POS AM

As filed with the Securities and Exchange Commission on March 3, 2011

Registration No. 333-160463

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 2 TO

FORM S-11

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

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.

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 on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, 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 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 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, please 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	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

This Post-Effective Amendment No. 2 consists of the following:

1. The Registrant’s final prospectus dated June 16, 2010.

2. Supplement No. 9 dated March 3, 2011 to the Registrant’s prospectus dated June 16, 2010. Supplement No. 9 supersedes and replaces all prior supplements to the prospectus.

3. Part II, included herewith.

4. Signature, included herewith.

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 that 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.

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, 2010.

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 June 16, 2012 (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 24 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 a limited operating history, and as of June 15, 2010, our total assets consisted primarily of $11.3 million cash and we had $2.6 million of deferred offering costs. We have not identified any investments to acquire from the proceeds of this offering. Consequently, you will not have the opportunity to evaluate our investments before we make them.

• We are dependent on our advisor and its affiliates to select investments and conduct our operations and this offering. Our advisor has a limited 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 and some of our directors 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.”

• Our charter permits us to pay distributions from any source, including from offering proceeds, borrowings, sales of assets or waivers or deferrals of fees otherwise owed to our advisor. To the extent these distributions exceed our net income or net capital gain, a greater proportion of your distributions will generally represent a return of capital as opposed to current income or gain, as applicable. Our organizational documents do not limit the amount of distributions we can fund from sources other than from cash flows from operations.

• We may change our targeted investments without stockholder consent.

• Some of the other programs sponsored by our sponsor have experienced adverse business developments or conditions.

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 June 16, 2011. 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 June 16, 2011, 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 New York or Pennsylvania investors unless we raise $2.5 million or $25 million, respectively, 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 the Pennsylvania amount by June 16, 2012, we will promptly return all funds held in escrow for the benefit of Pennsylvania investors.

The date of this prospectus is June 16, 2010.

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.

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

• Iowa – Investors must have either (a) a net worth of $350,000 (exclusive of home, auto and furnishings) or (b) a gross annual income of $70,000 and a net worth of at least $100,000 (exclusive of home, auto and furnishings). In addition, shares will only be sold to Iowa residents that have a liquid net worth of at least 10 times their investment in us (exclusive of home, auto and furnishings).

• Nebraska – Investors must have either (a) a net worth of at least $100,000 (exclusive of home, auto and furnishings) and an annual income of $70,000, or (b) a net worth of $350,000 (exclusive of home, auto and furnishings). In addition, the total investment in us should not exceed 10% of the investor’s net worth (exclusive of home, auto and furnishings).

• Ohio and Alabama – 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.

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TABLE OF CONTENTS

SUITABILITY STANDARDS	i
PROSPECTUS SUMMARY	1
RISK FACTORS	24
Risks Related to an Investment in Us	24
Risks Related to Conflicts of Interest	29
Risks Related to This Offering and Our Corporate Structure	32
Risks Related to Investments in Real Estate	38
Risks Related to Investments in Real Estate Related Debt Assets	50
Risks Associated with Debt Financing	56
Risks Related to U.S. Government Programs	58
Federal Income Tax Risks	59
Retirement Plan Risks	65
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	66
ESTIMATED USE OF PROCEEDS	67
MANAGEMENT	70
Board of Directors	70
Executive Officers and Directors	71
Board Committees	73
Compensation of Directors	74
Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents	74
Our Advisor	75
The Advisory Agreement	76
Initial Investment by Our Advisor	77
Other Affiliates	78
Management Decisions	82
MANAGEMENT COMPENSATION	82
STOCK OWNERSHIP	88
CONFLICTS OF INTEREST	88
Our Affiliates’ Interests in Other Resource Real Estate Programs	88
Receipt of Fees and Other Compensation by Our Advisor and its Affiliates	90
Fiduciary Duties Owed by Some of Our Affiliates to Our Advisor and Our Advisor’s Affiliates	92
Affiliated Dealer Manager	92
Affiliated Property Manager	92
Certain Conflict Resolution Measures	92
INVESTMENT OBJECTIVES AND POLICIES	98
Target Portfolio	98
Target Asset Classes	99
Discounted Real Estate Related Debt	100
REO	104
Value-Add Multifamily Rental Properties	105
Our Multifamily Focus	107
Multifamily Real Estate Acquisition Strategy	108
Real Estate Asset Management Strategy	110
Discounted Commercial Mortgage-Backed Securities	113
Other Possible Investments and Activities	114
Co-Investment Strategy	114
Tenant-in-Common Interests in Properties (TICs)	115
Disposition Policies	115
Borrowing Policies	116
Exit Strategy – Liquidation or Listing Policy	116
Charter-Imposed Investment Limitations	117
Investment Limitations Under the Investment Company Act of 1940	118
Disclosure Policies with Respect to Future Probable Acquisitions	122
Changes in Investment Objectives and Policies	122

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PLAN OF OPERATION	122
General	122
Results of Operations	123
Liquidity and Capital Resources	123
Distributions	125
Income Taxes	125
Critical Accounting Policies	126
PRIOR PERFORMANCE SUMMARY	129
Acquisition Summary	130
Public Programs	130
Private Programs	133
Adverse Business Developments or Conditions	139
FEDERAL INCOME TAX CONSIDERATIONS	140
Recent Legislation	141
Taxation of Resource Real Estate Opportunity REIT, Inc.	141
Taxation of Stockholders	156
Backup Withholding and Information Reporting	161
Other Tax Considerations	161
ERISA CONSIDERATIONS	162
Prohibited Transactions	163
Plan Asset Considerations	163
Other Prohibited Transactions	165
Annual Valuation	166
DESCRIPTION OF SHARES	167
General	167
Common Stock	167
Convertible Stock	168
Preferred Stock	169
Distributions	169
Restriction on Ownership of Shares	170
Transfer Agent and Registrar	172
Meetings and Special Voting Requirements	172
Advance Notice for Stockholder Nominations for Directors and Proposals of New Business	173
Inspection of Books and Records	173
Control Share Acquisitions	174
Business Combinations	174
Subtitle 8	175
Tender Offer by Stockholders	176
Distribution Reinvestment Plan	176
Share Redemption Program	179
Restrictions on Roll-Up Transactions	183
THE OPERATING PARTNERSHIP AGREEMENT	184
General	184
Capital Contributions	185
Operations	185
Distributions and Allocations of Profits and Losses	185
Rights, Obligations and Powers of the General Partner	186
Exchange Rights	186
Change in General Partner	187
Transferability of Interests	187
Amendment of Limited Partnership Agreement	187
PLAN OF DISTRIBUTION	187
General	187
Compensation of Dealer Manager and Participating Broker-Dealers	188
Subscription Procedures	191
Suitability Standards	193
Minimum Purchase Requirements	193

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Special Notice to Pennsylvania Investors	194
Investments through IRA Accounts	194
SUPPLEMENTAL SALES MATERIAL	194
LEGAL MATTERS	195
EXPERTS	195
WHERE YOU CAN FIND MORE INFORMATION	195
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

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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. 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. 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). 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 were incorporated in the State of Maryland on June 3, 2009 and we currently do not own any real estate assets. We intend to qualify as a REIT beginning with the taxable year that will end December 31, 2010. 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.

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;

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• 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. As of March 31, 2010, Resource Real Estate managed a portfolio of nearly $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 14,000 multifamily units and other real estate assets located throughout the United States. Resource Real Estate and its over 400 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 March 31, 2010, managed over $13.1 billion of assets, has sponsored two New York Stock Exchange publicly traded REITs, Resource Capital Corp. (“Resource Capital”) in 2005 and RAIT Financial Trust, Inc. (“RAIT Financial”) in 1998. Resource Capital (NYSE: RSO) is externally managed by affiliates of our sponsor. Although Resource America sponsored RAIT Financial’s initial public offering in 1998 (NYSE: RAS) by creating the initial RAIT Financial entity, selling RAIT Financial its initial portfolio of assets, and retaining an initial 15% ownership interest and the right to appoint one member to its board of trustees; however, Resource America did not serve as the external manager or advisor of RAIT Financial and currently has no ownership interest in RAIT Financial.

• 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

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termination of our initial public offering, our advisor has agreed to invest 1% of the first $250,000,000 invested in us by non-affiliated investors, or up to $2,500,000.

• 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 March 31, 2010, Resource Financial and its affiliates managed $3.63 billion in bank investments. Resource Financial will provide our advisor with several contacts in the financial services industry, including investment banks, brokerage firms, commercial banks and loan originators, that may 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 continued disruption in the commercial real estate and credit markets that began with the recent economic downturn and parallel credit crisis presents 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. Unemployment, which is usually a lagging indicator of overall macroeconomic conditions, rose dramatically and continues at high levels. Because industry-wide multifamily property performance generally lags the performance of the overall job market, 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 continue to be insufficient capital to refinance debt maturities in the medium- to long-term.

High levels of leverage in the multifamily sector of commercial real estate and the management intensive nature of multifamily rental properties creates specific problems for multifamily borrowers without very strong internal multifamily specific asset and property management capabilities. The multifamily sector had a 30-day commercial mortgage-backed securities delinquency rate of 7.14% as of March 2010, according to Fitch Ratings, April 2010, 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 November 2009 the total amount of distressed multifamily properties increased by $4.7 billion, and as of February 2010, there was $36.9 billion of distressed multifamily assets in the United States. Furthermore, RCA reports that there was $157.0 billion of total distressed U.S. real estate as of February 2010, but that only $26.1 billion had been resolved as of February 2010. We believe that the default rate in the multifamily sector will remain higher than historical experience 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 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 an “over-correction” in the repricing of certain U.S. commercial real estate and real estate related debt that remains in effect. Continued depression of prices is expected to keep 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

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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 figures reported in the New York Post, approximately $1.4 trillion of commercial real estate debt was set to mature between 2009 and 2012, including approximately $204 billion that was set to mature in 2009. We believe there are continuing 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 and dislocations in the market, such as (i) the continued depression of commercial real estate prices during economic recovery, (ii) existing commercial real estate debt instruments reaching maturity with no clear refinancing source as a result of insufficient capital or principal in excess of current real estate market values and (iii) resolution of structural issues associated with complex real estate debt products.

Specifically, we anticipate 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 April 23, 2010, 57 depository institutions have failed in 2010, with approximately $36 billion in combined assets. In 2009, 140 depository institutions failed in 2009, with approximately $170 billion in combined 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 and structured sales of pools of assets. 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. During the recent credit crisis, commercial mortgage-backed securities yields widened significantly due to the fact that many traditional buyers of commercial mortgage-backed securities left the market for various reasons, including margin call sales, forced sales by regulated investors and general scarcity of investment capital and credit. While spreads have tightened since the height of the credit crisis, we expect some dislocation to persist for the next few years due to the slow pace of economic recovery, continued scarcity of credit and lack of improvement in 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.

The sales market for all multifamily properties significantly contracted in 2009. According to RCA, estimated multifamily sales volume for 2009 was $14.14 billion, which represents a 63% decline over 2008 transaction volume. While a number 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 result in higher capitalization rates continuing 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 the 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

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acquire older, unrenovated properties at higher than historical 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 24, 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 a limited operating history. Also, as of June 15, 2010, our total assets consisted primarily of $11.3 million cash and we had $2.6 million 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 a limited operating history and no experience operating a public company. This inexperience makes our future performance difficult to predict.

• Our executive officers and some of our directors are also officers, directors, managers 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?”

• 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. Examples of such a substantial justification include to obtain funds for the following: (i) to repay existing obligations, (ii) to pay sufficient distributions to maintain REIT status, or (iii) to buy an asset where an

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exceptional acquisition opportunity presents itself and the terms of the debt agreement and the nature of the asset are such that the debt does not increase the risk that we would become unable to meet our financial obligations as they became due. 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.

• In connection with the commencement of this offering, our advisor exchanged 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,” and purchased 4,068 shares of our convertible stock that were not sold in our private offering. 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. 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.

• Our charter permits us to pay distributions from any source, including from offering proceeds, borrowings, sales of assets or waivers or deferrals of fees otherwise owed to our advisor. To the extent these distributions exceed our net income or net capital gain, a greater proportion of your distributions will generally represent a return of capital as opposed to current income or gain, as applicable. Our organizational documents do not limit the amount of distributions we can fund from sources other than from cash flows from operations.

• We may experience adverse business developments or conditions similar to those affecting certain programs sponsored by our sponsor, which could limit our ability to make distributions and decrease the value of your investment. For example, for 2004 and 2007, Resource Real Estate Investors, L.P. had negative cash flow from operations of $111,874 and $206,885, respectively, and for 2006 and 2007, Resource Real Estate Investors II, L.P. had negative cash flow from operations of $680,056 and $42,097, respectively.

• Disruptions in the financial markets and sluggish 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.

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• We may change our targeted investments without stockholder consent, which could adversely affect the value of our common stock and our ability to make distributions to you.

What are your investment objectives?

Our principal investment objectives are to:

• preserve, protect and return your capital contribution;

• 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 have five members on our board of directors, three of which are 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 limited liability company that was formed in the State of Delaware on June 8, 2009. Our advisor has a limited 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 1% of the first $250,000,000 invested in us by non-affiliated investors in this offering, or up to $2,500,000. Previously, our advisor invested $200,000 in us through the purchase of 20,000 shares of our common stock at $10.00 per share. In connection with the commencement of this offering, our advisor exchanged 4,500 shares of common stock for 45,000 shares of our convertible stock and purchased 4,068 shares of our convertible stock that were not sold in our private offering.

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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 caused 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 or other property specific functions, as applicable, for the properties it manages.

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. As of March 31, 2010, Resource Real Estate and its affiliates have formed joint ventures with a number of institutional investors which have invested approximately $146.3 million in assets similar to those that 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 managed a portfolio of over $830 million in aggregate principal amount of mortgage assets, discounted mortgage loans and related property interests as of March 31, 2010, in addition to its $826.9 million portfolio of multifamily rental properties and other real estate assets.

• 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 March 31, 2010, Resource Financial and its affiliates managed $3.63 billion in bank investments.

• Resource Real Estate Management, Inc., d/b/a “Resource Residential,” an affiliate of our sponsor, is a property management company that, as of March 31, 2010, managed over 50 multifamily rental properties for our sponsor in 13 states with over 14,000 units. It has over 300 employees. The senior managers and employees of Resource Residential, acting through

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Resource Real 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 of March 31, 2010, Resource America managed over $13.1 billion in assets.

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 government-sponsored entities, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), 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” (“EBM”) strategy through Resource Residential, our multifamily property management affiliate. Our EBM 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. 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?

We seek to acquire assets at a discount to their perceived value and we may sell or refinance them when market conditions warrant. With respect to 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 commercial mortgage-backed securities until their maturity, a beneficial selling opportunity or the earlier liquidation of our assets.

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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. Examples of such a substantial justification include to obtain funds for the following: (i) to repay existing obligations, (ii) to pay sufficient distributions to maintain REIT status, or (iii) to buy an asset where an exceptional acquisition opportunity presents itself and the terms of the debt agreement and the nature of the asset are such that the debt does not increase the risk that we would become unable to meet our financial obligations as they became due. 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.

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 our Operating Partnership and, as of the date of this prospectus, our wholly owned subsidiary, RRE Opportunity Holdings, LLC, is the sole limited partner of our Operating Partnership. We will present our financial statements, operating partnership income, expenses, and depreciation on a consolidated basis with RRE Opportunity Holdings, LLC and our Operating Partnership. Neither subsidiary will file a federal income tax return. All items of income, gain, deduction (including depreciation), loss and credit will flow through our Operating Partnership and RRE Opportunity Holdings, LLC to us as each of these subsidiary entities will be disregarded for federal tax purposes. These tax items will not generally flow through us to the investors however. Rather, our net income and net capital gain will effectively flow through us to the stockholders as and when dividends are paid to our stockholders. Because we plan to conduct substantially all of our operations through our 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 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 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.

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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) were not 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.

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.

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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 as of June 15, 2010.

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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.

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. See “Plan of Distribution.”	$60,000/$22,500,000
Other Organization and Offering Expenses	Pursuant to the terms of our advisory agreement, we will reimburse our advisor for organization and offering expenses it may incur on our behalf, but only to the extent that such reimbursement will not cause organization and offering expenses (other than selling commissions and the dealer manager fee) to exceed 2.5% of gross offering proceeds as of the date of reimbursement. However, 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 $14,627,066 or 1.78% 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/$14,627,066
Acquisition and Development Stage
Acquisition Fees	2.0% of the cost of investments acquired by us, or the amount funded by us to acquire loans, including acquisition expenses and any debt attributable to such investments. The computation of Acquisition Fees paid to the Advisor will also include 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)/ $19,822,291 (maximum offering assuming leverage of 35% of the cost

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Form of Compensation	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering
		of our investment)/ $51,537,956 (maximum offering assuming leverage of 75% of the cost of our investment)
Acquisition Expenses	Reimbursement for all out-of-pocket expenses incurred in connection with the selection and acquisition of properties or other real estate related debt investments, whether or not we ultimately acquire the property or the 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; provided, however, that the sum of the debt financing fee, the construction management fee paid to our property manager and its affiliates and the acquisition fees and expenses described above may not exceed 6.0% of the contract price of the property unless a majority of the board of directors (including all the members of the conflicts committee) not otherwise interested in the transaction determines that such fee is commercially competitive, fair and reasonable to us. 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 upon other factors, such as whether the debt is incurred in connection with the acquisition of a property or subsequent to the acquisition 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 a majority of the board of directors (including all the members of the conflicts committee) not otherwise interested in the transaction 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	Actual amounts are dependent upon gross revenues of specific properties and actual management fees or property management fees or will be dependent

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Form of Compensation	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering
	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.	upon the total equity and debt capital we raise and the results of our operations and therefore cannot be determined at the present time.
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 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 and do not manage or control 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 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.

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Form of Compensation	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering
Common Stock Issuable Upon Conversion of Convertible Stock	Our convertible stock will be of no value unless our common stockholders realize or have an opportunity to realize a stated minimum return as a result of our cumulative distributions or the trading price of our shares on a national securities exchange. As a result, our convertible stock is economically similar to a back-end incentive fee, which many other non-traded REITs have agreed to pay to their external advisors. 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.” For more information, see “Description of Shares—Convertible 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.

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

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with hazardous materials. We will not close the purchase of any property unless we are generally satisfied with the environmental status of the property.

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

We have not paid any distributions as of the date of this prospectus. 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 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 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. 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. If we fund distributions from borrowings, sales of assets 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. Our organizational documents do not limit the amount of distributions we can fund from sources other than from cash flows from operations.

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

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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.”

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 our taxable income 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) REO, (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 85.90% of the gross proceeds from the primary offering, or between $8.53 and $8.59 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. For more information regarding the use of proceeds, see “Estimated Use of Proceeds.”

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.

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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 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 June 16, 2011, 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 New York or Pennsylvania investors unless we raise a minimum of $2.5 million and $25 million, respectively, in gross offering proceeds (including sales made to residents of other jurisdictions). Pending satisfaction of this condition, all subscription payments by New York and Pennsylvania investors will be placed in a separate account held by the escrow agent in trust for the New York and Pennsylvania subscribers’ benefit, pending release to us. Pennsylvania residents should also note the special escrow procedures described below under “Plan of Distribution—Special Notice to Pennsylvania Investors.”

If we have not reached the $25 million threshold for Pennsylvania investors 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 June 16, 2012, 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 June 16, 2012, unless extended by one year or June 16, 2013. 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 June 16, 2013. 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

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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.”

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. 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”), or the Internal Revenue Code. ERISA is a federal law that regulates the operation of certain tax-advantaged retirement plans. Any

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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 (“UBTI”) 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 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 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 amend, suspend or terminate the program upon 30 days’ notice and 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

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• 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.

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. For a complete discussion of our share redemption program, please 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, upon the request of stockholders holding 10% or more of our outstanding shares of common stock, 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.

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.

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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 intend 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. 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. 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 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 our Operating Partnership).

After the 18-month period described above (or possibly sooner if our board so directs), we expect to publish an estimated value for a share of common stock. We expect such estimate will be based on estimates of the values of our assets net of our liabilities. Our board of directors will make decisions regarding who will perform valuations of our assets, such as our advisor or third parties, and the valuation methodology to be employed. We cannot predict these decisions at this time, however, we do not currently anticipate obtaining asset-by-asset appraisals prepared by appraisers certified by a Member of the Appraisal Institute or other trade organization that monitors appraisers.

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

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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. 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 upon 30 days’ notice and without stockholder approval. 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. 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 are also subject to competition in seeking to acquire real estate related debt investments. 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. 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.

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

In 2008 and 2009, the capital and credit markets experienced extreme volatility and disruption for nearly two years. While the capital and credit markets appear to have begun to recover, equity and debt capital available for investment in the commercial real estate market are unlikely to return to the levels experienced immediately before the credit crisis. Continued scarcity of capital is expected to result in fewer buyers seeking to acquire commercial properties, increases in cap rates and lower property values. Furthermore, sluggish 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 remain high, compared to historical experience. Financial market and economic conditions may remain sluggish; 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.

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, 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.

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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 and board of directors to select suitable and successful investment opportunities and to implement policies regarding tenant or mortgagor creditworthiness. 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 or firm 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, location, 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.

We have a limited 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 and we have a limited 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, as of June 15, 2010, our total assets consisted primarily of $11.3 million cash and we had $2.6 million 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 programs sponsored by Resource America or Resource Real Estate. Our lack of an operating history and differences from other programs sponsored by Resource America or Resource Real Estate 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 or its 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 a limited operating history and it will depend largely upon the fees and other compensation that it will 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.

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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 slowdown in our sponsor’s industry, which our sponsor anticipates will continue during 2010. 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 either 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. There is no limit on the amount we can fund distributions from sources other than from cash flows from operations.

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

While we expect a significant amount of our leases to be short-term multifamily leases that will not be affected by inflation, we will be exposed to inflation risk with respect to income from any long-term leases on real property and from related real estate debt investments as these may constitute a source of our cash flows from operations. Although inflation has been generally low in recent years, high inflation may in the future tighten credit and increase prices. 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. The SEC takes the position that indemnification against liabilities arising under the Securities Act is against public policy and unenforceable. See “Management—Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents” for a detailed discussion of the limited liability of our directors, officers, employees and other agents.

We may change our targeted investments, our policies and our operations 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).

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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 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.

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.

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 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.

We may experience adverse business developments or conditions similar to those affecting certain programs sponsored by our sponsor, which could limit our ability to make distributions and decrease the value of your investment.

Certain programs sponsored by our sponsor have experienced lower than originally expected cash flows from operations. The recession has made it significantly 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. For 2004 and 2007, Resource Real Estate Investors, L.P. had negative cash flow from operations of $111,874 and $206,885, respectively. During 2005, 2007 and 2008, Resource Real Estate Investors, L.P. utilized $232,348, $541,776 and $82,252, respectively, from reserves to supplement cash flow from operations. For 2006 and 2007, Resource Real Estate Investors II, L.P. had negative cash flow from operations of $680,056 and $42,097, respectively. During 2006, 2007 and 2008, Resource Real Estate Investors II, L.P. utilized $774,457, $108,704 and $65,217, respectively, from reserves to supplement cash flow from operations. For Resource Real Estate Investors III, L.P., cash flow deficiencies occurred at one of the fund properties due to third-party property management issues and the delay in receiving tax refunds from tax appeals on two fund properties located in Texas. During 2007, Resource Real Estate Investors III, L.P. utilized $473,343 from reserves to supplement cash flow from operations. For Resource Real Estate Investors V, L.P., cash flow deficiencies have occurred at some of the properties in the fund due to third-party property management issues. For Resource Real Estate Investors 6, L.P., 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. Unforeseen circumstances described below under “Prior Performance Summary—Adverse Business Developments or Conditions” have caused different programs to experience temporary cash flow deficiencies at various times. Similarly, unforeseen adverse business conditions may affect us and, as a result, your overall return may be reduced.

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 and some of our directors are also officers, directors, managers 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;

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• 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 may 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 investments in 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, 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 significant payments to affiliates of 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.

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.”

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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. 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. Should our advisor breach its fiduciary duty to us by inappropriately devoting insufficient time or resources to our business, the returns on our investments may suffer.

Our executive officers and some of our directors 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 and some of our directors are also executive officers, directors, managers and key professionals of our advisor, our dealer manager and other affiliated Resource Real Estate entities. Their loyalties to these other entities could result in actions or inactions that breach their fiduciary duties to us and 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.

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

In connection with the commencement of this offering, our advisor exchanged 4,500 shares of common stock for 45,000 shares of our convertible stock and purchased 4,068 shares of our convertible stock that were not sold in our private offering. As of June 15, 2010, a total of 50,000 shares of convertible stock were outstanding. 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.

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 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. A majority of our independent directors who do not have an interest in the transaction must approve any issuance of preferred stock.

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

Neither we nor any of our subsidiaries intend to register as investment companies under the Investment Company Act. If we or our subsidiaries were obligated to register as investment companies, 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.

Under the relevant provisions of Section 3(a)(1) of the Investment Company Act, we will not be deemed to be an “investment company” if:

• we are not engaged primarily, nor hold ourselves out as being engaged primarily, nor propose to engage primarily, in the business of investing, reinvesting or trading in securities (the “Primarily Engaged Test”); and

• we are not engaged and do not propose to engage in the business of investing, reinvesting, owning, holding or trading in securities and do not own or propose to acquire “investment securities” having a value exceeding 40% of the value of our 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 majority-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).

With respect to the Primarily Engaged Test, we and our Operating Partnership are holding companies and do not intend to invest or trade in securities ourselves. Rather, through the majority-owned subsidiaries of our Operating Partnership, we and our Operating Partnership will be primarily engaged in the non-investment company businesses of these subsidiaries.

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We expect that most of the subsidiaries of our Operating Partnership 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. (Any 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.) 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 current and future SEC Staff positions on the Investment Company Act with respect to the amount and type of the assets that they may own at any given time.

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, then we and our Operating Partnership may seek to rely on the exception from registration under Section 3(c)(6) if we and our Operating Partnership are “primarily engaged,” through majority-owned subsidiaries, in the business of purchasing or otherwise acquiring 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, majority-owned subsidiaries that rely on Section 3(c)(5)(C).

To maintain compliance with the Investment Company Act, 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, 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. For more information related to compliance with the Investment Company Act, see “Investment Objectives and Policies—Investment Limitations to Avoid Registration as an Investment Company.”

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.

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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 upon 30 days’ notice and without stockholder approval. 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 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.”

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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 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.

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 authorizes 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 our Operating Partnership. 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.

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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 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 87.06% of our gross offering proceeds, or between $8.53 and $8.71 per 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 initial stages of this 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. Our charter permits us to pay distributions from any source, including from offering proceeds, borrowings, sales of assets or waivers or deferrals of fees otherwise owed to our advisor. 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 these distributions exceed our net income or net capital gain, a greater proportion of your distributions will generally represent a return of capital as opposed to current income or gain, as applicable. Our organizational documents do not limit the amount of distributions we can fund from sources other than from cash flows from operations. 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 may have to obtain financing from sources beyond our cash flow from operations, such as borrowings, sales of assets 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.”

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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:

• 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.

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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, 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.

The 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 that 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 property for sale, due to the previous owners’ potentially inadequate maintenance of the property;

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• 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.

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;

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• 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 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.

We will 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. 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, its affiliates or third parties fail to identify problems in the day-to-day management of a particular property 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.

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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 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.

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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 toxic mold, there can be no assurance that some of the properties acquired by us will contain toxic mold. The difficulty in discovering indoor toxic mold growth could lead to an increased risk of lawsuits by affected 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” 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.

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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.

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 is 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. It may be more challenging to manage a diverse portfolio. Failure to meet such challenges could reduce the value of your investment. See “Investment Objectives and Policies—Real Estate Asset Management Strategy.”

A high concentration of our properties in a particular geographic area would magnify the effects of downturns in that geographic area.

We expect that our properties will be diverse according to geographic area. However, in the event that we have a concentration of properties in any particular geographic area, any adverse situation that disproportionately affects that geographic area would have a magnified adverse effect on our portfolio.

Newly constructed and existing multifamily rental properties or other 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; or

• substantially reduce our revenues and cash available for distribution.

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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.

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 affect 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.

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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. Competition from university-owned on-campus housing could adversely affect the performance of any student housing properties we may acquire.

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 or unexpected costs to 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 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.

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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.

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.

If we acquire office properties or retail properties, we will be 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 or retail 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 could 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.

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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.

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.

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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.

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.

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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.

These laws include penalties for violations that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid payments and 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 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.”

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

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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 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 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 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.

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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 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 our 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 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.

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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.

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

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

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

The success of our real estate related 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. 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, (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 or distribution payments to us.

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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 lower than perceived at the time of your investment if our determinations regarding the fair value of these investments are materially higher than the values that we ultimately realize upon their disposal.

Any credit ratings assigned to our investments will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded.

Some of our investments may be rated by Moody’s Investors Service, Fitch Ratings or Standard & Poor’s. Any credit ratings on our investments are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. If rating agencies assign a lower-than-expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, their ratings of our investments in the future, the value of these investments could significantly decline, which would adversely affect the value of our investment portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service obligations to us. In addition, changes to the methodology and assumptions in rating commercial mortgage-backed securities by rating agencies may decrease the amount or availability of new issue commercial mortgage-backed securities rated in the highest investment-grade rating category.

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.

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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.

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.

Continued disruptions in the financial and real estate markets 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. Since 2007, Fannie Mae and Freddie Mac have reported substantial losses and a need for significant amounts of additional capital. These losses coupled with the credit market’s poor perception of Fannie Mae and Freddie Mac, add to the considerable uncertainty surrounding the capital structure of both Fannie Mae and Freddie Mac. In response to the deteriorating financial condition of Fannie Mae and Freddie Mac and the recent credit market disruption, the U.S. Congress and Treasury undertook a series of actions to stabilize these government-sponsored enterprises and the financial markets. Pursuant to legislation enacted in 2008, the U.S. government placed both Fannie Mae and Freddie Mac under its conservatorship. Despite recent additional funding for both government-sponsored entities, the U.S. government has stated that it remains committed to reducing their portfolios. 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.

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

When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan 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.

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 (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 remains unclear due to the evolving nature of the incentives and implementation of programs as a part of the U.S. government’s efforts to ease the burden such discounted assets place on financial institutions and the economy. 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.

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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 (“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.

Federal Income Tax Risks

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

DLA Piper LLP (US) has rendered 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, 2010 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, 2010. This opinion is 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 represents 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) is not 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 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.”

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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, 2010. 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.

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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.

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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

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• 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 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 or asset tests discussed in “Federal Income Tax Considerations—Taxation of Resource Real Estate Opportunity REIT, Inc.”

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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 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 2010, 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 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.

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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 you fail to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, you 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. If you are investing the assets of such a plan or account in our common stock, you should satisfy yourself that:

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

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

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

• your investment in our shares, for which no trading market may exist, is consistent with the liquidity needs of the plan or IRA;

• your investment will not produce an unacceptable amount of “unrelated business taxable income” for the plan or IRA;

• you will be able to comply with the requirements under ERISA and the Internal Revenue Code to value the assets of the plan or IRA annually; and

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

With respect to the annual valuation requirements described above, we expect to provide an estimated value for our shares annually. Until 18 months have passed without a sale in a public offering of our common stock, not including any offerings on behalf of selling stockholders or offerings related to any distribution reinvestment plan, employee benefit plan, or the issuance of shares upon redemption of interests in our Operating Partnership, we expect to use the gross offering price of a share of common stock in our most recent offering as the per share estimated value thereof.

        This estimated value is not likely to reflect the proceeds you would receive upon our liquidation or upon the sale of your shares. Accordingly, we can make no assurances that such estimated value will satisfy the applicable annual valuation requirements under ERISA and the Internal Revenue Code. The Department of Labor or the Internal Revenue Service may determine that a plan fiduciary or an IRA custodian is required to take further steps to determine the value of our common shares. In the absence of an appropriate determination of value, a plan fiduciary or an IRA custodian may be subject to damages, penalties or other sanctions.

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 can subject the fiduciary to claims for damages or for equitable remedies. In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary or IRA owner who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. In the case of a prohibited transaction involving an IRA owner, the IRA may be disqualified and all of the assets of the IRA may be deemed distributed and subjected to tax. ERISA plan fiduciaries and IRA custodians should consult with counsel before making an investment in our common shares.

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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 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.

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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 85.90% of the gross proceeds from the primary offering, or between $8.53 and $8.59 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.”

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	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		8,533,770		2.28		289,500		0.81
Acquisition Fees (2)		34,118		1.71		6,413,554		1.71		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		320,677,676		85.51		35,335,500		99.19

	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)		14,141,066		1.89		486,000		0.68
Acquisition Fees (2)		12,884,489		1.72		0		0.00
Initial Working Capital Reserve (3)		3,750,000		0.50		0		0.00
Amount Available for Investment (4)		644,224,445		85.90		70,764,000		99.32

(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. Pursuant to the terms of our advisory agreement, 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 $19,822,291. If we raise the maximum offering amount and our debt financing is equal to 75% of the cost of our real estate investments, then acquisition fees would be $51,537,956.

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(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) REO, (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 may be used to pay the acquisition price of investments as well as ancillary 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. We estimate that these third-party costs would average 0.5% of the contract purchase prices of acquisitions. 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. Our organizational documents do not limit the amount of distributions we can fund from sources other than from cash flows from operations. See “Risks Related to This Offering and Our Corporate Structure.”

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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 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, the sponsor or its affiliates and has not been so for the previous two years and meets the other independence requirements set forth in our charter.

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.

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Executive Officers and Directors

The following table sets forth information regarding our executive officers and directors. 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
Jonathan Z. Cohen	39	Chairman of the Board
Alan F. Feldman	46	Chief Executive Officer and Director
Kevin M. Finkel	38	Chief Operating Officer and President
Steven R. Saltzman	46	Chief Financial Officer, Senior Vice President and Treasurer
Shelle Weisbaum	49	Chief Legal Officer, Senior Vice President and Secretary
David E. Bloom	45	Senior Vice President
Gary Lichtenstein	62	Independent Director
Lee F. Shlifer	62	Independent Director
Thomas J. Ikeler	54	Independent Director

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

The biographical descriptions below set forth certain information with respect to our executive officers and directors. The board has identified specific attributes of each director that the board has determined qualify that person for service on the board.

Jonathan Z. Cohen has been our Chairman of the Board since October 2009 and 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 June 2009. In addition, Mr. Cohen has served as Chairman and a Director of Resource Real Estate Management, LLC since August 2007. Mr. Cohen has been President since 2003 and Chief Executive Officer since May 2004 of Resource America and has also served as Chairman and a Director of Resource Financial since February 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 is the son of the Chairman of Resource America, Mr. Edward E. Cohen. 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.

The board of directors has determined that it is in the best interests of our company and our stockholders for Mr. Cohen, in light of his extensive company-specific operational, finance and market experience, his leadership abilities, and his expertise in the acquisition and ownership of discounted commercial real estate and real estate related debt, to serve as a director on the board of directors.

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 June 2009. In addition, Mr. Feldman has served as a Director and Chief Executive Officer of Resource Real Estate since May 2004, President and a Director of Resource Real Estate Management, LLC since August 2007 and a Senior Vice President of Resource America since August 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.

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The board of directors has determined that it is in the best interests of our company and our stockholders for Mr. Feldman, in light of his day-to-day company-specific operational experience, significant finance and market experience, and his real estate investment trust experience, to serve as a director on the board of directors.

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 June 2009. In addition, Mr. Finkel has served as Executive Vice President since January 2008 and Director of Acquisitions since May 2004 of Resource Real Estate. Mr. Finkel joined Resource America in November 2002, and has been a Vice President of Resource America since April 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 June 2009. In addition, Mr. Saltzman has served as Vice President and Controller of Resource Real Estate since May 2004 and Vice President of Finance of Resource Real Estate Management, LLC since August 2007. 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 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 June 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 August 2007. Ms. Weisbaum joined Resource Real Estate in October 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 June 2009. In addition, Mr. Bloom has served as President and a Director of Resource Real Estate since May 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.

Gary Lichtenstein has been one of our Directors since September 2009. Mr. Lichtenstein served as a partner of Grant Thornton LLP, a registered public accounting firm, from 1987 to July 2009. He worked at Grant Thornton LLP from 1974 to 1977 and served as a manager at Grant Thornton LLP from 1977 to 1987. Prior to joining Grant Thornton LLP, Mr. Lichtenstein served as an accountant for Soloway & von Rosen CPA from 1970 to 1974 and for Touche Ross Bailey & Smart from 1969 to 1970. Mr. Lichtenstein serves on the Executive Board and serves as Treasurer of the Diabetes Association of Greater Cleveland. He received his Bachelor of Business Administration and his Juris Doctor degree from Cleveland State University.

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The board of directors has determined that it is in the best interests of our company and our stockholders for Mr. Lichtenstein, in light of his public company accounting and financial reporting expertise, to serve as a director on the board of directors.

Lee Shlifer has been one of our Directors since September 2009. Mr. Shlifer has served as Founder, President and broker for Signature Investment Realty, Inc., an investment brokerage and management/consulting firm that emphasizes the acquisition and management of multifamily apartment buildings, since 1985. Prior to founding Signature Investment Realty, Inc., he served as Vice President of Marketing for Spencer Industries from 1979 to 1981. In addition, Mr. Shlifer served as a psychotherapist for the Eastern Pennsylvania Psychiatric Institute from 1978 to 1979. Mr. Shlifer is a member of the Board of Directors of ELIT, a non-profit organization that operates schools in India and Pakistan to teach impoverished women basic computer skills. He received his Bachelor of Arts degree from the University of Pennsylvania and his Masters of Arts degree in Clinical Psychology from The New School for Social Research.

The board of directors has determined that it is in the best interests of our company and our stockholders for Mr. Shlifer, in light of his significant finance and real estate market experience and his expertise in the acquisition and management of multifamily apartment buildings, to serve as a director on the board of directors.

Thomas J. Ikeler has been one of our Directors since September 2009. Mr. Ikeler has served as President of K2 Capital Advisors, LLC, a boutique advisory practice that assists real estate companies in selling or capitalizing existing assets and new acquisitions, since January 2009. From May 2005 to January 2009, Mr. Ikeler served as Managing Director of Jones Lang LaSalle, one of the largest global real estate service firms with 180 offices in 60 countries and over 36,000 employees, where he specialized in commercial property and multifamily equity and debt financing. From 1999 to May 2005, he served as Managing Director of Aegis Realty Consultants, the real estate banking affiliate of Berwind Property Group, which owns and operates more than 25,000 apartment units and 100 communities. From 1997 to 1999, Mr. Ikeler served as Vice President/Corporate Finance for Security Capital Group and Senior Vice President for a subsidiary. From 1994 to 1997, he established a real estate investment and advisory firm that targeted “off market” opportunities and advised institutional owners and operators of real estate, which included serving as lead outside advisor to RF&P Corporation, a private REIT owned by the Virginia Retirement System. He received his Bachelor of Arts degree from Bucknell University and his Master in Business Administration from Harvard University.

The board of directors has determined that it is in the best interests of our company and our stockholders for Mr. Ikeler, in light of his significant experience in finance and real estate markets and his expertise in commercial property and multifamily equity and debt financing, to serve as a director on the board of directors.

Board Committees

Our board of directors has 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.

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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. Mr. Lichtenstein serves as the chairman of our audit committee and serves as our audit committee financial expert as that term is defined by the SEC. Messrs. Ikeler and Shlifer are members of the audit committee and meet the financial literacy requirements of the SEC.

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, the conflicts committee may also create stock-award plans. Mr. Shlifer serves as the chairman of the conflicts committee and Messrs. Ikeler and Lichtenstein serve as members of the conflicts committee.

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 receives an additional annual retainer of $5,000. We 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; and

• $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;

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• 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;

• 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 limited liability company that was formed in the State of Delaware on June 8, 2009. Our advisor has a limited 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.

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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;

• 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;

• 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;

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• 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 cause or 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.”

Resource Real Estate, our sponsor, has agreed to guarantee the performance of our advisor’s services to be provided under the advisory agreement. Therefore, if our advisor fails to perform all or any of its obligations, duties, undertakings and covenants to provide services under the advisory agreement, upon written notice from us, our sponsor shall perform or cause to be performed such obligations, duties, undertakings and covenants. In addition, 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. 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 will invest 1% of the first $250,000,000 invested in us by non-affiliated investors in this offering, or up to $2,500,000. Our advisor has agreed to abstain from voting any shares it acquires in any vote for the removal 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.

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In addition, in connection with the commencement of this offering, our advisor exchanged 4,500 shares of common stock for 45,000 shares of our convertible stock and purchased 4,068 shares of our convertible stock that were not sold in our private offering. As of June 15, 2010, a total of 50,000 shares of convertible stock were outstanding. Our convertible stock will be of no value unless our common stockholders realize or have an opportunity to realize a stated minimum return as a result of our cumulative distributions or the trading price of our shares on a national securities exchange. As a result, our convertible stock is economically similar to a back-end incentive fee, which many other non-traded REITs have agreed to pay to their external advisors.

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 March 31, 2010, Resource America and Resource Real Estate collectively managed a portfolio of over $13.1 billion of assets for its own account and for third-party investors. As of March 31, 2010, that portfolio included real estate investments valued at nearly $1.7 billion, which included over 14,000 multifamily residential units, including both equity and debt investments, and approximately 1.1 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 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.

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• 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.

• 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 manages 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 400 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 March 31, 2010, Resource Real Estate’s portfolio of performing assets, distressed assets, REO and equity investments, valued at nearly $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 50 additional distressed real estate asset resolutions since 1991, representing over $600 million in value as of March 31, 2010. 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 advisor intends to use this breadth of knowledge and experience in the discounted asset marketplace to assist us to meet our investment objectives.

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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 $830 million in aggregate principal amount of mortgage assets, discounted mortgage loans and related property interests as of March 31, 2010 in addition to its $826.9 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. As of March 31, 2010, Resource Real Estate also managed a portfolio of approximately $133.5 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 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. As of March 31, 2010, Resource Residential managed apartment communities with an aggregate value of approximately $640.8 million, which included over 50 rental properties in 13 states with over 14,000 units. 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 March 31, 2010, Resource Financial and its affiliates managed $3.63 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.

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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.

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Management Decisions

Messrs. Cohen, Feldman and Finkel have the primary responsibility for the management decisions of our advisor. Our sponsor, Resource Real Estate, and its team of real estate professionals, including Messrs. Cohen, Feldman and Finkel, acting through our advisor, have the primary responsibility for the selection of investments, the negotiation for these investments, and the financing, asset-management and disposition decisions. 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.

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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. See “Plan of Distribution.”	$60,000/$22,500,000
Other Organization and Offering Expenses – Resource Real Estate Opportunity Advisor and Chadwick Securities (3)	Pursuant to the terms of our advisory agreement, we will reimburse our advisor for organization and offering expenses it may incur on our behalf, but only to the extent that such reimbursement will not cause organization and offering expenses (other than selling commissions and the dealer manager fee) to exceed 2.5% of gross offering proceeds as of the date of reimbursement. However, 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 $14,627,066 or 1.78% 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/$14,627,066
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 loans, including acquisition expenses and any debt attributable to such investments. The computation of Acquisition Fees paid to the Advisor will also include 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)/ $19,822,291 (maximum offering assuming leverage of 35% of the cost of our investment)/ $51,537,956 (maximum offering assuming leverage of 75% of the cost of our investment)

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Form of Compensation and Recipient	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering (1)
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 or other real estate related debt investments, whether or not we ultimately acquire the property 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; provided, however, that the sum of the debt financing fee, the construction management fee paid to our property manager and its affiliates and the acquisition fees and expenses described above may not exceed 6.0% of the contract price of the property unless a majority of the board of directors (including all the members of the conflicts committee) not otherwise interested in the transaction determines that such fee is commercially competitive, fair and reasonable to us. 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 upon many other factors, such as whether the debt is incurred in connection with the acquisition of a property or subsequent to the acquisition 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 a majority of the board of directors (including all the members of the conflicts committee) not otherwise interested in the transaction 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 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	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

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Form of Compensation and Recipient	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering (1)
	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 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.	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 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 and do not manage or control 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 – 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.

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Form of Compensation and Recipient	Determination of Amount	Estimated Amount for Minimum Offering/Maximum Offering (1)
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 be of no value unless our common stockholders realize or have an opportunity to realize a stated minimum return as a result of our cumulative distributions or the trading price of our shares on a national securities exchange. As a result, our convertible stock is economically similar to a back-end incentive fee, which many other non-traded REITs have agreed to pay to their external advisors. 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.	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.

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(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, pursuant to the terms of our advisory agreement, 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 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 fees, 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 of a loan, whether or not we ultimately acquire the property or the loan. Our charter 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, unless a majority of the directors, including all the members of the conflicts committee, not otherwise interested in the transaction, approve fees in excess of these limits based on a determination that the transaction is commercially competitive, fair and reasonable to us.

(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 earliest to occur of (i) the acquisition of our first real estate investment, or (ii) the date that is six months after the commencement of this offering, 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 6 above.

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STOCK OWNERSHIP

The following table sets forth the beneficial ownership of our common stock as of June 15, 2010 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 (3)
Resource Real Estate Opportunity Advisor, LLC		15,500		1.2	%
Jonathan Z. Cohen, Chairman of the Board		15,500		1.2
Alan F. Feldman, Chief Executive Officer and Director		15,500		1.2
Kevin M. Finkel, Chief Operating Officer and President		15,500		1.2
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		—		—
Gary Lichtenstein, Independent Director		—		—
Lee F. Shlifer, Independent Director		—		—
Thomas J. Ikeler, Independent Director		—		—
All directors and executive officers as a group		15,500		1.2	%

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

(2) As of June 15, 2010, Resource Real Estate Opportunity Advisor, LLC owns 15,500 shares of our outstanding stock. Our advisor is controlled by Jonathan Z. Cohen, Alan F. Feldman and Kevin M. Finkel. In connection with the commencement of this offering, our advisor exchanged 4,500 shares of common stock for 45,000 shares of our convertible stock and purchased 4,068 shares of our convertible stock that were not sold in our private offering. 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) Based on 1,263,726 shares of common stock outstanding as of June 15, 2010.

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 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.;

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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. However, we may in the future compete with Resource Capital Corp. for capital and acquisition opportunities.

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 other 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 Conflicts of Interest.”

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. 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.

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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 activities. Specifically, Messrs. Feldman, Finkel and Saltzman and Ms. 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. Mr. 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 they have engaged in and they will continue to engage in other business activities. As a result, 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, which fees are based on the cost of the investment, including the amount budgeted for the development, construction, and improvement of each asset, and are not based on the quality of the investment or the quality of the services rendered to us, which may influence our advisor to accept a higher purchase price for those assets, recommend riskier transactions to us or purchase assets that may not be in the best interest of our stockholders;

• borrowings to acquire properties and other investments, 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;

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• 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

• 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.

As of the date of this prospectus, we do not intend to purchase investments from other Resource Real Estate-sponsored programs or other affiliates. However, we may in the future enter into transactions, including acquisitions, with other Resource Real Estate-sponsored programs or other affiliates if an attractive opportunity presents itself and our conflicts committee unanimously approves the transaction as explained below under “—Certain Conflict Resolution Measures—Other Charter Provisions Relating to Conflicts of Interest—Our Acquisitions.”

In connection with the commencement of this offering, our advisor exchanged 4,500 shares of common stock for 45,000 shares of our convertible stock and purchased 4,068 shares of our convertible stock that were not sold in our private offering. As of June 15, 2010, a total of 50,000 shares of convertible stock were outstanding. 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.”

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

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 and debt investments we acquire may be managed 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, the sponsor or its affiliates and has not been so for the previous two years and meets the other requirements set forth in our charter. 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 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;

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• 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.

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.

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 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” below.

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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.

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 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 primarily focused on, and are expected to continue to focus primarily 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.

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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 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. In such circumstances, our charter authorizes us to pay to the advisor the following fee: (i) if a brokerage commission is paid to a person other than an affiliate of the sponsor, an amount up to one-half of the total brokerage commissions paid but in no event an amount that exceeds 3% of the sales price of such property or properties or (ii) if no brokerage commission is paid to a person other than an affiliate of the sponsor, an amount up to 3% of the sales price of such property or properties. 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.

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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 a majority of the directors (including all the members of the conflicts committee) not otherwise interested in the transaction approves 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 increase in the acquisition fee stipulated in the advisory agreement would require the approval of a majority of the directors (including all the members of the conflicts committee) not otherwise interested in the transaction.

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 two third-party valuations by independent experts selected by our independent directors (at least one of which will be an appraisal of fair market value) and obtain a written opinion of legal counsel unaffiliated with us stating that the proposed transaction is permissible under the terms of our charter. 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 may not always be reliable as measures of true worth or realizable value. As of the date of this prospectus, we do not intend to purchase investments from other Resource Real Estate-sponsored programs or other affiliates. However, we may in the future enter into transactions, including acquisitions, with other Resource Real Estate-sponsored programs or other affiliates if an attractive opportunity presents itself and our conflicts committee unanimously approves the transaction.

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. A majority of the board of directors (including all the members of the conflicts committee) not otherwise interested in the transaction must conclude that all other transactions, including joint ventures, between us and our sponsor, 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.

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Limitation on Operating Expenses. Commencing four fiscal quarters after the earlier to occur of (i) the acquisition of our first real estate asset, or (ii) the date that is six months after the commencement of this offering, 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, 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 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. 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.

Repurchase of Our Shares. Our charter prohibits us from paying a fee to our sponsor, 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 the sponsor, 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 board of directors (including all the members of the conflicts committee) not otherwise interested in the transaction 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;

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• 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 and bylaws by the vote of a majority of their respective members at the first joint meeting of the board of directors and the conflicts committee, as required by our charter.

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 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 (“EBM”) 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.

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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);

• 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.

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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 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 or sell the investments after the asset’s stabilization, if required, to optimize value.

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 (including a majority of the conflicts committee). 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.

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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.

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 bankruptcies 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;

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• 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.

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

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• 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.

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. The table below sets forth details, as of March 31, 2010, about all such investments sold or otherwise disposed of by our sponsor or its affiliates in the last 10 years. 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	$	507,481	$	2,400,000	$	(551,959)	$	2,355,522	$	1,328,246	$	1,027,276
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		(421,180)		728,820		700,000		28,820
Amberwood	Forrestville, MD	2000	2		1,850,000		5,200,000		—		7,050,000		6,500,000		550,000
1606 New Hampshire	Washington, DC	2001	6		1,634,569		686,716		(327,837)		1,993,448		854,783		1,138,665
Philadelphia Stock Exchange	Philadelphia, PA	2001	3		20,248,435		42,104,704		3,190,884		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		(873,317)		4,666,608		4,234,558		432,050
Greenway Village	Berlin, NJ	2002	4		2,700,000		1,773,350		(1,933,399)		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
The Rittenhouse Project	Philadelphia, PA	2002	2		3,360,911		—		296,556		3,657,467		1,500,000		2,157,467
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		3,155,475		15,554,583		8,000,000		7,554,583
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		(147,973)		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		7,132,420		7,750,000		(3,985,965)		10,896,456		7,374,894		3,521,562
The Loewy Building	Winston-Salem, NC	2004	7		3,089,753		1,308,994		753,698		5,152,445		3,050,369		2,102,076
Winthrop Square	New London, CT	2004	7		1,200,000		8,133,216		(4,431,588)		4,901,628		4,760,894		140,734

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				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)
NorthCal Property	Los Angeles, CA	2005	9		3,321,765		1,977,126		(841,023)		4,457,868		2,005,000		2,452,868
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		(951,030)		3,695,831		1,650,000		2,045,831
Locke Mill Plaza Condos	North Concord, NC	2006	11		68,308		3,000,000		(2,900,127)		168,181		1,278,143		(1,109,962)
Redick Hotel	Omaha, NE	2006	9		3,964,685		2,400,000		(3,091,988)		3,272,697		3,545,421		(272,724)
Alex. Brown Building	Baltimore, MD	2006	8		19,898,710		70,268,965		9,606,006		99,773,681		87,411,397		12,362,284
Pensacola Place	Chicago, IL	2006	8		9,000,000		10,000,000		3,843,965		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		—		226,502		5,123,330		2,939,304		2,184,026
Oakridge Apartments	Ypsilanti, MI	2008	1		2,580,931		—		48,291		2,629,222		2,189,297		439,925
Ridgeway Estates	Pine Island, MN	2008	1		1,867,862		—		73,702		1,941,564		1,414,381		527,183
The Hills Apartments	Inver Grove Heights, MN	2008	1		3,260,235		—		(64,758)		3,195,477		2,793,285		402,192
Clemens Place	Hartford, CT	2009	11		8,897,089		11,940,000		5,769,155		26,606,244		14,548,344		12,057,900
Windsor Square Apartments	Gary, IN	2009	2		985,108		—		(485,737)		499,370		449,777		49,593
St. Cloud	St Cloud, MN	2010	16		2,225,000		1,021,273		(2,030,210)		1,216,063		818,263		397,800

⁽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;

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• operating history;

• business plan;

• market position;

• 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 and 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 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.

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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 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.

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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 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 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;

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• 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;

• 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;

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• 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;

• 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.

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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 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 Brooks’ 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.

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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.

Experience-Based Management Strategy

As of March 31, 2010, Resource Residential, a wholly owned subsidiary of our sponsor, is a multifamily property management company managed over 50 multifamily rental properties for our sponsor in 13 states with over 14,000 units. Resource Residential has over 300 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 strategy through Resource Residential. Our EBM 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 releasing, 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

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• 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 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 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;

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• 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;

• 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, Resource Real Estate 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

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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 is illiquid. We expect to hold these securities for approximately six years or less depending on the maturity date of the obligation.

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, LLC, 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.

Other Possible Investments and Activities

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. 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 direct or indirect 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.

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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

• 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;

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• 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. Examples of such a substantial justification include to obtain funds for the following: (i) to repay existing obligations, (ii) to pay sufficient distributions to maintain REIT status, or (iii) to buy an asset where an exceptional acquisition opportunity presents itself and the terms of the debt agreement and the nature of the asset are such that the debt does not increase the risk that we would become unable to meet our financial obligations as they became due. 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. 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.

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, upon the request of stockholders holding 10% or more of our outstanding shares of common stock, 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.

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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:

• 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 fees and expenses are not reasonable or exceed 6% of the contract purchase price for the asset, provided that the investment may be made if a majority of the directors (including all the members of the conflicts committee) not otherwise interested in the transaction 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;

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• 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

• 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

General

We intend to conduct our operations so that neither we nor any of our subsidiaries will be required to register as an investment company under the Investment Company Act. Under the relevant provisions of Section 3(a)(1) of the Investment Company Act, we will not be deemed to be an “investment company” if:

• we are not engaged primarily, nor hold ourselves out as being engaged primarily, nor propose to engage primarily, in the business of investing, reinvesting or trading in securities (the “Primarily Engaged Test”); and

• we are not engaged and do not propose to engage in the business of investing, reinvesting, owning, holding or trading in securities and do not own or propose to acquire “investment securities” having a value exceeding 40% of the value of our 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 majority-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).

With respect to the Primarily Engaged Test, we and our Operating Partnership are holding companies and do not intend to invest or trade in securities ourselves. Rather, through the majority-owned subsidiaries of our Operating Partnership, we and our Operating Partnership will be primarily engaged in the non-investment company businesses of these subsidiaries. Although the SEC staff has issued little guidance with respect to the Primarily Engaged 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 Primarily Engaged Test.

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We expect that most of the subsidiaries of our Operating Partnership 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. (Any 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.) 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 current and future SEC Staff positions on the Investment Company Act with respect to the amount and type of the assets that they may own at any given time.

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, then we and our Operating Partnership may seek to rely on the exception from registration under Section 3(c)(6) if we and our Operating Partnership are “primarily engaged,” through majority-owned subsidiaries, in the business of purchasing or otherwise acquiring 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, majority-owned subsidiaries that rely on Section 3(c)(5)(C).

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 if 55% of the fair market value of the loan is secured by real estate. 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 the criteria recently set forth in an SEC no-action letter, that is:

• the note is a participation interest in a mortgage loan that is fully secured by real property;

• our subsidiary as 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 note are based on such payments;

• our subsidiary invests in the 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;

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• our subsidiary as 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

• in the event that the mortgage loan becomes non-performing, our subsidiary as 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) with respect to a junior note, purchase the senior note at par plus accrued interest, thereby acquiring the entire mortgage loan.

If these conditions are not met, we will treat the 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 (“Tier One Mezzanine Loans”). We will treat our Tier One 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 intend to treat such loan as a Miscellaneous Asset in the absence of guidance from the SEC’s Division of Investment Management (whether formal or informal) that such loans may be treated as Real Estate-Related Assets depending on the nature of the business and assets of the borrower.

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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 loans, we will treat only the amount outstanding at any given time as a Qualifying Asset if 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.

Residential and Commercial Mortgage-Backed Securities

We intend for a portion of our investments to consist of discounted investment grade commercial mortgage-backed 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.

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.

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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 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

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) 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). 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 identified any properties or other investments in which there is a reasonable probability that we will invest.

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In general, we will utilize conservative underwriting criteria when evaluating possible acquisitions. Our approach includes the following overarching assumptions:

• Extended Period of Economic Downturn - Our current views on general economic growth include a prolonged period of employment contraction and continuing economic downturn, rather than forecasting economic and employment growth.

• Extended Period of Cap Rate Expansion - We believe that cap rate contraction will not significantly return to the commercial real estate markets. We also believe that the higher cap rate environment will continue throughout the holding period of our assets.

• Extended Period of Time to Correct Operating Deficiencies - At present, we estimate that for significantly underperforming multifamily assets, it will generally take one year each to: (i) correct deferred maintenance, (ii) re-lease the property and (iii) provide a track record of net operating income in order to begin to market the asset for sale or refinancing.

As conditions change, so will the details of our underwriting criteria; however, we believe that, in general, our underwriting must be based on conservative assumptions that achieve our overall investment and return goals. Although we believe that our pro forma underwriting criteria captures an accurate picture of the real estate market today, there can be no assurance that these underwriting criteria or its underlying assumptions are correct or that rapid changes to the market may not change economic realities before we are able to adapt our criteria to such changes.

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, 2010. 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, 2010, 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 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.

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Prior to the commencement of this initial public offering, we conducted a private placement offering to accredited investors of up to $50,000,000 in shares of common stock at $10.00 per share, with volume discounts available to investors who purchased more than $1,000,000 of shares through the same participating broker-dealer. Discounts were also available for other categories of investors. The net proceeds per share in the private placement offering were substantially similar to the net proceeds per share in this offering. The minimum permitted purchase in our private placement offering was $2,500. In addition, for every 1,000 shares of common stock an eligible investor purchased in our private placement offering, we offered to sell such investor one share of convertible stock. The private placement offering terminated on June 4, 2010. We raised approximately $12.6 million in our private placement offering and broke escrow. We are dependent upon the net proceeds from our private placement offering and this 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 our private placement offering, 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 June 15, 2010, 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 primarily of $11.3 million 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 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.

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.

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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, 2010. 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 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. 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. If we fund distributions from borrowings, sales of assets 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 these 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. Our organizational documents do not limit the amount of distributions we can fund from sources other than from cash flows from operations.

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, 2010. 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.

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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.

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.

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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.

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.

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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.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance that clarifies and requires new disclosures about fair value measurements. We adopted in the first quarter of 2010 the clarifications and requirement to disclose the amounts and reasons for significant transfers between Level 1 and Level 2, as well as significant transfers in and out of Level 3 of the fair value hierarchy. The new guidance also requires that purchases, sales, issuances, and settlements be presented gross in the Level 3 reconciliation and that requirement is effective for fiscal years beginning after December 15, 2010 and for interim periods within those years, with early adoption permitted. We early adopted the disaggregation guidance on January 1, 2010. Since this new guidance only amends the disclosures requirements, it did not impact the statement of financial position, statement of operations, or cash flow statement.

In June 2009, the FASB identified the FASB Accounting Standards Codification (“ASC”) as the authoritative source of GAAP other than guidance put forth by the SEC. All other accounting literature not included in the ASC will be considered non-authoritative. We adopted this standard in the third quarter of fiscal 2009 and revised our disclosures accordingly for references to GAAP.

In May 2009, the FASB issued guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the issuance of the financial statements. Provisions for this guidance are effective for interim and annual periods ending after June 15, 2009 and should be applied prospectively. We adopted this guidance and included it in Note D in our consolidated financial statements included in this prospectus.

In April 2009, the FASB issued guidance which requires an acquirer to recognize at fair value, at the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. This standard is effective for our assets or liabilities arising from contingencies in business combinations for which the acquisition date is after September 30, 2009. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued guidance for estimating fair value, when the volume and level of activity for the asset or liability have significantly decreased. Providing guidance on identifying circumstances that indicate a transaction is not orderly. Issued guidance emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of fair value measurement remains the same. Provisions for this guidance are effective for interim and annual periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued guidance intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. It provides guidelines for making fair value measurements more consistent with the fair value measurement principles when the volume and level of activity for the asset or liability have decreased significantly. It also enhances consistency in financial reporting by increasing the frequency of fair value disclosures. Finally, it provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. Provisions for this guidance are effective for interim periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In April 2008, the FASB amended the factors to be considered in developing a renewal or extension of assumptions used for the purpose of determining the useful life of a recognized intangible asset. This guidance is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset and is effective for us in fiscal year 2010. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

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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 December 31, 2009, and (b) Resource America, our sponsor’s ultimate parent, through December 31, 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 December 31, 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 two of the programs are private programs that have no public reporting requirements. All of the programs have investment objectives similar to our own. Since 1997, 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 Resource America sponsored RAIT Financial’s initial public offering in 1998 by creating the initial RAIT Financial entity, selling RAIT Financial its initial portfolio of assets, retaining an initial 15% ownership interest and the right to appoint one member to its board of trustees; however, Resource America did not serve as the external manager or advisor of RAIT Financial and currently has no ownership interest in RAIT Financial. 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 December 31, 2009, the two public real estate programs sponsored by Resource Real Estate referenced above, Resource Real Estate Investors 6, L.P. and Resource Real Estate Investors 7, L.P., raised gross offering proceeds of $35,000,000 from 578 investors and $32,538,308 from 587 investors, respectively (excluding Resource Capital Partners’ investment). Through December 31, 2009, the public real estate programs purchased interests in ten real estate properties for a total investment of $111,600,000. All of the properties are multifamily residential and none of the properties were newly constructed when purchased. As of December 31, 2009, none of these interests in real estate properties had been sold.

