10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________

(Mark One)

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

For the quarterly period ended September 30, 2016

OR

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

For the transition period from to

Commission file number 000-55424

______________________________________________________

KBS STRATEGIC OPPORTUNITY REIT II, INC.

(Exact Name of Registrant as Specified in Its Charter)

______________________________________________________

Maryland	46-2822978
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
800 Newport Center Drive, Suite 700 Newport Beach, California	92660
(Address of Principal Executive Offices)	(Zip Code)

(949) 417-6500

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  xNo  ¨

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

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

Yes  ¨  No  x

As of November 8, 2016, there were 13,666,035 and 4,837,882 outstanding shares of Class A and Class T common stock of KBS Strategic Opportunity REIT II, Inc., respectively.

KBS Strategic Opportunity REIT II, Inc.

FORM 10-Q

September 30, 2016

INDEX

PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015	2
		Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2016 and 2015	3
		Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Nine Months Ended September 30, 2016 and 2015	4
		Consolidated Statements of Equity for the Year Ended December 31, 2015 and the Nine Months Ended September 30, 2016 (unaudited)	5
		Consolidated Statement of Cash Flows (unaudited) for the Nine Months Ended September 30, 2016 and 2015	6
		Condensed Notes to Consolidated Financial Statements as of September 30, 2016 (unaudited)	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47
	Item 4.	Controls and Procedures	48
PART II.	OTHER INFORMATION		49
	Item 1.	Legal Proceedings	49
	Item 1A.	Risk Factors	49
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
	Item 3.	Defaults upon Senior Securities	54
	Item 4.	Mine Safety Disclosures	54
	Item 5.	Other Information	54
	Item 6.	Exhibits	55
SIGNATURES			57

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	September 30, 2016			December 31, 2015
	(unaudited)
Assets
Real estate, net	$	171,299		$	109,973
Real estate loan receivable, net	3,424			3,372
Total real estate and real estate-related investments, net	174,723			113,345
Cash and cash equivalents	66,502			24,768
Restricted cash	2,432			598
Investment in unconsolidated entity	2,587			—
Rents and other receivables	2,220			311
Above-market leases, net	22			37
Prepaid expenses and other assets	4,477			670
Total assets	$	252,963		$	139,729
Liabilities and equity
Notes payable, net	$	106,238		$	60,836
Accounts payable and accrued liabilities	4,852			3,885
Due to affiliates	1,921			2,356
Below-market leases, net	1,145			—
Distributions payable	1,078			—
Other liabilities	3,031			818
Total liabilities	118,265			67,895
Commitments and contingencies (Note 12)
Redeemable common stock	1,716			1,092
Equity
KBS Strategic Opportunity REIT II, Inc. stockholders’ equity
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding	—			—
Class A common stock, $.01 par value per share; 500,000,000 shares authorized, 13,102,528 and 9,619,143 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively	131			96
Class T common stock, $.01 par value per share; 500,000,000 shares authorized, 3,941,104 and none issued and outstanding as of September 30, 2016 and December 31, 2015, respectively	39			—
Additional paid-in capital	147,236			79,622
Cumulative distributions and net losses	(19,429		)	(13,266		)
Accumulated other comprehensive income	40			—
Total KBS Strategic Opportunity REIT II, Inc. stockholders’ equity	128,017			66,452
Noncontrolling interests	4,965			4,290
Total equity	132,982			70,742
Total liabilities and equity	$	252,963		$	139,729

See accompanying condensed notes to consolidated financial statements.

2

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues:
Hotel revenues	$	8,599		$	7,222		$	20,563		$	14,119
Office revenues	1,892			—			3,289			—
Interest income from real estate loan receivable	101			99			298			291
Total revenues	10,592			7,321			24,150			14,410
Expenses:
Hotel expenses	5,157			3,689			13,466			9,105
Office expenses	521			—			860			—
Asset management fees to affiliate	359			89			908			257
Real estate acquisition fees to affiliate	—			—			1,341			—
Real estate acquisition fees and expenses	—			—			123			—
General and administrative expenses	694			616			2,106			1,560
Depreciation and amortization	2,314			185			5,299			550
Interest expense	931			290			2,379			869
Total expenses	9,976			4,869			26,482			12,341
Other income:
Other interest income	75			18			132			31
Equity in income of unconsolidated entity	58			—			58			—
Total other income	133			18			190			31
Net income (loss)	749			2,470			(2,142		)	2,100
Net income attributable to noncontrolling interests	(148		)	(300		)	(160		)	(341		)
Net income (loss) attributable to common stockholders	$	601		$	2,170		$	(2,302	)	$	1,759
Class A Common Stock:
Net income (loss) attributable to common stockholders	$	493		$	2,145		$	(2,235	)	$	1,736
Net income (loss) per common share, basic and diluted	$	0.04		$	0.30		$	(0.19	)	$	0.28
Weighted-average number of common shares outstanding, basic and diluted	12,915,552			7,165,984			12,053,850			6,241,190
Class T Common Stock:
Net income (loss) attributable to common stockholders	$	108		$	25		$	(67	)	$	23
Net income (loss) per common share, basic and diluted	$	0.05		$	0.30		$	(0.07	)	$	0.28
Weighted-average number of common shares outstanding, basic and diluted	2,363,520			82,126			934,651			82,126

See accompanying condensed notes to consolidated financial statements.

3

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net income (loss)	$	749		$	2,470		$	(2,142	)	$	2,100
Other comprehensive income:
Foreign currency translation gain	27			—			40			—
Total other comprehensive income	27			—			40			—
Total comprehensive income (loss)	776			2,470			(2,102		)	2,100
Total comprehensive income attributable to noncontrolling interests	(148		)	(300		)	(160		)	(341		)
Total comprehensive income (loss) attributable to common stockholders	$	628		$	2,170		$	(2,262	)	$	1,759

See accompanying condensed notes to consolidated financial statements.

4

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Year Ended December 31, 2015 and the Nine Months Ended September 30, 2016 (unaudited)

(dollars in thousands)

	Common Stock							Additional Paid-in Capital			Cumulative Distributions and Net Losses			Accumulated Other Comprehensive Income		Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
	Class A				Class T
	Shares		Amounts		Shares	Amounts
Balance, December 31, 2014	3,893,812		$	39	—	$	—	$	31,489		$	(2,527	)	$	—	$	29,001		$	1,657		$	30,658
Issuance of common stock	4,959,727		49		—	—		48,924			—			—		48,973			—			48,973
Transfers to redeemable common stock	—		—		—	—		(1,092		)	—			—		(1,092		)	—			(1,092		)
Stock dividends issued	765,604		8		—	—		7,648			(7,656		)	—		—			—			—
Distributions declared	—		—		—	—		—			(1,027		)	—		(1,027		)	—			(1,027		)
Commissions on stock sales and related dealer manager fees to affiliate	—		—		—	—		(4,055		)	—			—		(4,055		)	—			(4,055		)
Other offering costs	—		—		—	—		(3,292		)	—			—		(3,292		)	—			(3,292		)
Net (loss) income	—		—		—	—		—			(2,056		)	—		(2,056		)	107			(1,949		)
Noncontrolling interests contributions	—		—		—	—		—			—			—		—			2,532			2,532
Distribution to noncontrolling interest	—		—		—	—		—			—			—		—			(6		)	(6		)
Balance, December 31, 2015	9,619,143		$	96	—	$	—	$	79,622		$	(13,266	)	$	—	$	66,452		$	4,290		$	70,742
Net (loss) income	—		—		—	—		—			(2,302		)	—		(2,302		)	160			(2,142		)
Other comprehensive income	—		—		—	—		—			—			40		40			—			40
Issuance of common stock	3,328,739		33		3,931,258	39		70,327			—			—		70,399			—			70,399
Stock dividends issued	159,020		2		9,846	—		1,683			(1,685		)	—		—			—			—
Redemptions of common stock	(4,374	)	—		—	—		(40		)	—			—		(40		)	—			(40		)
Transfers to redeemable common stock	—		—		—	—		(624		)	—			—		(624		)	—			(624		)
Distributions declared	—		—		—	—		—			(2,176		)	—		(2,176		)	—			(2,176		)
Commissions on stock sales, related dealer manager fees and stockholder servicing fees to affiliate	—		—		—	—		(5,777		)	—			—		(5,777		)	—			(5,777		)
Reduction of other offering costs	—		—		—	—		2,045			—			—		2,045			—			2,045
Noncontrolling interests contributions	—		—		—	—		—			—			—		—			515			515
Balance, September 30, 2016	13,102,528		$	131	3,941,104	$	39	$	147,236		$	(19,429	)	$	40	$	128,017		$	4,965		$	132,982

See accompanying condensed notes to consolidated financial statements.

5

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2016 and 2015

(unaudited)

	For the Nine Months Ended September 30,
	2016			2015
Cash Flows from Operating Activities:
Net (loss) income	$	(2,142	)	$	2,100
Adjustment to reconcile net (loss) income to net cash provided by operating activities
Equity in income of unconsolidated entity	(58		)	—
Depreciation and amortization	5,299			550
Noncash interest income on real estate-related investment	(52		)	(45		)
Deferred rents	(172		)	—
Amortization of above-market leases	(285		)	—
Amortization of deferred financing costs	384			173
Unrealized loss on derivative instrument	43			68
Changes in operating assets and liabilities:
Restricted cash for operational expenditures	(1,603		)	(1,118		)
Rents and other receivables	(1,737		)	(280		)
Prepaid expenses and other assets	(845		)	18
Accounts payable and accrued liabilities	1,594			1,596
Due to affiliates	(10		)	(697		)
Other liabilities	2,213			231
Net cash provided by operating activities	2,629			2,596
Cash Flows from Investing Activities:
Acquisition of real estate	(51,341		)	—
Improvements to real estate	(14,298		)	(2,547		)
Investment in unconsolidated entity	(2,486		)	—
Escrow deposits for future real estate purchases	(3,000		)	—
Restricted cash for capital expenditures	(231		)	(118		)
Net cash used in investing activities	(71,356		)	(2,665		)
Cash Flows from Financing Activities:
Proceeds from notes payable	45,500			—
Payments of deferred financing costs	(492		)	(14		)
Proceeds from issuance of common stock	69,735			26,681
Payments to redeem common stock	(40		)	—
Distributions paid	(434		)	—
Payments of commissions on stock sales, related dealer manager fees and stockholder servicing fees	(4,303		)	(2,109		)
Payments of other offering costs	(20		)	(23		)
Noncontrolling interests contributions	515			—
Distribution to noncontrolling interest	—			(6		)
Net cash provided by financing activities	110,461			24,529
Net increase in cash and cash equivalents	41,734			24,460
Cash and cash equivalents, beginning of period	24,768			13,257
Cash and cash equivalents, end of period	$	66,502		$	37,717
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $126 and $0 for the nine months ended September 30, 2016 and 2015, respectively	$	1,788		$	562
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$	664		$	—
Increase in accrued improvements to real estate	$	—		$	447
Increase in acquisition fees due to affiliate	$	166		$	—
Increase in other offering costs due to affiliates	$	157		$	1,870
Reversal of accrued organization and offering expenses due to affiliates	$	(2,222	)	$	—
Increase in stockholder servicing fees due to affiliate	$	1,474		$	—
Stock dividends issued	$	1,685		$	1,665
Increase in distributions payable	$	1,078		$	—
Foreign currency translation gain on investment in unconsolidated entity	$	40		$	—

See accompanying condensed notes to consolidated financial statements.

6

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

(unaudited)

1. ORGANIZATION

KBS Strategic Opportunity REIT II, Inc. (the “Company”) was formed on February 6, 2013 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2014 and intends to continue to operate in such a manner. The Company’s business is conducted through KBS Strategic Opportunity Limited Partnership II (the “Operating Partnership”), a Delaware limited partnership formed on February 7, 2013. The Company is the sole general partner of, and owns a 0.1% partnership interest in, the Operating Partnership. KBS Strategic Opportunity Holdings II LLC (“REIT Holdings”), a Delaware limited liability company formed on February 7, 2013, owns the remaining 99.9% partnership interest in the Operating Partnership and is the sole limited partner. The Company is the sole member and manager of REIT Holdings. The Company has three wholly owned taxable REIT subsidiaries (“TRS”), two of which lease the Company’s hotel properties and in turn contract with independent hotel management companies that manage the day-to-day operations of the Company’s hotels; the third consolidates the Company’s wholly owned TRSs.  The Company’s TRSs are subject to federal and state income tax at regular corporate tax rates.

Subject to certain restrictions and limitations, the business of the Company has been externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, since July 2013 pursuant to an advisory agreement (the “Advisory Agreement”). The Advisor conducts the Company’s operations and manages its portfolio of real estate loans, opportunistic real estate and other real estate-related investments. The Advisor has entered into a sub-advisory agreement with STAM, a real estate operating company to provide real estate acquisition and portfolio management services to the Advisor in connection with any investments the Company may make in value-added real estate, distressed debt, and real estate-related investments in Europe. On July 3, 2013, the Company issued 21,739 shares of its common stock to the Advisor at a purchase price of $9.20 per share.

The Company expects to invest in and manage a diverse portfolio of opportunistic real estate, real estate-related loans, real estate-related debt securities and other real estate-related investments located in the United States and Europe. Such investments may include the acquisition of distressed debt, the origination and acquisition of mortgage, mezzanine, bridge and other real estate-related loans, investment in opportunistic real estate and investments in real estate-related debt securities such as residential and commercial mortgage-backed securities and collateralized debt obligations. The Company may also invest in entities that make similar investments. As of September 30, 2016, the Company owned two hotel properties, two office properties, one first mortgage loan and an investment in an unconsolidated entity.

From July 3, 2013 to August 11, 2014, the Company conducted a private placement offering (the “Private Offering”) exempt from registration under Regulation D of the Securities Act of 1933, as amended (the “Act”). The Company sold 3,619,851 shares of common stock for gross offering proceeds of $32.2 million in the Private Offering.

