock, voting together as a single class for such purposes with each share entitled to one vote, shall be required to (1) adopt any amendment, alteration or repeal of any provision of the Corporation’s charter that materially and adversely changes the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms and conditions of redemption of the Convertible Stock (it being understood that an increase in the number of directors of the Corporation is not such a material and adverse

10

change) and (2) effect or validate a consolidation with or merger of the Corporation into another entity, or a consolidation with or merger of another entity into the Corporation, unless in each such case each share of Convertible Stock (A) shall remain outstanding without a material and adverse change to its terms and rights or (B) shall be converted into or exchanged for shares of stock or other ownership interest of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption thereof identical to that of a share of Convertible Stock (except for changes that do not materially and adversely affect the holders of the shares of Convertible Stock); provided, however, that this vote shall be in addition to any other vote or consent of the Corporation’s stockholders required by law or by the Corporation’s charter.

(c) CONVERSION.

(i) Each outstanding share of Convertible Stock shall become convertible into a number of shares of Common Stock as and at the time set forth in paragraph (ii) of this Section 5.3(c), automatically and without any further action required, upon the occurrence of the first to occur of any of the following events (the “Triggering Event”): (1) the date when the Corporation shall have paid total Distributions in an amount equal to or in excess of the sum of Invested Capital and a Stockholders’ Return of 10%; or (2) Listing; provided, however, that the Convertible Stock originally issued to the Advisor shall not become convertible into Common Stock in the event that the Corporation’s Advisory Agreement with Resource Real Estate Opportunity Advisor, LLC has been terminated or has expired without renewal due to a material breach by Resource Real Estate Opportunity Advisor, LLC.

(ii) If the Triggering Event occurs prior to an Advisory Agreement Termination (as defined below), each share of Convertible Stock shall be converted into a number of shares of Common Stock equal to 1/50,000 of the result of (1) the Conversion Product divided by (2) the quotient of the Corporation Value divided by the number of outstanding shares of Common Stock on the date of the conversion. Such conversion, in the case of conversion upon Listing, will not occur until the 31st trading day after the date of the Listing. If the Triggering Event occurs after an Advisory Agreement Termination, then each share of Convertible Stock originally issued to the Advisor shall be converted into that number of shares of Common Stock as set forth above multiplied by the Prorated Term.

(iii) An “Advisory Agreement Termination” shall mean a termination or expiration without renewal (except to the extent of a termination or expiration with the Corporation followed by the adoption of the same or substantially similar Advisory Agreement with a successor, whether by merger, consolidation, sale of all or substantially all of the assets of the Corporation, or otherwise) of the Corporation’s Advisory Agreement with Resource Real Estate Opportunity Advisor, LLC for any reason except for a termination or expiration without renewal due to a material breach by Resource Real Estate Opportunity Advisor, LLC of the Advisory Agreement.

11

(iv) If, in the good faith judgment of the board of directors, full conversion of the shares of Convertible Stock would jeopardize the Corporation’s status as a REIT, then only such number of shares of Convertible Stock (or fraction thereof) shall be converted into shares of Common Stock such that the Corporation’s REIT status is not jeopardized. Each remaining share of Convertible Stock shall convert as provided herein when the board of directors determines that conversion of such share of Convertible Stock would not jeopardize the Corporation’s qualification as a REIT. The board of directors shall consider whether it can make this determination at least once per quarter following a Triggering Event.

(v) As promptly as practicable after a Triggering Event, the Corporation shall issue and deliver to each holder of shares of Convertible Stock a certificate or certificates representing the number of shares of Common Stock into which his, her or its shares of Convertible Stock were converted (or shall cause the issuance of the shares of Common Stock to be reflected in the Corporation’s stock ledger, if the shares of Common Stock are uncertificated). The person in whose name the shares of Common Stock are issued shall be deemed to have become a Common Stockholder of record on the date of conversion.

(vi) The issuance of shares of Common Stock on conversion of outstanding shares of Convertible Stock shall be made by the Corporation without charge for expenses or for any tax in respect of the issuance of the shares of Common Stock.

(vii) In the event of any reclassification or recapitalization of the outstanding shares of Common Stock (except a change in par value, or from no par value to par value, or subdivision or other split or combination of shares), or in case of any consolidation or merger to which the Corporation is a party, except a merger in which the Corporation is the surviving corporation and which does not result in any reclassification or recapitalization, the Corporation or the successor or purchasing business entity shall provide that the holder of each share of Convertible Stock then outstanding shall thereafter continue to have the right, with as nearly the same economic rights and effects as possible, to convert, upon a Triggering Event, the shares of Convertible Stock into the kind and amount of stock and other securities and property received by the Common Stockholders of the Corporation in connection with the reclassification, recapitalization, consolidation or merger. The provisions of this paragraph (vii) of this Section 5.3(c) shall similarly apply to successive reclassifications, recapitalizations, consolidations or mergers.

(viii) Shares of Common Stock issued on conversion of shares of Convertible Stock shall be issued as fully paid shares and shall be nonassessable by the Corporation. The Corporation shall, at all times, reserve and keep available, for the purpose of effecting the conversion of the outstanding shares of Convertible Stock, the number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of all of the outstanding shares of Convertible Stock.

(ix) Shares of Convertible Stock converted as provided herein shall become authorized but unissued shares Common Stock.

12

(d) EXCEPTED HOLDER LIMIT FOR HOLDER OF CONVERTIBLE STOCK. For purposes of Article VI hereof, if the Advisor is the holder of shares of Convertible Stock, the Advisor shall have an Excepted Holder Limit (as such term is defined in Article VI hereof) of a 20% interest (in value or number of as-converted shares, whichever is more restrictive) of the aggregate of the outstanding shares of Common Stock of the Corporation, subject to adjustment pursuant to Section 6.2.7, including any adjustment approved by the board of directors.

Section 5.4. Preferred Stock. The board of directors may classify any unissued shares of Preferred Stock and reclassify any previously classified but unissued shares of Preferred Stock of any series from time to time in one or more series of Capital Stock.

Section 5.5. Classified or Reclassified Shares. Prior to the issuance of classified or reclassified shares of any class or series, the board of directors by resolution shall: (a) designate that class or series to distinguish it from all other classes and series of Capital Stock of the Corporation; (b) specify the number of shares to be included in the class or series; (c) set or change, subject to the provisions of Article VI and subject to the express terms of any class or series of Capital Stock of the Corporation outstanding at the time, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each class or series; and (d) cause the Corporation to file articles supplementary with the SDAT. Any of the terms of any class or series of Capital Stock set or changed pursuant to clause (c) of this Section 5.5 may be made dependent upon facts or events ascertainable outside the charter (including determinations by the board of directors or other facts or events within the control of the Corporation) and may vary among holders thereof, provided that the manner in which such facts, events or variations shall operate upon the terms of such class or series of Capital Stock is clearly and expressly set forth in the articles supplementary filed with the SDAT.

Section 5.6. Charter and Bylaws. All Persons who shall acquire Capital Stock in the Corporation shall acquire the same subject to the provisions of the charter and the bylaws.

Section 5.7. No Preemptive Rights. No holder of shares of Capital Stock of any class shall have any preemptive right to subscribe to or purchase any additional shares of any class, or any bonds or convertible securities of any nature; provided, however, that the board of directors may, in authorizing the issuance of shares of Capital Stock of any class, confer any preemptive right that the board or directors may deem advisable in connection with such issuance.

Section 5.8. Issuance of Shares Without Certificates. The board of directors may authorize the issuance of shares of Capital Stock without certificates. The Corporation shall continue to treat the holder of uncertificated Capital Stock registered on its stock ledger as the owner of the shares noted therein until the new owner delivers a properly executed form provided by the Corporation for that purpose. With respect to any shares of Capital Stock that are issued without certificates, information regarding restrictions on the transferability of such shares that would otherwise be required by the MGCL to

13

appear on the share certificates will instead be furnished to stockholders upon request and without charge.

Section 5.9. Suitability and Minimum Investment of Stockholders. After the effective date of the Initial Public Offering and until the Common Stock is Listed, the following provisions shall apply to purchases of shares of Common Stock:

(a) To purchase Common Stock, the purchaser must represent to the Corporation:

(i) that such purchaser (or, in the case of sales to fiduciary accounts, that the beneficiary, the fiduciary account or the grantor or donor who directly or indirectly supplies the funds to purchase the shares if the grantor or donor is the fiduciary) has a minimum annual gross income of $70,000 and a net worth (excluding home, home furnishings and automobiles) of not less than $70,000; or

(ii) that such purchaser (or, in the case of sales to fiduciary accounts, that the beneficiary, the fiduciary account or the grantor or donor who directly or indirectly supplies the funds to purchase the shares if the grantor or donor is the fiduciary) has a net worth (excluding home, home furnishings and automobiles) of not less than $250,000.

(b) The Sponsor, each Person selling shares on behalf of the Sponsor or the Corporation, and each broker or dealer or registered investment adviser recommending the purchase of shares to a customer shall make every reasonable effort to determine that the purchase of shares is a suitable and appropriate investment for each Common Stockholder. In making this determination, the Sponsor, each Person selling shares on behalf of the Sponsor or the Corporation, or each broker or dealer or registered investment adviser recommending the purchase of shares to a customer shall ascertain that the prospective Common Stockholder: (i) meets the minimum income and net worth standards set forth in Section 5.9; (ii) can reasonably benefit from the Corporation based on the prospective stockholder’s overall investment objectives and portfolio structure; (iii) is able to bear the economic risk of the investment based on the prospective stockholder’s overall financial situation; and (iv) has apparent understanding of (1) the fundamental risks of the investment; (2) the risk that the stockholder may lose the entire investment; (3) the lack of liquidity of the shares; (4) the restrictions on transferability of the shares; (5) the background and qualifications of the Sponsor or the Advisor; and (6) the tax consequences of the investment. The Sponsor, each Person selling shares on behalf of the Sponsor or the Corporation, or each broker or dealer or registered investment adviser recommending the purchase of shares to a customer shall make this determination on the basis of information it has obtained from a prospective stockholder, including information indirectly obtained from a prospective stockholder through such stockholder’s investment adviser, financial advisor or bank acting as a fiduciary. Relevant information for this purpose will include at least the age, investment objectives, investment experience, income, net worth, financial situation and other investments of the prospective stockholder, as well as any other pertinent factors. The Sponsor, each Person selling shares on behalf of the Sponsor or the Corporation, or each broker or dealer or

14

registered investment adviser recommending the purchase of shares to a customer shall cause to be maintained for at least six years records of the information used to determine that an investment in shares is suitable and appropriate for a Common Stockholder.

The Sponsor and each Person selling shares on behalf of the Sponsor or the Corporation may each rely upon (i) the Person directly recommending the purchase of shares to a customer if that Person is a FINRA member broker or dealer that has entered into a selling agreement with the Sponsor or the Corporation or their Affiliates or (ii) a registered investment adviser that has entered into an agreement with the Sponsor or the Corporation or their Affiliates to make suitability determinations with respect to the customers of the registered investment adviser who may purchase shares.

(c) Each purchase of shares of Common Stock shall comply with the requirements regarding minimum initial and subsequent cash investment amounts set forth in any then effective registration statement of the Corporation as such registration statement has been amended or supplemented as of the date of such purchase or any higher or lower applicable state requirements with respect to minimum initial and subsequent cash investment amounts in effect as of the date of the issuance or transfer.

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

Section 5.11. Distributions. Only the board of directors may authorize payments to stockholders in connection with their stock. The decision to authorize a distribution, like all other board decisions, shall be made in good faith, in a manner reasonably believed to be in the best interest of the corporation and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Until the board of directors determines that it is no longer in the best interest of the Corporation to qualify as a REIT, the board of directors are to authorize dividends to the extent necessary to preserve the status of the Corporation as a REIT.

Distributions in kind shall not be permitted, except for distributions of readily marketable securities, distributions of beneficial interests in a liquidating trust established for the dissolution of the Corporation and the liquidation of its assets in accordance with the terms of the charter or distributions that meet all of the following conditions: (a) the board of directors advises each Common Stockholder of the risks associated with direct ownership of the property, (b) the board of directors offers each Common Stockholder the election of receiving such in-kind distributions and (c) in-kind distributions are made only to those Common Stockholders who accept such offer.

15

Section 5.12. Actions Required if Common Stock Not Listed. The Company shall consider Listing its Common Stock or liquidating on or before the sixth anniversary of the termination of the Company’s Initial Public Offering. In the event that the process of Listing or the orderly liquidation and sale of the Company’s assets has not begun before the sixth anniversary of the termination of the Company’s Initial Public Offering as set forth above (unless a majority of the board of directors and a majority of the Independent Directors shall approve otherwise and set a future date for such Listing or the Company’s liquidation), then upon receipt by the Secretary of the Company of written requests from Stockholders holding ten percent or more of the outstanding shares of Common Stock (the “Proxy Request”) directing that the Company formally proxy the Stockholders holding shares of Capital Stock entitled to vote thereon to determine whether the Company should be dissolved (the “Proxy to Liquidate”), the Company shall send a Proxy to Liquidate to each Stockholder holding shares of Capital Stock entitled to vote thereon within 60 days of receipt of the Proxy Request, or as soon as reasonably practicable thereafter following the receipt of independent appraisals of the Company’s assets, which the Company shall obtain as part of this proxy process, and the filing with and review of such Proxy to Liquidate by the Securities and Exchange Commission (the “SEC”), if the Company’s securities are registered with the SEC under the Exchange Act of 1934. In response to a Proxy Request, the Company shall not be required to send Proxies to Liquidate to Stockholders holding shares of Capital Stock entitled to vote thereon more frequently than once during every two-year period. To ensure that Stockholders are adequately informed when casting their votes, the Proxy to Liquidate furnished to each Stockholder holding shares of Capital Stock entitled to vote thereon shall include financial information setting forth per share pro forma tax and financial projections that assume that all of the Company’s assets will be sold immediately at prices consistent with their appraised values, or such other information as the Company deems appropriate and informative, provided in all such cases that the furnishing of such information to Stockholders shall not contravene applicable law or applicable rules and regulations of the SEC regarding the solicitation of proxies, if such rules are applicable. The Proxy to Liquidate shall contain a 45-day voting deadline or set a meeting of the Stockholders holding shares of Capital Stock entitled to vote thereon no earlier than 45 days after notice thereof, and the actual voting results shall be tabulated by the Company’s independent accountants or an independent agent, who will receive the votes directly from the Stockholders holding shares of Capital Stock entitled to vote thereon. The Company shall disclose the complete voting results for the Proxy to Liquidate in the Company’s next annual or quarterly report sent to the Stockholders for the period following the date on which voting was completed. If a majority vote of the Stockholders holding shares of Capital Stock entitled to vote thereon is cast in favor of the dissolution of the Company, the Company shall immediately undertake an orderly liquidation and sale of the Company’s assets and will distribute any net sale proceeds therefrom to Stockholders, following which the Company shall terminate and dissolve. The assets of the Company shall be fully liquidated within 30 months from the close of the voting deadline applicable to the Proxy to Liquidate. Under no circumstances, however, shall the board of directors direct the Operating Partnership to make distributions “in kind” of any assets to the Stockholders under any dissolution conducted pursuant to this Section.

16

In the event that Listing occurs on or before such date, the Company shall continue perpetually unless dissolved pursuant to the provisions contained herein or pursuant to any applicable provision of the MGCL.

ARTICLE VI

RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES

Section 6.1. Definitions. As used in this Article VI, the following terms shall have the following meanings:

Aggregate Stock Ownership Limit. 9.8% in value of the aggregate of the outstanding shares of Capital Stock. The value of the outstanding shares of Capital Stock shall be determined by the board of directors in good faith, which determination shall be conclusive for all purposes hereof. The Aggregate Stock Ownership Limit shall be applicable beginning on June 30, 2010.

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

Charitable Beneficiary. One or more beneficiaries of the Trust as determined pursuant to Section 6.3.6, provided that each such organization must be described in Section 501(c)(3) of the Code and contributions to each such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

Common Stock Ownership Limit. 9.8% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of Common Stock of the Corporation. The number and value of outstanding shares of Common Stock of the Corporation shall be determined by the board of directors in good faith, which determination shall be conclusive for all purposes hereof. The Common Stock Ownership Limit shall be applicable beginning on June 30, 2010.

Constructive Ownership. Ownership of Capital Stock by a Person, whether the interest in the shares of Capital Stock is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Owns,” “Constructively Owning” and “Constructively Owned” shall have the correlative meanings.

Excepted Holder. A stockholder of the Corporation for whom an Excepted Holder Limit is created by this charter or by the board of directors pursuant to Section 6.2.7.

17

Excepted Holder Limit. The percentage limit established by the board of directors pursuant to Section 6.2.7 provided that the affected Excepted Holder agrees to comply with the requirements established by the board of directors pursuant to Section 6.2.7, and subject to adjustment pursuant to Section 6.2.8.

Initial Date. The date upon which the charter containing this Article VI is filed with the SDAT.

Market Price. With respect to any class or series of outstanding shares of Capital Stock, the Closing Price for such Capital Stock on such date, or, in the event that no Closing Price is available for such Capital Stock, the fair market value of the Capital Stock, as determined in good faith by the board of directors.

Prohibited Owner. With respect to any purported Transfer, any Person who but for the provisions of Section 6.2.1 would Beneficially Own or Constructively Own shares of Capital Stock and, if appropriate in the context, shall also mean any Person who would have been the record owner of the shares that the Prohibited Owner would have so owned.

Restriction Termination Date. The first day on which the Corporation determines pursuant to Section 7.7 of the charter that it is no longer in the best interests of the Corporation to attempt to, or continue to, qualify as a REIT or that compliance with the restrictions and limitations on Beneficial Ownership, Constructive Ownership and Transfers of shares of Capital Stock set forth herein is no longer required in order for the Corporation to qualify as a REIT.

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

Trust. Any trust provided for in Section 6.3.1.

Trustee. The Person unaffiliated with the Corporation and a Prohibited Owner that is appointed by the Corporation to serve as trustee of the Trust.

Section 6.2. Capital Stock.