From inception through December 31, 2009, the private programs sponsored by Resource Real Estate referenced above raised gross offering proceeds of $200,436,436 from 3,099 investors. Through December 31, 2009, the private programs held interests in 39 real estate properties for a total investment of $394,655,460. All of the 39 properties purchased were multifamily residential and none of the properties were newly constructed when purchased. As of December 31, 2009, three of these real estate properties had been sold.

From inception through December 31, 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 $432.4 million from private and public investors. Through December 31, 2009, Resource Capital had a total of $874.2 million of capital commitments in commercial real estate related assets. As of December 31, 2009, six of its real estate related investments had been paid off.

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Acquisition Summary

Between 2003 and December 31, 2009, Resource Real Estate and its affiliates sponsored or co-sponsored programs that acquired 44 properties, all of which were multifamily residential properties. Information regarding the location of each property is summarized below.

Public Programs
Location	No. of Properties
Georgia	1
Maine	3
Texas	6
Total	10
Private Programs
Location	No. of Properties
Arkansas	6
California	3
Georgia	3
Kansas	4
Kentucky	1
Maine	1
Missouri	1
New Mexico	3
North Carolina	1
Pennsylvania	1
Tennessee	2
Texas	9
Total	34
All Programs – Method of Financing at Acquisition	No. of Properties
All debt	0
All cash	2
Combination of cash and debt	42
Total	44

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 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 December 31, 2009, $654,912 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, $284,783 of the property management fee and $88,460 of debt management fees due to affiliates of our sponsor have been accrued.

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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 December 31, 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 December 31, 2009, none of these properties had been sold. The properties, which are described below, are all multifamily residential properties.

As of December 31, 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 December 31, 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(2)	San Bernardino, CA	100.0%	12/11/07	$  1,679,000	$  2,000,000	8/11/16	10.27%
Hillwood(2)	Montgomery, AL	100.0%	12/5/07	$     378,000	$     400,000	1/8/17	10.97%
Southern Cove(2)	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.

⁽²⁾ The subordinated note has been placed on non-accrual status.

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.

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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 3,274,654 units to 587 investors in a private placement offering, which began on June 16, 2008 and ended on August 31, 2009 and raised $32,538,308 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 VII 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 December 31, 2009, $319,795 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, $58,284 of the property management fee due to affiliates of our sponsor has been accrued.

As of December 31, 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 December 31, 2009, none of these properties had been sold. The properties, which are described below, are all multifamily residential properties.

As of December 31, 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.

Upon request, prospective investors may obtain from us without charge copies of any public reports prepared in connection with RREI VII, 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 VII 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 December 31, 2009, Resource Capital had 36,545,737 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 December 31, 2009, Resource Capital had invested a total of $874.2 million in commercial real estate related assets as follows:

Types of Commercial Real Estate Related Assets(1)	Number of Assets	Unpaid Principal Balance(2)		Weighted Average Annual Interest  Rate(3)
Whole Loans	38	$	484,464,244	5.50%
Mezzanine Loans	15	$	182,522,935	4.81%
B-Notes	6	$	81,449,895	6.07%
Commercial Mortgage Backed Securities	35	$	125,779,356	4.70%

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⁽¹⁾ All of the properties underlying Resource Capital’s whole loans, mezzanine loans and B-Notes are rental properties located in various states including: Arizona, California, Colorado, Connecticut, Florida, Illinois, Indiana, Nevada, New Mexico, New York, Tennessee, Texas and Washington.

⁽²⁾ There are no assets in default other than a single whole loan, which is secured by a rental property located in Los Angeles, California and has a principal unpaid balance of approximately $7,377,533. Foreclosure proceedings commenced on this asset on June 3, 2009.

⁽³⁾ The weighted average of the current annual interest rate was calculated by taking the sum of the product of the unpaid principal balance for each asset in a given class and the current annual interest rate for that asset and then dividing that subtotal by the total aggregate unpaid principal balance of the asset for that particular class.

As of December 31, 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
2009	Investment J-Purchased Security	$	1,398,150	$	1,618,628
2009	Investment K-Purchased Security	$	320,000	$	290,000

⁽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.

Private Programs

Over the 10-year period ending December 31, 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 December 31, 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.

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As of December 31, 2009, $679,848 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 December 31, 2009, SR I and SR II (now AR) had acquired interests in six properties. As of December 31, 2009, four of these properties had been sold. The properties, which are described below, are all multifamily residential properties. The two remaining properties are located in Texas and Pennsylvania, and amount to a total investment by AR of $50,950,000 (AR’s aggregate share of purchase price, including AR’s aggregate share of debt financing at acquisition).

As of December 31, 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

⁽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⁾ 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 December 31, 2009, AR had sold its 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
Summit	12/16/08	12/09/09	100.0%	$   105,653
Portland Courtyard	09/11/03	07/24/09	100.0%	$   144,567

⁽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.

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As of December 31, 2009, $278,601 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 and $129,283 in 2009 for distributions to investors in RREI I.

As of December 31, 2009, RREI I had purchased interests in four properties. As of December 31, 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 December 31, 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%.

As of December 31, 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 December 31, 2009, $634,047 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, $469,776 of the property management fee due to affiliates of our sponsor has been accrued.

As of December 31, 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 December 31, 2009, none of these properties had been sold. The properties, which are described below, are all multifamily residential properties.

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As of December 31, 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%.

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 December 31, 2009, $888,455 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, $628,805 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 December 31, 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 December 31, 2009, none of these properties have been sold. The properties, which are described below, are all multifamily residential properties.

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As of December 31, 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.

As of December 31, 2009, $891,797 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, $145,894 of the property management fee due to affiliates of our sponsor has been accrued.

As of December 31, 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 December 31, 2009, none of these properties had been sold. The properties, which are described below, are all multifamily residential properties.

As of December 31, 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.

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⁽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 December 31, 2009, $797,608 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, $167,799 of the property management fee and $130,560 of debt management fees due to affiliates of our sponsor have been accrued.

As of December 31, 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 December 31, 2009, none of these properties had been sold. The properties, which are described below, are all multifamily residential properties.

As of December 31, 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 December 31, 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.

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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 4,168,912 units to 488 investors in a private placement offering, which began on January 19, 2009 and ended on December 31, 2009 and raised $41,398,677 of gross offering proceeds. Resource Real Estate has served as the sponsor and its affiliate has served as the manager of Opportunity Fund since its inception.

As of December 31, 2009, Opportunity Fund owned interests in the following properties:

Property Name	Ownership     Interest	Purchase     Date	Share of     Purchase     Price	Share of     Acquisition     Costs (1)		Share of     Mortgage     Debt at Purchase	No. of     Units	Location
Mill Creek (2)	100.0%	06/26/09	$7,022,000(3)		N/A	$            —	49	Kansas City, MO
Wyndridge	100.0%	09/29/09	$9,500,000 (4)		$259,222	$9,500,000	568	Memphis, TN

⁽¹⁾     Acquisition costs include property acquisition fees, legal costs, due diligence fees, transfer taxes, filing fees and other costs incurred in connection with the closing.

⁽²⁾     On September 11, 2009, the Opportunity Fund foreclosed on the Mill Creek mortgage note that it had acquired on June 26, 2009 for $7,022,000 (unpaid principal balance of $12,471,000).

⁽³⁾     Includes acquisition costs of mortgage purchase.

⁽⁴⁾     Purchase price does not include acquisition costs.

Adverse Business Developments or Conditions

Certain of our programs have experienced lower than originally expected cash flows from operations. The deep and long recession that began in the United States in December 2007 has made it significantly 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. According to REIS, Inc., vacancy rates for multifamily properties in the United States as of October 15, 2009 reached a 23-year high and was approaching record levels. In addition to the severe economic downturn, prior to the fourth quarter of 2007, Resource Real Estate exclusively hired third-party property managers to manage the day-to-day operations of 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 onsite property 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 adversely 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.

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The following lists adverse business developments for investment programs sponsored by our sponsor and its affiliates: Distributions in RREI I have been funded in prior years from a combination of operating cash flow, sale proceeds and reserves and advances from its general partner. For 2004 and 2007, RREI I had negative cash flow from operations of $111,874 and $206,885, respectively. During 2005, 2007 and 2008, RREI I utilized $232,348, $541,776 and $82,252, respectively, from reserves to supplement cash flow from operations. As of December 31, 2009, RREI I has received advances in the amount of $1,311,586 and has made cumulative distributions of $3,729,847. Distributions in RREI II have been funded from a combination of operating cash flow and reserves. For 2006 and 2007, RREI II had negative cash flow from operations of $680,056 and $42,097, respectively. During 2006, 2007 and 2008, RREI II utilized $774,457, $108,704 and $65,217, respectively, from reserves to supplement cash flow from operations. Distributions in RREI III have been funded from a combination of operating cash flow and reserves and advances from its general partner. Cash flow deficiencies occurred at one of the fund properties due to third-party property management issue and the delay in receiving tax refunds from tax appeals on two fund properties located in Texas. During 2007, RREI III utilized $473,343 from reserves to supplement cash flow from operations. As of December 31, 2009, RREI III has received advances in the amount of $314,348 and has made cumulative distributions of $5,086,774. 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 third-party property management issues. As of December 31, 2009, RREI V has received advances of $208,307 and has made cumulative distributions of $3,852,689. 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. For the fiscal year ended December 31, 2009, Resource Capital Corp. had net income of $6,339,000 primarily due to gains on the extinguishment of debt which were offset by increased provisions for loan and lease losses.

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 and deepening 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 5% for RRE VII and to 3% for RRE IV, RRE V and RRE VI and to 1% for RRE I, RRE II and RRE III, effective as of April 2010. Excess cash flow after distributions each month is retained by each of those programs as reserves to cover anticipated and unanticipated property 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:

• financial institutions;

• insurance companies;

• broker-dealers;

• regulated investment companies;

• partnerships and trusts;

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• 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.

Recent Legislation

On March 18, 2010, the President signed into law the Hiring Incentives to Restore Employment Act of 2010 (the “HIRE Act”). The HIRE Act imposes a U.S. withholding tax at a 30% rate on dividends and proceeds of sale in respect of our common stock received by U.S. stockholders who own their shares through foreign accounts or foreign intermediaries and certain non-U.S. stockholders if certain disclosure requirements related to U.S. accounts or ownership are not satisfied. If payment of withholding taxes is required, non-U.S. stockholders that are otherwise eligible for an exemption from, or reduction of, U.S. withholding taxes with respect to such dividends and proceeds will be required to seek a refund from the IRS to obtain the benefit of such exemption or reduction. We will not pay any additional amounts in respect of any amounts withheld. These new withholding rules are generally effective for payments made after December 31, 2012.

On March 30, 2010, the President signed into law the Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act”). The Reconciliation Act will require certain U.S. stockholders who are individuals, estates or trusts to pay a 3.8% Medicare tax on, among other things, dividends on and capital gains from the sale or other disposition of stock, subject to certain exceptions. This tax will apply for taxable years beginning after December 31, 2012. U.S. stockholders should consult their tax advisors regarding the effect, if any, of the Reconciliation Act on their ownership and disposition 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, 2010. We believe that we have been organized and expect to operate in such a manner as to qualify for taxation as a REIT.

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The law firm of DLA Piper LLP (US), acting as our tax counsel in connection with this offering, has rendered 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, 2010. It must be emphasized that the opinion of DLA Piper LLP (US) is based on various assumptions relating to our organization and operation and is 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 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 is expressed as of the date issued and will not cover subsequent periods. Counsel has 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.

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• 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 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.

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• 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.

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.

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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 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 our 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.”

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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 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 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, as well as specified income from temporary 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.

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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 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.

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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.

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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) 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 stockholders 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.

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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 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 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.

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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.

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.”

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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 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).

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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.

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.

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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 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 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 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

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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;

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• 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

• 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).

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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 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.

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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.

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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 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.

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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 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.

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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. 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 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.

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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.

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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 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.

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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.

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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 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.

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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.

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 Internal Revenue Service 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.

To assist broker-dealers who participate in this offering, we expect to provide an estimated value for our shares annually. Until 18 months have passed without a sale in a public offering of our common stock, not including any offerings on behalf of selling stockholders or offerings related to any distribution reinvestment plan, employee benefit plan, or the issuance of shares upon redemption of interests in our Operating Partnership, we expect to use the gross offering price of a share of the common stock in our most recent offering as the per share estimated value thereof. This estimated value is not likely to reflect the proceeds you would receive upon our liquidation or upon the sale of your shares. Accordingly, we can make no assurances that such estimated value will satisfy the applicable annual valuation requirements under ERISA and the Internal Revenue Code. The Department of Labor or the Internal Revenue Service may determine that a plan fiduciary or an IRA custodian is required to take further steps to determine the value of our common shares. In the absence of an appropriate determination of value, a plan fiduciary or an IRA custodian may be subject to damages, penalties or other sanctions.

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 can subject the fiduciary to claims for damages or for equitable remedies. In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary or IRA owner who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. In the case of a prohibited transaction involving an IRA owner, the IRA may be disqualified and all of the assets of the IRA may be deemed distributed and subjected to tax. ERISA plan fiduciaries and IRA custodians should consult with counsel before making an investment in our common shares.

After the 18-month period described above (or possibly sooner if our board so directs), we expect to publish an estimated value for a share of common stock. We expect such estimate will be based on estimates of the values of our assets net of our liabilities. Our board of directors will make decisions regarding who will perform valuations of our assets, such as our advisor or third parties, and the valuation methodology to be employed. We cannot predict these decisions at this time, however, we do not currently anticipate obtaining asset-by-asset appraisals prepared by appraisers certified by a Member of the Appraisal Institute or other trade organization that monitors appraisers. Our estimates should not be viewed as the amount of net proceeds that would result from an immediate sale of our properties. 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 we no longer use 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 in to the expenses of selling our assets);

• you may not realize these values if you were to attempt to sell your shares; and

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• the estimated values, or the method used to establish values, may not comply with the ERISA or IRA requirements described above.

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 provides 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 June 15, 2010, we had 1,263,726 shares of our common stock outstanding, 50,000 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 have received an opinion from DLA Piper LLP (US) that when the shares of our common stock are issued in the manner contemplated, 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.

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Convertible Stock

Our authorized capital stock includes 50,000 shares of convertible stock, par value $0.01 per share. In connection with the commencement of this offering, we issued 45,000 of such shares to our advisor in exchange for 4,500 shares of common stock and our advisor purchased 4,068 shares of our convertible stock that were not sold in our private offering for $1.00 per share of convertible stock. No additional consideration is due upon the conversion of the convertible stock. As of June 15, 2010, a total of 50,000 shares of convertible stock were outstanding. There will be no distributions paid on 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 (A) for the adoption of any amendment, alteration or repeal of a provision of the charter or (B) to effect or validate a consolidation with or merger of our company into another entity, 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.

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By way of example only, the value of the 50,000 shares of convertible stock nine years after purchase, assuming a 15% cumulative, non-compounded annual return on the common stock (prior to the impact of the shares of convertible stock) would be $85,500,000 if we raise a total of $760,000,000 (at $10.00 per share) in this offering and in the private offering that concluded immediately preceding the commencement of this offering. There is no guaranty that we will sell this amount of shares of common stock, in which case, the value of the convertible stock would be lower. If the cumulative, non-compounded annual return on the shares of common stock is 10% or less, the value of the shares of convertible stock will be zero. In contrast to the above assumption of a 15% cumulative, non-compounded annual return, if the return were 11%, the value of our convertible stock would be $17,100,000.

Generally, for any given level of return on an investment in common stock, the more shares we sell, the greater the value of a share of convertible stock. The above example does not take into account the possibility that we may sell additional shares of common stock under our distribution reinvestment plan, and the example ignores the dollars that we received or will receive for the sale of the convertible stock. The example also does not take into account the possibility that we may sell common stock for less than $10.00 per share or the impact of redeeming common stock under our share redemption program; at any given level of return, both of these possibilities would reduce the value of our convertible stock. Further, the example does not take into account the fact that our common stock will be sold over a period of time. Instead, in preparing this example, we assumed that all shares will be sold at the same time, which assumption had the effect of increasing the value in the example above. Finally, it is important to note that the convertible stock would have no value or reduced value if we terminated our advisor prior to the conversion of the convertible stock.

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. A majority of our independent directors who do not have an interest in the transaction must approve any issuance of preferred stock. 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, 2010. 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.

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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 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. 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. If we fund distributions from borrowings, sales of assets 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. Our organizational documents do not limit the amount of distributions we can fund from sources other than from cash flows from operations.

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 2010, 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. 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.

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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 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.

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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.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is DST Systems, Inc.

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 and Section 3-403 of the Maryland General Corporation Law do require board approval in order to amend our charter or dissolve, respectively. 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.

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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

• 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. Except as noted below, the list will be available for inspection at our principal office by a common stockholder or his or her designated agent upon request of the stockholder and we will 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 a commercial purpose other than in the interest of the applicant as a stockholder relative to the affairs of our company. 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 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 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. As the operations of both RRE Opportunity Holdings, LLC and our Operating Partnership will be conducted by us, an inspection of the our books and records would include an inspection of the books and records of RRE Opportunity Holdings, LLC and our Operating Partnership.

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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

• 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:

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• 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.

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. Our bylaws may be amended by our stockholders or the board of directors.

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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 us with 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:

• 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.

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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 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;

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• 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.

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. If you participate in our share redemption program, you will not be terminated from participating in the distribution reinvestment plan. 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.

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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, except we may not amend the distribution reinvestment plan to remove the right of a stockholder to terminate participation in the plan. 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 amend, suspend or terminate the program upon 30 days’ notice and 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. 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 our 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 our 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 our Operating Partnership. For a description of the exchange rights of the limited partners of our 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.

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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 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.

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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 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.

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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 upon 30 days’ notice if 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.”

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.

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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 our Operating Partnership’s limited partnership agreement and any other applicable agreement, we may cause our 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 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.

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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 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 our Operating Partnership, is a Delaware limited partnership. We expect to own substantially all of our assets and conduct our operations through our Operating Partnership. We are the sole general partner of our Operating Partnership and, as of the date of this prospectus, our wholly owned subsidiary, RRE Opportunity Holdings, LLC, is the sole limited partner of our Operating Partnership. As the sole general partner, we have the exclusive power to manage and conduct the business of our 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. 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 our Operating Partnership will be deemed to be assets and income of the REIT.

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If we ever decide to acquire properties in exchange for units of limited partnership interest in our 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 our Operating Partnership as an additional capital contribution. If we did contribute additional capital to our Operating Partnership, we would receive additional partnership units and our percentage interest in our Operating Partnership would be increased on a proportionate basis based upon the amount of such additional capital contributions and the value of our Operating Partnership at the time of such contributions. We also expect that the partnership agreement would allow us to cause our 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 our 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 our Operating Partnership, including priority over the partnership interests that we would own as a limited partner. If our 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 our 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, our 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 our 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 our 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 our 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 our 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 our 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 our Operating Partnership. Losses could not be passed through to our stockholders.

Upon liquidation of our Operating Partnership, after payment of, or adequate provision for, debts and obligations of our Operating Partnership, including partner loans, any remaining assets of our Operating Partnership would be distributed to its partners in accordance with their respective positive capital account balances.

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Rights, Obligations and Powers of the General Partner

We will be the sole general partner of our Operating Partnership. As sole general partner, we generally would have complete and exclusive discretion to manage and control our 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;

• 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 our Operating Partnership with another entity.

Upon commencement of this offering, under the partnership agreement, we expect that our 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 our 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 our Operating Partnership would not reimburse would be costs and expenses relating to assets we may own outside of our 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 our Operating Partnership would have the right to cause our 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);

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• 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.

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 our Operating Partnership or transfer our general partnership interest in our 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 our Operating Partnership in return for an interest in our Operating Partnership and agreed to assume all obligations of the general partner of our 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 our 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.

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. Our board of directors may adjust the offering price of the primary offering shares during the course of the public offering by no more than 20% of the initial price. Any adjustment to the offering price would be effected by a supplement to this prospectus. 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.)

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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 June 16, 2013. Under rules promulgated by the SEC, in some circumstances we could continue our primary offering up to an additional 180 days beyond June 16, 2013. 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 bona fide invoiced due diligence expenses 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:

• 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

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• 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 1.0% of the gross offering proceeds attributable to that participating broker-dealer as a marketing fee. 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 $375,000.

The table and the discussion 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

Various registered representatives of broker-dealers who we expect to participate in this offering purchased shares of our common stock for their own account or the account of a family member in our private offering. Such registered representatives and their family members purchased a total of approximately $394,000 of shares of our common stock in connection with the private offering at a net effective purchase price of $9.30 per share. In addition, several of such registered representatives purchased a total of 34 “promote shares” for $1.00 per share pursuant to the terms of the private placement memorandum. Under limited circumstances, these shares may be converted into shares of our common stock. FINRA views these shares of common stock and promote shares as underwriting compensation and has attributed a compensation value to such purchases pursuant to the rules of FINRA.

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, pursuant to the terms of our advisory agreement, 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 1.78% of our gross offering proceeds, 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.

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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 $9.00 per share, reflecting that selling commissions in the amount of $0.70 per share and the dealer manager fee in the amount of $0.30 per share will not be payable in connection with such sales. The net proceeds to us from such sales made net of commissions and dealer manages fees 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. 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 or the dealer manager fee, the volume discount will apply only to the current and future investments.

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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 June 16, 2011 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 June 16, 2011, 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 New York and Pennsylvania investors. Because of the higher minimum offering requirement for New York and Pennsylvania investors, subscription payments made by New York and Pennsylvania investors will not count toward the $2,000,000 minimum offering for all other jurisdictions. See “— Special Notice to Pennsylvania Investors” below.

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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 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.” Also, until we have raised the minimum offering amount, completed subscription agreements and payments should be sent by your broker-dealer or registered investment advisor, as applicable, to TD Bank, N.A. at the address set forth in the subscription agreement. 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” and New York investors should make their checks made payable to “TD Bank, N.A. as Escrow Agent for Resource Real Estate Opportunity REIT, Inc.” until we have received aggregate proceeds from this offering of at least $2,500,000, after which time checks may be made payable to “Resource Real Estate Opportunity REIT, Inc.” 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 the final prospectus. In order to ensure that you have had sufficient time to review the final prospectus, we will not accept your subscription until at least five business days after your receipt of the final 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 minimum income and net worth standards established by us or cannot make the other investor representations or warranties set forth in the then current prospectus or in the subscription agreement relating to such investment, 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.

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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. See “Suitability Standards” (immediately following the cover page) for a detailed discussion of the determinations regarding suitability that we require.

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.

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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.

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 June 16, 2012. In the event we do not raise gross offering proceeds of $25 million by June 16, 2012, 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.”

Investments through IRA Accounts

Community National Bank has agreed to act as an IRA custodian for purchasers of our common stock who would like to purchase shares though an IRA account and desire to establish a new IRA account for that purpose. We will pay the fees related to the establishment of investor accounts with a minimum investment of $5,000 with Community National Bank and the first-year annual IRA maintenance fee. Thereafter, investors will be responsible for the annual IRA maintenance fees. Further information about custodial services is available through your broker or through our dealer manager.

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.

194

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.

EXPERTS

The consolidated financial statements as of December 31, 2009 and for the period from June 3, 2009 (date of inception) to December 31, 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.

195

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC. AND SUBSIDIARY

MARCH 31, 2010
CONSOLIDATED FINANCIAL STATEMENTS (unaudited):
CONSOLIDATED BALANCE SHEET	F-2
CONSOLIDATED STATEMENT OF OPERATIONS	F-3
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY	F-4
CONSOLIDATED STATEMENT OF CASH FLOWS	F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-6
DECEMBER 31, 2009
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-14
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET	F-15
CONSOLIDATED STATEMENT OF OPERATIONS	F-16
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY	F-17
CONSOLIDATED STATEMENT OF CASH FLOWS	F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-19

F-1

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Development Stage)

CONSOLIDATED BALANCE SHEET

(unaudited)

	March 31, 2010
ASSETS
Cash	$	4,204,145
Prepaid expenses		15,521
Other assets, deferred offering costs		2,529,989
Total assets	$	6,749,655
LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities:
Due to related parties	$	2,907,655
Accounts payable & accrued expenses		152,005
Total liabilities		3,059,660
Stockholder’s equity:
Preferred stock (par value $.01, 10,000,000 shares authorized, 0 issued and outstanding)		—
Convertible stock (“promote shares”) (par value $.01, 50,000 shares authorized, 226 issued and outstanding)		2
Common stock (par value $.01, 1,000,000,000 shares authorized, 465,340 issued and outstanding)		4,653
Additional paid-in-capital		4,055,990
Accumulated deficit during development stage		(370,650	)
Total stockholder’s equity		3,689,995
Total liabilities and stockholder’s equity	$	6,749,655

The accompanying notes are an integral part of this consolidated financial statement.

F-2

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Development Stage)

CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)

	For the quarter ending March 31, 2010			Cumulative Totals since inception (June 16, 2009) to March 31, 2010
Interest income	$	2,787		$	3,729
Operating expenses		(258,552	)		(369,379	)
Organizational expenses		—			(5,000	)
Net loss	$	(255,765	)	$	(370,650	)

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 CHANGES IN STOCKHOLDER’S EQUITY

For the period from January 1, 2010 to March 31, 2010

(unaudited)

													Additional Paid in Capital			Accumulated Deficit during Development Stage			Total
	Common Stock				Preferred Stock				Convertible Stock
	Shares		Amount		Shares		Amount		Shares		Amount
Balance at January 1, 2010		20,000	$	200		—	$	—		—	$	—	$	199,800		$	(114,885	)	$	85,115
Issuance of stock		445,340		4,453		—		—		226		2		4,407,678			—			4,412,133
Offering costs														(551,488	)					(551,488	)
Net loss		—		—		—		—		—		—		—			(255,765	)		(255,765	)
Balance at March 31, 2010		465,340	$	4,653		—	$	—		226	$	2	$	4,055,990		$	(370,650	)	$	3,689,995

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 CASH FLOWS

(unaudited)

	For the quarter ending March 31, 2010			Cumulative Totals since inception (June 16, 2009) to March 31, 2010
Cash flows from operating activities
Net loss	$	(255,765	)	$	(370,650	)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities:
Prepaid expenses		(3,284	)		(15,521	)
Deferred offering costs		(376,765	)		(2,529,989	)
Due to related parties		626,367			2,907,655
Accounts payable and accrued expenses		72			72
Net cash used in operating activities		(9,375	)		(8,433	)
Cash flows from financing activities
Proceeds from issuance of common stock		3,863,417			4,611,908
Proceeds from issuance of convertible stock		190			226
Offering costs		(399,556	)		(399,556	)
Net cash provided by financing activities		3,464,051			4,212,578
Net increase in cash		3,454,676			4,204,145
Cash at beginning of period		749,469			—
Cash at end of period	$	4,204,145		$	4,204,145
Supplemental disclosure of non cash item from financing activities:
Investor contributions held in escrow converted to common stock	$	548,491		$	548,491
Investor contributions held in escrow converted to convertible stock	$	36		$	36

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 Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(unaudited)

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 offer 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 is also offering up to 7,500,000 shares pursuant to the Company’s 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. The Company is accounted for as a development stage enterprise and 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 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, commencing with its taxable year ending December 31, 2010. 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.

(continued)

F-6

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(unaudited)

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Presentation

The accounting and reporting policies of the Company conform to the accounting principles generally accepted in the United States of America (GAAP).

2. Principles of Consolidation

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.

3. Adoption of New Accounting Standards

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance that clarifies and requires new disclosures about fair value measurements. The clarifications and requirement to disclose the amounts and reasons for significant transfers between Level 1 and Level 2, as well as significant transfers in and out of Level 3 of the fair value hierarchy, were adopted by the Company in the first quarter of 2010. The new guidance also requires that purchases, sales, issuances, and settlements be presented gross in the Level 3 reconciliation and that requirement is effective for fiscal years beginning after December 15, 2010 and for interim periods within those years, with early adoption permitted. The Company early adopted the disaggregation guidance on January 1, 2010. Since this new guidance only amends the disclosures requirements, it did not impact the statement of financial position, statement of operations, or cash flow statement.

(continued)

F-7

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(unaudited)

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

4. Use of Estimates

The accounting and reporting policies of the Company conform with 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.

5. 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

6. 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 will review 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.

(continued)

F-8

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(unaudited)

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

6. Impairment of Long Lived Assets – (continued)

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 will be 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.

7. 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 is deemed to be impaired, the Company will 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 the Company’s real estate loans receivable and an overstatement of the Company’s net income.

The Company may acquire real estate loans at a discount due to credit quality. Revenues from these loans are recorded under the effective interest method. Under this method an effective interest rate (“IRR”) is applied to the cost basis of the real estate loan receivable. The IRR that is calculated when the real estate loan receivable is acquired remains constant and is the basis for subsequent impairment testing and income recognition. If the amount and timing of future cash collections are not reasonably estimable, the Company accounts for the real estate receivable on the cost recovery method. Under the cost recovery method of accounting, no income is recognized until the basis of the real estate loan receivable has been fully recovered.

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.

8. Allocation of Purchase Price of Acquired Assets

Upon the acquisition of real properties, it is the Company’s policy to allocate the purchase price of properties to acquired tangible assets, consisting of land, building, fixtures and improvements, and identified intangible lease assets and liabilities, consisting of the value of above-market and below-market leases, as applicable, other value of in-place leases and value of tenant relationships, based in each case on their fair values.

(continued)

F-9

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(unaudited)

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

8. Allocation of Purchase Price of Acquired Assets – (continued)

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.

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 the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

The Company 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.

(continued)

F-10

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(unaudited)

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

8. Allocation of Purchase Price of Acquired Assets – (continued)

The determination of the fair value of the assets and liabilities acquired requires the use of significant assumptions with regard to current market rental rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the purchase price allocations, which could impact the amount of the Company’s reported net income. Initial purchase price allocations are subject to change until all information is finalized, which is generally within one year of the acquisition date.

9. 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.

10. Development Stage Company

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.

(continued)

F-11

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(unaudited)

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

11. 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 $2,529,989 incurred through March 31, 2010 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.

12. Income Taxes

The Company intends to elect and qualify to be taxed as a REIT, commencing with its taxable year ending December 31, 2010. 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.

(continued)

F-12

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(unaudited)

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

13. Earnings Per Share

Basic earnings per share (“Basic EPS”) is determined by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share (“Diluted EPS”) is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding after giving effect to the potential dilution from the exercise of securities, such as stock options and warrants, into shares of common stock as if those securities were exercised, as well as the dilutive effect of other award plans, including restricted stock and director units. Earnings per share for the period from January 2, 2010 to March 31, 2010 are not presented because it is not a meaningful measure of the Company’s performance.

15. Recent Accounting Developments

In April 2008, the FASB amended the factors to be considered in developing a renewal or extension of assumptions used for the purpose of determining the useful life of a recognized intangible asset. This guidance is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset and is effective for the Company in fiscal year 2010. The adoption of this guidance is not expected to 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. Pursuant to the terms of the management agreement, the Advisor will provide the Company with its management team, including its officers, along with appropriate support personnel. The Advisor will be reimbursed for the Company’s allocable share of costs for Advisor personnel, including allocable personnel salaries and benefits. Each of the Company’s officers is an employee of Resource Real Estate, Inc., a wholly owned subsidiary of RAI, 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 or their 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 both operating costs and organization and offering costs which totaled $2,636,785 at March 31, 2010. Funds have also been advanced to the Company from RAI for offering costs relating to allocable personnel salaries and benefits which totaled $270,870 at March 31, 2010. 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.

(continued)

F-13

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the 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 December 31, 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 December 31, 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 December 31, 2009 and the consolidated results of their operations and their cash flows for the period from June 3, 2009 (date of inception) to December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP

Philadelphia, Pennsylvania

February 9, 2010

F-14

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Development Stage)

CONSOLIDATED BALANCE SHEET

	December 31, 2009
ASSETS
Cash	$	749,469
Prepaid expenses		12,237
Deferred offering costs		2,153,224
Total assets	$	2,914,930
LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities:
Due to Advisor (related party)	$	2,281,288
Investor contributions held in escrow		548,527
Total liabilities		2,829,815
Stockholder’s equity:
Preferred stock (par value $.01, 10,000,000 shares authorized, none issued and outstanding)		—
Convertible stock (“promote shares”) (par value $.01, 50,000 shares authorized, none 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		(114,885	)
Total stockholder’s equity		85,115
Total liabilities and stockholder’s equity	$	2,914,930

The accompanying notes are an integral part of this consolidated financial statement.

F-15

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 December 31, 2009
Interest income	$	942
Operating expenses – related party		(110,827	)
Organizational expenses		(5,000	)
Net loss	$	(114,885	)

The accompanying notes are an integral part of this consolidated financial statement.

F-16

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 December 31, 2009

	Common Stock				Preferred Stock				Convertible Stock				Additional Paid in Capital		Accumulated Deficit during Development			Total
	Shares		Amount		Shares		Amount		Shares		Amount				Stage
Balance at June 3, 2009		—	$	—		—	$	—		—	$	—	$	—	$	—		$	—
Issuance of common stock		20,000		200		—		—		—		—		199,800		—			200,000
Net loss		—		—		—		—		—		—		—		(114,885	)		(114,885	)
Balance at December 31, 2009		20,000	$	200		—	$	—		—	$	—	$	199,800	$	(114,885	)	$	85,115

The accompanying notes are an integral part of this consolidated financial statement.

F-17

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 December 31, 2009
Cash flows from operating activities
Net loss	$	(114,885	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Changes in operating assets and liabilities:
Prepaid expenses		(12,237	)
Due to Advisor (related party), net of offering costs		128,064
Net cash provided by operating activities		942
Cash flows from financing activities
Investor contributions held in escrow		548,527
Proceeds from issuance of common stock		200,000
Net cash provided by financing activities		748,527
Net increase in cash		749,469
Cash at beginning of period		—
Cash at end of period	$	749,469

The accompanying notes are an integral part of this consolidated financial statement.

F-18

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 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 offer 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 is also offering up to 7,500,000 shares pursuant to the Company’s 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. The Company is accounted for as a development stage enterprise and 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, commencing with its taxable year ending December 31, 2010. 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.

(continued)

F-19

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Presentation

The accounting and reporting policies of the Company conform to the accounting principles generally accepted in the United States of America (GAAP).

2. Principles of Consolidation

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.

3. Adoption of New Accounting Standards

In June 2009, the Financial Accounting Standards board (“FASB”) indentified the FASB Accounting Standards Codification (“ASC”) as the authoritative source of GAAP other than guidance put forth by the U.S. Securities and Exchange Commission. All other accounting literature not included in the ASC will be considered non-authoritative. The Company adopted this standard in the third quarter of fiscal 2009 and revised its disclosures accordingly for references to GAAP.

In May 2009, the FASB issued guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the issuance of the financial statements. Provisions for this guidance are effective for interim and annual periods ending after June 15, 2009 and should be applied prospectively. The Company adopted this guidance and included it in Note D – Subsequent Events.

In April 2009, the FASB issued guidance which requires an acquirer to recognize at fair value, at the acquisition date, an asset acquired and/or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. This standard is effective for the Company for assets or liabilities arising from contingencies in business combinations for which the acquisition date is after September 30, 2009. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued guidance for estimating fair value, when the volume and level of activity for the asset or liability have significantly decreased. Providing guidance on identifying circumstances that indicate a transaction is not orderly. Issued guidance emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of fair value measurement remains the same. Provisions for this guidance are effective for interim and annual periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

(continued)

F-20

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

3. Adoption of New Accounting Standards – (continued)

In April 2009, the FASB issued guidance intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. It provides guidelines for making fair value measurements more consistent with the fair value measurement principles when the volume and level of activity for the asset or liability have decreased significantly. It also enhances consistency in financial reporting by increasing the frequency of fair value disclosures. Finally, it provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. Provisions for this guidance are effective for interim periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

4. Use of Estimates

The accounting and reporting policies of the Company conform with 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.

5. Real Estate Investments

The Company will record 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

6. 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 will review 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.

(continued)

F-21

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

6. Impairment of Long Lived Assets – (continued)

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 will be 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.

7. 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 is deemed to be impaired, the Company will 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 the Company’s real estate loans receivable and an overstatement of the Company’s net income.

The Company may acquire real estate loans at a discount due to credit quality. Revenues from these loans are recorded under the effective interest method. Under this method an effective interest rate (“IRR”) is applied to the cost basis of the real estate loan receivable. The IRR that is calculated when the real estate loan receivable is acquired remains constant and is the basis for subsequent impairment testing and income recognition. If the amount and timing of future cash collections are not reasonably estimable, the Company accounts for the real estate receivable on the cost recovery method. Under the cost recovery method of accounting, no income is recognized until the basis of the real estate loan receivable has been fully recovered.

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.

8. Allocation of Purchase Price of Acquired Assets

Upon the acquisition of real properties, it is the Company’s policy to allocate the purchase price of properties to acquired tangible assets, consisting of land, building, fixtures and improvements, and identified intangible lease assets and liabilities, consisting of the value of above-market and below-market leases, as applicable, other value of in-place leases and value of tenant relationships, based in each case on their fair values.

(continued)

F-22

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

8. Allocation of Purchase Price of Acquired Assets – (continued)

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.

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 the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

The Company 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.

(continued)

F-23

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

8. Allocation of Purchase Price of Acquired Assets – (continued)

The determination of the fair value of the assets and liabilities acquired requires the use of significant assumptions with regard to current market rental rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the fair value of these assets and liabilities, which could impact the amount of the Company’s reported net income. These estimates are subject to change until all information is finalized, which is generally within one year of the acquisition date.

9. 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.

10. Development Stage Company

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.

(continued)

F-24

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

11. 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 $2,153,224 incurred through December 31, 2009 that are related to the initial private and public offerings that will be charged to capital upon completion of the offerings or charged to expense if the initial public offering is not completed.

12. Investor Contributions Held in Escrow

The Company is currently engaged in the private offering of its common stock. Included in investor contributions held in escrow on the accompanying balance sheet is $548,527 of offering proceeds for which shares of common stock had not been issued as of December 31, 2009.

The Company has also received signed subscription agreements from investors committing to additional investment of $353,905 as of December 31, 2009. These amounts were collected in January 2010.

13. Income Taxes

The Company intends to elect and qualify to be taxed as a REIT, commencing with its taxable year ending December 31, 2010. 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.

(continued)

F-25

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

14. Earnings Per Share

Basic earnings per share (“Basic EPS”) is determined by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share (“Diluted EPS”) is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding after giving effect to the potential dilution from the exercise of securities, such as stock options and warrants, into shares of common stock as if those securities were exercised, as well as the dilutive effect of other award plans, including restricted stock and director units. Earnings per share for the period from June 3, 2009 (date of inception) to December 31, 2009 are not presented because it is not a meaningful measure of the Company’s performance.

15. Recent Accounting Developments

In April 2008, the FASB amended the factors to be considered in developing a renewal or extension of assumptions used for the purpose of determining the useful life of a recognized intangible asset. This guidance is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset and is effective for the Company in fiscal year 2010. The adoption of this guidance is not expected to 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. Pursuant to the terms of the management agreement, the Advisor will provide the Company with its management team, including its officers, along with appropriate support personnel. The Advisor will be reimbursed for the Company’s allocable share of costs for Advisor personnel, including allocable personnel salaries and benefits. Each of the Company’s officers is an employee of Resource Real Estate, Inc., a wholly owned subsidiary of RAI, 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 or their 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.

During the course of the offering, the Advisor will provide offering-related services to the Company and will advance funds to the Company for both operating costs and organization and offering costs, which totaled $2,281,288 at December 31, 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.

(continued)

F-26

Resource Real Estate Opportunity REIT, Inc. and Subsidiary

(A Maryland Corporation in the Developmental Stage)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

NOTE D – SUBSEQUENT EVENT

In January 2010, the Company satisfied the minimum offering requirements of 100,000 shares of common stock sold and $1.0 million of subscription proceeds received needed to break escrow.

The Company has evaluated subsequent events through February 9, 2010 and determined there were no additional events that have occurred that would require adjustments to the consolidated financial statements.

F-27

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. As of December 31, 2009, all of the Prior Real Estate Programs (other than Resource Capital Corp, which is publicly traded) were closed or completed. 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. invests 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 since January 1, 2007, 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, 2007. The Prior Real Estate Programs 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.

As of December 31, 2009

	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	100.00%		$  32,538,308	100.00%
Less offering expenses:
Selling commissions and discounts		(2,580,051)	-7.37%		(2,720,909)	-7.39%		(2,453,062)	-7.54%
Underwriting		(664,080)	-1.90%		(699,180)	-1.90%		(613,265)	-1.88%
Organization and offering expenses paid to general partner or its affiliates		(831,194)	-2.37%		(888,521)	-2.41%		(813,458)	-2.50%
Reserves		(132,970)	-0.38%		(1,490,848)	-4.05%		(330,804)	-1.02%
Proceeds available for investment		$ 30,791,705	87.98%		$31,042,647	84.26%		$  28,327,719	87.06%
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%		—	—%
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			9/11/2009
Length of offering (in months)		7			8			16
Months to invest 90% of amount available for investment		8			5			7

A-2

TABLE I

(UNAUDITED)

EXPERIENCE IN RAISING AND INVESTING FUNDS (cont’d)

As of December 31, 2009

	Resource Real Estate Opportunity Fund, L.P.
Dollar amount offered		$50,000,000
Dollar amount raised		$    41,398,677	100.00%
Less offering expenses:
Selling commissions and discounts		(2,359,724)	-5.70%
Underwriting		(786,575)	-1.90%
Organization and offering expenses paid to general partner or its affiliates		(1,034,967)	-2.50%
Reserves		(2,423,817)	-5.85%
Proceeds available for investment		$    34,793,594	84.05%
Acquisition costs:
Prepaid items		8,937,948	19.11%
Closing costs		500,824	1.07%
Cash down payment		24,918,589	53.27%
Debt proceeds		11,986,350	25.62%
Acquisition fees paid to general partner		436,233	0.93%
Property level reserves		—	—%
Total acquisition cost		$    46,779,944	100.00%
Percent leverage		25.62%
Date offering commenced		1/19/2009
Date offering closed		12/31/2009
Length of offering (in months)		12
Months to invest 90% of amount available for investment		9

A-3

TABLE I

EXPERIENCE IN RAISING AND INVESTING FUNDS (cont’d)

(ON A PERCENTAGE BASIS)

As of December 31, 2009

	with exercised Warrants				without exercised Warrants
	Resource Capital Corp.				Resource Capital Corp.
Dollar amount offered		$202,368,404		(1)		$196,735,199
Dollar amount raised	$	202,368,404	100.00%	(2)	$	196,735,199	100.00%
Less offering expenses:
Selling commissions		—	—%			—	—%
Underwriting		(10,680,563)	-5.28%	(3)		(10,680,563)	-5.43%	(3)
Organization and offering expenses paid		(2,608,026)	-1.29%	(4)		(2,608,026)	-1.33%	(4)
Reserves		—	—%			—	—%
Proceeds available for investment	$	189,079,815	93.43%		$	183,446,610	93.25%
Acquisition costs:
Prepaid items		—	—%			—	—%
Closing costs		—	—%			—	—%
Cash down payment		—	—%			—	—%
Debt proceeds		—	—%			—	—%
Acquisition fees paid to general partner		—	—%			—	—%
Property level reserves		—	—%			—	—%
Total acquisition cost	$	—	—%		$	—	—%
Percent leverage		85.67%		(5)		85.67%		(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 December 31, 2009 (Comprised of IPO and Follow-On offering/Greenshoe and additional 2009 offering).

⁽³⁾ Underwriting Commissions paid to IPO, Follow-On Offering and 2009 offering to the underwriters of RSO.

⁽⁴⁾ Public Offering Expenses on a cash-basis paid from January 1, 2006 to December 31, 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-4

TABLE II

(UNAUDITED)

COMPENSATION TO SPONSOR

This Table sets forth the cumulative 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, 2007 and those Prior Real Estate Programs which paid compensation to our sponsor after January 1, 2007. The Prior Real Estate Programs have somewhat similar investment objectives to Resource Real Estate Opportunity REIT, Inc.

As of December 31, 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		—		69,836		126,553		240,097		102,496
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-5

TABLE II

(UNAUDITED)

COMPENSATION TO SPONSOR (cont’d)

As of December 31, 2009

	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		8/31/20007		5/23/2008		9/11/2009		12/31/2009
Dollar amount raised		$  35,000,000		$  36,842,105		$  32,538,308		$  41,398,677
Amount paid to sponsor from proceeds of offering:
Underwriting fees		664,080		699,180		613,265		782,610
Acquisition fees:
- Real estate commissions		—		—		—		—
- Advisory fees for property acquisition		1,345,035		1,330,964		1,099,514		163,707
- Debt placement fees		920,063		792,295		721,753		-
Other - organization and offering expenses		831,194		888,521		813,458		1,034,967
Dollar amount of cash generated from operations before deducting payments to sponsor		4,502,030		1,959,268		233,172		—
Amount paid to sponsor from operations:
Property management fees		68,966		2,219		114,887		—
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-6

TABLE II

(UNAUDITED)

COMPENSATION TO SPONSOR (cont’d)

As of December 31, 2009

	Resource Capital Corp.
Date offering commenced		1/31/2006
Date offering closed		2/6/2006
Dollar amount raised		$ 202,368,404
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		119,627,068
Amount paid to sponsor from operations:
Property management fees		—
Partnership management fees		—
Reimbursements		3,336,103	(1)
Leasing commissions		—
Other (identify and quantify)		33,995,910	(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 Resource America, Inc.    for Manager Expenses from March 8, 2005 to December 31, 2009.
(2)     Other is comprised of the following:
-RCC payment of Base Management Fees (March 2005 to December 2009)		$ 19,854,245
-RCC payment of Incentive Mgmt Fees (March 2005 to December 2009)		$ 9,270,313
-RCC payment of LEAF Servicing Fees (September 2005 to December 2009)		$ 2,991,358
-RCC payment of LEAF Acquisition Fees (September 2005 to December 2009)		$ 1,879,994

A-7

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 and that have somewhat similar investment objectives to Resource Real Estate Opportunity REIT, Inc.

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-8

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

As of December 31, 2009

	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 (3)		—		—		—		—
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.

⁽³⁾ Represents deferred fees payable to general partner.

A-9

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

As of December 31, 2009

	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 (3)		—		—		—		—
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.

⁽³⁾ Represents deferred fees payable to general partner.

A-10

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

As of December 31, 2009

	AR Real Estate Investors, LLC(1)
	2006		2007		2008		2009
Gross Revenue	$	6,742,709	$	13,709,068	$	13,722,918	$	11,871,285
Income/loss on investment in unconsolidated entity		—		—		—		—
Profit on sale of properties		—		—		—		(744,210)
Less: Operating expenses		(3,393,214)		(6,696,002)		(6,855,617)		(6,541,408)
Interest expense		(1,985,724)		(3,896,101)		(3,845,269)		(3,202,970)
Depreciation		(1,858,270)		(3,800,753)		(3,738,876)		(3,140,854)
Depreciation from pass thru investments		—		—		—		—
Net Income – GAAP Basis		(494,499)		(683,788)		(716,844)		(1,758,157)
Taxable Income
- from operations		421,825		201,164		(404,945)		(589,278)
- from gain on sale		—		—		—		873,148
Cash generated from operations		2,258,480		3,585,144		3,643,184		2,220,808
Cash generated from equity investments		—		—		—		—
Cash generated from sales and refinancing (2)		—		—		—		8,492,379
Cash generated from recapitalization		—		—		—		—
Cash generated from operations, sales and refinancing		2,258,480		3,585,144		3,643,184		10,713,187
Add: Investment Management Fees (3)		100,139		194,401		208,272		176,095
Less: Cash distributions to investors
- from operating cash flow		(856,720)		(1,750,400)		(1,786,089)		(1,272,000)
- from reserves		—		—		—		—
- from sales and refinancing		—		—		—		(8,646,568)
- from liquidating distributions		—		—		—		—
Cash generated (deficiency) after cash distributions		1,501,899		2,029,145		2,065,367		970,714
Less:  Special Items		—		—		—		—
Cash generated (deficiency) after cash distributions and special items		1,501,899		2,029,145		2,065,367		970,714
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		14		7		(16)		(23)
- from portfolio interest income		3		1		—		—
- from recapture		—		—		—		—
Capital gain (loss)		—		—		—		34
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		33		68		70		49
- Reserves		—		—		—		—
- Return of capital		—		—		—		336
Source (on cash basis)
- Sales		—		—		—		336
- Refinancing		—		—		—		—
- Reserves		—		—		—		—
- Real estate operations		33		68		70		49
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%

⁽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.

⁽³⁾ Represents deferred fees payable to general partner.

A-11

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

As of December 31, 2009

	Resource Real Estate Investors, L.P.
	2004		2005		2006		2007		2008		2009
Gross Revenue	$	69,367	$	3,342,387	$	3,689,367	$	3,670,367	$	3,701,209	$	3,718,882
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)		(1,982,039)
Interest expense		(24,395)		(1,402,925)		(1,465,290)		(1,465,294)		(1,500,763)		(1,477,228)
Depreciation		(41,403)		(2,106,747)		(955,054)		(964,134)		(984,369)		(1,048,809)
Depreciation from pass thru investments		—		(63,782)		—		—		—		—
Net Income – GAAP Basis		(85,563)		(980,046)		(724,565)		(761,703)		(789,261)		(789,194)
Taxable Income
- from operations		(42,599)		(764,482)		(755,318)		(722,370)		(789,420)		(803,590)
- from gain on sale		—		546,583		—		—		—		—
Cash generated from operations		(111,874)		129,681		685,055		(206,885)		393,530		417,170
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		417,170
Add: Investment Management Fees (2)		—		38,061		42,557		65,994		65,994		65,994
Less: Cash distributions to investors
- from operating cash flow		—		(168,344)		(541,776)		—		(228,272)		(67,258)
- from reserves		—		(232,349)		—		(541,776)		—		(25,489)
- from other (3)		—		—		—		—		(313,504)		(129,283)
- 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)		261,134
Less:  Special Items		—		—		—		—		—		—
Cash generated (deficiency) after cash distributions and special items		(111,874)		(232,349)		185,836		(682,667)		(82,252)		261,134
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		(11)		(119)		(118)		(112)		(122)		(123)
- from portfolio interest income		1		1		1		2		3		1
- from recapture		—		—		—		—		—		—
Capital gain (loss)		—		83		—		—		—		—
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		—		26		82		—		35		10
- Reserves		—		35		—		82		—		4
- Other (3)		—		—		—		—		48		20
- Return of capital		—		227		—		—		—		—
Source (on cash basis)
- Sales		—		227		—		—		—		—
- Refinancing		—		—		—		—		—		—
- Reserves		—		35		—		82		—		4
- Other (3)		—		—		—		—		48		20
- Real estate operations		—		26		82		—		35		10
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%		84.9%

⁽¹⁾ Cash generated solely from sales.

⁽²⁾ Represents deferred fees payable to general partner.

⁽³⁾ Represents advances from the general partner.

A-12

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

As of December 31, 2009

	Resource Real Estate Investors II, L.P.
	2005		2006		2007		2008		2009
Gross Revenue	$	594,041	$	815,679	$	872,532	$	848,233	$	889,989
Income/loss on investment in unconsolidated entity		34,431		130,342		210,058		187,192		6,214
Profit on sale of properties		—		—		—		—		—
Less:  Operating expenses		(425,932)		(650,784)		(645,463)		(641,532)		(653,079)
Interest expense		(260,970)		(330,237)		(331,074)		(331,912)		(330,163)
Depreciation		(287,629)		(274,501)		(240,700)		(243,781)		(251,667)
Depreciation from pass thru investments		(832,625)		(1,385,729)		(976,726)		(1,015,032)		(1,138,062)
Net Income – GAAP Basis		(1,178,684)		(1,695,230)		(1,111,373)		(1,196,832)		(1,476,768)
Taxable Income
- from operations		(640,820)		(1,309,211)		(956,248)		(1,090,820)		(1,135,292)
- from gain on sale		—		—		—		—		—
Cash generated from operations		926,883		(680,056)		(42,097)		33,541		137,944
Cash generated from equity investments		234,935		769,689		797,337		763,579		293,086
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		431,030
Add:  Investment Management Fees (1)		66,037		142,002		142,002		142,002		142,002
Less: Cash distributions to investors
- from operating cash flow		(386,340)		(231,635)		(897,242)		(939,122)		(429,636)
- 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)		143,396
Less: Special Items		—		—		—		—		—
Cash generated (deficiency) after cash distributions and special items		841,515		(774,457)		(108,704)		(65,217)		143,396
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		(47)		(98)		(72)		(78)		(80)
- 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		30
- Reserves		—		55		8		5		—
- Return of capital		—		—		—		—		—
Source (on cash basis)
- Sales		—		—		—		—		—
- Refinancing		—		—		—		—		—
- Reserves		—		55		8		5		—
- Real estate operations		27		16		63		66		30
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%
(1)     Represents deferred fees payable to general partner.

A-13

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

As of December 31, 2009

	Resource Real Estate Investors III, L.P.
	2005		2006		2007		2008		2009
Gross Revenue	$	21,332	$	4,149,574	$	6,952,194	$	6,921,667	$	7,031,051
Income/loss on investment in unconsolidated entity		1,849		(7,110)		34,709		49,408		144,012
Profit on sale of properties		—		—		—		—		—
Less:  Operating expenses		(26,410)		(2,582,210)		(4,648,977)		(4,862,867)		(4,773,380)
Interest expense		—		(1,135,500)		(2,162,554)		(2,167,999)		(2,162,552)
Depreciation		—		(1,504,627)		(2,166,940)		(1,431,668)		(1,591,979)
Depreciation from pass thru investments		(4,484)		(915,093)		(465,597)		(471,755)		(500,449)
Net Income – GAAP Basis		(7,713)		(1,994,966)		(2,457,165)		(1,963,214)		(1,853,297)
Taxable Income
- from operations		(11,187)		(761,780)		(1,537,715)		(2,102,081)		(1,954,376)
- from gain on sale		—		—		—		—		—
Cash generated from operations		87,626		1,259,613		534,977		1,101,128		813,544
Cash generated from equity investments		—		349,650		379,212		379,212		162,517
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		976,061
Add:   Investment Management Fees (1)		—		138,455		250,000		250,000		250,000
Less:  Cash distributions to investors
- from operating cash flow		—		(1,054,978)		(1,164,189)		(1,595,953)		(756,728)
- from reserves		—		—		(473,343)		—		—
- from other (2)		—		—		—		(41,579)		—
- from sales and refinancing		—		—		—		—		—
- from liquidating distributions		—		—		—		—		—
Cash generated (deficiency) after cash distributions		87,626		692,740		(473,343)		92,808		469,333
Less:  Special Items		—		—		—		—		—
Cash generated (deficiency) after cash distributions and special items		87,626		692,740		(473,343)		92,808		469,333
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		(1)		(45)		(67)		(85)		(78)
- 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		64		30
- Reserves		—		—		19		—		—
- Other (2)		—		—		—		2		—
- Return of capital		—		—		—		—		—
Source (on cash basis)
- Sales		—		—		—		—		—
- Refinancing		—		—		—		—		—
- Reserves		—		—		19		—		—
- Other (2)								2
- Real estate operations		—		42		47		64		30
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%

⁽¹⁾ Represents deferred fees payable to general partner.

⁽²⁾ Represents advances from the general partner.

A-14

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

As of December 31, 2009

	Resource Real Estate Investors IV, L.P.
	2006		2007		2008		2009
Gross Revenue		$  663,428		$  10,310,314		$  10,250,403		$  10,429,605
Income/loss on investment in unconsolidated entity		30,150		76,987		117,676		137,996
Profit on sale of properties		—		—		—		—
Less: Operating expenses		(260,781)		(5,115,118)		(6,520,432)		(6,348,669)
Interest expense		(148,591)		(2,843,510)		(3,002,570)		(2,994,920)
Depreciation		(258,520)		(4,394,187)		(2,507,531)		(2,787,028)
Depreciation from pass thru investments		(102,891)		(300,541)		(295,400)		(283,358)
Net Income – GAAP Basis		(77,205)		(2,266,055)		(1,957,854)		(1,846,374)
Taxable Income
- from operations		108,945		(677,543)		(2,318,338)		(1,840,772)
- from gain on sale		—		—		—		—
Cash generated from operations		804,358		4,322,870		1,520,445		1,023,996
Cash generated from equity investments		42,725		248,076		248,076		124,032
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		1,148,028
Add: Investment Management Fees (1)		20,556		279,900		295,404		295,930
Less: Cash distributions to investors
- from operating cash flow		(72,770)		(1,657,945)		(1,779,891)		(1,312,655)
- from reserves		—		—		—		—
- from sales and refinancing		—		—		—		—
- from liquidating distributions		—		—		—		—
Cash generated (deficiency) after cash distributions		794,869		3,192,901		284,034		131,303
Less: Special Items		—		—		—		—
Cash generated (deficiency) after cash distributions and special items		794,869		3,192,901		284,034		131,303
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		—		(40)		(82)		(63)
- from portfolio interest income		4		13		4		1
- from recapture		—		—		—		—
Capital gain (loss)		—		—		—		—
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		3		65		70		51
- Reserves		—		—		—		—
- Return of capital		—		—		—		—
Source (on cash basis)
- Sales		—		—		—		—
- Refinancing		—		—		—		—
- Reserves		—		—		—		—
- Real estate operations		3		65		70		51
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%

⁽¹⁾ Represents deferred fees payable to general partner.

A-15

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

As of December 31, 2009

	Resource Real Estate Investors V, L.P.						Resource Real Estate Investors 6, L.P.
	2007		2008		2009		2007		2008		2009
Gross Revenue		$  5,828,382		$  10,757,366		$  11,034,249		$  103,328		$  7,555,547		$  7,720,000
Income/loss on investment in unconsolidated entity		—		—		—		—		—		—
Profit on sale of properties		—		—		—		—		—		—
Less: Operating expenses		(2,193,598)		(5,217,976)		(5,347,478)		(59,098)		(5,269,225)		(8,403,000)
Interest expense		(2,493,956)		(4,434,639)		(4,421,954)		(27,301)		(2,454,141)		(2,558,000)
Depreciation		(2,709,880)		(3,965,730)		(3,472,652)		(39,897)		(3,553,760)		(2,551,000)
Depreciation from pass thru investments		—		—		—		—		—		—
Net Income – GAAP Basis		(1,569,052)		(2,860,979)		(2,207,835)		(22,968)		(3,721,579)		(5,792,000)
Taxable Income
- from operations		(492,284)		(2,450,195)		(2,545,902)		3,577		(2,624,767)		(3,547,257)
- from gain on sale		—		—		—		—		—		—
Cash generated from operations		1,668,063		2,824,672		1,520,566		748,432		1,210,836		(44,000)
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		1,520,566		748,432		1,210,836		(44,000)
Add: Investment Management Fees (1)		157,506		320,091		320,986		2,400		302,933		350,000
Less: Cash distributions to investors
- from operating cash flow		(701,564)		(2,739,190)		(1,384,260)		—		(1,483,077)		(306,000)
- from reserves		—		—		—		—		—		(1,690,000)
- from sales and refinancing		—		—		—		—		—		—
- from liquidating distributions		—		—		—		—		—		—
Cash generated (deficiency) after cash distributions		1,124,005		405,573		457,292		750,832		30,692		(1,690,000)
Less: Special Items		—		—		—		—		—		—
Cash generated (deficiency) after cash distributions and special items		1,124,005		405,573		457,292		750,832		30,692		(1,690,000)
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		(23)		(81)		81		(2)		(83)		(102)
- from portfolio interest income		9		11		8		2		12		5
- from recapture		—		—		—		—		—		—
Capital gain (loss)		—		—		—		—		—		—
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		20		78		40		—		40		8
- Reserves		—		—		—		—		—		46
- Return of capital		—		—		—		—		—		—
Source (on cash basis)
- Sales		—		—		—		—		—		—
- Refinancing		—		—		—		—		—		—
- Reserves		—		—		—		—		—		46
- Real estate operations		20		78		40		—		40		8
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%		100%

⁽¹⁾             Represents deferred fees payable to general partner.

A-16

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

As of December 31, 2009

	Resource Real Estate Investors 7, L.P.				Resource Real Estate Opportunity Fund, L.P
	2008		2009		2009
Gross Revenue		$    934,142		$7,405,605		$    416,475
Income/loss on investment in unconsolidated entity		—		—		—
Profit on sale of properties		—		—		—
Less: Operating expenses		(483,291)		(4,726,818)		(1,679,207)
Interest expense		(329,048)		(2,220,240)		(176,130)
Depreciation		(316,830)		(3,387,686)		(206,718)
Depreciation from pass thru investments		—		—		—
Net Income – GAAP Basis		(195,027)		(2,929,139)		(1,645,580)
Taxable Income
- from operations		(116,847)		(1,989,936)		(1,072,756)
- from gain on sale		—		—		—
Cash generated from operations		233,172		1,038,578		(1,160,440)
Cash generated from equity investments		—		—		—
Cash generated from sales and refinancing		—		—		—
Cash generated from recapitalization		—		—		—
Cash generated from operations, sales and refinancing		233,172		1,038,578		(1,160,440)
Add: Investment Management Fees (1)		28,389		291,277		103,548
Less: Cash distributions to investors
- from operating cash flow		(71,078)		(1,276,309)		—
- from reserves		—		—		—
- from sales and refinancing		—		—		—
- from liquidating distributions		—		—		—
Cash generated (deficiency) after cash distributions		190,483		53,546		(1,056,892)
Less: Special Items		—		—		—
Cash generated (deficiency) after cash distributions and special items		190,483		53,546		(1,056,892)
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)
- from real estate rental activities		(22)		(64)		(27)
- from portfolio interest income		(7)		3		1
- from recapture		—		—		—
Capital gain (loss)		—		—		—
Cash Distributions to Investors Source (on GAAP basis)
- Real estate rental activities		9		161		—
- Reserves		—		—		—
- Return of capital		—		—		—
Source (on cash basis)
- Sales		—		—		—
- Refinancing		—		—		—
- Reserves		—		—		—
- Real estate operations		9		161		—
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⁾                       Represents deferred fees payable to general partner.