On November 14, 2013, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a maximum of 180,000,000 shares of common stock for sale to the public (the “Public Offering”), of which 100,000,000 shares were registered in a primary offering and 80,000,000 shares were registered to be sold under the Company’s dividend reinvestment plan. The SEC declared the Company’s registration statement effective on August 12, 2014. On February 11, 2016, the Company filed an amended registration statement on Form S-11 with the SEC to offer a second class of common stock designated as Class T shares and to designate its initially offered and outstanding common stock as Class A shares. Pursuant to the amended registration statement, the Company is offering to sell any combination of Class A and Class T shares in the Public Offering but in no event may the Company sell more than 180,000,000 of shares of its common stock pursuant to the Public Offering. The Company commenced offering Class T shares of our common stock for sale to the public on February 17, 2016.  KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Advisor, serves as the dealer manager of the Public Offering pursuant to a dealer manager agreement originally dated August 12, 2014 and amended and restated February 17, 2016 (the “Dealer Manager Agreement”). Previously the Dealer Manager served as dealer manager for the Private Offering. The Dealer Manager is responsible for marketing the Company’s shares.

7

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

On January 7, 2015, the Company broke escrow in the Public Offering and through September 30, 2016, the Company had sold 8,288,466 and 3,931,258 shares of Class A and Class T common stock in the Public Offering, respectively, for aggregate gross offering proceeds of $119.4 million, including 129,281 and 3,058 shares of Class A and Class T common stock sold under its dividend reinvestment plan, respectively, for aggregate gross offering proceeds of $1.3 million. Also as of September 30, 2016, the Company had redeemed 4,374 shares of Class A common stock for $40,000.

On each of April 2, 2014 and July 31, 2014, the Company issued 120,106 shares of Class A common stock to Willowbrook Capital Group LLC, an entity owned and controlled by Keith D. Hall, one of the Company’s directors and the Company’s Chief Executive Officer, and Peter McMillan III, also one of the Company’s directors and the Company’s President, for $1.0 million. The Company issued these shares of common stock in a private transaction exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2015, except for the addition of an accounting policy related to foreign currency translation. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the SEC.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership and their direct and indirect wholly owned subsidiaries and joint ventures in which the Company has a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

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

Selling Commissions, Dealer Manager Fees and Stockholder Servicing Fee

Prior to February 17, 2016, the Company paid the Dealer Manager up to 6.5% of the price per share of Class A common stock sold in the Private Offering and the Public Offering as a selling commission. The Dealer Manager reallowed 100% of commissions earned to participating broker-dealers. No sales commissions were paid on shares sold through the dividend reinvestment plan.  The Company paid the Dealer Manager up to 3.0% of the price per share of Class A common stock sold in the Private Offering and the Public Offering as a dealer manager fee. No dealer manager fee was payable on shares sold under the dividend reinvestment plan. From its dealer manager fee, the Dealer Manager reallowed to any participating broker-dealer up to 1.0% of the price per share of Class A common stock sold in the Private Offering and the Public Offering attributable to that participating broker-dealer as a marketing fee and in special cases the dealer manager could increase the reallowance. A reduced dealer manager fee was payable with respect to certain volume discount sales.

8

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

On February 17, 2016, the Company and the Dealer Manager entered into an Amended and Restated Dealer Manager Agreement (the “Amended Dealer Manager Agreement”) to provide the terms pursuant to which the Dealer Manager will offer and sell the Company’s Class A and Class T shares of common stock in the Public Offering. Under the Amended Dealer Manager Agreement, the Company pays selling commissions to the Dealer Manager in amounts up to 6.5% of the price per share of Class A common stock sold and up to 3.0% of the price per share of Class T common stock sold. Additionally, the Company pays dealer manager fees to the Dealer Manager in an amount up to 2.0% of the price per share of Class A and Class T common stock sold. The Dealer Manager reallows all selling commissions to participating broker dealers and may generally reallow (from its dealer manager fee) to any participating broker dealer up to 1.0% of the gross proceeds from the primary portion of the Public Offering attributable to that participating broker dealer as a marketing fee; in select cases up to 1.5% of the gross proceeds from the primary portion of the Public Offering may be reallowed. No selling commissions or dealer manager fees are payable on shares of common stock sold under the dividend reinvestment plan.

Also, under the Amended Dealer Manager Agreement, the Dealer Manager receives an annual stockholder servicing fee of 1.0% of the purchase price per share (ignoring any discounts that may be available to certain categories of purchasers) of Class T common stock sold in the primary portion of the Public Offering solely to the extent there is a broker dealer of record with respect to such Class T share that has entered a currently effective selected dealer agreement or servicing agreement that provides for the payment to such broker dealer of the stockholder servicing fee with respect to such Class T share, and such broker dealer of record is in compliance with the applicable terms of such selected dealer agreement or servicing agreement related to such payment. To the extent payable, the stockholder servicing fee accrues daily and is paid monthly in arrears, and the Dealer Manager reallows 100% of the stockholder servicing fee to such broker dealer of record for services provided to Class T stockholders after the initial sale of the Class T share.  In addition, no stockholder servicing fee is paid with respect to Class T shares purchased through the dividend reinvestment plan or issued pursuant to a stock dividend.

The Company records the stockholder servicing fee as a reduction to additional paid-in capital and the related liability in an amount equal to the maximum stockholder servicing fee payable in relation to the Class T share on the date the share is issued. For each share of Class T common stock in the Primary Offering, the maximum stockholder servicing fee equals 4% of the purchase price per share (ignoring any discounts in purchase price that may be available to certain categories of purchasers). The liability will be reduced over time, as the fees are paid to the Dealer Manager, or it will be adjusted if the fees are no longer payable as a result of the occurrence of any of the following events: (i) the date at which aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the Primary Offering in which the Class T share was sold, as calculated by the Company with the assistance of the Dealer Manager after the termination of the Primary Offering in which the Class T share was sold, (ii) a listing of the Company’s common stock on a national securities exchange, (iii) a merger or other extraordinary transaction, and (iv) the date the Class T share associated with the stockholder servicing fee is no longer outstanding such as upon its redemption or the Company’s dissolution.

Foreign Currency Translation

The Company has a participating loan facility funded in Euros which is accounted for under the equity method of accounting and recorded as an investment in unconsolidated entity in the accompanying balance sheet.  The Company’s reporting currency is the U.S. dollar, however the functional currency of the unconsolidated entity is the Euro.  At the end of each reporting period, before determining the Company’s share of its equity investment, the results of operations of the unconsolidated entity is translated into U.S. dollars using the average currency rates of exchange in effect during the period, and the assets and the liabilities of the unconsolidated entity are translated using the currency exchange rate in effect at the end of the period.  The resulting foreign currency translation adjustment is recorded as other comprehensive income (loss) on the accompanying consolidated statements of comprehensive income (loss) and consolidated statements of stockholders’ equity.

9

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

Segments

The Company has invested in opportunistic real estate investments and originated a loan secured by a non-stabilized real estate asset. In general, the Company intends to hold its investments in opportunistic real estate and other real estate-related assets for capital appreciation. Traditional performance metrics of opportunistic real estate and other real estate-related assets may not be meaningful as these investments are generally non-stabilized and do not provide a consistent stream of interest income or rental revenue. These investments exhibit similar long-term financial performance and have similar economic characteristics. These investments typically involve a higher degree of risk and do not provide a constant stream of ongoing cash flows. As a result, the Company’s management views opportunistic real estate and other real estate-related assets as similar investments. Substantially all of its revenue and net income (loss) is from opportunistic real estate and other real estate-related assets, and therefore, the Company currently aggregates its operating segments into one reportable business segment.

Per Share Data

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock issued and outstanding for each class of share outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and nine months ended September 30, 2016 and 2015. For the purpose of determining the weighted average number of shares outstanding, stock dividends issued are adjusted retroactively and treated as if they were issued and outstanding for all periods presented. 

The Company’s board of directors has declared and issued the following stock dividends on shares of the Company’s common stock through the filing date of this report:

Declaration Date	Record Date	Issue Date	Amount Declared per Share Outstanding	Total Shares Issued
March 24, 2015	March 25, 2015	March 27, 2015	0.01 shares	44,538
April 7, 2015	June 24, 2015	June 29, 2015	0.01 shares	56,219
August 6, 2015	September 22, 2015	September 29, 2015	0.01 shares	65,710
November 10, 2015	December 16, 2015	December 22, 2015	0.01 shares	85,591
December 10, 2015	December 16, 2015	December 21, 2015	0.06 shares	513,546
March 21, 2016	March 31, 2016	April 1, 2016	0.005 shares	57,172
March 21, 2016	April 30, 2016	May 3, 2016	0.001667 shares	19,781
March 21, 2016	May 31, 2016	June 1, 2016	0.001667 shares	20,257
May 10, 2016	June 30, 2016	July 1, 2016	0.001667 shares	21,900
May 10, 2016	July 31, 2016	August 2, 2016	0.001667 shares	23,719
July 6, 2016	August 31, 2016	September 1, 2016	0.001667 shares	26,037
August 11, 2016	September 30, 2016	October 4, 2016	0.001667 shares	28,420
August 11, 2016	October 31, 2016	November 2, 2016	0.001667 shares	30,341
September 27, 2016	September 27, 2016	October 6, 2016	0.015 shares	254,287

For the purpose of calculating the dollar amount of the Class A and Class T stock dividends issued, the Company used the current Class A and Class T primary offering price in the Public Offering.

10

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

Cash distributions declared per share of Class A common stock were $0.098 and $0.154 for the three and nine months ended September 30, 2016, respectively. Cash distributions declared per share of Class T common stock were $0.074 and $0.098 for the three and nine months ended September 30, 2016, respectively. Cash distributions for Class T Shares are reduced by the applicable daily stockholder servicing fees. Distributions declared per share of Class A common stock assumes each share was issued and outstanding each day during the three and nine months ended September 30, 2016, respectively. Distributions declared per share of Class T common stock assumes each share was issued and outstanding each day during the three months ended September 30, 2016 and from March 2, 2016 through September 30, 2016, respectively. Each day during the period from March 1, 2016 through March 31, 2016 was a record date for distributions. Distributions for this period were calculated based on stockholders of record each day during this period at a rate of (i) $0.00026202 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the  number of shares of common stock of such class outstanding as of the close of business on each respective record date. Each day during the period from April 1, 2016 through September 30, 2016 was a record date for distributions. Distributions for this period were calculated based on stockholders of record each day during this period at a rate of (i) $0.00052404 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the  number of shares of common stock of such class outstanding as of the close of business on each respective record date. On September 27, 2016, the Company’s board of directors declared a one-time cash distribution in the amount of $0.05 per share on the outstanding shares of all classes of common stock to stockholders of record as of the close of business on September 27, 2016. The Company did not declare cash distributions during the three and nine months ended September 30, 2015.

In accordance with FASB ASC Topic 260-10-45, Earnings Per Share, the Company uses the two-class method to calculate earnings per share. Basic earnings per share is calculated based on dividends declared (“distributed earnings”) and the rights of common shares and participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends declared during the period. The undistributed earnings are allocated to all outstanding common shares based on the relative percentage of each class of shares to the total number of outstanding shares. The Company does not have any participating securities outstanding other than Class A Common Stock and Class T Common stock during the periods presented.

11

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016			2015
Net income (loss) attributable to common stockholders	$	601		$	2,170	$	(2,302	)	$	1,759
Less: Class A Common Stock cash distributions declared	1,264			—		1,921			—
Less: Class T Common Stock cash distributions declared	249			—		255			—
Undistributed Net (loss) income attributable to common stockholders	$	(912	)	$	2,170	$	(4,478	)	$	1,759
Class A Common Stock:
Undistributed Net (loss) income attributable to common stockholders	$	(771	)	$	2,145	$	(4,156	)	$	1,736
Class A Common Stock cash distributions declared	1,264			—		1,921			—
Net income (loss) attributable to Class A common stockholders	$	493		$	2,145	$	(2,235	)	$	1,736
Net income (loss) per common share, basic and diluted	$	0.04		$	0.30	$	(0.19	)	$	0.28
Weighted-average number of common shares outstanding, basic and diluted	12,915,552			7,165,984		12,053,850			6,241,190
Class T Common Stock:
Undistributed Net (loss) income attributable to common stockholders	$	(141	)	$	25	$	(322	)	$	23
Class T Common Stock cash distributions declared	249			—		255			—
Net income (loss) attributable to Class T common stockholders	$	108		$	25	$	(67	)	$	23
Net income (loss) per common share, basic and diluted	$	0.05		$	0.30	$	(0.07	)	$	0.28
Weighted-average number of common shares outstanding, basic and diluted	2,363,520			82,126		934,651			82,126

Square Footage, Occupancy and Other Measures

 Any references to square footage, occupancy or annualized base rent are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.

Recently Issued Accounting Standards Update

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification.  ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU No. 2015-14”), which defers the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements.

12

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU No. 2015-02”), which amended the existing accounting standards for consolidation under both the variable interest model and the voting model. ASU No. 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU No. 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments in ASU No. 2015-02 using: (a) a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption; or (b) by applying the amendments retrospectively. On January 1, 2016, the Company adopted ASU No. 2015-02 and re-evaluated its consolidation analysis of its joint ventures, concluding that such adoption did not result in (a) the classification of any entities as VIEs, (b) a consolidation of entities not previously consolidated (c) a deconsolidation of entities previously consolidated.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”).  The amendments in ASU No. 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments.  ASU No. 2016-01 primarily affects accounting for equity investments and financial liabilities where the fair value option has been elected.  ASU No. 2016-01 also requires entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the balance sheet or in the accompanying notes to the financial statements.  ASU No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years.  Early application is permitted for financial statements that have not been previously issued.  The Company does not expect the adoption of ASU No. 2016-01 to have a significant impact on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 changes the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 as of its issuance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU No. 2016-13”).  ASU No. 2016-13 affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.  The amendments in ASU No. 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.  ASU No. 2016-13 also amends the impairment model for available-for-sale securities.  An entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as is currently required.   ASU No. 2016-13 also requires new disclosures.  For financial assets measured at amortized cost, an entity will be required to disclose information about how it developed its allowance for credit losses, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes.  For financing receivables and net investments in leases measured at amortized cost, an entity will be required to further disaggregate the information it currently discloses about the credit quality of these assets by year of the asset’s origination for as many as five annual periods. For available for sale securities, an entity will be required to provide a roll-forward of the allowance for credit losses and an aging analysis for securities that are past due.  ASU No. 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is still evaluating the impact of adopting ASU No. 2016-13 on its financial statements, but does not expect the adoption of ASU No. 2016-13 to have a material impact on its financial statements.