Section 6.2.1. Ownership Limitations. Beginning on June 30, 2010 and prior to the Restriction Termination Date:

18

(a) Basic Restrictions.

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

(ii) No Person shall Beneficially Own or Constructively Own shares of Capital Stock to the extent that such Beneficial Ownership or Constructive Ownership of Capital Stock would result in the Corporation (1) being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or (2) otherwise failing to qualify as a REIT (including, but not limited to, Beneficial Ownership or Constructive Ownership that would result in the Corporation owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Corporation from such tenant would cause the Corporation to fail to satisfy any of the gross income requirements of Section 856(c) of the Code); provided, however, that this Section 6.2.1(a)(ii)(1) shall not apply to the Corporation’s first taxable year for which a REIT election is made.

(iii) Notwithstanding any other provisions contained herein, any Transfer of shares of Capital Stock (whether or not such Transfer is the result of a transaction entered into through the facilities of any national securities exchange or automated inter-dealer quotation system) that, if effective, would result in the Capital Stock being Beneficially Owned by less than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio, and the intended transferee shall acquire no rights in such shares of Capital Stock; provided, however, that (1) this Section 6.2.1(a)(iii) shall not apply to a Transfer of shares of Capital Stock occurring in the Corporation’s first taxable year for which a REIT election is made and (2) the board of directors may waive this Section 6.2.1(a)(iii) if, in the opinion of the board of directors, such Transfer would not adversely affect the Corporation’s ability to qualify as a REIT.

(b) Transfer in Trust. If any Transfer of shares of Capital Stock (whether or not such Transfer is the result of a transaction entered into through the facilities of any national securities exchange or automated inter-dealer quotation system) occurs that, if effective, would result in any Person Beneficially Owning or Constructively Owning shares of Capital Stock in violation of Section 6.2.1(a)(i) or Section 6.2.1(a)(ii),

(i) then that number of shares of Capital Stock the Beneficial Ownership or Constructive Ownership of which otherwise would cause such Person to violate Section 6.2.1(a)(i) or Section 6.2.1(a)(ii) (rounded to the nearest whole share) shall be automatically transferred to a Trust for the benefit of a Charitable Beneficiary, as described in Section 6.3, effective as of the close of business on the Business Day prior to

19

the date of such Transfer and such Person shall acquire no rights in such shares; provided, however,

(ii) if the transfer to the Trust described in clause (i) of this sentence would not be effective for any reason to prevent the violation of Section 6.2.1(a)(i) or Section 6.2.1(a)(ii), then the Transfer of that number of shares of Capital Stock that otherwise would cause any Person to violate Section 6.2.1(a)(i) or Section 6.2.1(a)(ii) shall be void ab initio and the intended transferee shall acquire no rights in such shares of Capital Stock.

Section 6.2.2. Remedies for Breach. If the board of directors shall at any time determine in good faith that a Transfer or other event has taken place that results in a violation of Section 6.2.1(a) or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any shares of Capital Stock in violation of Section 6.2.1(a) (whether or not such violation is intended), the board of directors or a committee thereof shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, without limitation, causing the Corporation to redeem shares, refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings to enjoin such Transfer or other event; provided, however, that any Transfers or attempted Transfers or other events in violation of Section 6.2.1(a) shall automatically result in the transfer to the Trust described above and, where applicable, such Transfer (or other event) shall be void ab initio as provided above irrespective of any action (or non-action) by the board of directors.

Section 6.2.3. Notice of Restricted Transfer. Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of shares of Capital Stock that will or may violate Section 6.2.1(a) or any Person who would have owned shares of Capital Stock that resulted in a transfer to the Trust pursuant to the provisions of Section 6.2.1(b) shall immediately give written notice to the Corporation of such event or, in the case of such a proposed or attempted transaction, give at least 15 days prior written notice and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer on the Corporation’s status as a REIT.

Section 6.2.4. Owners Required to Provide Information. Prior to the Restriction Termination Date:

(a) every owner of 5% or more (or such higher percentage as required by the Code or the Treasury Regulations promulgated thereunder) of the outstanding shares of Capital Stock, within 30 days after the end of each taxable year, shall give written notice to the Corporation stating the name and address of such owner, the number of shares of Capital Stock and other shares of the Capital Stock Beneficially Owned and a description of the manner in which such shares are held. Each such owner shall provide to the Corporation such additional information as the Corporation may request in order to determine the effect, if any, of such Beneficial Ownership on the Corporation’s status as a REIT and to ensure compliance with the Aggregate Stock Ownership Limit.

20

(b) each Person who is a Beneficial Owner or Constructive Owner of Capital Stock and each Person (including the stockholder of record) who is holding Capital Stock for a Beneficial Owner or Constructive Owner shall provide to the Corporation such information as the Corporation may request, in good faith, in order to determine the Corporation’s status as a REIT and to comply with requirements of any taxing authority or governmental authority or to determine such compliance.

Section 6.2.5. Remedies Not Limited. Subject to Section 7.7, nothing contained in this Section 6.2 shall limit the authority of the board of directors to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its stockholders in preserving the Corporation’s status as a REIT.

Section 6.2.6. Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Section 6.2, Section 6.3 or any definition contained in Section 6.1, the board of directors shall have the power to determine the application of the provisions of this Section 6.2 or Section 6.3 with respect to any situation based on the facts known to it. In the event Section 6.2 or Section 6.3 requires an action by the board of directors and the charter fails to provide specific guidance with respect to such action, the board of directors shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Sections 6.1, 6.2 or 6.3.

Section 6.2.7. Exceptions.

(a) Subject to Section 6.2.1(a)(ii), the board of directors, in its sole discretion, may exempt a Person from the Aggregate Stock Ownership Limit and the Common Stock Ownership Limit, as the case may be, and may establish or increase an Excepted Holder Limit for such Person if:

(i) the board of directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no Person’s Beneficial Ownership or Constructive Ownership of such shares of Capital Stock will violate Section 6.2.1(a)(ii);

(ii) such Person does not and represents that it will not own, actually or Constructively, an interest in a tenant of the Corporation (or a tenant of any entity owned or controlled by the Corporation) that would cause the Corporation to own, actually or Constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant and the board of directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain this fact (for this purpose, a tenant from whom the Corporation (or an entity owned or controlled by the Corporation) derives (and is expected to continue to derive) a sufficiently small amount of revenue such that, in the opinion of the board of directors, rent from such tenant would not adversely affect the Corporation’s ability to qualify as a REIT shall not be treated as a tenant of the Corporation); and

(iii) such Person agrees that any violation or attempted violation of such representations or undertakings (or other action which is contrary to the restrictions

21

contained in Sections 6.2.1 through 6.2.6) will result in such shares of Capital Stock being automatically transferred to a Trust in accordance with Section 6.2.1(b) and Section 6.3.

(b) Prior to granting any exception pursuant to Section 6.2.7(a), the board of directors may require a ruling from the Internal Revenue Service or an opinion of counsel, in either case, in form and substance satisfactory to the board of directors in its sole discretion, as it may deem necessary or advisable in order to determine or ensure the Corporation’s status as a REIT. Notwithstanding the receipt of any ruling or opinion, the board of directors may impose such conditions or restrictions as it deems appropriate in connection with granting such exception.

(c) Subject to Section 6.2.1(a)(ii), an underwriter which participates in a public offering or a private placement of Capital Stock (or securities convertible into or exchangeable for Capital Stock) may Beneficially Own or Constructively Own shares of Capital Stock (or securities convertible into or exchangeable for Capital Stock) in excess of the Aggregate Stock Ownership Limit, the Common Stock Ownership Limit or both such limits, but only to the extent necessary to facilitate such public offering or private placement.

(d) The board of directors may only reduce the Excepted Holder Limit for an Excepted Holder: (i) with the written consent of such Excepted Holder at any time or (ii) pursuant to the terms and conditions of the agreements and undertakings entered into with such Excepted Holder in connection with the establishment of the Excepted Holder Limit for that Excepted Holder. No Excepted Holder Limit shall be reduced to a percentage that is less than the Common Stock Ownership Limit.

Section 6.2.8. Increase in Aggregate Stock Ownership Limit and Common Stock Ownership Limit. The board of directors may from time to time increase the Common Stock Ownership Limit and the Aggregate Stock Ownership Limit.

Section 6.2.9. Legend. Each certificate for shares of Capital Stock shall bear substantially the following legend:

The shares represented by this certificate are subject to restrictions on Beneficial Ownership, Constructive Ownership and Transfer for the purpose of the Corporation’s maintenance of its status as a Real Estate Investment Trust under the Internal Revenue Code of 1986, as amended (the “Code”). Subject to certain further restrictions and except as expressly provided in the Corporation’s charter: (a) no Person may Beneficially Own or Constructively Own shares of the Corporation’s Common Stock in excess of 9.8% (in value or number of shares) of the outstanding shares of Common Stock of the Corporation unless such Person is an Excepted Holder (in which case the Excepted Holder Limit for such Excepted Holder shall be applicable); (b) no Person may Beneficially Own or Constructively Own shares of Capital Stock of the Corporation in excess of 9.8% of

22

the value of the total outstanding shares of Capital Stock of the Corporation, unless such Person is an Excepted Holder (in which case the Excepted Holder Limit for such Excepted Holder shall be applicable); (c) no Person may Beneficially Own or Constructively Own Capital Stock that would result in the Corporation being “closely held” under Section 856(h) of the Code or otherwise cause the Corporation to fail to qualify as a REIT; and (d) other than as provided in the Corporation’s charter, no Person may Transfer shares of Capital Stock if such Transfer would result in the Capital Stock of the Corporation being owned by fewer than 100 Persons. Any Person who Beneficially Owns or Constructively Owns or attempts to Beneficially Own or Constructively Own shares of Capital Stock that causes or will cause a Person to Beneficially Own or Constructively Own shares of Capital Stock in excess or in violation of the above limitations must immediately notify the Corporation or, in the case of a proposed or attempted transaction, give at least 15 days prior written notice and provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer on the Corporation’s status as a REIT. If any of the restrictions on Transfer or ownership are violated, the shares of Capital Stock represented hereby will be automatically transferred to a Trustee of a Trust for the benefit of one or more Charitable Beneficiaries or, upon the occurrence of certain events, attempted Transfers in violation of the restrictions described above may be void ab initio.

After the effective date of the Initial Public Offering and until the Common Stock is Listed, to purchase Common Stock, the purchaser must represent to the Corporation: (i) that such purchaser (or, in the case of sales to fiduciary accounts, that the beneficiary, fiduciary account or grantor or donor who directly or indirectly supplies the funds to purchase the shares if the grantor or donor is the fiduciary) has a minimum annual gross income of $70,000 and a net worth (excluding home, home furnishings and automobiles) of not less than $70,000; (ii) that such purchaser (or, in the case of sales to fiduciary accounts, that the beneficiary, fiduciary account or grantor or donor who directly or indirectly supplies the funds to purchase the shares if the grantor or donor is the fiduciary) has a net worth (excluding home, home furnishings and automobiles) of not less than $250,000; and/ or (iii) that the purchaser (or, in the case of sales to fiduciary accounts, that the beneficiary, fiduciary account or grantor or donor who directly or indirectly supplies the funds to purchase the shares if the grantor or donor is the fiduciary) meets the more stringent suitability standards of such person’s jurisdiction as set forth in any then effective registration statement of the Corporation as such registration statement has been amended or supplemented as of the date of such purchase. After the effective

23

date of the Initial Public Offering and until the Common Stock is Listed, unless a stockholder is transferring all of his shares of Common Stock, each issuance or transfer of shares of Common Stock for value shall comply with the requirements regarding minimum initial and subsequent cash investment amounts set forth in any then effective registration statement of the Corporation as such registration statement has been amended or supplemented as of the date of such issuance or transfer for value or any higher or lower applicable state requirements with respect to minimum initial and subsequent cash investment amounts in effect as of the date of the issuance or transfer.

All capitalized terms in this legend have the meanings defined in the charter of the Corporation, as the same may be amended from time to time, a copy of which, including the restrictions on Transfer and ownership, will be furnished to each holder of Capital Stock of the Corporation on request and without charge.

Instead of the foregoing legend, the certificate may state that the Corporation will furnish a full statement about certain restrictions on transferability to a stockholder on request and without charge. Such statement shall also be sent on request and without charge to stockholders who are issued shares without a certificate.

Section 6.3. Transfer of Capital Stock in Trust.

Section 6.3.1. Ownership in Trust. Upon any purported Transfer or other event described in Section 6.2.1(b) that would result in a transfer of shares of Capital Stock to a Trust, such shares of Capital Stock shall be deemed to have been transferred to the Trustee as trustee of a Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in the transfer to the Trust pursuant to Section 6.2.1(b). The Trustee shall be appointed by the Corporation and shall be a Person unaffiliated with the Corporation and any Prohibited Owner. Each Charitable Beneficiary shall be designated by the Corporation as provided in Section 6.3.6.

Section 6.3.2. Status of Shares Held by the Trustee. Shares of Capital Stock held by the Trustee shall be issued and outstanding shares of Capital Stock of the Corporation. The Prohibited Owner shall have no rights in the shares held by the Trustee. The Prohibited Owner shall not benefit economically from ownership of any shares held in trust by the Trustee and shall have no rights to dividends or other distributions attributable to the shares held in the Trust.

Section 6.3.3. Distributions and Voting Rights. The Trustee shall have all voting rights and rights to distributions with respect to shares of Capital Stock held in the Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any distribution paid prior to the discovery by the Corporation that the shares of Capital

24

Stock have been transferred to the Trustee shall be paid by the recipient of such distribution to the Trustee upon demand, and any distribution authorized but unpaid shall be paid when due to the Trustee. Any distribution so paid to the Trustee shall be held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no voting rights with respect to shares held in the Trust, and, subject to Maryland law, effective as of the date that the shares of Capital Stock have been transferred to the Trustee, the Trustee shall have the authority with respect to the shares held in the Trust (at the Trustee’s sole discretion) (a) to rescind as void any vote cast by a Prohibited Owner prior to the discovery by the Corporation that the shares of Capital Stock have been transferred to the Trustee and (b) to recast such vote in accordance with the desires of the Trustee acting for the benefit of the Charitable Beneficiary; provided, however, that if the Corporation has already taken irreversible corporate action, then the Trustee shall not have the authority to rescind and recast such vote. Notwithstanding the provisions of this Article VI, until the Corporation has received notification that shares of Capital Stock have been transferred into a Trust, the Corporation shall be entitled to rely on its share transfer and other stockholder records for purposes of preparing lists of stockholders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes of stockholders.

Section 6.3.4. Sale of Shares by Trustee. Within 20 days of receiving notice from the Corporation that shares of Capital Stock have been transferred to the Trust, the Trustee of the Trust shall sell the shares held in the Trust to a Person, designated by the Trustee, whose ownership of the shares will not violate the ownership limitations set forth in Section 6.2.1(a). Upon such sale, the interest of the Charitable Beneficiary in the shares sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 6.3.4. The Prohibited Owner shall receive the lesser of (a) the price paid by the Prohibited Owner for the shares or, if the Prohibited Owner did not give value for the shares in connection with the event causing the shares to be held in the Trust (e.g., in the case of a gift, devise or other such transaction), the Market Price of the shares on the day of the event causing the shares to be held in the Trust or (b) the price per share received by the Trustee from the sale or other disposition of the shares held in the Trust. Any net sale proceeds in excess of the amount payable to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary. If, prior to the discovery by the Corporation that shares of Capital Stock have been transferred to the Trustee, such shares are sold by a Prohibited Owner, then (i) such shares shall be deemed to have been sold on behalf of the Trust and (ii) to the extent that the Prohibited Owner received an amount for such shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 6.3.4, such excess shall be paid to the Trustee upon demand.

Section 6.3.5. Purchase Right in Stock Transferred to the Trustee. Shares of Capital Stock transferred to the Trustee shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (a) the price per share in the transaction that resulted in such transfer to the Trust (or, in the case of a devise or gift, the Market Price at the time of such devise or gift) or (b) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right to accept such offer until the Trustee has sold the shares held in the Trust

25

pursuant to Section 6.3.4. Upon such a sale to the Corporation, the interest of the Charitable Beneficiary in the shares sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Prohibited Owner.

Section 6.3.6. Designation of Charitable Beneficiaries. By written notice to the Trustee, the Corporation shall designate one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Trust such that (a) the shares of Capital Stock held in the Trust would not violate the restrictions set forth in Section 6.2.1(a) in the hands of such Charitable Beneficiary and (b) each such organization must be described in Section 501(c)(3) of the Code and contributions to each such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

Section 6.4. Settlement. Nothing in this Article VI shall preclude the settlement of any transaction entered into through the facilities of any national securities exchange or automated inter-dealer quotation system. The fact that the settlement of any transaction is so permitted shall not negate the effect of any other provision of this Article VI and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article VI.

Section 6.5. Enforcement. The Corporation is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this Article VI.

Section 6.6. Non-Waiver. No delay or failure on the part of the Corporation or the board of directors in exercising any right hereunder shall operate as a waiver of any right of the Corporation or the board of directors, as the case may be, except to the extent specifically waived in writing.

ARTICLE VII

BOARD OF DIRECTORS

Section 7.1. Number of Directors. The number of directors of the Corporation shall be two, which number may be increased or decreased from time to time pursuant to the bylaws but, after the effective date of the Initial Public Offering, shall never be less than three. After the effective date of the Initial Public Offering, a majority of the seats on the board of directors will be for Independent Directors. The Conflicts Committee shall nominate all individuals for the Independent Director positions. No reduction in the number of directors shall cause the removal of any director from office prior to the expiration of his term, except as may otherwise be provided in the terms of any Preferred Stock issued by the Corporation. The names of the directors who shall serve on the board until the next annual meeting of the stockholders and until their successors are duly elected and qualified are:

Alan F. Feldman

Jonathan Z. Cohen

26

Section 7.2. Term of Directors. Each director shall hold office for one year, until the next annual meeting of stockholders and until his successor is duly elected and qualified. Directors may be elected to an unlimited number of successive terms.

Section 7.3. Experience. Each director who is not an Independent Director shall have at least three years of relevant experience demonstrating the knowledge and experience required to successfully acquire and manage the type of assets being acquired by the Corporation. At least one of the Independent Directors shall have three years of relevant real estate experience.