A-17

TABLE III

(UNAUDITED)

ANNUAL OPERATING RESULTS OF PRIOR REAL ESTATE PROGRAMS (cont’d)

(Dollars in Thousands)

As of December 31, 2009

	Resource Capital Corp.
	For the     Period 3/8/05     to 12/31/05		2006		2007		2008		2009
Gross Revenues - Interest Income		$    61,387		$  137,075		$  176,995		$134,341		$97,593
Profit on sale of properties		—		—		—		—		—
Interest Expense		43,062		101,851		121,564		79,619		45,427
Net Interest Income		18,325		35,224		55,431		54,722		52,166
Management Fees - related party		3,012		4,838		6,554		6,301		8,363
Equity compensation - related party		2,709		2,432		1,565		540		1,240
Professional services		580		1,881		2,911		3,349		3,866
Insurance		395		498		466		641		828
Other General & Administrative		1,032		1,428		1,581		1,848		1,764
Income tax (benefit) expense		—		67		338		(241)		(2)
Total Expenses		7,728		11,144		13,415		12,438		16,059
Net Operating Income		10,597		24,080		42,016		42,284		36,107
Net realized and unrealized (losses) gains on investments		311		(8,627)		(15,098)		(1,637)		(11,581)
Gain on deconsolidation		—		—		14,259		—		—
Provisions for loan and lease losses		—		—		(6,211)		(46,160)		(61,383)
Asset Impairments		—		—		(26,277)		—		—
Gain on the extinguishment of debt		—		—		—		1,750		44,546
Gain on the settlement of loan		—		—		—		574		—
Other income (1)		—		153		201		115		(1,350)
Net income (loss)		10,908		15,606		8,890		(3,074)		6,339
Taxable Income
from operations
from gain on sale
Cash generated from operations		(14,224)		12,872		23,378		50,950		46,622
Cash generated from (used in) investing activities		(2,006,070)		183,927		(665,019)		65,706		17,785
Cash generated from (used in) financing activities		2,045,864		(184,643)		680,282		(66,936)		(26,999)
Total cash generated (used)		25,570		12,156		38,641		49,720		37,408
Less Cash Distributions to Investors
from operating cash flow		(7,841)		(24,531)		(37,966)		(41,166)		(32,564)
from sales and refinancing		—		—		—		—		—
from other sources		—		—		—		—		—
Cash generated (used) after distributions to investors		17,729		(12,375)		675		8,554		4,844
Tax and Distribution Data per $1,000 invested
Ordinary Income (loss)
from operations (2)		59		115		114		116		122
from recapture		—		—		—		—		—
Cash distributions to investors
Source (on GAAP Basis)
Operations		36		101		109		118		131
Return of Capital		—		—		—		—		—
Source (on Cash Basis)
Sales		—		—		—		—		—
Refinancing		—		—		—		—		—
Operations		36		101		109		118		131
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-18

TABLE V

(UNAUDITED)

SALE OR DISPOSITION OF ASSETS

These Tables set forth summary information on the aggregate sales or disposals of real estate and real estate-related investments by sponsors of Prior Real Estate Programs that have closed offerings since January 1, 2006 and that have somewhat similar investment objectives to Resource Real Estate Opportunity REIT, Inc. All data is as of December 31, 2009.

AR Real Estate Investors, LLC

				Selling Price, Net of Closing Costs, and GAAP Adjustments										Cost of Properties, Including Closing and Soft Costs
Property	Location	Date Acquired	Date of Sale	Cash Received Net of Closing Costs		Mortgage Balance at Time of Sale(1)		Purchase Money Mortgage Taken Back by Program		Adjustments Resulting from Application of GAAP	Total			Original Mortgage Financing(1)		Total Acquisition Costs, Capital Improvement, Closing and Soft Costs(2)		Total		Excess (Deficiency) of Property Operating Cash Receipts Over Cash Expenditures(3)
Chinoe Creek	Lexington, KY	5/12/03	6/22/09		$3,362,159		$13,457,120		—	—		$16,819,279	(4)		$14,700,000		$4,876,025		$19,576,025		$2,446,697
Summit	Albuquerque, NM	12/16/03	12/9/09		2,377,524		8,886,859		—	—		11,264,383	(5)		9,400,000		3,187,905		12,587,905		1,567,399
Portland Courtyard	Los Angeles, CA	9/11/03	7/24/09		2,752,696		4,188,158		—	—		6,940,854	(6)		4,560,000		1,791,707		6,351,707		312,013

⁽¹⁾ Includes financing secured through a first mortgage.

⁽²⁾ Includes all costs related to original purchase as well as any costs incurred to maintain investment, including capital improvements. Amounts shown do not include pro rata share of original offering costs.

⁽³⁾ Represents excess (deficiency) of property operating cash receipts, including sale proceeds, over operating cash expenditures, including acquisition costs.

⁽⁴⁾ Includes taxable loss from this sale in the amount of $(918,737) of which $(918,737) is allocated to capital gain and $    —     is allocated to ordinary gain.

⁽⁵⁾ Includes taxable gain from this sale in the amount of $300,500 of which $300,500 is allocated to capital gain and $    —     is allocated to ordinary gain.

⁽⁶⁾ Includes taxable gain from this sale in the amount of $1,491,385 of which $1,491,385 is allocated to capital gain and $    —     is allocated to ordinary gain.

A-19

TABLE V

(UNAUDITED)

SALE OR DISPOSITION OF ASSETS (cont’d)

Resource Capital Corp.

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
2009	Investment J-Purchased Security		1,398,150		1,618,628
2009	Investment K-Purchased Security		320,000		290,000

⁽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 this Subscription Agreement has been accepted by the Company, 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. If you would like to participate in our Automatic Investment Program, please complete the attached enrollment form.¹

This Subscription Agreement may also be used by any current investor in the Company who desires to purchase additional shares of the Company’s common stock and who purchased his or her shares directly from the Company. For additional investments, please complete Sections 1, 3, 5 and 6 of this Subscription Agreement. The Company will pay distributions per your existing instructions. To make changes to your distribution payments, please complete the Account Update Form. Investors who did not acquire shares directly from the Company (e.g., who acquired shares through a transfer of ownership or transfer on death) and who wish to make additional investments must complete all Sections of this Subscription Agreement. Additional investments must be for at least $100.

For payment instructions, please see “Notice to Broker-Dealer/RIA” in Section 6 of this Subscription Agreement. New York and 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 “Final Prospectus”), under “Plan of Distribution—Subscription Procedures” and “Plan of Distribution—Special Notice to Pennsylvania Investors.”

1.     INVESTMENT INFORMATION

State of Sale: NAV Purchase @ $              per share

Investment Type:

¨ Initial Investment (Minimum Subscription: 250 shares ($2,500))

¨ Additional Investment (please complete the information below regarding the previous investment)

Amount of previous investment no. 1: Date:

Investment name: SSN/Tax ID:

Amount of previous investment no. 2: Date:

Investment name: SSN/Tax ID:

Amount of Subscription: $ 

Number of Shares of Common Stock: 

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:

¹ Ohio and Alabama residents are not eligible to participate in the Automatic Investment Program.

B-1

2.        INVESTMENT TYPE (continued)
Custodian/Trustee Information – To be completed by custodian (if applicable)
Name of Custodian:
Address:
City, State, ZIP:
Telephone:	—	—
Custodian Tax ID #:
Custodian Account #:
*      See “ERISA Considerations” in the Final 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.

3.        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 requested under “Custodian/Trustee Information” in Section 2.

Individual/Beneficial Owner (Please print name to whom Shares are to be registered)

First Name

Middle Name

Last Name

Social Security Number

Date of Birth

—

—

—

—

Street Address

City

State

Zip Code

Mailing Address (if different than above)

City

State

Zip Code

Phone (Daytime)

Phone (Evening)

—

—

—

—

Email

(Please Check)

U.S. Citizen

U.S. Citizen Residing Outside of US

Foreign Citizen, Country

(Check One)

Calendar Year Taxpayer

Fiscal year Taxpayer

Joint Owner/Minor

First Name

Middle Name

Last Name

Social Security Number

Date of Birth

—

—

—

—

Street Address

City

State

Zip Code

Mailing Address (if different than above)

City

State

Zip Code

Phone (Daytime)

Phone (Evening)

—

—

—

—

Email

(Please Check)

U.S. Citizen

U.S. Citizen Residing Outside of US

Foreign Citizen, Country

(Check One)

Calendar Year Taxpayer

Fiscal year Taxpayer

B-2

Trust

Name of Trust

Date of Trust

—

—

Names of Trustee(s)

Taxpayer Identification Number

Name of Beneficial Owner(s)

Beneficial Owner(s) Street Address

City

State

Zip Code

Social Security Number

Date of Birth

Occupation

—

—

—

—

Phone (Daytime)

Phone (Evening)

—

—

—

—

Email

(Please Check)

U.S. Trust

Foreign Trust, Country

(Check One)

Calendar Year Taxpayer

Fiscal year Taxpayer

Corporation/Partnership/Other
Entity Name					Tax ID Number		Date of Entity Formation
								—	—
Names of Officer(s), General Partner or other Authorized Person(s)
Phone (Daytime)						Email
	—			—
(Please Check)			U.S. Entity				Foreign Entity, Country
(Check One)		Calendar Year Taxpayer				Fiscal year Taxpayer

B-3

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 Final 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).
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:
Signature of Account Owner(s):
X
X
*      IF YOU ELECT TO PARTICIPATE IN THE DISTRIBUTION REINVESTMENT PLAN, YOU AGREE THAT IF AT ANY TIME YOU FAIL TO MEET THE MINIMUM INCOME AND NET WORTH STANDARDS ESTABLISHED FOR THE COMPANY OR CANNOT MAKE THE OTHER INVESTOR REPRESENTATIONS OR WARRANTIES SET FORTH IN THE FINAL PROSPECTUS OR LISTED ON PAGE B-5 (ITEM 5) OF THE SUBSCRIPTION AGREEMENT RELATING TO SUCH INVESTMENT, YOU WILL PROMPTLY NOTIFY THE COMPANY IN WRITING OF THAT FACT.

B-4

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

		1.    I have received the Final 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 Final Prospectus under “Suitability Standards.” I will not purchase additional shares unless I meet the applicable suitability requirements set forth in the Final Prospectus at the time of purchase.
(owner)	(co-owner, if any)
		3.    If I am a Kansas resident, I acknowledge that it is recommended by the office of the Kansas Securities Commission 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.
(owner)	(co-owner, if any)
		4.    If I am an Iowa resident, I have (i) a minimum net worth (exclusive of home, home furnishings and personal automobiles) of at least $350,000 or (ii) a minimum net worth (as previously described) of at least $100,000 and a minimum annual gross income of at least $70,000.
(owner)	(co-owner, if any)
		5.    If I am an Alabama resident, I have a liquid net worth of at least 10 times my investment in the Company and its affiliates.
(owner)	(co-owner, if any)
		6.    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)
		7.    I am purchasing the shares for my own account.
(owner)	(co-owner, if any)
		8.    I acknowledge 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.
(owner)	(co-owner, if any)

The Company will send you confirmation of your purchase upon acceptance of your subscription.

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.

x
Signature of Investor	Date
x
Signature of Joint Investor or, for Qualified Plans, of Trustee/Custodian	Date

B-5

6.         BROKER-DEALER AND/OR REGISTERED INVESTMENT ADVISOR SIGNATURES

TO BE COMPLETED BY BROKER-DEALER OR REGISTERED INVESTMENT ADVISOR

(For Commission and Other Purposes)

The Investor’s registered representative (“Registered Representative”) of a participating broker-dealer (“Broker-Dealer”) or an authorized representative of the Investor’s Registered Investment Advisor (“Registered Investment Advisor”), as applicable, must sign below to complete the order. The Registered Representative hereby warrants that he or she and the Broker-Dealer are duly licensed and may lawfully sell shares of common stock in the state designated as the Investor’s legal residence. The Registered Investment Advisor represents that such advisor is either registered under the Investment Advisers Act of 1940 or exempt from registration. The Broker-Dealer or Registered Investment Advisor 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 the Broker-Dealer or Registered Investment Advisor (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 Final 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 Final 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/authorized representative	CRD/IARD Number (if applicable)
x
Signature of Registered Representative/authorized representative

Registered Representative/Authorized Representative Office Address:

Phone Number:                                                                                                                                           Facsimile Number:

— — — —

E-mail Address:

Company Name (if other than Broker-Dealer or RIA Name)

Name of Broker-Dealer/RIA

Broker-Dealer CRD Number/RIA IARD Number

Broker-Dealer/RIA E-mail Address:

NOTICE TO BROKER-DEALER/RIA: Only original, completed copies of the Subscription Agreement can be accepted. New York and Pennsylvania investors should follow the instructions in the Final Prospectus under “Plan of Distribution—Subscription Procedures” and “Plan of Distribution—Special Notice to Pennsylvania Investors.” Until the minimum subscription proceeds of $2,000,000 (or higher amount for New York and Pennsylvania investors, as applicable) have been received:

• CHECKS should be made payable to “TD Bank, N.A. as Escrow Agent for Resource Real Estate Opportunity REIT, Inc.” and sent, together with Subscription Documents, completed and signed, to:

TD Bank, NA

Wealth Management, Institutional Trust

1006 Astoria Blvd.

Cherry Hill, NJ 08034

Attn: Arlene M. Murphy

• WIRES may be sent to:

TD Bank, NA

ABA #011 600 033

TD Wealth Management

Account #76-T-085-01-8

Ref: Resource Real Estate Opportunity REIT, Inc.

When the minimum subscription proceeds of $2,000,000 have been received:

• CHECKS should be made payable to “Resource Real Estate Opportunity REIT, Inc.” and sent, together with Subscription Documents, completed and signed, to:

Resource Real Estate, Inc.

P.O. Box 219169

Kansas City, MO 64121

• WIRES may be sent to:

UMB Bank, NA

1010 Grand Avenue

Kansas City, MO 64106

ABA# 101 000 695

Account #9871916375

Account Name: DST as Agent for Resource Real Estate, Inc. Universal Acct.

Reference: [investor name] Resource Real Estate Opportunity REIT, Inc.

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, except the Company may not amend the DRP to remove the right of a Participant to terminate participation in the DRP.

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 September 14, 2010 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		24
Special Note Regarding Forward-Looking Statements		66
Estimated Use of Proceeds		67
Management		70
Management Compensation		82
Stock Ownership		88
Conflicts of Interest		88
Investment Objectives and Policies		98
Plan of Operation		122
Prior Performance Summary		129
Federal Income Tax Considerations		140
ERISA Considerations		162
Description of Shares		167
The Operating Partnership Agreement		184
Plan of Distribution		187
Supplemental Sales Material		194
Legal Matters		195
Experts		195
Where You Can Find More Information		195
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

Our shares are not FDIC insured, may lose value and are not bank guaranteed. See “Risk Factors” beginning on page 24, 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.

June 16, 2010

THE FOLLOWING IS TEXT TO A STICKER TO BE ATTACHED TO THE OUTSIDE FRONT COVER PAGE OF THE PROSPECTUS IN A MANNER THAT WILL NOT OBSCURE THE RISK FACTORS:

SUPPLEMENTAL INFORMATION — The prospectus of Resource Real Estate Opportunity REIT, Inc. consists of this prospectus dated June 16, 2010 and Supplement No. 9 dated March 3, 2011.

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CUMULATIVE SUPPLEMENT NO. 9 DATED MARCH 3, 2011

TO THE PROSPECTUS DATED JUNE 16, 2010

This Cumulative Supplement No. 9 supplements, and should be read in conjunction with, the prospectus of Resource Real Estate Opportunity REIT, Inc. dated June 16, 2010. This Cumulative Supplement No. 9 supersedes and replaces all prior supplements to the prospectus. As used herein, the terms “we,” “our” and “us” refer to Resource Real Estate Opportunity REIT, Inc. and, as required by context, Resource Real Estate Opportunity OP, LP, which we refer to as our “Operating Partnership,” and to their subsidiaries. Unless otherwise defined in this Cumulative Supplement No. 9, capitalized terms used have the same meanings as set forth in the prospectus. The purpose of this supplement is to disclose:

• the status of our public offering;

• information with respect to our investments;

• selected financial data;

• distribution declaration;

• information about our share redemption program;

• compensation to our advisor and its affiliates;

• information about our distribution policy;

• renewal and amendment of the advisory agreement;

• an amendment to our distribution reinvestment plan;

• “Management’s Discussion and Analysis of Financial Condition and Results of Operations” similar to that filed in our Quarterly Report on Form 10-Q for the period ended September 30, 2010; and

• our financial statements and the notes thereto as of and for the three and nine months ended September 30, 2010.

Status of Offering

We commenced this initial public offering of shares of our common stock on June 16, 2010. We have broken escrow with respect to subscriptions received from all states where we are conducting this offering except Pennsylvania, which has a minimum offering amount of $25 million. As of March 2, 2011, we had accepted aggregate gross offering proceeds of approximately $19,753,147 related to the sale of approximately 1,981,514 shares of stock, all of which were sold in the primary offering. As of March 2, 2011, approximately 73,018,486 million shares of our common stock remain available for sale in our primary offering, and approximately 7,500,000 million shares of our common stock remain available for issuance under our distribution reinvestment plan.

Prior to the commencement of this offering, we conducted a private placement offering to accredited investors of up to $50,000,000 in shares of common stock at $10.00 per share. The private placement offering terminated on June 9, 2010, and as of that date, we had accepted aggregate gross offering proceeds of approximately $12.6 million related to the sale of 1,279,227 shares of stock.

Except with respect to subscriptions from Pennsylvania, subscribers should make their checks payable to “Resource Real Estate Opportunity REIT, Inc.” Until we have raised the minimum offering amount for Pennsylvania from persons not affiliated with us or our advisor, Pennsylvania investors should continue to make their checks payable to “TD Bank, N.A. as Escrow Agent for Resource Real Estate Opportunity REIT, Inc.”

Investments Summary

As of the date of this supplement, we own two significant multifamily communities: (i) Arcadia at Westheimer, which is located in Houston, Texas and was formerly known as Westhollow Apartments and (ii) Crestwood Crossings Apartments, which is located in Birmingham, Alabama.

Arcadia at Westheimer originally served as the collateral for a non-performing promissory note that we purchased on September 3, 2010 from an unaffiliated seller. The contract purchase price for the note was $7.8 million, excluding closing costs, and was funded from the proceeds of our completed private offering. Upon acquiring the note, we attempted to discuss with the borrower, which is not affiliated with us or our advisor, the possibility of a note restructuring or discounted payoff. After these efforts proved unsuccessful, we commenced foreclosure proceedings and, on October 5, 2010, formally received title to the property.

Arcadia at Westheimer is a 404-unit multifamily residential community constructed in 1980 that encompasses approximately 362,000 rentable square feet with an average unit size of 897 square feet. Arcadia at Westheimer features amenities including a

fitness center, pool, club room, and tennis and sports courts. As of March 2, 2011, the occupancy rate is 21.3% and the average effective monthly rent is $695 per unit.

Crestwood Crossings Apartments originally served as the collateral for two non-performing promissory notes that we purchased on December 21, 2010 from an unaffiliated seller. The contract purchase price for the notes was $6,250,000, excluding closing costs, and was funded from the proceeds of this offering. Upon acquiring the notes, we attempted to discuss with the borrower, which is not affiliated with us or our advisor, the possibility of a note restructuring or discounted payoff. After these efforts proved unsuccessful, we commenced foreclosure proceedings and on March 2, 2011, formally received title to Crestwood Crossings Apartments.

Crestwood Crossings Apartments is located less than one mile south of I-20 and immediately north of Crestwood Boulevard, a major east-west thoroughfare. Both of these roads provide access to downtown Birmingham, which is less than five miles to the west. The Birmingham area is host to a number of large employers, medical centers and educational institutions, including the University of Alabama at Birmingham, St. Vincent’s Hospital, Children’s Health System, Blue Cross and Blue Shield, University of Alabama Health Services Foundation, Brookwood Medical Center and Eastern Health Systems, Inc.

Crestwood Crossings Apartments is a 270-unit multifamily residential community situated near a major retail center (including large retailers such as Walmart, Home Depot and TJ Maxx) and flanked by an older neighborhood that is mostly comprised of single family homes. Within a one-mile radius of the property, the median home value is over $140,000. The property is approximately three miles north of the Mountain Brook neighborhood, which was listed as one of ten wealthiest communities in the nation, according to a 2009 survey by American City Business Journals. Although Crestwood Crossings Apartments was built in 1980, between 2008 and 2010, the previous owner spent more than $2.6 million to renovate the roofs, siding, clubhouse, landscaping, HVAC equipment and most unit interiors. Crestwood Crossings Apartments encompasses approximately 255,750 rentable square feet with an average unit size of 947 square feet. Crestwood Crossings Apartments features amenities including a pool, two playgrounds, laundry facilities and a lighted basketball court. As of March 2, 2011, the occupancy rate is 75.19% and the average effective monthly rent is $620 per unit.

In addition to the investments described above, on August 18, 2010 we made an immaterial acquisition of a multifamily residential complex in Omaha, Nebraska for $225,000.

We believe that our multifamily communities are suitable for their intended purposes and adequately covered by insurance. There are a number of comparable properties located in the same submarkets that might compete with them. We intend to make significant renovations and improvements to Arcadia at Westheimer. Approximately $3.4 million is being reserved from the proceeds of this offering for façade repairs and repainting, upgrades to the security system, HVAC replacement, electrical system upgrades and interior repairs. The renovations commenced in November 2010 and are expected to be completed within 6 months, with the exception of routine interior renovations which will continue over the next 18 months. We also intend to make renovations and improvements to Crestwood Crossings Apartments. Approximately $1.3 million is being reserved from the proceeds of this offering to refurbish 53 down units and renovate the interiors of all other units over the next 24 months.

Selected Financial Data

The following selected financial data should be read in conjunction with our consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this supplement:

	September 30,		December 31,
	2010		2009
Balance Sheet Data (in thousands)
Total assets	$	16,991	$	2,915
Total liabilities	$	3,399	$	2,830
Total stockholders’ equity	$	13,592	$	85

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	For the Nine Months Ended September 30, 2010			For the  Period From June 3, 2009 (date of inception) to December 31, 2009
Operating Data (in thousands, except for per share amounts)
Rental income	$	3		$	—
Interest income		32			1
		35			1
Total expenses		551			116
Net loss	$	(516	)	$	115
Weighted average shares outstanding		852			N/M
Basic and diluted loss per share	$	(0.61	)		N/M

N/M Not Meaningful

	For the Nine Months Ended September 30, 2010			For the  Period from June 3, 2009 (date of inception) to December 31, 2009
Other data (in thousands)
Net cash used in operating activities	$	(869	)	$	1
Net cash used in investing activities		(8,223	)		—
Net cash provided by financing activities		13,510			749

Distribution Declaration

On January 21, 2011, our board of directors declared our first distribution, which was a stock distribution of 0.015 shares of our common stock, $0.01 par value per share, or 1.5% of each outstanding share of common stock to the stockholders of record at the close of business on February 28, 2011. The stock distribution is to be paid on March 15, 2011. We did not declare any distributions to our stockholders during 2010 since we had negative operating cash flow in 2010. It is unclear at this time whether we will make any cash distributions during 2011.

We believe that the stock distribution should be a tax-free transaction for U.S. federal income tax purposes under Section 305(a) of the Internal Revenue Code of 1986, as amended, and the adjusted tax basis of each share of “old” and “new” common stock should be computed by dividing the adjusted tax basis of the old common stock by the total number of shares, old and new. The holding period of the common stock received in such a non-taxable distribution is expected to begin on the date the taxpayer acquired the common stock which is the date that the distribution was made. You should consult your own tax advisors regarding the tax consequences of this stock distribution.

Share Redemption Program

Our share redemption program contains numerous restrictions on your ability to redeem your shares. Generally, during each calendar year, the cash available for redemption will be limited to the proceeds from the sale of shares under 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. This restriction may significantly limit your ability to have your shares redeemed pursuant to our share redemption program. Accordingly, because of the restrictions described above, we have no funds available for redemption under our share redemption program in 2011.

Compensation to our Advisor and its Affiliates

Summarized below are the fees earned by and expenses reimbursable to our advisor, the dealer manager and property manager and their affiliates for the nine months ended September 30, 2010 and any related amounts payable as of September 30, 2010 (amounts in thousands):

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	Incurred		Payable as of
Type of Compensation	For the Nine Months Ended September 30, 2010		September 30, 2010
Selling Commissions	$	247		—
Dealer Manager Fee	$	79		—
Reimbursement of Other Organization and Offering Expenses	$	86		—
Acquisition Fees & Expense Reimbursements	$	254		—
Asset Management Fee	$	6		—
General and Administrative Expenses	$	526		—
Property Management Fee		—		—
Total	$	1,198		—

Distribution Policy

The paragraphs below update, supersede and replace the information in the prospectus under “Description of Shares – Distributions” and all similar disclosures in the prospectus.

Distributions

We have not paid or declared any cash distributions as of March 2, 2011. It is unclear at this time whether, based largely on the composition of our current investment portfolio and the acquisition opportunities that we currently see in the market, any cash distributions will be declared during 2011. Once we begin making cash distributions, we intend to pay cash distributions on a monthly basis based on daily record dates. We may also make special stock distributions, as described further below.

We intend to elect to be taxed as a REIT and to operate as a REIT beginning with our taxable year ending December 31, 2010. 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.

Our board of directors will consider many factors before authorizing a cash distribution, including current and projected cash flow from operations, capital expenditure needs, general financial conditions and REIT qualification requirements. We expect to have little, if any, cash flow from operations available for cash distributions until we make substantial investments. It is possible that at least during the early stages of our development, and from time to time during our operational stage, we may declare cash 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 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. 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. If we fund cash distributions from borrowings, sales of assets 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 cash 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. Our organizational documents do not limit the amount of distributions we can fund from sources other than from cash flows from operations.

In addition to cash distributions, our board of directors has, and may in the future, declare special stock distributions. Although there are a number of factors that we will consider in connection with such a declaration, such stock distributions are most likely to be declared if our board of directors believed that (i) our portfolio had appreciated in value from its aggregate acquisition cost or (ii) additional sales of common stock in this offering at the current offering price would dilute the value of a share to our then existing stockholders. Such a stock distribution would be intended to have the same effect as raising the price at which our shares of common stock are offered. We note that most of the investment opportunities that we are seeing in the market at this time are investments that are attractive more so because of their appreciation potential rather than because of their current yield. Especially in this environment and during an ongoing public offering, distributions in shares of our common stock may be in the long-term best interests of our stockholders.

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

Renewal and Amendment of Advisory Agreement

In September 2010, we renewed our advisory agreement with our advisor, Resource Real Estate Opportunity Advisor, LLC. The renewed advisory agreement is effective through September 14, 2011; however, either party may terminate the renewed advisory agreement without cause or penalty upon providing 60 days’ written notice. At the time of the renewal, the terms of the renewed advisory agreement were identical to those of the advisory agreement that was previously in effect.

On January 11, 2011, we and our advisor entered into an amended and restated advisory agreement (the “Amended and Restated Advisory Agreement”). In the Amended and Restated Advisory Agreement, we agreed to a payment structure for the consideration, if any, payable to our advisor (or an affiliate thereof) should we decide to internalize our management functions. We may internalize our management by acquiring our advisor or an affiliate thereof, whether by means of a merger, stock acquisition, or asset purchase (an “Internalization Transaction”), for consideration that would be negotiated and approved by our shareholders at that time. However, pursuant to the Amended and Restated Advisory Agreement, we may not pay consideration to acquire our advisor unless at least half of the consideration is payable in shares of our common stock and held in escrow by a third party and not released to our advisor (or an affiliate thereof) until:

• the average closing price of the shares of common stock over a five-day trading period on a national securities exchange equals a price that, when combined with prior distributions paid on the shares of common stock issued in a public offering prior to listing on a national securities exchange and outstanding at the time of the Internalization Transaction (the “Subject Shares”), equals the amount necessary for the holders of the Subject Shares to be deemed to have received in the aggregate the original issue price of the Subject Shares plus a 6% cumulative, non-compounded, annual return on the issue price of the Subject Shares, assuming for purposes of this calculation that the holders of the Subject Shares have received the trading price, or

• the consideration paid (or net sale proceeds distributed) to holders of the Subject Shares in an acquisition (whether by means of a merger, stock acquisition, asset purchase, or similar transaction) or from our dissolution, when combined with prior distributions paid on the Subject Shares, equals the amount necessary for the holders of the Subject Shares to have received in the aggregate the original issue price of the Subject Shares plus a 6% cumulative, non-compounded, annual return on the issue price of the Subject Shares.

The date that one of these thresholds is met is the “Initial Escrow Release Date.” In the event a recapitalization causes some of the Subject Shares to be exchanged or converted into securities that are not listed on a national securities exchange as of the Initial Escrow Release Date, then the shares to be released from escrow shall be reduced to reflect the percentage of Subject Shares (and their equivalents) that are then listed, with the remaining shares in escrow to be subsequently released in proportion to and as the remaining Subject Shares (and their equivalents) become listed.

Shares held in escrow pursuant to the foregoing shall be entitled to dividends like all other shares of our common stock; however, such dividends shall also be placed in escrow and not released until the above thresholds are reached. If the conditions to break escrow are not met within 10 years of the Internalization Transaction, all shares in the escrow account shall become authorized but unissued shares and all cash in the escrow account shall belong to us. Shares of common stock held in escrow shall be voted on any matter in which common stockholders are entitled to vote in the same proportion as all other shares of common stock that vote on the matter.

Distribution Reinvestment Plan Amendment

On December 14, 2010, our board of directors adopted an Amended and Restated Distribution Reinvestment Plan (the “Amended and Restated DRP”). A copy of the Amended and Restated DRP is attached as Appendix A.

The Amended and Restated DRP clarifies that our distribution reinvestment plan will be interpreted consistently with certain Treasury Regulations (the “Regulations”), which generally allow issuers to defer cost-basis reporting for shares issued pursuant to their distribution reinvestment plans prior to January 1, 2012. We can give no assurance that the Internal Revenue Service will agree with our interpretation of the Regulations or will agree that our distribution reinvestment plan meets the requirements of the Regulations.

In addition, the Amended and Restated DRP requires each plan participant to designate at least 20% of such participant’s distributions for the purchase of additional shares of common stock. Finally, the Amended and Restated DRP amends the way in which we may provide notice of future amendments to our distribution reinvestment plan. With respect to material changes, we may provide notice by including such information (a) in a Current Report on Form 8-K or in our annual or quarterly reports filed with the SEC and (b) in a separate mailing to the participants. With respect to immaterial changes, we may provide notice by including such

5

information (a) in a Current Report on Form 8-K or in our annual or quarterly reports filed with the SEC, (b) in a separate mailing to the participants, or (c) on our web site. The Amended and Restated DRP became effective on December 30, 2010.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying interim consolidated financial statements and the notes thereto and the audited annual consolidated financial statements included in the prospectus and the notes thereto.

This discussion contains certain 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,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology. Such statements are subject to the risks and uncertainties more particularly described under the caption “Risk Factors,” in the prospectus. These risks and uncertainties could cause actual results to differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this discussion, except as may be required under applicable law.

Overview

We are a 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 that was foreclosed upon and sold by financial institutions, (iii) multifamily rental properties that we can add value to with a capital infusion, or value add properties, and (iv) discounted investment-grade commercial mortgage-backed securities. However, we are not limited in the types of real estate assets in which we may invest and, accordingly; we may invest in other real estate assets either directly or together with a co-investor or joint venture partner. We currently anticipate holding approximately 50% of our total assets in categories (i) and (ii), 25% of our total assets in category (iii), and 25% of our total assets in category (iv). If we are unable to raise substantially more than the minimum offering amount of $2,000,000, 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). Also, 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 Resource Real Estate Opportunity Advisor, LLC, our advisor, an indirect wholly owned subsidiary of Resource America, Inc., or RAI, a publicly traded company (NASDAQ: REXI) operating in the real estate, financial fund management and commercial finance sectors, presents us with investment opportunities that allow us to meet the requirements to be treated as a real estate investment trust, or REIT, under the Internal Revenue Code, and to maintain our exclusion from regulation as an investment company under the Investment Company Act of 1940, our portfolio composition may vary from what we have initially disclosed.

We commenced this public offering of our common stock in June 2010, and have completed a private offering of our common stock which has provided our initial capitalization. We describe these offerings in “Liquidity and Capital Resources,” below.

Results of Operations

We were formed on June 3, 2009 and, as of the date of this supplement, we are no longer in our organizational and development stage. As of September 7, 2010, we had raised the minimum offering amount of $2,000,000 in this offering from persons who are not affiliated with us or our advisor and commenced active real estate operations. As we have acquired only one property of immaterial size and a non-performing promissory note, 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 such assets or those that we expect to acquire.

Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009

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The following table sets forth the results of our operations for the three months ended September 30, 2010 and 2009 (in thousands). As a result of the timing of the commencement of this offering and our active real estate operations, comparative operating results are not relevant to a discussion of operations for the two periods represented. We expect revenues and expenses to increase in future periods as we acquire additional investments.

	September 30,						Increase (Decrease)
	2010			2009			Dollars			Percent
Revenues:
Rental income	$	3		$	—		$	3			0	%
Interest income		14			—			14			0	%
Total revenues		17			—			17			0	%
Expenses:
Rental operating		4			—			4			0	%
Acquisition costs		7			—			7			0	%
Related party acquisition fees		6			—			6			0	%
Related party management fees		6			—			6			0	%
General and administrative		20			33			(13	)		(39	%)
Depreciation and amortization expense		2			—			2			0	%
Total expenses		45			33			12			36	%
Net loss	$	(28	)	$	(33	)	$	(5	)		(15	%)

Revenues. During the three months ended September 30, 2010, we recorded income primarily from interest-bearing bank accounts in which we deposited the proceeds of this offering.

Expenses. During the three months ended September 30, 2010, we incurred expenses of $366,000, which were reduced by $323,000 which represents general and administrative expenses recorded in the previous two quarters which are being assumed by our advisor. The expenses incurred consist primarily of $219,000 of payroll, $90,000 of insurance premiums, $31,000 of directors’ fees and $8,000 in audit fees. Expenses during the three months ended September 30, 2009 consisted primarily of $26,000 in audit fees.

Nine Months Ended September 30, 2010 Compared to the Period from June 3, 2009 to September 30, 2009

The following table sets forth the unaudited results of our operations for the nine months ended September 30, 2010 and for the period from June 3, 2009 to September 30, 2009 (in thousands). As a result of the timing of the commencement of this offering and our active real estate operations, comparative operating results are not relevant to a discussion of operations for the two periods represented. We expect revenues and expenses to increase in future periods as we acquire additional investments.

	September 30,						Increase (Decrease)
	2010			2009			Dollars			Percent
Revenues:
Rental income	$	3		$	—		$	3			0	%
Interest income		32			—			32			0	%
Total revenues		35			—			35			0	%
Expenses:
Rental operating		4			—			4			0	%
Acquisition costs		7			—			7			0	%
Related party acquisition fees		6			—			6			0	%
Related party management fees		6			—			6			0	%
General and administrative		526			63			463			735	%
Depreciation and amortization expense		2			—			2			0	%
Total expenses		551			63			488			775	%
Net loss	$	(516	)	$	(63	)	$	(453	)		719	%

Revenues. During the nine months ended September 30, 2010, we recorded income primarily from interest-bearing bank accounts in which we deposited the proceeds of this offering.

Expenses. During the nine months ended September 30, 2010, we incurred expenses of $549,000. These expenses consist primarily of $219,000 of payroll, $131,000 of insurance premiums, $89,000 of directors’ fees and $26,000 of audit fees. Expenses during the nine months ended September 30, 2009 consisted primarily of $52,000 of audit fees.

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Liquidity and Capital Resources

Pursuant to this offering, we are offering up to 75 million shares of common stock, $0.01 par value per share, at $10.00 per share. We are also offering up to 7.5 million shares of 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 offering, we completed a private offering to accredited investors of up to $50,000,000 in shares of common stock at $10.00 per share, with volume discounts available to investors who purchased more than $1,000,000 of shares through the same participating broker-dealer. Discounts were also available for other categories of investors. The minimum permitted purchase in our private placement offering was $2,500. In addition, for every 1,000 shares of common stock an eligible investor purchased in our private placement offering, we offered to sell such investor one share of convertible stock. The private placement offering terminated June 9, 2010, and resulted in gross proceeds of approximately $12.6 million, net of approximately $1.6 million of syndication costs.

We will derive the capital required to purchase real estate investments and conduct our operations from the proceeds of our private placement offering, 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. As of September 30, 2010, we have acquired a property located at 107 Avenue, Omaha, NE, and a non-performing promissory note on a multifamily community known as Westhollow Apartments. In addition, our advisor has advanced funds to us for certain organization and offering costs.

As of September 7, 2010, we had reached the minimum offering amount in this offering and broken escrow with respect to subscriptions received from all states except Pennsylvania, which has a minimum offering amount of $25 million. If we are unable to raise substantially more funds in this offering, we will make fewer investments resulting in less 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 properties 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, debt investments or other assets we may hold. We cannot assure you that we will be able to access additional funds when we need them or upon acceptable terms.

We currently have no outstanding debt. Once we have fully invested the proceeds of this offering, based on current lending market conditions, we expect that any debt financing we incur, on a total portfolio basis, would not exceed 35% of the cost of our real estate investments (before deducting depreciation or other non-cash reserves) plus the value of our other assets. However, the amount of debt financing we may use with respect to any one investment may be more or less than 35% of its cost or value. We may also increase the amount of debt financing we use with respect to an investment over the amount originally incurred if the value of the investment increases subsequent to our acquisition and if credit market conditions permit us to do so. 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, although 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 our private offering and that our primary liquidity source for acquisitions and long-term funding will include the net proceeds of both our private and public offerings and, to the extent we coinvest with other entities, capital from any future joint venture partners. We may also pursue a number of potential other funding sources, including mortgage loans, portfolio level credit lines and government financing.

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make payments to our advisor and the dealer manager of this offering, which is an affiliate of our advisor. During our organization and offering stage, these payments include selling commissions and the dealer manager fee as well as payments to the dealer manager and our advisor for reimbursement of 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. We describe these payments in more detail in Note 4 to our consolidated financial statements included with this supplement.

Critical Accounting Policies

For a discussion on our critical accounting policies and estimates, see the discussion in the section of the prospectus entitled “Plan of Operation –– Critical Accounting Policies.”

8

INDEX TO FINANCIAL STATEMENTS

Financial Statements
Consolidated Balance Sheets – September 30, 2010 (unaudited) and December 31, 2009	F-1
Consolidated Statements of Operations – Three and Nine Months Ended September  30, 2010, Three Months Ended September 30, 2009, and the period from June 3, 2009 (date of inception) to September 30, 2009 (unaudited)	F-2
Consolidated Statement of Changes in Stockholders’ Equity – For the Nine Months Ended September 30, 2010 (unaudited)	F-3
Consolidated Statements of Cash Flows – Nine Months Ended September  30, 2010 and the period from June 3, 2009 (date of inception) to September 30, 2009 (unaudited)	F-4
Notes to Consolidated Financial Statements – September 30, 2010 (unaudited)	F-5

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

	September 30, 2010			December 31, 2009
	(unaudited)
ASSETS
Rental property, at cost:
Land	$	25		$	—
Building and improvements		200			—
Construction-in-progress		1			—
		226			—
Accumulated depreciation and amortization		(2	)		—
		224			—
Cash		5,168			750
Prepaid expenses		147			12
Due from related parties		2			—
Loan held for investment		7,997			—
Deferred offering costs		3,453			2,153
Total assets	$	16,991		$	2,915
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Due to related parties	$	3,275		$	2,281
Accrued expenses		88			—
Subscription deposits		36			549
Total liabilities		3,399			2,830
Stockholders’ equity:
Preferred stock (par value $.01; 10,000,000 shares authorized; 0 issued and outstanding)		—			—
Common stock (par value $.01; 1,000,000,000 shares authorized; 1,616,895 and 20,000 issued and outstanding, respectively)		16			—
Convertible stock (“promote shares”) (par value $.01; 50,000 shares authorized; 50,000 and 0 issued and outstanding, respectively)		1			—
Additional paid-in capital		14,206			200
Accumulated deficit		(631	)		(115	)
Total stockholders’ equity		13,592			85
Total liabilities and stockholders’ equity	$	16,991		$	2,915

The accompanying notes are an integral part of these statements.

F-1

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,			For the Period From June 3, 2009 (date of inception) to September 30,
	2010			2009			2010			2009
Revenues:
Rental income	$	3		$	—		$	3		$	—
Interest income		14			—			32			—
Total revenues		17			—			35			—
Expenses:
Rental operating		4			—			4			—
Acquisition costs		7			—			7			—
Related party acquisition fees		6			—			6			—
Related party management fees		6			—			6			—
General and administrative		20			33			526			63
Depreciation and amortization expense		2			—			2			—
Total expenses		45			33			551			63
Net loss	$	(28	)	$	(33	)	$	(516	)	$	(63	)
Weighted average shares outstanding		1,379			N/M			852			N/M
Basic and diluted loss per share	$	(0.02	)		N/M		$	(0.61	)		N/M

N/M Not Meaningful

The accompanying notes are an integral part of these statements.

F-2

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

(in thousands)

(unaudited)

										Additional						Total
	Common Stock					Convertible Stock				Paid-in			Accumulated			Stockholders’
	Shares			Amount		Shares		Amount		Capital			Deficit			Equity
Balance at January 1, 2010		20		$	—		—	$	—	$	200		$	(115	)	$	85
Issuance of stock		1,602			16		5		—		15,937			—			15,953
Conversion of common to convertible stock		(5	)		—		45		1		—			—			1
Syndication costs		—			—		—		—		(1,931	)		—			(1,931	)
Net loss		—			—		—		—		—			(516	)		(516	)
Balance at September 30, 2010		1,617		$	16		50	$	1	$	14,206		$	(631	)	$	13,592

The accompanying notes are an integral part of this statement.

F-3

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	For the Nine Months Ended September 30, 2010			For the  Period from June 3, 2009 (date of inception) to September 30, 2009
Cash flows from operating activities:
Net loss	$	(516	)	$	(63	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2			—
Changes in operating assets and liabilities:
Prepaid expenses		(135	)		—
Due from related parties		(2	)		—
Due to related parties, net of offering costs		(306	)		(716	)
Accrued expenses		88			779
Net cash used in operating activities		(869	)		—
Cash flows from investing activities:
Property acquisition		(225	)		—
Loan acquisition		(7,997	)		—
Capital expenditures		(1	)		—
Net cash used in investing activities		(8,223	)		—
Cash flows from financing activities:
Proceeds from issuance of common stock		15,405			200
Subscription deposits		36			—
Syndication costs		(1,931	)		—
Net cash provided by financing activities		13,510			200
Net increase in cash		4,418			200
Cash at beginning of period		750			—
Cash at end of period	$	5,168		$	200
Supplemental disclosure of non cash items from financing activities:
Investor contributions held in escrow converted to common stock	$	549		$	—

The accompanying notes are an integral part of these statements.

F-4

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(unaudited)

NOTE 1 – NATURE OF BUSINESS AND OPERATIONS

Resource Real Estate Opportunity REIT, Inc. (the “Company”) was organized in Maryland on June 3, 2009. The Company has adopted a fiscal year ending December 31. On September 15, 2009, the Company commenced a private placement offering to accredited investors for the sale of up to 5,000,000 shares of common stock at a price of $10 per share, with discounts available to certain categories of purchasers. The offering closed on June 9, 2010, at which time the Company had raised aggregate gross proceeds of $12.8 million, which resulted in the issuance of 1,283,727 common shares and net proceeds of approximately $11.2 million after payment of approximately $1.6 million in syndication costs. Also, in conjunction with the private offering, the Company offered 5,000 shares of convertible stock at a price of $1 per share. Investors acquired 932 shares of the convertible stock; 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, purchased the remaining 4,068 shares.

On June 16, 2010, the Company’s Registration Statement on Form S-11 (File No. 333-160463), covering a primary public offering of up to 75,000,000 shares of common stock and a public offering pursuant to the Company’s distribution reinvestment plan of up to an additional 7,500,000 shares of common stock, was declared effective under the Securities Act of 1933 and the Company commenced its public offering, which is ongoing. The Company is offering shares of common stock in its primary offering for $10 per share, with discounts available to certain categories of investors. The Company is also offering shares pursuant to its distribution reinvestment plan at a purchase price equal to $9.50 per share. On September 7, 2010, the Company raised the minimum offering amount and broke escrow in its offering with respect to subscriptions received from investors in all states except Pennsylvania, which has a minimum offering amount of $25 million. As a result, the Company is no longer considered a developmental stage enterprise. As of September 30, 2010, 337,668 shares of common stock have been issued in connection with the Company’s public offering. The advisor has been engaged to manage the day-to-day operation of the Company. The advisor contributed $200,000 to the Company in exchange for 20,000 shares of common stock on June 17, 2009, of which 4,500 shares were converted into 45,000 shares of convertible stock in June 2010.

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, subordinate participations in first mortgage loans, or B-Notes, and other loans, (ii) real estate that was foreclosed upon and sold by financial institutions, (iii) multifamily rental properties to which the Company can add value with a capital infusion (“value add properties”), and (iv) discounted investment-grade commercial mortgage-backed securities. However, the Company is not limited in the types of real estate assets in which it may invest and, accordingly, it may invest in other real estate related assets either directly or together with a co-investor or joint venture partner.

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, commencing with its taxable year ending December 31, 2010. To maintain its REIT qualification for U.S. federal income tax purposes, the Company is generally required to distribute at least 90% of its taxable 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 at least 90% of its taxable net 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.

F-5

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2010

(unaudited)

NOTE 1 – NATURE OF BUSINESS AND OPERATIONS – (Continued)

The consolidated financial statements and the information and tables contained in the notes thereto as of September 30, 2010 are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, in the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim periods presented. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Registration Statement on Form S-11 (File No. 333-160463), as amended. The results of operations for the three and nine months ended September 30, 2010 may not necessarily be indicative of the results of operations for the full year ending December 31, 2010.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accounting and reporting policies of the Company conform to U.S. GAAP.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its direct and indirect wholly-owned subsidiaries as follows:

Subsidiary	Apartment Complex	Number of Units	Location
RRE Opportunity Holdings, LLC	N/A	N/A	Wilmington, Delaware
Resource Real Estate Opportunity OP, LP	N/A	N/A	Wilmington, Delaware
RRE 107th Avenue Holdings, LLC (“107th Avenue”)	107th Avenue	5	Omaha, Nebraska
RRE Westhollow Holdings, LLC (“Westhollow”)	N/A	N/A	Wilmington, Delaware

All significant intercompany accounts and transactions have been eliminated in consolidation.

Adoption of New Accounting Standards

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance that clarifies and requires new disclosures about fair value measurements. The clarifications and requirement to disclose the amounts and reason for significant transfers between Level 1 and Level 2, as well as significant transfers in and out of Level 3 of the fair value hierarchy, were adopted by the Company in the first quarter of 2010. The new guidance also requires that purchases, sales, issuances and settlements be presented gross in the Level 3 reconciliation and that requirement is effective for fiscal years beginning after December 15, 2010 and for the interim periods within those years, with early adoption permitted. The Company early adopted the disaggregation guidance on January 1, 2010. Since this new guidance only amends the disclosure requirements, it did not impact the Company’s financial statements.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. 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.

F-6

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2010

(unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

Real Property Investments

The Company records acquired real properties at cost. The Company makes subjective assessments as to the useful lives of its depreciable assets. The Company considers 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	27.5 years
Building improvements	10-27.5 years
Tenant improvements	Shorter of lease term or expected useful life

Impairment of Long Lived Assets

The Company will present operations related to properties that have been sold or properties that are intended to be sold as discontinued operations in the statement of operations for all periods presented, and properties intended to be sold will 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. The review also considers 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 would be 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 would be 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. There was no indication of impairment as of September 30, 2010.

Real Estate Loans Receivable

The Company records acquired real estate loans receivable at cost and reviews them 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 is 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 is deemed to be impaired, the Company records a reserve for loan losses through a charge to income for any shortfall.

The Company may acquire real estate loans at a discount due to their credit quality. Revenues from these loans are recorded under the effective interest method. Under this method, an effective interest rate (“EIR”) is applied to the cost basis of the real estate loan receivable. The EIR that is calculated when the real estate loan receivable is acquired remains constant and is the basis for subsequent impairment testing and income recognition. If the amount and timing of future cash collections are not reasonably estimable, the Company accounts for the real estate receivable on the cost recovery method. Under the cost recovery method of accounting, no income is recognized until the basis of the real estate loan receivable has been fully recovered.

Interest income from loans receivable is recognized based on the contractual terms of the debt instrument. Fees related to any buy down of the interest rate is 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 are amortized over the term of the loan and accreted as an adjustment against interest income.

F-7

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2010

(unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

Allocation of Purchase Price of Acquired Assets

The cost of real estate investments is allocated to net tangible and intangible assets based on relative fair values. Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data, as well as information obtained about each property as a result of due diligence, marketing and leasing activities. The Company allocates the purchase price of properties to acquired tangible assets, consisting of land, building, fixtures and improvements, and identified intangible lease assets and liabilities, consisting of the value of above-market and below-market leases, as applicable, other value of in-place leases and value of tenant relationships, based in each case on their fair values.

The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The Company amortizes any 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.

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

The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship intangible values 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 the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

The Company amortizes the value of in-place leases to expense over the average initial term of the respective leases. The value of customer relationship intangibles are amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building. 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.

The determination of the fair value of the assets and liabilities acquired requires the use of significant assumptions with regard to current market rental rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the purchase price allocations, which could impact the amount of the Company’s reported net income. Initial purchase price allocations are subject to change until all information is finalized, which is generally within one year of the acquisition date.

F-8

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2010

(unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

Revenue Recognition for Real Properties

The Company recognizes minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related lease and includes amounts expected to be received in later years in deferred rents. The Company records 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 makes 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 specifically analyzes accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, the Company makes 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. There were no accounts receivable at September 30, 2010 and December 31, 2009.

The specific timing of a sale is measured against various criteria related to the terms of the transaction and any continuing involvement associated with the property. If the criteria for gain recognition under the full-accrual method are not met, the Company defers gain recognition and accounts 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.

Deferred Offering Costs

Through September 30, 2010, the advisor advanced approximately $3.4 million to the Company for public offering costs consisting of accounting, advertising, due diligence, marketing, legal and similar costs. A portion of these costs is charged to equity upon the sale of each share of common stock sold under the public offering. Similarly, a portion of the proceeds received from such sales are paid to the advisor to reimburse it for the amount advanced to the Company. Deferred offering costs represent the portion of the total costs incurred that have not been charged to equity to date; the costs still unreimbursed to the advisor are the major component of “due to related parties” on the Company’s balance sheet. Upon completion of the public offering, any excess deferred offering costs will be charged back to the advisor.

Income Taxes

The Company intends to elect and qualify to be taxed as a REIT, commencing with its taxable year ending December 31, 2010. Accordingly, the Company generally will not be subject to corporate U.S. federal 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 is subject to U.S. federal income taxes and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year in which it fails 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. Generally, taxable income differs from net income reported on the financial statements because the determination of taxable income is based on tax provisions and not financial accounting principles.

F-9

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2010

(unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

Earnings Per Share

Basic earnings per share (“Basic EPS”) is determined by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share (“Diluted EPS”) is computed by dividing net income by the sum of the weighted-average number of shares of common stock outstanding after giving effect to the potential dilution from the conversion of the promote shares and the exercise of any stock options or warrants that the Company may issue, into shares of common stock as if those securities were converted or exercised, as well as the dilutive effect of any other equity award plans. Earnings per share for the three months ended September 30, 2009 and the period from June 3, 2009 (date of inception) to September 30, 2009 are not presented because they are not a meaningful measure of the Company’s performance.

NOTE 3 – ACQUISITIONS

On August 26, 2010, the Company acquired a multi-family residential apartment complex at 107 Avenue in Omaha, Nebraska. The transaction was accounted for using the purchase method of accounting. The following table presents the purchase price allocation of the asset acquired during three months ended September 30, 2010 (in thousands). No acquisitions were completed during the three months ended September 30, 2009.

Real estate investments, at cost:
Land	$	25
Buildings and improvements		196
		221
Acquired intangibles – in-place leases		4
Cash paid for acquired real estate investments	$	225

NOTE 4 – RELATED PARTY TRANSACTIONS

The Company has entered into an advisory agreement with the advisor pursuant to which the advisor is responsible for managing, operating, directing and supervising the operations and administration of the Company and its assets. Pursuant to the terms of the advisory agreement, the advisor is entitled to specified fees upon the provision of certain services, including payment of acquisition fees, asset management fees, disposition fees, debt financing fees and reimbursement of certain expenses related to the Company’s offering and operations, including organization and offering expenses, acquisition expenses and operating expenses.

The advisor is reimbursed for expenses it incurs in connection with its provision of services to the Company, including the Company’s allocable share of costs for advisor personnel and overhead. The advisor has advanced funds to the Company for both operating costs and organization and offering costs (as described below), which totaled approximately $3.3 million as of September 30, 2010. These amounts are reimbursed to the advisor from the proceeds of the Company’s public offering pursuant to the terms of the advisory agreement.

In September 2010, the Company reduced both the payable due to the advisor and certain general and administrative expenses by approximately $323,000. The Company recognized the full reduction during the quarter and anticipates no impact on full-year net earnings for 2010 as a result of this adjustment.

F-10

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2010

(unaudited)

NOTE 4 – RELATED-PARTY TRANSACTIONS – (Continued)

Pursuant to the terms of the advisory agreement, the advisor is entitled to receive an organization and offering expense reimbursement up to 2.5% of gross offering proceeds, but only to the extent that such reimbursement will not cause organization and offering expenses (other than selling commissions and the dealer manager fee) to exceed 2.5% of gross offering proceeds as of the date of reimbursement. Such reimbursements totaled approximately $315,000 and $86,000 as of September 30, 2010 for the private and public offerings, respectively. The advisor has agreed to reimburse the Company to the extent that selling commissions, the dealer manager fee and other organization and offering expenses incurred by the Company exceed 15% of the Company’s gross offering proceeds.

The Company pays the advisor, or an affiliate, an acquisition fee of 2.0% of the cost of investments acquired by the Company plus any capital expenditure reserves allocated, or the amount funded by the Company to acquire loans, including acquisition expenses and any debt attributable to such investments. For the nine months ended September 30, 2010, the advisor earned and the Company paid to the advisor approximately $234,000 in acquisition fees.

The Company pays the advisor, or an affiliate, an acquisition expense reimbursement for all out-of-pocket expenses incurred in connection with the selection and acquisition of properties or other real estate-related debt investments, whether or not the Company ultimately acquires the property or debt investment. For the nine months ended September 30, 2010, the advisor earned and the Company paid to the advisor approximately $20,000 in acquisition expense reimbursements.

The Company pays the advisor an asset management fee as a 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. The asset management fee will be based only on the portion of the costs or value attributable to the Company’s investment in an asset if the Company does not own all or a majority of an asset and does not manage or control the asset. For the nine months ended September 30, 2010, the advisor earned and the Company paid to the advisor approximately $6,000 in asset management fees.

The Company executed a dealer manager agreement with Chadwick Securities, Inc. (“Chadwick”), an affiliate of the advisor, pursuant to which Chadwick has been engaged to serve as the Company’s dealer manager. Chadwick is responsible for marketing the Company’s shares in its public offering. Pursuant to the terms of the dealer manager agreement, the Company pays Chadwick selling commissions in the amount of up to 7% of gross public offering proceeds and a dealer manager fee of up to 3% of gross offering proceeds. Chadwick reallows all selling commissions earned and up to 1.0% of the dealer manager fee as a marketing fee to participating broker-dealers. No selling commissions or dealer manager fees are paid in connection with sales under the distribution reinvestment plan. For the nine months ended September 30, 2010, Chadwick earned selling commissions and dealer manager fees of approximately $1.1 million and $326,000 for the private and public offerings, respectively.

The Company has entered into a management agreement with Resource Real Estate Opportunity Manager, LLC (the “Manager”), an affiliate of the advisor, pursuant to which the Manager will manage real estate properties and real estate-related debt investments and coordinate the leasing of, and manage construction activities related to, some of the real estate properties for the benefit of the Company. Pursuant to the terms of the management agreement the Manager is entitled to specified fees upon the provision of certain services, including payment of a construction management fee and property management/debt servicing fees. For the nine months ended September 30, 2010, no fees have been paid pursuant to the management agreement.

The advisor owns 49,068 shares of the Company’s convertible stock. The convertible stock held by the advisor will convert into shares of common stock on one of two events: first, if the Company has paid distributions to common stockholders such that aggregate distributions are equal to 100% of the price at which the Company originally sold the shares plus an amount sufficient to produce a 10% cumulative, non-compounded annual return at that price; and secondly, the convertible stock will convert if the Company lists the common stock on a national securities exchange and, on the 31st trading day after listing, the Company’s value based on the average trading price of the common stock since the listing, plus prior distributions, combine to meet the same 10% return threshold. The advisor has granted 17,346 shares of the convertible stock to employees of RAI; these shares will vest ratably over the next three years. None of these shares have vested as of September 30, 2010.

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NOTE 5 – LOAN HELD FOR INVESTMENT

On September 3, 2010, the Company purchased, at a discount, a non-performing promissory note (the “Westhollow Note”) secured by a first priority Deed of Trust and Security Agreement on a 404-unit multifamily residential community known as Westhollow Apartments located in Houston, Texas. The contract purchase price for the Westhollow Note was $7.8 million, excluding closing costs, and was funded from the proceeds of the Company’s completed private offering.

Select terms of the loan held for investment, at September 30, 2010, are as follows (in thousands, except average monthly contractual payment amount):

Loan principal	$	13,850
Discount		(6,050	)
Direct loan fees and costs, net of prorations		197
Carrying amount of loan	$	7,997
Original maturity date		11/01/2008
Interest rate		5.12	%
Average monthly contractual payment	$	75,369

NOTE 6 – SUBSEQUENT EVENT

At the acquisition date, the borrower under the Westhollow Note was in default under the loan documents. The Company contacted the borrower but was unsuccessful in its attempts to either restructure the Westhollow Note or negotiate a discounted payoff. Subsequently, on October 5, 2010, the Company was the successful bidder at the trustee’s sale of the property and, as such, title to Westhollow Apartments was transferred to it in exchange for the Westhollow Note. Our bid equaled the carrying value of the Westhollow Note, which we believed to be a reasonable approximation of the fair value of the Westhollow Apartments. Accordingly, there was no indication of impairment to the carrying value of the Westhollow Note at September 30, 2010.

As of November 12, 2010, the Company had issued 1,967,558 shares of common stock. Gross proceeds from this issuance totaled approximately $19.6 million.

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APPENDIX A

AMENDED AND RESTATED

DISTRIBUTION REINVESTMENT PLAN

Resource Real Estate Opportunity REIT, Inc., a Maryland corporation (the “Company”), has adopted this amended and restated 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 and subject to the limitation described below) 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. Participants must designate at least 20% of such Participant’s Distributions for the purchase of additional shares of Common Stock. 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. Treasury Regulation. Notwithstanding anything else to the contrary herein, pursuant to Treasury Regulation 1.1012-1(e)(6) (the “Regulation”), during the term of the DRP, at least 10% of every Distribution that is a dividend under Section 316 of the Internal Revenue Code declared and paid with respect to the shares of the Participants subject to the DRP shall be reinvested in additional shares of Common Stock, applied on an aggregate basis with respect to all Participants. The DRP may reinvest other Distributions on stock, such as capital gain distributions, non-taxable returns of capital, and cash in lieu of fractional shares. This paragraph shall be interpreted consistently with the Regulation.

8. Share Certificates. The shares issuable under the DRP shall be uncertificated until the board of directors determines otherwise.

9. 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.

10. 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 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

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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.

11. 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.

12. 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, except the Company may not amend the DRP to remove the right of a Participant to terminate participation in the DRP. With respect to material changes, the Company may provide notice by including such information (a) in a Current Report on Form 8-K or in its annual or quarterly reports filed with the SEC, and (b) in a separate mailing to the Participants. With respect to immaterial changes, the Company may provide notice by including such information (a) in a Current Report on Form 8-K or in its annual or quarterly reports filed with the SEC, (b) in a separate mailing to the Participants, or (c) on the Company’s web site.

13. 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.

14. Governing Law. The DRP shall be governed by the laws of the State of Maryland.

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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		1,807,000
Issuer costs regarding bona fide training and education meetings and retail seminars		316,000
Printing		2,202,750
Postage and delivery of materials		1,046,000
Transfer agent and escrow fees		451,000
Due diligence expenses		375,000
Telephone		107,250
Other expenses related to registration and offering of the securities*		5,096,740
Total	$	14,627,066

* Includes personnel costs of Resource Real Estate Opportunity Advisor, LLC or its affiliates for offering-related matters, including the preparation and distribution of investor reports and marketing materials.

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 $9.00 per share, reflecting the fact that selling commissions in the amount of $0.70 per share and the dealer manager fee in the amount of $0.30 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.

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On September 15, 2009, the Company commenced a private placement offering to accredited investors of up to $50,000,000 in shares of common stock at $10.00 per share, with volume discounts available to investors who purchased more than $1,000,000 of shares through the same participating broker-dealer. Discounts were also available for other categories of investors. The minimum permitted purchase in the Company’s private placement offering was $2,500. In addition, for every 1,000 shares of common stock an eligible investor purchased in the Company’s private placement offering, the Company offered to sell such investor one share of convertible stock. The private placement offering terminated on June 9, 2010. The Company raised $12.6 million in its private placement offering.

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 has also purchased and maintains 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.

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Item 35. Treatment of Proceeds from Stock Being Registered

Not applicable.