13

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”).  ASU No. 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows.  The amendments in ASU No. 2016-15 provide guidance on eight specific cash flow issues, including the following that are or may be relevant to the Company: (a) Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities; (b) Cash payments relating to contingent consideration made soon after an acquisition’s consummation date (i.e., approximately three months or less) should be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities; (c) Cash payments received from the settlement of insurance claims should be classified on the basis of the nature of the loss (or each component loss, if an entity receives a lump-sum settlement);  (d) Relating to distributions received from equity method investments, ASU No. 2016-15 provides an accounting policy election for classifying distributions received from equity method investments. Such amounts can be classified using a (1) cumulative earnings approach, or (2) nature of distribution approach. Under the cumulative earnings approach, an investor would compare the distributions received to its cumulative equity method earnings since inception.  Any distributions received up to the amount of cumulative equity earnings would be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities. Alternatively, an investor can choose to classify the distributions based on the nature of activities of the investee that generated the distribution. If the necessary information is subsequently not available for an investee to determine the nature of the activities, the entity should use the cumulative earnings approach for that investee and report a change in accounting principle on a retrospective basis;  (e) In the absence of specific guidance, an entity should classify each separately identifiable cash source and use on the basis of the nature of the underlying cash flows. For cash flows with aspects of more than one class that cannot be separated, the classification should be based on the activity that is likely to be the predominant source or use of cash flow.  ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  The Company is still evaluating the impact of ASU No. 2016-15 on its financial statements, but does not expect the adoption of ASU No. 2016-15 to have a material impact on its financial statements.

3. RECENT ACQUISITION OF REAL ESTATE

During the nine months ended September 30, 2016, the Company acquired the following property (in thousands):

								Intangibles
Property Name	City	State	Acquisition Date	Land		Building and Improvements		Tenant Origination  and Absorption Costs		Above-Market Lease Assets		Below-Market Lease Liabilities			Total  Purchase Price
Lincoln Court	Campbell	CA	05/20/2016	$	14,706	$	33,356	$	4,724	$	—	$	(1,445	)	$	51,341

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

	Tenant Origination and Absorption Costs	Above-Market Lease Assets	Below-Market Lease Liabilities
Lincoln Court	3.7	—	2.1

The Company recorded the real estate acquisition as a business combination and expensed $1.5 million of acquisition costs. For the nine months ended September 30, 2016, the Company recognized $2.3 million of total revenues and $0.9 million of operating expenses from this property.

14

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

4. REAL ESTATE

As of September 30, 2016, the Company’s real estate portfolio was composed of two hotel properties and two office properties. The following table summarizes the Company’s real estate as of September 30, 2016 and December 31, 2015 (in thousands):

	September 30, 2016			December 31, 2015
Land	$	45,226		$	30,493
Buildings and improvements	125,676			79,081
Tenant origination and absorption costs	5,243			748
Other intangibles	244			244
Total real estate, cost	176,389			110,566
Accumulated depreciation and amortization	(5,090		)	(593		)
Total real estate, net	$	171,299		$	109,973

The following table provides summary information regarding the Company’s real estate as of September 30, 2016 (in thousands):

Property	Date Acquired	City	State	Property Type	Land		Building and Improvements		Tenant Origination and Absorption		Other Intangibles		Total Real Estate, at Cost		Accumulated Depreciation and Amortization			Total Real Estate, Net		Ownership %
Springmaid Beach Resort	12/30/2014	Myrtle Beach	SC	Hotel	$	27,438	$	30,762	$	—	$	—	$	58,200	$	(1,567	)	$	56,633	90.0	%
Q&C Hotel	12/17/2015	New Orleans	LA	Hotel	1,232		50,713		—		244		52,189		(1,889		)	50,300		90.0	%
2200 Paseo Verde	12/23/2015	Henderson	NV	Office	1,850		10,742		704		—		13,296		(454		)	12,842		100.0	%
Lincoln Court	05/20/2016	Campbell	CA	Office	14,706		33,459		4,539		—		52,704		(1,180		)	51,524		100.0	%
					$	45,226	$	125,676	$	5,243	$	244	$	176,389	$	(5,090	)	$	171,299

15

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

Hotel Properties

The following table provides detailed information regarding Q&C Hotel and Springmaid Beach Resort’s hotel revenue and expense for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Hotel revenues:
Room	$	6,499	$	5,219	$	15,180	$	9,807
Food, beverage and convention services	883		903		2,436		1,909
Campground	275		259		806		763
Other	942		841		2,141		1,640
Hotel revenues	$	8,599	$	7,222	$	20,563	$	14,119
Hotel expenses:
Room	$	1,500	$	983	$	3,787	$	2,226
Food, beverage and convention services	842		611		2,188		1,416
General and administrative	590		399		1,696		1,088
Sales and marketing	453		212		1,236		684
Repairs and maintenance	485		416		1,345		1,109
Utilities	324		254		767		701
Property taxes and insurance	348		306		1,050		738
Other	615		508		1,397		1,143
Hotel expenses	$	5,157	$	3,689	$	13,466	$	9,105

Office Properties

As of September 30, 2016, the Company owned two office properties encompassing in the aggregate 183,347 rentable square feet which were 88% occupied. The following table provides detailed information regarding the Company’s office revenues and expenses for the three and nine months ended September 30, 2016 (in thousands):

	For the Three Months ended September 30, 2016		For the Nine Months ended September 30, 2016
Office revenues:
Rental income	$	1,817	$	3,165
Tenant reimbursements and other income	75		124
Office revenues	$	1,892	$	3,289
Office expenses:
Operating, maintenance, and management	$	328	$	552
Real estate taxes and insurance	193		308
Office expenses	$	521	$	860

16

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

Operating Leases

The Company’s office properties are leased to tenants under operating leases for which the terms and expirations vary. As of September 30, 2016, the leases had remaining terms, excluding options to extend, of up to 8.6 years with a weighted-average remaining term of 2.4 years. Some of the leases may have provisions to extend the term of the lease, options for early termination for all or a part of the leased premises after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to office tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $0.7 million and $0.1 million as of September 30, 2016 and December 31, 2015, respectively.

As of September 30, 2016, the future minimum rental income from the Company’s office properties under its non-cancelable operating leases was as follows (in thousands):

October 1, 2016 through December 31, 2016	$	1,476
2017	5,388
2018	4,144
2019	2,781
2020	1,392
Thereafter	1,970
	$	17,151

Probable Real Estate Investment

Lofts at NoHo Commons

On September 29, 2016, the Company, through a joint venture (the “Lofts at NoHo Commons Joint Venture”) between the Company’s indirect wholly owned subsidiary and Noho Commons Pacific Investors LLC (the “JV Partner”), entered into a purchase and sale agreement with Redrock Noho Residential, LLC to acquire a 292-unit apartment building in North Hollywood, California (the “Lofts at NoHo Commons”). Neither the JV Partner nor the seller is affiliated with the Company or the Advisor.  The contractual purchase price of the Lofts at NoHo Commons is $102.5 million plus closing costs.

The Company owns a 90% equity interest in the Lofts at NoHo Commons Joint Venture. Income, losses and distributions are generally allocated based on the members’ respective equity interests, subject to adjustments based on certain performance thresholds set forth in the joint venture agreement. Additionally, in certain circumstances described in the joint venture agreement, the Company and the JV Partner may be required to make additional capital contributions to the joint venture, in proportion to the members’ respective equity interests.

Pursuant to the purchase and sale agreement, the Lofts at NoHo Commons Joint Venture would be obligated to purchase the property only after satisfaction of agreed-upon closing conditions. There can be no assurance that the Lofts at NoHo Commons Joint Venture will complete the acquisition. In some circumstances, if the Lofts at NoHo Commons Joint Venture fails to complete the acquisition after the expiration of the due diligence period, it may forfeit up to $3.0 million.

17

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

The Lofts at NoHo Commons is located in North Hollywood, California and consists of 292 apartment units, encompassing 224,755 rentable square feet. The Lofts at NoHo Commons was constructed in 2007, and as of September 29, 2016, was 94% occupied. As of the date of this filing, the Lofts at NoHo Commons Joint Venture has not completed the acquisition of the property.

5. REAL ESTATE LOAN RECEIVABLE

As of September 30, 2016, the Company had originated one real estate loan receivable as follows (dollars in thousands):

Loan Name Location of Related Property or  Collateral

Date Originated

Property Type

Loan Type

Outstanding Principal Balance as of September 30, 2016

Book Value as of September 30, 2016(1)

Book Value as of December 31, 2015(1)

Contractual Interest Rate (2)

Annualized Effective Interest Rate (2)

Maturity Date

655 Summer Street First Mortgage

Boston, Massachusetts

09/04/2014

Office

Mortgage

$

3,500

$

3,424

$

3,372

9.25%

11.68%

10/01/2017

_____________________

⁽¹⁾ Book value of the real estate loan receivable represents outstanding principal balance adjusted for unamortized origination fees and direct origination and acquisition costs.

⁽²⁾ Contractual interest rate is the stated interest rate on the face of the loan. Annualized effective interest rate is calculated as the actual interest income recognized in 2016, using the interest method annualized (if applicable) and divided by the average amortized cost basis of the investment. The annualized effective interest rate and contractual interest rate presented are as of September 30, 2016.

The following summarizes the activity related to the real estate loan receivable for the nine months ended September 30, 2016 (in thousands):

Real estate loan receivable - December 31, 2015	$	3,372
Amortization of closing costs and origination fees on real estate loan receivable	52
Real estate loan receivable - September 30, 2016	$	3,424

For the three and nine months ended September 30, 2016 and 2015, interest income from the real estate loan receivable consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Contractual interest income	$	83	$	83	$	246	$	245
Amortization of closing costs and origination fees, net	18		16		52		46
Interest income from real estate loan receivable	$	101	$	99	$	298	$	291

18

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

6. NOTES PAYABLE

As of September 30, 2016 and December 31, 2015, the Company’s notes payable consisted of the following (in thousands):

	Book Value as of September 30, 2016			Book Value as of December 31, 2015			Contractual Interest Rate (1)	Effective Interest Rate (1)	Payment Type	Maturity Date
Springmaid Beach Resort Mortgage Loan	$	38,000		$	26,000		One-month LIBOR + 3.00%	3.52%	Interest Only	12/30/2017
Q&C Hotel Mortgage Loan	28,330			28,330			One-month LIBOR + 3.25%	3.77%	Interest Only (2)	12/17/2018
2200 Paseo Verde Mortgage Loan	7,430			7,430			One-month LIBOR + 2.25%	2.77%	Interest Only	01/01/2017
Lincoln Court Mortgage Loan (3)	33,500			—			One-month LIBOR + 1.75%	2.28%	Interest Only	06/01/2020
Total notes payable principal outstanding	107,260			61,760
Deferred financing costs, net	(1,022		)	(924		)
Total notes payable, net	$	106,238		$	60,836

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of September 30, 2016. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2016 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at September 30, 2016, where applicable.

⁽²⁾ Beginning February 1, 2018, monthly payments also include principal amortization payments of $55,000 per month, unless certain conditions described in the loan documents are satisfied.

⁽³⁾ See “—Recent Financing Transaction — Lincoln Mortgage Loan.”

As of September 30, 2016 and December 31, 2015, the Company’s deferred financing costs were $1.0 million and $0.9 million, respectively, net of amortization, and are included in notes payable, net on the accompanying consolidated balance sheets.

During the three and nine months ended September 30, 2016, the Company incurred $0.9 million and $2.4 million of interest expense, respectively. During the three and nine months ended September 30, 2015, the Company incurred $0.3 million and $0.9 million of interest expense, respectively. As of September 30, 2016 and December 31, 2015, $0.3 million and $0.1 million was payable, respectively. Included in interest expense for the three and nine months ended September 30, 2016 was $0.1 million and $0.4 million of amortization of deferred financing costs, respectively. Also included in interest expense for the three and nine months ended September 30, 2016 was $1,000 and $43,000 of interest expense incurred as a result of the Company’s interest rate cap agreements, respectively. Additionally, during the three and nine months ended September 30, 2016, the Company capitalized $54,000 and $126,000 of interest related to its redevelopment project at Springmaid Beach Resort, respectively. Included in interest expense for the three and nine months ended September 30, 2015 was $0.1 million and $0.2 million of amortization of deferred financing costs, respectively. Also included in interest expense for the three and nine months ended September 30, 2015 was $14,000 and $68,000 of interest expense incurred as a result of the Company’s interest rate cap agreements, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes and bond payable outstanding as of September 30, 2016 (in thousands):

October 1, 2016 through December 31, 2016	$	—
2017	45,430
2018	28,330
2019	—
2020	33,500
	$	107,260

19

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

The Company’s notes payable contain financial and non-financial debt covenants. As of September 30, 2016, the Company was in compliance with all debt covenants.

The Company’s note payable with respect to the Springmaid Beach Resort Mortgage Loan requires the Company to maintain a minimum working capital reserve in an amount sufficient to fund the working capital requirements of the Springmaid Beach Resort through the off-peak season, which amount shall be reduced by any amounts for working capital reserved by the third-party hotel operator. In addition, until certain renovations are complete, the loan documents impose a “cash trap” which restricts the use of accumulated cash from the Springmaid Beach Resort to the payment of working capital shortfalls, renovation expenditures and distributions required to satisfy the Company’s REIT requirements. The working capital reserve was included in restricted cash on the accompanying consolidated balance sheets.