Section 7.4. Committees. The board may establish such committees as it deems appropriate, provided that the majority of the members of each committee are Independent Directors.

Section 7.5. Fiduciary Obligations. The directors are fiduciaries of the Corporation and its stockholders. The directors have a fiduciary duty to the stockholders to supervise the relationship between the Corporation and the Advisor.

Section 7.6. Ratification of Charter. At or before the first meeting of the board of directors following the date of this amendment and restatement of the charter, the board of directors and the Conflicts Committee shall each review and ratify the charter by majority vote.

Section 7.7. REIT Qualification. If the Corporation elects to qualify for federal income tax treatment as a REIT, the board of directors shall use its reasonable best efforts to take such actions as are necessary or appropriate to preserve the status of the Corporation as a REIT; however, if the board of directors determines that it is no longer in the best interests of the Corporation to continue to be qualified as a REIT, the board of directors may revoke or otherwise terminate the Corporation’s REIT election pursuant to Section 856(g) of the Code. The board of directors also may determine that compliance with any restriction or limitation on ownership and transfers of Capital Stock set forth in Article VI is no longer required for REIT qualification.

Section 7.8. Determinations by the Board. The determination as to any of the following matters, made in good faith by or pursuant to the direction of the board of directors or the Conflicts Committee consistent with the charter and in the absence of actual receipt of an improper benefit in money, property or services or active and deliberate dishonesty established by a court, shall be final and conclusive and shall be binding upon the Corporation and every holder of shares of its Capital Stock: (a) the amount of the net income of the Corporation for any period and the amount of assets at any time legally available for the payment of dividends, redemption of its Capital Stock or the payment of other distributions on its Capital Stock; (b) the amount of paid-in surplus, net assets, other surplus, annual or other net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; (c) the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); (d)

27

the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any asset owned or held by the Corporation; (e) the application of any provision of this charter in the case of any ambiguity, including, without limitation: (i) any provision of the definitions of any of the following: Affiliate, Independent Director and Sponsor, (ii) which amounts paid to the Advisor or its Affiliates are property-level expenses connected with the ownership of real estate interests, loans or other property, which expenses are excluded from the definition of Total Operating Expenses, and (iii) whether expenses qualify as Organization and Offering Expenses; (f) whether substantial justification exists to invest in or make a mortgage loan contemplated by Section 9.11(b) because of the presence of other underwriting criteria; and (g) any matters relating to the acquisition, holding and disposition of any assets by the Corporation.

Section 7.9. Compensation of Directors. The Conflicts Committee shall determine the compensation of the Independent Directors.

Section 7.10. Tax on Disqualified Organizations. To the extent that the Corporation incurs any tax pursuant to Section 860E(e)(6) of the Code as the result of any “excess inclusion” income (within the meaning of Section 860E of the Code) of the Corporation that is allocable to a stockholder that is a “disqualified organization” (as defined in Section 860E(e)(5) of the Code), the board of directors may, in its sole discretion, cause the Corporation to allocate such tax solely to the stock held by such disqualified organization in the manner described in Treasury Regulation Section 1.860E-2(b)(4), by reducing from one or more distributions paid to such stockholder the tax incurred by the Corporation pursuant to Section 860E(e)(6) as a result of such stockholder’s stock ownership.

ARTICLE VIII

ADVISOR

Section 8.1. Appointment and Initial Investment of Advisor. The board of directors may appoint an Advisor to direct and/or perform the day-to-day business affairs of the Corporation. The board of directors may exercise broad discretion in allowing the Advisor to administer and regulate the operations of the Corporation, to act as agent for the Corporation, to execute documents on behalf of the Corporation and to make executive decisions that conform to general policies and principles established by the board of directors. The term of retention of any Advisor shall not exceed one year, although there is no limit to the number of times that a particular Advisor may be retained. Before the Initial Public Offering of the Corporation, the Advisor shall have made the Initial Investment. The Advisor or any such Affiliate may not sell the equity interest acquired with its Initial Investment while the Advisor remains an Advisor but may transfer the interest in the Corporation acquired with its Initial Investment to its Affiliates.

Section 8.2. Supervision of Advisor. The board of directors shall evaluate the performance of the Advisor before entering into or renewing an Advisory Agreement,

28

and the criteria used in such evaluation shall be reflected in the minutes of the meetings of the board of directors. The Conflicts Committee shall determine at least annually whether the expenses incurred by the Corporation are reasonable in light of the investment performance of the Corporation, its Net Assets, its Net Income and the fees and expenses of other comparable unaffiliated REITs. The Conflicts Committee shall determine from time to time and at least annually that the compensation to be paid to the Advisor and its Affiliates is reasonable in relation to the nature and quality of services performed and that such compensation is within the limits prescribed by the charter. Each such determination shall be reflected in the minutes of the meetings of the board. The Conflicts Committee shall also supervise the performance of the Advisor and its Affiliates and the compensation paid to them by the Corporation to determine that the provisions of the Advisory Agreement are being met. Each such determination shall be based on factors such as (a) the amount of the fees and any other compensation, including stock-based compensation, paid to the Advisor and its Affiliates in relation to the size, composition and performance of the Corporation’s portfolio; (b) the success of the Advisor in generating opportunities that meet the investment objectives of the Corporation; (c) rates charged to other REITs and to investors other than REITs by advisors performing the same or similar services; (d) additional revenues realized by the Advisor and its Affiliates through their relationship with the Corporation, including loan administration, underwriting or broker commissions, servicing, engineering, inspection and other fees, whether paid by the Corporation or by others with whom the Corporation does business; (e) the quality and extent of service and advice furnished by the Advisor and its Affiliates; (f) the performance of the Corporation’s portfolio, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations; and (g) the quality of the Corporation’s portfolio relative to the investments generated by the Advisor and its Affiliates for their own account. The Conflicts Committee may also consider all other factors that it deems relevant, and its findings on each of the factors considered shall be recorded in the minutes of the board of directors. The Corporation may not enter into, renew or amend the Advisory Agreement without the approval (by majority vote) of the Conflicts Committee. The board shall determine whether any successor Advisor possesses sufficient qualifications to perform the advisory function for the Corporation and whether the compensation provided for in its contract with the Corporation is justified.

Section 8.3. Fiduciary Obligations. The Advisor is a fiduciary of the Corporation and its stockholders.

Section 8.4. Termination. Either the Conflicts Committee (by majority vote) or the Advisor may terminate the Advisory Agreement on 60 days written notice without cause or penalty, and, in such event, the Advisor will cooperate with the Corporation and the board of directors in making an orderly transition of the advisory function.

Section 8.5. Disposition Fee on Sale of Property. If the Advisor or a director or Sponsor or any Affiliate thereof provides a substantial amount of the services in the effort to sell the property of the Corporation, that Person may receive an amount up to 3% of the sales price of such property or properties; provided, however, that the amount paid when added to all other commissions paid to unaffiliated parties in connection with such

29

sale shall not exceed the lesser of the Competitive Real Estate Commission or an amount equal to 6% of the sales price of such property or properties.

Section 8.6. Incentive Fees. An interest in the gain from the sale of assets of the Corporation (as opposed to disposition fees, which are the subject of Section 8.5) may be paid to the Advisor or an entity affiliated with the Advisor provided that (a) the interest in the gain must be reasonable, and (b) if multiple Advisors are involved, incentive fees must be distributed by a proportional method reasonably designed to reflect the value added to the Corporation’s assets by each respective Advisor and its Affiliates. Such an interest in gain from the sale of assets of the Corporation shall be considered presumptively reasonable if it does not exceed 15% of the balance of such net proceeds remaining after payment to Common Stockholders, in the aggregate, of an amount equal to 100% of the Invested Capital, plus an amount equal to a Stockholders’ Return of 6%. Distribution of incentive fees to the Advisor or an entity affiliated with the Advisor in proportion to the length of time served as Advisor while such property was held by the Corporation or in proportion to the fair market value of the asset at the time of the Advisor’s termination and the fair market value of the asset upon its disposition by the Corporation shall be considered reasonable methods by which to apportion incentive fees.

Section 8.7. Acquisition Fees. The Corporation shall not purchase a property or invest in or make a mortgage loan if the combined Acquisition Fees and Acquisition Expenses incurred in connection therewith are not reasonable or exceed 6% of the Contract Purchase Price or, in the case of a mortgage loan, 6% of the funds advanced unless the Conflicts Committee approves (by majority vote) the Acquisition Fees and Acquisition Expenses and determines the transaction to be commercially competitive, fair and reasonable to the Corporation.

Section 8.8. Reimbursement for Total Operating Expenses. Commencing four fiscal quarters after the Corporation’s acquisition of its first asset, the Conflicts Committee shall have the responsibility of limiting Total Operating Expenses to amounts that do not exceed the greater of 2% of Average Invested Assets or 25% of Net Income (the “2%/25% Guidelines”) for the four consecutive fiscal quarters then ended unless it has made a finding that, based on unusual and non-recurring factors that it deems sufficient, a higher level of expenses (an “Excess Amount”) is justified. Any such finding and the reasons in support thereof shall be reflected in the minutes of the meetings. After the end of any fiscal quarter of the Corporation for which there is an Excess Amount for the 12 months then ended, such fact shall be disclosed in writing and sent to the Common Stockholders within 60 days of such quarter-end (or shall be disclosed to the Common Stockholders in the next quarterly report of the Corporation or by filing a Current Report on Form 8-K with the U.S. Securities and Exchange Commission within 60 days of such quarter end), together with an explanation of the factors the Conflicts Committee considered in determining that such Excess Amount was justified. In the event that the Conflicts Committee does not determine that excess expenses are justified, the Advisor shall reimburse the Corporation at the end of the 12-month period the amount by which the aggregate annual expenses paid or incurred by the Corporation exceeded the 2%/25% Guidelines.

30

ARTICLE IX

INVESTMENT OBJECTIVES AND LIMITATIONS

Section 9.1. Investment Objectives. The board of directors shall establish written policies on investments and borrowing and shall monitor the administrative procedures, investment operations and performance of the Corporation and the Advisor to assure that such policies are carried out. The Conflicts Committee shall review the investment policies of the Corporation with sufficient frequency (not less often than annually) to determine that the policies being followed by the Corporation are in the best interests of the Common Stockholders. Each such determination and the basis therefore shall be set forth in the minutes of the meetings of the board of directors.

Section 9.2. Limitations on Acquisitions. The consideration paid for any real property acquired by the Corporation will ordinarily be based on the fair market value of such property as determined by a majority of the members of the board of directors, or the approval of a majority of a committee of the board, provided that the members of the committee approving the transaction would also constitute a majority of the board. In all cases in which the Conflicts Committee (by majority vote) so determines, and in all cases in which real property is acquired from the Advisor, a Sponsor, a director or an Affiliate thereof, such fair market value shall be as determined by an Independent Expert.

The Corporation may not purchase or lease properties in which the Advisor, a Sponsor, a director or an Affiliate thereof has an interest without a determination by the Conflicts Committee (by unanimous vote) that such transaction is fair and reasonable to the Corporation and at a price to the Corporation no greater than the cost of the property to the Affiliated seller or lessor unless there is substantial justification for the excess amount. Notwithstanding the preceding sentence, in no event may the Corporation acquire any such property at an amount in excess of its current appraised value.

Section 9.3. Limitations on Sales to Affiliates. The Corporation shall not transfer or lease assets to a Sponsor, the Advisor, a director or an Affiliate thereof unless approved by the Conflicts Committee (by unanimous vote) as being fair and reasonable to the Corporation.

Section 9.4. Limitations on Other Transactions Involving Affiliates. The Conflicts Committee (by unanimous vote) must conclude that all other transactions, including joint ventures, between the Corporation and a Sponsor, the Advisor, a director or an Affiliate thereof are fair and reasonable to the Corporation and on terms and conditions not less favorable to the Corporation than those available from unaffiliated third parties and, with respect to such joint ventures, on substantially the same terms and conditions as those received by other joint ventures.

31

Section 9.5. Limitations on the Issuance of Options and Warrants. Until the Common Stock of the Corporation is Listed, the Corporation shall not issue options or warrants to purchase Common Stock to the Advisor, a director, the Sponsors or any Affiliate thereof, except on the same terms as such options or warrants are sold to the general public. The Corporation may issue options or warrants to persons other than the Advisor, a director, the Sponsors or any Affiliate thereof prior to Listing the Common Stock, but not at exercise prices less than the fair market value of the underlying securities on the date of grant and not for consideration (which may include services) that in the judgment of the Conflicts Committee has a market value less than the value of such option or warrant on the date of grant. Options or warrants issuable to the Advisor, a director, the Sponsors or any Affiliate thereof shall not exceed an amount equal to 10% of the outstanding shares of Common Stock on the date of grant. The foregoing restriction shall not apply with respect to equity awards issued to Independent Directors at any time after the Corporation has been advised that the NASAA Direct Participation Program Policy Group has determined that such awards are permitted under the NASAA REIT Guidelines including as they may be revised and adopted in the future.

Section 9.6. Limitations on the Repurchase of Common Stock. The Corporation may not pay a fee to the Advisor, a Sponsor, a director or an Affiliate thereof in connection with the Corporation’s repurchase of shares of Common Stock.

Section 9.7. Limitations on Loans. The Corporation will not make any loans to a Sponsor, the Advisor, a director or an Affiliate thereof except as provided in Section 9.11 or to wholly owned subsidiaries (directly or indirectly) of the Corporation. The Corporation will not borrow from such parties unless the Conflicts Committee (by majority vote) approves the transaction as being fair, competitive and commercially reasonable and no less favorable to the Corporation than comparable loans between unaffiliated parties. These restrictions on loans apply to advances of cash that are commonly viewed as loans, as determined by the board of directors. By way of example only, the prohibition on loans would not restrict advances of cash for legal expenses or other costs incurred as a result of any legal action for which indemnification is being sought nor would the prohibition limit the Corporation’s ability to advance reimbursable expenses incurred by directors or officers or the Advisor or its Affiliates.

Section 9.8. Limitations on Leverage. The aggregate borrowings of the Corporation, secured and unsecured, shall be reviewed by the board of directors at least quarterly. The maximum amount of such borrowings in relation to the Net Assets shall not exceed 300% in the absence of a satisfactory showing that a higher level of borrowings is appropriate. Any excess in borrowings over such 300% level shall be approved by the Conflicts Committee (by majority vote) and disclosed to the Common Stockholders in the next quarterly report of the Corporation, along with justification for such excess.

Section 9.9. Limitations on Investments in Equity Securities. The Corporation may not invest in equity securities unless the Conflicts Committee (by majority vote) approves such investment as being fair, competitive and commercially reasonable; provided, that an investment in equity securities of a “publicly traded entity” that is otherwise approved by the Conflicts Committee shall be deemed fair, competitive and

32

commercially reasonable if such investment is made through a trade effected on a recognized securities market. This provision is not intended to limit (i) acquisitions effected through the purchase of all of the equity securities of an existing entity, (ii) the investment in wholly owned subsidiaries of the Corporation or (iii) investments in asset-backed securities. For the purpose of this section, a “publicly traded entity” shall mean any entity having securities listed on a national securities exchange or included for quotation on an inter-dealer quotation system.

Section 9.10. Limitations on Investments in Commodities Contracts. The Corporation may not invest in commodities or commodity futures contracts, except for futures contracts used solely for the purpose of hedging in connection with the ordinary business of investing in real estate assets and mortgages.

Section 9.11. Limitations Regarding Mortgage Loans. The Corporation may not make or invest in mortgage loans unless an appraisal is obtained concerning the underlying property, except for those mortgage loans insured or guaranteed by a government or government agency. In cases in which the Conflicts Committee (by majority vote) so determines, and in all cases in which the transaction is with the Advisor, a director, a Sponsor or an Affiliate thereof, such an appraisal must be obtained from an Independent Expert concerning the underlying property. The Corporation shall keep the appraisal for at least five years and make it available for inspection and duplication by any Common Stockholder. In addition, a mortgagee’s or owner’s title insurance policy or commitment as to the priority of the mortgage or the condition of the title must be obtained. Further, the Advisor and the board of directors shall observe the following policies in connection with investing in or making mortgage loans:

(a) The Corporation shall not invest in real estate contracts of sale, otherwise known as land sale contracts, unless such contracts of sale are in recordable form and appropriately recorded in the chain of title.

(b) The Corporation shall not make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans outstanding on the property, including the loans of the Corporation, would exceed an amount equal to 85% of the appraised value of the property as determined by appraisal unless the board determines that a substantial justification exists because of the presence of other underwriting criteria. For purposes of this subsection, the “aggregate amount of all mortgage loans outstanding on the property, including the loans of the Corporation,” shall include all interest (excluding contingent participation in income and/or appreciation in value of the mortgaged property), the current payment of which may be deferred pursuant to the terms of such loans, to the extent that deferred interest on each loan exceeds 5% per annum of the principal balance of the loan.

(c) The Corporation may not make or invest in any mortgage loans that are subordinate to any mortgage or equity interest of the Advisor, a Sponsor, a director or an Affiliate of the Corporation.

33

Section 9.12. Limitations on Investments in Unimproved Real Property. The Corporation may not make investments in Unimproved Real Property or mortgage loans on Unimproved Real Property in excess of 10% of the Corporation’s total assets.

Section 9.13. Limitations on Issuances of Securities. The Corporation may not (a) issue equity securities on a deferred payment basis or other similar arrangement; (b) issue debt securities in the absence of adequate cash flow to cover debt service unless the historical debt service coverage (in the most recently completed fiscal year) as adjusted for known changes is sufficient to service that higher level of debt as determined by the board of directors or a duly authorized executive officer of the Corporation; (c) issue equity securities that are assessable after receipt by the Corporation of the consideration for which the board of directors authorized their issuance; or (d) issue equity securities redeemable solely at the option of the holder, which restriction has no affect on the Corporation’s ability to implement a share repurchase program. The Corporation may issue shares of Preferred Stock with voting rights; provided that, when a privately issued share of Preferred Stock is entitled to vote on a matter with the holders of shares of Common Stock, the relationship between the number of votes per such share of Preferred Stock and the consideration paid to the Corporation for such share shall not exceed the relationship between the number of votes per any publicly offered share of Common Stock and the book value per outstanding share of Common Stock. Nothing in this Section 9.13 is intended to prevent the Corporation from issuing equity securities pursuant to a plan whereby the commissions on the sales of such securities are in whole or in part deferred and paid by the purchaser thereof out of future distributions on such securities or otherwise.