Item 36. Financial Statements and Exhibits

(a) Financial Statements. The following financial statements are filed as part of this registration statement and included in the prospectus:

Consolidated Financial Statements of the Company

September 30, 2010

Consolidated Financial Statements (Unaudited):

Consolidated Balance Sheet

Consolidated Statement of Operations

Consolidated Statement of Changes in Stockholders’ Equity

Consolidated Statement of Cash Flows

Notes to Consolidated Financial Statements

December 31, 2009

Report Of Independent Registered Public Accounting Firm

Consolidated Financial Statements:

Consolidated Balance Sheet

Consolidated Statement of Operations

Consolidated Statement of Changes In Stockholder’s Equity

Consolidated Statement of Cash Flows

Notes to Consolidated Financial Statements

Prior Performance Tables

Prior Performance Tables (unaudited)

(b) Exhibits. The following exhibits are filed as part of this registration statement:

Ex.	Description
1.1	Dealer Manager Agreement, including Form of Selected Dealer Agreement and Form of Placement Agreement (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 13, 2010)
3.1	Amended and Restated Articles of Incorporation (incorporated by reference to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed February 9, 2010)
3.2	Bylaws (incorporated by reference to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed February 9, 2010)
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) (incorporated by reference to Pre-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed November 12, 2009)

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4.3	Amended and Restated Distribution Reinvestment Plan, included as Appendix A to Supplement No. 9 to the prospectus
4.4	Share Redemption Program (incorporated by reference to Pre-Effective Amendment No. 4 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed May 7, 2010)
4.5	Escrow Agreement (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 13, 2010)
5.1	Opinion of DLA Piper LLP (US) re legality (incorporated by reference to Pre-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed May 27, 2010)
8.1	Opinion of DLA Piper LLP (US) re tax matters (incorporated by reference to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed February 9, 2010)
10.1	Third Amended and Restated Advisory Agreement
10.2	Management Agreement (incorporated by reference to Pre-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed September 15, 2009)
10.3	Loan Sale Agreement (Westhollow Apartments) between Bank of America, N.A. as successor by merger to LaSalle Bank National Association as Trustee for the Registered Holders of GMAC Commercial Mortgage Securities, Inc., Mortgage Pass-Through Certificates, Series 2003-C3 and Resource Real Estate opportunity OP, LP., dated July 30, 2010 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 15, 2010)
10.4	Amendment to Loan and Sale Agreement, dated August 23, 2010, between Bank of America, N.A. as successor by merger to LaSalle Bank National Association as Trustee for the Registered Holders of GMAC Commercial Mortgage Securities, Inc., Mortgage Pass-Through Certificates, Series 2003-C3 and Resource Real Estate opportunity OP, LP (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 15, 2010)
10.5	Reinstatement and Second Amendment to Loan and Sale Agreement (Westhollow Apartments), dated August 31, 2010 between Bank of America, N.A. as successor by merger to LaSalle Bank National Association as Trustee for the Registered Holders of GMAC Commercial Mortgage Securities, Inc., Mortgage Pass-Through Certificates, Series 2003-C3 and Resource Real Estate Opportunity OP, LP (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 15, 2010)
10.6	Deed of Trust and Security Agreement (Westhollow Apartments), dated as of October 27, 2003 among Westhollow Landmark LP, as grantor, Jay C. Paxton, as trustee, and Deutsche Banc Mortgage Capital, L.L.C., as beneficiary (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 15, 2010)
10.7	Assignment and Assumption of Loan Sale Agreement (Westhollow Apartments), dated as of September 03, 2010, between Resource Real Estate Opportunity OP, LP as assignor and RRE Westhollow Holdings, LLC as assignee (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 15, 2010)
10.8	Mortgage Loan Sale Agreement (Crestwood Apartments) between Capmark Bank and RRE Crestwood Holdings, LLC dated December 15, 2010

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10.9	Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing (Crestwood Apartments) between Capmark Bank and CV Apartments, LLC dated November 30, 2007
21.1	Subsidiaries of the Company
23.1	Consent of DLA Piper LLP (US) (included in Exhibits 5.1 and 8.1)
23.2	Consent of Grant Thornton LLP
24.1	Power of Attorney (included on the signature page of Pre-Effective Amendment No. 2 to the Company’s Registration Statement filed on November 12, 2009 and included on the signature page of the Company’s Registration Statement on Form S-11 (No. 333-160463) filed July 7, 2009)

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.

(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.

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(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.

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TABLE VI

(UNAUDITED)

ACQUISITIONS OF ASSETS BY PROGRAM

This Table presents summary information on real estate and real estate related investments since January 1, 2007 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 each property and the manner in which the properties were acquired. For real estate related investments, this table provides information regarding the total number of investments and the total dollar amount invested in the asset.

As of December 31, 2009

Property	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
Heritage Lake	R4	Knoxville, TN	Multi- Family	262		278,314		6/12/2007	$	8,254,350	$	5,626,000	$	13,391,758		—	$	608,920	$	14,000,678
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
Chenal Lakes	R5	Little Rock, AR	Multi- Family	456		409,950		5/11/2007		13,056,000		4,106,880		16,769,446		—		2,349,635		19,119,081
Brightwaters Apartments	R5	Little Rock, AR	Multi- Family	256		163,120		5/11/2007		7,344,000		2,310,120		9,432,814		—		1,321,669		10,754,483
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-7

TABLE VI

(UNAUDITED)

ACQUISITIONS OF ASSETS BY PROGRAM (cont’d)

Property	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
Mill Creek Terrace	OPP	Kansas City, MO	Multi- Family		49		60,788		6/26/2009		—		6,530,000		6,564,982		—		393,115		6,958,097
Wyndridge Apartments	OPP	Memphis, TN	Multi- Family		568		527,464		9/29/2009		9,501,429		2,850,429		9,869,183		—		3,500,000		13,369,183

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TABLE VI

(UNAUDITED)

ACQUISITION OF ASSETS BY PROGRAMS (cont’d)

Resource Capital Corp.

As of December 31, 2009

Year	Total Number of Investments		Total Dollar Amount Invested
2006		31	$	498,200,000
2007		49		648,431,503
2008		1		20,800,000
2009		—		—

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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 post-effective amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on the 3rd day of March, 2011.

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
* Jonathan Z. Cohen		Chairman of the Board	March 3, 2011
/s/    ALAN F. FELDMAN         Alan F. Feldman		Chief Executive Officer and Director (Principal Executive Officer)	March 3, 2011
* Steven R. Saltzman		Chief Financial Officer, Senior Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer)	March 3, 2011
* Gary Lichtenstein		Director	March 3, 2011
* Lee F. Shlifer		Director	March 3, 2011
* Thomas J. Ikeler		Director	March 3, 2011
* By:	/s/    ALAN F. FELDMAN		March 3, 2011
	Alan F. Feldman Chief Executive Officer and Director Attorney-in-Fact

EX-10.1

Exhibit 10.1

THIRD AMENDED AND RESTATED

ADVISORY AGREEMENT

between

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

and

RESOURCE REAL ESTATE OPPORTUNITY ADVISOR, LLC

January 11, 2011

TABLE OF CONTENTS

	Page
ARTICLE 1 - DEFINITIONS		4
ARTICLE 2 - APPOINTMENT		11
ARTICLE 3 - DUTIES OF THE ADVISOR		11
3.01 Organizational and Offering Services		11
3.02 Acquisition Services		12
3.03 Asset Management Services		12
3.04 Stockholder Services		15
3.05 Other Services		15
ARTICLE 4 - AUTHORITY OF ADVISOR		16
4.01 General		16
4.02 Powers of the Advisor		16
4.03 Approval by the Board		16
4.04 Modification or Revocation of Authority of Advisor		16
ARTICLE 5 - BANK ACCOUNTS		17
ARTICLE 6 - RECORDS AND FINANCIAL STATEMENTS		17
ARTICLE 7 - LIMITATION ON ACTIVITIES		17
ARTICLE 8 - FEES		18
8.01 Acquisition Fees		18
8.02 Asset Management Fees		19
8.03 Disposition Fees		19
8.04 Debt Financing Fees		20
8.05 Changes to Fee Structure		20
8.06 Limitations on an Internalization Transaction		20
ARTICLE 9 - EXPENSES		21
9.01 General		21
9.02 Timing of and Limitations on Reimbursements		23
ARTICLE 10 - VOTING AGREEMENT		25
ARTICLE 11 - RELATIONSHIP OF ADVISOR AND COMPANY; OTHER ACTIVITIES OF THE ADVISOR		25
11.01 Relationship		25
11.02 Time Commitment		25
11.03 Investment Opportunities and Allocation		25
ARTICLE 12 - THE RESOURCE REAL ESTATE OPPORTUNITY NAME		26
ARTICLE 13 - TERM AND TERMINATION OF THE AGREEMENT		26
13.01 Term		26
13.02 Termination by Either Party		27
13.03 Payments on Termination		27
13.04 Duties of Advisor Upon Termination		27
ARTICLE 14 - ASSIGNMENT		27
ARTICLE 15 - INDEMNIFICATION AND LIMITATION OF LIABILITY		28
15.01 Indemnification		28

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15.03 Limitation on Indemnification	28
15.02 Limitation on Payment of Expenses	28
ARTICLE 16 - GUARANTEE	29
ARTICLE 17 - MISCELLANEOUS	29
17.01 Notices	29
17.02 Modification	30
17.03 Severability	30
17.04 Construction	30
17.05 Entire Agreement	30
17.06 Waiver	30
17.07 Gender	30
17.08 Titles Not to Affect Interpretation	31
17.09 Counterparts	31

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THIRD AMENDED AND RESTATED ADVISORY AGREEMENT

This Third Amended and Restated Advisory Agreement, dated as of January 11, 2011 (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”), and amends and restates the Second Amended and Restated Advisory Agreement between the Company and the Advisor entered into as of June 16, 2010.

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

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points or any fee of a similar nature, however designated. Excluded shall be Development Fees and Construction Fees paid to Persons not Affiliated with the Advisor in connection with the actual development and construction of a Property.

“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.

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“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.

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“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.

“Guaranteed Obligations” shall have the meaning set forth in Article 16.

“Guarantor” means Resource Real Estate, Inc., a Delaware corporation, or any successor thereto or assignee thereof.

“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 Escrow Release Date” shall have the meaning set forth in Section 8.06.

“Initial Public Offering” means the initial public offering of Shares registered on Registration Statement No. 333-160463 on Form S-11.

“Internalization Transaction” shall have the meaning set forth in Section 8.06.

“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.

7

“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 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

8

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; 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.

9

“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 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.

“Subject Shares” shall have the meaning set forth in Section 8.06.

“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

10

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.

“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.

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3.02 Acquisition Services.

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

(ii) Subject to Section 4 hereof and the investment objectives and policies of the Company: (a) locate, analyze and select potential investments; (b) structure and negotiate the terms and conditions of transactions pursuant to which investments in Properties, Loans and other Permitted Investments will be made; (c) acquire, originate and dispose of Properties, Loans and other Permitted Investments on behalf of the Company 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,

12

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;

(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

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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:

(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;

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(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;

(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).

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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 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.

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ARTICLE 5

BANK ACCOUNTS

The Advisor may establish and maintain one or more bank accounts 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 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

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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 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

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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 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

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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.

8.06 Limitations on an Internalization Transaction. The Company may not acquire the Advisor or an Affiliate thereof in order to become self-managed, whether by means of a merger, stock acquisition, or asset purchase (an “Internalization Transaction”), unless at least half of the consideration is payable in Shares and held in escrow and not released to the Advisor or an Affiliate thereof (or any transferee of either) until

(i) the average closing price of the Shares over a five-trading-day period on a national securities exchange equals a price that, when combined with prior distributions paid on the Shares issued in a public offering prior to listing and outstanding at the time of the Internalization Transaction (the “Subject Shares”), equals the amount necessary for the holders of the Subject Shares to be deemed to have received in the aggregate the original issue price of the Subject Shares plus a 6% cumulative, non-compounded, annual return on the issue price of the Subject Shares or

(ii) the consideration paid (or net sale proceeds distributed) to holders of the Subject Shares in an acquisition (whether by means of a merger, stock acquisition, asset purchase, or similar transaction) or dissolution of the Company, when combined with prior distributions paid on the Subject Shares equals the amount necessary for the holders of the Subject Shares to have received in the aggregate the original issue price of the Subject Shares plus a 6% cumulative, non-compounded, annual return on the issue price of the Subject Shares.

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The date that one of these thresholds is met is the “Initial Escrow Release Date.” In the event a recapitalization causes some of the Subject Shares to be exchanged or converted into securities that are not listed on a national securities exchange as of the Initial Escrow Release Date, then the shares to be released from escrow shall be reduced to reflect the percentage of Subject Shares (and their equivalents) that are then listed, with the remaining shares in escrow to be subsequently released in proportion to and as the remaining Subject Shares (and their equivalents) become listed.

Shares held in escrow pursuant to the foregoing shall be entitled to dividends like all other Shares; however, such dividends shall also be placed in escrow and not released until the above thresholds are reached. If the conditions to break escrow are not met within 10 years of the Internalization Transaction, all shares in the escrow account shall become authorized but unissued shares and all cash in the escrow account shall belong to the Company. Shares held in escrow shall be voted on any matter in which Stockholders are entitled to vote in the same proportion as all other Shares that vote on the matter.

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:

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(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.

(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, including travel, meals and lodging expenses incurred by the Advisor in performing duties associated with the acquisition or origination of Properties, Loans or other Permitted Investments;

(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

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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;

(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.

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

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ARTICLE 10

VOTING AGREEMENT

The Advisor agrees that, with respect to any Shares now or hereinafter owned by it, the Advisor will not vote or consent on matters submitted to the stockholders of the Company regarding (i) the removal of the Advisor or any Affiliate of the Advisor 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 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

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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 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

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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 17 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.

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.

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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:

(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

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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

GUARANTEE

Resource Real Estate, Inc., the ultimate parent company of the Advisor (the “Guarantor”) will in all respects guarantee the due and proper performance of the services to be provided under this Agreement by the Advisor, which guarantee shall extend to include any renewal or amendment to this Agreement, provided Guarantor’s obligations are not materially increased by such renewal or amendment without the Guarantor’s consent, such consent not to be unreasonably withheld. If the Advisor fails to perform all or any of its obligations, duties, undertakings, and covenants to provide services (collectively, the “Guaranteed Obligations”) under this Agreement (unless relieved from the performance of any part of this Agreement by statute, by the decision of a court or tribunal of competent jurisdiction or by waiver of the Company), upon written notice from the Company, the Guarantor shall perform or cause to be performed such Guaranteed Obligations. This guarantee is a guarantee of performance of the Guaranteed Obligations and not of payment of any liabilities of the Advisor. The termination of the Advisor shall constitute a termination of this guarantee. This guarantee will be applicable to and binding upon the successors and assigns of Guarantor.

ARTICLE 17

MISCELLANEOUS

17.01 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

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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 17.01.

17.02 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.

17.03 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.

17.04 Construction. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania.

17.05 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.

17.06 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.

17.07 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.

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17.08 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.

17.09 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.]

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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
RESOURCE REAL ESTATE, INC., with respect to Article 16
By:	/s/ Alan F. Feldman

[Signature Page to Third Amended and Restated Advisory Agreement between Resource Real Estate Opportunity REIT, Inc. and Resource Real Estate Opportunity Advisor, LLC]

EX-10.8

Exhibit 10.8

MORTGAGE LOAN SALE AGREEMENT

[Crestwood Crossing, Birmingham, AL]

THIS MORTGAGE LOAN SALE AGREEMENT (this “Agreement”), is made and entered into as of December 15, 2010, by and between CAPMARK BANK, a Utah industrial bank, having an address of 6955 Union Park Center, Suite 330, Midvale, Utah 84087 (“Seller”), and RRE CRESTWOOD HOLDINGS, LLC, a Delaware limited liability company having an address of One Crescent Drive, Suite 203, Philadelphia, PA 19112 or its designee permitted pursuant to Section 2.4 below (“Buyer”).

RECITALS

A. Seller is the holder of and desires to sell the Loan (as defined in Article 1 below) on the terms and subject to the conditions set forth herein.

B. Buyer is a sophisticated and experienced purchaser of commercial real estate and loans secured by real property and desires to purchase the Loan on the terms and subject to the conditions set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer agree as follows:

ARTICLE 1

DEFINITIONS

For purposes of this Agreement, the following terms shall have the meanings indicated:

Section 1.1 “Agreement” means this Mortgage Loan Sale Agreement, including all Exhibits and Schedules hereto.

Section 1.2 “Assigned Rights and Obligations” means all of Seller’s right, title, interest, obligations and liabilities in, to and under the Loan and the Loan Documents, including, without limitation, (a) all of Seller’s rights to principal, interest, fees, costs and expenses payable thereunder after the Closing Date and all of Seller’s other rights and claims thereunder (including all rights in any receivership estate which exists in connection with the Loan Documents), (b) all of Seller’s payment and performance obligations into and under the Loan and the Loan Documents arising after the Closing Date, and (c) the Exit Fee.

Section 1.3 “Assignment and Assumption of Assigned Rights and Obligations” means the document to be delivered on the Closing Date by Buyer and Seller, the form of which is attached hereto as Exhibit C, whereby Seller assigns to Buyer or Buyer’s designee, and Buyer or Buyer’s designee accepts and assumes from Seller, the Assigned Rights and Obligations.

Section 1.4 “Business Day” means any day on which Seller is open for business other than a Saturday, a Sunday or a Pennsylvania state or Federal holiday.

Section 1.5 “Closing” means the occurrence of all acts required by this Agreement to assign and transfer the Assigned Rights and Obligations from Seller to Buyer and for Buyer to accept and assume the Assigned Rights and Obligations from Seller.

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Section 1.6 “Closing Date” means the Closing Date identified on Schedule 1 attached hereto, or such other date upon which Buyer and Seller may mutually agree (but without any legal obligation to do so).

Section 1.7 “Closing Documents” means all documents described herein that are required to be delivered at the Closing by Seller and Buyer, as applicable.

Section 1.8 “Collateral” means the real and personal property, guaranty, pledge and/or other property securing the Note as described in the Loan Documents.

Section 1.9 “Credit Party” means any borrower, guarantor, indemnitor or any other party obligated to Seller under any of the Loan Documents.

Section 1.10 “Credit Party Affiliate” means any Credit Party or any person or entity that, directly or indirectly, has an ownership interest in any Credit Party.

Section 1.11 “Deposit” means the amount identified as the Deposit in Schedule 1 attached hereto, together with all interest which accrues thereon following the deposit thereof into Escrow. Escrow Holder shall invest the Deposit in an interest bearing account reasonably acceptable to Seller and Buyer. The Deposit shall be deposited into Escrow as provided in Section 2.3 of this Agreement.

Section 1.12 “Effective Date” means the date of this Agreement as set forth above.

Section 1.13 “Escrow” means the escrow to be opened with Escrow Holder in connection with this Agreement and the transactions contemplated hereunder.

Section 1.14 “Escrow Holder” means the title insurance company or agent identified as Escrow Holder on Schedule 1 attached hereto.

Section 1.15 “Excluded Documents” means certain agreements and other documentation (including email correspondence) that pertain to all or a portion of the Loan Documents or the Collateral (including, without limitation, certain attorney/client correspondence, confidential or privileged information, appraisals, valuations and opinions regarding the Loan or the Property, internal analyses and memoranda, regulatory reports and internal assessments of valuation of the Loan, the Loan Documents or the Collateral) that have been deemed legally privileged to include with the Loan Documents or the Loan File.

Section 1.16 “Exit Fee” means that certain Exit Fee as described in the Loan Agreement.

Section 1.17 “Inspection Period” means the Inspection Period identified on Schedule 1 attached hereto.

Section 1.18 “Loan” means the loan described in Exhibit B attached hereto and evidenced and/or secured by the Note and the other Loan Documents.

Section 1.19 “Loan Agreement” means that certain Loan Agreement between CV Apartments, LLC and Seller dated November 30, 2007 that governs the terms and conditions of the Loan.

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Section 1.20 “Loan Documents” means the Note, the deed of trust or mortgage, security agreement, UCC financing statements, guaranty, letter of credit, pledge, loan agreement and/or other instruments creating a security interest in, and/or a lien or encumbrance upon any of the Collateral or other documents related to, or evidencing, the Loan, as obtained at the time of its origination and any subsequent modification now in Seller’s possession, as set forth and listed in Exhibit A attached hereto, but excluding the Excluded Documents.

Section 1.21 “Loan File” means, with respect to Loan: (1) the originals or copies, where originals are not in Seller’s possession, of the Loan Documents described on Exhibit A attached hereto (but specifically excluding any intervening assignments entered into (A) solely between or among Seller and any of its affiliates and (B) between or among Seller or any of its affiliates and any third party lender in connection with the provision by such third party lender of any so-called “repo facility” or similar financing arrangement of which the Loan is a part); (2) the original or a copy, where the original is not in Seller’s possession, if any, of the Seller’s title insurance policy for the Loan; and (3) the originals or copies, where originals are not in Seller’s possession, of all other material documents, third party studies, and surveys currently in Seller’s possession, including environmental reports, property condition reports, leases, tenant estoppel certificates, subordination, non-disturbance and attornment agreements, opinion letters, zoning comfort letters and correspondence (other than email correspondence), in each case, if any, relating to the Loan or the collateral for the Loan, other than the Excluded Documents.

Section 1.22 “Note” means, collectively, (i) that certain Promissory Note A dated November 30, 2007 in the original principal amount of $6,825,000, and (ii) that certain Promissory Note B dated November 30, 2007 in the original principal amount of $4,175,000, evidencing the Loan.

Section 1.23 “Purchase Price” means the sum identified as the Purchase Price in Schedule 1 hereto.

Section 1.24 “Seller’s Asset Manager” means Jeffrey Connors, the employee of Seller who is the primary asset manager of the Loan.

ARTICLE 2

PURCHASE AND SALE OF THE ASSIGNED RIGHTS

Section 2.1 Agreement to Sell and Purchase Assigned Rights and Obligations. Subject to the terms and conditions of this Agreement, Seller agrees to sell, transfer and assign, and Buyer agrees to purchase and assume, the Assigned Rights and Obligations on the Closing Date, on an “AS IS,” “WHERE IS” BASIS, “WITH ALL FAULTS” AND WITHOUT REPRESENTATIONS, EXPRESS OR IMPLIED, OF ANY TYPE, KIND, CHARACTER OR NATURE (INCLUDING, WITHOUT LIMITATION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE), AND WITHOUT WARRANTIES, EXPRESS OR IMPLIED, OF ANY TYPE, KIND, CHARACTER OR NATURE (INCLUDING, WITHOUT LIMITATION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE), EXCEPT THE LIMITED AND EXPRESS REPRESENTATIONS OF SELLER SET FORTH IN ARTICLE 4 HEREOF, AND WITHOUT RECOURSE OF ANY NATURE TO SELLER (EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT). BUYER’S OBLIGATIONS UNDER THIS AGREEMENT ARE NOT SUBJECT TO OR CONTINGENT UPON BUYER OBTAINING ANY FINANCING IN CONNECTION WITH THE PURCHASE OF THE ASSIGNED RIGHTS AND OBLIGATIONS.

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Section 2.2 Purchase Price. Not later than 1:00 p.m. (eastern time) on the Closing Date, Buyer shall deposit in Escrow, by wire transfer of immediately available funds, the balance of the Purchase Price (net of the Deposit and any other adjustments or credits due to Buyer under this Agreement), together with any additional amounts payable by Buyer pursuant to the closing adjustments described in Section 6.5 hereof.

Section 2.3 Deposit. Within one (1) Business Day of the Effective Date, Buyer shall deliver the Deposit into Escrow. The Deposit shall be applied to the Purchase Price upon Closing. Buyer’s failure to timely deliver the Deposit in Escrow shall constitute a default of this Agreement.

Section 2.4 Notice of Buyer Designee. On or before the date that is three (3) Business Days prior to the Closing Date, Buyer may designate to Seller in writing, at its sole discretion, an affiliated entity as designee to receive and assume the Assigned Rights and Obligations so long as such entity is not a Credit Party Affiliate. If Buyer designates another entity to assume the Assigned Rights and Obligations, Buyer nevertheless shall remain liable for all obligations of Buyer hereunder and thereunder, notwithstanding any such designation.

Section 2.5 Escrow. Upon the execution of this Agreement by Buyer and Seller, and the acceptance of this Agreement by Escrow Holder in writing, this Agreement shall constitute the joint escrow instructions of Buyer and Seller to Escrow Holder to open Escrow for the consummation of the transfer of the Assigned Rights and Obligations to Buyer pursuant to this Agreement. Upon Escrow Holder’s receipt of the Deposit and Escrow Holder’s written acceptance of this Agreement, Escrow Holder is authorized to act in accordance with the terms of this Agreement. Buyer and Seller shall promptly execute general escrow instructions based upon this Agreement at the reasonable request of Escrow Holder; provided, however, that if there is any conflict or inconsistency between such general escrow instructions and this Agreement, this Agreement shall control. Upon the Closing, Escrow Holder shall pay any sum owed to Seller with immediately available United States federal funds.

Section 2.6 Absolute Conveyance. It is the express intent of Seller and Buyer that the conveyance of the Assigned Rights and Obligations by Seller to Buyer be an absolute sale of the Assigned Rights and Obligations. It is, further, not the intention of the parties that such conveyance be deemed the grant or pledge of a security interest in the Loan by Seller to Buyer to secure a debt or other obligation of Seller.

Section 2.7 Examination of Loan.

(a) Location of Loan File. To the extent that Buyer has not previously been given access to the electronic data room containing copies of the Loan File prior to the Effective Date, on the Effective Date, Seller shall make such electronic data room available to Buyer and its agents for examination. Buyer acknowledges that Seller will not provide actual physical copies of the documents and materials comprising the Loan File and contained in the electronic data room, except that Seller shall deliver Buyer actual physical copies of the Loan Documents itemized in Exhibit A to this Agreement.

(b) Rejection and Approval of Loan. Buyer shall have the right prior to the end of the Inspection Period to notify Seller, in writing, of Buyer’s decision to reject the purchase of the Loan. Buyer’s failure to so notify Seller prior to the end of the Inspection Period shall be deemed to be Buyer’s approval of the Loan. In the event that Buyer timely rejects the purchase of any of the Loan, Escrow Holder shall return the Deposit to Buyer and this

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Agreement shall terminate and be of no further force or effect other than those provisions that expressly survive a termination of this Agreement.

ARTICLE 3

REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER

Section 3.1 Representations and Warranties. Buyer hereby represents and warrants as of the Effective Date and as of the Closing Date that:

(a) Authorization and Compliance. Buyer is duly and legally authorized to enter into this Agreement and has complied with all laws, rules, regulations, charter provisions and bylaws to which it may be subject and that the undersigned representative is authorized to act on behalf of and bind Buyer to the terms of this Agreement.

(b) Binding Obligation of Buyer. Assuming due authorization, execution and delivery by each other party hereto, this Agreement and all of the obligations of Buyer hereunder are the legal, valid and binding obligations of Buyer, enforceable in accordance with the terms of this Agreement, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law).

(c) No Conflict With Other Agreements. The execution and delivery of this Agreement and the performance of its obligations hereunder by Buyer will not conflict with any provision of any law or regulation to which Buyer is subject or conflict with or result in a breach of or constitute a default of any of the terms, conditions or provisions of any agreement or instrument to which Buyer is a party or by which it is bound or any order or decree applicable to Buyer.

(d) No Further Consent Required. Buyer is not required to obtain the consent of any other party or any consent, license, approval or authorization from, or registration or declaration with, any governmental authority, bureau or agency in connection with Buyer’s execution, delivery, or performance of this Agreement, except such as have been obtained.

(e) Financial Records. Buyer intends that its purchase of the Loan from Seller constitutes a true purchase thereof, and that the financial records of Buyer will report (and Buyer shall otherwise treat) the purchase of the Loan as a purchase by Buyer.

(f) “Not On OFAC List.” Buyer is not: (a) a person or entity who is identified on the list of specially designated nationals subject to sanctions that is maintained by the U.S. Treasury Department, Office of Foreign Assets Control (accessible through the internet website www.treas.gov/ofac/t11sdn.pdf), or (b) a person or entity with whom a U.S. citizen is prohibited to engage in transactions by any trade embargo, economic sanction, or other prohibition of United States law or Executive Order of the U.S. President.

(g) No Borrower Affiliation. Buyer is not a Credit Party Affiliate.

Section 3.2 Outstanding Taxes, Liens. Buyer acknowledges that there may exist certain real estate taxes, mechanic’s liens, and other costs related to the Property that remain unpaid as of the Effective Date and which may remain unpaid as of the Closing Date; provided, however, that, to Seller’s Actual Knowledge, Seller has not received any written notice of any

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delinquent real estate taxes or liens affecting the Collateral that have not been paid. Buyer assumes all liability in connection therewith and Seller shall have no liability therefor.

Section 3.3 Independent Evaluation. Buyer is a sophisticated investor and Buyer’s decision to purchase the Loan and assume the Assigned Rights and Obligations pursuant to this Agreement is based upon Buyer’s own independent evaluation of the information made available by Seller, and Buyer’s independent evaluation of the Loan Documents, Loan File, Collateral, and related information which Buyer acknowledges and agrees Seller has made available to it and that Buyer has been or will be given the opportunity to inspect. Buyer has had or will have a reasonable opportunity to review and, to the extent Buyer deemed necessary, has examined, the Loan Documents, the Loan File, and the Collateral. In addition, Buyer hereby acknowledges and agrees that it has received and reviewed or will have received and reviewed to its satisfaction all third-party reports or summaries and any financial and other data and information relating to the Collateral, the Loan and each of the Credit Parties as it has determined to obtain. Buyer hereby further acknowledges and agrees that: (a) Buyer has, independently and without reliance upon Seller or any of its agents or advisors, and based on such documents and information as Buyer has deemed appropriate, made Buyer’s own credit analysis and decision to purchase the Loan and Buyer hereby accepts responsibility therefor; (b) Seller has not provided to Buyer, and Buyer has not relied on or used in any way, any credit analysis of any Credit Party or any Collateral prepared by Seller or any of its agents or advisors or any investigation or assessment of risk with respect to the Loan prepared by Seller or any of its agents or advisors or any investigation or assessment of risk with respect to any of the Properties prepared by Seller or any of its agents or advisors; and (c) except as expressly provided to the contrary in this Agreement, any information provided to Buyer by Seller regarding the Loan, any Credit Party, or any collateral for the Loan is provided without any warranty or representation, express or implied, as to its accuracy or completeness. Buyer hereby further acknowledges and agrees that, except as expressly set forth in this Agreement, Seller has made no representations or warranties with respect to the Loan, the Loan Documents, any Credit Party, the Loan File, the Collateral or any other collateral relating thereto or any of them, and that Seller shall have no responsibility for: (i) the collectability of the Loan; (ii) the validity, enforceability or legal effect of any of the Loan Documents furnished or to be furnished to Seller in connection with the origination of any of the Loan; (iii) the validity, sufficiency, effectiveness or perfection of the liens created or to be created by the Loan Documents; (iv) the state of title to any Collateral; (v) the environmental condition of any Collateral or of any adjoining property, or any Credit Party or any of its affiliates’ compliance with any environmental laws, conditions, orders, decrees, rules or regulations, or any existing or potential environmental liability arising with respect to or relating to any Collateral; (vi) the compliance of any Collateral with any and all applicable laws, rules and regulations, including but not limited to zoning, subdivision, land use, housing, or handicapped accessibility laws, codes, rules or regulations; or (vii) the financial condition of any Credit Party; (viii) the organizational or ownership structure of any Credit Party. Buyer hereby assumes any and all risk of loss from and after the Closing Date in connection with: (x) the Loan from the failure or refusal of any Credit Party to pay interest, principal or other amounts due on the Loan, (y) defaults by any Credit Party under the Loan Documents, and/or (z) the unenforceability or lack of priority of any of the Loan Documents.

Section 3.4 Excluded Documents. Buyer acknowledges and agrees that Seller will not disclose or transfer the Excluded Documents. Buyer further acknowledges and agrees that the Excluded Documents may contain significant information relating to Seller’s perceived value of the Loan; provided, however, that, to Seller’s Actual Knowledge, such failure to disclose or transfer the Excluded Documents shall not cause items in the Loan File to become unenforceable, invalid, untrue or misleading in any material respect.

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Section 3.5 Collection Risks Understood. Buyer further acknowledges that in acquiring the Loan, Buyer is assuming the risk of full or partial loss which is inherent with the credit, collateral and collectability risks associated with the Loan. Buyer understands that the Loan may be in default and may be non-performing.

Section 3.6 Right to Conduct Due Diligence. Buyer has been invited and given the opportunity to conduct such due diligence review and analysis of the Collateral, Loan Documents, the Loan File and related information, together with such records as are generally available to the public from local, county, state and federal authorities, record-keeping offices and courts (including, without limitation, any bankruptcy courts in which any Credit Party may be subject to any pending bankruptcy proceedings), as Buyer deemed necessary, proper or appropriate in order to make a complete, informed decision with respect to the purchase and acquisition of the Assigned Rights and Obligations.

Section 3.7 “AS-IS” Sale. Buyer acknowledges and agrees that Seller has not and does not represent, warrant or covenant any condition or status of the Collateral or the nature, accuracy, or completeness of any of the Loan Documents, the Loan File, and/or of the financial condition or status of any Credit Party or the Collateral. Except as expressly provided in Article 4, all documentation, information, analysis and/or correspondence, if any, which is or may be sold, transferred, assigned and conveyed to Buyer with respect to the Collateral or the Loan is sold, transferred, assigned and conveyed to Buyer on an “AS IS, WHERE IS” BASIS, WITH ALL FAULTS.

Section 3.8 No Further Reliance on Seller. Buyer is not relying upon the continued actions or efforts of Seller in connection with its decision to purchase the Loan and to purchase and assume the Assigned Rights and Obligations, and Buyer agrees that, because of its sophistication and status, the representations made herein and other valid reasons and the purchase of the Loan, the Assigned Rights and Obligations does not constitute the purchase of securities within the meaning of federal or state securities laws.

Section 3.9 Application to Designee. If Buyer designates an affiliate to receive and assume the Assigned Rights and Obligations pursuant to Section 2.4, all of the representations, warranties and covenants of Buyer contained in this Article 3 shall be deemed remade and to apply to Buyer’s designee as if the name of Buyer’s designee were substituted in place of Buyer in each instance other than the preamble to Article 3.

Section 3.10 Survival. Buyer’s representations and warranties in this Article 3 shall survive the Closing.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF SELLER

Section 4.1 Seller hereby represents and warrants as of the Effective Date and as of the Closing Date that:

(a) Authorization and Compliance. Seller is duly and legally authorized to enter into this Agreement, and the undersigned representative is authorized to act on behalf of and bind Seller to the terms of this Agreement.

(b) Binding Obligation of Seller. Assuming due authorization, execution and delivery by each other party hereto, this Agreement and all of the obligations of

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Seller hereunder are the legal, valid and binding obligations of Seller, enforceable in accordance with the terms of this Agreement, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law).

(c) No Conflict With Other Agreements. The execution and delivery of this Agreement and the performance of its obligations hereunder by Seller will not conflict with any provision of any law or regulation to which Seller is subject or conflict with or result in a breach of or constitute a default of any of the terms, conditions or provisions of any agreement or instrument to which Seller is a party or by which it is bound or any order or decree applicable to Seller.

(d) No Further Consent Required. Seller is not required to obtain the consent of any other party or any consent, license, approval or authorization from, or registration or declaration with, any governmental authority, bureau or agency in connection with Seller’s execution, delivery, or performance of this Agreement, except such as have been obtained or will be obtained prior to Closing.

(e) Owner of Loan. As of the Effective Date (a) Seller has the authority and right to sell and assign the Note, Loan and Assigned Rights and Obligations to Buyer; (b) Seller is presently the sole owner and beneficiary under all of the Loan Documents, and has not assigned, pledged, promised, encumbered or otherwise transferred any interest in the Loan or any of the Loan Documents to any other person or party; and (c) the copies of the Loan Documents provided by Seller to Buyer are true and complete copies thereof, and to Seller’s Actual Knowledge, each of such instruments is in full force and effect.

(f) Loan Information. The outstanding principal balance of the Loan, the accrued unpaid interest payable under the Note and the outstanding balance of the reserves and impounds held in connection with the Loan are as set forth on Exhibit B attached hereto as of the date set forth in Exhibit B. To the extent that Seller receives any principal, interest or other payments from any Credit Party after the Effective Date, Seller shall provide Buyer with a written statement with the updated outstanding principal balance and interest paid to date.

Section 4.2 Right to Update. Seller shall promptly advise Buyer in writing if Seller obtains Actual Knowledge of any information following the Effective Date which would make any of Seller’s representations and warranties set forth in this Article 4 untrue in any material respect; provided, however, that it shall not be a breach of such representation or warranty if Seller did not have Actual Knowledge that such representation or warranty was untrue when made. If Seller or Buyer acquires Actual Knowledge following the Effective Date and prior to the Closing which would make any of the representations or warranties untrue in any material adverse respect, then, as Buyer’s sole remedy, Buyer shall have the right to terminate this Agreement by delivery of written notice to Seller prior to the Closing Date and, in the event of such termination, the Deposit shall be returned to Buyer and all rights and obligations under this Agreement shall cease except those which expressly survive. If, prior to the Closing, Buyer becomes aware of any facts that make any of the representations or warranties set forth in this Article 4 untrue, but Buyer nevertheless elects to close hereunder, then Buyer shall be deemed to have waived any claim against Seller based on such untrue representation or warranty. The provisions of the immediately preceding sentence shall survive the Closing.

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Section 4.3 Seller’s Knowledge. The phrase “Seller’s Knowledge” or similar phrase shall mean only the actual knowledge of Seller’s Asset Manager without any duty to investigate.

Section 4.4 Survival. Seller’s representations and warranties in this Article 4 and Sections 3.2 and 3.4 shall survive the Closing for a period of twelve (12) months.

Section 4.5 Disclaimer. EXCEPT FOR THOSE EXPRESSED IN ARTICLE 4, NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, HAVE BEEN MADE BY SELLER OR BY ANYONE ACTING ON ITS BEHALF, PARTICULARLY, BUT WITHOUT IN ANY WAY LIMITING THE GENERALITY OF THE FOREGOING, NO WARRANTIES OR REPRESENTATIONS REGARDING (i) THE COLLECTABILITY OF THE LOAN, (ii) THE CREDITWORTHINESS OF ANY CREDIT PARTY, (iii) THE VALUE OF ANY COLLATERAL SECURING PAYMENT OF THE LOAN, (iv), THE LOAN’S FREEDOM FROM LIENS AND ENCUMBRANCES, IN WHOLE OR IN PART, (v) THE TRANSFERABILITY AND ENFORCEABILITY OF THE LOAN DOCUMENTS SUPPORTING THE LOAN, OR (vi) TITLE TO OR THE CONDITION OF THE UNDERLYING COLLATERAL INCLUDING BUT NOT LIMITED TO ANY ENVIRONMENTAL MATTER OR CONDITION, WHETHER LATENT OR OBSERVABLE. EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, THE LOAN SOLD AND THE RIGHTS AND OBLIGATIONS ASSIGNED TO AND ASSUMED BY BUYER UNDER THIS AGREEMENT ARE SOLD AND TRANSFERRED WITHOUT RECOURSE.

ARTICLE 5

CONDITIONS PRECEDENT

Section 5.1 Conditions for the Benefit of Buyer, Including Due Diligence. Notwithstanding anything in this Agreement to the contrary, Buyer’s obligation to purchase and assume the Assigned Rights and Obligations shall be subject to and contingent upon the satisfaction (or waiver by Buyer) of each of the following conditions precedent, prior to or on the Closing Date:

(a) All Closing Documents to be executed by Seller pursuant to Section 6.3 hereof shall have been executed and delivered by Seller as required thereby.

(b) Neither Buyer nor Seller shall have terminated this Agreement pursuant to the terms of this Agreement.

(c) Each and every representation and warranty of Seller contained in this Agreement shall be true and correct as and when made and as of the Closing Date in all material respects, subject Section 4.2.

Section 5.2 Conditions for the Benefit of Seller. Notwithstanding anything in this Agreement to the contrary, Seller’s obligation to sell and assign the Assigned Rights and Obligations shall be subject to and contingent upon the satisfaction (or waiver by Seller) of the following conditions precedent prior to or on the Closing Date:

(a) Payment of the Purchase Price, plus sufficient funds to pay Buyer’s share of all escrow costs, prorations and closing expenses as set forth in Section 6.5 below, to Seller at the Closing.

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(b) All Closing Documents to be executed by Buyer pursuant to Section 6.2 hereof shall have been executed and delivered by Buyer thereby.

(c) Neither Buyer nor Seller shall have terminated the Agreement pursuant to the terms of this Agreement.

(d) Each and every representation and warranty of Buyer contained in this Agreement shall be true and correct as and when made and as of the Closing Date in all material respects.

Section 5.3 Failure or Waiver of Conditions Precedent. In the event any of the conditions set forth in Section 5.1 or 5.2 do not occur as of the Closing Date, or such earlier date as may be set forth above, or have not been waived in writing by Buyer or Seller, respectively, the party for whose benefit the failed condition exists may terminate this Agreement by written notice to the other party, the Deposit will be returned to Buyer, and neither party shall have any further obligation to the other, other than as stated in the Agreement. Buyer and Seller may, at their election, at any time or times on or before the Closing Date, waive in writing the benefit of any of the conditions set forth in Section 5.1 or 5.2. A party’s waiver of any condition to the Closing shall not constitute a waiver by that party of any other unsatisfied conditions, or of such party’s right to terminate this Agreement based on said other unsatisfied conditions, unless such waiver is specified in writing by such party.

ARTICLE 6

ESCROW AND CLOSING

Section 6.1 Escrow. The Escrow contemplated by this Agreement shall be opened by Buyer and Seller with Escrow Holder in accordance with Sections 2.3 and 2.5 herein. The Closing shall, at Seller’s election, be either by telephone, confirmed by letter or wire or conducted in person at the place designated by Seller and reasonably acceptable to Buyer.

Section 6.2 Deposits by Buyer. On or before the Closing Date (unless a specific delivery date is set forth below), Buyer shall deposit or cause to be deposited into Escrow:

(a) not later than 1:00 p.m. (eastern time) on the Closing Date, the Purchase Price, net of the Deposit, plus sufficient funds to pay Buyer’s share of all Escrow costs and closing expenses as set forth in Section 6.5 below by means of a wire transfer to Escrow Holder of U. S. Dollars in immediately available federal funds;

(b) a counterpart Assignment and Assumption of Assigned Rights and Obligations, executed by Buyer;

(c) a counterpart of a settlement statement prepared by the Escrow Holder; and

(d) such disclosures, reports or mortgage transfer affidavits as may be required by applicable state and local law in connection with the conveyance of the Loan.

Section 6.3 Deposits by Seller. On or before the Closing Date, Seller shall deposit in Escrow the following:

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(a) a counterpart Assignment and Assumption of Assigned Rights and Obligations, executed by Seller;

(b) an assignment of Seller’s beneficial interest under the Mortgage and the Assignment of Leases and Rents in the form of Exhibit D attached hereto to Buyer (“Assignment of Recorded Documents”), executed and acknowledged by Seller;

(c) a UCC-3 statement assigning the UCC-1 financing statement listed on Exhibit A attached hereto to Buyer (“UCC-3”) or written authorization from Seller pursuant to which Buyer can prepare and file the UCC-3;

(d) the original Note endorsed to the order of Buyer or Buyer’s designee, without recourse, representation or warranty pursuant to the Allonges in the forms of Exhibit E attached hereto and Exhibit E-1 attached hereto;

(e) a counterpart of a settlement statement prepare by the Escrow Holder; and

(f) such disclosures, reports or mortgage transfer affidavits as may be required by applicable state and local law in connection with the conveyance of the Loan.

Section 6.4 Delivery of Loan Documents. Seller agrees to deliver to Buyer or Buyer’s designee on or immediately following the Closing Date each original Loan Document and Seller’s original loan policy of title insurance in Seller’s possession (and copies of all Loan Documents of which Seller does not have originals, provided that Seller shall deliver to Buyer at Closing, the original Note and the originals of any guarantees with respect to the Loan).

Section 6.5 Closing Costs. Seller and Buyer shall each pay the fees and expenses of their respective legal counsel incurred in connection with this transaction. Escrow Holder’s fees for serving as escrow agent shall be paid by Buyer. Buyer shall pay all other title and escrow costs and expenses related to the transaction and the cost of any recordation or transfer fees and/or taxes associated with selling, transferring, and assigning the Loan, including, without limitation, recording an assignment of the mortgage or deed of trust which secures the Loan, assignments of any financing statements, and any fees and/or taxes associated with other transfer documents which are to be recorded in connection with the transactions contemplated hereby. The Purchase Price shall be absolutely net to Seller, and there shall be no prorations except as provided in Section 6.6 below. On or before the Closing Date, Buyer agrees to deposit with Escrow Agent cash in an amount sufficient to pay all costs to be paid by Buyer with respect to the Closing.

Section 6.6 Reserves and Impounds. Seller is currently holding funds in escrow for taxes in the amount set forth on Exhibit B. Any funds remaining in the tax escrow on the Closing Date shall be retained by Seller and credited against the Purchase Price at Closing.

Section 6.7 Loan Payments. Payments of principal and/or interest payable pursuant to the Loan or any of the Loan Documents shall be the property of Seller and shall not be prorated as between Buyer and Seller if received by Seller on or before the Closing Date. Buyer shall be entitled to any principal or interest paid prior to the Closing Date and attributable to the period after the Closing Date. If the Loan is repaid in full on or before the Closing Date, Seller shall be entitled to retain all of such payment, the Deposit shall be returned to Buyer, and this Agreement shall terminate. There shall be no proration of amounts due and payable under the Loan for the

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period prior to the Closing Date which have not been paid. To the extent Seller or any Related Persons of Seller (defined below) receives any such payments with respect to the Loan after the Closing Date, all such amounts shall be paid to the Buyer within ten (10) days after receipt. The provisions of this Section 6.7 shall survive Closing.

Section 6.8 Insured Collateral. Buyer is responsible for having itself substituted as loss payee on any collateral risk insurance in which Seller is currently listed as a loss payee. Any loss after the Closing to either Any Credit Party or to Buyer or to the value or collectability of the Loan due to Seller’s cancellation of collateral risk insurance or its failure to identify Buyer as loss payee is the sole responsibility of Buyer.

Section 6.9 Title Insurance. Seller shall have no responsibility for and shall have no obligation to pay any costs associated with transferring and obtaining any endorsements to any existing title policy or new title policy in connection with this transaction. Seller makes no assurance regarding the availability of any endorsements or accuracy or enforceability of any existing title policy.

Section 6.10 Notice to Borrower. On or before the Closing Date, Seller shall execute and cause to be delivered to each borrower under the Loan a Notice to Borrower in the form attached hereto as Exhibit F (“Notice to Borrower”), notifying such borrower(s) that the Note and Loan Documents for such borrower’s Loan have been assigned to Buyer and directing such borrower to make all further payments under the Loan to Buyer at the address set forth in the Notice to Borrower. Seller shall provide Buyer with a copy of the Notice to Borrower.

ARTICLE 7

FILES AND RECORDS; SERVICING

Section 7.1 Conformity to Law. Buyer agrees to abide by all applicable state and federal laws, rules and regulations regarding the handling and maintenance of all documents and records relating to the Loan purchased hereunder including, but not limited to, the length of time such documents and records are to be retained. The provisions of this Section 7.1 shall survive the Closing.

Section 7.2 Inspection by Seller. After the transfer of documents or files to Buyer pursuant to the terms of this Agreement, Buyer agrees that Seller shall have the continuing right to use, inspect, and make extracts from or copies of any such documents or records, in connection with any dispute or litigation related to the Collateral or the Loan in which Seller is a party, upon Seller’s reasonable notice to Buyer. The provisions of this Section 7.2 shall survive the Closing.

Section 7.3 Release of Servicing. Neither Seller nor any of its affiliates will continue to service the Loan after the Closing Date, and Seller will be automatically discharged from all obligations for servicing the Loan as of the Closing Date. Buyer acknowledges and agrees that Buyer shall be solely responsible for making any and all arrangements relating to the servicing of the Loan from and after the Closing Date.

ARTICLE 8

RELEASE AND INDEMNIFICATION OF SELLER

Section 8.1 Environmental Issues. Buyer expressly acknowledges that there may be certain environmental issues, risks, liabilities and/or contaminations with respect to the Collateral securing the payment of the Note. BUYER FURTHER ACKNOWLEDGES AND AGREES

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THAT SELLER HAS ADVISED BUYER THAT BUYER HAS BEEN GIVEN THE OPPORTUNITY TO INSPECT THE ENVIRONMENTAL ASSESSMENTS, IF ANY, HELD BY SELLER, AND THAT BUYER WILL BE RELYING SOLELY ON ITS OWN INVESTIGATIONS (OR HAS DECIDED TO PROCEED AT ITS OWN RISK WITHOUT ANY SUCH INVESTIGATIONS EVEN THOUGH SELLER HAS RECOMMENDED SUCH INVESTIGATIONS) OF THE COLLATERAL, AND BUYER HEREBY WAIVES, RELEASES AND AGREES NEVER TO ASSERT ANY RIGHTS OR CLAIMS AGAINST SELLER, OR ANY OF ITS AFFILIATES OR REPRESENTATIVES (INCLUDING, BUT NOT LIMITED TO, ANY RIGHT OR CLAIM FOR INDEMNIFICATION, REIMBURSEMENT OR CONTRIBUTION) ARISING FROM OR RELATED TO THE COLLATERAL OR ANY ENVIRONMENTAL REQUIREMENTS (AS DEFINED BELOW) OR ANY HAZARDOUS MATERIALS (AS DEFINED BELOW) ON, UNDER, ABOUT OR AROUND THE COLLATERAL. For purposes of this Agreement, the term “Hazardous Materials” means any substance which is or contains: (i) any “hazardous substance” as now or hereafter defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. §960 1 et seq.) (“CERCLA”) or any regulations promulgated under CERCLA; (ii) any “hazardous waste” as now or hereafter defined in the Resource Conservation and Recovery Act (42 U.S.C. §9601 et seq.) (“RCRA”) or regulations promulgated under RCRA; (iii) any substance regulated by the Toxic Substances Control Act (15 U.S. C. §260 1 et seq.); (iv) gasoline, diesel fuel, or other petroleum hydrocarbons; (v) asbestos and asbestos containing materials, in any form, whether friable or non-friable; (vi) polychlorinated biphenyls; (vii) radon gas; and (viii) any additional substances or materials which are now or hereafter classified or considered to be hazardous or toxic under Environmental Requirements (as defined below) or the common law, or any other applicable laws relating to the Collateral. Hazardous Materials shall include, without limitation, any substance, the presence of which on the Collateral, (A) requires reporting, investigation or remediation under Environmental Requirements; (B) causes or threatens to cause a nuisance on the Collateral or adjacent property or poses or threatens to pose a hazard to the health or safety of persons on the Collateral or adjacent property; or (C) which, if it emanated or migrated from the Collateral, could constitute a trespass. For purposes of this Agreement, the term “Environmental Requirements” means all laws, ordinances, statutes, codes, rules, regulations, agreements, judgments, orders, and decrees, now or hereafter enacted, promulgated, or amended, of the United States, the states, the counties, the cities, or any other political subdivisions in which the Collateral is located, and any other political subdivision, agency or instrumentality exercising jurisdiction over the owner or operator of the Collateral, or the use of the Collateral, relating to pollution, the protection or regulation of human health, natural resources, or the environment, or the emission, discharge, release or threatened release of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or waste or Hazardous Materials into the environment (including, without limitation, ambient air, surface water, ground water or land or soil).

Section 8.2 Release of Seller. Buyer hereby releases and forever discharges Seller, its agents, servants, directors, officers, employees, servicers, attorneys, successors, assigns and affiliates (all such persons being collectively referred to as the “Related Persons”), of and from any and all causes of action, claims, demands and remedies of whatsoever kind and nature that Buyer has or may in the future have against Seller or any Related Persons, and in any manner on account of, arising out of or related to the Loan purchased and the rights assigned hereunder except for claims or causes of action arising by reason of Seller’s breach of this Agreement (the “Released Matters”). It is the intention of Buyer that the foregoing general release shall be effective as a bar to all actions, causes of action, suits, claims or demands of every kind, nature or character whatsoever, known or unknown, suspected or unsuspected, fixed or contingent, arising out of or in connection with the Released Matters.

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Section 8.3 Indemnification.

(a) Subject to the provisions of Section 8.3(c), Buyer hereby agrees to indemnify, hold harmless and defend Seller and all Related Persons (collectively, the “Indemnified Parties”), and each of them, from and against any and all losses, causes of action, liabilities, claims, demands, obligations, damages, costs and expenses, including reasonable attorneys’ and accountants’ fees and costs, to which any of the Indemnified Parties may become subject on account of, arising out of, or related to any act, omission, conduct or activity of Buyer or any of its officers, directors, employees, agents, attorneys, servants, shareholders, successors or assigns, on account of, arising out or related to (i) this Agreement, including, without limitation, the exercise of Buyer’s due diligence rights hereunder, (ii) the Loan purchased, the rights assigned and the obligations assumed hereunder, and (iii) the use, ownership, control, operation or condition of Collateral securing the Loan purchased hereunder, including without limitation, the presence or release of any Hazardous Materials or any other hazardous or toxic fluids, substances or materials on, under or about such Collateral.

(b) Promptly after receipt by an Indemnified Party of notice of the commencement of any action to which this Section 8.3 shall apply, the Indemnified Party shall notify Buyer in writing of the commencement of such action and of the possibility of a claim by the Indemnified Party against Buyer under this Section; however, failure of the Indemnified Party to so notify Buyer will not relieve Buyer of liability hereunder. Buyer shall be entitled to participate in such action and may, with the consent of the Indemnified Party, assume the defense of such action with counsel selected by Buyer with the approval of the Indemnified Party. After Buyer’s assumption of the defense, Buyer shall not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defense of such action, unless (i) such expenses are incurred with the prior written approval of Buyer, or (ii) if the Indemnified Party reasonably determines that its interests may be adverse in whole or in part to those of Buyer and that there may be legal defenses available to the Indemnified Party that are different from, in addition to or inconsistent with defenses available to Buyer, in which case the Indemnified Party may retain its own counsel and be indemnified by Buyer for all legal and other expenses and costs reasonably incurred in connection with the investigation and defense of the action.

(c) Buyer shall not be liable for the settlement of any action if such settlement is effected without Buyer’s express written consent, which shall not be unreasonably withheld or delayed. If any action is settled with Buyer’s written consent or if there is a final judgment against the Indemnified Party in any action, Buyer shall indemnify, hold harmless and defend the Indemnified Party from and against all loss or liability incurred by reason of such settlement or judgment.

(d) Notwithstanding anything to the contrary in this Agreement, Seller shall continue to be entitled to the rights of indemnity, defense and to be held harmless provided to the “Lender” or any “Indemnitee” under and as defined in the Loan Documents; provided that nothing herein shall be construed to limit the right, title and interest of Buyer once Buyer has acquired the Loan and thereby become the “Lender” under and as defined in the Loan Documents, to all such rights of indemnity, defense and to be held harmless.

Section 8.4 Loan File. Seller has provided Buyer with access to copies of the Loan File. BUYER UNDERSTANDS AND ACKNOWLEDGES THAT, ALTHOUGH SELLER HAS ATTEMPTED TO PROVIDE BUYER ACCESS TO INFORMATION IN SELLER’S POSSESSION WHICH SELLER BELIEVED COULD BE RELEVANT, THE LOAN FILE WAS NOT PREPARED FOR BUYER OR TO BE RELIED UPON BY BUYER, THAT IT

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MAY BE INCOMPLETE AND OUTDATED AND MAY CONTAIN ERRORS, OMISSIONS, AND INACCURATE AND CONFLICTING INFORMATION, AND THAT SELLER HAS NOT ATTEMPTED TO VERIFY, CORRECT OR RECONCILE THE INFORMATION IN THE LOAN FILE. EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE 4, BUYER UNDERSTANDS AND ACKNOWLEDGES THAT ANY REPORT OR DOCUMENT IN THE LOAN FILE WHICH MAY BE PROVIDED BY SELLER IS BEING PROVIDED WITHOUT REPRESENTATION OR WARRANTY AS TO THE COMPLETENESS, ACCURACY OR SUFFICIENCY OF THE FACTS, ASSUMPTIONS OR CONCLUSIONS CONTAINED THEREIN; AND BUYER HEREBY WAIVES, RELEASES AND AGREES NEVER TO ASSERT ANY CLAIMS AGAINST SELLER, ITS RESPECTIVE REPRESENTATIVES OR THE PREPARERS OF THE LOAN FILE WHICH COULD BE ALLEGEDLY BASED UPON RELIANCE ON THE LOAN FILE. BUYER HAS BEEN AND IS HEREBY EXPRESSLY ADVISED BY SELLER TO CONDUCT AN INDEPENDENT INVESTIGATION WITH RESPECT TO THE IDENTIFICATION AND SUFFICIENCY OF THE COLLATERAL, THE VALUE AND CONDITION OF THE COLLATERAL, THE LIEN PRIORITY AND PERFECTION OF THE LOAN DOCUMENTS (INCLUDING, WITHOUT LIMITATION, OBTAINING TITLE SEARCHES AND/OR, IF OBTAINABLE, LENDER’S TITLE POLICY ENDORSEMENTS OR NEW LENDER’S TITLE POLICIES IN CONNECTION WITH THE COLLATERAL), THE FINANCIAL CONDITION AND MANAGEMENT ABILITY OF ANY CREDIT PARTY, THE VALIDITY AND ENFORCEABILITY OF THE LOAN DOCUMENTS AND ALL OTHER MATTERS) WHICH COULD AFFECT THE COLLECTABILITY AND VALUE OF THE NOTE AND OTHER LOAN DOCUMENTS, THE ASSIGNED RIGHTS AND OBLIGATIONS. If the Loan File were made available to Buyer through an electronic data room provided by Seller’s Broker, Seller agrees to maintain Buyer’s access to such electronic data room for at least ten (10) days after Closing.

ARTICLE 9

BREACH OF THE AGREEMENT

Section 9.1 Seller’s Breach. If Seller breaches this Agreement, the breach is discovered prior to Closing by Buyer and Buyer proceeds to close the transactions contemplated hereunder, Buyer shall have waived any and all damages resulting from Seller’s breach. If Seller breaches this Agreement and Buyer does not close the transactions contemplated hereunder, Buyer shall have the right, as its sole and exclusive remedy, to either: (a) commence an appropriate action for specific performance of Seller’s obligations under this Agreement within thirty (30) days after the scheduled Closing Date, and diligently prosecute the same; or (b) terminate this Agreement by giving written notice of the termination to Seller within two (2) Business Days after the Closing Date, whereupon neither party shall have any further rights or obligations under this Agreement (except for those which expressly survive the termination of this Agreement), and the Escrow Holder shall deliver the Deposit to Buyer, free of any claims by Seller. Buyer hereby waives any and all rights it may have at law or in equity to record a notice of pendency of action or similar notice on the title of any of the Collateral. In addition, Buyer may not recover any consequential, exemplary, incidental, special or punitive damages resulting from Seller’s breach of this Agreement. Buyer’s damages for such breach may not exceed the amount of the Deposit.

Section 9.2 Buyer’s Breach. If Buyer defaults under this Agreement prior to Closing, Seller’s sole and exclusive remedy at law or in equity shall be to terminate this Agreement and to retain the Deposit in accordance with Sections 2.4 and 9.3. If Buyer defaults under this Agreement after Closing, Seller may, at Seller’s option, pursue all of Seller’s rights and remedies that Seller may have under this Agreement and at law; provided that Seller may not

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recover any consequential, exemplary, incidental, special or punitive damages resulting from Buyer’s breach of this Agreement.

Section 9.3 Liquidated Damages. BUYER AND SELLER ACKNOWLEDGE AND AGREE THAT (a) IT WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT TO DETERMINE SELLER’S ACTUAL DAMAGES IN THE EVENT OF BUYER’S DEFAULT UNDER THIS AGREEMENT, AND (b) TAKING INTO ACCOUNT ALL OF THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE DEPOSIT IS A REASONABLE ESTIMATE OF SELLER’S ACTUAL DAMAGES IN SUCH EVENT. CONSEQUENTLY, IN THE EVENT OF BUYER’S DEFAULT UNDER THIS AGREEMENT PRIOR TO CLOSING, SELLER’ S SOLE AND EXCLUSIVE REMEDY AT LAW SHALL BE TO TERMINATE THIS AGREEMENT AND TO RECEIVE AND RETAIN THE DEPOSIT.

Initials:
Buyer	Seller

Section 9.4 No Personal Liability. In no event shall any shareholder, director, partner or officer of Seller or a Related Person be personally liable for any obligations of Seller under this Agreement.

Section 9.5 Damages Related To Collateral. Seller shall have no liability to Buyer with respect to any damage deriving from or related to the Collateral.

ARTICLE 10

NOTICES

Unless otherwise provided for herein, all notices and other communications required or permitted hereunder shall be in writing (including a writing delivered by facsimile transmission and simultaneously sent by regular mail) and shall be deemed to have been duly given (a) when delivered, if sent by registered or certified mail (return receipt requested), (b) when delivered, if delivered personally or by facsimile or (c) on the second following Business Day, if sent by overnight mail or overnight courier, in each case to the parties at the following addresses (or at such other addresses as shall be specified by like notice):

If to the Seller:	Capmark Bank
	230 W. Monroe, Suite 2420
	Chicago, IL 60606
	Attention:	Joe Forgue, Senior Vice President & Managing Director
	Fax No.:	(301) 845-8621
	With a copy to:
	Capmark Bank
	116 Welsh Road
	Horsham, PA 19044-8015
	Attention:	Jeff Alexander, Assistant General Counsel
	Fax No.:	(215) 328-0134
	With a copy to:

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	Capmark Finance Inc.
	1801 California Street, Suite 3900
	Denver, CO 80202
	Attention:	Shawn Henry, Senior Vice President
		US/European Capital Markets
	Fax No.:	(303) 672-8597
With a copy to:	Greenberg Traurig LLP
	3161 Michelson Drive, Suite 1000
	Irvine, California 92612
	Attention:	Scott A. Morehouse
	Fax No.:	(949) 266-9478
If to the Buyer:	Buyer’s notice address is set forth in Schedule 1 attached hereto

ARTICLE 11

MISCELLANEOUS PROVISIONS

Section 11.1 Waiver of Jury Trial. WITHOUT LIMITATION OF ANY OTHER COVENANT, RELEASE, REPRESENTATION OR WARRANTY OF BUYER OR SELLER OR ANY RIGHT OR REMEDY OF SELLER OR BUYER UNDER THIS AGREEMENT, AT LAW OR IN EQUITY, BUYER AND SELLER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THAT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION OR PROCEEDING ARISING IN ANY WAY IN CONNECTION WITH THIS AGREEMENT, ANY OF THE DOCUMENTS EXECUTED PURSUANT THERETO OR HERETO OR IN CONNECTION THEREWITH OR HEREWITH OR ANY OTHER STATEMENTS OR ACTIONS OF SELLER OR BUYER. BUYER AND SELLER EACH ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR SELLER AND BUYER TO ENTER INTO THIS AGREEMENT AND EACH SUCH DOCUMENT, AND THAT THIS WAIVER SHALL BE EFFECTIVE AS TO EACH OF THE DOCUMENTS AS IF FULLY INCORPORATED THEREIN.

Section 11.2 Severability. Each part of this Agreement is intended to be severable. If any term, covenant, condition or provision hereof is unlawful, invalid, or unenforceable for any reason whatsoever, and such illegality, invalidity, or unenforceability does not affect the remaining parts of this Agreement, then all such remaining parts hereof shall be valid and enforceable and have full force and effect as if the invalid or unenforceable part had not been included.