Recent Financing Transaction

Lincoln Court Mortgage Loan

On May 20, 2016, in connection with the Company’s acquisition of Lincoln Court, the Company, through an indirect wholly owned subsidiary (the “Lincoln Court Owner”), entered into a four-year mortgage loan with an unaffiliated lender (the “Lender”) for borrowings of up to $36.2 million secured by Lincoln Court (the “Lincoln Court Mortgage Loan”). At closing, $33.5 million of the loan was funded and the remaining $2.7 million was available for future disbursements to be used for tenant improvement and leasing commission costs, subject to certain terms and conditions contained in the loan documents.

The Lincoln Court Mortgage Loan matures on June 1, 2020, with a one-year extension option, subject to certain terms and conditions contained in the loan documents, including the payment of an extension fee, equal to 0.125% of the amount committed under the loan. The Lincoln Court Mortgage Loan bears interest at a floating rate of 175 basis points over one-month LIBOR. The Lincoln Court Owner has the right to repay the loan in whole at any time, or in part from time to time. Prepayments made before June 1, 2017 are subject to an exit fee equal to 0.5% of any principal amount prepaid.

KBS SOR US Properties II LLC (“SOR US Properties II”), the Company’s indirect wholly owned subsidiary, is providing a guaranty of an amount not greater than 25% of the outstanding balance of the Lincoln Court Mortgage Loan with respect to certain potential fees, costs, expenses, losses or damages incurred or suffered by the lender as a result of certain intentional actions committed by the Lincoln Court Owner in violation of the loan documents. SOR US Properties II is also providing a guaranty of the principal balance and any interest or other sums outstanding under the Lincoln Court Mortgage Loan in the event of certain bankruptcy or insolvency proceedings involving the Lincoln Court Owner, certain direct or indirect transfers or financings of Lincoln Court in violation of the loan documents and the violation of certain other terms of the loan documents by the Lincoln Court Owner.

7. DERIVATIVE INSTRUMENTS

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

The Company enters into interest rate caps to mitigate its exposure to rising interest rates on its variable rate notes payable. The values of interest rate caps are primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of interest rate caps. As the remaining life of an interest rate cap decreases, the value of the instrument will generally decrease towards zero.

20

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

As of September 30, 2016 and December 31, 2015, the Company had two interest rate caps outstanding, which were not designated as hedging instruments. The following table summarizes the notional amount and other information related to the Company’s derivative instruments as of September 30, 2016 and December 31, 2015. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):

						Fair Value of Asset
Derivative Instruments	Effective Date	Maturity Date	Notional Value		Reference Rate	September 30, 2016		December 31, 2015		Balance Sheet Location
Interest Rate Cap	12/29/2014	01/01/2018	$	26,000	One-month LIBOR at 3.00%	$	—	$	5	Prepaid expenses and other assets
Interest Rate Cap	12/16/2015	12/23/2018	$	28,330	One-month LIBOR at 3.00%	2		40		Prepaid expenses and other assets
Total derivative instruments not designated as hedging instruments						$	2	$	45

During the three and nine months ended September 30, 2016, the Company recorded an unrealized loss of $1,000 and $43,000 on its derivative instruments, respectively, which was included in interest expense on the accompanying consolidated statements of operations. During the three and nine months ended September 30, 2015, the Company recorded an unrealized loss of $14,000 and $68,000 on its derivative instrument, respectively, which was included in interest expense on the accompanying consolidated statements of operations.

8. FAIR VALUE DISCLOSURES

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

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

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

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

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

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

21

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

Real estate loan receivable: The Company’s real estate loan receivable is presented in the accompanying consolidated balance sheets at its amortized cost net of recorded loan loss reserves (if any) and not at fair value. The fair value of real estate loan receivable was estimated using an internal valuation model that considered the expected cash flows for the loan, underlying collateral value (for collateral-dependent loans) and estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements. The Company classifies these inputs as Level 3 inputs.

Derivative instruments:The Company’s derivative instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments are determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair value of interest rate caps (floors) are determined using the market standard methodology of discounting the future expected cash payments (receipts) which would occur if variable interest rates rise above (below) the strike rate of the caps (floors). The variable interest rates used in the calculation of projected payments (receipts) on the cap (floor) are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities.

Notes payable: The fair value of the Company’s notes payable are estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.

The following were the face value, carrying amount and fair value of the Company’s financial instruments as of September 30, 2016 and December 31, 2015, which carrying amounts do not approximate the fair values (in thousands):

	September 30, 2016						December 31, 2015
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial asset:
Real estate loan receivable	$	3,500	$	3,424	$	3,379	$	3,500	$	3,372	$	3,311
Financial liability:
Notes payable	$	107,260	$	106,238	$	106,990	$	61,760	$	60,836	$	61,880

Disclosure of the fair value of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. This has made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of value at a future date could be materially different.

As of September 30, 2016, the Company measured the following assets at fair value (in thousands):

			Fair Value Measurements Using
	Total		Quoted Prices in Active Markets  for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:
Asset derivatives - interest rate caps	$	2	$	—	$	2	$	—

22

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

9. RELATED PARTY TRANSACTIONS

The Company has entered into the Advisory Agreement with the Advisor and dealer manager agreements with the Dealer Manager with respect to the Private Offering and the Public Offering. These agreements entitle the Advisor and the Dealer Manager to specified fees upon the provision of certain offering-related services and the investment of funds in real estate-related investments, among other services, as well as reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company and certain costs incurred by the Advisor in providing services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as described in the Advisory Agreement. The Advisor also serves as the advisor for KBS Real Estate Investment Trust, Inc. (“KBS REIT I”), KBS Real Estate Investment Trust II, Inc. (“KBS REIT II”), KBS Real Estate Investment Trust III, Inc. (“KBS REIT III”), KBS Legacy Partners Apartment REIT, Inc. (“KBS Legacy Partners Apartment REIT”), KBS Strategic Opportunity REIT, Inc. (“KBS Strategic Opportunity REIT”) and KBS Growth & Income REIT, Inc. (“KBS Growth & Income REIT”). The Dealer Manager also serves as the dealer manager for the public offering of KBS Growth & Income REIT and for the dividend reinvestment plan offerings for KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT and KBS REIT III.

Under the Amended Dealer Manager Agreement, the Dealer Manager receives an annual stockholder servicing fee of 1.0% of the purchase price per share (ignoring any discounts that may be available to certain categories of purchasers) of Class T common stock sold in the primary portion of the Public Offering. Such fee is payable solely to the extent there is a third party broker dealer of record with respect to such Class T share that has entered into a currently effective selected dealer agreement or servicing agreement that provides for the payment to such broker dealer of the stockholder servicing fee with respect to such Class T share, and such broker dealer of record is in compliance with the applicable terms of such selected dealer agreement or servicing agreement related to such payment. To the extent payable, the stockholder servicing fee will accrue daily and be paid monthly in arrears, and the Dealer Manager will reallow 100% of the stockholder servicing fee to such broker dealer of record for services provided to Class T stockholders after the initial sale of the Class T share.  In addition, no stockholder servicing fee will be paid with respect to Class T shares purchased through the dividend reinvestment plan or issued pursuant to a stock dividend.

On January 6, 2014, the Company, together with KBS REIT I, KBS REIT II, KBS REIT III, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT, the Dealer Manager, the Advisor and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each of the various entities covered by the plan, and is billed directly to each entity. The allocation of these shared coverage costs is proportionate to the pricing by the insurance marketplace for the first tiers of directors and officers liability coverage purchased individually by each REIT. The Advisor’s and the Dealer Manager’s portion of the shared lower tiers’ cost is proportionate to the respective entities’ prior cost for the errors and omissions insurance. In June 2015, KBS Growth & Income REIT was added to the insurance program at terms similar to those described above. The insurance program was renewed and is effective through June 30, 2017.

During the three and nine months ended September 30, 2016 and 2015, no other business transactions occurred between the Company and these other KBS-sponsored programs.

The Advisory Agreement has a one-year term that expires August 12, 2017. The Company may terminate the Advisory Agreement on 60 days’ written notice. The Advisor in its sole discretion may defer any fee payable to it under the Advisory Agreement. All or any portion of such fee not taken may be deferred without interest and paid when the Advisor determines.

23

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and nine months ended September 30, 2016 and 2015, respectively, and any related amounts payable as of September 30, 2016 and December 31, 2015 (in thousands):

	Incurred								Payable as of
	Three Months Ended September 30,				Nine Months Ended September 30,				September 30,		December 31,
	2016		2015		2016		2015		2016		2015
Expensed
Asset management fees	$	359	$	89	$	908	$	257	$	—	$	—
Reimbursable operating expenses (1)	75		46		337		147		29		26
Real estate acquisition fee (2)	—		—		1,341		—		95		108
Capitalized
Acquisition fees (2)	25		—		228		—		166		—
Additional Paid-in Capital
Sales commissions	1,074		605		2,808		1,323		—		—
Dealer manager fees	678		303		1,460		786		—		—
Stockholder servicing fees (3)	1,509		—		1,509		—		1,474		—
Reimbursable other offering costs	157		603		177		1,891		157		2,222
	$	3,877	$	1,646	$	8,768	$	4,404	$	1,921	$	2,356

_____________________

⁽¹⁾Reimbursable operating expenses primarily consists of internal audit personnel costs, accounting software and cyber-security related expenses incurred by the Advisor under the Advisory Agreement. The Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits, and overhead of internal audit department personnel providing services to the Company. These amounts totaled $75,000 and $333,000 for the three and nine months ended September 30, 2016, and $46,000 and $120,000 for the three and nine months ended September 30, 2015, respectively, and were the only employee costs reimbursed under the Advisory Agreement for the nine months ended September 30, 2016 and 2015.  The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition or origination fees or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition to the amounts above, the Company reimburses the Advisor for certain of the Company's direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company.

⁽²⁾Acquisition fees are expensed at the time of acquisition on real estate investments. Acquisition fees on investment in unconsolidated entities are capitalized into the cost basis of the investment. Acquisition fees on significant capital expenditures related to the development, construction or improvement of the investment budgeted as of the date of acquisition are capitalized.

⁽³⁾ See Note 2, “Summary of Significant Accounting Policies – Selling Commissions, Dealer Manager Fees and Stockholder Servicing Fee.”

During the nine months ended September 30, 2016, the Advisor reimbursed the Company $87,000 for legal and professional fees and property insurance rebates. 

Offering Costs

Organization and offering costs (other than selling commissions, dealer manager fees and the stockholder servicing fee) of the Company may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company or may be paid directly by the Company. These offering costs include all expenses incurred by the Company in connection with the Private Offering and the Public Offering. Organization costs include all expenses incurred by the Company in connection with the formation of the Company, including but not limited to legal fees and other costs to incorporate the Company. The Company reimbursed the Dealer Manager for underwriting compensation in connection with the Private Offering. The Company also paid directly or reimbursed the Dealer Manager for due diligence expenses of broker dealers in connection with the Private Offering.

24

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

During the Private Offering, there was no limit on the amount of organization and offering costs the Company could incur. As of September 30, 2016, the Company had recorded $1.0 million of offering costs (other than selling commissions and dealer manager fees) related to the Private Offering, all of which was initially paid by the Advisor or its affiliates on behalf of the Company and subsequently reimbursed by the Company. In addition, the Company paid $1.9 million in selling commissions and dealer manager fees related to the Private Offering.

During the Public Offering, pursuant to the Advisory Agreement and the Dealer Manager Agreement, the Company is obligated to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for organization and other offering costs paid by them on behalf of the Company, provided that no reimbursements made by the Company to the Advisor or the Dealer Manager may cause total organization and offering expenses incurred by the Company (including selling commissions, dealer manager fees, the stockholder servicing fee to exceed 15% of the aggregate gross proceeds from the Public Offering as of the date of reimbursement. In addition, at the termination of the primary portion of the Public Offering, the Advisor and its affiliates will reimburse the Company to the extent that the organization and other offering expenses (which exclude selling commissions, dealer manager fees and stockholder servicing fees) paid directly or reimbursed by the Company in connection with the primary portion of the Public Offering, regardless of when incurred, exceed 1.0% of gross offering proceeds from the primary portion of the Public Offering. The Advisor and its affiliates will be responsible for any organization and other offering expenses related to the primary portion of the Public Offering to the extent they exceed 1.0% of gross proceeds from the primary portion of the Public Offering as of the termination of the primary portion of the Public Offering.

Through September 30, 2016, the Advisor and its affiliates had incurred organization and other offering costs (which exclude selling commissions, dealer manager fees and stockholder servicing fees) on the Company’s behalf in connection with the Public Offering of approximately $7.7 million. As of September 30, 2016, the Company had paid $8.3 million in selling commissions and dealer manager fees and accrued $1.5 million of stockholder servicing fees. As of December 31, 2015, the Company had paid or accrued $3.3 million of other organization and offering expenses. After December 31, 2015, the Company reversed $2.2 million of accrued organization and offering expenses due to affiliates as a result of an amendment to the advisory agreement, which limits organization and other offering costs to 1.0% of gross proceeds from the primary portion of the Public Offering, as described above. As of September 30, 2016, the Company had recorded $1.2 million of other organization and offering expenses, which amounts represent the Company’s maximum liability for organization and other offering costs as of September 30, 2016 based on the 1.0% limitation described above.

10. UNAUDITED PRO FORMA FINANCIAL INFORMATION

The Company acquired one office property during the nine months ended September 30, 2016, which was accounted for as a business combination. The following unaudited pro forma information for the three and nine months ended September 30, 2016 and 2015 has been prepared to give effect to the acquisition of Lincoln Court as if this acquisition occurred on January 1, 2015. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had the acquisition occurred on this date, nor does it purport to predict the results of operations for future periods (in thousands).

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016			2015
Revenues	$	10,592	$	8,566	$	26,284		$	18,146
Depreciation and amortization	$	2,314	$	672	$	6,120		$	2,011
Net income (loss)	$	749	$	2,491	$	(418	)	$	2,164

The unaudited pro forma information for the nine months ended September 30, 2016 was adjusted to exclude $1.5 million of acquisition costs related to Lincoln Court incurred by the Company in 2016.