Section 9.14. Limitations on Roll-Up Transactions. In connection with any proposed Roll-Up Transaction, an appraisal of all of the Corporation’s assets shall be obtained from a competent Independent Expert. If the appraisal will be included in a Prospectus used to offer the securities of a Roll-Up Entity, the appraisal shall be filed with the Securities and Exchange Commission and, if applicable, the states in which registration of such securities is sought, as an exhibit to the registration statement for the offering. The Corporation’s assets shall be appraised on a consistent basis. The appraisal shall be based on the evaluation of all relevant information and shall indicate the value of the assets as of a date immediately prior to the announcement of the proposed Roll-Up Transaction. The appraisal shall assume an orderly liquidation of the assets over a 12-month period. The terms of the engagement of the Independent Expert shall clearly state that the engagement is for the benefit of the Corporation and its stockholders. A summary of the appraisal, indicating all material assumptions underlying the appraisal, shall be included in a report to stockholders in connection with a proposed Roll-Up Transaction. In connection with a proposed Roll-Up Transaction, the Person sponsoring the Roll-Up Transaction shall offer to each Common Stockholder who votes against the proposed Roll-Up Transaction the choice of:

(a) accepting the securities of the Roll-Up Entity offered in the proposed Roll-Up Transaction; or

(b) one of the following:

34

(i) remaining as a Common Stockholder of the Corporation and preserving its interests therein on the same terms and conditions as existed previously; or

(ii) receiving cash in an amount equal to the stockholder’s pro rata share of the appraised value of the Net Assets of the Corporation.

The Corporation is prohibited from participating in any proposed Roll-Up Transaction:

(a) that would result in the Common Stockholders having democracy rights in a Roll-Up Entity that are less than the rights set forth in Sections 11.1, 11.4, 11.5, 11.6 and 11.7 hereof;

(b) that includes provisions that would operate as a material impediment to, or frustration of, the accumulation of shares by any purchaser of the securities of the Roll-Up Entity (except to the minimum extent necessary to preserve the tax status of the Roll-Up Entity), or that would limit the ability of an investor to exercise the voting rights of its securities of the Roll-Up Entity on the basis of the number of shares of Common Stock held by that investor;

(c) in which investors’ rights of access to the records of the Roll-Up Entity will be less than those described in Section 11.7 hereof; or

(d) in which any of the costs of the Roll-Up Transaction would be borne by the Corporation if the Roll-Up Transaction is not approved by the Common Stockholders.

Section 9.15. Limitations on Underwriting. The Corporation may not engage in underwriting or the agency distribution of securities issued by others.

ARTICLE X

CONFLICTS OF INTEREST

Section 10.1. Conflicts Committee.

(a) During any time that the Corporation is advised by the Advisor, there shall be a committee (the “Conflicts Committee”) of the board of directors composed of all of the Independent Directors. The Conflicts Committee is authorized to select and retain its own legal and financial advisors. In addition to those other powers delegated to the Conflicts Committee by this charter or by the board of directors, the Conflicts Committee may act on any matter that may be delegated to a committee under the MGCL. If a matter cannot be delegated to a committee under the MGCL but the Conflicts Committee has determined that the matter at issue is such that the exercise of independent judgment by the directors who are not Independent Directors could

35

reasonably be compromised, both the board of directors and the Conflicts Committee must approve the matter. Any board action regarding Organization and Offering Expenses or the selection of an Independent Expert or the matters covered in any of Sections 5.10, 7.6, 8.1, 8.2, 8.4, 8.5, 8.6, 8.7, 8.8, 9.1, 9.8, 10.1, 11.1, 12.2 or 12.3 shall require the approval of a majority of the Conflicts Committee.

(b) The Conflicts Committee may create a subcommittee of the Conflicts Committee and delegate to the subcommittee any of the powers of the Conflicts Committee. The members of any such subcommittee shall serve at the pleasure of the Conflicts Committee.

Section 10.2. Voting by Conflicts Committee. For an action to be taken by the Conflicts Committee or a subcommittee thereof, the matter must be approved by a majority of the Independent Directors present for the purposes of determining a quorum at a meeting at which a quorum is present or such higher threshold as required by the charter. If any such Independent Director has an interest in the matter at issue other than in his or her role as a director, (i) the matter must also be approved by a majority of those Independent Directors present at the meeting who have no other interest in the matter and (ii) any unanimity requirement set forth herein shall mean the unanimous approval only of those Independent Directors who have no other interest in the matter.

ARTICLE XI

STOCKHOLDERS

Section 11.1. Meetings of Stockholders. There shall be an annual meeting of the stockholders, to be held at such time and place as shall be determined by or in the manner prescribed in the bylaws, at which the directors shall be elected and any other proper business may be conducted. After the effective date of the Initial Public Offering, the annual meeting will be held on a date that is a reasonable period of time following the distribution of the Corporation’s annual report to Common Stockholders but not less than 30 days after delivery of such report; the board of directors and the Conflicts Committee shall take reasonable efforts to ensure that this requirement is met. A majority of the shares of Common Stock present in person or by proxy at an annual meeting of stockholders at which a quorum is present may, without the necessity for concurrence by the board, vote to elect the directors. The presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting constitutes a quorum. Special meetings of stockholders may be called in the manner provided in the bylaws, including by the president or by a majority of the directors or a majority of the Independent Directors, and shall be called by an officer of the Corporation upon written request of Common Stockholders holding in the aggregate not less than 10% of the outstanding shares of Common Stock entitled to be cast on any issue proposed to be considered at any such special meeting. Upon receipt of a written request stating the purpose of such special meeting, the Advisor shall provide all stockholders within 10 days of receipt of said request notice, whether in person or by mail, of a special meeting

36

and the purpose of such special meeting to be held on a date not less than 15 days nor more than 60 days after the delivery of such notice. If the meeting is called by written request of stockholders as described in this Section 11.1, the special meeting shall be held at the time and place specified in the stockholder request; provided, however, that if none is so specified, at such time and place convenient to the stockholders.

Section 11.2. Extraordinary Actions. Notwithstanding any provision of law permitting or requiring any action to be taken or approved by the affirmative vote of the holders of shares entitled to cast a greater number of votes, any such action shall be effective and valid if taken or approved by the affirmative vote of holders of shares entitled to cast a majority of all the votes entitled to be cast on the matter.

Section 11.3. Unsolicited Takeover Statute. Until the Common Stock of the Corporation is Listed, the Corporation may not take advantage of any of the permissive provisions of Title 3, Subtitle 8 of the MGCL, as amended from time to time or any successor statute thereto.

Section 11.4. Voting Rights of Stockholders. The concurrence of the board shall not be required in order for the Common Stockholders to remove directors or to amend the charter or dissolve the corporation. Without the approval of a majority of the shares of Common Stock entitled to vote on the matter, the board of directors may not (a) amend the charter to adversely affect the rights, preferences and privileges of the Common Stockholders; (b) amend charter provisions relating to director qualifications, fiduciary duties, liability and indemnification, conflicts of interest, investment policies or investment restrictions; (c) liquidate or dissolve the Corporation other than before the initial investment in property; (d) sell all or substantially all of the Corporation’s assets other than in the ordinary course of the Corporation’s business; or (e) cause the merger or other reorganization of the Corporation.

Section 11.5. Voting Limitations on Shares Held by the Advisor, Directors and Affiliates. No shares of Common Stock may be transferred or issued to the Advisor, a director, or any Affiliate thereof unless such prospective stockholder agrees that it will not vote or consent on matters submitted to the Common Stockholders regarding (a) the removal of such Advisor, director or any of its Affiliates or (b) any transaction between the Corporation and any such Advisor, director or any of its Affiliates. To the extent permitted by the MGCL, in determining the requisite percentage in interest of shares of Common Stock necessary to approve a matter on which the Advisor, a director and any of their Affiliates may not vote or consent, any shares owned by any of them shall not be included.

Section 11.6. Right of Inspection. Any Common Stockholder and any designated representative thereof shall be permitted access to the records of the Corporation to which it is entitled under applicable law at all reasonable times and may inspect and copy any such records for a reasonable charge. Inspection of the Corporation’s books and records by the office or agency administering the securities laws of a jurisdiction shall be permitted upon reasonable notice and during normal business hours.

37

Section 11.7. Access to Stockholder List. An alphabetical list of the names, addresses and telephone numbers of the Common Stockholders of the Corporation, along with the number of shares of Common Stock held by each of them (the “Stockholder List”), shall be maintained as part of the books and records of the Corporation and shall be available for inspection by any Common Stockholder or the stockholder’s designated agent at the home office of the Corporation in accordance upon the request of the Common Stockholder. The Stockholder List shall be updated at least quarterly to reflect changes in the information contained therein. A copy of such list shall be mailed to any Common Stockholder so requesting within 10 days of receipt by the Corporation of the request. The copy of the Stockholder List shall be printed in alphabetical order, on white paper and in a readily readable type size (in no event smaller than 10-point type). The Corporation may impose a reasonable charge for expenses incurred in reproduction pursuant to the stockholder request. A Common Stockholder may request a copy of the Stockholder List in connection with matters relating to stockholders’ voting rights, the exercise of stockholder rights under federal proxy laws or for any other proper purpose. Each Common Stockholder who receives a copy of the Stockholder List shall keep such list confidential and shall sign a confidentiality agreement to the effect that such Common Stockholder will keep the Stockholder List confidential and share such list only with its employees, representatives or agents who agree in writing to maintain the confidentiality of the Stockholder List.

If the Advisor or the board neglects or refuses to exhibit, produce or mail a copy of the Stockholder List as requested, the Advisor and/ or the board, as the case may be, shall be liable to any Common Stockholder requesting the list for the costs, including reasonable attorneys’ fees, incurred by that stockholder for compelling the production of the Stockholder List and for actual damages suffered by any Common Stockholder by reason of such refusal or neglect. It shall be a defense that the actual purpose and reason for the requests for inspection or for a copy of the Stockholder List is not for a proper purpose but is instead for the purpose of securing such list of stockholders or other information for the purpose of selling such list or copies thereof, or using the same to solicit the acquisition of shares of the Corporation or for another commercial purpose other than in the interest of the applicant as a stockholder relative to the affairs of the Corporation. The Corporation may require the stockholder requesting the Stockholder List to represent that the list is not requested for a commercial purpose unrelated to the stockholder’s interest in the Corporation. The remedies provided hereunder to stockholders requesting copies of the Stockholder List are in addition to, and shall not in any way limit, other remedies available to stockholders under federal law or the laws of any state.

Section 11.8. Reports. The Corporation shall cause to be prepared and mailed or delivered to each Common Stockholder as of a record date after the end of the fiscal year and each holder of other publicly held securities of the Corporation within 120 days after the end of the fiscal year to which it relates an annual report for each fiscal year ending after the Initial Public Offering of its securities that shall include: (a) financial statements prepared in accordance with generally accepted accounting principles that are audited and reported on by independent certified public accountants; (b) the ratio of the costs of raising capital during the period to the capital raised; (c) the aggregate amount of

38

advisory fees and the aggregate amount of other fees paid to the Advisor and any Affiliate of the Advisor by the Corporation, including fees or charges paid to the Advisor and any Affiliate of the Advisor by third parties doing business with the Corporation; (d) the Total Operating Expenses of the Corporation, stated as a percentage of Average Invested Assets and as a percentage of its Net Income; (e) a report from the Conflicts Committee that the policies being followed by the Corporation are in the best interests of its Common Stockholders and the basis for such determination; and (f) separately stated, full disclosure of all material terms, factors and circumstances surrounding any and all transactions involving the Corporation and the Advisor, Sponsor, a director or any Affiliate thereof occurring in the year for which the annual report is made, and the Conflicts Committee shall be specifically charged with a duty to examine and comment in the report on the fairness of such transactions. Alternatively, such information may be provided in a proxy statement delivered with the annual report. The board of directors, including the Independent Directors, shall take reasonable steps to ensure that the requirements of this Section 11.8 are met. The annual report may be delivered by any reasonable means, including through an electronic medium. Electronic delivery of the annual report or proxy statement shall comply with any then-applicable rules of the U.S. Securities and Exchange Commission.

Section 11.9. Rights of Objecting Stockholders. Holders of shares of Capital Stock shall not be entitled to exercise any rights of an objecting stockholder provided for under Title 3, Subtitle 2 of the MGCL unless the board, upon the affirmative vote of a majority of the entire board, shall determine that such rights shall apply, with respect to all or any classes or series of Capital Stock, to a particular transaction or all transactions occurring after the date of such approval in connection with which holders of such shares of Capital Stock would otherwise be entitled to exercise such rights.

Section 11.10. Liability of Stockholders. The shares of Common Stock of the Corporation shall be non-assessable by the Corporation upon receipt by the Corporation of the consideration for which the board of directors authorized their issuance.

Section 11.11. Tender Offers. If any stockholder of the Corporation makes a tender offer, including, without limitation, a “mini-tender” offer, such stockholder must comply with all of the provisions set forth in Regulation 14D of the Securities Exchange Act of 1934, as amended, including, without limitation, disclosure and notice requirements, which would be applicable if the tender offer was for more than 5% of the outstanding securities of the Corporation, provided, however, that such documents are not required to be filed with the Securities and Exchange Commission. In addition, any such stockholder must provide notice to the Corporation at least 10 Business Days prior to initiating any such tender offer. If any stockholder initiates a tender offer without complying with the provisions set forth above (a “Non-Compliant Tender Offer”), the Corporation, in its sole discretion, shall have the right to redeem such non-compliant stockholder’s shares of Capital Stock and any shares of Capital Stock acquired in such tender offer (collectively, the “Tendered Shares”) at the lesser of (i) with respect to Common Stock, the price then being paid per share of Common Stock purchased in the Corporation’s latest offering of Common Stock at full purchase price (not discounted for commission reductions nor for reductions in sale price permitted pursuant to the

39

distribution reinvestment plan), (ii) the fair market value of the shares as determined by an independent valuation obtained by the Corporation or (iii) the lowest tender offer price offered in such Non-Compliant Tender Offer. The Corporation may purchase such Tendered Shares upon delivery of the purchase price to the stockholder initiating such Non-Compliant Tender Offer, and, upon such delivery, the Corporation may instruct any transfer agent to transfer such purchased shares to the Corporation. In addition, any stockholder who makes a Non-Compliant Tender Offer shall be responsible for all expenses incurred by the Corporation in connection with the enforcement of the provisions of this Section 11.11, including, without limitation, expenses incurred in connection with the review of all documents related to such tender offer and expenses incurred in connection with any purchase of Tendered Shares by the Corporation. The Corporation maintains the right to offset any such expenses against the dollar amount to be paid by the Corporation for the purchase of Tendered Shares pursuant to this Section 11.11. In addition to the remedies provided herein, the Corporation may seek injunctive relief, including, without limitation, a temporary or permanent restraining order, in connection with any Non-Compliant Tender Offer.

ARTICLE XII

LIABILITY OF DIRECTORS,

OFFICERS, ADVISORS AND OTHER AGENTS

Section 12.1. Limitation of Director and Officer Liability. Except as prohibited by the restrictions provided in Section 12.3, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for money damages. Neither the amendment nor repeal of this Section 12.1, nor the adoption or amendment of any other provision of the charter or bylaws inconsistent with this Section 12.1, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act that occurred prior to such amendment, repeal or adoption.

Section 12.2. Indemnification.

(a) Except as prohibited by the restrictions provided in Section 12.2(b), Section 12.3 and Section 12.4, the Corporation shall indemnify and pay or reimburse reasonable expenses in advance of the final disposition of a proceeding to (i) any individual who is a present or former director or officer of the Corporation; (ii) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his service in such capacity; or (iii) the Advisor or any of its Affiliates acting as an agent of the Corporation. Except as provided in Section 12.2(b), Section 12.3 and Section 12.4, the Corporation shall have the power with the approval of the board of directors to provide such indemnification and advancement of

40

expenses to any employee or agent of the Corporation or any employee of the Advisor or any of the Advisor’s Affiliates acting as an agent of the Corporation.

(b) Notwithstanding the foregoing, the Corporation shall not indemnify the directors or the Advisors or its Affiliates or any Person acting as a broker-dealer 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 Securities and Exchange Commission and of the published position of any state securities regulatory authority in which securities of the Corporation were offered or sold as to indemnification for violations of securities laws.

(c) No amendment of the charter or repeal of any of its provisions shall limit or eliminate the right of indemnification or advancement of expenses provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal.

Section 12.3. Limitation on Indemnification. Notwithstanding the foregoing, the Corporation shall not provide for indemnification of the directors or 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 Corporation, unless all of the following conditions are met:

(1) The directors or 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 Corporation.

(2) The directors or the Advisor or its Affiliates were acting on behalf of or performing services for the Corporation.

(3) Such liability or loss was not the result of:

(x) negligence or misconduct by the directors (excluding the Independent Directors) or the Advisor or its Affiliates; or

(y) gross negligence or willful misconduct by the Independent Directors.

(4) Such indemnification or agreement to hold harmless is recoverable only out of the Corporation’s Net Assets and not from its Common Stockholders.

41

Section 12.4. Limitation on Payment of Expenses. The Corporation shall pay or reimburse reasonable legal expenses and other costs incurred by the directors or the Advisors or its Affiliates in advance of the final disposition of a proceeding only if (in addition to the procedures required by the MGCL) 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 Corporation, (b) the legal proceeding was initiated by a third party who is not a Common Stockholder or, if by a Common Stockholder acting in his or her capacity as such, a court of competent jurisdiction approves such advancement and (c) the directors or the Advisor or its Affiliates undertake to repay the amount paid or reimbursed by the Corporation, together with the applicable legal rate of interest thereon, if it is ultimately determined that the particular indemnitee is not entitled to indemnification.