Section 11.3 Rights Cumulative: Waivers. The rights of each of the parties under this Agreement are cumulative and may be exercised as often as any party considers appropriate. The right of each of the parties hereunder shall not be capable of being waived or varied otherwise than by an express waiver or variation in writing. Any failure to exercise or any delay in exercising any of such rights shall not operate as a waiver or variation of that or any other such right. Any defective or partial exercise of any of such rights shall not preclude any other or further exercise of that or any other such right. No act or course of conduct or negotiation on the part of any party shall in any way preclude such party from exercising any such right or constitute suspension or any variation of any such right.

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Section 11.4 Headings. The headings of the Articles and Sections contained in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof.

Section 11.5 Construction. Unless the context otherwise requires, singular nouns and pronouns, when used herein, shall be deemed to include the plural of such noun or pronoun and pronoun of one gender shall be deemed to include the equivalent pronoun of the other gender.

Section 11.6 Assignment. Subject to Section 2.4, this Agreement may not be assigned by Buyer without the prior written consent of Seller, which consent Seller may grant or withhold in its sole and absolute discretion. Any attempted assignment by Buyer without the prior consent of Seller shall be voidable by Seller. Subject to the foregoing, this Agreement and the terms, covenants, conditions, provisions, obligations, undertakings, rights and benefits hereof, including the Exhibits hereto, shall be binding upon and shall inure to the benefit of, the undersigned parties and their respective heirs, executors, administrators, representatives, successors, and assigns.

Section 11.7 Prior Understandings. This Agreement supersedes any and all prior discussions and agreements between Seller and Buyer with respect to the purchase of the Loan and other matters contained herein, and this Agreement contains the sole and entire understanding between the parties hereto with respect to the transactions contemplated herein.

Section 11.8 Integrated Agreement. This Agreement and all Exhibits hereto constitute the final complete expression of the intent and understanding of Buyer and Seller. This Agreement shall not be altered or modified except by a subsequent writing, signed by Buyer and Seller.

Section 11.9 Counterparts. This Agreement may be executed by fax (if promptly followed by the original) and in any number of counterparts, each of which shall constitute one and the same instrument, and either party hereto may execute this Agreement by signing any such counterpart.

Section 11.10 Survival. Each and every covenant hereinabove made by the Buyer shall survive the Closing and shall not merge into the Closing Documents, but instead shall be independently enforceable.

Section 11.11 Governing Law. This Agreement shall be construed, and the rights and obligations of the Seller and the Buyer hereunder determined, in accordance with the local law of the State of Pennsylvania.

Section 11.12 Expenses. Except as expressly set forth to the contrary in this Agreement, each party hereto shall be responsible for and bear all of its own respective expenses, including without limitation, expenses of legal counsel, accountants, and other advisors, incurred at any time in connection with pursuing or consummating this Agreement and the transactions contemplated thereby.

Section 11.13 Publicity. Neither party to this Agreement shall release any information concerning the transaction contemplated by this Agreement to the public by any means including, but not limited to, a press release, or a tombstone or other advertisement, without the prior written consent and approval of the other party hereto.

18

Section 11.14 Brokers. Each party to this Agreement represents and warrants to the other that, in connection with the sale and purchase of the Loan, the party so representing and warranting has not dealt with any real estate broker, agent or finder, except that Seller has engaged Rock Apartment Advisors, as its broker (the “Seller’s Broker”), and Seller shall be responsible for any commission due Seller’s Broker in connection with this transaction pursuant to a separate written agreement between Seller and Seller’s Broker. Buyer and Seller shall indemnify and hold each other harmless against and from any inaccuracy in such representation. The rights, obligations, warranties and representations of the parties hereto under the provisions of this Section 11.14 survive Closing or any termination of this Agreement before Closing.

Section 11.15 Effectiveness of this Agreement. This Agreement shall not be deemed a contract binding upon Seller unless and until Seller shall have executed this Agreement.

Section 11.16 Confidentiality. In no event shall either party to this Agreement issue any press release to any media of general circulation regarding this Agreement or the transactions contemplated hereby (other than a press release providing that Buyer has acquired the Loan, which shall not disclose the terms of the acquisition) or otherwise disclose the terms and conditions of this Agreement; provided, however, that nothing herein shall be deemed to limit or impair in any way any party’s ability to disclose the details of the transaction contemplated hereby to its legal and financial advisors or as may be necessary pursuant to any court or governmental order or applicable law or in litigation, nor shall anything contained herein be deemed to limit or impair Seller’s notification of the proposed transaction or details thereof to other servicers, Seller, certificate holders or other parties relating to the servicing of the Loan. Notwithstanding the foregoing, no party hereunder shall have any liability by reason of the details of the transaction contemplated hereby becoming known by means beyond the reasonable control of such party. This Section shall be supplemental to and not in derogation of the provisions of any Confidentiality Agreement entered into between Buyer and Seller.

Section 11.17 Attorneys’ Fees. In the event any dispute between Buyer and Seller should result in arbitration or litigation, the prevailing party shall be reimbursed for all reasonable costs incurred in connection with such litigation, including, without limitation, reasonable attorneys’ fees.

Section 11.18 Not a Security. The Note shall not be deemed to be a “security” within the meaning of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

Section 11.19 Further Assurances. From and after the date of this Agreement, each party shall provide to the other party such other information regarding the Loan or the Collateral as the other party may reasonably request, and each party shall execute and deliver such other documents, deliver such other items and take such other actions as may be reasonably requested to allow the completion and consummation (or termination, as appropriate) of all tasks and the transactions contemplated by this Agreement.

Section 11.20 Time of Essence. All parties hereto agree that time is of the essence with respect to this Agreement.

[remainder of page left blank intentionally]

19

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

SELLER:
CAPMARK BANK,
a Utah industrial bank
By:	/s/ Authorized Person
	Name:
	Title:
BUYER:
RRE CRESTWOOD HOLDINGS, LLC, a Delaware limited liability company
By:	Resource Real Estate Opportunity OP, LP, its sole member
	By: Resource Real Estate Opportunity REIT, Inc., its general partner
	By:	/s/ Alan Feldman
	Name:	Alan Feldman
	Title:	CEO

Acceptance by Escrow Holder:

Land Services USA, Inc.
By:	/s/ Authorized Person
Name:
Title:

EXHIBIT A

LOAN DOCUMENTS

[LIST UNDER REVIEW]

1. Promissory Note A, dated November 30, 2007

2. Promissory Note B, dated November 30, 2007

3. Loan Agreement [3-Year Fixed Rate], dated November 30, 2007

4. Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing, dated November 30, 2007

5. Assignment of Leases and Rents, dated November 30, 2007

6. Guaranty (Exceptions to Nonrecourse Liability) by Philip P. Mulkey, dated November 30, 2007

7. Guaranty (Completion and Lien-free Performance) by Philip P. Mulkey, dated November 30, 2007

8. Guaranty (Full Payment and Performance) by Philip P. Mulkey, dated November 30, 2007

9. Rate Cap Provider - Consent and Acknowledgement, dated November 30, 2007

10. Assignment of Interest Rate Cap as Collateral, dated November 30, 2007

11. Rate Protection Transaction Letter dated November 30, 2007 from SMBC Derivative Products Limited

12. Confirmation letter dated December 11, 2007 from Sumitomo Mitsui Banking Corporation Europe Limited

13. Environmental Indemnity Agreement by CV Apartments, LLC and Philip P. Mulkey, dated November 30, 2007

14. Assignment of Property Management Contract and Subordination of Management Fees by CV Apartments, LLC and MDIC Management, L.L.C., dated November 30, 2007

EX-10.9

Exhibit 10.9

LOAN AGREEMENT

[3-Year Fixed Rate]

BETWEEN

CV APARTMENTS, LLC, AN ALABAMA LIMITED LIABILITY COMPANY

AS BORROWER

AND

CAPMARK BANK, A UTAH INDUSTRIAL BANK

AS LENDER

DATED AS OF November 30, 2007

Loan A Number: 58795

Loan B Number: 58798

ARTICLE 1	DEFINED TERMS AND CONSTRUCTION GUIDELINES	7
1.01.	Defined Terms	7
1.02.	General Construction	7
ARTICLE 2	MAXIMUM LOAN AMOUNT; PAYMENT TERMS; ADVANCES	8
2.01.	Commitment to Lend	8
2.02.	Calculation of Interest	11
2.03.	Payment of Principal and Interest	14
2.04.	Payments Generally	15
2.05.	Prepayment Rights	16
2.06.	Exit Fee	18
2.07.	Interest Rate Cap/Hedge	18
ARTICLE 3	INTENTIONALLY OMITTED	20
ARTICLE 4	ESCROW AND RESERVE REQUIREMENTS	20
4.01.	Creation and Maintenance of Escrows and Reserves	20
4.02.	Tax Escrow	21
4.03.	Insurance Premium Escrow	22
4.04.	Intentionally Omitted	23
4.05.	Immediate Repair Reserve Account	23
4.06.	Replacement Reserve Account	23
ARTICLE 5	COMPLETION OF REPAIRS RELATED TO RESERVE ACCOUNTS; CONDITIONS TO RELEASE OF FUNDS	24
5.01.	Conditions Precedent to Disbursements from Certain Reserve Accounts	24
5.02.	Waiver of Conditions to Disbursement	26
5.03.	Direct Payments to Suppliers and Contractors	26
5.04.	Performance of Reserve Items	26
ARTICLE 6	LOAN SECURITY AND RELATED OBLIGATIONS	28
6.01.	Security Instrument and Assignment of Rents and Leases	28
6.02.	Assignment of Property Management Contract	28
6.03.	Assignment of Rate Cap Agreement	28
6.04.	Assignment of Operating Agreements	28
6.05.	Pledge of Property; Grant of Security Interest	28

-i-

6.06.	Environmental Indemnity Agreement	28
6.07.	Guaranty of Borrower Sponsors	29
ARTICLE 7	SINGLE PURPOSE ENTITY REQUIREMENTS	29
7.01.	Commitment to be a Single Purpose Entity	29
7.02.	Definition of Single Purpose Entity	29
7.03.	Lender’s Acknowledgement	33
ARTICLE 8	REPRESENTATIONS AND WARRANTIES	33
8.01.	Organization; Legal Status	34
8.02.	Power; Authorization; Enforceable Obligations	34
8.03.	No Legal Conflicts	34
8.04.	No Litigation	34
8.05.	Business Purpose of Loan	334
8.06.	Warranty of Title	35
8.07.	Condition of the Property	35
8.08.	No Condemnation	35
8.09.	Requirements of Law	35
8.10.	Operating Permits	35
8.11.	Separate Tax Lot	36
8.12.	Flood Zone	36
8.13.	Adequate Utilities	36
8.14.	Public Access	36
8.15.	Boundaries	36
8.16.	Mechanic Liens	36
8.17.	Assessments	36
8.18.	Insurance	36
8.19.	Leases	36
8.20.	Management Agreement	37
8.21.	Financial Condition	37
8.22.	Taxes	37
8.23.	No Foreign Person	37
8.24.	Federal Regulations	37
8.25.	Investment Company Act; Other Regulations	37
8.26.	ERISA	38

ii

8.27.	No Illegal Activity as Source of Funds	38
8.28.	Compliance with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering Laws	38
8.29.	Brokers and Financial Advisors	38
8.30.	Equity Contribution	38
8.31.	Complete Disclosure; No Change in Facts or Circumstances	38
8.32.	Survival	38
ARTICLE 9	BORROWER COVENANTS	39
9.01.	Payment of Debt and Performance of Obligations	39
9.02.	Payment of Taxes and Other Lienable Charges	39
9.03.	Insurance	40
9.04.	Obligations upon Condemnation or Casualty	44
9.05.	Inspections and Right of Entry	49
9.06.	Leases and Rents	49
9.07.	Use of Property	51
9.08.	Maintenance of Property	51
9.09.	Waste	51
9.10.	Compliance with Laws, Licenses, Permits and Other Approvals	51
9.11.	Financial Reports, Books and Records	52
9.12.	Performance of Other Agreements	53
9.13.	Existence; Change of Name; Location as a Registered Organization	54
9.14.	Property Management	54
9.15.	ERISA	55
9.16.	Compliance with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering Laws	55
9.17.	Net Worth Covenant	55
9.18.	Liquidity Covenant	56
9.19.	Additional Guarantor	56
ARTICLE 10	NO TRANSFERS OR ENCUMBRANCES; DUE ON SALE	56
10.01.	Prohibition Against Transfers	56
10.02.	Lender Approval	56
10.03.	Other Releases of the Mortgaged Property	57

iii

10.04.	OFAC Compliance; Substantive Consolidation Opinion	57
10.05.	Death or Incapacity of Guarantor	57
ARTICLE 11	EVENTS OF DEFAULT; REMEDIES	58
11.01.	Events of Default	58
11.02.	Remedies	60
11.03.	Cumulative Remedies; No Waiver; Other Security	62
11.04.	Enforcement Costs	63
11.05.	Application of Proceeds	63
ARTICLE 12	NONRECOURSE – LIMITATIONS ON PERSONAL LIABILITY	63
12.01.	Nonrecourse Obligation	63
12.02.	Full Personal Liability	63
12.03.	Personal Liability for Certain Losses	64
12.04.	No Impairment	65
12.05.	No Waiver of Certain Rights	65
ARTICLE 13	INDEMNIFICATION	65
13.01.	Indemnification Against Claims	65
13.02.	Duty to Defend	66
ARTICLE 14	SUBROGATION; NO USURY VIOLATIONS	67
14.01.	Subrogation	67
14.02.	No Usury	67
ARTICLE 15	SALE OR SECURITIZATION OF LOAN	67
15.01.	Splitting the Note	67
15.02.	Lender’s Rights to Sell or Securitize	68
15.03.	Dissemination of Information	69
15.04.	Reserve Accounts	69
ARTICLE 16	BORROWER FURTHER ACTS AND ASSURANCES PAYMENT OF SECURITY RECORDING CHARGES	69
16.01.	Further Acts	69
16.02.	Replacement Documents	69
16.03.	Borrower Estoppel Certificates	70
16.04.	Recording Costs	70
16.05.	Publicity	71

iv

ARTICLE 17	LENDER CONSENT	71
17.01.	No Joint Venture; No Third Party Beneficiaries	71
17.02.	Lender Approval	71
17.03.	Performance at Borrower’s Expense	71
17.04.	Non-Reliance	72
ARTICLE 18	MISCELLANEOUS PROVISIONS	72
18.01.	Notices	72
18.02.	Entire Agreement; Modifications; Time of Essence	73
18.03.	Binding Effect; Joint and Several Obligations	73
18.04.	Duplicate Originals; Counterparts	73
18.05.	Unenforceable Provisions	74
18.06.	Governing Law	74
18.07.	Consent to Jurisdiction	74
18.08.	WAIVER OF TRIAL BY JURY	74
ARTICLE 19	LIST OF DEFINED TERMS	74
19.01.	Definitions	74

v

LOAN AGREEMENT

(3-Year Fixed Rate Loan)

THIS LOAN AGREEMENT is made as of this 30^th day of November, 2007 by CV APARTMENTS, LLC, an Alabama limited liability company (“Borrower”), as borrower, and CAPMARK BANK, a Utah industrial bank (together with its successors and assigns “Lender”), as lender.

Background

Borrower desires to obtain a commercial mortgage loan from Lender in the original principal amount of up to $11,000,000 in lawful money of the United States of America. Lender is willing to make such loan to Borrower on the terms and conditions set forth in this Loan Agreement.

Agreement

NOW, THEREFORE, in consideration of such loan and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, Borrower and Lender agree as follows:

ARTICLE 1

DEFINED TERMS AND CONSTRUCTION GUIDELINES

1.01. Defined Terms. Each defined term used in this Loan Agreement has the meaning given to that term in Article 19 of this Loan Agreement unless otherwise stated in any other provision hereof.

1.02. General Construction. Defined terms used in this Loan Agreement may be used interchangeably in singular or plural form, and pronouns are to be construed to cover all genders. All references to this Loan Agreement or any agreement or instrument referred to in this Loan Agreement shall mean such agreement or instrument as originally executed and as hereafter amended, supplemented, extended, consolidated, restated or reinstated from time to time. The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Loan Agreement as a whole and not to any particular subdivision; and the words “Article” and “section” refer to the entire article or section, as applicable and not to any particular subsection or other subdivision. Reference to days for performance means calendar days unless Business Days are expressly indicated.

ARTICLE 2

MAXIMUM LOAN AMOUNT; PAYMENT TERMS; ADVANCES

2.01. Commitment to Lend.

(a) Maximum Loan Amount Approved. Subject to the terms and conditions set forth herein, and in reliance on Borrower’s representations, warranties and covenants set forth herein, Lender agrees to loan the Maximum Loan Amount to Borrower. The Loan shall be evidenced by this Loan Agreement and by the Note made by Borrower to the order of Lender and shall bear interest and be paid upon the terms and conditions provided herein.

(b) Initial Advance of Maximum Loan Amount; Future Advances. On the Closing Date, Lender shall make an initial advance of a portion of the Maximum Loan Amount in the amount of $6,825,000 (“Initial Advance”), which Initial Advance is evidenced by Note A and $4,175,000 of which shall be evidenced by Note B. Borrower shall be entitled to future Note B Advances subject to the terms and conditions set forth in Sections 2.01 (c) and (d).

(c) Debt-Service Advance.

(i) Advance Amount and Use. Upon satisfaction (or waiver in writing by Lender) of conditions set forth in this subsection (c), Lender shall make advances (each, a “Debt Service Advance”) to Borrower in the aggregate amount of up to $434,000 (the “Maximum Debt Service Advance Amount”) to be used exclusively for the purpose of paying the accrued interest and deposits to Reserve Accounts due from Borrower on a Payment Due Date in accordance with this Loan Agreement. Each Debt Service Advance shall be considered an advance of the Maximum Loan Amount, shall be added to the unpaid principal balance of the Loan as of the day such advance is made for purposes of Borrower’s payment obligations under this Loan Agreement, and repayment thereof, together with interest thereon, shall be secured by the Security Instrument and other collateral given for the Loan.

(ii) Debt Service Advance on Payment Due Date. Lender shall, provided Lender receives written request from Borrower delivered not later than five (5) Business Days prior to the pending Payment Due Date, make a Debt Service Advance to Borrower on such Payment Due Date. The amount of such Debt Service Advance shall be in the amount requested by Borrower, not to exceed the actual shortfall in Cash Flow Available for Debt Service generated by the Property in the month that precedes such Payment due Date by two (2) months (e.g., for a payment date in July, the relevant actual shortfall in Cash Flow Available for Debt Service would be based on the actual shortfall in May) for Borrower to pay, in full, the principal installment, accrued interest and deposits to Reserve Accounts due from Borrower under this Loan on such Payment Due Date in accordance with this Loan Agreement. Each Borrower request for an advance shall include a Compliance Certificate. Lender’s failure to make a Debt Service Advance shall not relieve Borrower of its obligation to pay all amounts due

8

Lender in accordance with this Loan Agreement on any Payment Due Date. Borrower acknowledges that Lender has no obligation to advance more than the remaining balance of the Maximum Debt Service Advance Amount if such amount is less than the full payment due or requested. No Event of Default shall exist on the date of the request for advance and on the date the disbursement is actually made.

(d) Capital Improvements Advances.

(i) Capital Improvements Advance Amount. Upon satisfaction (or waiver in writing by Lender) of the conditions set forth in this subsection, Lender shall make advances (each, a “Capital Improvements Advance”) to Borrower in the aggregate amount of up to $3,741,000 (the “Maximum Capital Improvements Advance Amount”) to be used exclusively for the purpose of paying for the cost of the Capital Improvements that Borrower has been required to make as a condition to the Loan. Each Capital Improvements Advance shall be considered an advance of the Maximum Loan Amount, shall be added to the unpaid principal balance of the Loan as of the day such advance is made for purposes of Borrower’s payment obligations under this Loan Agreement, and repayment thereof, together with interest thereon, shall be secured by the Security Instrument and other collateral given for the Loan. Each Capital Improvements Advance shall be in a minimum amount of $100,000 and Lender shall not be required to make more than one (1) such advance during any calendar month.

(ii) Completion of Capital Improvements. Borrower agrees to complete the Capital Improvements diligently and expediently but, in any event, no later than the earlier of (A) the date that is eighteen (18) months from the date hereof, or (B) the applicable completion date identified for such work on the applicable Exhibit to this Loan Agreement identifying the Capital Improvements. Performance and completion of the Capital Improvements shall be subject to all requirements and conditions forth in Article 5 hereof pertaining to Reserve Items (provided that, if an inconsistency exists between the conditions set forth in Article 5 and this Section 2.01 (d), this Section 2.01 (c) shall govern). Should an Event of Default occur as a result of Borrower’s failure to perform the Capital Improvements, then, in addition to all of Lender’s rights and remedies, Lender shall have the right to advance a portion or all of the unadvanced Maximum Capital Improvements Advance Amount and use such funds to complete the Capital Improvements (but Lender shall not be obligated to do so).

(iii) Capital Improvements Advance. Lender shall make the Capital Improvements Advances to Borrower upon satisfaction of all requirements and conditions set forth in Article 5 (provided that, if an inconsistency exists between the conditions set forth in Article 5 and this Section 2.01 (c), this Section 2.01 (c) shall govern) hereof pertaining to Reserve Items as if each Capital Improvements Advance was a disbursement from the Replacement Reserve Account.

(iv) Surplus Funds after Completion of Capital Improvements. Notwithstanding any provision of this Loan Agreement to the contrary, Lender shall not be obligated to advance any surplus to Borrower of the Capital Improvements Advances after full payment of the costs to complete the Capital Improvements.

9

(e) Event of Default; No Waiver; Additional Conditions. Lender shall have no obligation to advance any Note B Advance at any time during which an Event of Default exists or if any event or condition exists that would be an Event of Default if notice had been given or applicable grace/cure periods had expired (or both). The making of any advance by Lender at the time when a default or Event of Default exists shall not be deemed a waiver or cure by Lender of that default or Event of Default, nor shall Lender’s rights and remedies be prejudiced in any manner thereby. Lender shall have no obligation to advance any Note B Advance after the thirty-fifth (35^th) Payment Due Date. Borrower shall pay for all of Lender’s costs and expenses in connection with such advance. Amounts advanced and repaid cannot be re-borrowed.

(f) Separate Contract for Note B Advances. Lender’s obligations to perform in accordance with Section 2.01(c) and (d) of this Loan Agreement and to make any Note B Advance in accordance with the terms and provisions of this Loan Agreement are an independent contract made by Lender to Borrower separate and apart from any other obligation of Lender to Borrower under the other provisions of this Loan Agreement and the other Loan Documents. The obligations of Borrower under this Loan Agreement and the other Loan Documents shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower, or any other party, against Lender by reason of Lender’s failure to perform its obligations under Section 2.01(c) and (d). Borrower acknowledges that Lender has the right, as Lender determines in its sole discretion, to include Note A (or any portion thereof), any Conversion Note (or any portion thereof), and Note B (or any portion thereof) in separate sales or Securitizations undertaken by Lender and in connection with such sales or Securitizations all of the terms and provisions contained in this Loan Agreement and the Loan Documents shall continue in full force and effect. Without limiting the foregoing Lender may (a) allocate specific collateral given for the Loan as security for performance of Note A, any Conversion Note, and/or Note B, and/or (b) at Lender’s option bifurcate Note A (or any portion thereof), any Conversion Note (or any portion thereof), and/or Note B (or any portion thereof), and/or (c) consolidate Note A (or any portion thereof) with Note B (or any portion thereof) or any Conversion Note (or any portion thereof). Borrower agrees to cooperate with all requests of Lender to accomplish the foregoing, including, without limitation, execution and prompt delivery to Lender of modifications to the Loan Documents as Lender shall reasonably require. Borrower’s failure to deliver any of the documents required by Lender hereunder for a period of ten (10) Business Days after such notice by Lender shall, at Lender’s option, constitute an Event of Default hereunder. Notwithstanding anything to the contrary contained herein, the holder of Note A or any Conversion Note shall have no obligation hereunder to make any Note B Advance, it being acknowledged that the obligation to make any Note B Advance shall solely be the obligation of the holder of Note B. No claim may be made by Borrower against the holder of Note A, the holder of any Conversion Note or the directors, officers, employees, attorneys or agents of any of the holder of Note A or the holder of any Conversion Note for any damages of any nature whatsoever in respect of any claim whatsoever for breach of any holder of Note B’s obligations to make a Note B Advance in accordance with the terms hereof, and Borrower hereby waives, releases and agrees not to sue the holder of Note A or the holder of any Conversion Note upon any claim for any such damages. All Note B Advances shall be evidenced by Note B. Any obligations

10

and rights relating to Note B Advances pursuant to this Section 2.01 shall be the sole obligations and rights of the holder of Note B, and any reference to Lender in this Section 2.01 relating to any Note B Advance shall be deemed to mean the holder of Note B.

(g) Loan in Balance; Performance Criteria.

(i) Loan In Balance. Notwithstanding anything herein to the contrary, the Loan shall be “in balance” at all times. Borrower shall upon Lender’s request demonstrate to Lender’s satisfaction that the projected gross operating income of the Property together with all unadvanced portions of the Debt Service Advance and Capital Improvements Advance is sufficient to pay in full all Operating Expenses, Leasing Commissions, Tenant Improvements, Capital Improvements, debt service payments and all other amounts under this Loan Agreement when due. If Lender shall determine in its sole but reasonable discretion that the projected gross operating income from the Property together with all unadvanced portions of the Debt Service Advance and Capital Improvements Advance will not be sufficient to pay such amounts, Borrower shall, within ten (10) Business Days after Lender’s notice, deposit with Lender the cash in the amount of such deficiency (a “Balance Deficiency Deposit”), and no further Note B Advance will be made until such funds are deposited. Amounts held by Lender as the Balance Deficiency Deposit shall be disbursed subject to the requirements and conditions set forth in Section 2.01(c) for any Debt Service Advance or in Section 2.01 (d) for any Capital Improvements Advance, as applicable, prior to the making of any Note B Advances.

(ii) Performance Criteria. Borrower shall upon Lender’s request demonstrate to Lender’s satisfaction that the Property is satisfying the Performance Criteria. If Lender shall determine in its sole but reasonable discretion that the Performance Criteria is not satisfied, at Lender’s election either (A) Borrower shall deposit with Lender on each Payment Due Date thereafter all Excess Cash Flow until such time as the Performance Deficiency Satisfaction Amount has been deposited with Lender and, if requested by Lender, enter into a cash management arrangement acceptable to Lender pursuant to which all Rents shall be deposited directly into an account controlled by Lender or (B) within ten (10) Business Days after Lender’s request Borrower shall deposit with Lender cash in the amount of the Performance Deficiency Satisfaction Amount. Provided no Event of Default then exists, any cash deposited with Lender pursuant to this Section 2.01(g)(ii) shall be returned to Borrower if the Performance Criteria has thereafter been satisfied (as determined by Lender in its sole and absolute discretion).

2.02. Calculation of Interest.

(a) Calculation Basis. Interest due on the Loan shall be calculated (i) with respect to Note A and the Conversion Notes, based on a 360-day year paid in arrears and paid for the actual number of days elapsed for any whole or partial month in which interest is being calculated and (ii) with respect to Note B, for each Interest Accrual Period, calculated based on a 360-day year and paid for the actual number of days elapsed for any whole or partial month in which interest is being calculated.

11

(b) Applicable Interest Rate and Interest Rate Adjustment Date.

(i) Interest shall accrue on the outstanding principal of Note A at the rate of six percent (6.0%) per annum (“Note A Applicable Interest Rate”).

(ii) Interest shall accrue on the outstanding principal of Note B at the rate equal to the LIBOR Rate for a LIBOR Term of one (1) month plus two percent (2%) (“Margin”) per annum (“Note B Applicable Interest Rate”). Adjustments to the Note B Applicable Interest Rate in connection with changes in the LIBOR Rate shall be made on the Interest Rate Adjustment Date and effective as of the first day of the applicable Interest Accrual Period, except that the initial Note B Applicable Interest Rate shall be determined two (2) Business Days prior to the Closing Date.

(iii) On each of the thirteenth (13th) and twenty-fifth (25th) Payment Due Dates (each a “Conversion Date”), Borrower shall have the option to convert the entire then advanced and outstanding principal balance of Note B that has not previously been converted, to a note bearing interest at a fixed interest rate equal to the then applicable Conversion Applicable Interest Rate, in each case subject to satisfaction of the following conditions:

(A) Borrower delivers written notice to Lender not more than sixty (60) days and not less than thirty (30) days prior to the applicable Conversion Date that Borrower is exercising its conversion option.

(B) No Event of Default exists and no event or condition exists that would be an Event of Default if notice had been given or applicable grace/cure periods had expired (or both), as of the date Borrower elects to exercise the conversion option and as of the relevant Conversion Date.

(C) Borrower executes and delivers to Lender on or prior to each applicable Conversion Date replacement notes in form and substance reasonably satisfactory to Lender (1) (x) with respect to the first Conversion Date, a Conversion Note known as Note A-2 reflecting the outstanding principal balance being then converted to fixed rate subject to the applicable Conversion Applicable Interest Rate and (y) with respect to the second Conversion Date, a Conversion Note known as Note A-3 reflecting the outstanding principal balance being then converted to fixed rate subject to the applicable Conversion Applicable Interest Rate (each a “Conversion Note” and collectively, the “Conversion Notes”), (2) with respect to the first Conversion Date, a replacement note for Note A, re-designating Note A as Note A-1, and (3) a replacement Note B, reflecting the remaining unadvanced principal balance of Note B.

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(E) Borrower executes and delivers to Lender an amendment to this Loan Agreement acceptable to Lender in all respects, if required by Lender to reflect the Conversion Notes and such other matters as Lender may require.

(F) Borrower reimburses Lender for all costs reasonably incurred by Lender in processing the conversion option request (whether or not such request is granted by Lender), including without limitation, reasonable legal fees and expenses.

(G) Interest shall accrue on the outstanding principal of the Conversion Notes at the rate equal to the applicable Conversion Applicable Interest Rate.

(c) LIBOR Unascertainable. Lender’s obligation to maintain interest based on the LIBOR Rate with respect to Note B or to determine the One Year LIBOR Rate with respect to calculating any Conversion Applicable Interest Rate, shall be suspended and the Applicable Interest Rate in question shall be based on the Interest Rate Index (plus Margin) upon Lender’s determination, in good faith, that adequate and reasonable means do not exist for ascertaining the LIBOR Rate or the One Year LIBOR Rate or that a contingency has occurred which materially and adversely affects the London Interbank Eurodollar Market at which Lender prices loans (which determination by Lender shall be conclusive and binding on Borrower in the absence of manifest error). Computation of the Applicable Interest Rate based on the Interest Rate Index (plus Margin) shall continue until Lender determines that the circumstances giving rise to Lender’s substitution of the Interest Rate Index for the LIBOR Rate or the One Year LIBOR Rate no longer exist. Lender shall promptly notify Borrower of each such determination.

(d) Adjustment Due to Calculation Errors. If, at any time, Lender determines that it has miscalculated the Note B Applicable Interest Rate (whether because of a miscalculation of the LIBOR Rate or otherwise), Lender shall notify Borrower of the necessary correction. If the corrected Note B Applicable Interest Rate represents an increase in the applicable monthly payment, Borrower shall, within ten (10) days thereafter, pay to Lender the corrected amount. If the corrected Note B Applicable Interest Rate represents an overpayment by Borrower to Lender and no Event of Default then exists, Lender shall refund the overpayment to Borrower or, at Lender’s option, credit such amounts against Borrower’s monthly payment next due hereunder.

(e) Adjustment for Impositions on Loan Payment. All payments made by Borrower under this Loan Agreement and under the other Loan Documents shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, and all liabilities with respect thereto, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority (all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions, withholdings and liabilities, collectively, “Applicable Taxes”). If Borrower shall be required by law to deduct any Applicable Taxes from or in respect of any sum payable hereunder to Lender,

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the following shall apply: (i) Borrower shall make all such required deductions and shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable law, and (ii) the sum payable to Lender shall be increased in an amount determined by Lender in its sole discretion, as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.02(e)), Lender receives an amount equal to the sum Lender would have received had no such deductions been made. Payments made pursuant to this Section 2.02(e) shall be made within ten (10) Business Days after Lender makes written demand therefor.

(f) Increased Costs of Maintaining Interest. Borrower shall pay to Lender all Funding Losses incurred from time to time by Lender upon demand. Lender shall deliver to Borrower a statement for any such sums to which Lender is entitled to receive pursuant to this Section 2.02(f), which statement shall be binding and conclusive absent manifest error. Payment of Funding Losses hereunder shall be in addition to any obligation to pay Base Interest Rate Maintenance and Spread Maintenance under Section 2.05(c) in circumstances where such Base Interest Rate Maintenance and Spread Maintenance would be due and owing.

(g) Acceleration. Notwithstanding anything to the contrary contained herein, if Borrower is prohibited by law from paying any amount due to Lender under Section 2.02(e) or (f), Lender may elect to declare the unpaid principal balance of the Loan, together with all unpaid interest accrued thereon and any other amounts due hereunder, due and payable within one hundred twenty (120) days of Lender’s written notice to Borrower. No Base Interest Rate Maintenance, Spread Maintenance or Exit Fee shall be due in such event. Lender’s delay or failure in accelerating the Loan upon the discovery or occurrence of an event under Section 2.02(e) or (f) shall not be deemed a waiver or estoppel against the exercise of such right.

2.03. Payment of Principal and Interest.

(a) Payment at Closing. If the Loan is funded on a date other than the first (1^st) day of a calendar month, Borrower shall pay to Lender at the time of funding of the Loan (i) with respect to Note A, an interest payment calculated by multiplying (x) the number of days from and including the date of funding to (but excluding) the first (1st) day of the next calendar month by (y) a daily rate based on the Note A Applicable Interest Rate and calculated as set forth above and then multiplying the product so obtained by the outstanding principal amount of Note A, and (ii) with respect to Note B, an interest payment calculated by multiplying (x) the number of days from and including the date of funding to (but excluding) the first (1st) day of the next calendar month by (y) a daily rate based on the Note B Applicable Interest Rate effective on the Closing Date and then multiplying the product so obtained by the outstanding amount of Note B.

(b) Payment Dates. Commencing on the first (1st) day of January, 2008 and continuing on the first (1st) day of each and every successive month thereafter, (provided that, if the first (1st) day of any month is not a Business Day, such payment shall be due and payable on the immediately succeeding Business Day (each, a “Payment

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Due Date”)) through and including the Payment Due Date immediately prior to the Maturity Date, Borrower shall pay consecutive monthly payments of interest only (together with any amounts due pursuant to Section 2.02 of this Loan Agreement), (i) with respect to Note A, at a rate per annum equal to the Note A Applicable Interest, (ii) with respect to Note B, at the Note B Applicable Interest Rate determined on the immediately preceding Interest Rate Adjustment Date, based on principal of Note B advanced and outstanding during the Interest Accrual Period in which the applicable Payment Due Date occurs, and (iii) with respect to any Conversion Note, in an amount determined by Lender based upon the Conversion Applicable Interest Rate applicable to such Conversion Note as determined above.

(c) Maturity Date. On the first (1st) day of December, 2010 (“Maturity Date”), Borrower shall pay the entire outstanding principal balance of the Loan, together with all accrued but unpaid interest thereon through the end of the then current Interest Accrual Period and all other amounts due under this Loan Agreement, the Note or any other Loan Document; provided that, if the first (1st) day of such month is not a Business Day, such payment shall be due and payable on the immediately succeeding Business Day.

2.04. Payments Generally.

(a) Delivery of Payments. All payments due to Lender under this Loan Agreement and the other Loan Documents are to be paid in immediately available funds to Lender at Lender’s office located at 116 Welsh Road, P.O. Box 809, Horsham, Pennsylvania 19044, Attn: Servicing - Accounting Manager, or at such other place as Lender may designate to Borrower in writing from time to time. All amounts due under this Loan Agreement and the other Loan Documents shall be paid without setoff, counterclaim or any other deduction whatsoever.

(b) Credit for Payment Receipt. No payment due under this Loan Agreement or any of the other Loan Documents shall be deemed paid to Lender until received by Lender at its designated office on a Business Day prior to 2:00 p.m. Eastern Standard Time. Any payment received after the time established by the preceding sentence shall be deemed to have been paid on the immediately following Business Day. Each payment that is paid to Lender within ten (10) days prior to the date on which such payment is due, and prior to its scheduled Payment Due Date, shall not be deemed a prepayment and shall be deemed to have been received on the Payment Due Date solely for the purpose of calculating interest due.

(c) Invalidated Payments. If any payment received by Lender is deemed by a court of competent jurisdiction to be a voidable preference or fraudulent conveyance under any bankruptcy, insolvency or other debtor relief law, and is required to be returned by Lender, then the obligation to make such payment shall be reinstated, notwithstanding that the Note may have been marked satisfied and returned to Borrower or otherwise canceled, and such payment shall be immediately due and payable upon demand.

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(d) Late Charges. If any payment due on a Payment Due Date is not received by Lender in full on or before the Payment Due Date, Borrower shall pay to Lender, immediately and without demand, a late fee equal to five percent (5%) of such delinquent amount.

(e) Default Interest Rate. If the Loan is not paid in full on or before the Maturity Date or if the Loan is accelerated following an Event of Default or if an Event of Default exists, the interest rate then payable on the Loan shall immediately increase with respect to each Note to the Applicable Interest Rate for such Note plus five hundred (500) basis points (the “Default Rate”) and continue to accrue at the Default Rate until full payment is received or such Event of Default is waived in writing by Lender. In addition, Lender shall have the right, without acceleration of the Loan, to collect interest at the Default Rate on any payment due hereunder (including, without limitation, late charges and fees for legal counsel) which is not received by Lender on or before the date on which such payment originally was due. Interest at the Default Rate also shall accrue on any judgment obtained by Lender in connection with collection of the Loan or enforcement of any obligations due under the other Loan Documents until such judgment amount is paid in full.

(f) Application of Payments. Payments of principal and interest due from Borrower shall be applied first to the payment of late fees, then to Lender advances made to protect the Property or to perform obligations which Borrower failed to perform, then to the payment of accrued but unpaid interest (including, without limitation, any interest at the Default Rate), and then to reduction of the outstanding principal. All payments will be applied to Note A, any Conversion Note, and Note B, as determined by Lender. If at any time Lender receives less than the full amount due and payable on a Payment Due Date, Lender may apply the amounts received to amounts then due and payable in any manner and in any order determined by Lender, in its sole discretion. Following an Event of Default, Lender may apply all payments to amounts then due in any manner and in any order determined by Lender, in its sole discretion. Lender’s acceptance of a payment from Borrower in an amount that is less than the full amount then due and Lender’s application of such payments to amounts then due from Borrower shall not constitute or be deemed to constitute a waiver of the unpaid amounts or an accord and satisfaction. No principal amount repaid may be reborrowed.

2.05. Prepayment Rights.

(a) Generally. Borrower acknowledges that Lender is making the Loan to it at the interest rate and upon the other terms herein set forth in reliance upon Borrower’s promise to pay the Loan over the full stated term of this Loan Agreement and that Lender may suffer loss or other detriment if Borrower were to prepay all or any portion of the Note prior to its stated Maturity Date. Except as provided in this Section 2.05, Borrower agrees that Borrower has no right to prepay all or any part of the Loan prior to the Maturity Date.

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(b) Prepayment Conditions. Borrower may prepay the entire outstanding principal balance of the Loan in whole, but not in part, on any Payment Due Date as long as each of the following conditions are satisfied:

(i) Borrower provides written notice to Lender of its intent to prepay not more than sixty (60) days and not less than thirty (30) days prior to the intended prepayment date.

(ii) No Event of Default exists as of the date Borrower delivers notice of intent to prepay and as of the date such prepayment is made.

(iii) Borrower pays with respect to Note A and a Conversion Note associated with the thirteenth (13^th) Payment Due Date, if any, the Base Interest Rate Maintenance.

(iv) If such prepayment is made on or before the eighteenth (18^th) Payment Due Date, Borrower pays with respect to Note A, Note B, and any Conversion Note, the Spread Maintenance with such prepayment.

(v) Borrower pays the Breakage Fee with respect to a Conversion Note associated with the twenty-fifth (25^th) Payment Due Date, if any.

(vi) With respect to Note B, Borrower pays with such prepayment all accrued interest through the end of the current Interest Accrual Period.

(vii) Borrower pays all other outstanding amounts then due and unpaid under this Loan Agreement and the other Loan Documents.

(viii) Borrower pays with such prepayment the Exit Fee unless otherwise set forth in Section 2.06.

(c) Base Interest Rate Maintenance. Upon an acceleration by Lender under Section 11.02(a) herein and/or if payment of all or any part of the principal balance of the Loan is tendered by Borrower, a purchaser at foreclosure, a Guarantor, or any other Person, by reason of acceleration of the Loan or otherwise, any such acceleration or tender shall at Lender’s option be an Event of Default. If such a payment occurs and is accepted voluntarily or otherwise by Lender, then, in addition to all other rights and remedies available to Lender upon an Event of Default, Base Interest Rate Maintenance shall be due in addition to the outstanding principal balance, all accrued and unpaid interest, the Exit Fee and other outstanding amounts due under the Loan Documents.

(d) Prepayment as a Result of a Casualty or Condemnation or Charges on Lender. Prepayments arising from Lender’s application of insurance proceeds upon

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the occurrence of a Casualty, the application of a condemnation award upon the occurrence of a Condemnation, or as set forth in Section 2.02(g) may be made, whenever made, without payment of a Spread Maintenance or Exit Fee.

(e) Notice Irrevocable. Notwithstanding any provision of this Loan Agreement to the contrary, Borrower’s notice of prepayment in accordance with subsection 2.05(b) above shall be irrevocable, and the principal balance to be prepaid shall be absolutely and unconditionally due and payable on or about the date specified in such notice.

2.06. Exit Fee. As consideration for Lender’s making of the Loan to Borrower, Borrower agrees to pay a deferred financing fee (“Exit Fee”) to Lender in an amount equal to one percent (1.0%) of the Maximum Loan Amount. Although the Exit Fee is earned in full on the date hereof, Lender hereby agrees to defer payment of the Exit Fee until the earlier of (a) the date when full prepayment of the Loan occurs, (b) the Maturity Date, or (c) the date on which the Loan has been accelerated following an Event of Default. In the event of a partial prepayment of the Maximum Loan Amount, the Exit Fee will be applied against the partial prepayment amount. Thereafter, the Exit Fee will be payable on the remaining principal amount of the Loan Amount. Notwithstanding the sale or transfer of the Loan by Capmark Bank, in whole or in part, to a successor lender, unless Capmark Bank has transferred its interest in the Exit Fee to its successors and assigns as Lender, the Exit Fee shall be payable to Capmark Bank. No Exit Fee shall be due, however, if Borrower refinances this Loan with the proceeds of a loan funded or arranged for Borrower by Capmark Finance Inc. or Capmark Bank. Borrower acknowledges that neither Capmark Finance Inc. nor Capmark Bank has any obligation to make such loan.

2.07. Interest Rate Cap/Hedge.

(a) Initial Interest Rate Cap. On or before the date hereof, Borrower shall obtain a Rate Cap with a notional amount equal to the principal amount of Note B for the benefit of Lender which provides for payments to be made by the Rate Cap Provider if, at any time during the first twelve (12) months of the term of the Loan, the LIBOR Rate exceeds the Strike Rate. In addition, (a) prior to expiration of such Rate Cap, Borrower shall obtain a replacement Rate Cap (the “First Replacement Rate Cap”) with a notional amount equal to the principal amount of Note B for the benefit of Lender which provides for payments to be made by the Rate Cap Provider if, at any time during the next following twelve (12) months of the term of the Loan, the LIBOR Rate exceeds the Strike Rate and (b) prior to expiration of the First Replacement Rate Cap, Borrower shall obtain a replacement Rate Cap with a notional amount equal to the principal amount of Note B for the benefit of Lender which provides for payments to be made by the Rate Cap Provider if, at any time during the remainder of the term of the Loan, the LIBOR Rate exceeds the Strike Rate. Each Rate Cap required hereunder must: (i) be issued by a Rate Cap Provider that satisfies the credit criteria set forth below in Section 2.07(c); (ii) be fully effective as of the Closing Date; (iii) permit Borrower’s interest in the Rate Cap to be assigned to Lender without the payment of fees or costs and without the Rate Cap Provider’s consent; (iv) contain no cross-defaults to any other agreements among any

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Borrower, Rate Cap Provider and Lender, or any of their respective Affiliates; (v) contain no performance obligations of Borrower or Lender beyond Borrower’s payment of a one-time fee at the effective date of the Rate Cap Agreement; (vi) be evidenced by a Rate Cap Agreement acceptable to Lender in all respects and delivered to Lender on the Closing Date, fully executed, along with a legal opinion from Rate Cap Provider’s counsel (which may be in-house counsel) as to the authorization, execution and delivery by Rate Cap Provider and enforceability in accordance with its terms (provided, however, that Borrower shall have five (5) days from and including the Closing Date to deliver the foregoing documents as long as Lender receives confirmation satisfactory to Lender that the Rate Cap has been purchased and fully paid for by Borrower as of the Closing Date); (vii) comply with criteria issued by any of the Rating Agencies regarding interest rate cap agreements including, without limitation, the requirement for additional legal opinions from Rate Cap Provider’s counsel; and (viii) otherwise be satisfactory to Lender in all respects and satisfy Lender’s then-current Rate Cap requirements.

(b) Assignment to Lender as Collateral. The Rate Cap and each replacement of a Rate Cap shall be assigned to Lender as collateral. Borrower acknowledges that Borrower’s assignment of the Rate Cap to Lender shall not be deemed completed until such time as Borrower has delivered to Lender a written acknowledgement from the Rate Cap Provider of Borrower’s assignment of the Rate Cap to Lender that is acceptable to Lender in all respects. All payments made by the Cap Provider shall be made directly to the Deposit Account. Failure by the Cap Provider to make any payment under the Rate Cap shall not relieve Borrower of any of its obligations to make any payments hereunder or any other Loan Documents.

(c) Credit Rating of Cap Provider; Replacement Upon Adverse Change in Rating. The Rate Cap must be issued by a Rate Cap Provider having (i) a short-term rating of at least “A-1” or, if the Rate Cap Provider has no short term rating, long term unsecured debt rating of at least “A+” from S&P; or (ii) an equivalent rating by a Rating Agency approved by Lender. If, at any time during the term of the Loan, the Rate Cap Provider’s credit rating falls below that required in the previous sentence, Borrower shall cause compliance with the relevant provisions of the Rate Cap Agreement. Each replacement Rate Cap shall satisfy all requirements of this Section 2.07 and, unless otherwise agreed by Lender, shall be substantially in the form of the Rate Cap Agreement assigned to Lender as of the Closing Date. Each replacement Rate Cap and all required documents must be delivered to Lender within ten (10) Business Days of Lender’s notification that a replacement Rate Cap is required.

(d) Borrower’s Payment of Lender Review Expenses. Borrower shall pay all expenses incurred by Lender in connection with Lender’s review and approval of the initial Rate Cap and Rate Cap Provider, and each replacement of a Rate Cap that is required under the terms of this Loan Agreement, including, without limitation, reasonable legal fees and expenses.

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ARTICLE 3

INTENTIONALLY OMITTED

ARTICLE 4

ESCROW AND RESERVE REQUIREMENTS

4.01. Creation and Maintenance of Escrows and Reserves.

(a) Control of Reserve Accounts. On the Closing Date, each of the Reserve Accounts shall be established by Lender. Each Reserve Account required under this Loan Agreement shall be a custodial account established by Lender, and, at Lender’s option, funds deposited into a Reserve Account may be commingled with other money held by Lender. Each Reserve Account shall be under the sole dominion and control of Lender, and Borrower shall not have any right to withdraw funds from a Reserve Account. Unless required by the laws of the state which govern this Loan Agreement or otherwise expressly provided in this Loan Agreement, Borrower shall not be entitled to any earnings or interest on funds deposited in any Reserve Account. Upon the occurrence of an Event of Default, Lender may, in addition to any and all other rights and remedies available to Lender, apply any sums then present in any or all of the Reserve Accounts to the payment of the Debt in any order as determined by Lender in its sole discretion.

(b) Funds Dedicated to Particular Purpose. Funds held in a Reserve Account are not to be used to fund Reserve Items contemplated by a different Reserve Account, and Borrower may not use and Lender shall have no obligation to apply funds from one Reserve Account to pay for Reserve Items contemplated by another Reserve Account.

(c) Release of Reserves Upon Payment of Debt. Upon payment in full of the Loan, Lender shall disburse to Borrower all unapplied funds held by Lender in the Reserve Accounts pursuant to this Loan Agreement.

(d) No Obligation of Lender. Nothing in this Loan Agreement shall: (i) make Lender responsible for making or completing any Reserve Item; (ii) require Lender to advance, disburse or expend funds in addition to funds then on deposit in the related Reserve Account to make or complete any Reserve Item; or (iii) obligate Lender to demand from Borrower additional sums to make or complete any Reserve Item.

(e) No Waiver of Default. No disbursements made from a Reserve Account at the time when a Borrower default or Event of Default has occurred and is then continuing shall be deemed a waiver or cure by Lender of that default or Event of Default, nor shall Lender’s rights and remedies be prejudiced in any manner thereby.

(f) Insufficient Amounts in a Reserve Account. Notwithstanding that Lender has the right to require Borrower to pay any deficiency in a Reserve Account if

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Lender determines that amounts in a Reserve Account are insufficient, the insufficiency of funds in a Reserve Account, or Lender’s application of funds in a Reserve Account following an Event of Default other than for funding of the Reserve Items, shall not relieve Borrower from its obligation to perform in full each of its: (i) obligations and covenants under this Loan Agreement; (ii) agreements or covenants with tenants under the Leases; and (iii) agreements with leasing agents.

4.02. Tax Escrow.

(a) Deposits to the Tax Escrow Account. On the Closing Date, Borrower has deposited such amount as is noted on the closing statement relating to the closing of the Loan, to the Tax Escrow Account which is the amount determined by Lender that is necessary to pay when due Borrower’s obligation for Taxes upon the due dates established by the appropriate tax or assessing authorities during the next ensuing twelve (12) months, taking into consideration the Monthly Tax Deposits to be collected from the first Payment Due Date to the due date for payment of Taxes. Thereafter, beginning on the first Payment Due Date and on each Payment Due Date thereafter, Borrower shall deliver to Lender the Monthly Tax Deposit.

(b) Disbursement from Tax Escrow Account. Provided amounts in the Tax Escrow Account are sufficient to pay the Taxes then due and no Event of Default exists. Lender shall pay the Taxes as they become due on their respective due dates on behalf of Borrower by applying the funds held in the Tax Escrow Account to the payments of Taxes then due. In making any payment of Taxes, Lender may do so according to any bill, statement or estimate obtained from the appropriate public office with respect to Taxes without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof.

(c) Surplus or Deficiency in Tax Escrow Account. If amounts on deposit in the Tax Escrow Account collected for an annual tax period exceed the Taxes actually paid during such tax period, Lender shall, in its discretion, return the excess to Borrower or credit the excess against the payments Borrower is to make to the Tax Escrow Account for the next tax period. If amounts on deposit in the Tax Escrow Account collected for an annual tax period are insufficient to pay the Taxes actually due during such tax period, Lender shall notify Borrower of the deficiency and, within ten (10) days thereafter, Borrower shall deliver to Lender such deficiency amount. If, however, Borrower receives notice of any such deficiency on a date that is within ten (10) days prior to the date that Taxes are due, Borrower will deposit the deficiency amount within one (1) Business Day after its receipt of such deficiency notice.

(d) Changes in Amount of Taxes Due; Changes in the Monthly Tax Deposit. Borrower shall notify Lender immediately of any changes to the amounts, schedules and instructions for payment of any Taxes of which it has or obtains knowledge and authorizes Lender or its agent to obtain the bills for Taxes directly from the appropriate taxing authority. If the amount due for Taxes shall increase and Lender reasonably determines that amounts on deposit in the Tax Escrow Account will not be

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sufficient to pay Taxes due for an annual tax period. Lender shall notify Borrower of such determination and of the increase needed to the Monthly Tax Deposit. Commencing with the Payment Due Date specified in such notice from Lender, Borrower shall make deposits at the increased amount of the Monthly Tax Deposit.

4.03. Insurance Premium Escrow.

(a) Deposits to Insurance Premium Escrow Account. On the Closing Date, Borrower has deposited such amount as is noted on the closing statement relating to the closing of the Loan to the Insurance Premium Escrow Account which is the amount determined by Lender that is necessary to pay when due Borrower’s obligation for Insurance Premiums during the next ensuing twelve (12) months, taking into consideration the Monthly Insurance Deposits to be collected from the first Payment Due Date to the due date for payment of such Insurance Premiums. Thereafter, beginning on the first Payment Due Date and on each Payment Due Date thereafter, Borrower shall deliver to Lender the Monthly Insurance Deposit.

(b) Disbursement from Insurance Premium Escrow Account. Provided amounts in the Insurance Premium Escrow Account are sufficient to pay the Insurance Premiums then due and no Event of Default exists, Lender shall pay the Insurance Premiums as they become due on their respective due dates on behalf of Borrower by applying funds held in the Insurance Premium Escrow Account to the payments of Insurance Premiums then due. In making any payment relating to Insurance Premiums, Lender may do so according to any bill, statement or estimate procured from the insurer without inquiry into the accuracy of such bill, statement or estimate.

(c) Surplus or Deficiency in Insurance Premium Escrow Account. If amounts on deposit in the Insurance Premium Escrow Account collected for an annual period exceed the Insurance Premiums actually paid during such period, Lender shall, in its discretion, return such excess to Borrower or credit such excess against the payments Borrower is to make to the Insurance Premium Escrow Account for the next annual period. If amounts on deposit in the Insurance Premium Escrow Account collected for an annual premium period are insufficient to pay the Insurance Premiums actually due during such annual period Lender shall notify Borrower of the deficiency and, within ten (10) days thereafter, Borrower shall deliver to Lender such deficiency amount. If, however, Borrower receives notice of any such deficiency on a date that is within ten (10) days prior to the date that Insurance Premiums are due, Borrower will deposit the deficiency amount within one (1) Business Day after its receipt of such deficiency notice.

(d) Changes in Insurance Premium Amounts; Change in Monthly Deposit Amount. Borrower shall notify Lender immediately of any changes to the amounts, schedules and instructions for payment of any Insurance Premiums of which it has or obtains knowledge and authorizes Lender or its agent to obtain the bills for the Insurance Premiums directly from the insurance provider or its agent. If the amount due for Insurance Premiums shall increase and Lender reasonably determines that amounts on deposit in the Insurance Premium Escrow Account will not be sufficient to pay the Insurance Premiums, Lender shall notify Borrower of such determination and of the

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increase needed to the Monthly Insurance Deposit. Commencing with the Payment Due Date specified in such notice from Lender, Borrower shall make deposits at the increased amount of the Monthly Insurance Deposit.

4.04. Intentionally Omitted.

4.05. Immediate Repair Reserve Account.

(a) Immediate Repair Reserve Generally. Amounts in the Immediate Repair Reserve Account are to be used for the purpose of funding the Immediate Repairs, which Borrower covenants and agrees to perform in accordance with the terms of this Loan Agreement on or before the dates specified on Exhibit C but not later than twelve (12) months from the date hereof.

(b) Deposit to the Immediate Repair Reserve Account. On the Closing Date, Borrower shall deposit $0.00 with Lender as the reserve for completion of the Immediate Repairs (“Immediate Repair Deposit”).

(c) Disbursements from the Immediate Repair Reserve Account. Lender shall make disbursements from the Immediate Repair Reserve Account upon Borrower’s performance, to Lender’s satisfaction, of all conditions to disbursement set forth in Article 5 of this Loan Agreement.

(d) Reassessment of Required Deposit. If at any time Lender reasonably determines that the Immediate Repair Deposit will not be sufficient to pay the cost of the Immediate Repairs, Lender may notify Borrower of such determination and of the amount estimated by Lender to make-up such deficiency as reasonably determined by Lender based upon changes in circumstances. Within ten (10) days after such notice from Lender, Borrower shall deliver the deficiency amount to Lender, and Lender shall deposit in the Immediate Repair Reserve Account and hold and administer same in accordance with this Loan Agreement.

4.06. Replacement Reserve Account.

(a) Replacement Reserve Generally. Amounts in the Replacement Reserve Account are to be used for the purpose of funding the Replacements, which Borrower covenants and agrees to perform in accordance with the terms of this Loan Agreement.

(b) Deposits to the Replacement Reserve Account. Beginning on the first Payment Due Date and on each Payment Due Date thereafter, Borrower shall pay $5,625 (“Monthly Replacement Reserve Deposit”) to Lender as a deposit to the Replacement Reserve Account. Notwithstanding the foregoing, Borrower’s obligation to make monthly deposits into the Replacement Reserve Account shall be suspended for so long as (i) no Event of Default has occurred and is continuing, and (ii) Lender determines, in its sole discretion based on annual inspections of the Property, that the Property is being kept in good order and repair and in a good marketable condition.

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(c) Disbursements from the Replacement Reserve Account. Lender shall make disbursements from the Replacement Reserve Account upon Borrower’s performance, to Lender’s satisfaction, of all conditions to disbursement set forth in Article 5 hereof.

(d) Reassessment of Required Monthly Deposits. Lender may, from time to time based on Lender’s inspections of the Property, reassess its estimate of the Monthly Replacement Reserve Deposit and may increase such amount on not less than thirty (30) days written notice to Borrower if Lender determines that an increase is necessary (i) to fund replacements not listed as part of the Replacements (and not intended to be covered by the Immediate Repair Reserve Account) which are advisable to keep the Property in good order, repair and marketable condition, or (ii) to fund the replacement of any major building systems or components (e.g., roof, HVAC system) not listed as part of the Replacements (and not intended to be covered by the Immediate Repair Reserve Account) which will reach the end of its useful life within two (2) years of the date of Lender’s inspection.

ARTICLE 5

COMPLETION OF REPAIRS RELATED TO RESERVE ACCOUNTS;

CONDITIONS TO RELEASE OF FUNDS

5.01. Conditions Precedent to Disbursements from Certain Reserve Accounts. The following provisions apply to each request for disbursement from the Immediate Repair Reserve Account and the Replacement Reserve Account:

(a) Disbursement Only for Completed Repairs. Disbursements shall be limited to Reserve Items that are fully completed and paid for in full by Borrower except to the extent permitted under this Section 5.01(a) or Section 5.01(b) of this Loan Agreement and, in the case of Leasing Commissions, fully and unconditionally earned and paid in full by Borrower. Lender shall make disbursements of up to $25,000 in the aggregate in connection with any Request without paid receipts, provided that Borrower shall apply funds so disbursed to the payment of the Reserve Items or Note B Advance items related to such Request and deliver such paid receipts prior to or simultaneously with the next Request. At no time shall Lender be obligated to pay amounts to Borrower in excess of the current balance in the applicable Reserve Account at the time of disbursement.

(b) Partial Completion. Lender may agree to disburse funds for Reserve Items prior to completion thereof where (i) the contractor performing such work requires periodic payments pursuant to the terms of its written contract with Borrower and, if required by Section 5.04, Lender has given its prior written approval to such contract, and (ii) the cost of the portion of the Reserve Item to be completed under such contract exceeds $10,000.

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(c) Request; Maximum Frequency and Amount. Borrower shall submit to Lender a Request together with the paid receipts as set forth in Section 5.01(a) and such additional information as Lender may reasonably request in connection with the Request at least thirty (30) days prior to the date on which Borrower requests Lender to make a disbursement from a Reserve Account or Note B Advance. Unless otherwise agreed to by Lender, Borrower may not submit, and Lender shall not be required to make, more than one (1) disbursement from each Reserve Account during any calendar month. No Request shall be made for less than $25,000 or the total cost of the Reserve Items or Note B Advance item, if less.

(d) No Existing Event of Default. Lender may refuse to make any disbursement if an Event of Default exists as of the date on which Borrower submits the Request or on the date the disbursement is actually to be made.

(e) Responsible Officer Certificate. Lender must receive a certificate, signed by a Responsible Officer of Borrower (and, at Lender’s option, also signed by Borrower’s project architect or engineer if the cost of a single Reserve Item or the aggregate amount of the Request exceeds $25,000), which certifies that:

(i) All information stated in the Request is true and correct in all material respects, each attachment to the Request is correct and complete, and if the attachment is a copy of the original, that it is a true and an accurate reproduction of the original;

(ii) Each of the Reserve Items or Note B Advance items to be funded in connection with the Request was performed in a good and workmanlike manner and in accordance with all Requirements of Law, and has been paid in full by Borrower (for the portion for which disbursement is sought in the case of disbursements authorized in accordance with Section 5.01(b) hereof);

(iii) The Leasing Commission has been fully and unconditionally earned and paid in full by Borrower (for the portion for which disbursement is sought in the case of disbursements authorized in accordance with Section 5.01(b) hereof), if the Reserve Item to be funded is a Leasing Commission;

(iv) Subject to Section 5.03, each party that supplied materials, labor or services has been paid in full (for the portion for which disbursement is sought in the case of disbursements authorized in accordance with Section 5.01(b) hereof); and

(v) In the case of disbursements authorized in accordance with Section 5.01(b) hereof, the materials for which the request

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are made are on-site at the Property and properly secured or have been installed in the Property.

(f) Inspection to Confirm Completion. Prior to making any disbursement, Lender may require an inspection of the Property, performed at Borrower’s expense, to verify completion thereof.

(g) Absence of Liens. Lender may require that Borrower provide Lender with any or all of the following: (i) a written lien waiver acceptable to Lender from each party to be paid in connection with the Request; (ii) a search of title to the Property effective to the date of the disbursement which shows no Liens other than the Permitted Encumbrances; or (iii) an endorsement to the Title Insurance Policy which updates the effective date of such policy to the date of the disbursement and shows no Liens other than the Permitted Encumbrances.

(h) Payment of Lender’s Expenses. Borrower shall pay all reasonable expenses incurred by Lender in processing Borrower’s Request, including, without limitation, any inspection costs (whether performed by Lender or an independent inspector selected by Lender) and reasonable legal fees and expenses.

(i) Other Items Lender Deems Necessary. Lender shall have received such other evidence as Lender reasonably requests in connection with its confirmation that each Reserve Item to be paid in connection with the Request has been completed or performed in accordance with the terms of this Loan Agreement.