25

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

11. INVESTMENT IN UNCONSOLIDATED ENTITY

On June 28, 2016, the Company originated a participating loan facility in an amount up to €2.6 million ($2.9 million at closing). The Company funded approximately €2.1 million ($2.3 million at closing). The proceeds were used by the borrower to fund a 5% general partner interest in a joint venture acquiring a portfolio of light industrial properties located throughout France. The total acquisition cost of the portfolio was approximately €95.5 million ($105.6 million at closing). Under the terms of the participating loan facility, the Company participates in the expected residual profits of the portfolio and the terms are structured in a manner such that the risks and rewards of the arrangement are similar to those associated with an investment in a real estate joint venture. Accordingly, the participating loan facility is accounted for under the equity method of accounting. In addition to the amount funded at closing, the Company also capitalized an additional $0.2 million of acquisition costs and fees. During the three and nine months ended September 30, 2016, the Company recognized $0.1 million of income with respect to this investment.

12. COMMITMENTS AND CONTINGENCIES

Management Agreement

Springmaid Beach Resort

The consolidated joint venture entity through which the Company leases the operations for Springmaid Beach Resort has entered into a management agreement with Doubletree Management LLC, an independent third-party hotel operator (the “Operator”) pursuant to which the Operator will manage and operate the Springmaid Beach Resort. The hotel was branded a DoubleTree by Hilton in September 2016 (the “Brand Commencement Date”).

Pursuant to the management agreement the Operator will receive the following fees:

• a base fee, which is a percentage of total operating revenue that starts at 2.5% and increases to 2.75% in the second year following the Brand Commencement Date and further increases in the third year following the Brand Commencement Date and thereafter to 3.0%;

• a campground area management fee, which is 2% of any campground revenue;

• an incentive fee, which is 15% of operating cash flow (after deduction for capital renewals reserve and the joint venture owner’s priority, which is 12% of the joint venture owner’s total investment);

• an additional services fee in the amount reasonably determined by the Operator from time to time; and

• a brand services fee in the amount of 4% of total rooms revenue, and an other brand services fee in an amount determined by the Operator from time to time.

The management agreement contains specific standards for the operation and maintenance of the hotel, which allows the Operator to maintain uniformity in the system created by the Operator’s franchise. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage and protection of trademarks. Compliance with the management agreement will require the Company to make significant expenditures for capital improvements.     

During the three and nine months ended September 30, 2016, the Company incurred $179,000 and $369,000 of fees related to the management agreement, respectively, which are included in hotel expenses on the accompanying consolidated statements of operations. During the three and nine months ended September 30, 2015, the Company incurred $180,000 and $350,000 of fees related to the management agreement, respectively, which are included in hotel expenses on the accompanying consolidated statements of operations.

26

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

Q&C Hotel

A wholly owned subsidiary of the joint venture through which the Company leases the operations of the Q&C Hotel (“Q&C Hotel Operations”) has entered into a management agreement with Encore Hospitality, LLC (“Encore Hospitality”), an affiliate of the joint venture partner, pursuant to which Encore Hospitality will manage and operate the Q&C Hotel. The management agreement expires on December 17, 2035. Subject to certain conditions, Encore Hospitality may extend the term of the agreement for a period of five years. Pursuant to the management agreement Encore Hospitality will receive a base fee, which is 4.0% of gross revenue (as defined in the management agreement). During the three and nine months ended September 30, 2016, the Company incurred $57,000 and $227,000, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations.

Q&C Hotel Operations has also entered into a franchise agreement with Marriott International (“Marriott”) pursuant to which Marriott has granted Q&C Hotel Operations a limited, non-exclusive license to establish and operate the Q&C Hotel using certain of Marriott’s proprietary marks and systems and the hotel was branded as a Marriott Autograph Collection hotel on May 25, 2016. The franchise agreement will expire on May 25, 2041. Pursuant to the franchise agreement, Q&C Hotel Operations pays Marriott a monthly franchise fee equal to a percent of gross room sales on a sliding scale that is initially 2% and increases to 5% on May 25, 2019 and a monthly marketing fund contribution fee equal to 1.5% of the Q&C Hotel’s gross room sales. In addition, the franchise agreement requires the maintenance of a reserve account to fund all renovations at the hotel based on a percentage of gross revenues which starts at 2% of gross revenues and increases to 5% of gross revenues on May 25, 2019. Q&C Hotel Operations is also responsible for the payment of certain other fees, charges and costs as set forth in the agreement. During the the three and nine months ended September 30, 2016, the Company incurred $115,000 and $157,000 of fees related to the Marriott franchise agreement, respectively, which are included in hotel expenses on the accompanying consolidated statements of operations.

In addition, in connection with the execution of the franchise agreement, SOR US Properties II is providing an unconditional guarantee that all Q&C Hotel Operations’ obligations under the franchise agreement will be punctually paid and performed. Finally, certain transfers of the Q&C Hotel or an ownership interest therein are subject to a notice and consent requirement, and the franchise agreement further provides Marriott with a right of first refusal with respect to a sale of the hotel to a competitor of Marriott.

Economic Dependency

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

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations as of September 30, 2016. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities.

Legal Matters

From time to time, the Company is a party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations or financial condition, which would require accrual or disclosure of the contingency and the possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

27

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

13. SUBSEQUENT EVENTS

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

Status of the Offering

The Company commenced the Public Offering on August 12, 2014 and broke escrow on January 7, 2015. As of November 8, 2016, the Company had sold 8,644,798 and 4,755,756 shares of Class A and Class T common stock in the Public Offering, respectively, for aggregate gross offering proceeds of $130.8 million. Included in these amounts were 195,574 and 22,876 shares of Class A and Class T common stock sold under our dividend reinvestment plan, respectively, for aggregate gross offering proceeds of $1.9 million.

Cash Distributions Paid

On October 3, 2016, the Company paid distributions of $0.2 million related to cash distributions on the outstanding shares of the common stock based on daily record dates for the period from September 1, 2016 through September 30, 2016. On November 1, 2016, the Company paid distributions of $0.3 million related to cash distributions on the outstanding shares of the common stock based on daily record dates for the period from October 1, 2016 through October 31, 2016. Distributions for these periods were calculated based on stockholders of record each day during these periods at a rate of (i) $0.00052404 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date.

On October 5, 2016, the Company paid distributions of $0.8 million related to a one-time cash distribution in the amount of $0.05 per share on the outstanding shares of all classes of common stock to stockholders of record as of the close of business on September 27, 2016.

Stock Dividends Issued

On August 11, 2016, the Company’s board of directors authorized stock dividends for the month of September 2016, in the amount of 0.001667 shares of each class of the Company’s common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on September 30, 2016. The Company issued the September 2016 stock dividend, consisting of 28,420 shares, on October 4, 2016.

Also, on August 11, 2016, the Company’s board of directors authorized stock dividends for the month of October 2016, in the amount of 0.001667 shares of each class of the Company’s common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on October 31, 2016. The Company issued the October 2016 stock dividend, consisting of 30,341 shares, on November 2, 2016.

On September 27, 2016, the Company’s board of directors authorized a one-time stock dividend in the amount of 0.015 shares of common stock to all common stockholders of record as of the close of business on September 27, 2016. The Company issued the one-time stock dividend, consisting of 254,287 shares, on October 6, 2016.

28

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

Distributions Declared

On October 11, 2016, the Company’s board of directors declared cash distributions on the outstanding shares of all classes of common stock based on daily record dates for the period from November 1, 2016 through November 30, 2016, which the Company expects to pay in December 2016. On November 10, 2016, the Company’s board of directors declared cash distributions on the outstanding shares of all classes of common stock based on daily record dates for the period from December 1, 2016 through December 31, 2016 and January 1, 2017 through January 31, 2017, which the Company expects to pay in January and February 2017, respectively. Distributions for the period from November 1, 2016 through December 31, 2016 will be calculated based on stockholders of record each day during these periods at a rate of (i) $0.00052404 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date. Distributions for the period from January 1, 2017 through January 31, 2017 will be calculated based on stockholders of record each day during these periods at a rate of (i) $0.00052548 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date.

Also on October 11, 2016, the Company’s board of directors authorized monthly stock dividends for the month of November 2016, in the amount of 0.001667 shares of each class of the Company’s common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on November 30, 2016, which the Company expects to issue in December 2016. Also on November 10, 2016, the Company’s board of directors authorized monthly stock dividends for the months of December 2016 and January 2017, each in the amount of 0.001667 shares of each class of the Company’s common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on December 31, 2016 and January 31, 2017, respectively, which the Company expects to issue in January 2017 and February 2017, respectively. Stock dividends are issued in the same class of shares as the shares for which such stockholder received the stock dividend.

Springmaid Beach Resort

In October 2016, Springmaid Beach Resort Hotel, which is located in Myrtle Beach, South Carolina, sustained significant damage from Hurricane Matthew. The Company is in the process of assessing the extent of the property damage at Springmaid Beach Resort Hotel and quantify the financial impact to the Company’s financial statements.

Probable Real Estate Investment

210 West 31^st Street

On October 28, 2016, the Company, through a indirect wholly owned subsidiary, entered into a joint venture (the “210 West 31^st Street Joint Venture”) with Onyx 31^st Street LLC (the “210 West 31^st Street JV Partner”). A wholly owned subsidiary of the 210 West 31^st Street Joint Venture then entered into a purchase and sale agreement with the 210 West 31^st Street JV Partner whereby the 210 West 31^st Street JV Partner would assign 80% of its interest in a ground lease in 210 West 31^st Street, New York, New York (“210 West 31^st Street”) to the wholly owned subsidiary of the 210 West 31^st Street Joint Venture. The 210 West 31^st Street JV Partner would retain a 20% interest in the ground lease in 210 West 31^st Street and contribute this interest in exchange for a 20% interest in the 210 West 31^st Street Joint Venture. The 210 West 31^st Street JV Partner is not affiliated with the Company or the Advisor.  The contractual purchase price of the 80% interest in the ground lease is $38.4 million plus closing costs and the remaining 20% interest has an attributable value of $9.6 million.

The Company owns an 80% equity interest in the 210 West 31^st Street Joint Venture and is responsible for funding the purchase of the 80% interest in the ground lease. Income, losses and distributions are generally allocated based on the members’ respective equity interests, subject to adjustments based on certain performance thresholds set forth in the joint venture agreement. Additionally, in certain circumstances described in the joint venture agreement, the Company and the 210 West 31^st Street JV Partner may be required to make additional capital contributions to the joint venture, in proportion to the members’ respective equity interests.

29

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2016

(unaudited)

The 210 West 31^st Street Joint Venture intends to fund the acquisition of 210 West 31^st Street with capital contributions from its members and with proceeds from a mortgage loan. The 210 West 31^st Street Joint Venture is currently negotiating the terms of the mortgage loan.

Pursuant to the purchase and sale agreement, the 210 West 31^st Street Joint Venture would be obligated to purchase the property only after satisfaction of agreed-upon closing conditions. There can be no assurance that the 210 West 31^st Street Joint Venture will complete the acquisition. In some circumstances, if the 210 West 31^st Street Joint Venture fails to complete the acquisition it may forfeit up to $3.0 million.

210 West 31^st Street is located in New York, New York and consists of an 8,637 square foot development site located directly across the street from Madison Square Garden and Penn Station. 210 West 31^st Street is currently a 23,110 square foot, 2-story building with basement. The Company intends to make significant renovations or improvements to 210 West 31^st Street, including demolishing the existing structure and redeveloping the property into a 2-story retail building with a lower level and a rooftop deck and currently estimates these renovation and improvements to cost approximately $14.2 million.

30

PART I. FINANCIAL INFORMATION (CONTINUED)

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

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

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of KBS Strategic Opportunity REIT II, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.

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

• We have a limited operating history and as of September 30, 2016, our total assets were $253.0 million. You will not have an opportunity to evaluate our investments before we make them, making our future operations speculative.

• We depend on our advisor to identify suitable investments and conduct our operations and our dealer manager to conduct our offering.

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

• There is no assurance that we will raise the maximum offering amount in our initial public offering. If we raise substantially less than the maximum offering amount, we may not be able to invest in a diverse portfolio of real estate-related assets and the value of an investment in us may vary more widely with the performance of specific assets. There is a greater risk that stockholders will lose money in their investment in us if we have less diversity in our portfolio and our general and administrative expenses may constitute a greater percentage of our revenue.

• Our advisor and its affiliates receive fees in connection with transactions involving the origination, 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 and increase our stockholders’ risk of loss.

• Our distribution policy is generally not to use offering proceeds to make distributions. However, we may pay distributions from any source, including, without limitation, from offering proceeds or borrowings (which may constitute a return of capital). If we pay distributions from sources other than our cash flow from operations, we will have less funds available for investment in properties and other assets, the overall return to our stockholders may be reduced and subsequent investors may experience dilution.

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

• Our policies do not limit us from incurring debt until our total liabilities would exceed 75% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves), and we may exceed this limit with the approval of the conflicts committee of our board of directors. During the early stages of our initial public offering, and to the extent financing in excess of this limit is available on attractive terms, our conflicts committee may approve debt such that our total liabilities would exceed this limit. High debt levels could limit the amount of cash we have available to distribute and could result in a decline in the value of an investment in us.

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

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

• Except with respect to unimproved or non-incoming producing property, we are not limited in the percentage of net proceeds that we may allocate to a specific real estate asset type. Thus, we may make all of our investments in investments which present an increased risk of loss. In addition, 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 we initially expect to focus on.

• We expect to focus our investments in real estate-related loans and real estate-related debt securities in distressed debt, which involves more risk than in performing debt.

• Our opportunistic property-acquisition strategy involves a higher risk of loss than would a strategy of investing in stabilized properties.

• We have made foreign investments and will be susceptible to risks associated with such investments, including changes in currency exchange rates, adverse political or economic developments, lack of uniform accounting standards and changes in foreign laws.