ARTICLE XIII

AMENDMENT

Subject to Section 11.4, the Corporation reserves the right from time to time to make any amendment to the charter, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in the charter, of any shares of outstanding Capital Stock.

ARTICLE XIV

GOVERNING LAW

The rights of all parties and the validity, construction and effect of every provision hereof shall be subject to and construed according to the laws of the State of Maryland without regard to conflicts of laws provisions thereof; provided that the foregoing choice of law shall not restrict the application of any state’s securities laws to the sale of securities to its residents or within such state.

THIRD: The amendment and restatement of the charter of the Corporation as hereinabove set forth has been duly advised by the board of directors and approved by the stockholder of the Corporation as required by law.

FOURTH: The current address of the principal office of the Corporation is as set forth in Article III of the foregoing amendment and restatement of the charter.

FIFTH: The name and address of the Corporation’s current resident agent are as set forth in Article III of the foregoing amendment and restatement of the charter.

42

SIXTH: The number of directors of the Corporation and the names of those currently in office are as set forth in Section 7.1 of the foregoing amendment and restatement of the charter.

SEVENTH: The undersigned President acknowledges the foregoing amendment and restatement of the charter to be the corporate act of the Corporation and as to all matters and facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties of perjury.

[SIGNATURES ON FOLLOWING PAGE]

43

IN WITNESS WHEREOF, Resource Real Estate Opportunity REIT, Inc., has caused the foregoing amendment and restatement of the charter to be signed in its name and on its behalf by its President and attested to by its Secretary on this 14th day of September, 2009.

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
By:	/s/ Kevin M. Finkel	(SEAL)
	Kevin M. Finkel
	President
ATTEST
By:	/s/ Shelle Weisbaum

44

EX-10.1

Exhibit 10.1

ADVISORY AGREEMENT

between

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

and

RESOURCE REAL ESTATE OPPORTUNITY ADVISOR, LLC

September 14, 2009

TABLE OF CONTENTS

	Page
ARTICLE 1 - DEFINITIONS	1
ARTICLE 2 - APPOINTMENT	8
ARTICLE 3 - DUTIES OF THE ADVISOR	8
3.01 Organizational and Offering Services	8
3.02 Acquisition Services	8
3.03 Asset Management Services	9
3.04 Stockholder Services	12
3.05 Other Services	12
ARTICLE 4 - AUTHORITY OF ADVISOR	12
4.01 General	12
4.02 Powers of the Advisor	12
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	13
ARTICLE 7 - LIMITATION ON ACTIVITIES	14
ARTICLE 8 - FEES	14
8.01 Acquisition Fees	14
8.02 Asset Management Fees	15
8.03 Disposition Fees	15
8.04 Debt Financing Fees	16
8.05 Changes to Fee Structure	16
ARTICLE 9 - EXPENSES	17
9.01 General	17
9.02 Timing of and Limitations on Reimbursements	19
ARTICLE 10 - VOTING AGREEMENT	20
ARTICLE 11 - RELATIONSHIP OF ADVISOR AND COMPANY; OTHER ACTIVITIES OF THE ADVISOR	20
11.01 Relationship	20
11.02 Time Commitment	21
11.03 Investment Opportunities and Allocation	21
ARTICLE 12 - THE RESOURCE REAL ESTATE OPPORTUNITY 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	22
13.04 Duties of Advisor Upon Termination	22
ARTICLE 14 - ASSIGNMENT	23
ARTICLE 15 - INDEMNIFICATION AND LIMITATION OF LIABILITY	23
15.01 Indemnification	23
15.02 Limitation on Indemnification	23

i

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

ii

ADVISORY AGREEMENT

This Advisory Agreement, dated as of September 14, 2009 (the “Agreement”), is between Resource Real Estate Opportunity REIT, Inc., a Maryland corporation (the “Company”), and Resource Real Estate Opportunity Advisor, 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 (the “Board”), all as provided herein; and

WHEREAS, the Advisor is willing to undertake to render such services, subject to the supervision of the Board, 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 communications expenses, costs of appraisals, nonrefundable option payments on properties or other investments not acquired, accounting fees and expenses, title insurance premiums.

“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 the Company or any of its Subsidiaries to any Person in connection with making or investing in any Property, Loan or other Permitted Investment or the purchase, development or construction of any Property by the Company or any of its Subsidiaries. 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

1

Development Fees and Construction Fees paid to Persons not Affiliated with the Advisor in connection with the actual development and construction of a Property.

“Advisor” means (i) Resource Real Estate Opportunity Advisor, LLC, a Delaware limited liability company, or (ii) any successor advisor to the Company.

“Affiliate” or “Affiliated” means, with respect to any first Person, any of the following: (i) any other Person directly or indirectly controlling, controlled by, or under common control with such first Person; (ii) any other Person directly or indirectly owning, controlling, or holding with the power to vote 10% or more of the outstanding voting securities of such first Person; (iii) any legal entity for which such first Person acts as an executive officer, director, trustee, or general partner; (iv) any other Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such first Person; and (v) any executive officer, director, trustee, or general partner of such first 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.

“Asset Management Fee” shall have the meaning set forth in Section 8.02.

“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 book values at the end of each month during such period.

“Board” means the board of directors of the Company, as of any particular time.

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

“Charter” means the articles of incorporation of the Company, as amended from time to time.

“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 Resource Real Estate Opportunity REIT, Inc., a corporation organized under the laws of the State of Maryland.

2

“Competitive Brokerage Commission” means a real estate or brokerage commission for the purchase or sale of a Property, Loan or Permitted Investment that is reasonable, customary, and competitive in light of the size, type, and location of the Property, Loan or Permitted Investment.

“Conflicts Committee” shall have the meaning set forth in the Company’s Charter.

“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 or one of its Subsidiaries for the sale of a Property, Loan or other Permitted Investment.

“Cost of Investments” means the sum of (i) with respect to the acquisition or origination of a Property, Loan or other Permitted Investment to be owned by the Company or a Subsidiary, the amount actually paid or allocated to fund the acquisition, origination, development, construction or improvement of the Property, Loan or other Permitted Investment, inclusive of expenses associated with the acquisition or origination of such Property, Loan or other Permitted Investment and the amount of any debt associated with, or used to fund the investment in, such Property, Loan or other Permitted Investment and (ii) with respect to the acquisition or origination of a Property, Loan or other Permitted Investment through any Joint Venture or any partnership in which the Company or the Partnership is, directly or indirectly, a partner and which is not deemed a Subsidiary, the portion that is attributable to the Company’s direct or indirect investment in such Joint Venture or partnership of the amount actually paid or allocated to fund the acquisition, origination, development, construction or improvement of the Property, Loan or other Permitted Investment, inclusive of expenses associated with the acquisition or origination of such Property, Loan or other Permitted Investment, plus the amount of any debt associated with, or used to fund the investment in, such Property, Loan or other Permitted Investment.

“Dealer Manager” means (i) Chadwick Securities, Inc., or (ii) any successor dealer manager to the Company.

“Debt Financing Fee” means the fee payable under Section 8.04.

“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 8.03.

3

“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 principles generally accepted in the United States.

“Gross Proceeds” means the aggregate purchase price of all securities 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 or its Subsidiaries, 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.

“Independently Appraised Value of Investments” means the sum of (i) with respect to Properties, Loans or other Permitted Investments owned by the Company or a Subsidiary, the Appraised Value of each such Property, Loan or other Permitted Investment without deduction for any debt encumbering such Property, Loan or other Permitted Investment and (ii) with respect to a Property, Loan or other Permitted Investment owned through any Joint Venture or any partnership in which the Company or the Partnership is, directly or indirectly, a partner and which is not deemed a Subsidiary, the portion that is attributable to the Company’s direct or indirect investment in such Joint Venture or partnership of the Appraised Value of each such Property, Loan or other Permitted Investment without deduction for any debt encumbering such Property, Loan or other Permitted Investment.

“Initial Public Offering” means the initial public offering of Shares registered on Registration Statement No. 333-160463 on Form S-11.

“Joint Venture” means any joint venture, limited liability company or other arrangement between the Company and a third party or an 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 Charter.

“Loan Servicer” means an entity that has been retained to perform and carry out loan servicing functions with respect to one or more Loans.

“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, including, without limitation, mezzanine loans, B-notes, bridge loans, convertible mortgages, wraparound mortgage

4

loans, construction mortgage loans, loans on leasehold interests, and participations in such loans.

“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 included in the Company’s consolidated accounts arising from the sale of assets.

“Offering” means any Public Offering or Private Placement.

“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 partner.

“Organization and Offering Expenses” means all expenses incurred by or on behalf of the Company in connection with or preparing the Company for the offering and distributing of its Shares in a Public Offering or Private Placement, 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); placement agent fees and expenses; any expense allowance granted by the Company to the underwriter or placement agent or any reimbursement of expenses of the underwriter or placement agent 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;

5

and expenses of obtaining exemption or qualification of the sale of the securities under Federal and State laws, including taxes and fees, accountants’ and attorneys’ fees.

“Partnership” means Resource Real Estate Opportunity OP, LP, 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 and Loans) 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 Charter, Bylaws and the investment objectives and policies adopted by the Board from time to time, other than short-term investments acquired for purposes of cash management.

“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.

“Private Placement” means any offering of the Company’s securities that is exempt from registration with the SEC under the Securities Act of 1933.

“Property” means any real property or properties transferred or conveyed to the Company or the Partnership, either directly or indirectly, including through ownership interests in a Joint Venture or partnership.

“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.

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

“Registration Statement” means the registration statement filed by the Company with the SEC on Form S-11 (Reg. No. 333-160463), as amended from time to time, in connection with the Initial Public Offering.

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

“Sale” 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, including any event with

6

respect to any Property, Loan or other Permitted Investment that gives rise to a significant amount of insurance proceeds or condemnation awards, and including the issuance by one of the Company’s subsidiaries of any asset-backed securities or collateralized debt obligations as part of a securitization transaction; (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 any partnership in which it is a partner; or (C) any Joint Venture or any partnership in which the Company or the Partnership is a 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, and including the issuance by such Joint Venture or any partnership or one of its subsidiaries of any asset-backed securities or collateralized debt obligations as part of a securitization transaction, 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 shares of common stock of the Company, par value $.01 per share.

“Stockholders” means the registered holders of the Shares.

“Subsidiary” means, with respect to any Person (the “parent”), at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership or limited liability company, more than 50% of the general partnership interests or managing member interests are, as of such date, owned, controlled or held, directly or indirectly, by one or more of the parent and its Subsidiaries.

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

7

“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.

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, to make investment decisions on behalf of the Company subject to the limitations in the Company’s Charter, the direction and oversight of the Board and Section 4.03 hereof, 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 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

8

Investments on behalf of the Company and its Subsidiaries; (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 of the Company and its Subsidiaries; and (e) enter into leases, service contracts and other agreements for Properties, Loans and other Permitted Investments of the Company and its Subsidiaries;

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

(iv) With respect to prospective investments presented to the Board, prepare reports regarding such 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 and its Subsidiaries;

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

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

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 and its Subsidiaries’ 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 and its Subsidiaries;

9

(d) Monitor and evaluate the performance of each asset of the Company and its Subsidiaries and the Company’s and its Subsidiaries’ 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 and its Subsidiaries’ 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 with respect to investment and borrowing opportunities presented to the Board, furnish the Board with advice and recommendations with 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 and its Subsidiaries;

(g) Oversee the performance by the (1) Property Managers of their duties, including collection and proper deposits of rental payments and payment of Property expenses and maintenance and (2) Loan Servicers of their duties, including collection and application of payments, restructurings, workouts, foreclosures and accounting for Loans;

(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 its Subsidiaries, on the one hand, and any Joint Venture partners on the other; and

(k) Consult with the Company’s officers and the Board and provide assistance with the evaluation and approval of potential asset disposition, sale and refinancing opportunities that are presented to the Board.

(ii) Accounting and Other Administrative Services:

10

(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 and its Subsidiaries;

(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 and its Subsidiaries 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, 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 and its Subsidiaries’ businesses 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;

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

(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 and its Subsidiaries with all necessary cash management services;

(j) Manage and coordinate with the transfer agent the periodic 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) Consult with the Company’s officers and the Board relating to the corporate governance structure and appropriate policies and procedures related thereto;

11

(m) Perform all reporting, record keeping, internal controls and similar matters in a manner to allow the Company and its Subsidiaries to comply with applicable law, including federal and state securities laws and the Sarbanes-Oxley Act of 2002, and provide the Company’s officers and the Board with timely updates regarding the Company’s compliance with applicable law;

(n) Notify the Board of all proposed material transactions before they are completed and get approval where necessary; and

(o) 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.

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 and its Subsidiaries 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 and its Subsidiaries 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 Charter.

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

12

of the Company, the power to direct the management, operation and policies of the Company, including making, financing and disposing of investments, 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 (or its Subsidiaries) without the prior approval of the Board or duly authorized committees thereof if the Charter or Maryland General Corporation Law require the prior approval of the Board (or if the governing documents or governing law applicable to any Subsidiary require the prior approval of the governing body of such Subsidiary). If the Board or a committee of the Board must approve a proposed investment, financing or disposition or chooses to do so, the Advisor will deliver to the Board or committee, as applicable, all documents required by it to evaluate such investment, financing or disposition.

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 or its Subsidiaries 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 (and its Subsidiaries) or in the name of the Company (and its Subsidiaries) 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 and its Subsidiaries, under such terms and conditions as the Board (or the governing body of such Subsidiary) may approve, provided that no funds shall be commingled with the funds of the Advisor. The Advisor shall from time to time 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 and its Subsidiaries’ operations in accordance with GAAP, which shall be supported by sufficient

13

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 its Subsidiaries 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 and its Subsidiaries’ 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, (v) violate the Charter or Bylaws, or (vi) violate the governing documents of any Subsidiary of the Company. In the event an action that would violate (i) through (vi) 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, sourcing and acquisition or origination (by purchase, investment or exchange) of Properties, Loans and other Permitted Investments, the Company shall pay an Acquisition Fee to the Advisor for each such investment (whether an acquisition or origination). With respect to the acquisition or origination of a Property, Loan or other Permitted Investment to be owned by the Company or a Subsidiary, the Acquisition Fee payable to the Advisor shall equal 2.0% of the sum of the amount actually paid or allocated to fund the acquisition, origination, development, construction or improvement of the Property, Loan or other

14

Permitted Investment, inclusive of the Acquisition Expenses associated with such Property, Loan or other Permitted Investment and the amount of any debt associated with, or used to fund the investment in, such Property, Loan or other Permitted Investment. Acquisition Fees will also include any amounts incurred or reserved for capital expenditures that will be used to provide funds for capital improvements and repairs applied to any real property investment acquired where the Company plans to add value. With respect to the acquisition or origination of a Property, Loan or other Permitted Investment through any Joint Venture or any partnership in which the Company or the Partnership is, directly or indirectly, a partner and which is not deemed a Subsidiary, the Acquisition Fee payable to the Advisor shall equal 2.0% of the portion that is attributable to the Company’s direct or indirect investment in such Joint Venture or partnership of the amount actually paid or allocated to fund the acquisition, origination, development, construction or improvement of the Property, Loan or other Permitted Investment, inclusive of the Acquisition Expenses associated with such Property, Loan or other Permitted Investment, plus the amount of any debt associated with, or used to fund the investment in, such Property, Loan or other Permitted Investment. Notwithstanding anything herein to the contrary, the payment of Acquisition Fees by the Company shall be subject to the limitations on Acquisition Fees contained in (and defined in) the Company’s Charter. The Advisor shall submit an invoice to the Company following the closing or closings of each acquisition or origination, accompanied by a computation of the Acquisition Fee. Generally, the Acquisition Fee payable to the Advisor shall be paid at the closing of the transaction upon receipt of the invoice by the Company. However, the Acquisition Fee may or may not be taken, in whole or in part, as to any year in the sole discretion of the Advisor. All or any portion of the Acquisition Fees not taken as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.

8.02 Asset Management Fees. 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 1.0% of the higher of the Cost of Investments or the Independently Appraised Value of Investments, as of the end of the preceding month. The Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the Asset Management Fee for the applicable period. Generally, the Asset Management 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. However, the Asset Management Fee may or may not be taken, in whole or in part, as to any year in the sole discretion of the Advisor. All or any portion of the Asset Management Fees not taken as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.

8.03 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 the lesser of (i) (A) one-half of the aggregate brokerage commission paid, including the brokerage commission payable pursuant to this clause 8.03(i)(A) or (B) if none is paid, the Competitive Brokerage Commission or (ii) 2.75% of the Contract Sales Price; provided, however, that no Disposition Fee shall be payable to the Advisor for any

15

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 Company will not pay a disposition fee upon the maturity, prepayment or workout of a loan or other real estate related debt investment; however, if the Company takes ownership of a property as a result of a workout or foreclosure of a loan or the Company provides substantial assistance during the course of a workout, the Company will pay a disposition fee upon the sale of such property or disposition of such loan or other real estate related debt investment. The payment of any Disposition Fees by the Company shall be subject to the limitations contained in the Company’s Charter. Any Disposition Fee payable under this Section 8.03 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% of the aggregate Contract Sales Price of each Property, Loan or other Permitted Investment or (ii) the Competitive Brokerage Commission for each Property, Loan or other Permitted Investment. The Advisor shall submit an invoice to the Company following the closing or closings of each disposition, accompanied by 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 year in the sole discretion of the Advisor. All or any portion of the Disposition Fees not taken as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.

8.04 Debt Financing Fees. In the event of any debt financing obtained by or for the Company or its Subsidiaries (and any Joint Ventures that are not Subsidiaries but for which the Advisor provides substantial services in connection with obtaining such debt financing), the Company will pay to the Advisor a debt financing fee equal to 0.5% of the amount available under the financing. The Debt Financing Fee includes the reimbursement of the specified cost incurred by the Advisor of engaging third parties to source debt financing, and nothing herein shall prevent the Advisor from entering fee-splitting arrangements with third parties with respect to the Debt Financing Fee. All or any portion of the Debt Financing Fees not taken as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine. In no event will the Debt Financing Fee be paid more than once in respect of the same debt. For example, upon refinancing, the Advisor would only receive 0.5% of the incremental amount of additional debt financing obtained in the refinancing.