5.02. Waiver of Conditions to Disbursement. No waiver given by Lender of any condition precedent to disbursement from a Reserve Account shall preclude Lender from requiring that such condition be satisfied prior to making any other disbursement from a Reserve Account.

5.03. Direct Payments to Suppliers and Contractors. Lender, at its option, may make disbursements directly to the supplier or contractor to be paid in connection with the Request. Borrower’s execution of this Loan Agreement constitutes an irrevocable direction and authorization for Lender to make requested payments directly to the supplier or contractor, notwithstanding any contrary instructions from Borrower or notice from Borrower of a dispute with such supplier or contractor, unless such dispute is conducted by Borrower in accordance with the applicable provisions of Section 9.02(b). Each disbursement so made by Lender shall satisfy Lender’s obligation under this Loan Agreement.

5.04. Performance of Reserve Items.

(a) Performance of Reserve Items. Borrower agrees to commence each Reserve Item in a timely manner and to pursue completion diligently of each Reserve Item on or before its completion date stated on such Exhibit and, in the absence of a commencement date or completion date being specified, when necessary in order to keep the Property in good order and repair, in a good and marketable condition and as necessary to keep any portion thereof from deteriorating, or in the case of Tenant

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Improvements, when required under the Leases. Borrower shall complete each Reserve Item in a good and workmanlike manner, using only new materials of the same or better quality than that being replaced. All Reserve Items shall be performed in accordance with, and upon completion shall comply with, all Requirements of Law (including without limitation obtaining and maintaining in effect all necessary permits and governmental approvals) and all applicable insurance requirements.

(b) Contracts. Borrower shall promptly provide to Lender copies of all contracts or work orders with materialmen, mechanics, suppliers, subcontractors, contractors or other parties providing labor or materials in connection with the Reserve Items. Borrower shall not enter into any such contract or work order for $25,000 or more without Lender’s prior written approval.

(c) Entry onto Property. In order to perform inspections or, following an Event of Default, to complete Reserve Items which Borrower has failed to perform, Borrower hereby grants Lender and its agents the right, from time to time, to enter onto the Property.

(d) Lender Remedy for Failure to Perform. In addition to Lender’s remedies following an Event of Default, Borrower acknowledges that Lender shall have the right (but not the obligation) to complete or perform the Reserve Items for which amounts have been reserved under this Loan Agreement (or pay the Leasing Commissions as applicable) and for such purpose, Borrower hereby appoints Lender its attorney-in-fact with full power of substitution (and which shall be deemed to be coupled with an interest and irrevocable until the Loan is paid in full and the Security Instrument is discharged of record, with Borrower hereby ratifying all that its said attorney shall do by virtue thereof): (i) to complete or undertake such work in the name of Borrower; (ii) to proceed under existing contracts or to terminate existing contracts (even where a termination penalty may be incurred) and employ such contractors, subcontractors, watchmen, agents, architects and inspectors as Lender determines necessary or desirable for completion of such work; (iii) to make any additions, changes and corrections to the scope of the work as Lender deems necessary or desirable for timely completion; (iv) to pay, settle or compromise all existing bills and claims which are or may become Liens against the Property or as may be necessary or desirable for completion of such work; (v) to execute all applications and certificates in the name of Borrower which may be required to obtain permits and approvals for such work or completion of such work; (vi) to prosecute and defend all actions or proceedings in connection with the repair or improvements to the Property; and (vii) to do any and every act which Borrower might do in its own behalf to fulfill the terms of Borrower’s obligations under this Loan Agreement. Amounts expended by Lender which exceed amounts held in the Reserve Accounts shall be added to the Maximum Loan Amount, shall be immediately due and payable, and shall bear interest at the Default Rate from the date of disbursement until paid in full.

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ARTICLE 6

LOAN SECURITY AND RELATED OBLIGATIONS

6.01. Security Instrument and Assignment of Rents and Leases. Payment of the Loan and performance of the Obligations shall be secured, inter alia, by the Security Instrument and the Assignment of Leases and Rents. Borrower shall execute at closing the Security Instrument and the Assignment of Leases and Rents and abide by its obligations thereunder.

6.02. Assignment of Property Management Contract. Borrower and the Property Manager shall execute at closing the Assignment of the Property Management Contract and to abide by their respective obligations thereunder.

6.03. Assignment of Rate Cap Agreement. Borrower shall execute and deliver on the Closing Date the assignment and consent with respect to the Rate Cap as are contemplated by Section 2.07 of this Loan Agreement and abide by its obligations thereunder.

6.04. Assignment of Operating Agreements. As security for payment of the Loan and performance by Borrower of all Obligations, Borrower hereby transfers, sets over and assigns to Lender all of Borrower’s right, title and interest in and to the Operating Agreements to Lender for security purposes.

6.05. Pledge of Property; Grant of Security Interest. As security for payment of the Loan and performance by Borrower of all Obligations, Borrower hereby pledges, assigns, sets over and transfers to Lender, and grants to Lender a continuing security interest in and to: (a) each of the Reserve Accounts, and the Borrower Operating Account, (b) all funds and monies from time to time deposited or held in each of the Reserve Accounts and the Borrower Operating Account, and (c) all interest accrued, if any, with respect to the Reserve Accounts and the Borrower Operating Account; provided that Lender shall make disbursements from each of the Reserve Accounts when, as and to the extent required by this Loan Agreement, and, unless otherwise restricted by this Loan Agreement, Borrower may make withdrawals from the Borrower Operating Account. The parties agree that each of the Reserve Accounts and the Borrower Operating Account is a “deposit account” within the meaning of Article 9 of the UCC and that this Loan Agreement also constitutes a “security agreement” within the meaning of Article 9 of the UCC. Borrower shall not, without Lender’s prior written consent, further pledge, assign, transfer or grant any security interest in any of the Reserve Accounts or in the Borrower Operating Account nor permit any Lien to attach thereto, except as may be created in favor of Lender in connection with the Loan.

6.06. Environmental Indemnity Agreement. Borrower and each Guarantor will be required to execute at closing the Environmental Indemnity and to abide by their obligations thereunder.

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6.07. Guaranty of Borrower Sponsors. Each Guarantor will be required to execute at closing the Guaranty and to abide by its obligations thereunder.

ARTICLE 7

SINGLE PURPOSE ENTITY REQUIREMENTS

7.01. Commitment to be a Single Purpose Entity. Borrower represents, warrants and covenants to Lender as follows:

(a) Borrower has been a Single Purpose Entity at all times since its formation and will continue to be a Single Purpose Entity at all times until the Loan has been paid in full.

(b) SPE Equity Owner has been a Single Purpose Entity at all times since its formation and will continue to be a Single Purpose Entity at all times until the Loan has been paid in full.

(c) The Organizational Chart attached to this Loan Agreement is true, complete and correct.

(d) Intentionally Omitted.

(e) The “single purpose entity” provisions included in the organizational documents of Borrower and SPE Equity Owner shall not, without Lender’s prior written consent, be amended, rescinded or otherwise revoked until the Loan has been paid in full.

(f) Prior to the withdrawal or the disassociation of the SPE Equity Owner from Borrower, Borrower shall immediately appoint a new general partner or managing member whose organizational documents are substantially similar to those of the original SPE Equity Owner and, if an opinion letter pertaining to substantive consolidation was required at closing, deliver a new substantive consolidation opinion letter with respect to the new SPE Equity Owner and its equity owners which is acceptable in all respects to Lender and to the Rating Agencies if a Securitization has occurred. (The requirements of this subsection shall not be construed to permit a Transfer in violation of Article 10.)

7.02. Definition of Single Purpose Entity.

(a) Borrower Criteria. With respect to Borrower, a “Single Purpose Entity” means a corporation, limited partnership or limited liability company which, at all times since its formation and thereafter:

(i) shall not engage in any business or activity, other than with respect to Borrower, the ownership, operation and

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maintenance of the Property and activities incidental thereto;

(ii) shall not acquire or own any assets other than with respect to Borrower, the Property and such incidental Personal Property as may be necessary for the operation of the Property;

(iii) if such entity is (A) a limited liability company (other than a single member limited liability company which satisfies the requirements of clause (iv) below), has had and shall have at least one (1) member that satisfies the requirements of Section 7.02(b) below and such member is its managing member, or (B) a limited partnership, all of its general partners have satisfied and shall satisfy the requirements of Section 7.02(b) below, and, in the event of either (A) or (B), shall have at least one (1) Independent Director/Manager on its board of directors/managers; provided however if this Loan becomes part of a securitization and any Rating Agency’s criteria at such time requires at least two (2) Independent Directors/Managers, Borrower shall appoint, or cause the appointment of, a second Independent Director/Manager;

(iv) if such entity is a single member limited liability company, (A) such entity shall be formed and organized under Delaware law and otherwise comply with all other Rating Agency criteria for single member limited liability companies (including, without limitation, the inclusion of a “springing member” and delivery of Delaware single member limited liability company opinions acceptable in all respects to Lender and to the Rating Agencies); and (B) such entity shall have at least one (1) Independent Director/Manager on its board of directors/managers; provided however if this Loan becomes part of a securitization and any Rating Agency’s criteria at such time requires at least two (2) Independent Directors/Managers, Borrower shall appoint, or cause the appointment of, a second Independent Director/Manager

(v) if such entity is a corporation, has had and shall have at least one (1) Independent Director/Manager on its board of directors, provided, however, if this Loan becomes part of a Securitization and any Rating Agency’s criteria at such time require at least two (2) Independent Directors/Managers, Borrower shall appoint, or cause the appointment of, a second Independent Director/Manager;

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(vi) shall preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its formation or organization;

(vii)  shall not merge or consolidate with any other Person;

(viii)  shall not take any action to dissolve, wind-up, terminate or liquidate in whole or in part; to sell, transfer or otherwise dispose of all or substantially all of its assets; to change its legal structure; transfer or permit the direct or indirect transfer of any partnership, membership or other Equity Interests, as applicable, other than Permitted Transfers; issue additional partnership, membership or other Equity Interests, as applicable; or seek to accomplish any of the foregoing;

(ix)  shall not, without the unanimous written consent of all Borrower’s partners, members, or shareholders, as applicable, and the written consent of one hundred percent (100%) of the members of the board of directors of the SPE Equity Owner or board of managers in the case of a single member limited liability company, including without limitation the Independent Director(s)/Manager(s): (A) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute; (B) seek or consent to the appointment of a receiver, liquidator or any similar official; or (C) make an assignment for the benefit of creditors;

(x) shall not amend or restate its organizational documents if such change would adversely impact the requirements set forth in this Section 7.02;

(xi) shall not own any subsidiary or make any investment in, any other Person;

(xii)  shall not commingle its assets with the assets of any other Person;

(xiii)  shall not incur any debt, secured or unsecured, direct or contingent (including, without limitation, guaranteeing any obligation), other than the Loan and customary unsecured trade payables incurred in the ordinary course of owning and operating the Property provided the same are not evidenced by a promissory note, do not exceed, in the aggregate, at any time a maximum amount of two percent

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(2%) of the outstanding principal amount of the Loan and are paid within sixty (60) days of the date incurred;

(xiv)  shall maintain its records, books of account, bank accounts, financial statements, accounting records and other entity documents separate and apart from those of any other Person;

(xv)  shall only enter into any contract or agreement with any general partner, member, shareholder, principal or Affiliate of Borrower or Guarantor, or any general partner, member, principal or Affiliate thereof, upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arm’s-length basis with third parties;

(xvi)  shall not maintain its assets in such a manner that it will be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person;

(xvii)  shall not assume or guaranty the debts of any other Person, hold itself out to be responsible for the debts of another Person, or otherwise pledge its assets for the benefit of any other Person or hold out its credit as being available to satisfy the obligations of any other Person;

(xviii)  shall not make any loans or advances to any other Person;

(xix)  shall file its own tax returns as required under federal and state law;

(xx)  shall hold itself out to the public as a legal entity separate and distinct from any other Person and conduct its business solely in its own name and shall correct any known misunderstanding regarding its separate identity;

(xxi)  shall maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations;

(xxii)  shall allocate shared expenses (including, without limitation, shared office space) and use separate stationery, invoices and checks;

(xxiii)  shall pay (or cause the Property Manager to pay on behalf of Borrower from Borrower’s funds) its own liabilities

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(including, without limitation, salaries of its own employees) from its own funds; and

(xxiv)  shall not acquire obligations or securities of its partners, members or shareholders, as applicable.

(b) SPE Equity Owner Criteria. With respect to SPE Equity Owner, a “Single Purpose Entity” means a corporation or a Delaware single member limited liability company which, at all times since its formation and thereafter complies in its own right with each of the requirements contained in Section 7.02(a)(i) - (xxiv), except that:

(i) with respect to Section 7.02(a)(i) the SPE Equity Owner shall not engage in any business or activity other than being the sole managing member or general partner, as the case may be, of the Borrower and owning its Equity Interest in Borrower;

(ii) with respect to Section 7.02(a)(ii), the SPE Equity Owner has not and shall not acquire or own any assets other than its Equity Interest in Borrower;

(iii) with respect to Section 7.02(a)(xiii) the SPE Equity Owner has not and shall not incur any debt, secured or unsecured, direct or contingent (including, without limitation, guaranteeing any obligation); and

(iv) notwithstanding the provisions of this Article 7, if Borrower is a Delaware single member limited liability company which satisfies the Single Purpose Entity criteria set forth in Section 7.02(a)(iv) above, SPE Equity Owner need not satisfy the Single Purpose Entity requirements set forth in this Section 7.02(b).

7.03. Lender’s Acknowledgement. Notwithstanding anything to the contrary in this Loan Agreement, Lender acknowledges that Borrower does not satisfy the requirement to have one or more Independent Directors as provided in Section 7.02(a)(v) above. Lender reserves the right to require any transferee of the Property approved by Lender at its sole discretion under Section 10.2 below to comply with and satisfy all of the Single Purpose Entity criteria set forth in Article 7 hereof (and in any other provisions of this Loan Agreement).

ARTICLE 8

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender that, as of the Closing Date:

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8.01. Organization; Legal Status. Borrower and each SPE Equity Owner are duly organized, validly existing and in good standing under the laws of its state of formation and Borrower; (a) is duly qualified to transact business and is in good standing in the state where the Property is located; and (b) has all necessary approvals, governmental and otherwise, and full power and authority to own, operate and lease the Property and otherwise carry on its business as now conducted and proposed to be conducted. Borrower’s correct legal name is set forth on the first page of this Loan Agreement. Borrower is a “registered organization” within the meaning of the UCC and Borrower’s organization identification number issued by its state of organization is correctly stated on the signature page to this Loan Agreement.

8.02. Power; Authorization; Enforceable Obligations. Borrower has full power, authority and legal right to execute, deliver and perform its obligations under the Loan Documents. Borrower has taken all necessary action to authorize the borrowing of the Loan on the terms and conditions of this Loan Agreement and the other Loan Documents, and Borrower has taken all necessary action to authorize the execution and delivery of its performance under the Loan Documents. The officer or representative of Borrower signing the Loan Documents has been duly authorized and empowered to do so. The Loan Documents constitute legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their terms.

8.03. No Legal Conflicts. The borrowing of the Loan and Borrower’s execution, delivery and performance of its obligations under the Loan Documents will not: (a) violate, conflict with or result in a default (following notice and/or expiration of the related grace/cure period without cure or both, as applicable) under any agreement or other instrument to which Borrower is a party or by which the Property may be bound or affected, or any Requirements of Law (including, without limitation, usury laws); (b) result in the creation or imposition of any Lien whatsoever upon any of its assets, except the Liens created by the Loan Documents; nor (c) require any authorization or consent from, or any filing with, any Governmental Authority (except for the recordation of the Security Instrument in the appropriate land records in the state where the Property is located and UCC filings relating to the security interest created hereby and by the Security Instrument which are necessary to perfect Lender’s security interest in the Property).

8.04. No Litigation. No action, suit, or proceeding or investigation, judicial, administrative or otherwise (including, without limitation, any reorganization, bankruptcy, insolvency or similar proceeding) currently is pending or, to the best of Borrower’s knowledge, threatened or contemplated against or affecting Borrower, SPE Equity Owner, any Guarantor or the Property that has not been disclosed by Borrower in writing to Lender and which, if adversely determined, could reasonably be expected to have a Material Adverse Effect.

8.05. Business Purpose of Loan. Borrower will use the proceeds of the Loan solely for the purpose of carrying on a business or commercial enterprise and not for personal, family or household purposes.

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8.06. Warranty of Title. Borrower has good, marketable and insurable fee simple title of record to the Property, free and clear of all Liens whatsoever except for the Permitted Encumbrances. The Security Instrument and Assignment of Leases and Rents, when properly recorded in the appropriate recording office, together with the UCC financing statements required to be filed in connection therewith, will create (a) a valid, first priority, perfected lien on the Property subject only to Permitted Encumbrances; and (b) perfected security interests in and to, and perfected assignments as collateral of, all Personal Property (including, without limitation, the Leases), all in accordance with the terms thereof, in each case subject only to any Permitted Encumbrances. None of the Permitted Encumbrances, individually or in the aggregate: (a) materially interferes with the benefits of the security intended to be provided by the Security Instrument, (b) materially and adversely affects the value of the Property, or (c) materially and adversely impairs the use and operations of the Property. Borrower owns or has rights in all collateral given as security for the Loan, free and clear of any and all Liens except for the Liens created in favor of Lender in connection with the Loan. Borrower shall forever warrant, defend and preserve the title and the validity and priority of the Liens created in favor of Lender in connection with the Loan and shall forever warrant and defend the same to Lender against the claims of all persons whomsoever.

8.07. Condition of the Property. The Improvements are structurally sound, in good repair and free of defects in materials and workmanship and have been constructed and installed in substantial compliance with the plans and specifications relating thereto. All major building systems located within the Improvements (including, without limitation, the heating and air conditioning systems, the electrical systems, plumbing systems, and all liquid and solid waste disposal, septic and sewer systems) are in good working order and condition and in compliance with all Requirements of Law. The Property is free from damage caused by fire or other casualty.

8.08. No Condemnation. No Condemnation proceeding has been commenced or, to the best of Borrower’s knowledge, is contemplated with respect to all or any portion of the Property or for the relocation of roadways providing access to the Property.

8.09. Requirements of Law. The Property and its present and contemplated use and occupancy are in full compliance with all Requirements of Law.

8.10. Operating Permits. Borrower has obtained all licenses, permits, registrations, certificates and other approvals, governmental and otherwise (including, without limitation, zoning, building code, land use and environmental), necessary for the use, occupancy and operation of the Property and the conduct of its business thereat, all of which are in full force and effect as of the date hereof. No event or condition currently exists which could result in the revocation, suspension, or forfeiture thereof.

8.11. Separate Tax Lot. The Property is assessed for real estate tax purposes as one or more wholly independent tax lot or lots, separate from any adjoining land or improvements not constituting a part of the Property.

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8.12. Flood Zone. Except as otherwise disclosed on the survey of the Property provided to Lender in connection with the Loan, no portion of the Improvements is located in an area identified by the Federal Emergency Management Agency or any successor thereto, as an area having special flood hazards.

8.13. Adequate Utilities. The Property is adequately served by all utilities required for the current or contemplated use thereof. All water and sewer systems are provided to the Property by public utilities, and the Property has accepted or is equipped to accept such utility services.

8.14. Public Access. All public roads and streets necessary for access to the Property for the current or contemplated use thereof have been completed, are serviceable and all-weather, and are physically and legally open for use by the public.

8.15. Boundaries. All of the Improvements lie wholly within the boundaries and building restriction lines of the Property, and no easements or other encumbrances affecting the Property (including, without limitation, the Permitted Encumbrances) encroach upon any of the Improvements. No improvements on adjacent properties encroach upon the Property.

8.16. Mechanic Liens. No mechanics’, materialmen’s or similar liens or claims have been, or may be, filed for work, labor or materials affecting the Property which are or may be Liens prior, equal or subordinate to the Security Instrument.

8.17. Assessments. No unpaid assessments for public improvements or assessments otherwise affecting the Property currently exist or, to the best of Borrower’s knowledge, are pending, nor are improvements contemplated to the Property that may result in any such assessments.

8.18. Insurance. Borrower has obtained and delivered to Lender all insurance policies Lender has required pursuant to Section 9.03 of this Loan Agreement, with all Insurance Premiums prepaid thereunder, reflecting the insurance coverage, amounts and other requirements set forth in this Loan Agreement. No claims have been made under any of such insurance policies, and no party, including Borrower, has done, by act or omission, anything which would impair the coverage of any of such insurance policies.

8.19. Leases. With respect to the Leases: (a) the Rent Roll certified by Borrower and dated as of the Closing Date is true, complete and correct and the Property is not subject to Leases other than the Leases identified on such Rent Roll; (b) Borrower has delivered to Lender the standard form of lease used with respect to the Property; (c) unless otherwise agreed to by Lender, each Lease, by its terms, is subordinate to the lien of the Security Instrument or the subject of a separate subordination agreement subordinating the Lease to the lien of the Security Instrument; (d) Borrower is the sole owner of the entire lessor’s interest in the Leases and has not assigned, pledged or otherwise transferred the Rents reserved in the Leases (except to Lender); (e) all of the Leases are bona fide, arms-length agreements with tenants unrelated to Borrower; (f) none of the Rents have been collected for more than one (1) month in advance (and for

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such purpose, a security deposit shall not be deemed Rent collected in advance); (g) all security deposits reflected on the Rent Roll have been collected and are being held by Borrower in the full amount reported on the Rent Roll; (h) all work to be performed by Borrower under each Lease has been performed as required and has been accepted unconditionally by the applicable tenant; (i) no offsets or defenses exist in favor of any tenant to the payment of any portion of the Rents and Borrower has no monetary obligation to any tenant under any Lease; (j) Borrower has not received notice from any tenant challenging the validity or enforceability of any Lease; (k) all payments due from tenants under the Leases are current; (l) no tenant under any Lease is in default thereunder, or is a debtor in any bankruptcy, reorganization, insolvency or similar proceeding, or has demonstrated a history of payment problems which suggest financial difficulty; (m) no Lease contains an option to purchase, right of first refusal to purchase, or any other similar provision and (n) no brokerage commissions, finders fees or similar payment obligations are due and unpaid by Borrower or any Affiliate of Borrower regarding any Lease which have not been disclosed in writing to Lender.

8.20. Management Agreement. No change in the Property Manager or Property Management Contract has occurred since the date of the most recent information submitted to Lender with respect thereto, other than has been disclosed in writing to Lender.

8.21. Financial Condition. Borrower currently is solvent and has received reasonably equivalent value for its granting of the Liens in favor of Lender in connection with the Loan. No change has occurred in the financial condition of Borrower, SPE Equity Owner, Guarantor, or any of their respective constituent equity owners, general partners or managing members which would have a Material Adverse Effect, since the date of the most recent financial statements submitted to Lender with respect to each such party, other than has been disclosed in writing to Lender and acknowledged by Lender in writing.

8.22. Taxes. Borrower and SPE Equity Owner have filed all federal, state, county, municipal, and city income tax returns required to have been filed by them and have paid all taxes and related liabilities which have become due pursuant to such returns or pursuant to any assessments received by them. Borrower does not know of any basis for any additional assessment in respect of any such taxes and related liabilities for prior years.

8.23. No Foreign Person. Borrower is not a “foreign person” within the meaning of §1445(f)(3) of the Tax Code.

8.24. Federal Regulations. Borrower is not engaged nor will it engage, principally, or as one of its important activities, in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U or Regulation G.

8.25. Investment Company Act; Other Regulations. Borrower is not an “investment company” or a company “controlled” by an “investment company” within

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the meaning of the Investment Company Act of 1940 and the regulations issued thereunder, each as amended. Borrower is not subject to regulations under any federal or state statute or regulation which limits its ability to incur indebtedness.

8.26. ERISA. (a) Borrower is not, and does not maintain, contribute to, or have any obligation to contribute to, an “employee benefit plan,” as defined in §3(3) of ERISA, subject to Title I of ERISA, a “plan” as defined in and subject to Section 4975 of the Code, and subject thereto, or a “governmental plan” within the meaning of Section 3(3) of ERISA; (b) none of the assets of Borrower constitute “plan assets” of one or more such plans within the meaning of 29 C.F.R. §2510.3; and (c) Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans.

8.27. No Illegal Activity as Source of Funds. No portion of the Property has been or will be purchased, improved, equipped or furnished with proceeds of any illegal activity.

8.28. Compliance with Anti-Terrorism. Embargo, Sanctions and Anti-Money Laundering Laws. Borrower, SPE Equity Owner, each Guarantor, the Property Manager, and to the best of Borrower’s knowledge, after having made reasonable inquiry (a) each Person owning an interest in Borrower, SPE Equity Owner, a Guarantor, or the Property Manager (if the Property Manager is an Affiliate of Borrower) and (b) each tenant at the Property: (i) is not currently identified on OFAC List, and (ii) is not a Person with whom a citizen of the United States is prohibited to engage in transactions by any trade embargo, economic sanction, or other prohibition of United States law, regulation, or Executive Order of the President of the United States. Borrower agrees to confirm this representation and warranty in writing on an annual basis if requested by Lender to do so.

8.29. Brokers and Financial Advisors. Borrower has not dealt with any financial advisor, broker, underwriter, placement agent or finder in connection with the transaction contemplated by this Loan Agreement who may be owed a commission or other compensation which Borrower will not have paid in full as of the Closing Date.

8.30. Equity Contribution. As of the Closing Date, Borrower’s cash investment in the Property is not less than $857,972.

8.31. Complete Disclosure; No Change in Facts or Circumstances. Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any representation or warranty made herein to be materially inaccurate, incomplete or misleading. All information provided in or supplied with the application for Loan, or in satisfaction of the terms thereof, remains true, complete and correct in all material respects, and no adverse change in any condition or fact has occurred that would make any of such information materially inaccurate, incomplete or misleading.

8.32. Survival. The representations and warranties contained in this Article 8 survive for so long as the Loan remains payable and any Obligation remains to be performed.

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ARTICLE 9

BORROWER COVENANTS

9.01. Payment of Debt and Performance of Obligations. Borrower shall fully and punctually pay the Loan and perform the Obligations when and as required by the Loan Documents. Borrower may not prepay the Loan except in strict accordance with this Loan Agreement.

9.02. Payment of Taxes and Other Lienable Charges.

(a) Payment Obligation. Borrower shall promptly and fully pay by their due date all Taxes and Other Charges now or hereafter assessed or charged against the Property as they become due and payable. Borrower shall promptly cause to be paid and discharged any Lien which may be or become a Lien against the Property (including, without limitation, mechanics’ or materialmen’s liens). Except to the extent sums sufficient to pay Taxes or Other Charges have been deposited with Lender in accordance with this Loan Agreement, Borrower shall furnish to Lender, upon request, evidence satisfactory to Lender that all Taxes and Other Charges have been paid and are not delinquent.

(b) Right to Contest. After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith with due diligence, the amount or validity or application in whole or in part of any of the Taxes or Other Charges, provided that: (i) no Event of Default exists; (ii) such proceeding suspends the collection of such Taxes or Other Charges and the Property will not be in danger of being sold for such unpaid Taxes or Other Charges, or Borrower has paid all of such Taxes or Other Charges under protest; (iii) such proceeding is permitted under and is conducted in accordance with the provisions of any other instrument to which Borrower or the Property is subject and does not constitute a default thereunder; (iv) if Borrower has not paid the disputed amounts in full under protest, Borrower shall deposit with Lender cash (or other security as may be approved, in writing, by Lender) in an amount Lender deems sufficient to insure the payment of any such Taxes or Other Charges together with interest and penalties thereon, if any, provided that after a Securitization, one hundred twenty-five percent (125%) of the contested amount (plus anticipated penalty and interest) shall be deposited with Lender; (v) Borrower furnishes to Lender all other items reasonably requested by Lender; and (vi) upon a final determination thereof, Borrower promptly pays the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith. Lender may pay over any security held by Lender pursuant to this Section to the claimant entitled thereto at any time when, in Lender’s judgment, the entitlement of such claimant is established, and, to the extent the security posted by Borrower with Lender is insufficient to pay the full amount due (including, without limitation, any penalties or interest thereon), Borrower shall be liable for the deficiency. If Lender pays the deficiency (which Lender shall not be obligated to do), the amount paid by Lender shall be added to principal, shall bear interest at the Default Rate

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until paid in full and payment of such amounts shall be secured by the Security Instrument and other collateral given to secure the Loan.

9.03. Insurance.

(a) Insurance Required During the Loan Term. Borrower, at Borrower’s expense, shall obtain and maintain during the term of the Loan such insurance coverage (including, without limitation, type, minimum coverage amount, maximum deductible and acceptable exclusions) for Borrower and the Property as Lender deems reasonably necessary considering, among other things, the location and occupancy of the Property and all uses of the Property. Lender reserves the right to periodically review the insurance coverage Lender has required (types, minimum coverage amounts and maximum deductibles) and to increase or otherwise change the required coverage should Lender deem an increase or change to be reasonably necessary under then existing circumstances. Without limiting Lender’s rights hereunder in any respect, it shall be deemed reasonable for Lender to require no less coverage than the coverage Lender required to be in place on the Closing Date. Subject to the foregoing, Lender shall require the following insurance coverage to be effective during the term of the Loan, coverage amounts and deductibles to be acceptable to Lender:

(i) Property Insurance. Casualty insurance must be maintained for the Improvements and all Personal Property insuring against any peril now or hereafter included within the classification “special perils” and in an amount at all times sufficient to prevent Borrower or Lender from becoming a co-insurer within the terms of the applicable policies but in any event at all times equal to the full replacement cost (as reasonably determined and adjusted from time to time by Lender) of the Improvements and Personal Property (without taking into account any depreciation and exclusive of excavations, footings and foundations, landscaping and paving), without any exclusions for windstorms. Where any part of the Improvements constitutes a legal non-conforming use or structure under the Requirements of Law, such insurance must include “Ordinance of Law Coverage,” with “Time Element,” “Loss to the Undamaged Portion of the Building,” “Demolition Cost” and “Increased Cost of Construction” endorsements, in the amount of coverage requested by Lender. The policy must include a debris removal clause. The policy must name Lender as an insured mortgagee under a standard mortgagee clause. The deductible shall not exceed $10,000.

(ii) Insurance against Acts of Terrorism. The insurance coverage provided under Section 9.03(a) in effect as of the Closing Date and during the Loan term must also insure against loss or damage resulting from acts of terrorism or

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comparable coverage acceptable to Lender in its discretion, including, without limitation, in such amount as is at all times sufficient to prevent Borrower or Lender from becoming a co-insurer within the terms of the applicable policy(ies). The deductible shall not exceed $10,000.

(iii)  Boiler and Machinery Insurance. Broad form boiler and machinery insurance (without exclusion for explosion) and systems breakdown coverage must be maintained, covering all steam boilers, pipes, turbines, engines or other pressure vessels, electrical machinery, HVAC equipment, refrigeration equipment and other similar mechanical equipment located in, on or about the Property in such amount per accident equal to the full replacement cost thereof (as reasonably determined and adjusted from time to time by Lender) and also providing coverage against loss of occupancy or use arising from any breakdown thereof. The policy must name Lender as an insured under a standard joint loss clause and provide that all proceeds are to be paid to Lender.

(iv)  Flood Insurance. Flood insurance must be maintained if any portion of the Improvements is located in an area identified by the Federal Emergency Management Agency or any successor thereto as a 100-year flood zone or special hazard area. The required coverage amount shall be. Such coverage may need to be purchased through excess carriers if the required coverage exceeds the maximum insurance available for the Property under the then-current guidelines published by the Federal Emergency Management Agency or any successor thereto. The policy must name Lender as an insured mortgagee under a standard mortgagee clause.

(v) Business Interruption. Business interruption insurance must be maintained in an amount sufficient to provide the lost rental income for the Property for a period of not less than 1 year from the date of Casualty, with a 6 month extended period of indemnity. For purposes of this coverage, “rental income” means the sum of (A) the total, then ascertainable Rents payable under the Leases and (B) the total ascertainable amount of all other payments to be received by Borrower from third parties which are the legal obligation of the tenants, reduced to the extent such amounts would not be received because of operating expenses not incurred during the period that any portion of the Property cannot be occupied as a result of the Casualty.

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The policy must name Lender as a loss payee and provide that all proceeds are to be paid to Lender.

(vi)  Liability Insurance. Commercial general liability insurance coverage must be maintained, covering bodily injury or death and property damage, including all legal liability to the extent insurable and all court costs, legal fees and expenses, arising out of, or connected with, the possession, use, leasing, operation, maintenance or condition of the Property in such amounts generally required by institutional lenders for properties comparable to the Property but in no event for a combined single limit of less than $2,000,000 aggregate and $1,000,000 per occurrence. In addition to the required Commercial General Liability insurance, Borrower shall maintain an Umbrella and Excess Liability Policy for an amount equal to a minimum of $5,000,000. The required coverage must provide for claims to be made on an occurrence basis. The policy must name Lender as an additional insured. The deductible shall not exceed $5,000.

(vii)  Workers’ Compensation Insurance. Workers’ compensation insurance must be maintained with respect to all employees employed at the Property, in compliance with the laws of the state in which the Property is located.

(viii)  Earthquake Insurance. If the Property is located in a high earthquake hazard area, earthquake must be maintained in form, amount and with deductibles satisfactory to Lender.

(ix)  Other Coverage. Without limiting Lender’s rights under this Section 9.03(a), Lender may also require Borrower to maintain builder’s risk insurance during any period of construction, renovation or alteration of the Improvements, motor vehicles liability insurance in connection with all owned or non-owned motor vehicles used in connection with the management or maintenance of the Property, “dram shop” or similar coverage if alcoholic beverages are sold at the Property, fidelity bond coverage for employees handling Rents and other income from the Property, environmental insurance, sinkhole coverage and other insurance with respect to the Property or on any replacements or substitutions thereof or additions thereto against other insurable hazards or casualties which at the time are commonly insured against in the case of property similarly situated, due regard being given to the height and

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type of buildings, their construction, location, use and occupancy.

(b) Qualified Insurers; Lender’s Consent. All insurance must be issued under valid and enforceable policies of insurance acceptable to Lender and issued by one or more domestic primary insurers authorized to issue insurance in the state in which the Property is located. Each insurer must have a minimum investment grade rating of “A” from S & P and equivalent ratings from one or more Rating Agencies acceptable to Lender. Lender’s approval of insurance coverage at any time is not a representation or warranty concerning the sufficiency of any coverage or the solvency of any insurer, and Lender shall not be responsible for, nor incur any liability for, the insolvency of the insurer or other failure of the insurer to perform.

(c) Policy Requirements. All policies must be for a term of not less than a year and name Lender as a beneficiary of such coverage as provided in this Section 9.03 or otherwise identified by Lender. Each policy must also contain: (i) an endorsement or provision that permits recovery by Lender notwithstanding the negligent or willful acts or omission of Borrower; (ii) a waiver of subrogation endorsement as to Lender to the extent available at commercially reasonable rates; (iii) a provision that prohibits cancellation or termination before the expiration date, denial of coverage upon renewal, or material modification without at least thirty (30) days prior written notice to Lender in each instance; and (iv) effective waivers by the insurer of all claims for Insurance Premiums against Lender. To the extent not specified above, the deductibles and loss payees under each policy shall be subject to Lender’s approval. If the required insurance coverage is to be provided under a blanket policy covering the Property and other properties and assets not part of the Property, such blanket policy must specify the portion of the total coverage that is allocated to the Property and any sublimit in such blanket policy which is applicable to the Property and shall otherwise comply in all respects with the requirements of this Section 9.03.

(d) Evidence of Insurance.

Borrower must deliver to Lender on or before the Closing Date one of the following: (i) the original of each insurance policy required hereunder, (ii) a copy of each original policy certified by the insurance agent to be a true, correct and complete copy of the original; (iii) the insurance binder (Acord Form 25S provided by the insurance carrier) (as well as proof of payment of the premium for the first year); (iv) a certificate of insurance (Acord Form 28 provided by the insurance agent or, where form Acord Form 28 is not available, a certificate of insurance confirms the same rights as are confirmed by form Acord Form 28); or (v) an original letter from the insurance carrier on the primary layer, signed by an officer of such carrier, attaching the form of insurance policy pursuant to which coverage will be provided (and, if applicable, an original letter from each insurance carrier on the excess layers, signed by an officer of each such carrier, agreeing that it is bound to the form of insurance policy delivered by the primary carrier (i.e., agreeing to “follow form” to the primary carrier); provided each such letter must: (A) set forth the date by which the policy will be delivered to the Lender, which must not be more than sixty (60) days following the Closing Date, and (B) include as attachments

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all mortgagee/loss payee/additional insured endorsements. Evidence of the required coverage for the first year of the Loan (as well as proof of payment of the first year’s premium) must be delivered to Lender on or before the Closing Date and thereafter not less than thirty (30) days prior to the expiration date of each policy.

(e) Lender’s Right to Obtain Insurance for Borrower. If Borrower fails to deliver to Lender the evidence of insurance coverage required by this Loan Agreement and does not cure such deficiency within ten (10) days after Lender’s notice of nondelivery, an Event of Default shall be deemed to have occurred (without further cure period or notice) and Lender may procure such insurance at Borrower’s expense, without prejudice to Lender’s rights upon an Event of Default. All amounts advanced by Lender to procure the required insurance shall be added to principal, secured by the Security Instrument and bear interest at the Default Rate. Lender shall not be responsible for, nor incur any liability for the insolvency of the insurer or other failure of the insurer to perform, even though Lender has caused the insurance to be placed with the insurer after Borrower’s failure to furnish such insurance.

(f) Additional Insurance. Borrower shall not obtain insurance for the Property in addition to that required by Lender without Lender’s prior written consent, which consent will not be unreasonably withheld provided that (i) Lender is named insured on such insurance, (ii) Lender receives evidence of such insurance as required by subsection (d) above, and (iii) such insurance complies with all of the applicable requirements set forth in this Loan Agreement.

9.04. Obligations upon Condemnation or Casualty. If the Property, or any portion thereof, shall be damaged or destroyed by a Casualty or become subject to any Condemnation, the following shall apply:

(a) Generally. Borrower shall promptly notify Lender, in writing, of any actual or threatened Condemnation or of any Casualty that damages or renders unusable the Property or any part thereof and, except as otherwise provided below, shall promptly and diligently pursue Borrower’s claim for a Condemnation award or insurance proceeds, as applicable. Borrower shall not make any agreement in lieu of Condemnation or accept any Condemnation award of $250,000 or more without Lender’s prior written consent. Borrower shall not accept any settlement of insurance proceeds of $250,000 or more with respect to a Casualty without Lender’s prior written consent. If requested by Lender, Borrower agrees to provide copies to Lender of all notices or filings made or received by Borrower in connection with the Casualty or Condemnation or with respect to collection of the insurance proceeds or Condemnation award, as applicable. Notwithstanding that a Casualty or Condemnation has occurred, or that rights to a Condemnation award or insurance proceeds are pending, Borrower shall continue to pay the Loan at the time and in the manner provided in this Loan Agreement.

(b) Lender Right to Pursue Claim. Borrower hereby grants Lender the authority, at Lender’s option, either: (i) to settle and adjust any claim arising with respect to the Casualty or Condemnation without Borrower’s consent, or (ii) to allow Borrower to settle and adjust such claim; provided that, in either case, the insurance proceeds or

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Condemnation award, as applicable, is paid directly to Lender. Borrower hereby appoints Lender its attorney-in-fact with full power of substitution (and which shall be deemed to be coupled with an interest and irrevocable until the Loan is paid and the Security Instrument is discharged of record, with Borrower hereby ratifying all that its said attorney shall do by virtue thereof) to endorse any agreements, instruments or drafts received in connection with a Casualty or Condemnation. If any portion of the insurance proceeds or Condemnation award, as applicable, should be paid directly to Borrower, Borrower shall be deemed to hold such amounts in trust for Lender and shall promptly remit such amounts to Lender. If the Property is sold, through foreclosure or otherwise, prior to the receipt of the Condemnation award, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the proceeds of such sale in an amount sufficient to pay the Loan in full. All expenses incurred by Lender in the settlement and collection of amounts paid with respect to a Casualty or Condemnation (including, without limitation, reasonable legal fees and expenses) shall be deducted and reimbursed to Lender from the insurance proceeds or Condemnation award, as applicable, prior to any other application thereof. The insurance proceeds or Condemnation award paid or payable on account of a Casualty or Condemnation, as applicable (including all business interruption insurance proceeds paid as a result of such Casualty or Condemnation), less expenses to be reimbursed to Lender hereunder, is referred to herein as the “Restoration Proceeds.”

(c) Application of Restoration Proceeds; Restoration Obligations. Except as specifically hereafter provided in subsection (d) below, Lender may, in its sole discretion, either (i) apply the Restoration Proceeds to payment of the Loan, whether or not then due and payable, or (ii) hold and release the Restoration Proceeds to Borrower (A) for the costs of Restoration undertaken by Borrower in accordance with this Loan Agreement and (B) to cover any shortfall in Operating Income as a result of such Casualty or Condemnation that is necessary to pay in full the debt service payments due from Borrower on each Payment Due Date and other Operating Expenses falling due during the period until Restoration is completed; provided, however, that Lender shall have no obligation to release Restoration Proceeds to fund amounts contemplated by clause (B) unless (1) Lender is satisfied that Restoration Proceeds are sufficient to pay in full the estimated cost to complete Restoration and (2) all Operating Expenses to be funded with Restoration Proceeds are approved by Lender. If Lender applies Restoration Proceeds to payment of the Loan and the Loan is still outstanding, interest will continue to accrue and be due on the unpaid principal at the Applicable Interest Rate. If Lender makes the Restoration Proceeds available to Borrower for Restoration, Borrower shall diligently pursue Restoration so as to restore the Property to at least equal value and substantially the same character as existed immediately prior to such Casualty or Condemnation. All plans and specifications for the Restoration and all contractors, subcontractors and materialmen to be engaged in the Restoration, as well as the contracts under which they have been engaged, shall be subject to Lender’s prior review and approval. Lender may engage, at Borrower’s expense, an independent engineer or inspector to assist Lender in its review of the approvals requested of Lender in connection with the Restoration and to periodically inspect the Restoration in progress and upon substantial completion.

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(d) Condition to Release of Restoration Proceeds for Restoration. Lender agrees to make the Restoration Proceeds available to Borrower for Restoration as long as:

(i) The Restoration Proceeds recovered are less than the outstanding principal balance of the Loan.

(ii) No Event of Default exists.

(iii) Borrower demonstrates to Lender’s satisfaction that the Restoration Proceeds are sufficient to pay in full the estimated cost to complete Restoration and any shortfalls in Operating Income as a result of such Casualty or Condemnation that are anticipated until Restoration is substantially completed, or, if the Restoration Proceeds are determined by Lender to be insufficient to pay such costs in full, Borrower deposits with Lender, in cash or by a cash equivalent acceptable to Lender, the additional amount estimated by Lender to be necessary to pay the full cost of Restoration (“Restoration Deficiency Deposit”).

(iv) Restoration can be completed not later than the earlier of (A) not less than six (6) months prior to the Maturity Date (without taking into consideration any unexercised extension), (B) the earliest date by which completion is required under any Major Lease, (C) the earliest date by which completion is required under the Requirements of Law to preserve the right to rebuild the Improvements as they existed prior to the Casualty or Condemnation or (D) the expiration of Borrower’s business interruption insurance.

(v) If a Condemnation has occurred, less than ten percent (10%) of the Land is taken and the land taken is along the perimeter or periphery of the Land, and no portion of the Improvements are taken.

(vi) If a Casualty has occurred, less than twenty-five percent (25%) of the total floor area of the Improvements is damaged or rendered unusable by the Casualty and Borrower demonstrates to Lender’s satisfaction that a reasonable means of access exists to the Property and within the Improvements unaffected by the Casualty.

(vii) Borrower demonstrates to Lender’s satisfaction that, upon completion of Restoration, the net cash flow of the Property will be restored to a level sufficient to cover all Operating

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Expenses of the Property, including, without limitation, supporting a Debt Service Coverage Ratio at least equal to, or greater than, the greater of (A) the Debt Service Coverage Ratio existing as of the Closing Date, or (B) the Debt Service Coverage Ratio which existed as of the date immediately preceding such Casualty or Condemnation.

(viii) The Property and its use after completion of Restoration will be in compliance with, and permitted under, all Requirements of Law.

(e) Disbursement Procedure; Holdback. If the Restoration Proceeds will be made available by Lender to Borrower for Restoration and the estimated cost of Restoration approved by Lender (together with all other amounts then held by Borrower pursuant to this Subsection (e)) is less than $250,000, Lender shall disburse the entire amount of the Restoration Proceeds to Borrower, and Borrower hereby covenants and agrees to use the Restoration Proceeds solely for Restoration performed in accordance with this Loan Agreement. If, however, the estimated cost of Restoration approved by Lender (together with all other amounts then held by Borrower pursuant to this Subsection (e)) is $250,000 or more, Lender may retain the Restoration Proceeds in a non-interest bearing escrow account and make periodic disbursements to Borrower as follows:

(i) Disbursements for Restoration.

(A) Lender will disburse Restoration Proceeds for the costs of Restoration to, or as directed by, Borrower from time to time during the course of the Restoration, upon receipt of evidence reasonably satisfactory to Lender that (1) all materials installed and work and labor performed in connection with the Restoration have been paid in full (except to the extent that they are to be paid out of the requested disbursement), and (2) there exist no notices of pendency, stop orders, mechanic’s or materialmen’s liens or notices of intention to file same, or any other Liens of any nature whatsoever on the Property arising out of the Restoration which have not either been fully bonded and discharged of record or, in the alternative, fully insured to Lender’s reasonable satisfaction by the title company insuring the Lien of the Security Instrument.

(B) Lender may limit disbursements to not more than one (1) per month.

(C) Lender may hold-back from each requested disbursement an amount equal to the greater of (1) ten percent (10%) of the requested disbursement or (2) the amount which Borrower is permitted to withhold under its contract with the contractor or supplier to be paid with the proceeds of such disbursement (either, a “Restoration Holdback”). Amounts held as the Restoration Holdback shall be disbursed once: (1) Lender receives satisfactory evidence that Restoration has been fully completed in accordance with all Requirements of Law; (2) Lender receives satisfactory evidence that all Restoration costs have been paid in full or will be fully paid from the

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remaining Restoration Proceeds and the Restoration Holdback; and (3) Lender receives, at Lender’s option, a search of title to the Property, effective as of the date on which the Restoration Holdback is to be disbursed, showing no Liens other than the Permitted Encumbrances or an endorsement to its Title Insurance Policy which updates the effective date of such policy to the date on which the Restoration Holdback is to be disbursed and which shows no Liens since the date of recordation of the Security Instrument (other than the Permitted Encumbrances).

(D) Notwithstanding subsection (C) above, Lender may release from the Restoration Holdback payments to a contractor or supplier if: (1) Lender receives satisfactory evidence that such contractor has satisfactorily completed its contract with Borrower; (2) such contractor or supplier delivers to Lender an acceptable written waiver of its mechanic’s lien, in recordable form; and (3) Borrower provides written consent from the surety company, if any, which has issued a payment or performance bond with respect to such contractor or supplier.

(ii) Disbursements for Shortfalls in Operating Income. Provided that Lender determines that the Restoration Proceeds are sufficient to pay in full the estimated cost to complete Restoration, Lender will disburse Restoration Proceeds not reserved for Restoration to pay the shortfall in Operating Income necessary to pay (A) first, the debt service payments due from Borrower on each Payment Due Date falling due from the date of the Casualty or Condemnation through the date on which Restoration is substantially completed and (B) then, any Operating Expenses approved by Lender. Lender may require satisfactory evidence that Operating Expenses to be paid have been incurred and may issue payments directly to the Person entitled to the payment claimed as an Operating Expense.

(iii) Restoration Proceeds Deemed Insufficient. If, in Lender’s judgment, at any time during Restoration, the undisbursed portion of the Restoration Proceeds shall not be sufficient to pay the costs remaining for Restoration to be completed or to pay any shortfall in Operating Income needed to pay in full Borrower’s debt service payments on the Loan and Operating Expenses anticipated to be incurred during the period of Restoration, Borrower shall deposit the deficiency with Lender, in cash or by a cash equivalent acceptable to Lender (also called a “Restoration Deficiency Deposit”), within ten (10) days after Lender’s notice of such deficiency, and no further disbursement of the Restoration Proceeds will be made until such funds are deposited. Amounts held by Lender as the Restoration Deficiency

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Deposit shall be disbursed in accordance with this Section 9.04.

(iv) Consequence of Event of Default. Lender shall not be obligated to disburse Restoration Proceeds or amounts from the Restoration Holdback when an Event of Default exists, and upon the occurrence of an Event of Default, any undisbursed portion of the Restoration Proceeds (including the Restoration Deficiency Deposit and the Restoration Holdback) may, at Lender’s option, be applied against the Loan, whether or not then due or accelerated, in such order and manner as Lender determines.

(v) Surplus Restoration Proceeds After Restoration Completion. Any Restoration Proceeds remaining after full payment of Restoration costs and unpaid expenses due to Lender for which Lender is permitted reimbursement under this Section 9.04 shall be released to Borrower provided no Event of Default exists, and Borrower delivers evidence satisfactory to Lender that (A) Restoration has been fully completed in accordance with all Requirements of Law and (B) the Property is free and clear of all Liens which may be asserted with respect to the Restoration.

9.05. Inspections and Right of Entry. Lender and its agents may enter the Property upon prior notice to Borrower (notice to be given unless an Event of Default or an emergency exists, as determined by Lender in good faith) to inspect the Property and Borrower’s books and records relating to the Property. In making such entry and inspection, Lender agrees to use reasonable efforts to minimize disturbance to Borrower and tenants of the Property. Lender and its agents shall have access, at all reasonable times, to the Property, including, without limitation, all contracts, plans and specifications, permits, licenses and approvals required or obtained in connection with the Property.

9.06. Leases and Rents.

(a) Right to Enter into New Leases. Borrower may enter into new Leases for space at the Property and renew or extend existing Leases without Lender’s prior written consent provided that each such Lease: (i) is not a Major Lease; (ii) is documented using, and does not materially deviate from, the Standard Lease Form; (iii) provides for rental rates and terms comparable to existing local market rates and terms (taking into account the type and quality of the tenant) as of the date such Lease is executed (unless in the case of a renewal or extension, the rent payable during such renewal term, or a formula or other method to compute such rent, has been specified in the original Lease) and such rental rates (net of any concessions) are not less than ninety-five percent (95%) of proforma rates set forth in the Approved Budget; (iv) is an arms-length transaction with a tenant that is not an Affiliate of Borrower; (v) will not have a

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Material Adverse Effect on the value of the Property taken as a whole; and (vi) is subordinate to the Security Instrument (other than with respect to residential leases). All proposed Leases that do not satisfy the requirements set forth in this Section require Lender’s prior written approval at Borrower’s expense (including reasonable legal fees and expenses). Borrower shall promptly deliver to Lender a copy of each Lease (other than a residential lease) entered into after the Closing Date, together with written certification from a Responsible Officer which confirms that (x) the copy delivered is a true, complete and correct copy of such Lease and (y) Borrower has satisfied all conditions of this Section. Lender’s acceptance of Borrower’s certification or a copy of any Lease shall not be deemed a waiver of the requirements of this Section if the Lease is not in compliance herewith.

(b) Leasing Decisions. Provided no Event of Default exists, so long as the Lease is not a Major Lease (or as a result of any of the following actions to be taken would become a Major Lease) and except as otherwise provided in this Subsection, Borrower may, without Lender’s prior written consent: (i) amend or supplement any Lease or waive any term thereof (including, without limitation, shortening the Lease term, reducing Rents, granting Rent abatements, or accepting a surrender of all or any portion of the leased space); (ii) cancel or terminate any Lease; (iii) consent to a tenant’s assignment of its Lease or subleasing of space; or (iv) amend, supplement, waive or terminate any Lease Guaranty; provided that none of the foregoing actions (taking into account the planned alternative use of the affected space in the case of termination, rent reduction, surrender of space or shortening of term) will have a Material Adverse Effect on the value of the Property taken as a whole and such Lease, as amended, supplemented or waived, is otherwise in compliance with the requirements of Section 9.06(a) hereof. Termination of a Lease (other than a Major Lease) with a tenant who is in default beyond applicable notice and grace/cure periods shall not be considered an action which has a Material Adverse Effect on the value of the Property taken as a whole. Any action with respect to any Lease that does not satisfy the requirements set forth in this Section 9.06 requires Lender’s prior written approval at Borrower’s expense (including reasonable legal fees). Borrower shall promptly deliver to Lender a copy of all instruments documenting the action taken, together with written certification from a Responsible Officer that (x) the copies delivered are true, complete and correct copies of the materials represented thereby and (y) Borrower has satisfied all conditions of this Section 9.06. Lender’s acceptance of Borrower’s certification or a copy of such Lease materials shall not be deemed a waiver of the requirements of this Section 9.06 if the action taken is not in compliance herewith.

(c) Observance of Lessor Obligations. Borrower (i) shall observe and perform all obligations imposed upon the lessor under the Leases and shall not do or permit to be done anything to impair the value of any of the Leases as security for the Loan; (ii) upon Lender’s request, shall promptly send copies to Lender of all notices of default which Borrower shall send or receive (or may have sent or received) under any non-residential Lease; (iii) shall enforce in a commercially reasonable manner all of the material terms, covenants and conditions contained in the Leases to be observed or performed by the tenant; (iv) shall not collect any Rents more than one (1) month in advance (and for this purpose a security deposit shall not be deemed Rent collected in

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advance); and (v) shall not execute any assignment or pledge of the lessor’s interest in any of the Leases or the Rents (other than in connection with the Loan).

9.07. Use of Property. Borrower shall not allow changes in the use of the Property without Lender’s prior written consent. Borrower shall not initiate, join in, or consent to any change in any private restrictive covenant or zoning or land use ordinance limiting or defining the uses which may be made of the Property. If use of all or any portion of the Property is or shall become a nonconforming use, Borrower will not cause or permit the nonconforming use to be discontinued or the nonconforming portion of the Property to be abandoned without Lender’s prior written consent.

9.08. Maintenance of Property. Borrower shall maintain the Property in a good and safe condition and repair. No portion of the Property shall be removed, demolished or materially altered (except for normal repair or replacement) without Lender’s prior written consent. Borrower shall promptly repair or replace any portion of the Property which may become damaged, worn or dilapidated.

9.09. Waste. Borrower shall not commit or suffer any waste of the Property or do or permit to be done thereon anything that may in any way impair the value of the Property or invalidate the insurance coverage required hereunder to be maintained by Borrower. Borrower will not, without Lender’s prior written consent, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Property, regardless of the depth thereof or the method of mining or extraction thereof.

9.10. Compliance with Laws, Licenses, Permits and Other Approvals.

(a) Obligation to Perform. Borrower shall promptly and fully comply with all (i) Requirements of Law now or hereafter affecting the Property, and (ii) all licenses, permits, registrations, certificates and other approvals, governmental or otherwise, necessary for the use, occupancy and operation of the Property and the conduct of its business thereat. Borrower shall notify Lender promptly of Borrower’s knowledge or receipt of any notice related to a violation of any Requirements of Law or of the commencement of any proceedings or investigations which relate to compliance with Requirements of Law. At Lender’s request, Borrower shall provide Lender with copies of all notices, reports or other documents relating to any litigation or governmental investigation relating to Borrower or the Property.

(b) Right to Contest. After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the Requirements of Law affecting the Property or alleged violation thereof, provided that: (i) no Event of Default exists; (ii) such proceeding shall be permitted under and be conducted in accordance with the Requirements of Law; (iii) the Property will not be in danger of being sold, forfeited, terminated, cancelled or lost; (iv) non-compliance with such Requirement of Law shall not impose any civil, criminal or environmental liability on Lender or Borrower; (v) Borrower deposits with Lender cash (or other security acceptable to Lender) in such

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amount as Lender deems sufficient to cover loss or damage that may result from Borrower’s failure to prevail in such contest, provided that after a Securitization, one hundred twenty-five percent (125%) of the amount estimated by Lender is deposited; (vi) Borrower furnishes to Lender all other items reasonably requested by Lender; and (vii) upon a final determination thereof, Borrower promptly complies with the obligations determined to be applicable.

9.11. Financial Reports, Books and Records.

(a) Delivery of Financial Statements. Borrower shall keep adequate books and records of account with respect to its financial condition and the operation of the Property, in accordance with GAAP consistently applied (or such other method which is reasonably acceptable to Lender), and shall furnish the following to Lender, each prepared in such detail as reasonably required by Lender and certified by a Responsible Officer to be true, complete and correct:

(i) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a monthly Rent Roll providing the required information as of the end of such calendar month;

(ii) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a monthly operating statement for the Property detailing the operating income received, operating expenses incurred, the cost of all Immediate Repairs, Replacements and Tenant Improvements and Leasing Commissions performed or paid during such quarter;

(iii) within thirty (30) days after the end of each calendar month, a monthly, Compliance Certificate;

(iv) as soon as available, but in any event within ninety (90) days after the close of Borrower’s fiscal year, (A) an annual Rent Roll, presented on an annual basis consistent with the monthly Rent Rolls described above; (B) an annual operating statement for the Property presented on an annual basis consistent with the monthly operating statements described above; (C) an annual balance sheet and profit and loss statement for Borrower; and (D) a statement of change of financial position of Borrower, setting forth in comparative form the figures for the previous fiscal year;

(v) as soon as available, but in any event at least thirty (30) days prior to the start of each calendar year, an annual operating budget for the Property presented on a monthly basis consistent with the information required in the

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monthly operating statement described above which budget shall be subject to Lender’s approval (each such budget as approved, the “Approved Budget”); and

(vi) such other financial information or property management information (including, without limitation, copies of Borrower’s state and federal tax returns, information on tenants under Leases to the extent such information is available to Borrower, copies of bank account statements from financial institutions where funds owned or controlled by Borrower are maintained, and an accounting of security deposits) as may reasonably be required by Lender from time to time.

(b) Lender Audit Rights. Lender and its agents have the right, upon prior written notice to Borrower (notice to be given unless an Event of Default exists), to examine the records, books and other papers which reflect upon Borrower’s financial condition or pertain to the income, expense and management of the Property and to make copies and abstracts from such materials. Lender also shall have the right, from time to time (but, in the absence of an Event of Default existing, not more than annually) and upon prior notice to Borrower (notice to be given unless an Event of Default exists), to have an independent audit conducted of any of Borrower’s financial information. Lender shall pay the cost of such audit unless Lender performed the audit following the occurrence of an Event of Default or if the results of Lender’s audit disclose an error by more than ten percent (10%), in which case (and in addition to Lender’s other remedies) Borrower shall pay the cost incurred by Lender with respect to such audit upon Lender’s demand. Upon Borrower’s failure to pay such amounts, and in addition to Lender’s remedies for Borrower’s failure to perform, the unpaid amounts shall be added to principal, shall bear interest at the Default Rate until paid in full, and payment of such amounts shall be secured by the Security Instrument and other collateral given to secure the Loan.

(c) Financial Reports From Guarantors and SPE Equity Owner. Borrower shall cause each Guarantor and, at Lender’s request, the SPE Equity Owner, to provide to Lender (i) within ninety (90) days after the close of such party’s fiscal year, such party’s balance sheet and profit and loss statement (or if such party is an individual, within ninety (90) days after the close of each calendar year, such party’s personal financial statements) in form reasonably satisfactory to Lender and certified by such party to be accurate and complete; and (ii) such additional financial information (including, without limitation, copies of state and federal tax returns) as Lender may reasonably require from time to time and in such detail as reasonably required by Lender.

9.12. Performance of Other Agreements. Borrower shall observe and perform in a timely manner each and every obligation to be observed or performed by Borrower pursuant to the terms of any agreement or recorded instrument affecting or pertaining to the Property or used in connection with the operation of the Property (including, without limitation, the Operating Agreements). Without limiting the foregoing, Borrower shall

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(a) give prompt notice to Lender of any notice received by Borrower with respect to any of the Operating Agreements which alleges a default or nonperformance by Borrower thereunder, together with a complete copy of any such notice; (b) enforce, short of termination, performance of the Operating Agreements to be performed or observed, and (c) not terminate or amend, or waive compliance with, any of the Operating Agreements without Lender’s prior written consent, except as may be (i) permitted pursuant to the respective terms thereof or (ii) absent the existence of an Event of Default, done in the ordinary course of business. If the absence of an Operating Agreement that has terminated will have a Material Adverse Effect on the value of the Property, Borrower agrees to enter into a new Operating Agreement in replacement of the terminated Operating Agreement, containing terms and conditions no less favorable to Borrower than the terminated Operating Agreement. Borrower shall notify Lender if Borrower does not replace the terminated Operating Agreement.

9.13. Existence; Change of Name; Location as a Registered Organization. Borrower shall continuously maintain (a) its existence and shall not dissolve or permit its dissolution, and (b) its rights and franchises to do business in the state where the Property is located. Borrower shall not change Borrower’s name, legal entity, or its location as a registered organization within the meaning of the UCC, without notifying Lender of such change in writing at least thirty (30) days prior to its effective date. The notification requirements set forth in this Section 9.13 are in addition to, and not in limitation of, the requirements of Article 7. Borrower shall pay all costs and expenses incurred by Lender (including, without limitation, reasonable legal fees) in connection with any change described herein.

9.14. Property Management.

(a) Borrower shall cause the Property Manager to manage the Property in a first class manner. Borrower shall not remove or replace the Property Manager (which, with respect to a Property Manager which is an Affiliate of Borrower, shall be deemed to occur upon a change of Control of the Property Manager) or modify or waive any material terms of the Property Management Contract without Lender’s prior written consent and, if requested by Lender, a Rating Confirmation. Upon replacement of the Property Manager, Borrower shall, and shall cause the new manager of the Property to, execute an Assignment of Property Management Contract in form and substance similar to the Assignment of Property Management Contract executed by the Property Manager. Borrower shall comply with all obligations of Borrower under the Assignment of Property Management Contract. The property management fee and all other fees payable under the Property Management Contract shall not exceed five percent (5%) of gross revenues.