All forward-looking statements should be read in light of the risks identified herein in Part II, Item 1A “Risk Factors” and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission (the “SEC”).

Overview

We were formed on February 6, 2013 as a Maryland corporation and elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ending December 31, 2014. On July 3, 2013, we commenced a private placement offering exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), to offer a maximum of $105,000,000 of shares of common stock for sale to certain accredited investors, of which $5,000,000 of shares were offered pursuant to our dividend reinvestment plan. We ceased offering shares in our private offering on August 11, 2014. KBS Capital Markets Group LLC, an affiliate of our advisor, served as the dealer manager of the offering pursuant to a dealer manager agreement and was responsible for marketing our shares in the offering.

On November 14, 2013, we filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to register for sale to the public a maximum of 180,000,000 shares of common stock, of which 80,000,000 shares were to be offered pursuant to our dividend reinvestment plan. The SEC declared our registration statement effective on August 12, 2014 and we retained KBS Capital Markets Group LLC to serve as the dealer manager of the initial public offering pursuant to a dealer manager agreement. On February 11, 2016, we filed an amended registration statement on Form S-11 with the SEC to offer a second class of common stock designated as Class T shares and to designate our initially offered and outstanding common stock as Class A shares. Pursuant to the amended registration statement, we are offering to sell any combination of Class A and Class T shares in our primary offering and dividend reinvestment plan offering but in no event may we sell more than 180,000,000 of shares of our common stock pursuant to the offering. We commenced offering our Class T shares of our common stock for sale to the public on February 17, 2016. The dealer manager is responsible for marketing our shares in the initial public offering.

We intend to use substantially all of the net proceeds from our offerings to invest in and manage a diverse portfolio of real estate-related loans, opportunistic real estate, real estate-related debt securities and other real estate-related investments located in the United States and Europe. Such investments will include the acquisition of distressed debt, the origination and acquisition of mortgage, mezzanine, bridge and other real estate-related loans, investment in opportunistic real estate and investments in real estate-related debt securities such as residential and commercial mortgage-backed securities and collateralized debt obligations. We may also invest in entities that make similar investments. 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 what we believe to be a good investment because it does not precisely fit our expected portfolio composition. As of September 30, 2016, we owned two hotel properties, two office properties, an investment in an unconsolidated entity and had originated a first mortgage loan. 

As of September 30, 2016, we had sold 8,288,466 and 3,931,258 shares of Class A and Class T common stock, respectively, for aggregate gross offering proceeds of $119.4 million in our initial public offering, including 129,281 and 3,058 shares of Class A and Class T of common stock under our dividend reinvestment plan, respectively, for aggregate gross offering proceeds of $1.3 million. Also as of September 30, 2016, we had redeemed 4,374 shares of Class A common stock for $40,000.

32

PART I. FINANCIAL INFORMATION (CONTINUED)

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

As of September 30, 2016, we had sold 3,619,851 shares of Class A common stock for gross offering proceeds of $32.2 million in our private offering. Additionally, on April 2, 2014 and July 31, 2014, we issued 120,106 shares and 132,116 shares of Class A common stock for $1.0 million and $1.1 million, respectively, in separate private transactions exempt from the registration requirements of the Securities Act. 

We have no employees and KBS Capital Advisors LLC (“KBS Capital Advisors”) has served as our external advisor since commencement of the private offering. As our advisor, KBS Capital Advisors manages our day-to-day operations and manages our portfolio of real estate properties and real estate-related investments. KBS Capital Advisors will make recommendations on all investments to our board of directors. All proposed investments must be approved by at least a majority of our board of directors, including a majority of the conflicts committee. Unless otherwise provided by our charter, the conflicts committee may approve a proposed investment without action by the full board of directors if the approving members of the conflicts committee constitute at least a majority of the board of directors. KBS Capital Advisors also provides asset-management, marketing, investor-relations and other administrative services on our behalf.

We have formed a strategic relationship with STAM, a commercial real estate investment and asset management firm headquartered in Paris, France to support us and our advisor in connection with any investments we may make in Europe. Our advisor has entered a sub-advisory agreement with STAM, pursuant to which STAM will provide real estate acquisition and portfolio management services to our advisor in connection with any investments we may make in Europe. For investments in Europe we make directly and our ownership interest is 100%, our advisor will compensate STAM for its services in sourcing and managing these investments from the fees its earns from us under the advisory agreement with us and we will pay STAM no additional compensation. For investments we make through STAM, such as the participating loan facility we funded in June 2016, we will enter separate agreements with STAM to set forth compensation terms. We can give no assurances as to the number, if any, of investments we may make in Europe.

Market Outlook - Real Estate and Real Estate Finance Markets

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

Current conditions in the global capital markets remain volatile as we near the end of 2016. Current economic data and financial market developments suggest that the global economy is improving, although at a slow incremental rate. Growth in most advanced economies remains lackluster, with low potential growth expectations now extending into 2017. In this economic environment the central banks of the world’s major economies hold sway over perceived investment opportunities. Quantitative easing in Japan and the Eurozone has carried over into global capital markets and has increased demand for higher risk investments.

The initial reaction to the U.K. vote to leave the European Union has been somewhat muted, with the exception being the continued downward pressure on the Great Britain Pound (“GBP”). As of mid-October 2016, the GBP had weakened in excess of 20 percent, year-to-date. The new prime minister of the U.K. remains committed to carrying out the decoupling of the U.K. from the European Union. The details of this process remain unclear, and the uncertainty has weighed on both the U.K. and European markets. The European Central Bank has continued to pursue a policy of quantitative easing (QE).

In the United States, real GDP growth accelerated in the third quarter of 2016 to a 2.9% annual rate. This is a marked improvement over the second quarter growth rate of 1.4%. The strong third quarter number is tempered by the fact that a large portion of gross domestic product growth was seen in increased inventories, not through consumer demand. Consumer confidence is currently at a 3 year low. Corporate earnings are also an area of concern, as third quarter reported earnings growth showed a clear sign of slowing. Federal Reserve Board communications have been signaling the increased likelihood of some firming of monetary policy. Many economists expect an increase in rates to occur in early December. The US government bond yield curve has seen a steady increase in yields and is currently no longer sitting at near record lows.

Europe and Japan continue to engage in unconventional monetary policy. Asset purchases and stimulus programs in both regions have driven interest rates and investment yields to new lows. Both regions now have historically low interest rates, with some government and corporate bonds trading with negative yields. While the intent of these policies is to spur economic growth, the size of these programs is unprecedented, and the ultimate impact on those economies and the broader global financial system remains unclear.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

The U.S. commercial real estate market continues to benefit from inflows of foreign capital, albeit at a slowing rate. With the backdrop global political conflict, and weaker international economic conditions, the U.S. dollar has remained a safe haven currency. Lenders, however, have continued to cool to the market. For balance sheet lenders, such as banks and insurance companies, underwriting standards for commercial real estate have been tightened. This has resulted in lower loan-to-value and higher debt coverage ratios. CMBS originations also have been limited as lenders are trying to adjust to the new securitization rules which require issuers to maintain an ongoing equity stake in pooled transactions. These trends have led to increased uncertainty in the level and cost of debt for commercial properties, and in turn has injected some volatility into commercial real estate markets.

Liquidity and Capital Resources

On January 7, 2015, we broke escrow in our initial public offering. We are dependent upon the net proceeds from our ongoing initial public offering to conduct our proposed operations. We expect to obtain the capital required to purchase and originate real estate and real estate-related investments and conduct our operations from the proceeds of our offering, from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations. As of September 30, 2016, we had sold 12,219,724 shares of common stock for gross offering proceeds of $119.4 million in our initial public offering. Additionally, we sold 3,619,851 shares of common stock in our private offering for gross offering proceeds of $32.2 million.

Regulatory developments related to the reporting of our estimated value per share under recently effective FINRA and NASD Conduct Rules, and changes to the definition of fiduciary under ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”) may significantly affect our ability to raise substantial additional funds in the public offering.  See Part II, Item 1A “Risk Factors” herein. If we are unable to raise substantially more funds in our initial public 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 REIT, regardless of whether we are able to raise substantial funds in the initial public offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make distributions.

Our hotel properties generate cash flow in the form of room, food, beverage and convention services, campground and other revenues, which are reduced by hotel expenses, capital expenditures, debt service payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from our hotel properties are primarily dependent upon the occupancy levels of our hotels, the average daily rates and how well we manage our expenditures. The following table provides summary information regarding our hotel properties as of September 30, 2016:

Property	Number of Rooms	Percentage Occupied for the Nine Months Ended September 30, 2016	Average Revenue per Available Room	Average Daily Rate
Springmaid Beach Resort (1)	452	81.9%	$99.33	$121.30
Q&C Hotel	196	55.7%	$89.88	$161.50

_____________________

⁽¹⁾ In November 2015, Springmaid Beach Resort took 238 rooms of the 452 rooms available offline to complete the renovation of a building. The 238 rooms were excluded from the percentage occupied and average revenue per available room for the period they were offline. In January 2016, the 238 rooms were put back into service and the remaining 214 rooms were taken offline to complete renovations. In May 2016, these 214 rooms were put back into service. Rooms not in service were excluded from the percentage occupied and average revenue per available room for the period they were offline.

Our office properties generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures, capital expenditures, debt service payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from office properties is primarily dependent upon the occupancy level of our properties, the net effective rental rates on our leases, the collectibility of rent and operating recoveries from our tenants and how well we manage our expenditures. As of September 30, 2016, we owned two office properties that were 88% occupied.

Our real estate-related investment generates cash flow in the form of interest income, which is reduced by the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from our real estate-related investment is primarily dependent on the operating performance of the underlying collateral and the borrower’s ability to make its debt service payments. As of September 30, 2016, the borrower under our real estate loan receivable was current on all contractual debt service payments to us.

34

PART I. FINANCIAL INFORMATION (CONTINUED)

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

As of September 30, 2016, we had mortgage debt obligations in the aggregate principal amount of $107.3 million, with a weighted-average remaining term of 2.2 years. As of September 30, 2016, $4.4 million was available under our mortgage loans for future disbursements to be used for renovation costs and tenant improvement costs, subject to certain terms and conditions contained in the loan documents.

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, the dealer manager fee and the stockholder servicing fee and payments to the dealer manager and our advisor for reimbursement of certain commercially reasonable organization and offering expenses, provided that no reimbursements made by us to our advisor or dealer manager may cause total organization and offering expenses incurred by us (including selling commissions, dealer manager fees and all other items of organization and offering expenses) to exceed 15% of the aggregate gross proceeds from our public offering as of the date of reimbursement. As of September 30, 2016, our advisor has incurred organization and offering expenses on our behalf related to our initial public offering of approximately $7.7 million. There was no limit on the organization and offering expenses we could incur in connection with our private offering. In addition, at the termination of the primary portion of our initial public offering, our advisor and our affiliates will reimburse us to the extent that the organization and other offering expenses (which exclude selling commissions, dealer manager fees and stockholder servicing fees) paid directly or reimbursed by us in connection with the primary portion of our initial public offering, regardless of when incurred, exceed 1.0% of gross offering proceeds from the primary portion of our initial public offering. The Advisor and its affiliates will be responsible for any organization and other offering expenses related to the primary portion of our initial public offering to the extent they exceed 1.0% of gross proceeds from the primary portion of the Public Offering as of the termination of the primary portion of our initial public offering. As of September 30, 2016, our advisor had incurred offering expenses on our behalf related to our private offering of $1.0 million, all of which have been reimbursed from proceeds from our now terminated private offering. During our acquisition and development stage, we expect to make payments to our advisor in connection with the selection and origination or purchase of investments, the management of our assets and costs incurred by our advisor in providing services to us. Our currently effective advisory agreement expires August 12, 2017 but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of KBS Capital Advisors and our conflicts committee.

Among the fees payable to our advisor is an asset management fee. We will pay our advisor a monthly fee equal to the lesser of one-twelfth of (i) 1.0% of the cost of our investments and (ii) 2.0% of the sum of the cost of our investments, less any debt secured by or attributable to the investments. The cost of the real property investments will be calculated as the amount paid or allocated to acquire the real property, including the cost of any subsequent development, construction or improvements to the property and including fees and expenses related thereto (but excluding acquisition fees paid or payable our advisor). The cost of the loans and any investments other than real property will be calculated as the lesser of (x) the amount actually paid or allocated to acquire or fund the loan or other investment, including fees and expenses related thereto (but excluding acquisition fees paid or payable to our advisor) and (y) the outstanding principal amount of such loan or other investment, including fees and expenses related to the acquisition or funding of such investment (but excluding acquisition fees paid or payable to our advisor) as of the time of calculation. In the case of investments made through joint ventures, the asset management fee will be determined based on our proportionate share of the underlying investment.

In addition, an affiliate of our advisor, KBS Management Group, was recently formed to provide property management services with respect to certain properties owned by KBS-advised companies.  In the future, we may engage KBS Management Group with respect to one or more of our properties to provide property management services.  With respect to any such properties, we would expect to pay KBS Management Group a monthly fee equal to a percentage of the rent (to be determined on a property by property basis, consistent with current market rates).

We have elected to be taxed as a REIT and operate as a REIT. To maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our 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 have not established a minimum distribution level.

Under our charter, we are required to limit our total operating expenses to the greater of 2% of our average invested assets or 25% of our net income for the four most recently completed fiscal quarters, as these terms are defined in our charter, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expense reimbursements for the four fiscal quarters ended September 30, 2016 exceeded the charter imposed limitation; however, the conflicts committee determined that the relationship of our operating expenses to our average invested assets was justified for these periods given the costs of operating a public company and the early stage of our operations.

35

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Cash Flows from Operating Activities

We commenced operations on September 4, 2014 in connection with our first investment. As of September 30, 2016, we owned two hotel properties, two office properties, one first mortgage loan and an investment in an unconsolidated entity. During the nine months ended September 30, 2016, net cash provided by operating activities was $2.6 million, compared to net cash provided by operating activities of $2.6 million during the nine months ended September 30, 2015. We expect that our cash flows from operating activities will generally increase in future periods as a result of anticipated future acquisitions of real estate and real estate-related investments and the related operations of such real estate investments.