8.05 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.

16

ARTICLE 9

EXPENSES

9.01 General. In addition to the compensation paid to the Advisor pursuant to Article 8 hereof, the Company shall:

(i) pay the Advisor a non-accountable expense reimbursement in an amount equal to 2.5% of the Gross Proceeds raised in any Private Placement occurring prior to the declaration of effectiveness of the Registration Statement, in compensation for the following:

(a) All Organization and Offering Expenses directly related to any such Private Placement; and

(b) All of the expenses paid or incurred by the Advisor or its Affiliates on behalf of the Company (other than Organization and Offering Expenses) or in connection with the services provided to the Company pursuant to this Agreement prior to the effectiveness of the Registration Statement; and

(ii) after the declaration of effectiveness of the Registration Statement, 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 other than those actually reimbursed pursuant to Section 9.01(i), including, but not limited to:

(a) All Organization and Offering Expenses; provided, however, that:

(1) 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 (excluding underwriting and brokerage discounts and commissions) to exceed 2.5% of Gross Proceeds raised in a Public Offering, as of the date of the reimbursement;

(2) within 60 days after the end of the month in which a Public Offering terminates, the Advisor shall reimburse the Company to the extent the Company incurred Organization and Offering Expenses (excluding underwriting and brokerage discounts and commissions) exceeding 2.5% of Gross Proceeds of raised in a Public Offering; and

(3) 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.

17

(b) Acquisition Fees and Acquisition Expenses incurred in connection with the selection and acquisition of Properties, Loans and other Permitted Investments and Joint Venture opportunities, including such expenses incurred related to assets pursued or considered but not ultimately acquired by the Company or any of its Subsidiaries, provided that, notwithstanding anything herein to the contrary, the payment of Acquisition Fees and Acquisition Expenses by the Company shall be subject to the limitations contained in the Company’s Charter;

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

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

(e) 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 Subsidiaries and their business, assets or income;

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

(g) 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;

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

(i) 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 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, Disposition Fees or Debt Financing Fees;

(j) 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;

18

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

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

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

(n) Expenses of organizing, redomesticating, merging, liquidating or dissolving the Company or of amending the Charter or the Bylaws; and

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

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) 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.

(iii) 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 (A) with respect to expenses incurred prior to the declaration of effectiveness of the Registration Statement, the Company has raised $1 million in one or more Private Placements and (B) with respect to expenses subject to reimbursement under Section 9.01(ii), the Company has raised $2 million in the Initial Public Offering.

(iv) Commencing four fiscal quarters after the Company’s making of its first real estate investment, 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

19

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 or (ii) any transaction between the Company or its Subsidiaries and the Advisor or any of its Affiliates. This voting restriction shall survive until such time that the Advisor is both no longer serving as such and is no longer an Affiliate of the Company.

ARTICLE 11

RELATIONSHIP OF ADVISOR AND COMPANY;

OTHER ACTIVITIES OF THE ADVISOR

11.01 Relationship. The Company and the Advisor are not partners or joint venturers with each other, and nothing in this Agreement shall be construed to make them such partners or joint venturers. Nothing herein contained shall prevent the Advisor from engaging in other activities, including, without limitation, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates. Nor shall this Agreement limit or restrict the right of any manager, director, officer, employee or equityholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other Person. The Advisor may, with respect to any investment in which the Company is a participant, also render advice and service to each and every other

20

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 captions “Conflicts of Interest – Certain Conflict Resolution Measures – Resolution of Potential Conflicts of Interest in Allocation of Investment Opportunities” and “Conflicts of Interest – Certain Conflict Resolution Measures – Allocation of Investment Opportunities” in the Registration Statement and private placement memorandum of the Company shall govern the allocation of the opportunity among the Company and Affiliates of the Advisor.

ARTICLE 12

THE RESOURCE REAL ESTATE OPPORTUNITY NAME

The Advisor and its Affiliates have a proprietary interest in the name “RESOURCE REAL ESTATE OPPORTUNITY.” The Advisor hereby grants to the Company a non-transferable, non-assignable, non-exclusive royalty-free right and license to use the name “RESOURCE REAL ESTATE OPPORTUNITY” during the term of this Agreement. Accordingly, and in recognition of this right, if at any time the Company ceases to retain the Advisor or one of its Affiliates to perform advisory services for the Company, the Company will, promptly after receipt of written request from the Advisor, cease to conduct business under or use the name “RESOURCE REAL ESTATE OPPORTUNITY” 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 “RESOURCE REAL ESTATE OPPORTUNITY” 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 “RESOURCE REAL ESTATE

21

OPPORTUNITY.” 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 “RESOURCE REAL ESTATE OPPORTUNITY” 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. Payments to the Advisor pursuant to this Section 13.03 shall be subject to the 2%/25% Guidelines to the extent applicable. 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 all unpaid reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to termination of this Agreement.

13.04 Duties of Advisor Upon Termination. The Advisor shall promptly upon termination:

(i) 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;

(ii) 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;

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

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

22

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. 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 Advisors or its Affiliates for any loss, liability or expense arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged material securities law violations as to the particular indemnitee; (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission 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:

23

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

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

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

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

ARTICLE 16

MISCELLANEOUS

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

To the Company or the Board:

Resource Real Estate Opportunity REIT, Inc.

One Crescent Drive, Suite 203

Philadelphia, Pennsylvania 19112

Resource Real Estate Opportunity Advisor, LLC

One Crescent Drive, Suite 203

Philadelphia, Pennsylvania 19112

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.

24

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 Commonwealth of Pennsylvania.

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.

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.]

25

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
By:	/s/ Alan F. Feldman
	Alan F. Feldman, Chief Executive Officer
RESOURCE REAL ESTATE OPPORTUNITY ADVISOR, LLC
By:	/s/ Kevin M. Finkel
	Kevin M. Finkel, President

[Signature Page to Advisory Agreement between Resource Real Estate Opportunity

REIT, Inc. and Resource Real Estate Opportunity Advisor, LLC]

EX-10.2

Exhibit 10.2

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (this “Agreement”), is made and entered into this 14th day of September, 2009 (the “Effective Date”), by and among RESOURCE REAL ESTATE OPPORTUNITY REIT, INC., a Maryland corporation (the “Company”), RESOURCE REAL ESTATE OPPORTUNITY OP, LP, a Delaware limited partnership (the “OP”) and RESOURCE REAL ESTATE OPPORTUNITY MANAGER, LLC, a Delaware limited liability company (“Manager”).

RECITALS

The OP was organized to acquire, own, operate, lease and manage real estate properties and real estate related debt investments on behalf of the Company. Owner (as defined below) intends to retain Manager to manage real estate properties and real estate related debt investments and to coordinate the leasing of, and manage construction activities related to, some of the real estate properties for the benefit of the Company under the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS

Except as otherwise specified or as context may otherwise require, the following terms have the respective meanings set forth below for all purposes of this Agreement, and the definitions of such terms are equally applicable both to the singular and plural forms thereof:

1.01. Advisor. Advisor means Resource Real Estate Opportunity Advisor, LLC, a Delaware limited liability company, or its successor as advisor of the Company.

1.02. Budget. A composite of, for each Project, (i) an operations budget, which shall be an estimate of receipts and expenditures for the operation of each Project (on a monthly cash basis) during a Fiscal Year, and (ii) a capital budget, which shall be an estimate of capital replacements, substitutions of and additions relating to each Project for a Fiscal Year and for a five Fiscal Year period. The Budget shall include leasing parameters for the Projects.

1.03. Conflicts Committee. The Conflicts Committee is defined in the articles of incorporation, as amended, of the Company.

1.04. Construction Management Fee. The Construction Management Fee is defined in Section 3.03 below.

1.05. Debt Investments. Debt Investments means, collectively, the real estate related debt investments, including, but not limited to, non-performing or distressed loans, including first- and second-priority mortgage loans, mezzanine loans, B-Notes and other loans, in which Owner now owns a direct or indirect interest or hereafter acquires a direct or indirect interest.

1.06. Depository. An FDIC insured bank designated by Owner.

1.07. Depository Account. A trust fund account for the benefit of Owner established and maintained in an FDIC insured or guaranteed account to be opened by the Owner. Manager may open a separate Depository Account for each Project.

1.08. Disbursement Account. A trust account for the benefit of Owner, opened by Manager with an FDIC insured bank to pay for “Operating Expenses” as defined in Section 4.01(b). Manager may open a separate Disbursement Account for each Project.

1.09. Fiscal/Budget Year. The year beginning on January 1^st and ending on December 31^st.

1.10. Gross Receipts. The entire amount of all receipts, determined on a cash basis, from (a) tenant rentals collected pursuant to tenant leases of apartment units, office, retail or other space, for each month during the term hereof; provided that there shall be excluded from tenant rentals any tenant security deposits (except as provided below); (b) cleaning, tenant security and damage deposits forfeited by tenants in such period; (c) laundry and vending machines income; (d) any and all other receipts from the operation of the Projects received and relating to the period in question; (e) proceeds from rental interruption insurance, but not any other insurance proceeds or proceeds from third-party damage claims, and (f) any other sums and charges collected in connection with termination of the tenant leases. Gross Receipts also does not include the proceeds of (i) any sale, exchange, refinancing, condemnation, or other disposition of all or any part of any Project, (ii) any loans to Owner whether or not secured by all or any part of a Project, (iii) any capital expenditures or funds deposited to cover costs of operations made by Owner, and (iv) any insurance policy (other than rental interruption insurance or proceeds from third-party damage claims).

1.11. Lease. Lease means, unless the context otherwise requires, any lease or sublease made by Owner as landlord or by its predecessor.

1.12. Loan Servicing Fee. The Loan Servicing Fee is defined in Section 3.02 below.

1.13. Management Fee. The Management Fee is defined in Section 3.01 below.

1.14. Owner. Owner means the Company, the OP, and any joint venture, limited liability company or other affiliate of the Company or the OP, owned wholly or partially by the Company or the OP, that owns, in whole or in part, on behalf of the Company, one or more Projects or Debt Investments.

1.15. Project Personnel. Those persons employed by Manager with Owner’s prior approval to carry out Manager’s obligations under this Agreement (including, but not limited to, a Project Manager, Assistant Manager, Maintenance Supervisor, maintenance personnel, and other personnel necessary to the operation and maintenance of any Project as specified in the Budget).

2

1.16. Project. Project means each multifamily rental property or other real estate property in which Owner now owns a direct or indirect equity interest or hereafter acquires a direct or indirect equity interest.

1.17. Security Deposit Account. A trust account for the benefit of Owner established by Owner and maintained in an FDIC insured bank to hold tenant security deposits. Manager may open a separate Security Deposit Account for each Project.

1.18. Term. The Term of this Agreement shall commence on the date hereof, and shall terminate on the one-year anniversary thereof; provided, however, that unless this Agreement has been earlier terminated, the Term shall be automatically extended for additional one (1) year periods, on a year-to-year basis, commencing on the day immediately following the then-scheduled end of the Term. Notwithstanding the foregoing, either Owner or Manager may terminate this Agreement by giving thirty (30) days notice in writing to the other party without reason, and either party may also terminate this Agreement for cause as specified by Sections 7.02 and 7.04 below.

1.19. Working Capital Reserve. Twenty Thousand Dollars ($20,000) per Project of Working Capital reserve shall be maintained by Manager in the Disbursement Account during the term hereof, used in connection with the operation of the Projects in accordance with the terms hereof and restored per the terms of Sections 4.03 hereof.

ARTICLE II

DUTIES AND RIGHTS OF MANAGER

2.01. Appointment of Manager. For and in consideration of the compensation hereinafter provided, Manager shall, and the Owner hereby grants to Manager the right to manage the Projects and Debt Investments, and to supervise and direct the leasing, management and operation of the Projects. Such engagement shall not commence with respect to any particular Project or Debt Investment until Owner, in its sole discretion, has the ability to appoint or hire the Manager. Further, Owner may elect to exclude any Project or Debt Investment from the terms of this Agreement upon written notice to Manager delivered by Owner within ten (10) days following the later of (i) Owner’s acquisition of a direct or indirect equity interest in such Project or Debt Investment or (ii) the date on which Owner, in its sole discretion, has the ability to appoint or hire the Manager with respect to such Project or Debt Investment. Owner has the right to include any previously excluded Project or Debt Investment ten (10) days following delivery of written notice from Owner to Manager. Manager hereby accepts such appointment on the terms and conditions hereinafter set forth.

All services performed by Manager under this Agreement shall be performed as an independent contractor of the Owner. All obligations or expenses incurred hereunder, for the benefit of the Projects and all purchases of or contracts for sales or services in bulk or volume that Manager may obtain for discount or convenience in connection with its operation of other apartment projects, shall be for the account of, on behalf of, and at the expense of the Owner (reasonably allocated between all benefited Projects) except as otherwise specifically provided herein. The Owner shall not be obligated to reimburse Manager for expenses for: (i) office equipment or office supplies of Manager (unless incurred solely for the Projects or Debt Investments), (ii) any overhead expenses of Manager incurred

3

with respect to any offices located at any place other than on the Projects, (iii) costs relating to accounting services performed hereunder, (iv) any salaries of employees of Manager not accounted for in the approved Budget and its supporting payroll schedule, or (v) any travel expenses of employees of Manager in supervising the on-site Project Personnel and the operation of the Projects, unless approved in advance in writing by the Owner.

2.02. Dealings with Advisor. Unless Owner specifically informs Manager to the contrary, Advisor may perform any of the obligations or exercise any of the rights of Owner under this Agreement; provided that any actions that Advisor takes on behalf of Owner pursuant hereto are subject to the terms of the agreements between Advisor and Owner, and this Section 2.02 does not expand or modify the authority of Advisor to act on behalf of Owner.

2.03. General Operation. Subject to the limitations imposed by the Budget from time to time, Manager shall manage the Projects and Debt Investments in the same manner as is customary and usual in management of comparable investments, and shall provide such services as are customarily provided by operators and servicers of high quality projects and investments of comparable class and standing.

Manager has received copies of agreements of limited partnership, joint venture partnership agreements and operating agreements of Owner and its affiliates as well as the articles of incorporation, bylaws, private placement memorandum of the Company dated September 15, 2009, including all supplements thereto, and registration statement on Form S-11 (no. 333-160463) of the Company, including all prospectus supplements and post-effective amendments thereto (collectively, the “Ownership Agreements”) and is familiar with the terms thereof. Advisor agrees to obtain and review copies of all mortgages on all properties and inform Manager of any restrictions relating to property use thereof. Manager will use reasonable care to avoid any act or omission which, in the performance of its duties hereunder, in any way conflicts with the terms of the Ownership Agreements or the mortgages in the absence of the express direction of the Conflicts Committee, and Manager shall promptly notify Owner if any such conflict arises.

In addition to the other obligations of Manager set forth herein, Manager shall render the following services and perform the following duties for Owner in connection with the Projects and Debt Investments in a commercially diligent and efficient manner: (a) maintain businesslike relations with tenants whose service requests shall be received, considered, recorded and acted upon in systematic fashion in order to show the action taken with respect to each; (b) collect all monthly rentals due from tenants and rent from users of recreational facilities in the Project, if any; (c) request, demand, collect, and receive any and all charges or rents which become due to Owner, and at Owner’s expense and the Company’s direction, coordinate and oversee such legal action as may be necessary or desirable to collect rent and/or evict tenants delinquent in payment of monthly rental or other charges (security deposits, late charges, etc.) as more particularly described in Section 2.10 below; (d) prepare or cause to be prepared for execution by the Owner (and/or the Company, as applicable) all forms, reports and returns, if any, required to be filed by or on behalf of the Owner under applicable federal, state or local laws and any other requirements relating to the employment of personnel (anything contained herein to the contrary notwithstanding, however, Manager shall not be obligated to prepare any of Owner’s or the Company’s state or federal income tax returns; (e) use all reasonable efforts at all times during the term of this Agreement to operate and maintain the Projects according to the highest standards achievable consistent with the operation of comparable quality units; (f) advertise

4

when necessary, within the constraints of the Budget, the availability of units for rental and display “for rent” or other similar signs upon the Projects, it being understood that Manager may install one or more signs on or about the Project stating that the Project is under management of Manager and may use, in a tasteful manner, Manager’s name and logo in any display advertising of the Project; (g) sign, renew and cancel tenant leases for the Project as agent for Owner, in compliance with standards established by Owner and approved by Owner, on the lease form provided by Manager, and on terms based upon criteria approved from time to time by Owner and based upon Manager’s recommendations, and (h) monitor the performance of the Debt Investments, including (i) collecting amounts owed to the Owner, (ii) reviewing on an as-needed basis the properties serving, directly or indirectly, as collateral for the Debt Investments, the owners of those properties and the markets in general and (iii) maintaining escrow accounts, monitoring advances, monitoring loan covenants and reviewing insurance compliance.

It is understood and agreed, however, that Manager shall not, and does not, provide security services to the Projects. Should the Owner choose to do so, the Owner may direct that Manager, on Owner’s behalf, separately contract with a non-affiliated company (a “Security Company”) providing alarm systems, patrol and/or similar services (“Security Services”). Manager shall have no duty to supervise or control performance of Security Services for any Security Company but Manager shall, if requested by Owner, evaluate and report its findings to Owner, as directed. Without limiting the provisions of Section 6.03 of this Agreement, Owner shall indemnify, defend, protect and hold Manager harmless for, from and against any loss, liability, cost, expense, damage claim or cause of action, including, without limitation, attorneys’ fees, court costs and other litigation expenses and costs, arising from any personal injury, loss of property or other matter occurring on or about any Project, relating to the acts or omissions of a Security Company, any claimed inadequacy of Security Services, the failure to provide Security Services or any other matter relating to the security of any Project. The indemnification obligations of Owner in this Section 2.03 shall survive the expiration or earlier termination of this Agreement.