(b) Termination of Property Manager. Borrower agrees, that, if (i) irrespective of whether an Event of Default exists, Lender, in its reasonable discretion, determines that the Property is not being properly managed in accordance with management practices customarily employed for properties similar to the Property, (ii) an Event of Default exists, (iii) a default or event of default exists under the Property Management Contract, or (iv) Property Manager becomes insolvent, Lender may direct

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Borrower to terminate the Property Management Contract and to replace Property Manager with a management company acceptable to Lender, provided that, with respect to Section 9.14(b)(i) only, prior to requiring the termination of the Property Management Contract, Lender shall deliver written notice to Borrower and Property Manager, which notice shall specify in reasonable detail the grounds for Lender’s determination. If Lender reasonably determines that the conditions specified in Lender’s notice are not remedied to Lender’s reasonable satisfaction by Borrower or Property Manager within thirty (30) days from receipt of such notice or if Borrower or Property Manager has failed to diligently undertake correcting such conditions within such thirty (30) day period, Lender may direct Borrower to terminate the Property Management Contract and to replace Property Manager with a management company acceptable to Lender.

9.15. ERISA. Borrower shall not engage in any transaction which would cause any obligation or action taken or to be taken hereunder by Borrower (or the exercise by Lender of any of its rights under any of the Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA. Borrower agrees to deliver to Lender such certifications or other evidence throughout the term of the Loan as requested by Lender in its sole discretion to confirm compliance with Borrower’s obligations under this Section 9.15 or to confirm that Borrower’s representations and warranties regarding ERISA remain true.

9.16. Compliance with Anti-Terrorism, Embargo, Sanctions and Anti-Money Laundering Laws. Borrower shall comply with all Requirements of Law relating to money laundering, anti-terrorism, trade embargoes and economic sanctions, now or hereafter in effect. Without limiting the foregoing, Borrower shall not take any action, or permit any action to be taken, that would cause Borrower’s representations and warranties in Section 8.28 of this Loan Agreement to become untrue or inaccurate at any time during the term of the Loan. Borrower shall notify Lender promptly of Borrower’s actual knowledge that the representations and warranties in Section 8.28 of this Loan Agreement may no longer be accurate or that any other violation of the foregoing Requirements of Law has occurred or is being investigated by Governmental Authorities. In connection with such an event, Borrower shall comply with all Requirements of Law and directives of Governmental Authorities and, at Lender’s request, provide to Lender copies of all notices, reports and other communications exchanged with, or received from, Governmental Authorities relating to such event. Borrower shall also reimburse Lender for any expense incurred by Lender in evaluating the effect of such an event on the Loan and Lender’s interest in the collateral for the Loan, in obtaining any necessary license from Governmental Authorities as may be necessary for Lender to enforce its rights under the Loan Documents, and in complying with all Requirements of Law applicable to Lender as the result of the existence of such an event and for any penalties or fines imposed upon Lender as a result thereof.

9.17. Net Worth Covenant. Until the Loan is paid in full, Guarantor shall maintain at all times a Net Worth (exclusive of any direct or indirect interest in the Property) at least equal to $6,000,000, and, within ten (10) Business Days of Lender’s request, Borrower shall demonstrate in writing and to Lender’s reasonable satisfaction, compliance with this Section.

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9.18. Liquidity Covenant. Until the Loan is paid in full, Guarantor shall maintain at all times a Liquidity (exclusive of any direct or indirect interest in the Property) at least equal to $2,000,000, and, within ten (10) Business Days of Lender’s request, Borrower shall demonstrate in writing and to Lender’s reasonable satisfaction, compliance with this Section.

9.19. Additional Guarantor. If, at any time, Guarantor fails to satisfy the Net Worth and Liquidity requirements set forth in Sections 9.17 and 9.18 above, Borrower shall be permitted to provide an additional guarantor to satisfy such Net Worth and Liquidity requirements so long as such additional guarantor (i) is acceptable to Lender, in its sole discretion, (ii) executes, without any cost or expense to Lender, a guaranty and/or indemnity agreement, in the same form delivered to Lender on the Closing Date, (iii) delivers a legal opinion with respect to the enforceability of such guaranty and/or indemnity agreement in form and substance similar to the enforceability opinion delivered on the Closing Date and otherwise satisfactory to Lender.

ARTICLE 10

NO TRANSFERS OR ENCUMBRANCES; DUE ON SALE

10.01. Prohibition Against Transfers. Borrower shall not permit any Transfer to be undertaken or cause any Transfer to occur other than a Permitted Transfer. Any Transfer made in violation of this Loan Agreement shall be void.

10.02. Lender Approval. Lender’s decision to approve any Transfer proposed by Borrower shall be made in Lender’s sole discretion and Lender shall not be obligated to approve any Transfer. Borrower agrees to supply all information Lender may request to evaluate a Transfer, including, without limitation, information regarding the proposed transferee’s ownership structure, financial condition and management experience for comparable properties. Borrower acknowledges that Lender may impose conditions to its approval of a Transfer, including, without limitation, (a) no Event of Default, or an event which with the giving of notice or lapse of time or both could become an Event of Default, has occurred and is continuing, (b) approval of the proposed transferee’s ownership structure, financial condition and management experience for comparable properties, (c) payment of an assumption fee equal to one percent (1%) of the outstanding principal balance of the Loan, (d) adding guarantors or changing the scope of the Guaranty, (e) assumption in writing (acceptable to Lender in its sole discretion) by the transferee and a guarantor (which guarantor must be acceptable to Lender in its sole discretion) of all obligations of the transferor and Guarantor under the Loan Documents and execution and delivery of such other documentation as may be required by Lender and the Rating Agencies, (f) a tax opinion and other applicable opinions as required by Lender and the Rating Agencies, (g) adjusting amounts required for the Reserve Accounts, and (h) obtaining Rating Confirmations if a Securitization has occurred. Borrower agrees to pay all of Lender’s expenses incurred in connection with reviewing and documenting a Transfer (including, without limitation, the costs of obtaining Rating Confirmations if required), which amounts must be paid by Borrower whether or not the

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proposed Transfer is approved. Upon Borrower’s failure to pay such amounts, and in addition to Lender’s remedies for Borrower’s failure to perform, the unpaid amounts shall be added to principal, shall bear interest at the Default Rate until paid in full, and payment of such amounts shall be secured by the Security Instrument and other collateral given to secure the Loan.

10.03. Other Releases of the Mortgaged Property. Lender may release any portion of the Property for such consideration and upon such conditions as Lender may require without, as to the remainder of the Property, in any way impairing or affecting the Lien or priority of the Security Instrument or improving the position of any subordinate lienholder with respect thereto, except to the extent that the obligations hereunder shall have been reduced by the actual monetary consideration, if any, received by Lender for such release, and Lender may accept by assignment, pledge or otherwise any other property in place thereof as Lender may require without being accountable for so doing to any other lienholder. Notwithstanding anything to the contrary herein, Borrower shall have no right to request and Lender shall have no obligation to grant its consent to any release pursuant this Section 10.03.

10.04. OFAC Compliance; Substantive Consolidation Opinion. Notwithstanding anything to the contrary contained in this Article 10 (but without any Transfers deemed permitted by solely this Section 10.06), (a) no transfer (whether or not such transfer shall constitute a Transfer) shall be made to any Person on the OFAC List and (b) in the event any transfer (whether or not such transfer shall constitute a Transfer) results in any Person owning in excess of forty-nine percent (49%) of the ownership interest in Borrower or any SPE Equity Owner (if such Person has not owned at least forty-nine percent (49%) of the ownership interest in Borrower or any SPE Equity Owner, as applicable, prior to such transfer), Borrower shall, prior to such transfer, deliver a new substantive consolidation opinion letter (if one was delivered in connection with the closing of the Loan) with respect to the new equity owners which is acceptable in all respects to Lender and to the Rating Agencies if a Securitization has occurred.

10.05. Death or Incapacity of Guarantor. Within thirty (30) days after the death or incapacity of any Guarantor who is an individual, Borrower shall cause a substitute Guarantor approved by Lender in accordance with this Section 10.05 to deliver to Lender a substitute Guaranty and Environmental Indemnity in form and substance identical to the Guaranty and Environmental Indemnity delivered on the Closing Date and a legal opinion with respect to the enforceability of such Guaranty and Environmental Indemnity in form and substance similar to the enforceability opinion delivered on the Closing Date and otherwise satisfactory to Lender. Lender’s approval of a substitute Guarantor shall not be unreasonably withheld provided such substitute Guarantor has a comparable net worth and experience to the Guarantor. Lender’s approval hereunder may be subject in Lender’s discretion to the receipt of a Rating Confirmation, satisfactory credit report and credit check and other due diligence with respect to the substitute Guarantor.

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ARTICLE 11

EVENTS OF DEFAULT; REMEDIES

11.01. Events of Default. The occurrence of any one or more of the following events shall, at Lender’s option, constitute an “Event of Default” hereunder:

(a) If any payment of principal and interest (or interest if the Loan is interest-only) is not paid in full on or before the Payment Due Date on which such payment is due;

(b) If any monthly payment required to be made to a Reserve Account is not paid in full on or before the Payment Due Date on which such payment is due;

(c) If unpaid principal, accrued but unpaid interest and all other amounts outstanding under the Loan Documents are not paid in full on or before the Maturity Date;

(d) If an “Event of Default” as that term is defined under any other Loan Document has occurred;

(e) If the Base Interest Rate Maintenance, Breakage Fee, Spread Maintenance, or Exit Fee is not paid in full when required;

(f) If any representation or warranty made by Borrower, SPE Equity Owner or any Guarantor herein, in the Guaranty, in the Environmental Indemnity or in any other Loan Document, or in any certificate, report, financial statement or other instrument or document furnished to Lender in connection herewith or hereafter, or in connection with any request for consent by Lender made during the term of the Loan shall have been false or misleading in any material respect as of the date made;

(g) If Borrower, SPE Equity Owner or any Guarantor shall (i) make an assignment for the benefit of creditors; (ii) generally not be paying its debts as they become due; or (iii) admit in writing its inability to pay its debts as they become due;

(h) If (i) Borrower, SPE Equity Owner or any Guarantor shall commence any case, proceeding or other action under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors (A) seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets; or (ii) there shall be commenced against Borrower, SPE Equity Owner or any Guarantor any case, proceeding or other action of a nature referred to in clause (i) above by any party other than Lender which (A) results in the entry of an order for relief or any such adjudication or appointment, or (B) remains undismissed, undischarged or unbonded for a period of ninety (90) days; or (iii) there shall be commenced against Borrower, SPE

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Equity Owner or any Guarantor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of any order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within ninety (90) days from the entry thereof; or (iv) Borrower, SPE Equity Owner or any Guarantor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above;

(i) If any Guarantor repudiates or revokes the Guaranty or Environmental Indemnity;

(j) If any judgment for monetary damages is entered against Borrower, SPE Equity Owner or any Guarantor which, in Lender’s sole judgment, has a Material Adverse Effect or is not covered to Lender’s satisfaction by collectible insurance proceeds;

(k) If Borrower or SPE Equity Owner violates or fails to comply with any provision of Article 7 of this Loan Agreement (captioned: Single Purpose Entity Requirements);

(1) If Borrower violates or fails to comply with any of the provisions of Section 9.03 (captioned: Insurance), Section 9.06 (captioned: Leases and Rents), or Section 9.13 (captioned: Existence, Change of Name or Location as a Registered Organization);

(m) If a Transfer (other than a Permitted Transfer) occurs without Lender’s prior written consent or in violation of the terms of Lender’s consent;

(n) If Borrower abandons or ceases work on any Capital Improvement, Immediate Repair, Replacement or Tenant Improvement for a period of more than twenty (20) consecutive days, unless such cessation results from causes beyond the reasonable control of Borrower and Borrower is diligently pursuing reinstitution of such work;

(o) If a Lien other than a Permitted Encumbrance is filed against the Property, unless such Lien is promptly contested in good faith by Borrower as permitted in accordance with Section 9.02 (b);

(p) Intentionally Omitted;

(q) If Guarantor fails to satisfy the Net Worth and Liquidity requirements set forth in Sections 9.17 and 9.18, unless an additional guarantor is provided in accordance with Section 9.19;

(r) If (i) any Rate Cap is terminated for any reason by Borrower or the Rate Cap Provider, or (ii) the Rate Cap Provider defaults in the performance of its monetary obligations under the Rate Cap or (iii) the rating of the Rate Cap Provider is subject to any downgrade, withdrawal or qualification by a Rating Agency, and Borrower does not within ten (10) days (A) replace such Rate Cap with a replacement Rate Cap

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which satisfies all of the requirements of Section 2.07 of this Loan Agreement, and is otherwise in the same notional amount and Strike Rate as the Rate Cap it is replacing and (b) deliver to Lender, in form and substance reasonably satisfactory to Lender (x) an assignment of such Rate Cap from the replacement Rate Cap Provider, (y) an acknowledgment and consent from such replacement Rate Cap Provider in substantially the same form as the Rate Cap Provider Consent delivered to Lender as of the Closing Date and (z) any other opinions or documents required pursuant to Section 2.07 of this Loan Agreement.

(s) If any Guarantor who is an individual dies or is incapacitated and Borrower fails to provide a substitute Guarantor satisfactory to Lender in accordance with Section 10.05 within thirty (30) days of such an event.

(t) Except for the specific defaults set forth in this Section 11.01, if any other default occurs hereunder or under any other Loan Document which is not cured (i) in the case of any default which can be cured by the payment of a sum of money, within five (5) days after written notice from Lender to Borrower, or (ii) in the case of any other default, within thirty (30) days after written notice from Lender to Borrower; provided that if a default under clause (ii) cannot reasonably be cured within such thirty (30) day period and Borrower has responsibly commenced to cure such default promptly upon notice thereof from Lender and thereafter diligently proceeds to cure same, such thirty (30) day period shall be extended for so long as it shall require Borrower, in the exercise of due diligence, to cure such default, but in no event shall the entire cure period be more than sixty (60) days.

11.02. Remedies. If an Event of Default occurs, Lender may, at its option, and without prior notice or demand, do and hereby is authorized and empowered by Borrower so to do, any or all of the following:

(a) Acceleration. Lender may declare the entire unpaid principal balance of the Loan to be immediately due and payable. An amount equal to (i) the Base Interest Rate Maintenance and (ii) if such acceleration takes place prior to the eighteenth 18^lh Payment Due Date, the Breakage Fee and the Spread Maintenance, shall be added to the balance of the Debt.

(b) Recovery of Unpaid Sums. Lender may, from time to time, take legal action to recover any sums as the same become due, without regard to whether or not the Loan shall be accelerated and without prejudice to Lender’s right thereafter to accelerate the Loan or exercise any other remedy, if such sums remain uncollected.

(c) Foreclosure. Lender may institute proceedings, judicial or otherwise, for the complete or partial foreclosure of the Security Instrument or the complete or partial sale of the Property under power of sale or under any applicable provision of law. In connection with any such proceeding, Lender may sell the Property as an entirety or in parcels or units and at such times and place (at one or more sales) and upon such terms as it may deem expedient unless prohibited by law from so acting.

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(d) Receiver. Lender may apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without regard for the adequacy of the security for the Debt or a showing of insolvency, fraud or mismanagement on the part of Borrower. Any receiver or other party so appointed has all powers permitted by law which may be necessary or usual in such cases for the protection, possession, control, management and operation of the Property. Borrower hereby consents, to the extent permitted under applicable law, to the appointment of a receiver or trustee of the Property upon Lender’s request if an Event of Default has occurred. At Lender’s option, such receiver or trustee shall serve without any requirement of posting a bond.

(e) Recovery of Possession. Lender may enter into or upon the Property, either personally or by its agents, and dispossess and exclude Borrower and its agents and servants therefrom (without liability for trespass, damages or otherwise), and take possession of all books, records and accounts relating to the Property, and Borrower agrees to surrender possession of the Property and all Personal Property, including without limitation, all documents, books, records and accounts relating to the Property, to Lender upon demand. As a mortgagee-in-possession of the Property, Lender shall have all rights and remedies permitted by law or in equity to a mortgagee-in-possession, including, without limitation, the right to charge Borrower the fair and reasonable rental value for Borrower’s use and occupation of any part of the Property that may be occupied or used by Borrower and the right to exercise all rights and powers of Borrower with respect to the Property, whether in the name of Borrower or otherwise (including, without limitation, the right to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Rents of the Property).

(f) UCC Remedies. Lender may exercise with respect to the Property, each right, power or remedy granted to a secured party under the UCC, including, without limitation, (i) the right to take possession of the Property and to take such other measures as Lender deems necessary for the care, protection and preservation of the Property, and (ii) the right to require that Borrower, at its expense, assemble the Property and make it available to Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended action by Lender with respect to the Property sent to Borrower in accordance with the provisions hereof at least ten (10) days prior to such action, shall constitute reasonable notice to Borrower. Lender shall not have any obligation to clean-up or otherwise prepare the Property for sale.

(g) Apply Funds in Reserve Accounts. Lender may apply any funds then deposited in any or all of the Reserve Accounts and or otherwise held in escrow or reserve by Lender under the Loan Documents (including without limitation Restoration Proceeds) as a credit to the Loan, in such priority and proportion as Lender deems appropriate.

(h) Insurance Policies. Lender may surrender any or all insurance policies maintained as required by this Loan Agreement, collect the unearned Insurance Premiums and apply such sums as a credit on the Loan, in such priority and proportion as Lender deems appropriate. Borrower hereby appoints Lender its attorney-in-fact with full power of substitution (and which shall be deemed to be coupled with an interest and

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irrevocable until the Loan is paid and the Security Instrument is discharged of record, with Borrower hereby ratifying all that its said attorney shall do by virtue thereof) to surrender such insurance policies and collect such Insurance Premiums.

(i) Protection of Lender’s Security and Right to Cure. Lender may, without releasing Borrower from any obligation hereunder or waiving the Event of Default, perform the obligation which Borrower failed to perform in such manner and to such extent as Lender deems necessary to protect and preserve the Property and Lender’s interest therein, including without limitation (i) appearing in, defending or bringing any action or proceeding with respect to the Property, in Borrower’s name or otherwise; (ii) making repairs to the Property or completing improvements or repairs in progress; (iii) hiring and paying legal counsel, accountants, inspectors or consultants; and (iv) paying amounts which Borrower failed to pay. Amounts disbursed by Lender shall be added to the Loan, shall be immediately due and payable, and shall bear interest at the Default Rate from the date of disbursement until paid in full.

(j) Violation of Laws. If the Property is not in compliance with all Requirements of Law, Lender may impose additional requirements upon Borrower in connection with such Event of Default including, without limitation, monetary reserves or financial equivalents.

(k) Purchase of Rate Cap by Lender. If the Loan has been accelerated following an Event of Default and the Rate Cap obtained by Borrower expires prior to Lender’s receipt of full payment of the Loan or completion of a foreclosure action (or acceptance of a deed-in-lieu of foreclosure), Lender may purchase, at Borrower’s expense, a Rate Cap upon such terms as Lender deems necessary to guard against fluctuations of the interest rate of the Loan until the Loan is paid in full or a foreclosure action (or acceptance of a deed-in-lieu of foreclosure) is completed.

11.03. Cumulative Remedies; No Waiver; Other Security. Lender’s remedies under this Loan Agreement are cumulative (whether set forth in this Article 11 or in any other section of this Loan Agreement) with those in the other Loan Documents and otherwise permitted by law or in equity and may be exercised independently, concurrently or successively in Lender’s sole discretion and as often as occasion therefor shall arise. Lender’s delay or failure to accelerate the Loan or exercise any other remedy upon the occurrence of an Event of Default shall not be deemed a waiver of such right as remedy. No partial exercise by Lender of any right or remedy will preclude further exercise thereof. Notice or demand given to Borrower in any instance will not entitle Borrower to notice or demand in similar or other circumstances (except where notice is expressly required by this Loan Agreement to be given) nor constitute Lender’s waiver of its right to take any future action in any circumstance without notice or demand. Lender may release security for the Loan, may release any party liable therefor, may grant extensions, renewals or forbearances with respect thereto, may accept a partial or past due payment or grant other indulgences, or may apply any other security held by it to payment of the Loan, in each case without prejudice to its rights under the Loan Documents and without such action being deemed an accord and satisfaction or a reinstatement of the Loan. Lender will not be deemed as a consequence of its delay or

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failure to act, or any forbearance granted, to have waived or be estopped from exercising any of its rights or remedies.

11.04. Enforcement Costs. Borrower shall pay, on written demand by Lender all costs incurred by Lender in (a) collecting any amount payable under the Loan Documents, or (b) enforcing its rights under the Loan Documents, in each case whether or not legal proceedings are commenced or whether legal action is pursued to final judgment. Such fees and expenses include, without limitation, reasonable fees for attorneys, paralegals, law clerks and other hired professionals, a reasonable assessment of the cost of services performed by Lender’s default management staff, court fees, costs incurred in connection with pre-trial, trial and appellate level proceedings, including discovery, and costs incurred in post-judgment collection efforts or in any bankruptcy proceeding. Amounts incurred by Lender shall be added to principal, shall be immediately due and payable, shall bear interest at the Default Rate from the date of disbursement until paid in full, if not paid in full within five (5) days after Lender’s written demand for payment, and such amounts shall be secured by the Security Instrument and other collateral given to secure the Loan.

11.05. Application of Proceeds. The proceeds from disposition of the Property shall be applied by Lender as a credit to the Loan and to recovery or reimbursement of the costs of enforcement (contemplated by Section 11.04 above) in such priority and proportion as Lender determines appropriate.

ARTICLE 12

NONRECOURSE – LIMITATIONS ON PERSONAL LIABILITY

12.01. Nonrecourse Obligation. Except as otherwise provided in this Article 12 or expressly stated in any of the other Loan Documents, Lender shall enforce the liability of Borrower to perform and observe the obligations contained in this Loan Agreement and in each other Loan Document only against the Property and other collateral given by Borrower as security for payment of the Loan and performance of Borrower’s obligations under the Loan Documents and not against Borrower or any of Borrower’s principals, directors, officers or employees. Notwithstanding the foregoing, this Section 12.01 is not applicable to the Environmental Indemnity or to any Guaranty executed in connection herewith.

12.02. Full Personal Liability. Section 12.01 above shall BECOME NULL AND VOID and the Loan FULLY RECOURSE to Borrower if: (a) the Property or any part thereof becomes an asset in a voluntary bankruptcy or other voluntary insolvency proceeding; (b) Borrower or SPE Equity Owner commences a bankruptcy or other insolvency proceeding; (c) an involuntary bankruptcy or other involuntary insolvency proceeding is commenced against Borrower or any SPE Equity Owner (by a party other than Lender) but only if Borrower or such SPE Equity Owner has failed to use commercially reasonable efforts to dismiss such proceeding or has consented to such proceeding; (d) if Borrower, any SPE Equity Owner, Guarantor or any Affiliate or agent

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of (x) Borrower, (y) any SPE Equity Owner or (z) any Guarantor has acted in concert with, colluded or conspired with any party to cause the filing of any involuntary bankruptcy or other involuntary insolvency proceeding; (e) a payment of Base Interest Rate Maintenance becomes due to Lender under Section 2.05(c) hereof, provided that in such event the Loan shall only be recourse to the extent of the amount of Base Interest Rate Maintenance due under such section; (f) Borrower fails to deposit with Lender the Balance Deficiency Deposit as and when required pursuant to Section 2.01 (g)(i) hereof, provided, however, that with respect to this clause (f) only, Borrower’s liability shall be capped at the amount of such Balance Deficiency Deposit; or (g) Borrower fails to deposit with Lender the Deficiency Satisfaction Amount as and when required pursuant to Section 2.01(g)(ii) hereof, provided, however, that with respect to this clause (g) only, Borrower’s liability shall be capped at the Performance Deficiency Satisfaction Amount.

12.03. Personal Liability for Certain Losses. Section 12.01 above SHALL NOT APPLY and Borrower shall be PERSONALLY LIABLE for all losses, claims, expenses or other liabilities incurred by Lender arising out of, or attributable to, any of the following:

(a) Fraud or material misrepresentation or failure to disclose a material fact by Borrower or any other party in connection with (i) the application for the Loan or the execution and delivery of the Loan Documents or making of the Loan, (ii) any financial statement or any other material certificate, report or document required to be furnished by Borrower to Lender herewith or hereafter, or (iii) any request for Lender’s consent made during the term of the Loan;

(b) A violation of any provision of Article 10 (captioned: No Transfers or Encumbrances; Due On Sale);

(c) Failure by Borrower or the SPE Equity Owner to comply with any provision of Article 7 (captioned: Single Purpose Entity Requirements) or Section 9.13 (captioned: Existence, Change of Name or Location as a Registered Organization) of the Loan Agreement;

(d) Misapplication or misappropriation of (i) insurance proceeds or condemnation awards payable to Lender in accordance with the Loan Agreement; (ii) Rent received by Borrower, (iii) Rent paid in advance by tenants under the Leases; (iv) tenant security deposits or other refundable deposits held by or on behalf of Borrower in connection with Leases; or (v) any funds disbursed or advanced by Lender for Reserve Items pursuant to the provisions of this Loan Agreement.

(e) Fees or commissions paid by Borrower, after the occurrence and during the continuance of an Event of Default, to any Guarantor, any Affiliate, or any principal of Borrower, any Guarantor or Affiliate, in violation of the Loan Documents;

(f) Damage to or loss of all or any part of the Property as a result of waste, gross negligence or willful misconduct by Borrower or its agents;

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(g) Criminal acts of Borrower, any principal of Borrower, or any Affiliate resulting in the seizure, forfeiture or loss of all or any part of the Property;

(h) Removal of all or any portion of the Personal Property in violation of the Loan Agreement;

(i) All amounts contemplated under Section 11.04 and any real estate or other transfer tax incurred to transfer title to the Property in connection with any foreclosure, deed in lieu of foreclosure or non-judicial sale of the Property following the occurrence of an Event of Default; and

(j) Failure by Borrower to purchase a replacement Rate Cap in accordance with Section 2.07 hereof.

12.04. No Impairment. Nothing contained in this Article 12 shall impair, release or otherwise adversely affect: (a) any lien, assignment or security interest created by the Loan Documents; (b) any indemnity, personal guaranty, master lease or similar instrument now or hereafter made in connection with the Loan (including, without limitation, the Environmental Indemnity and Guaranty); (c) Lender’s right to have a receiver or trustee appointed for the Property; (d) Lender’s right to name Borrower as a defendant in any foreclosure action or judicial sale under the Security Instrument or other Loan Documents or in any action for specific performance or otherwise to enable Lender to enforce obligations under the Loan Documents or to realize upon Lender’s interest in any collateral given to Lender as security for the Loan; or (e) Lender’s right to a judgment on the Note against Borrower if necessary to enforce any guaranty or indemnity provided in connection with the Note or to obtain any insurance proceeds or Condemnation awards to which Lender would otherwise be entitled under this Loan Agreement; provided, however, that any judgment obtained against Borrower shall, except to the extent otherwise expressly provided in this Article 12, be enforceable against Borrower only to the extent of Borrower’s interest in the Property and other collateral securing payment of the Loan and performance of Borrower’s obligations under the Loan Documents.

12.05. No Waiver of Certain Rights. Nothing contained in this Article 12 shall be deemed a waiver of any right which Lender may have under the Bankruptcy Code or applicable law to protect and pursue its rights under the Loan Documents including, without limitation, its rights under Sections 506(a) or any other provision of the Bankruptcy Code to file a claim for the full amount of the Loan or to require that the collateral continues to secure all of the Obligations of Borrower to Lender under Loan Documents.

ARTICLE 13

INDEMNIFICATION

13.01. Indemnification Against Claims. Borrower shall indemnify, defend, release and hold harmless Lender and each of the other Indemnified Parties from and

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against any and all Losses directly or indirectly arising out of, or in any way relating to, or as a result of (a) accident, injury to or death of Persons, or loss of, or damage to, property occurring in, on or with respect to the Property or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways or otherwise arising with respect to the use of the Property; (b) failure of the Property to be in compliance with any Requirements of Law; (c) breach or default of Borrower’s representations or obligations under Sections 8.27, 8.28 or 9.16 of this Loan Agreement; (d) any and all claims and demands whatsoever which may be asserted against Lender by reason of any alleged obligations or undertakings on its part to perform or discharge the lessor’s agreements contained in any Lease; (e) breach or default under the ERISA obligations set forth in Sections 8.26 and 9.15 of this Loan Agreement (including, without limitation, legal fees and costs incurred in the investigations, defense and settlement of Losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA that may be required, in Lender’s sole discretion); (f) intentionally omitted; or (g) any claim, litigation, investigation or proceeding commenced or threatened relating to any of the foregoing, whether or not Indemnified Party is a party thereto; provided, however, any such indemnity shall not apply to any Indemnified Party to the extent any such Losses arise from Indemnified Party’s gross negligence or willful misconduct (collectively, “Indemnified Claims”).

13.02. Duty to Defend. If an Indemnified Party claims indemnification under this Loan Agreement, the Indemnified Party shall promptly notify Borrower of the Indemnified Claim. After notice by any Indemnified Party, Borrower shall defend such Indemnified Party against such Indemnified Claim (if requested by any Indemnified Party, in the name of the Indemnified Party) by attorneys and other professionals reasonably approved, in writing, by the Indemnified Party. Notwithstanding the foregoing, any Indemnified Party may, in its sole discretion and at the expense of Borrower, engage its own attorneys and other professionals to defend or assist it if such Indemnified Party determines that the defense as conducted by Borrower is not proceeding or being conducted in a satisfactory manner or that a conflict of interest exists between any of the parties represented by Borrower’s counsel in such action or proceeding. Within five (5) Business Days of Indemnified Party’s demand, Borrower shall pay or, in the sole discretion of the Indemnified Party, reimburse, the Indemnified Party for the payment of Indemnified Party’s costs and expenses (including, without limitation, reasonable attorney fees, engineer fees, environmental consultant fees, laboratory fees and the fees of other professionals in connection therewith) in connection with the Indemnified Claim. Payment not made timely shall bear interest at the Default Rate until paid in full and payment of such amounts shall be secured by the Security Instrument and other collateral given to secure the Loan.

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ARTICLE 14

SUBROGATION; NO USURY VIOLATIONS

14.01. Subrogation. If the Loan is used to pay, satisfy, discharge, extend or renew any indebtedness secured by a pre-existing mortgage, deed of trust or other Lien encumbering the Property, then to the extent of funds so used, Lender shall automatically, and without further action on its part, be subrogated to all rights, including lien priority, held by the holder of the indebtedness secured by such prior Lien, whether or not the prior Lien is released, and such former rights are not waived but rather are continued in full force and effect in favor of Lender and are merged with the Liens created in favor of Lender as security for payment of the Loan and performance of the Obligations.

14.02. No Usury. At no time is Borrower required to pay interest on the Loan or on any other payment due hereunder or under any of the other Loan Documents (or to make any other payment deemed by law or by a court of competent jurisdiction to be interest) at a rate which would subject Lender either to civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to pay. If interest (or such other amount deemed to be interest) paid or payable by Borrower is deemed to exceed such maximum rate, then the amount to be paid immediately shall be reduced to such maximum rate and thereafter computed at such maximum rate. All previous payments in excess of such maximum rate shall be deemed to have been payments of principal (in inverse order of maturity) and not on account of interest due hereunder. For purposes of determining whether any applicable usury law has been violated, all payments deemed by law or a court of competent jurisdiction to be interest shall, to the extent permitted by applicable law, be deemed to be amortized, prorated, allocated and spread over the full term of the Loan in such manner so that interest is computed at a rate throughout the full term of the Loan which does not exceed the maximum lawful rate of interest.

ARTICLE 15

SALE OR SECURITIZATION OF LOAN

15.01. Splitting the Note. Lender has the right from time to time to sever the Note into one or more separate promissory notes in such denominations as Lender determines in its sole discretion (including the creation of a mezzanine loan secured by a collateral assignment of the Equity Interests in Borrower and SPE Equity Owner), which promissory notes may be included in separate sales or securitizations undertaken by Lender. In conjunction with any such action, Lender may redefine the interest rate and amortization schedule; provided, however: (a) if Lender redefines the interest rate, the weighted average of the interest rates contained in the severed promissory notes taken in the aggregate shall equal the Applicable Interest Rate, and (b) if Lender redefines the amortization schedule, the amortization of the severed promissory notes taken in the aggregate shall, require no more amortization to be paid under the Loan than as required under this Loan Agreement and the Note at the time such action was taken by Lender.

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Subject to the foregoing, each severed promissory note, and the Loan evidenced thereby, shall be upon all of the terms and provisions contained in this Loan Agreement and the Loan Documents which continue in full force and effect, except that Lender may allocate specific collateral given for the Loan as security for performance of specific promissory notes, in each case with or without cross default provisions. Borrower, at Borrower’s expense, agrees to cooperate with all reasonable requests of Lender to accomplish the foregoing, including, without limitation, execution and prompt delivery to Lender of a severance agreement and such other documents as Lender shall reasonably require. Borrower hereby appoints Lender its attorney-in-fact with full power of substitution (and which shall be deemed to be coupled with an interest and irrevocable until the Loan is paid and the Security Instrument is discharged of record, with Borrower hereby ratifying all that its said attorney shall do by virtue thereof) to make and execute all documents necessary or desirable to effect the aforesaid severance; provided, however, Lender shall not make or execute any such documents under such power until five (5) days after written notice has been given to Borrower by Lender of Lender’s intent to exercise its rights under such power. Borrower’s failure to deliver any of the documents requested by Lender hereunder for a period of ten (10) Business Days after such notice by Lender shall, at Lender’s option, constitute an Event of Default hereunder.

15.02. Lender’s Rights to Sell or Securitize. Borrower acknowledges that Lender, and each successor to Lender’s interest, may (without prior notice to Borrower or Borrower’s prior consent), sell or grant participations in the Loan (or any part thereof), sell or subcontract the servicing rights related to the Loan, Securitize the Loan or include the Loan as part of a Securitization and, in connection therewith, assign Lender’s rights hereunder to a securitization trustee. Borrower, at its expense, agrees to cooperate with all reasonable requests of Lender in connection with any of the foregoing including, without limitation, executing any financing statements or other documents deemed necessary by Lender or its transferee to create, perfect or preserve the rights and interest to be acquired by such transferee, provide any updated financial information with appropriate verification through auditors letters, revised organizational documents and counsel opinions satisfactory to the Rating Agencies, executed amendments to the Loan Documents, and review information contained in a preliminary or final private placement memorandum, prospectus, prospectus supplements or other disclosure document, providing a mortgagor estoppel certificate and such other information about Borrower, SPE Equity Owner, any Guarantor or the Property as Lender may require for Lender’s offering materials. Lender shall have the right, to be exercised not more than once during the term of the Loan, to change the Interest Accrual Period, the Interest Rate Adjustment Date and/or the Payment Due Date to a date other than the first (1st) day of each month (a “New Payment Due Date”), on thirty (30) days’ written notice to Borrower; provided, however, that any such change in the Payment Due Date: (a) shall not modify the amount of regularly scheduled monthly interest payments, except that the first payment of interest payable on the New Payment Due Date shall be accompanied by interest at the interest rate herein provided for the period from the Payment Due Date in the month in which the New Payment Date first occurs to the New Payment Date, and (b) if deemed necessary by Lender, shall change the Maturity Date to the New Payment Date occurring in the month set forth in the definition of Maturity Date.

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15.03. Dissemination of Information. Borrower acknowledges that Lender may provide to third parties with an existing or prospective interest in the servicing, enforcement, evaluation, performance, ownership, purchase, participation or Securitization of the Loan, including, without limitation, any Rating Agency and any entity maintaining databases on the underwriting and performance of commercial mortgage loans, any and all information which Lender now has or may hereafter acquire relating to the Loan, the Property, Borrower, SPE Equity Owner or any Guarantor, as Lender determines necessary or desirable and that such information may be included in disclosure documents in connection with a Securitization or syndication of participation interests, including, without limitation, a prospectus, prospectus supplement, offering memorandum, private placement memorandum or similar document (each, a “Disclosure Document”) and also may be included in any filing with the Securities and Exchange Commission pursuant to the Securities Act or the Securities Exchange Act. To the fullest extent permitted under applicable law, Borrower irrevocably waives all rights, if any, to prohibit such disclosure, including, without limitation, any right of privacy.

15.04. Reserve Accounts. If the Loan is made a part of a Securitization, Borrower acknowledges that all funds held by Lender in the Reserve Accounts in accordance with this Loan Agreement or the other Loan Documents shall be deposited in “eligible accounts” at “eligible institutions” or invested in “permitted investments” as then defined and required by the Rating Agencies, and this Loan Agreement will automatically be amended to so provide.

ARTICLE 16

BORROWER FURTHER ACTS AND ASSURANCES PAYMENT OF SECURITY

RECORDING CHARGES

16.01. Further Acts. Borrower, at Borrower’s expense, agrees to take such further actions and execute such further documents as Lender reasonably may request to carry out the intent of the Loan Documents or to establish and protect the rights and remedies created or intended to be created in favor of Lender under the Loan Documents or to protect the value of the Property and Lender’s security interest or liens therein. Borrower agrees to pay all filing, registration or recording fees or taxes, and all expenses incident to the preparation, execution, acknowledgement, or filing/recording of the Security Instrument, the Assignment of Leases and Rents, financing statements or any such instrument of further assurance, except where prohibited by law so to do.

16.02. Replacement Documents. Upon receipt of an affidavit from an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any other Loan Document which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such document, Borrower will issue a replacement original in lieu thereof in the same original principal amount and otherwise on the same terms and conditions as the original.

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16.03. Borrower Estoppel Certificates.

(a) Borrower Information. Borrower, within ten (10) days of Lender’s written request, shall furnish to Lender or Lender’s designee a statement, duly acknowledged and certified by a Responsible Officer, setting forth: (i) the Maximum Loan Amount and the amount of principal advanced as of the certificate date; (ii) the unpaid principal amount of the Loan; (iii) the calculation of the rate of interest accruing on the Loan, including the then Applicable Interest Rate of the Note; (iv) the Payment Due Date, the Maturity Date, any unexercised rights to extend the Maturity Date and any exercised extension of the Maturity Date, if any; (v) the date installments of interest and/or principal were last paid; (vi) that, except as provided in such statement, no defaults or events exists which would be an Event of Default with the giving of any applicable notice or the expiration of any applicable grace or cure period or both; (vii) that the Loan Documents are valid, legal and binding obligations and have not been modified or, if modified, giving the particulars of such modification; (viii) whether any offsets or defenses exist against Borrower’s obligation to pay the Loan and perform the Obligations and, if any are alleged to exist, a detailed description thereof; (ix) that all Leases are in full force and effect, and for Leases other than residential Leases, have not been modified or if modified, setting forth all modifications; (x) a current Rent Roll for the Property, (xi) the date to which Rents under the Leases have been paid; (xii) whether or not, to the best knowledge of Borrower, any of the tenants under the Leases are in default under the Leases, and, if any of the tenants are in default, setting forth the specific nature of all such defaults; and (xiii) such other matters reasonably requested by Lender and reasonably related to the Leases or the Property.

(b) Tenant Estoppels. Borrower shall deliver to Lender, promptly upon Lender’s written request (but in any event no later than fifteen (15) Business Days following Lender’s request), duly executed estoppel certificates from tenants identified by Lender attesting to such facts regarding a tenant’s non-residential Lease as Lender may require, including, without limitation: (i) that the Lease is in full force and effect with no defaults thereunder on the part of any party, and no event exists that would be an event of default thereunder with giving of any applicable notice or the expiration of any applicable grace or cure period or both; (ii), that none of the Rents has been paid more than one month in advance, except as a security deposit; and (iii) that the tenant claims no defense or offset against the full and timely performance of its obligations under the Lease.

(c) Lender Statement of Loan Information. After written request by Borrower not more than twice annually, Lender shall furnish Borrower a statement setting forth: (i) the original Maximum Loan Amount and the amount of principal advanced by Lender as of the certificate date; (ii) the unpaid principal amount of the Loan; (iii) the rate of interest accruing on the Loan, including the then Applicable Interest Rate; and (iv) the balance of amounts held in the Reserve Accounts, if any.

16.04. Recording Costs. Borrower will pay all transfer taxes, filing, registration, recording or similar fees, and all expenses incident to the preparation, execution, acknowledgment, recording, filing and/or release or discharge of the Note, the Security

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Instrument and each of the other Loan Documents, and all modifications, extensions, consolidations, or restatements of the same, except where prohibited by law so to do.

16.05. Publicity. Borrower acknowledges and agrees that Lender may use basic transaction information (including, without limitation, the name of Borrower and the address of the Property) publicly in press releases or other marketing material.

ARTICLE 17

LENDER CONSENT

17.01. No Joint Venture; No Third Party Beneficiaries. Borrower and Lender intend that the relationships created hereunder and under each of the other Loan Documents are solely those of borrower and lender. Nothing herein or in any of the other Loan Documents is intended to create, nor shall it be construed as creating anything but a debtor-creditor relationship between Borrower and Lender nor shall they be deemed to confer on anyone other than Lender, and its successors and assigns, any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein.

17.02. Lender Approval. Wherever pursuant to a Loan Document (a) Lender exercises any right to approve or disapprove or to grant or withhold consent; (b) any arrangement or term is to be satisfactory to Lender; (c) a waiver is requested from Lender, or (d) any other decision is to be made by Lender, all shall be made in Lender’s sole discretion, unless expressly provided otherwise in such Loan Document. By approving or granting consent, accepting performance from Borrower, or releasing funds from a Reserve Account, Lender shall not be deemed to have warranted or affirmed the sufficiency, completeness, legality or effectiveness of the subject matter or of Borrower’s compliance with Requirements of Laws. Notwithstanding any provision under the Loan Documents which provide Lender the opportunity to approve or disapprove any action or decision by Borrower, Lender is not undertaking the performance of any obligation of Borrower under any of the Loan Documents or any of the other documents and agreements in connection with this transaction (including, without limitation, the Leases).

17.03. Performance at Borrower’s Expense. Borrower acknowledges and agrees that in connection with each request by Borrower to: (a) modify or waive any provision of the Loan Documents; (b) release or substitute Property; (c) obtain Lender’s approval or consent whenever required by the Loan Documents including, without limitation, review of a Transfer request, matters affecting a Major Lease, improvements or alterations to the Property, and easements or other additions to Permitted Encumbrances; or (d) provide a subordination, non-disturbance and attornment agreement, Lender reserves the right to collect a review or processing fee from Borrower based on a reasonable estimate of the administrative costs which Lender will incur to connection therewith. Borrower agrees to pay such fee along with all reasonable legal fees and expenses incurred by Lender and the fees required for a Rating Confirmation or approval from the trustee if the Loan has been Securitized, as applicable, irrespective of whether

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the matter is approved, denied or withdrawn. Any amounts payable by Borrower hereunder, shall be deemed a part of the Loan, shall be secured by this Loan Agreement and shall bear interest at the Default Rate if not fully paid within ten (10) days of written demand for payment.

17.04. Non-Reliance. Borrower agrees that any diligence or investigation performed by or on behalf of Lender in underwriting or servicing the Loan (including, without limitation, information obtained about the Property the Borrower or its equity investors or Affiliates) does not in any respect limit or excuse any of Borrower’s representations, warranties, covenants or agreements set forth in this Loan Agreement or any of the other Loan Documents. The fact that Lender has performed diligence does not affect Lender’s ability or right to rely fully upon the representations, warranties, covenants and agreements made by Borrower in the Loan Documents or to pursue any available remedy for a breach thereof. If Lender delivers or has delivered to Borrower (or to Borrower’s agents, equity investors or representatives) any information obtained or developed by Lender relating to the Loan, the Property or Borrower, Borrower acknowledges and agrees that such information has been delivered for informational purposes only and Lender has no liability of responsibility to Borrower with respect to such information, including, without limitation, the completeness or accuracy of any such information. No due diligence consultant engaged by Lender is or shall be deemed an agent of Lender.

ARTICLE 18

MISCELLANEOUS PROVISIONS

18.01. Notices. All notices and other communications under this Loan Agreement are to be in writing and addressed to each party as set forth below. Default or demand notices shall be deemed to have been duly given upon the earlier of: (a) actual receipt; (b) one (1) Business Day after having been timely deposited for overnight delivery, fee prepaid, with a reputable overnight courier service, having a reliable tracking system; or (c) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by certified mail, postage prepaid, return receipt requested, and in the case of clause (b) and (c) irrespective of whether delivery is accepted. A new address for notice may be established by written notice to the other; provided, however, that no change of address will be effective until written notice thereof actually is received by the party to whom such address change is sent. Notice to outside counsel or parties other than the named Borrower and Lender, now or hereafter designated by a party as entitled to notice, are for convenience only and are not required for notice to a party to be effective in accordance with this section. Notice addresses are as follows:

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Address for Lender:	Capmark Finance Inc.
	116 Welsh Road
	Horsham, PA 19044
	Attn.: Servicing Accounting - Manager
	Fax: 215-328-3478
	Capmark Bank
	6955 Union Park Center, Suite 330
	Midvale, UT 84047
	Attn: President
	Fax: 801-567-2681
Address for Borrower:	CV Apartments, LLC
	1 Chase Corporate Drive, Suite 215
	Birmingham, AL 35244
	Attn: Philip M. Mulkey
	Fax: (205) 982-7777
and	James Odom, Esq.
	211-B Yeager Parkway
	Pelham, Alabama 35124
	Attn.: James Odom, Esq.
	Fax: 205-664-8691

18.02. Entire Agreement; Modifications; Time of Essence. This Loan Agreement, together with the other Loan Documents, contain the entire agreement between Borrower and Lender relating to the Loan and supersede and replace all prior discussions, representations, communications and agreements (oral or written). If the terms of any of the Loan Documents are in conflict, this Loan Agreement shall control over all of the other Loan Documents unless otherwise expressly provided in such other Loan Document. No Loan Document shall be modified, supplemented or terminated, nor any provision thereof waived, except by a written instrument signed by the party against whom enforcement thereof is sought, and then only to the extent expressly set forth in such writing. Time is of the essence with respect to all of Borrower’s obligations under the Loan Documents.

18.03. Binding Effect; Joint and Several Obligations. This Loan Agreement and each of the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns, whether by voluntary action of the parties or by operation of law. (The foregoing does not modify any conditions regulating Transfers.) If Borrower consists of more than one party, each shall be jointly and severally liable to perform the obligations of Borrower under the Loan Documents.

18.04. Duplicate Originals; Counterparts. This Loan Agreement and each of the other Loan Documents may be executed in any number of duplicate originals, and each duplicate original shall be deemed to be an original. This Loan Agreement and each of

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the other Loan Documents (and each duplicate original) also may be executed in any number of counterparts, each of which shall be deemed an original and all of which together constitute a fully executed agreement even though all signatures do not appear on the same document.

18.05. Unenforceable Provisions. Any provision of this Loan Agreement or any other Loan Documents which is determined by a court of competent jurisdiction or government body to be invalid, unenforceable or illegal shall be ineffective only to the extent of such holding and shall not affect the validity, enforceability or legality of any other provision, nor shall such determination apply in any circumstance or to any party not controlled by such determination.

18.06. Governing Law. This Loan Agreement and each of the other Loan Documents shall be interpreted and enforced according to the laws of the state where the Property is located (without giving effect to rules regarding conflict of laws).

18.07. Consent to Jurisdiction. Borrower hereby consents and submits to the exclusive jurisdiction and venue of any state or federal court sitting in the county and state where the Property encumbered by the Security Instrument is located with respect to any legal action or proceeding arising with respect to the Loan Documents and waives all objections which it may have to such jurisdiction and venue. Nothing herein shall, however, preclude or prevent Lender from bringing actions against Borrower in any other jurisdiction as may be necessary to enforce or realize upon the security for the Loan provided in any of the Loan Documents.

18.08. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH WAIVE THEIR RESPECTIVE RIGHT, TO THE FULLEST EXTENT PERMITTED BY LAW, AND AGREE NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT, OR THE RELATIONSHIP BETWEEN THE PARTIES AS BORROWER AND LENDER.

ARTICLE 19

LIST OF DEFINED TERMS

19.01. Definitions. The following words and phrases shall have the meaning specified below.

“Advance Request” means a written request substantially in the form of Exhibit I from Borrower delivered to Lender, signed by a Responsible Officer of Borrower and requesting Lender to advance any Note B Advance. Each Advance Request shall describe in reasonable detail the use of the funds requested by the Advance Request and shall have attached to it, as applicable: (a) the original invoices for all items or materials purchased or services performed which are to be funded by the Advance Request, and (b) copies of all permits, licenses and approvals, if any, by any Governmental Authority confirming completion of the Note B Advance items. If an

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original invoice is not available, Borrower shall be required to evidence, to Lender’s satisfaction, the amounts expended for which reimbursement is requested.

“Affiliate” of any Person means (a) any other Person which, directly or indirectly, is in Control of, is Controlled by or is under common Control with, such Person; (b) any other Person who is a director or officer of (i) such Person, (ii) any subsidiary of such Person, or (iii) any Person described in clause (a) above; or (c) any corporation, limited liability company or partnership which has as a director any Person described in clause (b) above.

“Applicable Interest Rate” means the Note A Applicable Interest Rate, the Note B Applicable Interest Rate, and the Conversion Applicable Interest Rate, as applicable, as the context requires.

“Approved Budget” has the meaning set forth in Section 9.11(a)(v) of this Loan Agreement.

“Assignment of Interest Rate Cap” means the Assignment of Interest Rate Cap Agreement dated as of the Closing Date from Borrower, as assignor, to Lender, as assignee, assigning to Lender all of Borrower’s rights, title and interest in and to the Rate Cap Agreement.

“Assignment of Leases and Rents” means the Assignment of Leases and Rents dated as of the Closing Date from Borrower, as assignor, to Lender, as assignee, assigning to Lender all of Borrower’s right, title and interest in and to the Leases and the Rents with respect to the Property.

“Assignment of Property Management Contract” means an Assignment of Property Management Contract and Subordination of Management Fees dated as of the Closing Date from Borrower, as assignor, to Lender, as assignee, and acknowledged by Property Manager or as applicable, any other Assignment of Property Management Contract executed pursuant to Section 9.14.

“Balance Deficiency Deposit” has the meaning set forth in Section 2.01(g)(i) of this Loan Agreement.

“Bankruptcy Code” means the Bankruptcy Reform Act of 1978 codified as 11 U.S.C. §101 et seq., and the regulations issued thereunder, both as hereafter modified from time to time.

“Base Discount Rate” means the bid-side interpolated yield on the interest rate swap having a maturity coterminous with the remaining term of the loan as such yield is shown on Bloomberg Page SWDF 23 (or such other reference as may replace SWDF 23 on that service).

“Base Interest Rate Maintenance” shall mean for each of Note A and the Conversion Note associated with the thirteenth (13^th) Payment Due Date, the excess, if any, of (A) the present value of the sum of the related monthly payments for the period

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from the date of prepayment through and including the Maturity Date (calculated as if the Applicable Interest Rate did not include Margin) including the principal amount of the Loan scheduled to be due on the Maturity Date, discounted at an interest rate per annum equal to the Base Discount Rate, over (B) the principal amount of the Loan outstanding immediately before such accepted prepayment. The Base Interest Rate Maintenance shall be equal to the sum of the calculations separately determined for each such Note A and Conversion Note (if any), such determination to be made by Lender in the exercise of its sole discretion, which calculation shall be conclusive, absent manifest error. In no event shall the Base Interest Rate Maintenance payment be less than zero.

“Borrower” has the meaning set forth in the introductory paragraph of this Loan Agreement.

“Borrower Operating Account” means the operating account in the name of Borrower established with Regions Bank, Riverchase Branch given account number 0075123029.

“Breakage Fee” means any loss, cost or expenses incurred as a result of the prepayment (whether voluntary or involuntary) of a note or tranche of the Loan which is priced by reference to LIBOR Rate resulting from Lender’s need to redeploy such funds obtained by virtue of such prepayment to pay fees payable to terminate deposits for which such funds were obtained, or from terminating or reversing the swap or other interest rate hedging arrangement, such determination to be made by Lender in the exercise of its sole discretion, which calculation shall be conclusive, absent manifest error.

“Business Day” means any day other than a Saturday, a Sunday, or days when Federal Banks located in the State of New York or Commonwealth of Pennsylvania are closed for a legal holiday or by government directive. When used with respect to the Interest Rate Adjustment Date, “Business Day” shall mean a day upon which United States dollar deposits may be dealt in on the London and New York City interbank markets and commercial banks and foreign exchange markets are open in London and New York City.

“Capital Expenditures” means any hard or soft costs spent to add, improve or expand property, plant and equipment assets (including, without limitation, the Capital Improvements and Replacements contemplated under the Loan) and/or amounts budgeted for the future for the same purposes.

“Capital Improvements” means the capital improvements to be made to the Property which are identified on Exhibit G hereto.

“Capital Improvements Advance” has the meaning provided in Section 2.01(d)(i) of this Loan Agreement.

“Cash Flow Available for Debt Service” means, for a specified period, (a) the Operating Income less (b) Operating Expenses as determined by Lender.

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“Casualty” means the occurrence of damage or destruction to the Property, or any part thereof, by fire, flood, vandalism, windstorm, hurricane, earthquake, acts of terrorism or any other casualty.

“Closing Date” means the date of this Loan Agreement.

“Compliance Certificate” means a compliance certificate substantially in the form of Exhibit A hereto, signed by a Responsible Officer of Borrower.

“Condemnation” means the taking by any Governmental Authority of the Property or any part thereof through eminent domain or otherwise (including, without limitation, any transfer made in lieu of or in anticipation of the exercise of such taking).

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person whether through ownership of voting securities, beneficial interests, by contract or otherwise. The definition is to be construed to apply equally to variations of the word “Control” including “Controlled,” “Controlling” or “Controlled by.”

“Conversion Applicable Interest Rate” means a fixed interest rate equal to with respect to the Conversion Date the mid-market 2-Year Swap Yield as published in the marketplace plus the Margin for the thirteenth (13^th) Payment Due Date and with respect to the Conversion Date for the twenty-fifth (25^th) Payment Due Date, the One Year LIBOR Rate plus the Margin, determined solely by Lender as of the date that is two (2) Business Days prior to the applicable Conversion Date.

“Conversion Date” has the meaning set forth in Section 2.02(b).

“Conversion Note” has the meaning set forth in Section 2.02(b).

“Debt” means the aggregate of all principal and interest payments that accrue or are due and payable in accordance with the Loan Agreement, together with any other amounts due under the Loan Documents. The terms “Debt” and “Loan” have the same meaning whenever used in the Loan Documents.

“Debt Service Advance” has the meaning provided in Section 2.01(c)(i) of this Loan Agreement.

“Debt Service Coverage Constant Ratio” means, as to a specific period, the ratio of (a) the Cash Flow Available for Debt Service, by (b) a debt service payment obtained using the Loan Constant.

“Debt Service Coverage Ratio” means, as to a specific period, the ratio of (a) the Cash Flow Available for Debt Service, to (b) the principal and interest that would be due and payable under the Note based on the then current Applicable Interest Rate.

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“Default Rate” has the meaning set forth in Section 2.04(e) of this Loan Agreement.

“Disbursement Request” means a written request substantially in the form of Exhibit B from Borrower delivered to Lender, signed by a Responsible Officer of Borrower and requesting Lender to disburse funds from a Reserve Account. Each Disbursement Request shall describe in reasonable detail the use of the funds requested by the Disbursement Request and shall have attached to it, as applicable: (a) the original invoices for all items or materials purchased or services performed which are to be funded by the Disbursement Request, and (b) copies of all permits, licenses and approvals, if any, by any Governmental Authority confirming completion of the Reserve Items. If an original invoice is not available, Borrower shall be required to evidence, to Lender’s satisfaction, the amounts expended for which reimbursement is requested.

“Disclosure Documents” has the meaning set forth in Section 15.03 of this Loan Agreement.

“Environmental Indemnity” means the Environmental Indemnity Agreement dated as of the Closing Date from Borrower and the other “Indemnitors” named therein to Lender.

“Equity Interests” means (a) partnership interests (whether general or limited) in an entity which is a partnership; (b) membership interests in an entity which is a limited liability company; or (c) the shares or stock interests in an entity which is a corporation.

“ERISA” means the Employee Retirement Income Security Act of 1974, and the regulations issued thereunder, all as amended or restated from time to time.

“Event of Default” means any of the events specified in Section 11.01 of this Loan Agreement.

“Excess Cash Flow” means, for a specified period, (a) Cash Flow Available for Debt Service less (b) the accrued interest and deposits to Reserve Accounts due from Borrower under this Loan Agreement.

“Exit Fee” has the meaning set forth in Section 2.06 of this Loan Agreement.

“First Replacement Rate Cap” has the meaning set forth in Section 2.07.

“Funding Losses” means the reduction of any amounts received or receivable from Borrower, in either case, due to the introduction of, or any change in, law or applicable regulation or treaty (including the administration or interpretation thereof), whether or not having the force of law, or due to the compliance by Lender with any directive, whether or not having the force of law, or request from any central bank or domestic or foreign governmental authority.

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“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, and any Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to such government.

“Guarantor” means the Persons, Philip P. Mulkey, individually or collectively as the context requires, who are executing the Guaranty as guarantors and the Environmental Indemnity as indemnitors. Guarantors are jointly and severally liable for their obligations under such agreements.

“Guaranty” means collectively and individually, as the context requires the Guaranty (Exceptions to Nonrecourse Liability), the Guaranty of Lien-Free Completion and the Guaranty of Full Payment and Performance, each dated as of the Closing Date from Guarantor to Lender.

“Immediate Repair Deposit” has the meaning set forth in Section 4.05(b) of this Loan Agreement, subject to adjustment as set forth in Section 4.05(d).

“Immediate Repair Reserve Account” means an account held by Lender, or Lender’s designee, in which the Immediate Repair Deposit will be held, which shall not constitute a trust fund.

“Immediate Repairs” means the repairs or improvements to the Property identified on Exhibit C hereto.

“Improvements” has the meaning set forth in the Security Instrument.

“Indemnified Claim” means the basis for the Indemnified Party’s claim for indemnification under Article 13 hereof.

“Indemnified Parties” means Lender, together with its successors and assigns, which shall include, without limitation, any owner or prior owner or holder of the Note, any servicer of the Loan, any investor, or holder of a full or partial interest in the Loan, any receiver or other fiduciary appointed in a foreclosure or other proceeding under any Requirements of Law regarding creditors’ rights, any officers, directors, shareholders, partners, members, employees, agents, servants, representatives, contractors, subcontractors, Affiliates of any and all of the foregoing, in all cases whether during the term of the Loan or as part of, or following, a foreclosure of the Security Instrument.

“Independent Director/Manager” means an individual who shall not have been at the time of such individual’s initial appointment, and may not have been at any time during the preceding five years, and shall not be at any time while serving as an Independent Director/Manager of the SPE Equity Owner or Borrower if a single member limited liability company or, if applicable, either (a) a shareholder of, or an officer, director, partner or employee of, Borrower or SPE Equity Owner or any of their

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respective shareholders, partners, members, subsidiaries or Affiliates, (b) a customer of, or supplier to, Borrower or SPE Equity Owner or any of their respective shareholders, partners, members, subsidiaries or Affiliates, (c) a person or other entity Controlling or under common Control with any such shareholder, officer, director, partner, member, employee, supplier or customer, or (d) a member of the immediate family of any such shareholder, officer, director, partner, member, employee, supplier or customer.

“Insurance Premium Escrow Account” means an account held by Lender, or Lender’s designee, in which Borrower’s initial deposit for Insurance Premiums paid on the Closing Date and the Monthly Insurance Deposits will be held.

“Insurance Premiums” means the premiums for the insurance Borrower is required to provide pursuant to Section 9.03 of this Loan Agreement.

“Interest Accrual Period” shall mean, with respect to any Payment Due Date, the period beginning on the first day of the month prior to such Payment Due Date, through and including the last calendar day of the month prior to such Payment Due Date.

“Interest Rate Adjustment Date” means the first day of any Interest Accrual Period.

“Interest Rate Index” means the weekly average yield on United States Treasury Securities adjusted to a constant maturity of one year, as made available by the Federal Reserve Board forty-five (45) days prior to each Interest Rate Adjustment Date.

“Issuer Group” has the meaning set forth in Section 15.05 of this Loan Agreement.

“Issuer Person” has the meaning set forth in Section 15.05 of this Loan Agreement.

“Land” has the meaning set forth in the Security Instrument.

“Lease” has the meaning set forth in the Security Instrument.

“Lease Guaranty” has the meaning set forth in the Security Instrument.

“Leasing Commissions” means leasing commissions incurred by Borrower in connection with the leasing of the Property or any portion thereof (including any so-called “override” leasing commissions which may be due to any leasing or rental agent engaged by Borrower for the Property if an agent other than such agent also is entitled to a leasing commission, but excluding commissions due any principal, member, general partner or shareholder of Borrower or any Affiliate of Borrower).

“Lender” has the meaning in the introductory paragraph of this Loan Agreement.

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“LIBOR Rate” means the average of London Interbank Offered Rates (in U.S. dollar deposits) for the applicable LIBOR Term determined solely by Lender as of the date that is two (2) Business Days prior to the first day of the applicable Interest Accrual Period. On each Interest Rate Adjustment Date, Lender will obtain the close-of-business LIBOR Rate from reference “LIBOR01” from Reuters Service (or such other reference as may replace LIBOR01 on that service) on the date that is two (2) Business Days prior to the first day of the applicable Interest Accrual Period. If Reuters Service ceases publication or ceases to publish the LIBOR Rate, Lender shall select a comparable publication to determine the LIBOR Rate and provide notice thereof to Borrower. The LIBOR Rate may or may not be the lowest rate based upon the market for U.S. dollar deposits in the London Interbank Eurodollar Market at which Lender prices loans on the date on which the LIBOR Rate is determined by Lender as set forth above.

“LIBOR Term” means the period for which any applicable interest rate will be set by reference to the LIBOR Rate.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, the filing of any financing statement under the UCC or comparable law of any jurisdiction in respect of any of the foregoing and a mechanics’ or materialmen’s lien).

“Liquidity” means cash and unencumbered, marketable securities.

“Loan” means the aggregate of all principal and interest payments that accrue or are due and payable in accordance with the Loan Agreement, together with any other amounts due under the Loan Documents. The terms “Loan” and “Debt” have the same meaning whenever used in the Loan Documents.

“Loan Agreement” means this Loan Agreement.

“Loan Constant” the greater of (i) 7.98% (ii) the then current 10-Year U.S. Treasury Rate (as published by Bloomberg, L.P.) plus a spread of 110 basis points and assuming a thirty (30) year amortization, (iii) the actual loan constant or (iv) the then current loan constant applied by Lender in accordance with its then current underwriting policies and procedures for fixed rate conduit loans.

“Loan Documents” means, collectively, this Loan Agreement, the Note, the Security Instrument, the Assignment of Leases and Rents, the Assignment of Property Management Contract, the Environmental Indemnity, the Guaranty, the Assignment of Interest Rate Cap Agreement, the Rate Cap Provider Consent and any and all other documents and agreements executed in connection with the Loan, as each such agreement may be modified, supplemented, consolidated, extended, replaced, restated or reinstated from time to time.