Cash Flows from Investing Activities

Net cash used in investing activities was $71.4 million for the nine months ended September 30, 2016 and primarily consisted of the following:

• $51.3 million for the acquisition of one office property;

• $14.3 million of improvements to real estate;

• $3.0 million escrow deposits for the acquisition of the Lofts at NoHo Commons; and

• $2.5 million for an investment in an unconsolidated entity.

Cash Flows from Financing Activities

Net cash provided by financing activities was $110.5 million for the nine months ended September 30, 2016 and primarily consisted of the following:

• $65.4 million of net cash provided by offering proceeds related to our ongoing initial public offering, net of payments of commissions, dealer manager fees, stockholder servicing fees and other organization and offering costs of $4.3 million;

• $45.0 million of net cash provided by debt financing as a result of proceeds from notes payable of $45.5 million, partially offset by payments of deferred financing costs of $0.5 million;

• $0.5 million of noncontrolling interest contributions; and

• $0.4 million of net cash distributions, after giving effect to distributions reinvested by stockholders of $0.7 million.

In order to execute our investment strategy, we utilize secured debt and we may, to the extent available, utilize unsecured debt, to finance a portion of our investment portfolio. Management remains vigilant in monitoring the risks inherent with the use of debt in our portfolio and is taking actions to ensure that these risks, including refinancing and interest risks, are properly balanced with the benefit of using leverage. Once we have fully invested the proceeds of our initial public offering, we expect our debt financing will be 60% or less of the cost of our tangible assets (before deducting depreciation or other non-cash reserves). There is no limitation on the amount we may borrow for any single investment. Our charter limits our total liabilities such that our total liabilities may not exceed 75% of the cost of our tangible assets (before deducting depreciation or other non-cash reserves); however, we may exceed that limit if a majority of the Conflicts Committee approves each borrowing in excess of our charter limitation and we disclose such borrowing to our common stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. As of September 30, 2016, our borrowings and other liabilities were approximately 47% of the cost (before depreciation or other noncash reserves) and book value (before depreciation) of our tangible assets.

36

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of September 30, 2016 (in thousands):

			Payments Due During the Years Ending December 31,
Contractual Obligations	Total		Remainder of 2016		2017-2018		2019-2020		Thereafter
Outstanding debt obligations (1)	$	107,260	$	—	$	73,760	$	33,500	$	—
Interest payments on outstanding debt obligations (2)	6,743		820		4,839		1,084		—
Stockholder servicing fee liability (3)	1,474		121		752		601		—

_____________________

⁽¹⁾ Amounts include principal payments only.

⁽²⁾ Projected interest payments are based on the outstanding principal amounts, maturity dates and interest rates in effect at September 30, 2016. We incurred interest expense of $2.1 million, excluding amortization of deferred financing costs of $0.4 million and unrealized loss on interest rate cap of $43,000 and including interest capitalized of $126,000 for the nine months ended September 30, 2016.

⁽³⁾ Stockholder servicing fee is an annual fee of 1.0% of the purchase price per Class T share sold in our primary public offering for services rendered to Class T stockholders by the broker dealer of record after the initial sale of the Class T share. The stockholder servicing fee will accrue daily and be paid monthly in arrears for up to the fourth anniversary of the issuance of the Class T share.

Results of Operations

Overview

As of September 30, 2015, we had originated one first mortgage loan and acquired one hotel property. As of September 30, 2016, we owned two hotel properties, two office properties, one first mortgage loan and an investment in an unconsolidated entity. We funded the acquisitions of these investments with proceeds from our terminated private offering, initial public offering and debt financing. Our results of operations for the three and nine months ended September 30, 2016 are not indicative of those in future periods as we commenced operations on September 4, 2014 in connection with our first investment and expect to make future acquisitions of real estate and real estate-related investments. In general, we expect that our revenue and expenses related to our portfolio will increase in future periods as a result of anticipated future acquisitions of real estate and real estate-related investments.

Comparison of the three months ended September 30, 2016 versus the three months ended September 30, 2015

The following table provides summary information about our results of operations for the three months ended September 30, 2016 and 2015 (dollar amounts in thousands):

	Three Months Ended September 30,				Increase		Percentage Change		$ Change Due to Acquisitions (1)		$ Change Due to  Investments Held Throughout Both Periods (2)
	2016		2015
Hotel revenues	$	8,599	$	7,222	$	1,377	19	%	$	1,416	$	(39	)
Office revenue	1,892		—		1,892		n/a		1,892		—
Interest income from real estate loan receivable	101		99		2		2	%	—		2
Hotel expenses	5,157		3,689		1,468		40	%	1,328		140
Office expenses	521		—		521		n/a		521		—
Asset management fees to affiliate	359		89		270		303	%	234		36
General and administrative expenses	694		616		78		13	%	n/a		n/a
Depreciation and amortization	2,314		185		2,129		1,151	%	1,715		414
Interest expense	931		290		641		221	%	599		42

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 related to real estate acquired on or after July 1, 2015.

⁽²⁾ Represents the dollar amount increase (decrease) for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 with respect to real estate and real estate-related investments owned by us during the entire periods presented.

37

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Hotel revenues increased from $7.2 million for the three months ended September 30, 2015 to $8.6 million for the three months ended September 30, 2016 as a result of the acquisition of Q&C Hotel in December 2015. We expect hotel revenues to increase in future periods as a result of the ongoing improvements in connection with the re-branding strategy of our hotel properties. Office revenue for the three months ended September 30, 2016 was $1.9 million. We expect office revenue to increase in future periods as a result of anticipated future acquisitions of real estate properties.

Interest income from our real estate loan receivable, recognized using the interest method, remained consistent at $0.1 million for the three months ended September 30, 2015 and 2016.

Hotel expenses increased from $3.7 million for the three months ended September 30, 2015 to $5.2 million for the three months ended September 30, 2016 as a result of the acquisition of Q&C Hotel. Office expenses for the three months ended September 30, 2016 were $0.5 million. We expect total expenses to increase in future periods as a result of anticipated future acquisitions of real estate properties.

Asset management fees to affiliate increased from $0.1 million for the three months ended September 30, 2015 to $0.4 million for the three months ended September 30, 2016 primarily due to the growth of our real estate portfolio. We expect asset management fees to increase in future periods as a result of anticipated future acquisitions of real estate properties. All asset management fees incurred as of September 30, 2016 have been paid.

General and administrative expenses increased from $0.6 million for the three months ended September 30, 2015 to $0.7 million for the three months ended September 30, 2016 primarily due to the growth of our real estate portfolio. We expect general and administrative costs to increase in future periods as we acquire additional investments but to decrease as a percentage of total revenue.

Depreciation and amortization expenses increased from $0.2 million for the three months ended September 30, 2015 to $2.3 million for the three months ended September 30, 2016 primarily due to the growth of our real estate portfolio. We expect depreciation and amortization expenses to increase in future periods as a result of anticipated future acquisitions of real estate properties.

Interest expense increased from $0.3 million for the three months ended September 30, 2015 to $0.9 million for the three months ended September 30, 2016 primarily due to increased borrowings in connection with our acquisition activity. Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the amount of proceeds raised in our ongoing initial public offering, the availability and cost of debt financing, and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives.

Comparison of the nine months ended September 30, 2016 versus the nine months ended September 30, 2015

The following table provides summary information about our results of operations for the nine months ended September 30, 2016 and 2015 (dollar amounts in thousands):

	Nine Months Ended September 30,				Increase		Percentage Change		$ Change Due to Acquisitions (1)		$ Change Due to  Investments Held Throughout Both Periods (2)
	2016		2015
Hotel revenues	$	20,563	$	14,119	$	6,444	46	%	$	5,671	$	773
Office revenue	3,289		—		3,289		n/a		3,289		—
Interest income from real estate loan receivable	298		291		7		2	%	—		7
Hotel expenses	13,466		9,105		4,361		48	%	3,857		504
Office expenses	860		—		860		n/a		860		—
Asset management fees to affiliate	908		257		651		253	%	551		100
Real estate acquisition fees to affiliate	1,341		—		1,341		n/a		1,341		—
Real estate acquisition fees and expenses	123		—		123		n/a		123		—
General and administrative expenses	2,106		1,560		546		35	%	n/a		n/a
Depreciation and amortization	5,299		550		4,749		863	%	3,757		992
Interest expense	2,379		869		1,510		174	%	1,477		33

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 related to real estate acquired on or after January 1, 2015.

⁽²⁾ Represents the dollar amount increase (decrease) for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 with respect to real estate and real estate-related investments owned by us during the entire periods presented.

38

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Hotel revenues increased from $14.1 million for the nine months ended September 30, 2015 to $20.6 million for the nine months ended September 30, 2016 as a result of the acquisition of Q&C Hotel in December 2015 and increases in occupancy and average daily rate with respect to the Springmaid Beach Resort. We expect hotel revenues to increase in future periods as a result of the ongoing improvements in connection with the re-branding strategy of our hotel properties. Office revenue for the nine months ended September 30, 2016 was $3.3 million. We expect office revenue to increase in future periods as a result of holding the assets acquired in 2016 for an entire period and anticipated future acquisitions of real estate properties.

Interest income from our real estate loan receivable, recognized using the interest method, remained consistent at $0.3 million for the nine months ended September 30, 2015 and 2016.

Hotel expenses increased from $9.1 million for the nine months ended September 30, 2015 to $13.5 million for the nine months ended September 30, 2016 as a result of the acquisition of Q&C Hotel and an increase in occupancy with respect to the Springmaid Beach Resort. Office expenses for the nine months ended September 30, 2016 were $0.9 million. We expect total expenses to increase in future periods as a result of anticipated future acquisitions of real estate properties.

Asset management fees to affiliate increased from $0.3 million for the nine months ended September 30, 2015 to $0.9 million for the nine months ended September 30, 2016 primarily due to the growth of our real estate portfolio. We expect asset management fees to increase in future periods as a result of holding the assets acquired in 2016 for an entire period and anticipated future acquisitions of real estate properties. All asset management fees incurred as of September 30, 2016 have been paid.

Real estate acquisition fees and expenses to affiliate and non-affiliates were $1.5 million for the nine months ended September 30, 2016. We acquired one real estate property for $51.3 million during the nine months ended September 30, 2016. During the nine months ended September 30, 2015, we did not acquire any real estate properties. We expect real estate acquisition fees and expenses to vary in future periods based upon acquisition activity.

General and administrative expenses increased from $1.6 million for the nine months ended September 30, 2015 to $2.1 million for the nine months ended September 30, 2016 primarily due to the growth of our real estate portfolio. We expect general and administrative costs to increase in future periods as we acquire additional investments but to decrease as a percentage of total revenue.

Depreciation and amortization expenses increased from $0.6 million for the nine months ended September 30, 2015 to $5.3 million for the nine months ended September 30, 2016 primarily due to the growth of our real estate portfolio. We expect depreciation and amortization expenses to increase in future periods as a result of holding the assets acquired in 2016 for an entire period and anticipated future acquisitions of real estate properties.

Interest expense increased from $0.9 million for the nine months ended September 30, 2015 to $2.4 million for the nine months ended September 30, 2016 primarily due to increased borrowings in connection with our acquisition activity. Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the amount of proceeds raised in our ongoing initial public offering, the availability and cost of debt financing, and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives.

Funds from Operations, Modified Funds from Operations and Adjusted Modified Funds from Operations

We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of an equity REIT. We compute FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. FFO represents net income, excluding gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated partnerships and joint ventures. We believe FFO facilitates comparisons of operating performance between periods and among other REITs. However, our computation of FFO may not be comparable to other REITs that do not define FFO in accordance with the NAREIT definition or that interpret the current NAREIT definition differently than we do. Our management believes that historical cost accounting for real estate assets in accordance with U.S. generally accepted accounting principles (“GAAP”) implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and provides a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.

39

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Changes in accounting rules have resulted in a substantial increase in the number of non-operating and non-cash items included in the calculation of FFO. Items such as acquisition fees and expenses, which had previously been capitalized prior to 2009, are currently expensed and accounted for as operating expenses. As a result, our management also uses modified funds from operations (“MFFO”) as an indicator of our ongoing performance as well as our dividend sustainability. MFFO excludes from FFO: acquisition fees and expenses; adjustments related to contingent purchase price obligations; amounts relating to straight-line rents and amortization of above- and below-market intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; amortization of closing costs relating to debt investments; impairments of real estate-related investments; mark-to-market adjustments included in net income; and gains or losses included in net income for the extinguishment or sale of debt or hedges. We compute MFFO in accordance with the definition of MFFO included in the practice guideline issued by the Investment Program Association (“IPA”) in November 2010 as interpreted by management. Our computation of MFFO may not be comparable to other REITs that do not compute MFFO in accordance with the current IPA definition or that interpret the current IPA definition differently than we do.

In addition, our management uses an adjusted MFFO (“Adjusted MFFO”) as an indicator of our ongoing performance as well as our dividend sustainability. Adjusted MFFO provides adjustments to reduce MFFO related to operating expenses that are capitalized with respect to certain of our investments in undeveloped land. 

We believe that MFFO and Adjusted MFFO are helpful as measures of ongoing operating performance because they exclude costs that management considers more reflective of investing activities and other non-operating items included in FFO.  Management believes that excluding acquisition costs from MFFO and Adjusted MFFO provides investors with supplemental performance information that is consistent with management’s analysis of the operating performance of the portfolio over time, including periods after our acquisition stage.  MFFO and Adjusted MFFO also exclude non-cash items such as straight-line rental revenue.  Additionally, we believe that MFFO and Adjusted MFFO provide investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance.  MFFO provides comparability in evaluating the operating performance of our portfolio with other non-traded REITs which typically have limited lives with short and defined acquisition periods and targeted exit strategies.  MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.