2.04. Budget.

(a) Manager will submit to Owner for Owner’s approval, an initial capital and operating budget for each Project (the “Initial Budget”) for the first fiscal year (or partial fiscal year as appropriate) within 14 days after a Project is included under this Agreement. Manager shall submit to Owner for Owner’s approval no later than sixty (60) days prior to the beginning of each successive Fiscal Year the Budget for the ensuing Fiscal Year. Manager shall provide Owner with such information regarding the Budget as may be, from time to time, reasonably requested by Owner. Upon receipt of the Budget from Manager, the Company shall promptly deliver the Budget to Owner. Owner shall approve or object to the Budget. Manager may proceed under the terms of the proposed Budget for items that are not objected to and may take any action with respect to items not approved if the expenditure is (i) less than Two Thousand Five Hundred Dollars ($2,500), (ii) is, in the Manager’s reasonable judgment, required to avoid personal injury, significant property damage, a default under any loan encumbering the Project, a violation of applicable law or the suspension of a service or (iii) non-discretionary items such as real estate taxes, insurance or utilities. In the event that the items that are objected to are operational expenditures (but not including real estate taxes, insurance, utilities and similar items that cannot be controlled by Manager), as opposed to capital expenditures, Manager shall be entitled to oversee and supervise the operation of each Project using the prior year’s budget for that Project until the approval is obtained.

5

If the Budget for that Project is not approved, upon the request of Owner, Manager will prepare and deliver to Owner, a revised Budget for the Fiscal Year.

(b) Together with submission of the annual Budget, Manager shall submit to Owner for approval by Owner an operating plan for the general operation of the Projects for the subsequent Fiscal Year, including a proposed list of improvements to the Projects, general insurance plan, marketing plan and plan for the general operation and maintenance of the Projects (the “Operating Plan”). Upon the request of Owner, Manager will prepare and deliver to Owner, a revised Operating Plan for the Fiscal Year.

(c) In the event there shall be a substantial discrepancy between the actual results of operations for any month and the estimated results of operations for such month as set forth in the Budget or the Operating Plan for any Project, Manager shall, upon request, furnish to Owner within fifteen (15) days after the expiration of such month a written explanation as to why the discrepancy occurred. If substantial variations have occurred or are anticipated by Manager during the course of any Fiscal Year, Manager, upon Owner’s reasonable request, shall prepare and submit to Owner a revised Budget and/or Operating Plan covering the remainder of the Fiscal Year.

2.05. Project Personnel. Manager shall use reasonable and prudent efforts to investigate, hire, train, instruct, pay, promote, discharge and supervise the work of all its employees involved with the management of the Projects. Since it is acknowledged that the Projects may need fulltime resident managers on site, it is agreed that a Project Employee (including his/her spouse and dependent children) may live rent-free in an apartment unit designated by Owner, and receive, in addition, salary and normal benefits approved in advance and accounted for in the Budget. All Project Personnel shall be employees of Manager.

Owner shall immediately reimburse Manager each pay period for the total aggregate compensation, including salary, and other related costs and fringe benefits, payable with respect to the Project Personnel who shall be accounted for in the approved Budget and supporting payroll schedule, any temporary employees working at each Project, the Project’s proportionate share of all costs relating to roving maintenance and similar personnel, but only to the extent reflected in the approved Budget. The term “fringe benefits” as used herein shall mean and include the employer’s contribution of F.I.C.A., unemployment compensation and other employment taxes, worker’s compensation, group life and accident and health insurance premiums, 401K contributions, performance bonuses, and disability and other similar benefits paid or payable by the Manager to its employees in other projects operated by Manager, but only to the extent reflected in the approved Budget.

2.06. Contracts and Supplies. Except as otherwise provided herein, Manager, as sub-agent for Owner and at Owner’s expense, and without compensation directly or indirectly to Manager, except as expressly set forth herein, shall enter into written agreements with (i) concessionaires, licensees, or other intended users of the facilities of the Projects, (ii) contractors furnishing services to the Projects, including, but not limited to, utilities, janitorial, trash collection, cleaning, vermin extermination, furnace and air conditioning maintenance, security protection, pest control, landscape and irrigation system maintenance, repair, maintenance, and replacement of elements of the buildings, recreational facilities or common areas (to the extent such work cannot reasonably and less expensively be done by Project Personnel), and any other services that are reasonably necessary to the maintenance and operation of first-class projects comparable to the Projects (herein called “Customary

6

Services”). Manager shall place purchase orders as and when necessary to assure timely and adequate availability of such equipment, tools, appliances, materials and supplies as are necessary to properly maintain and operate the Projects. Notwithstanding the foregoing, all contracts (and renewals thereof) entered into by Manager, unless Manager has obtained Owner’s prior written consent, must be: (a) cancelable without penalty upon not more than thirty (30) days notice: and (b) have terms of one (1) year or less, and (c) require the provider of such Customary Services pursuant to such contract to comply with Owner’s insurance requirements. Manager shall obtain competitive bids annually for any such contracts and, in connection therewith, shall investigate the competency and history of all potential bidders; develop and submit detailed specifications for work to be performed; solicit and obtain such bids; conduct an analysis of bid results; and shall submit all bids to Owner for review and approval, together with Manager’s recommendation with respect thereto. Manager shall continually inspect the Projects and ensure that all contract specifications are being properly administered, and conduct periodic complete walk-throughs of the Projects with specific Customary Service providers as often as reasonably necessary. Manager shall use reasonable efforts to purchase all goods, supplies or services at the lowest cost reasonably available from reputable sources in the metropolitan areas where the Projects are located. In making any contract or purchase, Manager shall use reasonable efforts to obtain favorable discounts for Owner and all discounts, rebates or commissions under any contract or purchase order made hereunder shall inure to the benefit of Owner. Manager shall make payments under any such contract or purchase order to enable Owner to take advantage of any such discount if Owner provides sufficient funds therefor.

2.07. Alterations, Repairs and Maintenance.

(a) Manager shall make or install, or cause to be made and installed at Owner’s expense and in the name of Owner, all necessary or desirable repairs, interior and exterior cleaning, painting and decorating, plumbing, alterations, replacements, improvements and other normal maintenance and repair work on and to the Projects as are customarily made by Manager in the operation of first-class apartment projects; provided that no unbudgeted expenditure may be made for such purposes without the prior approval of Owner, except emergency repairs involving manifest danger to life or property, or when necessary to avoid criminal or civil liability, or for the safety of the tenants, or to avoid the suspension of any necessary service to the Projects (“Emergency Repairs”). Emergency Repairs may be made by the Manager without prior approval and irrespective of the cost limitations imposed by Section 2.04(a), provided that in each such instance, Manager shall, before causing any such Emergency Repairs to be made, use reasonable efforts under the circumstances to notify Owner of that repair. All such work shall be performed by Project Personnel unless it is not reasonable for them to do so due to the expertise, time constraints, or other considerations involved, and/or because having them do so is more expensive.

(b) In accordance with the terms of the approved Budget or upon written demand and/or approval (except in the case of emergency) of Owner, from time to time during the term hereof Manager shall, at Owner’s expense, make all required capital improvements, replacements or repairs to the Projects. Subject to obtaining Owner’s prior written approval in regard to sums necessary to cover costs of unbudgeted capital improvements, Manager shall first use any excess funds in the Depository Account that are not committed to operating expenses, and then shall use funds furnished by Owner for that purpose. The award of a contract for a capital improvement exceeding $5,000 in cost shall be approved by Owner.

7

2.08. Licenses and Permits. Manager shall apply for, obtain, and maintain, in the name and at the expense of Owner, all licenses and permits (including deposits and bonds) required of Owner or Manager in connection with the management and operation of the Project. Owner shall execute and deliver any and all applications and other documents and to otherwise cooperate to the fullest extent with Manager in applying for, obtaining and maintaining such licenses and permits.

2.09. Compliance with Laws. Manager shall use all reasonable efforts to cause all such acts and things to be done in and about the Projects as are required by this Agreement or by any laws, regulations and requirements of any federal, state or municipal government having jurisdiction respecting the use or manner of use of the Projects or the maintenance or operation thereof.

2.10. Legal Proceedings. Manager shall institute, in its own name or in the name of Owner and/or the Company or the OP (as applicable), all legal actions or proceedings that Manager deems reasonable in order to collect rent, or other income from the Projects pursuant to the Leases and to evict and dispossess tenants or other persons in possession, or to otherwise cancel, terminate, or enforce any lease, license, concession or Customary Service contract for the breach thereof by the tenant, licensee, concessionaire, or contractor. All decisions with respect to settlement or case management shall be made only after consultation with and approval by Owner. In each such instance where expenses related to such action are expected to exceed $2,000.00, Manager shall, before taking or causing to be taken any such action, use reasonable efforts under the circumstances to notify Owner of the need for this action, and obtain Owner’s approval. Manager shall promptly notify Owner of any order, rule, or determination or notice of violation of any law or order of any governmental authority.

2.11. Debts of Owner. In the performance of its duties as Manager, Manager shall act solely on behalf of Owner in Manager’s capacity as an independent contractor. All debts and liabilities to third persons incurred by Manager pursuant to this Agreement and in the course of its operation and management of the Projects shall be the debts and liabilities of Owner only, and Manager shall not be liable for (and is hereby indemnified with respect to) any such debts or liabilities, except to the extent Manager has exceeded its authority hereunder. Manager shall have no responsibility to make payments on any indebtedness incurred directly by Owner whether or not secured by the Projects or any portion thereof. Without limiting the provisions of Section 6.03 of this Agreement, Owner shall indemnify, defend, protect and hold Manager harmless for, from and against any loss, liability, cost, expense, damage claim or cause of action, including, but not limited to attorneys’ fees, court costs and other litigation expenses and costs, arising from any debt, liability or payment for which Manager is being exculpated pursuant to this Section 2.11. The indemnification obligation of Owner in this Section 2.11 shall survive the expiration or earlier termination of this Agreement.

ARTICLE III

MANAGEMENT FEES

3.01. Management Fee. In addition to the other reimbursements to Manager provided for elsewhere in this Agreement, Owner shall, on a monthly basis, pay to Manager for its property management services with respect to the Projects a Management Fee equal to 4.5% of Gross Receipts (or a prorated portion for the first month if the Commencement Date occurs on other than the first day of the month); provided that for Projects that are less than 75% occupied, Manager will receive a minimum Management Fee for the first 12 months of ownership in an amount equal to $40 per unit

8

for multifamily rental properties or $0.05 per square foot for other types of properties per month. If this Agreement is terminated anytime other than last day of a calendar month, other than for cause, Manager shall be entitled to receive the Management Fee on a pro rated basis for the month this Agreement is terminated.

3.02. Loan Servicing Fee. In addition to the Management Fee and the other reimbursements to Manager provided for elsewhere in this Agreement, Owner shall, on a monthly basis, pay to Manager for its management services with respect to Debt Investments a Loan Servicing Fee equal to 2.75% of gross interest paid on these investments.

3.03. Construction Management Fee. If Manager is requested by Owner to provide construction management services for new capital improvements (and not maintenance or repairs), Owner shall pay a construction management fee to Manager equal to 5.0% of actual aggregate cost of the redevelopment construction.

3.04. Other Fees. With the prior approval and direction of Owner, Manager may obtain services and materials, including, but not limited to, advertising, consulting, computer hardware and software, forms for use at the Projects, contract services, accounting and bookkeeping services and building materials, through the organization subsidiaries or affiliates of Manager for the benefit of the Projects and Debt Investments, provided the quality of service and the price thereof is competitive with comparable prices and services offered by third parties, and the costs therefore shall be reimbursed by Owner. All discounts, rebates and other savings realized as a result of such services being supplied by an affiliate of Manager shall inure solely to the benefit of Owner. In addition, the following overhead costs shall be reimbursed by Owner: (x) a $350 per month per Project IT Fee for use of Manager’s IT Help Desk and computer training services and (y) a $350 per month per Project Support Fee for use of Manager’s regional management personnel for training and preparation, review and advisory services relating to third party contracts.

3.05. Place of Payment. All sums payable by Owner to Manager hereunder shall be payable to Manager at One Crescent Drive, Suite 203, Navy Yard Corporate Center, Philadelphia, Pennsylvania 19112, unless the Manager shall from time to time specify a different address in writing.

ARTICLE IV

PROCEDURE FOR HANDLING RECEIPTS AND OPERATING CAPITAL

4.01. Bank Deposits. (a) All monies received by Manager for or on behalf of Owner shall be deposited into the “Depository Account” which shall be an interest bearing account designated by Owner in Owner’s name. Manager shall account for such funds consistent with the system of accounting for the Projects and Debt Investments approved by Owner. All funds on deposit shall be and remain under the sole and exclusive control of Owner, subject to the provisions hereof.

(b) A “Disbursement Account” shall also be established to pay the normal and reasonable expenses incident to the operation and maintenance of the Projects. The Disbursement Account shall be under the signatory control of the Manager.

9

4.02. Security Deposits. Manager shall comply with all applicable laws with respect to security deposits. All security deposits and other funds received by Manager shall be promptly deposited in the Security Deposit Account and at all times be the property of Owner, subject to Owner’s obligation to refund the same to tenants if and when required by the leases.

4.03. Transfer and Disbursement Account. Upon written request of Manager with supporting documentation, Owner shall weekly wire funds from the Depository Account into the Disbursement Account in the amount of disbursements to be made on behalf of the Project approved by Owner. Manager shall write checks from the Disbursement Account to pay for (i) costs and expenses of maintaining, operating, leasing, and supervising the operation of the Projects, in accordance with the approved Budget and (ii) security deposit reimbursement to tenants to the extent they are entitled reimbursement under the leases, or payment of rent, damages, or other purposes for which security deposits may be used pursuant to the leases.

4.04. Authorized Signatories. In addition to any signatory designated by Owner, any persons from time to time designated by Manager, and approved in writing by Owner, shall be authorized signatories on the Disbursement Account, and shall have authority to make disbursements from such Disbursement Account for the purpose of fulfilling Manager’s obligations hereunder. Funds over Five Thousand Dollars ($5,000.00) may be withdrawn from the Disbursement Account in accordance with this Article IV, only upon the signature of at least two (2) individuals who have been granted that authority by Manager and funds over Twenty Five Thousand Dollars ($25,000) may be withdrawn from the Disbursement Account in accordance with this Article IV only upon the additional prior written approval of Owner, excluding property taxes. All persons who are authorized signatories or who in any way handle funds for the Projects (on-site or off-site) shall be insured for dishonesty in the minimum account of $500,000.00 per occurrence or loss with not more than a $5,000.00 deductible. A certificate confirming such insurance naming Manager, the Company, the OP and Owner as named insureds and confirming that it will not be modified or cancelled without at least thirty (30) days prior written notice to Owner shall be delivered to Owner within 10 days after the date hereof. Any expense relating to such bonds shall be paid by Manager without reimbursement.

ARTICLE V

ACCOUNTING

5.01. Books of Accounts. Manager shall maintain adequate and separate books and records for the Projects and Debt Investments with the entries supported by sufficient documentation to ascertain their accuracy with respect to the Projects and Debt Investments. Owner agrees to provide to Manager any financial or other information reasonably requested by Manager to carry out its services hereunder. Manager shall maintain such books and records at the Manager’s office, at the Projects or at a designated office readily accessible to the Company, the OP and/or Owner. Manager shall ensure such control over accounting and financial transactions as is commercially reasonably necessary to protect the Owner’s assets from theft, error or fraudulent activity by Manager’s employees. Manager shall bear losses arising from such instances, including, without limitation, the following: (a) theft of assets by Manager’s employees, principals or officers or those individuals associated or affiliated with Manager; (b) overpayment or duplicate payment of

10

invoices arising from either gross negligence or willful misconduct, unless credit is subsequently received; (c) overpayment of labor costs arising from either the gross negligence or willful misconduct of Manager, unless credit is subsequently received by the Owner; (d) overpayment resulting from payment from suppliers to Manager’s employees or associates arising from the purchase of goods or services for the Projects; and (e) unauthorized use of facilities by Manager or Manager’s employees or associates.

5.02. Financial Reports. No later than the fifteenth (15^th) calendar day following the close of each month and calendar quarter, Manager shall furnish to Owner a report of all significant transactions occurring during the prior month as described on Exhibit A attached hereto. Manager also shall deliver to Owner within a reasonable time after (i) the close of a calendar year and (ii) the termination of this Agreement, a balance sheet for the Projects and Debt Investments. This report shall show all collections, delinquencies, uncollectible items, vacancies and other matters pertaining to the management, operation and maintenance of the Projects and Debt Investments during the month. Upon the termination of this Agreement, Manager shall deliver to Owner all reports described on Exhibit A within thirty (30) calendar days of the effective date of termination. The statement of income and expenses, the balance sheet and all other financial statements and reports shall be prepared on an accrual basis in accordance with, to the extent possible, generally accepted accounting principals (except that footnote disclosures are not required). Manager may, but shall not be required, to, obtain audited financial statements for the Projects. Upon request by Owner, Manager shall also comply with all reporting requirements relating to the operation of the Projects required under any mortgage or deed of trust affecting the Projects. Notwithstanding the foregoing, Owner reserves the right to reasonably request that the financial reports be provided in a different format at no additional cost.

5.03. Supporting Documentation. As additional support to the quarterly financial statement, unless otherwise directed by Owner, and at the expense of Owner, Manager shall maintain and make available at Manager’s office or at the Projects or at a designated office readily accessible to the Company, the OP and/or Owner, copies of the following: (a) all bank statements, bank deposit slips, bank debit and credit memos, canceled checks and bank reconciliations; (b) detailed cash receipts and disbursement records; (c) detailed trial balance for receivables and payables and billed and unbilled revenue items; (d) rent roll of tenants; (e) paid invoices (or copies thereof); (f) summaries of any adjusting journal entries; (g) supporting documentation for payroll, payroll taxes and employee benefits; (h) appropriate details of accrued expenses and property records; (i) information regarding the operation of the Projects necessary for preparation of the tax returns for the Owner; and (j) market study of competition (quarterly only). In addition, Manager shall deliver quarterly to Owner with the quarterly financial statement, copies of the documents described in (a) (statements and reconciliations only), (b), (c), (d) and (h) above. Manager shall deliver a copy of the document described in (j) to Owner upon receipt of a written request.