“Loan to Value Ratio” means with respect to the specified period, the ratio obtained by dividing (a) the Maximum Loan Amount, by (b) either, as selected in

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Lender’s discretion, the “as-is” or “as-stabilized” value of the Property as set forth in the appraisal obtained by Lender in connection with its underwriting of the Loan or any update thereto, whichever is most recent; provided however, that should the Operating Income or market rents for the Property as underwritten by Lender change by ten percent (10%) or more during the period in question, Lender may obtain a new appraisal at Borrower’s expense.

“Losses” means any and all claims, suits, liabilities (including, without limitation, strict liabilities and liabilities under federal and state securities laws), actions, proceedings, obligations, debts, damages, losses, costs, expenses, fines, penalties, charges, fees, judgments, awards, and amounts paid in settlement of whatever kind or nature (including without limitation reasonable legal fees and other costs of defense).

“Major Lease” means any Lease of non-residential space at the Property.

“Margin” has the meaning set forth in Section 2.02(b) of this Loan Agreement.

“Material Adverse Effect” means, with respect to any circumstance, act, condition or event of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event, act, condition circumstances, whether or not related, in Lender’s reasonable judgment, a material adverse change in, or a materially adverse effect upon (a) the business, operations, prospects or financial condition of Borrower or Guarantor; (b) the ability of Borrower or Guarantor to perform its obligations under any Loan Document to which it is a party; (c) the value or condition of the Property; (d) compliance of the Property with any Requirements of Law; (e) the validity, priority or enforceability of any Loan Document or the liens, rights (including, without limitation, recourse against the Property) or remedies of Lender hereunder or thereunder; or (f) the occupancy rate of the Property,

“Maturity Date” has the meaning set forth in Section 2.03(c) of this Loan Agreement.

“Maximum Capital Improvements Advance Amount” has the meaning set forth in Section 2.01(d)(i) of this Loan Agreement.

“Maximum Debt Service Advance Amount” has the meaning set forth in Section 2.01(c)(i) of this Loan Agreement.

“Maximum Loan Amount” means the maximum principal amount of $11,000,000.00, in lawful money of the United States of America, to be advanced to Borrower pursuant to this Loan Agreement. Reference in the Loan Agreement to “Maximum Loan Amount” mean the maximum principal amount, irrespective of actual principal amount outstanding or actually advanced to Borrower during the term of the Loan.

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“Monthly Insurance Deposit” means, with respect to the specified period, an amount equal to one-twelfth (1/12) of the Insurance Premiums that Lender estimates will be payable during the next ensuing twelve (12) months, subject to adjustment as set forth in Section 4.03(d) of this Loan Agreement.

“Monthly Replacement Reserve Deposit” has the meaning set forth in Section 4.05(b) of this Loan Agreement, subject to adjustment as set forth in Section 4.05(d).

“Monthly Tax Deposit” means, with respect to the specified period, an amount equal to one-twelfth (1/12) of the Taxes that Lender estimates will be payable during the next ensuing twelve (12) months, subject to adjustment as set forth in Section 4.02(d) of this Loan Agreement.

“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

“Net Worth” means, as of a given date, a Person’s equity calculated in conformance with GAAP by subtracting total liabilities from total tangible assets.

“New Payment Due Date” shall have the meaning set forth in Section 15.02 of this Loan Agreement.

“Note” means, collectively, Note A, Note B, and any Conversion Note.

“Note A” means that certain promissory note dated as of the Closing Date from Borrower to the order of Lender evidencing $6,825,000.00 of the Maximum Loan Amount.

“Note A Applicable Interest Rate” has the meaning set forth in Section 2.02(b) of this Loan Agreement.

“Note B” means that certain promissory note dated as of the Closing Date from Borrower to the order of Lender evidencing $4,175,000.00 of the Maximum Loan Amount.

“Note B Applicable Interest Rate” has the meaning set forth in Section 2.02(b) of this Loan Agreement.

“Note B Advance” means any advance made under Note B in accordance with the terms of Section 2.01(c) and (d) of this Loan Agreement.

“Obligations” means the Loan, and all other obligations and liabilities of the Borrower to Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with the Loan the Loan Documents, whether on account of principal, interest, fees, indemnities, costs, expenses (including, without limitation, all reasonable fees and disbursements of legal counsel) or otherwise.

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“OFAC List” means the list of specially designated nationals and blocked persons subject to financial sanctions that is maintained by the U.S. Treasury Department, Office of Foreign Assets Control and any other similar list maintained by the U.S. Treasury Department, Office of Foreign Assets Control pursuant to any Requirements of Law, including, without limitation, trade embargo, economic sanctions, or other prohibitions imposed by Executive Order of the President of the United States. The OFAC List is accessible through the internet website www.treas.gov/ofac/t11sdn.pdf.

“One Year LIBOR Rate” means the average of London Interbank offered rates (in U.S. dollar deposits) for a term of one year determined solely by Lender as of the date that is two (2) Business Days prior to (i) the twenty-fifth (25^th) Payment Due Date or (ii) the date of prepayment in the case of determining Spread Maintenance, as applicable. Lender will obtain the close-of-business One Year LIBOR Rate from reference “LIBOR01” from Reuters Service (or such reference as may replace LIBOR01 on that service) on the date that is two (2) Business Days prior to the twenty-fifth (25^th) Payment Due Date. If Reuters Service ceases publication or ceases to publish the LIBOR Rate, Lender shall select a comparable publication to determine the One Year LIBOR Rate and provide notice thereof to Borrower. The One Year LIBOR Rate may or may not be the lowest rate based upon the market for U.S. dollar deposits in the London Interbank Eurodollar Market at which Lender prices loans on the date on which the One Year LIBOR Rate is determined by Lender as set forth above.

“Operating Agreements” has the meaning set forth in the Security Instrument.

“Operating Expenses” means all cash expenses actually incurred by or charged to Borrower (appropriately pro-rated for any expenses that, although actually incurred in a particular period, also relate to other periods), with respect to the ownership, operation, leasing and management of the Property in the ordinary course of business, determined in accordance with GAAP, and adjusted by Lender in accordance with Lender’s customary underwriting procedures and policies then in effect which Operating Expenses are also adjusted to include any underwritten reserves for Replacements, Tenant Improvements and Leasing Commissions and any other underwritten reserves as determined by Lender whether or not required to be reserved. Operating Expenses shall specifically exclude (1) costs of Tenant Improvements and Leasing Commissions, (2) capital expenditures, (3) depreciation, (4) payments made in connection with the payment of the outstanding principal balance of the Loan, (5) costs of Restoration following a Casualty or Condemnation, (6) funds disbursed from any Reserve Account, and (7) any other non-cash items.

“Operating Income” means all gross cash income, revenues and consideration received or paid to or for the account or benefit of Borrower resulting from or attributable to the operation or leasing of the Property determined in accordance with GAAP and adjusted by Lender in accordance with Lender’s customary underwriting procedures and policies then in effect but excluding any income or revenues from a sale, refinancing, Casualty or Condemnation, payment of rents more than one (1) month in

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advance, lease termination payments, or payments from any other events not related to the ordinary course of operation of the Property.

“Organizational Chart” means the chart attached hereto as Exhibit D which shows all persons or entities having an ownership interest in Borrower and in the SPE Equity Owner.

“Other Charges” means all ground rents, maintenance charges, impositions (other than Taxes) and similar charges (including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Property), now or hereafter assessed or imposed against the Property, or any part thereof, together with any penalties thereon.

“Payment Due Date” has the meaning set forth in Section 2.03(b) of this Loan Agreement. It is the date that a regularly scheduled payment of principal and interest (or interest if the loan payments are interest-only) is due.

“Performance Criteria” means that the Debt Service Coverage Constant Ratio for the Loan has reached (i) a minimum of 0.90:1.00 as of the twentieth (20^th) Payment Due Date, as determined by Lender based upon trailing three (3) months Cash Flow Available for Debt Service; (ii) a minimum of 1.05:1.00 as of the twenty-fourth (24^th) Payment Due Date, as determined by Lender based upon trailing three (3) months Cash Flow Available for Debt Service; (iii) a minimum of 1.10:1.00 as of the thirtieth (30^th) Payment Due Date, as determined by Lender based upon trailing three (3) months Cash Flow Available for Debt Service; and (iv) a minimum of 1.15:1.00 as of the thirty-sixth (36^th) Payment Due Date, as determined by Lender based upon trailing three (3) months Cash Flow Available for Debt Service.

“Performance Deficiency Satisfaction Amount” means the amount by which the Maximum Loan Amount would have to be reduced by such that the Performance Criteria would be satisfied, as determined by Lender in its sole but reasonable discretion.

“Permitted Encumbrances” means only those exceptions shown in the Title Insurance Policy and each other Lien which has been approved in writing by Lender.

“Permitted Transfer” means each of the following:

(a) Transfers of Equity Interests which, in the aggregate over the term of the Loan (i) do not exceed forty-nine percent (49%) of the total interests in Borrower or in SPE Equity Owner or in Guarantor, as applicable; (ii) do not result in any Person holding an Equity Interest in Borrower or SPE Equity Owner, as applicable, which exceeds forty-nine percent (49%) of the total Equity Interests in Borrower or in SPE Equity Owner, as applicable; and (iii) do not result in a change of Control.

(b) Transfers with respect to any Person whose stocks or certificates are traded on a nationally recognized stock exchange.

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(c) Transfers which have been approved by Lender in accordance with Section 10.02 of this Loan Agreement.

(d) Permitted Encumbrances.

(e) All Transfers of worn out or obsolete furnishings, fixtures or equipment that are promptly replaced with property of equivalent value and functionality.

(f) All Major Leases which have been approved by Lender in accordance with this Loan Agreement.

(g) All Leases which are not Major Leases and which have been approved by the Lender pursuant to Section 9.06 or that do not require Lender’s approval pursuant to Section 9.06.

(h) If the transferor is an individual, Transfers of Equity Interests of such transferor to such transferor’s immediate family members or trusts established for the benefit of such family members for estate planning purposes, provided that (i) Borrower provides prior written notice of such Transfers to Lender, together with all supporting information and documentation required by Lender in connection with such Transfers, (ii) Borrower pays any and all Lender’s costs in connection with the review of any such Transfer, and (iii) no such Transfer results in a change of Control.

(i) Involuntary Transfers caused by the death or incompetence of any of the members of Borrower, provided that (i) Borrower is reconstituted, if required, following such Transfer and (ii) no such Transfer results in a change of Control, provided, however, in the event such Transfer results in a change of Control, such change in Control is approved by Lender.

“Person” means an individual, partnership, limited partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature.

“Personal Property” has the meaning set forth in the Security Instrument.

“Property” has the meaning set forth in the Security Instrument.

“Property Management Contract” means the agreement dated October 31, 2007 between Borrower and Property Manager which provides for the management of the Property for Borrower by Property Manager.

“Property Manager” means MDIC Management, L.L.C., an Alabama limited liability company.

“Rate Cap” means each interest rate cap obtained by Borrower as protection against interest rate fluctuations under the Loan.

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“Rate Cap Agreement” means the written agreement evidencing the financial and performance terms of the Rate Cap purchased by Borrower from Rate Cap Provider which satisfies all requirements of Section 2.07 of this Loan Agreement.

“Rate Cap Provider” means the counterparty issuing a rate cap to Borrower,

“Rate Cap Provider Consent” means the Rate Cap Provider Consent and Acknowledgement to Assignment of Rate Cap with respect to the assignment of the Rate Cap from Borrower to Lender, executed by the Rate Cap Provider in favor of Lender.

“Rating Agencies” means Fitch, Inc., Moody’s and S & P, or any successor entity of the foregoing, or any other nationally recognized statistical rating organization to the extent that any of the foregoing have been or will be engaged by Lender or its designees in connection with or in anticipation of Securitization or any other sale or grant of participation interest in the Loan (or any part thereof).

“Rating Confirmation” means a written confirmation from each of the Rating Agencies (unless otherwise agreed by Lender) that an action shall not result in a downgrade, withdrawal or qualification of any securities issued in connection with a Securitization.

“Rent Roll” means a written statement from Borrower, substantially in the form attached hereto as Exhibit E, detailing the names of all tenants of the Property, the portion of Property occupied by each tenant, the base rent and any other charges payable under each Lease, the term of each Lease, the beginning date and expiration date of each Lease, whether any tenant is in default under its Lease (and detailing the nature of such default), and any other information as is reasonably required by Lender, all certified by a Responsible Officer to be true, correct and complete.

“Rents” has the meaning set forth in the Security Instrument.

“Replacement Reserve Account” means an account held by Lender, or Lender’s designee, in which the Monthly Replacement Reserve Deposits will be held, which shall not constitute a trust fund.

“Replacements” means the scheduled repairs and replacements to the Property identified on Exhibit F hereto.

“Request” means, as applicable, a Disbursement Request or an Advance Request, as the context may require.

“Requirements of Law” means (a) the organizational documents of an entity, and (b) any law, regulation, ordinance, code, decree, treaty, ruling or determination of an arbitrator, court or other Governmental Authority, or any Executive Order issued by the President of the United States, in each case applicable to or binding upon such Person or to which such Person, any of its property or the conduct of its

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business is subject including, without limitation, laws, ordinances and regulations pertaining to the zoning, occupancy and subdivision of real property.

“Reserve Accounts” means, individually and collectively, as the context requires, the Tax Escrow Account, the Insurance Premiums Escrow Account, the Immediate Repair Reserve Account and the Replacement Reserve Account.

“Reserve Item” means, individually and collectively, as the context requires, the Immediate Repairs, the Replacements, the Tenant Improvements, the Leasing Commissions and the Capital Improvements.

“Responsible Officer” means, as to any Person, an individual who is a managing member, a general partner, the chief executive officer, the president or any vice president of such Person or, with respect to financial matters, the chief financial officer or treasurer of such Person or any other officer authorized by such Person to deliver documents with respect to financial matters pursuant to this Loan Agreement.

“Restoration” means the repairs, replacements, improvements, or rebuilding of or to the Property following a Casualty or Condemnation.

“Restoration Deficiency Deposit” has the meaning set forth in Section 9.04(d) of this Loan Agreement. All amounts deposited by Borrower with Lender as the Restoration Deficiency Deposit shall become a part of the Restoration Proceeds and disbursed by Lender for Restoration on the same conditions applicable to disbursement of Restoration Proceeds and, until so disbursed, are pledged to Lender as security for the Loan and Obligations.

“Restoration Holdback” has the meaning set forth in Section 9.04(e) of this Loan Agreement.

“Restoration Proceeds” has the meaning set forth in Section 9.04(b) of this Loan Agreement.

“S & P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.

“Securities Act” means the Securities Act of 1933 and any successor statute thereto and the related regulations issued thereunder, all as amended from time to time.

“Securities Exchange Act” means the Securities Exchange Act of 1934, and any successor statute thereto and the related regulations issued thereunder, all as amended from time to time.

“Securities Liabilities” has the meaning provided in Section 15.05 of this Loan Agreement.

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“Securitization” or “Securitize” means the sale of the Loan, by itself or as part of pool with other loans, in a transaction whereby mortgage pass-through certificates or other securities evidencing a beneficial interest, backed by the Loan or such pool of loans, will be sold as a rated or unrated public offering or private placement.

“Security Instrument” means the Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing, or the Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing, or the Deed to Secure Debt, Assignment of Rents and Leases, Security Agreement and Fixture Filing as applicable, encumbering the Property and executed by Borrower to Lender or to a trustee for the benefit of Lender, as the case may be, to secure Borrower’s payment of the Loan and performance of the Obligations.

“Single Purpose Entity” has the meaning set forth in Section 7.02 of this Loan Agreement.

“SPE Equity Owner” means CV Manager, Inc., an Alabama corporation.

“Spread Maintenance” shall mean for each of Note A, Note B, and each Conversion Note, the present value of the sum of the related monthly payments for the period from the date of prepayment through and including the eighteenth (18^th) Payment Due Date (recalculated as if the Applicable Interest Rate included only the Margin) discounted at an interest rate per annum equal to the One Year LIBOR Rate. The Spread Maintenance shall be equal to the sum of the calculations separately determined for each such Note A, Note B, and Conversion Note (if any), such determination to be made by Lender in the exercise of its sole discretion, which calculation shall be conclusive, absent manifest error.

“Standard Lease Form” means, as applicable, the standard form of lease agreement used by Borrower for the rental of commercial units at the Property and the standard form of lease agreement used by Borrower for the rental of residential units at the Property, in each case in the form certified to Lender as of the Closing Date or subsequently approved by Lender in writing.

“Strike Rate” means (a) with respect to the period from and including the Closing Date through the twelfth (12^th)  Payment Due Date, five and twenty-four one hundredths percent (5.24%); and (b) with respect to the remainder of the term of the Loan, a strike price determined by Lender for such period such that a minimum Debt Service Coverage Constant Ratio of 1.05:1.00 is maintained.

“Tax Code” means the Internal Revenue Code of 1986 and the related Treasury Department regulations issued thereunder, including temporary regulations, all as amended from time to time.

“Tax Escrow Account” means an account held by Lender, or Lender’s designee, in which Borrower’s initial deposit for Taxes made on the Closing Date and the Monthly Tax Deposits will be held, which shall not constitute a trust fund.

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“Taxes” means all real estate taxes, government assessments or impositions, lienable water charges, lienable sewer rents, assessments due under owner association documents, ground rents, vault charges and license fees for the use of vault chutes and all other charges (other than the Other Charges), now or hereafter levied or assessed against the Land and Improvements.

“Tenant Improvements” means improvements made to the Property to prepare the same for tenant occupancy in connection with each Lease and made by Borrower in conformity with the terms of the related Lease and this Loan Agreement.

“Title Insurance Policy” means the mortgagee title insurance policy obtained by Lender in connection with the Loan, and, until the issuance of such policy, the commitment for title insurance as marked-up as of the Closing Date, in either case in form and substance (with such endorsements and affirmative coverages) as is satisfactory to Lender, insuring that the Security Instrument constitutes a perfected first Lien against the Property in the Maximum Loan Amount, subject only to Permitted Encumbrances.

“Transfer” means any action other than a Permitted Transfer by which either (a) the legal or beneficial ownership of the Equity Interests in Borrower or in SPE Equity Owner or in the Guarantor or (b) the legal or equitable title to the Property, or any part thereof, or (c) the cash flow from the Property or any portion thereof, are sold, assigned, transferred, hypothecated, pledged or otherwise encumbered or disposed of, in each case (a), (b) or (c) whether undertaken, directly or indirectly, or occurring by operation of law or otherwise, including, without limitation, each of the following actions:

(i) the sale, conveyance, assignment, grant of an option with respect to, mortgage, deed in trust, pledge, grant of a security interest in, or any other transfer, as security or otherwise, of the Property or with respect to the Leases or Rents (or any thereof);

(ii) the grant of an easement across the Property (other than minor easements not having a Material Adverse Effect) or any other agreement granting rights in or restricting the use or development of the Property (including, without limitation, air rights);

(in) an installment sale wherein Borrower agrees to sell the Property for a price to be paid in installments;

(iv) an agreement by Borrower leasing all or a substantial part of the Property for other than actual occupancy by a space tenant thereunder; or

(v) the issuance of additional partnership, membership or other equity interests, as applicable.

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“UCC” means the Uniform Commercial Code in effect in the State where the Property is located, as from time to time amended or restated. For purposes of the UCC’s application to the Reserve Accounts, the parties agree that the Reserve Accounts shall be deemed located in the state where the Property is located.

“Underwriter Group” has the meaning provided in Section 15.05 of this Loan Agreement.

Attachments:

Exhibit A	Compliance Certificate Form
Exhibit B	Disbursement Request Form
Exhibit C	Immediate Repairs
Exhibit D	Organizational Chart
Exhibit E	Rent Roll
Exhibit F	Replacements
Exhibit G	Capital Improvements

[Remainder of page is blank; signatures appear on next page.]

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IN WITNESS WHEREOF, Lender and Borrower hereby sign, seal and deliver this Loan Agreement. By signing below on behalf of Borrower, SPE Equity Owner also consents, in its individual capacity, to the obligations of SPE Equity Owner set forth in Sections 7.02(b), 9.11(c), 8.21 and Article 15 of this Loan Agreement.

LENDER:
CAPMARK BANK, a Utah industrial bank
By:	/s/ Philip Long
Name:	Philip Long
Title:	Limited Signer

IN WITNESS WHEREOF, Lender and Borrower hereby sign, seal and deliver this Loan Agreement. By signing below on behalf of Borrower, SPE Equity Owner also consents, in its individual capacity, to the obligations of SPE Equity Owner set forth in Sections 7.02(b), 9.11(c), 8.21 and Article 15 of this Loan Agreement.

BORROWER:
CV APARTMENTS, LLC, an Alabama limited liability company
By:	CV Manager, Inc., an Alabama corporation, its Manager
	By:	/s/ Philip P. Mulkey
	Name:	Philip P. Mulkey
	Title:	President

Borrower’s State Identification Number:

Borrower’s Tax Identification Number:

26-1277130

EX-10.10

Exhibit 10.10

THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING SERVES AS A FINANCING STATEMENT FILED AS A FIXTURE FILING PURSUANT TO §7-9A-502(c), CODE OF ALABAMA, 1975, AS AMENDED, AND SHOULD BE CROSS INDEXED IN THE INDEX OF FIXTURE FILINGS.

Space above this line for recorder’s use

MORTGAGE,

ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT AND FIXTURE FILING

THIS MORTGAGE, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FILING (“Security Instrument”) is made as of this 30^th day of November, 2007 by CV APARTMENTS, LLC, an Alabama limited liability company, as mortgagor (“Borrower”), to CAPMARK BANK, a Utah industrial bank (together with its successors and assigns, “Lender”).

BACKGROUND

Borrower and Lender are entering into a certain Loan Agreement of even date herewith (“Loan Agreement”) pursuant to which Lender will make a loan (“Loan”) to Borrower in the maximum principal amount of $11,000,000.00. The Loan will also be evidenced by Borrower’s promissory notes to Lender of even date herewith; a promissory note in the original principal amount of $6,825,000.00 (“Note A”) and a promissory note in the original principal amount of $4,175,000.00 (“Note B”, together with Note A referred to collectively herein as the “Note”). Borrower desires to secure payment and performance of Borrower’s obligations in respect of the Loan by granting to Lender the security described in this Security Instrument.

NOW, THEREFORE, to induce Lender to make the Loan to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, Borrower agrees as follows:

ARTICLE 1

DEFINED TERMS

1.01 Defined Terms. Capitalized terms used in this Security Instrument and not specifically defined in this Security Instrument have the meaning provided in the Loan Agreement.

ARTICLE 2

GRANT OF SECURITY

2.01 Property Mortgaged. Borrower does hereby irrevocably deed, mortgage, grant, bargain, sell, assign, pledge, warrant, transfer and convey to Lender, and to its successors and assigns as Lender, as security for the Obligations, with power of sale, the following property, rights, interests and estates, now owned or hereafter acquired by Borrower (collectively, “Property”):

(a) Land. The land described in Exhibit A attached hereto and made a part hereof, together with all estates and development rights now existing or hereafter acquired for use in connection therewith (“Land”);

(b) Additional Land. All land that, from time to time, by supplemental deed or otherwise, may be expressly made subject to this Security Instrument, and all estates and development rights hereafter acquired by Borrower for use in connection with such land (also, the “Land”);

(c) Improvements. All buildings, structures, improvements and fixtures now or hereafter erected or located on the Land (“Improvements”);

(d) Easements. All easements, rights-of-way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, and all estates, rights, titles, interests, privileges, liberties, servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or hereafter belonging, relating or pertaining to the Property and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Land, to the center line thereof, and all the estates, rights, titles, interests, dower and rights of dower, curtesy and rights of curtesy, property, possession, claim and demand whatsoever, both at law and in equity, of Borrower of, in and to the Property and every part and parcel thereof, with all appurtenances thereto;

(e) Fixtures and Personal Property. All machinery, equipment, fixtures (including, without limitation, all heating, air conditioning, plumbing, lighting, communications and elevator fixtures), furnishing, building supplies and materials, and all other personal property of every kind and nature whatsoever owned by Borrower (or in which Borrower has or hereafter acquires an interest) and now or hereafter located upon, or appurtenant to, the Property or used or useable in the present or future operation and occupancy of the Property, along with all accessions, replacements, betterments, or substitutions of all or any portion thereof (collectively, “Personal Property”);

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(f) Leases and Rents. All leases, subleases, licenses and other agreements granting others the right to use or occupy all or any part of the Property together with all restatements, renewals, extensions, amendments and supplements thereto (“Leases”), now existing or hereafter entered into, and whether entered before or after the filing by or against Borrower of any petition for relief under the Bankruptcy Code, and all of Borrower’s right, title and interest in the Leases, including, without limitation (i) all guarantees, letters of credit and any other credit support given by any tenant or guarantor in connection therewith (“Lease Guaranties”), (ii) all cash, notes, or security deposited thereunder to secure the performance by the tenants of their obligations thereunder (“Tenant Security Deposits”), (iii) all claims and rights to the payment of damages and other claims arising from any rejection by a tenant of its Lease under the Bankruptcy Code (“Bankruptcy Claims”), (iv) all of the landlord’s rights in casualty or condemnation proceeds of a tenant in respect of the leased premises (“Tenant Claims”), (v) all rents, ground rents, additional rents, revenues, termination and similar payments, issues and profits (including all oil and gas or other mineral royalties and bonuses) from the Property (collectively with the Lease Guaranties, Tenant Security Deposits, Bankruptcy Claims and Tenant Claims, “Rents”), whether paid or accruing before or after the filing by or against Borrower of any petition for relief under the Bankruptcy Code, (vi) all proceeds or streams of payment from the sale or other disposition of the Leases or disposition of any Rents, and (vii) the right to receive and apply the Rents to the payment of the Debt and to do all other things which Borrower or a lessor is or may become entitled to do under the Leases or with respect to the Rents;

(g) Condemnation Awards. All awards or payments, including interest thereon, which may heretofore and hereafter be made with respect to the Property, whether from the exercise of the right of eminent domain (including, without limitation, any transfer made in lieu of or in anticipation of the exercise of the right), or for a change of grade, or for any other injury to or decrease in the value of the Property;

(h) Insurance Proceeds. All proceeds of, and any unearned premiums on, any insurance policies covering the Property, including, without limitation, the exclusive right to receive and apply the proceeds of any claim awards, judgments, or settlements made in lieu thereof, for damage to the Property;

(i) Tax Certiorari. All refunds, rebates or credits in connection with a reduction in Taxes, including, without limitation, rebates as a result of tax certiorari or any other applications or proceedings for reduction;

(j) Operating Agreements. All contracts (including, without limitation, service, supply, maintenance and construction contracts), registrations, franchise agreements, permits, licenses (including, without limitation, liquor licenses, if any, to the fullest extent assignable by Borrower), plans and specifications, and other agreements, now or hereafter entered into, and all rights therein and thereto, respecting or pertaining to the use, occupation, construction, management or operation of the Property, or respecting any business or activity conducted by Borrower from the Property, and all right, title and interest of Borrower therein and

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thereunder, including, without limitation, the right, while an Event of Default remains uncured, to receive and collect any sums payable to Borrower thereunder (collectively, “Operating Agreements”);

(k) Rate Cap Agreements. All interest rate cap agreements, swaps or other interest hedging agreements now or hereafter executed with respect to the Loan or to guard against interest rate exposure in connection with the Loan, if any;

(l) Intangibles. All accounts, escrows, chattel paper, claims, deposits, trade names, trademarks, service marks, logos, copyrights, books and records, goodwill, and all other general intangibles relating to or used in connection with the operation of the Property;

(m) Accounts. All reserves, escrows and deposit accounts maintained by Borrower with respect to the Property (including, without limitation, the Borrower Operating Account and all reserves, escrows, deposit accounts and lockbox accounts, if any, established pursuant to the Loan Agreement), together with all cash, checks, drafts, certificates, securities, investment property, financial assets, instruments and other property from time to time held therein, and all proceeds, products, distributions, dividends or substitutions thereon or thereof;

(n) Rights to Conduct Legal Actions. The right, in the name and on behalf of Borrower, to commence any action or proceeding to protect the interest of Lender in the Property and to appear in and defend any action or proceeding brought with respect to the Property;

(o) Proceeds. All proceeds and profits arising from the conversion, voluntary or involuntary, of any of the foregoing into cash (whether made in one payment or a stream of payments) and any liquidation claims applicable thereto; and

(p) Rights. Any and all other rights of Borrower in and to the items set forth in the foregoing subsections (a) through (o), inclusive, and in and to the Property.

TO HAVE AND TO HOLD the above granted and described Property unto Lender, and its successors and assigns, with power of sale in accordance with the terms and conditions hereof, forever; subject, however, to Section 2.05 below.

2.02 Grant of Security Interest; Security Agreement. Borrower hereby grants to Lender, as security for the Obligations, a security interest in the Property to the fullest extent that the Property now or hereafter may be subject to a security interest under the UCC. Borrower intends for this Security Instrument to be a “security agreement” within the meaning of the UCC. Borrower hereby irrevocably authorizes Lender to prepare, execute and file all initial financing statements, and any restatements, extensions, continuations, renewals or amendments thereof, in such form as Lender may require to perfect or continue the perfection of this security interest or other statutory liens held by Lender. Unless prohibited by applicable law, Borrower agrees to pay all reasonable expenses incident to the preparation, execution, filing and/or recording of any of the foregoing. With respect to any of the Property in which a security interest is not perfected by the filing of a financing statement, Borrower consents and agrees to undertake, and to

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cooperate fully with Lender, to perfect the security interest hereby granted to Lender in the Property. Without limiting the foregoing, if and to the extent any of the Property is held by a bailee for the benefit of Borrower, Borrower shall promptly notify Lender thereof and, if required by Lender, promptly obtain an acknowledgment from such bailee that is satisfactory to Lender and confirms that such bailee holds the Property for the benefit of Lender as secured party and shall only act upon instructions from Lender with respect to the Property.

2.03 Assignment of Leases and Rents.

(a) Rights Granted to Lender. Borrower hereby absolutely and unconditionally assigns to Lender all of Borrower’s right, title and interest in and to all current and future Leases and Rents. Borrower hereby declares its intention to establish a present, absolute and irrevocable transfer and assignment to Lender of all Rents and Leases and to authorize and empower Lender to collect and receive all Rents and exercise all of Borrower’s rights under the Leases (including, without limitation, the right to modify, extend or terminate any Lease) without any further action by Borrower; it being intended that this assignment is effective immediately and not an assignment made for security only, not withstanding any provision hereof to the contrary. For purposes of giving effect to this assignment of Rents and Leases and for no other purpose, Rents and Leases shall not be deemed to be part of the “Property” as that term is defined in Section 2.01 of this Security Instrument. If, however, this assignment of Rents and Leases is not enforceable by its terms under the laws of the State where the Property is located, then Rents and Leases shall be included as part of the Property and it is Borrower’s intention that, in this circumstance, this Security Instrument creates and perfects a lien of the Rents and Leases in favor of Lender, which lien shall be effective as of the date of this Security Instrument.

(b) License to Borrower; Revocation. Nevertheless, subject to the terms of this Security Instrument and the Loan Agreement, Lender grants to Borrower a revocable license (i) to manage the leasing activities of the Property as contemplated by the Loan Agreement, (ii) to exercise all of Borrower’s rights under the Leases and (iii) to collect and receive the Rents in trust for Lender and to apply the Rents to discharge all current amounts due on the Debt and to pay the current costs of managing, operating and maintaining the Property. So long as no Event of Default exists, the Rents remaining after application pursuant to the preceding sentence may be retained by Borrower free and clear of, and released from, Lender’s rights with respect to Rents under this Security Instrument. From and after the occurrence of an Event of Default, and without the necessity of notice or prior demand or Lender’s entering upon and taking and maintaining control of the Property (whether directly or through a receiver), the license granted to Borrower by this Section shall terminate automatically, and Lender shall be entitled to receive and collect the Rents as they become due and payable and exercise all of Borrower’s rights or the rights of lessor under the Leases and with respect to the Rent. Lender’s right to revoke the license granted to Borrower is in addition to all other rights and remedies available to Lender following an Event of Default.

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(c) No Obligations Assumed by Lender. Neither the granting of this assignment to Lender, nor Lender’s exercise of any rights or remedies with respect to this assignment, shall be construed (i) to make Lender a “mortgagee in possession” of the Property in the absence of Lender itself taking actual possession of the Property or (ii) to obligate Lender to take any action with respect to the Leases, including, without limitation, the performance of any obligation to be performed on the part of Borrower under any of the Leases, which shall remain exclusively with Borrower. Without limiting the foregoing, this assignment shall not operate to place on Lender any obligation or liability for: (i) the control, care, management or repair of the Property; (ii) for carrying out any of the terms and conditions of the Leases; (iii) any waste committed on the Property by tenants or any other parties; (iv) any dangerous or defective condition of the Property (including, without limitation, the presence of any Hazardous Materials as defined in the Environmental Indemnity); or (v) any negligence in the management, upkeep, repair or control of the Property resulting in injury or death to any tenant or any other party or any loss of personal property. Borrower, for itself and any party claiming under or through Borrower, hereby releases and discharges Lender from any such liability to the fullest extent permitted by law. Lender shall be obligated to account only for Rents actually collected or received by Lender, and Lender shall not be liable for any loss sustained by Borrower resulting from Lender’s failure to lease the Property after an Event of Default.

2.04 Fixture Filing. Certain of the Property is or will become “fixtures” (as that term is defined in the UCC) on the Land, and this Security Instrument upon being filed for record in the real estate records of the city or county wherein such fixtures are situated, shall operate also as a financing statement filed as a fixture filing in accordance with the applicable provisions of the UCC upon such of the Property that is or will become fixtures.

2.05 Pledge of Monies Held. Borrower hereby pledges to Lender, as security for the Obligations, all money now or hereafter held by Lender in escrow or reserve or on deposit pursuant to the terms hereof or pursuant to the Loan Agreement or any other Loan Document, until expended or applied as provided in this Security Instrument or such other Loan Document.

2.06 Release of Security. The grants, mortgage, liens, security interests, assignments, pledges and transfers by this Security Instrument are subject to the express condition that, if Borrower pays to Lender the Debt at the time and in the manner provided in the Loan Agreement and performs all Obligations when and as required by the Loan Agreement and each other Loan Document, Lender shall release the Property from the grants, mortgage, liens, security interests, assignments, pledges and transfers created by this Security Instrument and reconvey the Property to Borrower. Lender shall prepare (at Borrower’s expense) and deliver to Borrower such documents as are necessary to effect such release and reconveyance.

ARTICLE 3

DEBT AND OBLIGATIONS SECURED

3.01 Debt. This Security Instrument and the interests created in favor of Lender hereunder are given for the purpose of securing (a) payment of principal, interest and all other amounts due at anytime under the Loan Agreement, the Note and each of the other Loan

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Documents, including, without limitation, interest at the Default Rate, any late fee for delinquent payment, the Prohibited Prepayment Fee, the Prepayment Fee, and the Exit Fee (if any) as provided in the Loan Agreement, and amounts advanced by Lender to protect and preserve the Property and the Liens hereby created for the benefit of Lender (collectively “Debt”), and (b) performance of all obligations of Borrower contained in the Loan Agreement, the Note and each of the other Loan Documents (collectively with the Debt, “Obligations”). Notwithstanding any provision of this Security Instrument to the contrary, the obligations of Borrower and the other indemnitors under the Environmental Indemnity shall not be deemed secured by this Security Instrument unless and until Lender expressly declares in writing such obligations to be secured hereby.

ARTICLE 4

BORROWER COVENANTS

4.01 Payment of Debt and Performance of Obligations. Borrower will pay the Debt at the time and in the manner provided in the Loan Documents and fully and punctually perform the Obligations when and as required by the Loan Documents. Borrower may not prepay the Debt except in strict accordance with the Loan Agreement.

4.02 Compliance with Loan Agreement. Borrower shall comply with all covenants and agreements in the Loan Agreement, and other Loan Documents, including, without limitation, all obligations regarding the ownership, operation, management and condition of the Property and the protection and perfection of the Liens hereby created in favor of Lender. Without limiting the foregoing, Borrower agrees:

(a) No Transfers of the Property or Interests in Borrower. Borrower shall not cause or permit any Transfer of the legal or beneficial ownership of the Property, Borrower or SPE Equity Owner in violation of the Loan Agreement.

(b) Payment of Taxes and Other Lienable Charges. Borrower shall pay all Taxes and Other Charges assessed or imposed against the Property when and as required by the Loan Agreement.

(c) Insurance. Borrower shall obtain and maintain, in full force and effect at all times, all insurance with respect to Borrower and the Property as required by the Loan Agreement.

(d) Obligations upon Condemnation or Casualty. Borrower shall comply with all obligations required under the Loan Agreement in the event the Property is damaged by a Casualty or becomes involved in any Condemnation. All proceeds or awards recovered or payable to Borrower as a result of a Casualty or Condemnation shall be paid to, and administered by Lender, in accordance with the Loan Agreement.

(e) Leases and Rents. Borrower shall not enter into any Leases for all or any portion of the Property unless in accordance with the Loan Agreement.

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(f) Operating Agreements. Borrower shall observe and perform in a timely manner each and every obligation to be observed or performed by Borrower pursuant to the terms of each Operating Agreement and shall not terminate any Operating Agreement unless otherwise permitted in accordance with the Loan Agreement.

4.03 Warranty of Title. Borrower has good, marketable and insurable fee simple title of record to the Property, free and clear of all liens, encumbrances and charges whatsoever except for the Permitted Encumbrances. Borrower shall forever warrant, defend and preserve the title and the validity and priority of the lien of this Security Instrument and shall forever warrant and defend the same to Lender against the claims of all Persons whomsoever.

ARTICLE 5

SUBROGATION

5.01 Subrogation. If the Loan is used to pay, satisfy, discharge, extend or renew any indebtedness secured by a pre-existing mortgage, or other lien encumbering the Property (“Prior Lien”), then to the extent of funds so used, Lender shall automatically, and without further action on its part, be subrogated to all rights, including lien priority, held by the holder of the indebtedness secured by the Prior Lien, whether or not the Prior Lien is released, and such former rights are not waived but rather are continued in full force and effect in favor of Lender and are merged with the lien and security interest created herein as cumulative security for payment of the Debt and performance of the Obligations.

ARTICLE 6

DEFAULT

6.01 Events of Default. The occurrence of an “Event of Default” as that term is defined under the Loan Agreement shall constitute an “Event of Default” under this Security Instrument.

6.02 Remedies. If an Event of Default occurs, Lender may, at its option, and without prior notice or demand, exercise and hereby is authorized and empowered by Borrower so to exercise, any or all of the remedies set forth in the Loan Agreement (including, without limitation, the right to accelerate the Loan) or otherwise permitted by law or in equity.

6.03 Cumulative Remedies; No Waiver; Other Security. Lender’s remedies under this Security Instrument are cumulative with the remedies provided in the other Loan Documents, by law or in equity and may be exercised independently, concurrently or successively in Lender’s sole discretion and as often as occasion therefor shall arise. Lender’s delay or failure to accelerate the Loan or exercise any other remedy upon the occurrence of an Event of Default shall not be deemed a waiver of such right as remedy. No partial exercise by Lender of any right or remedy will preclude further exercise thereof. Notice or demand given to Borrower in any instance will not entitle Borrower to notice or demand in similar or other circumstances nor constitute Lender’s waiver of its right to take any future action in any circumstance without notice or demand (except where expressly required by this Security Instrument to be given).

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Lender may release other security for the Debt, may release any party liable for the Debt, may grant extensions, renewals or forbearances with respect thereto, may accept a partial or past due payment or grant other indulgences, or may apply any other security held by it to payment of the Debt, in each case without prejudice to its rights under this Security Instrument and without such action being deemed an accord and satisfaction or a reinstatement of the Debt. Lender will not be deemed as a consequence of its delay or failure to act, or any forbearances granted, to have waived or be estopped from exercising any of its rights or remedies.

6.04 Enforcement Costs. Borrower shall pay, on written demand by Lender, all costs incurred by Lender in (a) collecting any amount payable under the Loan Documents, or (b) enforcing its rights under the Loan Documents, in each case whether or not legal proceedings are commenced. Such fees and expenses include, without limitation, reasonable fees for attorneys, paralegals, law clerks and other hired professionals, a reasonable assessment of the cost of services performed by Lender’s default management staff, court fees, costs incurred in connection with pre-trial, trial and appellate level proceedings, including discovery, and costs incurred in post-judgment collection efforts or in any bankruptcy proceeding. Amounts incurred by Lender shall be added to the Debt, shall be immediately due and payable, and shall bear interest at the Default Rate from the date of disbursement until paid in full, if not paid in full within five (5) days after Lender’s written demand for payment.

6.05 Application of Proceeds. The proceeds from disposition of the Property shall be applied by Lender to the payment of the Debt (including, without limitation, advances made by Lender and enforcement costs incurred by Lender) in such priority and proportion as Lender determines in its sole discretion.

6.06 Continuing Lien; Right to Release Property. If less than all of the Property is, at any time, sold through foreclosure, power of sale, or otherwise, or if Lender releases any portion of the Property (for whatever consideration Lender deems appropriate), this Security Instrument shall continue as a lien and security interest on the remaining portion of the Property, unimpaired and without loss of priority.

6.07 LIMITATION ON PERSONAL LIABILITY. NOTWITHSTANDING ANY PROVISION HEREOF TO THE CONTRARY, BORROWER’S PERSONAL LIABILITY FOR PAYMENT OF THE DEBT AND PERFORMANCE OF THE OBLIGATIONS IS LIMITED HEREUNDER IN THE SAME MANNER AND TO THE SAME EXTENT AS EXPRESSLY PROVIDED IN THE LOAN AGREEMENT.

ARTICLE 7

WAIVER OF RIGHT OF REDEMPTION AND OTHER RIGHTS

7.01 Waiver of Rights of Redemption, Marshalling and Other Rights. Borrower hereby waives, to the fullest extent permitted by law, the benefit of all laws, now or hereafter in force, providing for (a) the valuation or appraisement of the Property, or any part thereof, prior to any sale or sales thereof pursuant to this Security Instrument or any decree, judgment or order of a court of competent jurisdiction; (b) the right to stay or extend any such proceeding, to have this

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Security Instrument reinstated or to redeem the Property or any portion thereof so sold; (c) rights of marshalling relating to any such sale or sales; (d) any right to require that the Property be sold as separate tracts or units in connection with enforcement of this Security Instrument; and (e) the benefit of any moratorium, exemption or homestead rights now or hereafter provided. Borrower makes such waivers on its own behalf and on behalf of all parties now or hereafter claiming or having an interest (direct or indirect) by, through or under Borrower.

7.02 Waiver of Counterclaim. Borrower hereby waives, to the fullest extent permitted by law, the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against it by Lender arising out of, or in any way connected with, the Obligations.

7.03 Waiver of Foreclosure Defense. Borrower hereby waives, to the fullest extent permitted by law, any defense Borrower might have by reason of Lender’s failure to make any tenant or tenant of the Property a party defendant in any foreclosure instituted by Lender.

7.04 Waiver of Notices Generally. Borrower hereby waives, to the fullest extent permitted by law, its rights to notice from Lender except when this Security Instrument or the other Loan Documents expressly provides for Lender to give notice to Borrower.

7.05 Waiver of Statute of Limitations and Laches. Borrower hereby waives, to the fullest extent permitted by law, the benefit of any statute of limitations or laches defense to payment of the Debt or performance of the Obligations.

7.06 WAIVER OF TRIAL BY JURY. BORROWER WAIVES ITS RIGHT, TO THE FULLEST EXTENT PERMITTED BY LAW, AND AGREES NOT TO ELECT, A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS SECURITY INSTRUMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS BORROWER AND LENDER.

7.07 Consent to Jurisdiction. Borrower hereby consents and submits to the exclusive jurisdiction and venue of any state or federal court sitting in the county and state where the Land is located with respect to any legal action or proceeding arising with respect to this Security Instrument or any other Loan Document and waives all objections which it may have to such jurisdiction and venue. Nothing herein shall, however, preclude or prevent Lender from bringing actions against Borrower in any other jurisdiction as may be necessary to enforce or realize upon the security herein provided.

ARTICLE 8

MISCELLANEOUS PROVISIONS

8.01 Incorporation from Loan Agreement. All provisions of Articles 17 and 18, inclusive, of the Loan Agreement are incorporated into this Security Instrument by this reference, as if fully reproduced herein.

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8.02 Further Acts. Borrower, at Borrower’s expense, agrees to take such further actions and execute such further documents as Lender reasonably may request to carry out the intent of this Security Instrument or to establish and protect the rights and remedies created or intended to be created in favor of Lender hereunder or to protect the value of the Property and the Liens and security hereby created in favor of Lender. Borrower agrees to pay all filing, registration or recording fees or taxes, and all expenses incident to the preparation, execution, acknowledgement or filing/recording of this Security Instrument or any such instrument of further assurance, except where prohibited by law so to do.

8.03 No Third Party Beneficiary. Notwithstanding any provision of this Security Instrument to the contrary, this Security Instrument is not intended by the parties to create, and shall not create, benefits on behalf of any tenant or other occupant of the Property or anyone claiming rights through any tenant or other occupant of the Property.

8.04 No Agency or Partnership. Nothing contained in this Security Instrument shall constitute Lender as a joint venturer, partner or agent of Borrower, or render Lender liable for any debts, obligations, acts, omissions, representations, or contracts of Borrower.

ARTICLE 9

LOCAL LAW PROVISIONS

The provisions set forth below control in the event of any conflict with the other terms of this Security Instrument.

9.01 Acceleration of Maturity. If an Event of Default shall have occurred, then the entire Loan shall, at the option of Lender, immediately become due and payable without notice or demand, time being of the essence of this Security Instrument, and no omission on the part of Lender to exercise such option when entitled to do so shall be construed as a waiver of such right.

9.02 Right to Enter and Take Possession.

(a) If an Event of Default shall have occurred and be continuing, Borrower, upon demand of Lender, shall forthwith surrender to Lender the actual possession of the Property and, if and to the extent permitted by law, Lender itself, or by such officers or agents as it may appoint, may enter and take possession of all or any part of the Property without the appointment of a receiver or an application therefor, and may exclude Borrower and its agents and employees wholly therefrom, and take possession of the books, papers and accounts of Borrower;

(b) If Borrower shall for any reason fail to surrender or deliver the Property or any part thereof after such demand by Lender, Lender may obtain a judgment or decree conferring upon Lender the right to immediate possession or requiring Borrower to deliver immediate possession of the Property to Lender. Borrower will pay to Lender, upon demand, all

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expenses of obtaining such judgment or decree, including reasonable compensation to Lender, its attorneys and agents, and all such expenses and compensation shall, until paid, become part of the Loan and shall be secured by this Security Instrument;

(c) Upon every such entering upon or taking of possession, Lender may hold, store, use, operate, manage and control the Property and conduct the business thereof, and, from time to time (i) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personalty and other property; (ii) insure or keep the Property insured; (iii) manage and operate the Property and exercise all of the rights and powers of Borrower to the same extent as Borrower could in its own name or otherwise act with respect to the same; and (iv) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted to Lender, all as Lender from time to time may determine to be in its best interest. Lender may collect and receive all the rents, issues, profits and revenues from the Property, including those past due as well as those accruing thereafter, and, after deducting (A) all expenses of taking, holding, managing and operating the Property (including compensation for the services of all persons employed by such purposes); (B) the cost of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions; (C) the cost of such insurance; (D) such taxes, assessments and other similar charges as Lender may at its option pay; (E) other proper charges upon the Property or any part thereof; and (F) the reasonable compensation, expenses and disbursements of the attorneys and agents of Lender, Lender shall apply the remainder of the monies and proceeds so received by Lender, first, to the payment of accrued interest; second, to the payment of deposits required under this Security Instrument and to other sums required to be paid hereunder; and third, to the payment of overdue installments of principal. Anything in this Section 9.02 to the contrary notwithstanding, Lender shall not be obligated to discharge or perform the duties of a landlord to any tenant or incur any liability as a result of any exercise by Lender of its rights under this Security Instrument, and Lender shall be liable to account only for the rents, incomes, issues and profits actually received by Lender;

(d) Whenever all such interest, deposits and principal installments and other sums due under any of the terms, covenants, conditions and agreements of this Security Instrument shall have been paid and all Events of Default shall have been cured, Lender shall surrender possession of the Property to Borrower, its successors and assigns. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing.

9.03 Performance by Lender. Upon the occurrence of an Event of Default in the payment, performance or observance of any term, covenant or condition of this Security Instrument, Lender may, at its option, pay, perform or observe the same, and all payments made or costs or expenses incurred by Lender in connection therewith, with interest thereon at the Default Rate provided in the Note or at the maximum rate from time to time allowed by applicable law, whichever is less, shall be secured hereby and shall be, without demand, immediately repaid by Borrower to Lender. Lender shall be the sole judge of the necessity for

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any such actions and of the amounts to be paid. Lender is hereby empowered to enter and to authorize others to enter upon the Property or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without thereby becoming liable to Borrower or any person in possession holder under Borrower. Notwithstanding anything to the contrary herein, Lender shall have no obligation, explicit or implied to pay, perform, or observe any term, covenant, or condition.

9.04 Receiver. If any Event of Default shall have occurred and be continuing, Lender, upon application to a court of competent jurisdiction, shall be entitled as a matter of strict right, without notice and without regard to the occupancy or value of any security for the Loan or the solvency of any party bound for its payment, to the appointment of a receiver to take possession of and to operate the Property and to collect and apply the rents, issues, profits and revenues thereof. The receiver shall have all of the rights and powers permitted under the laws of the state wherein the Land is situated. Borrower will pay unto Lender upon demand all expenses, including reasonable receiver’s fees, reasonable attorney’s fees, costs and agent’s compensation, incurred pursuant to the provisions of this Section 9.04, and upon any Borrower’s failure to pay the same, any such amounts shall be added to the Loan and shall be secured by this Security Instrument.

9.05 Lender’s Power of Enforcement and Power of Sale.

(a) In an Event of Default shall have occurred and be continuing, Lender may, either with or without entry or taking possession as hereinabove provided or otherwise, proceed by suit or suits at law or in equity or any other appropriate proceeding or remedy (i) to enforce payment of the Note or the performance of any term thereof or any other right, power or remedy hereunder, (ii) to foreclose this Security Instrument and to sell the Property, as an entirety or in separate lots or parcels, as provided by applicable law, and (iii) to pursue any other remedy available to it, all as Lender shall deem most effectual for such purposes. Lender shall take action either by such proceedings or by the exercise of its powers with respect to entry or taking possession, as Lender may determine.

(b) If an Event of Default shall have occurred, Lender may sell the Property at public outcry to the highest bidder for cash in front of the Court House door in the county where the property is located, either in person or by auctioneer, after having first given notice of the time, place and terms of sale by publication once a week for three (3) successive weeks prior to said sale in some newspaper published in said county, and, upon payment of the purchase money, Lender or any person conducting the sale for Lender is authorized to execute to the purchaser at said sale a deed to the premises so purchased. Lender may bid at said sale and purchase said premises, or any part thereof, if the highest bidder therefor. At the foreclosure sale the Property may be offered for sale and sold as a whole without first offering it in any other manner or may be offered for sale and sold in any other manner Lender may elect.

9.06 Purchase by Lender. Upon any foreclosure sale or sale of all or any portion of the Property under the power herein granted, Lender may bid for and purchase the Property and shall be entitled to apply all or any part of the Loan as a credit to the purchase price.

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9.07 Application of Proceeds of Sale. In the event of a foreclosure or other sale of all or any portion of the Property, the proceeds of said sale shall be applied, first, to the expenses of such sale and of all proceedings in connection therewith, including reasonable attorneys’ fees (attorneys’ fees and expenses shall become absolutely due and payable whenever foreclosure is commenced); then to insurance premiums, liens, assessments, taxes and charges including utility charges advanced by Lender hereunder, and interest thereon; then to payment of the Loan and accrued interest thereon, in such order of priority as Lender shall determine, in its sole discretion; and finally the remainder, if any, shall be paid to Borrower, or to the person or entity lawfully entitled thereto.

9.08 Borrower as Tenant Holding Over. In the event of any such foreclosure sale or sale under the powers herein granted, Borrower (if Borrower shall remain in possession) shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily disposed according to provisions of law applicable to tenants holding over.

9.09 Waiver of Appraisement, Valuation, Etc. Borrower agrees, to the full extent permitted by law, that in case of a default on the part of Borrower hereunder, neither Borrower nor anyone claiming through or under Borrower will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension, exemption or laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Security Instrument, or the absolute sale of the Property, or the delivery of possession thereof immediately after such sale to the purchaser at such sale, and Borrower, for itself and all who may at any time claim through or under it, hereby waives to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets subject to the security interest of this Security Instrument marshaled upon any foreclosure or sale under the power herein granted.

9.10 Waiver of Homestead. Borrower hereby waives and renounces all homestead and exemption rights provided for by the Constitution of the laws of the United States and of any state, in and to the Property and against the collection of the Loan, or any part thereof.

9.11 Discontinuance of Proceedings. In case Lender shall have proceeded to enforce any right, power or remedy under this Security Instrument by foreclosure, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to Lender, then in every such case, Borrower and Lender shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Lender shall continue as if no such proceedings had occurred.

9.12 Remedies Not Exclusive. Lender shall be entitled to enforce payment and performance of the Loan and to exercise all rights and powers under this Security Instrument or under any other of the Loan Documents or other agreement or under any laws now or hereafter in force, notwithstanding that some or all of the Loan may now or hereafter be otherwise secured, whether by mortgages, deeds of trust, deeds to secure debt, pledges, liens, assignments or otherwise. Neither the acceptance of this Security Instrument nor its enforcement, whether by court action or pursuant to the power of sale or other powers herein contained, shall

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prejudice or in any manner effect Lender’s right to realize upon or enforce any other security now or hereafter held by Lender, it being agreed that Lender shall be entitled to enforce this Security Instrument and any other security now or hereafter held by Lender in such order and manner as it or either of them may in their absolute discretion determine. No right or remedy herein conferred upon or reserved to Lender is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Loan Documents to Lender or to which it otherwise may be entitled, may be exercised concurrently or independently, from time to time and as often as may be deemed expedient by Lender, and either of them may pursue inconsistent remedies.

9.13 Waivers. After consulting with and considering the advice of independent legal counsel selected by Borrower, Borrower makes the following arrangements, waivers and relinquishments knowingly and as a material inducement to Lender in making the Loan.

(a) No delay or omission by Lender or by any holder of the Note to exercise any right, power or remedy accruing upon any default shall exhaust or impair any such right, power or remedy or shall be construed to be a waiver of any such default, or acquiescence therein, and every right, power and remedy given by this Security Instrument to Lender may be exercised from time to time and as often as may be deemed expedient by Lender. No consent or waiver expressed or implied by Lender to or of any breach or default by Borrower in the performance of the obligations of Borrower hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance of the same or any other obligations of Borrower hereunder. Failure on the part of Lender to complain of any act or failure to act or failure to declare an Event of Default, irrespective of how long such failure continues, shall not constitute failure to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by Lender of its rights hereunder or impair any rights, powers or remedies of Lender hereunder.

(b) No act or omission by Lender shall release, discharge, modify, change or otherwise affect the original liability under the Note or this Security Instrument or any other obligation of Borrower or any subsequent purchaser of the Property or any part thereof, or any maker, co-signer, endorser, surety or guarantor, nor preclude Lender from exercising any right, power or privilege herein granted or intended to be granted in the event of any default then existing or of any subsequent default, nor alter the lien of this Security Instrument, except as expressly provided in an instrument or instruments executed by Lender. Without limiting the generality of the foregoing, Lender may (i) grant forbearance or an extension of time for payment of all or any portion of the Loan; (ii) take other or additional security for the payment of any of the Loan; (iii) waive or fail to exercise any right granted herein or in the Note; (iv) release any part of the Property from the security interest or lien of this Security Instrument or otherwise change any of the terms, covenants, conditions or agreements of the Note or this Security Instrument; (v) consent to the filing of any map, plat or replat affecting the Property; (vi) consent to the granting of any easement or other right affecting the Property; (vii) make or consent to any

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agreement subordinating the security title or lien hereof, or (viii) take or omit to take any action whatsoever with respect to the Note, this Security Instrument, the Property or any document or instrument evidencing, securing or in any way related to the Loan, all without releasing, discharging, modifying, changing or affecting any such liability, or precluding Lender from exercising any such right, power or privilege or affecting the lien of this Security Instrument. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Property, Lender, without notice, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Property or the Loan, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, obligations or undertakings.

(c) Borrower waives and relinquishes any and all rights it may have, whether at law or equity, to require Lender to proceed to enforce or exercise any rights, powers and remedies it may have under the Loan Documents in any particular manner, in any particular order, or in any particular State or other jurisdiction. To the fullest extent that Borrower may do so, Borrower agrees that Borrower will not at any time insist upon, plead, claim, or take the benefit or advantage of any law now or hereafter in force providing for any valuation, appraisement, stay of execution or extension, and Borrower, for Borrower, Borrower’s heirs, devisees, representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by law, hereby waives and releases all rights of valuation, appraisement, marshaling, stay of execution, and extension. Borrower further agrees that if any law referred to in this paragraph and now in force, of which Borrower, Borrower’s heirs, devisees, representatives, successors and assigns or other person might take advantage despite this paragraph, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to preclude the application of this paragraph. Borrower expressly waives and relinquishes any and all rights and remedies that Borrower may have or be able to assert by reason of the laws of the State of jurisdiction pertaining to the rights and remedies of sureties.

(d) Borrower, and by acceptance hereof Lender, hereby mutually waive any right to a trial by jury on any claim, counterclaim, setoff, demand, action or cause of action (a) arising out of or in any way pertaining or relating to this Security Instrument, any other Loan Document, or any other instrument, document or agreement executed or delivered in connection herewith or therewith, or (b) in any way connected with or pertaining or relating to or incidental to any dealings of the parties hereto with respect to this Security Instrument, any other Loan Document, or any other instrument, document or agreement executed or delivered in connection herewith or therewith or in connection with any transactions related thereto or contemplated thereby or the exercise or either party’s rights and remedies thereunder, in all of the foregoing cases whether now existing or hereafter arising, and whether sounding in contract, tort or otherwise. Borrower and Lender agree that either or both of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained agreement between the parties irrevocably to waive trial by jury, and that any dispute or controversy whatsoever between them shall instead be tried in a court of competent jurisdiction by a judge sitting without a jury. Borrower hereby certifies that no representative or agent of Lender,

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including Lender’s counsel, has represented, expressly or otherwise, that Lender would not, in the event of such dispute or controversy, seek to enforce the provisions of this paragraph, and Borrower acknowledges that Lender has, in part, been induced to make the Loan to Borrower in reliance on the provisions of this paragraph.

9.14 Suits to Protect the Property. Lender shall have power to institute and maintain such suits and proceedings as it may deem expedient (a) to prevent any impairment of the Property by any acts which may be unlawful or constitute a default under this Security Instrument; (b) to preserve or protect its interest in the Property and in the rents, issues, profits and revenues arising therefrom; and (c) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order would materially impair the security hereunder or be prejudicial to the interest of Lender.

9.15 Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Borrower, its creditors or its property, Lender, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Lender allowed in such proceedings for the entire amount due and payable by Borrower under this Security Instrument at the date of the institution of such proceedings and for any additional amount which may become due and payable by Borrower hereunder after such date.

[Remainder of page is blank; signatures appear on next page.]

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IN WITNESS WHEREOF, the undersigned hereby signs, seals and delivers this Security Instrument.

CV APARTMENTS, LLC,
an Alabama limited liability company
By:	CV Manager, Inc., an Alabama corporation, its Manager
	By:	/s/ Philip P. Mulkey
	Name:	Philip P. Mulkey
	Title:	President

Notary Acknowledgement

STATE OF ALABAMA	§
	§	SS.
COUNTY OF SHELBY	§

On October 26, 2007, before me, Anne P. Marshall, a Notary Public for said state, personally appeared Philip P. Mulkey, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person or the entity upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

/s/ Anne P. Marshall

Notary Public

My commission expires: 03/12/2011

(SEAL)

EXHIBIT A

Description of the Land

Parcel I:

Part of Lot 13, T. T. Scott Survey, as recorded in the Probate Office of Jefferson County, Alabama, in Deed Volume 78, on Page 245, and as shown on the Map of Crestwood Green Second Sector as “Hughes Tax Tract 13”, said Crestwood Green Second Sector Map being recorded in said Probate Office in Map Book 112, on Page 49, said part being more particularly described as follows:

Beginning at the Northern corner of the line between Lots 18 and 19, in said Crestwood Green Second Sector, run West along the North line of said Lot 18 for a distance of 266.98 feet to a point on the East line of Lot 17, in said Crestwood Green Second Sector; thence turn an angle to the right of 88 degrees 57 minutes 45 seconds and run North along the East line of said Lot 17, and a Northerly extension of said East line, for a distance of 154.05 feet to a point on the South line of the Seaboard Airline Railroad Right of Way; thence turn an angle to the right of 89 degrees 57 minutes 14 seconds and run East along said railroad Right of Way line for a distance of 329.92 feet to a point on the West line of Lot 19, in said Crestwood Green Second Sector; thence turn an angle to the right of 90 degrees 02 minutes 46 seconds and run South along the West line of said Lot 19 for a distance of 160.29 feet; thence turn an angle to the right of 91 degrees 02 minutes 15 seconds and run West for a distance of 63.0 feet to the point of beginning.

Parcel II:

Lots 16, 17, 18 and 19, according to the Survey of Crestwood Green Second Sector, as recorded in Map Book 112, Page 49 in the Probate Office of Jefferson County, Alabama.

Parcel III:

Lots A, B and C, according to the Survey of Crestwood Green 1^st Sector, as recorded in Map Book 107, Page 49 in the Probate Office of Jefferson County, Alabama.

EX-21.1

EXHIBIT 21.1

Direct and Indirect Subsidiaries of Resource Real Estate Opportunity REIT, Inc.

Resource Real Estate Opportunity OP, LP

RRE Opportunity Holdings, LLC

RRE 107th Avenue Holdings, LLC

RRE Westhollow Holdings, LLC

RRE Crestwood Holdings, LLC

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated February 9, 2010, with respect to the consolidated financial statements of Resource Real Estate Opportunity REIT, Inc. (a Maryland Corporation in the Development Stage) contained in this Post-Effective Amendment No. 2 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

March 3, 2011