ARTICLE VI

GENERAL COVENANTS

6.01. Operating Expenses. The Company and the OP shall cause Owner to be solely responsible for the costs and expenses of maintaining and operating the Projects in accordance with the provisions of this Agreement, and shall pay all such costs and expenses, to the extent contemplated by

11

this Agreement or incurred in accordance with the Budget, except if such costs and/or expenses are (i) attributable to costs arising from gross negligence or willful misconduct of Manager or Manager’s associates and/or employees; or (ii) cost of insurance purchased by Manager for its own account.

6.02. Right of Inspection and Review. Owner, the Company and the OP and their accountants, attorneys, and agents shall have the right to enter upon any part of the Projects at all reasonable times during the term of this Agreement for the purpose of examining or inspecting the Projects or examining or making extracts of books and records of the Projects, but any inspection shall be done with as little disruption to the business of the Projects as possible during normal office hours and with reasonable notice.

6.03. Indemnification and Hold Harmless.

(a) Indemnification and Hold Harmless By Owner. Owner shall indemnify, hold harmless and defend Manager (and Manager’s partners, directors, shareholders, officer, employees and agents), with counsel reasonably satisfactory to both the Manager and the Owner’s insurer, for, from and against any and all liabilities, claims, causes of action, losses, demands and expenses whatsoever including, but not limited to attorneys’ fees, court costs and other litigation expenses and costs arising out of or in connection with the ownership, maintenance or operation of the Projects, Debt Investments or this Agreement, including but not limited to claims involving security services as to which Manager is acting under the express or implied directions of Owner, and the loss of use of property following and resulting from damage or destruction (collectively “Claims”), except to the extent arising directly from the negligence or misconduct of Manager. Owner’s Liability Insurance (as defined in Section 8.01 below) will be required to cover all actions of Manager where the Owner’s insurer agrees to provide Owner and Manager a defense (whether or not such defense is provided with a reservation of rights by the insurer) in accordance with the terms of such insurance policy. The indemnification by Owner contained in this Section 6.03 is separate and in addition to any other indemnification obligations of Owner contained in this Agreement.

(b) Indemnification By Manager. Manager shall indemnify Owner and the Company, the OP and Advisor (and their respective directors, shareholders, members, trustees, agents, employees and officers) with counsel reasonably satisfactory to both the Owner and the Manager’s insurer, for, from and against any and all Claims, which arise out of the gross negligence or willful misconduct of Manager.

(c) Survival of Covenants. The indemnification and hold harmless obligations of the parties in this Section 6.03 shall survive the expiration or earlier termination of this Agreement.

6.04. Covenants Concerning Payment of Operating Expenses. If there are not sufficient funds in the Depository Account to move to the Disbursement Account in order to make any payment of operating expenses, Manager shall immediately notify Owner in writing. Owner will deposit funds within fifteen (15) days of written notification into the Disbursement Account. Owner further recognizes that the Projects may be operated in conjunction with other projects and that costs may be allocated or shared between such projects on a more efficient and less expensive method of operation in an effort to save costs and operate the Projects in a more efficient manner.

12

ARTICLE VII

DEFAULTS; TERMINATION RIGHTS

7.01. Default by Manager. Manager shall be deemed to be in breach hereunder in the event Manager shall fail to keep, observe or perform any covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Manager, and such breach shall continue for a period of thirty (30) days after notice thereof by Owner to Manager, or if such breach cannot be cured within thirty (30) days, then such additional period as shall be reasonable, provided that Manager is capable of curing same and is diligently proceeding to cure such breach, and provided further that if such breach is a failure to pay money, such, cure period shall be five (5) days after notice from Owner with no additional period thereafter.

7.02. Remedies of Owner. Upon the occurrence of a breach by Manager as specified in Section 7.01 hereof, Owner shall be entitled to immediately terminate this Agreement and Owner shall have the right to pursue any other remedy it may have at law or in equity. Following such a termination, Owner shall have no further obligation to pay any fee due hereunder. Notwithstanding such termination, Manager shall not be relieved of any liability arising as a result of Manager’s default and the resulting termination of this Agreement.

7.03. Defaults by Owner. Owner shall be deemed to be in breach hereunder in the event Owner shall fail to keep, observe or perform any covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Owner, and such breach shall continue for a period of thirty (30) days after written notice thereof by Manager to Owner, or if such breach cannot be cured within thirty (30) days, then such additional period as shall be reasonable provided Owner is capable of curing same and is diligently proceeding to cure such breach, provided that such breach is a failure to pay money, such cure period shall be five (5) days after written notice from Manager with no additional period thereafter.

7.04. Remedies of Manager. Upon the occurrence of a breach by Owner as specified in Section 7.03 hereof, Manager shall be entitled to immediately terminate this Agreement and upon any such termination by Manager pursuant to this Section 7.04, Manager shall have the right to pursue any other remedy it may have at law or in equity, it being expressly understood that following such a termination, Manager shall have no further obligation to perform any of its obligations hereunder other than pursuant to Section 7.05 below, however, notwithstanding such termination, Owner shall continue to be obligated to pay and perform all of its obligations which have accrued as of the date of termination.

7.05. Expiration of Term. Upon the expiration of the Term hereof pursuant to Section 1.12 hereof, or the earlier termination hereof pursuant to either of Section 7.02 or 7.04, Manager shall deliver to Owner all funds, including tenant security deposits, but save and except such sums that are due and owing to Manager hereunder and the books and records of Owner then in the possession or control of Manager. Within thirty (30) days following expiration or termination, Manager shall deliver to Owner a final accounting, in writing, with respect to the operations of the Projects. This provision shall survive the expiration or earlier termination of this Agreement.

13

7.06. Termination of Advisory Agreement. Notwithstanding anything to the contrary contained herein, unless the holder of a mortgage on a Project otherwise determines to keep this Agreement in effect, this Agreement shall automatically terminate upon Manager receiving written notification from Advisor or Owner that Owner has terminated the Advisory Agreement. Upon such termination, the parties hereto shall have no further obligation to the other, unless otherwise specifically set forth herein.

7.07. Termination of a Project or Debt Investment. This Agreement shall automatically terminate as to any specific Project or Debt Investment upon its sale or other transfer of ownership to a person other than Owner or an affiliate of Owner. In the event that Owner forecloses or otherwise takes title to the real property underlying a Debt Investment, the underlying property will automatically become a Project under this Agreement, unless the property is excluded pursuant to Section 2.01 of this Agreement, and Manager will thereafter be entitled to receive a Management Fee instead of a Loan Servicing Fee with respect thereto.

ARTICLE VIII

INSURANCE

8.01. Owner’s Liability Insurance. During the term of this Agreement and all renewals thereof, Owner shall, at Owner’s expense, carry and maintain primary commercial general liability insurance on an “occurrence” basis, naming Manager as an additional insured, with limits of not less than Five Million Dollars ($5,000,000.00) per occurrence (the “Owner’s Liability Insurance”). Owner shall name Manager as an additional insured on Owner’s Liability Insurance. If the Owner’s Liability Insurance has a deductible, or similar clause, Owner shall be responsible for paying any losses that are not covered by the Owner’s Liability Insurance because of said deductible or similar clause.

8.02. Insurance Carried by Manager. Manager shall maintain the following insurance during the term of this Agreement, as approved by Owner:

(a) Workers’ Compensation Insurance complying with the laws of the State in which the work is to be performed covering all its employees whether or not working at or in connection with a Project, as a Project Personnel expense under Section 2.05 above;

(b) Employers’ Liability Insurance with minimum liability limits of $1,000,000 Bodily Injury by Accident per accident, $1,000,000 Bodily Injury by Disease per person and $1,000,000 Bodily Injury by Disease policy limit, at Manager’s expense as part of its overhead;

(c) Commercial General Liability Insurance with minimum limits of $1,000,000 Combined Single Limit for Bodily Injury and Property Damage, each occurrence/$2,000,000 General Aggregate, at Manager’s expense as part of its overhead;

(d) Automobile Liability Insurance covering owned, non-owned and hired automobiles and automobile equipment with minimum limit of $1,000,000 for injury or death of any one person, for any occurrence and property damage, at Manager’s expense as part of its overhead; and

14

(e) Employees Dishonesty Insurance as described in Section 4.04 above, at Manager’s expense as part of its overhead.

Insurers providing the coverage to Owner and Manager described in this Article VIII shall have a Best’s rating of A-VII or better. Owner reserves the right to approve the insurer’s form and content of Manager’s insurance policies. All policies will contain severability of interest provisions. Within thirty (30) days of the date of this Agreement, Owner shall provide to Manager, and Manager shall provide to Owner, Certificates of Insurance evidencing insurance. Such certificates will be endorsed to provide thirty (30) days prior written notice to Manager of any material change or cancellation of coverage.

8.03. Owner’s Liability Insurance shall be Primary. In connection with claims by third parties, as between Owner’s Liability Insurance and Manager’s Liability Insurance, Owner’s Liability Insurance shall be considered the primary coverage. No claim shall be made by Owner or its insurance company under or with respect to any insurance maintained by Manager except in the event that Owner’s Liability Insurance is exhausted or in the event such claim is caused solely by the gross negligence (except actions or policies specifically approved or required by Owner) or willful misconduct (except actions or policies specifically approved or required by Owner) on the part of Manager or Manager’s employees. Owner shall have its insurance carrier accept and endorse these coverage requirements.

8.04. Waiver of Subrogation. Each insurance policy maintained by Owner or by Manager as required herein shall contain a waiver of subrogation clause, so that no insurer shall have any claim over or against Owner or Manager, as the case may be, by way of subrogation or otherwise, with respect to any claims that are insured under such policy. All insurance relating to each Project shall be only for the benefit of the party securing said insurance and all others named as insureds. Owner and Manager hereby release each other from all rights of recovery under or through subrogation or otherwise for any and all losses and damages to the extent of such insurance coverage and agree that no insurer shall have a right to recover any amounts paid with respect to any claim against Owner or Manager by subrogation, assignment or otherwise.

8.05. Handling Claims. Manager shall report to Owner promptly in writing all accidents and claims of which it is aware for damage and injury relating to the ownership, operation, and maintenance of the Projects and any damage or destruction to the Projects coming to the attention of Manager. Manager shall not settle on Owner’s behalf any claims with Owner’s insurers or any third-party claimant without Owner’s prior consent.

8.06. Environmental Matters.

(a) Manager shall not knowingly place or cause to be placed on, in, under or around the Projects, any Hazardous Substances (as defined below). Manager shall take all commercially reasonable steps to cause any tenants who do same to remove such Hazardous Substances in a timely manner. Without limiting the provisions of Section 6.03 of this Agreement, Owner agrees to defend, indemnify, and hold harmless Manager and its partners, officers, employees and agents, for, from and against any and all actions, administrative proceedings, causes of action, charges, claims, commissions, costs, damages, decrees, demands, duties, expenses, fees, fines, judgments, liabilities, losses, obligations, orders, penalties, recourses, remedies, responsibilities, rights,

15

suits and undertakings of every nature and kind whatsoever, including, but not limited to, attorneys’ fees, court costs and other litigation expenses and costs, from the presence of Hazardous Substances on, under or about the Project, except to the extent that the Hazardous Substances are present as a result of the gross negligence or willful misconduct of Manager or the breach of Manager’s obligations pursuant to the first sentence of this Section 8.06. Without limiting the generality of the foregoing, the indemnification provided by this paragraph specifically shall cover costs incurred in connection with any investigation of site conditions or any remediation, removal or restoration work required by any federal, state or local governmental agency because of the presence of Hazardous Substances in, on, under or about the Project, except to the extent that the Hazardous Substances are present as a result of the gross negligence or willful misconduct of Manager or the breach of Manager’s obligations pursuant to the first sentence of this Section 8.06. For purposes of this section, “Hazardous Substances” shall mean (i) all substances defined as hazardous materials, hazardous wastes, hazardous substances, or extremely hazardous waste under any applicable federal, state, or local law or regulation, and (ii) mold, mold contamination, mold spores, bacterial contaminants and/or any and all substances or materials related thereto. The indemnification obligation of Owner in this Section 8.06 shall survive the expiration or earlier termination of this Agreement.

(b) Without limiting the indemnifications set forth in Section 8.06(a) above, Owner and Manager further agree that Owner is solely responsible for any and all conditions at the Projects that could give rise to bodily injury or property damage claims stemming from the presence of mold, mold contamination, mold spores, bacterial contaminants and/or any and all substances or materials related thereto. Manager shall endeavor to inform Owner of the availability and cost of insurance to cover any and all conditions at the Projects that could give rise to bodily injury or property damage claims stemming from the presence of mold, mold contamination, mold spores, bacterial contaminants and/or any and all substances or materials related thereto, but the decision of whether or not to purchase insurance relating to such risk is solely that of Owner, and Manager shall have no obligation or liability whatsoever therefor. Owner’s failure to purchase or consider insurance alternatives for such risk shall not in any manner alter Manager’s obligations or liabilities hereunder.

ARTICLE IX

MISCELLANEOUS PROVISIONS

9.01. Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania.

9.02. Notices. Any notice or communication hereunder must be in writing, and may be given either by personal delivery or by private courier with an acknowledged receipt or by registered or certified mail, and if given by registered or certified mail, the notice shall be deemed to have been given and received three (3) business days after a registered or certified letter containing such notice, properly addressed, with postage prepaid, is deposited in the United States mail; and if given otherwise than by registered mail, it shall be deemed to have been given when delivered to and received by the party to whom it is addressed. Such notices or communications shall be given to the parties hereto at the addresses set forth opposite the names of the respective parties on the signature page hereof. Any party hereto may at any time by giving ten (10) days written notice to the other party hereto designate

16

any other address in substitution of the foregoing address to which such notice or communication shall be given.

9.03. Severability. If any term, covenant or condition of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or such other documents, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant or condition of this Agreement or such other documents shall be valid and shall be enforced to the fullest extent permitted by law.

9.04. No Joint Venture or Partnership. Owner and Manager hereby agree that nothing contained herein or in any document executed in connection herewith shall be construed as making any combination of Manager, Owner, the Company and the OP joint venturers or partners.

9.05. Modification; Termination. This Agreement terminates any and all prior management agreements among Owner and Manager, related to the Projects and Debt Investments, and any amendment, modification, termination or release of this Agreement may be affected only by a written instrument executed by Manager and Owner.

9.06. Attorneys’ Fees. Should either party employ an attorney or attorneys to enforce any of the provisions hereof or to protect its interest in any manner arising under this Agreement, or to recover damages for the breach of this Agreement, the prevailing party in such action shall be entitled to recover all reasonable costs, damages and expenses, including attorneys’ and experts’ fees, and costs expended or incurred in connection therewith.

9.07. Total Agreement. This Agreement is a total and complete integration of any and all agreements existing among Manager and Owner and supersedes any prior oral or written agreements, promises or representations between them.

9.08. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their permitted successors and assigns. This Agreement is not assignable by Manager without Owner’s consent.

[SIGNATURES CONTAINED ON FOLLOWING PAGE]

17

IN WITNESS WHEREOF, the parties hereto have executed this Management Agreement as of the day and year first above written.

ADDRESS	OWNER
	RESOURCE REAL ESTATE OPPORTUNITY OP, LP
	BY: RESOURCE REAL ESTATE OPPORTUNITY REIT, INC., as general partner of Resource Real Estate Opportunity OP, LP
One Crescent Drive	By:	/s/ Alan F. Feldman
Suite 203	Name:	Alan F. Feldman
Navy Yard Corporate Center	Title:	Chief Executive Officer
Philadelphia, PA 19112
	RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
One Crescent Drive	By:	/s/ Alan F. Feldman
Suite 203	Name:	Alan F. Feldman
Navy Yard Corporate Center	Title:	Chief Executive Officer
Philadelphia, PA 19112
ADDRESS	ADVISOR
	RESOURCE REAL ESTATE OPPORTUNITY ADVISOR, LLC
One Crescent Drive	By:	/s/ Kevin M. Finkel
Suite 203	Name:	Kevin M. Finkel
Navy Yard Corporate Center	Title:	President
Philadelphia, PA 19112
ADDRESS	MANAGER
	RESOURCE REAL ESTATE OPPORTUNITY MANAGER, LLC
One Crescent Drive	By:	/s/ Kevin M. Finkel
Suite 203	Name:	Kevin M. Finkel
Navy Yard Corporate Center	Title:	President
Philadelphia, PA 19112

18

Exhibit A

I. MONTHLY REPORTING REQUIREMENTS

Manager must provide the following by the 15^th day of every calendar month:

• Operating Statements on an Accrual basis in both traditional P&L format (to GAAP Net Income) and Owner approved format (to NOI, Net Cash Flow, and Ending Cash), showing MTD and YTD in Actual/Budget/Variance column format

• Accrual basis variance analysis, with tenant-level detail for income, TI, and leasing expenses

• Check Register for the current month

• VOID Check register

• Balance Sheets on Accrual basis

• Rent Roll and Vacancy reports

• Aged Accounts Receivable trial balance

• Security Deposit detail ledger

• General Ledger reports on a Accrual basis

• All above information in no more than three (3) hardcopies, with financial statements in a electronic format

• Copy of Bank Statement(s) and reconciliation(s)

• Copies of invoices for individual capital expenditures exceeding $5,000

• Ending trial balance on accrual basis

• Net activity trial balance on accrual basis

II. QUARTERLY REPORTING REQUIREMENTS

In addition to the monthly requirements (above), the Manager must provide the following by the 15^th day of every calendar month following each calendar quarter end:

• QTD Operating Statements in Actual/Budget/Variance column forma

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated September 14, 2009, with respect to the consolidated financial statements of Resource Real Estate Opportunity REIT, Inc. (a Maryland Corporation in the Development Stage) contained in this Amendment No. 1 of the Registration Statement and Prospectus on Form S-11 (File No. 333-160463). We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption “Experts.”

/s/ GRANT THORNTON LLP

Philadelphia, Pennsylvania

September 14, 2009

CORRESP

DLA Piper US LLP

4141 Parklake Avenue, Suite 300

Raleigh, North Carolina 27612-2350

www.dlapiper.com

Robert H. Bergdolt

robert.bergdolt@dlapiper.com

T  919.786.2002

F  919.786.2200