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

40

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Although MFFO includes other adjustments, the exclusion of straight-line rent amortization of above- and below-market leases and acquisition fees and expenses, are the most significant adjustments for the periods presented.  We have excluded these items based on the following economic considerations:

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

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

• Acquisition fees and expenses. Acquisition fees and expenses related to the acquisition of real estate are expensed. Although these amounts reduce net income, we exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis. Additionally, acquisition costs have been funded from the proceeds from our private and public offerings as well as from debt financings, and not from our operations. We believe this exclusion is useful to investors as it allows investors to more accurately evaluate the sustainability of our operating performance.

Adjusted MFFO includes adjustments to reduce MFFO related to real estate taxes, property insurance and financing costs which are capitalized with respect to certain renovation projects.  We have included adjustments for the costs incurred necessary to bring these investments to their intended use, as these costs are recurring operating costs that are capitalized in accordance with GAAP and not reflected in our net income (loss), FFO and MFFO.   

Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the following table, along with our calculations of MFFO and Adjusted MFFO, for the three and nine months ended September 30, 2016 and 2015 (in thousands). No conclusions or comparisons should be made from the presentation of these periods.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015
Net income (loss) attributable to common stockholders	$	601		$	2,170		$	(2,302	)	$	1,759
Depreciation of real estate assets	1,407			146			3,642			433
Amortization of lease-related costs	907			39			1,657			117
Adjustments for noncontrolling interests (1)	(119		)	(19		)	(334		)	(55		)
Adjustments for investment in unconsolidated entity (2)	29			—			29			—
FFO attributable to common stockholders	2,825			2,336			2,692			2,254
Straight-line rent and amortization of above- and below-market leases	(283		)	—			(457		)	—
Amortization of discounts and closing costs	(18		)	(16		)	(52		)	(46		)
Real estate acquisition fees to affiliate	—			—			1,341			—
Real estate acquisition fees and expenses	—			—			123			—
MFFO attributable to common stockholders	2,524			2,320			3,647			2,208
Other capitalized operating expenses (2)	(57		)	—			(150		)	—
Adjustments for noncontrolling interests - consolidated entity (1)	6			—			15			—
Adjusted MFFO attributable to common stockholders	$	2,473		$	2,320		$	3,512		$	2,208

_____________________

⁽¹⁾Reflects adjustments to eliminate the noncontrolling interest holders’ share of the adjustments to convert our net income (loss) attributable to common stockholders to FFO, MFFO and Adjusted MFFO.

⁽²⁾Reflects adjustments to add back our noncontrolling interest share of the adjustments to convert our net income (loss) attributable to common stockholders to FFO for our equity investment in an unconsolidated entity.

⁽²⁾Reflects real estate taxes, property insurance and financing costs that are capitalized with respect to certain renovation projects. During the time in which we are incurring costs necessary to bring these investments to their intended use, certain normal recurring operating costs are capitalized in accordance with GAAP and not reflected in our net income (loss), FFO and MFFO.

41

PART I. FINANCIAL INFORMATION (CONTINUED)

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

FFO, MFFO and Adjusted MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO, MFFO and Adjusted MFFO, such as tenant improvements, building improvements and deferred leasing costs. We expect FFO, MFFO and Adjusted MFFO to improve in future periods to the extent that we continue to lease up vacant space and acquire additional assets. We expect FFO, MFFO and Adjusted MFFO to decrease as a result of dispositions.

Organization and Offering Costs

Our organization and offering costs (other than selling commissions, dealer manager fees and the stockholder servicing fee) may be paid by our advisor, the dealer manager or their affiliates on our behalf or may be paid directly by us. These offering costs include all expenses incurred in connection with our offerings. Organization costs include all expenses incurred in connection with our formation, including but not limited to legal fees and other costs to incorporate.

During our private offering, there was no limit on the amount of organization and offering costs we could incur. As of September 30, 2016, we had recorded $1.0 million of offering costs (other than selling commissions and dealer manager fees) related to our private offering, all of which were initially paid by our advisor or its affiliates on our behalf and subsequently reimbursed by us.

During our initial public offering, pursuant to the advisory agreement and dealer manager agreement, we are obligated to reimburse our advisor, the dealer manager or their affiliates, as applicable, for organization and other offering costs paid by them on behalf of us, provided that no reimbursements made by us to our advisor or the dealer manager may cause total organization and offering expenses incurred by us (including selling commissions, dealer manager fees, the stockholder servicing fee to exceed 15% of the aggregate gross proceeds from our initial public offering as of the date of reimbursement. In addition, at the termination of the primary portion of our initial public offering, our advisor and our affiliates will reimburse us to the extent that the organization and other offering expenses (which exclude selling commissions, dealer manager fees and stockholder servicing fees) paid directly or reimbursed by us in connection with the primary portion of our initial public offering, regardless of when incurred, exceed 1.0% of gross offering proceeds from the primary portion of our initial public offering. The Advisor and its affiliates will be responsible for any organization and other offering expenses related to the primary portion of our initial public offering to the extent they exceed 1.0% of gross proceeds from the primary portion of the Public Offering as of the termination of the primary portion of our initial public offering.

Through September 30, 2016, the Advisor and its affiliates had incurred organization and other offering costs on our behalf in connection with the Public Offering of approximately $7.7 million. As of September 30, 2016, we had paid $8.3 million in selling commissions and dealer manager fees and accrued $1.5 million of stockholder servicing fees. As of December 31, 2015, we had paid or accrued $3.3 million of other organization and offering expenses. Subsequent to December 31, 2015, we reversed $2.2 million of accrued organization and offering expenses due to affiliates as a result of an amendment to the advisory agreement, which limits other offering costs to 1.0% of gross proceeds from the primary portion of our initial public offering as noted above. As of September 30, 2016, we had recorded $1.2 million of other organization and offering expenses, which amount represents our maximum liability for organization and offering costs as of September 30, 2016 based on the 1.0% limitation described above.

Distributions

To maintain our qualification as a REIT, we must make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (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). If we meet the REIT qualification requirements, we generally will not be subject to federal income tax on the income that we distribute to our stockholders each year. In general, we anticipate making distributions to our stockholders of at least 100% of our REIT taxable income so that none of our income is subject to federal income tax. 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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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Until we have fully invested the proceeds of our public offering, and from time to time during our operational stage, we may not pay distributions solely from our cash flow from operating activities, in which case distributions may be paid in whole or in part from debt financing. Distributions declared, distributions paid and cash flow used in operations were as follows for the first, second and third quarters of 2016 (in thousands, except per share amounts):

	Distributions Declared (1)		Distributions Declared Per Class A Share(1) (2)		Distributions Declared Per Class T Share(1) (2)		Distributions Paid (3)						Cash  Flows (Used in)/Provided by Operations
Period							Cash		Reinvested		Total
First Quarter 2016	$	93	$	0.008	$	—	$	—	$	—	$	—	$	(939	)
Second Quarter 2016	570		0.048		0.024		183		286		469		1,941
Third Quarter 2016	1,513		0.098		0.074		251		378		629		1,627
	$	2,176	$	0.154	$	0.098	$	434	$	664	$	1,098	$	2,629

_____________________

⁽¹⁾ Distributions for the period from March 1, 2016 through March 31, 2016 were based on daily record dates and were calculated at a rate of $0.00026202 per share per day less the applicable daily stockholder servicing fee. Distributions for the period from April 1, 2016 through September 30, 2016 were based on daily record dates and were calculated at a rate of $0.00052404 per share per day less the applicable daily stockholder servicing fee. On September 27, 2016, our board of directors declared a one-time cash distribution in the amount of $0.05 per share on the outstanding shares of all classes of our common stock to stockholders of record as of the close of business on September 27, 2016, which we paid on October 5, 2016.

⁽²⁾ Assumes Class A share was issued and outstanding each day that was a record date for distributions during the period presented. Assumes Class T share was issued and outstanding from March 2, 2016 through September 30, 2016. Given the distribution rate declared for the period and the applicable daily stockholder servicing fee for Class T shares of common stock, the Company did not pay cash distributions on shares of Class T common stock for record dates from March 2, 2016 to March 31, 2016. Distributions declared per Class T share for the second and third quarter of 2016 are shown assuming the stockholder servicing fee is applicable to all outstanding Class T shares.

⁽³⁾ Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid on or about the first business day of the following month.

For the nine months ended September 30, 2016, we paid aggregate distributions of $1.1 million, including $0.4 million distributions paid in cash and $0.7 million of distributions reinvested through our dividend reinvestment plan. Our net loss attributable to common stockholders for the nine months ended September 30, 2016 was $2.3 million and cash flow provided by operations was $2.6 million.

From inception through September 30, 2016, we paid cumulative distributions of $2.1 million and our cumulative net loss during the same period was $6.9 million. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have less funds available for the acquisition of real estate investments, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.

We currently expect our board of directors to authorize and declare cash distributions based on daily record dates and pay these distributions on a monthly basis. We expect that we will fund these cash distributions from interest income on our debt investments, rental and other income on our real property investments and to the extent we acquire investments with short maturities or investments that are close to maturity, we may fund distributions with the proceeds received at the maturity, payoff or settlement of those investments. We may also utilize strategic refinancings to fund cash distributions for investments that have appreciated in value after our acquisition. Generally, our distribution policy is not to pay cash distributions from sources other than cash flow from operations, investment activities and strategic financings. However, we may fund cash distributions from any source and there are no limits to the amount of distributions that we may pay from any source, including proceeds from our public offering or the proceeds from the issuance of securities in the future, other third party borrowings, advances from our advisor or sponsors or from our advisor’s deferral of its fees under the advisory agreement. Distributions paid from sources other than current or accumulated earnings and profits may constitute a return of capital. 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. In these situations we may make distributions in excess of our cash flow from operations, investment activities and strategic financings to satisfy the REIT distribution requirement. In such an event, we would look first to other third party borrowings to fund these distributions.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

During our offering stage, we currently expect our board of directors to declare stock dividends on a set quarterly basis based on quarterly record dates. Especially during the early stages of our operations and until our cash flows stabilize, our board of directors believes the declaration of stock dividends is in our best interest because it will allow us to focus on our investment strategy of investing in opportunistic real estate investments that may generate limited cash flow but have the potential for appreciation. These stock dividends may reflect in part an increase or anticipated increase in portfolio value to the extent our board of directors believes assets in our portfolio have appreciated or will appreciate in value after acquisition or after we have taken control of the assets. In addition, these stock dividends may reflect in part cash flow from operations. However, we can provide no assurances that our stock dividends will reflect appreciation in our portfolio or cash flow from operations. Unless our assets appreciate in an amount sufficient to offset the dilutive effect of any stock dividends, the return per share for later investors purchasing our stock will be below the return per share of earlier investors. With respect to any non-performing assets that we acquire, we believe that within a relatively short time after acquisition or taking control of such investments via foreclosure or deed-in-lieu proceedings, we will often experience an increase in their value. For example, in most instances, we bring financial stability to the property, which reduces uncertainty in the market and alleviates concerns regarding the property’s management, ownership and future. We also may have more capital available for investment in these properties than their prior owners and operators were willing to invest, and as such, we are able to invest in tenant improvements and capital expenditures with respect to such properties, which enables us to attract substantially increased interest from brokers and tenants.

Our board of directors declared or issued the following stock dividends on shares of our common stock during the nine months ended September 30, 2016:

Declaration Date	Record Date	Issue Date	Amount Declared per Share Outstanding	Total Shares Issued
March 21, 2016	March 31, 2016	April 1, 2016	0.005 shares	57,172
March 21, 2016	April 30, 2016	May 3, 2016	0.001667 shares	19,781
March 21, 2016	May 31, 2016	June 1, 2016	0.001667 shares	20,257
May 10, 2016	June 30, 2016	July 1, 2016	0.001667 shares	21,900
May 10, 2016	July 31, 2016	August 1, 2016	0.001667 shares	23,719
July 6, 2016	August 31, 2016	September 1, 2016	0.001667 shares	26,037
August 11, 2016	September 30, 2016	October 4, 2016	0.001667 shares	28,420
August 11, 2016	October 31, 2016	November 2, 2016	0.001667 shares	30,341
September 27, 2016	September 27, 2016	October 6, 2016	0.015 shares	254,287

Critical Accounting Policies

Our consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC. There have been no significant changes to our policies during 2016.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Subsequent Events

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

Status of the Offering

We commenced our initial public offering on August 12, 2014 and broke escrow on January 7, 2015. As of November 4, 2016, we had sold 8,644,798 and 4,755,756 shares of Class A and Class T common stock in our initial public offering, respectively, for aggregate gross offering proceeds of $130.8 million. Included in these amounts were 195,574 and 22,876 shares of Class A and Class T common stock sold under our dividend reinvestment plan, respectively, for aggregate gross offering proceeds of $1.9 million.

Cash Distributions Paid

On October 3, 2016, we paid distributions of $0.2 million related to cash distributions on the outstanding shares of the common stock based on daily record dates for the period from September 1, 2016 through September 30, 2016. On November 1, 2016, we paid distributions of $0.3 million related to cash distributions on the outstanding shares of the common stock based on daily record dates for the period from October 1, 2016 through October 31, 2016. Distributions for these periods were calculated based on stockholders of record each day during these periods at a rate of (i) $0.00052404 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date.

On October 5, 2016, we paid distributions of $0.8 million related to a one-time cash distribution in the amount of $0.05 per share on the outstanding shares of all classes of our common stock to stockholders of record as of the close of business on September 27, 2016.

Stock Dividends Issued

On August 11, 2016, our board of directors authorized stock dividends for the month of September 2016, in the amount of 0.001667 shares of each class of our common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on September 30, 2016. We issued the September 2016 stock dividend, consisting of 28,420 shares, on October 4, 2016.

Also, on August 11, 2016, our board of directors authorized stock dividends for the month of October 2016, in the amount of 0.001667 shares of each class of our common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on October 31, 2016. We issued the October 2016 stock dividend, consisting of 30,341 shares, on November 2, 2016.

On September 27, 2016, our board of directors authorized a one-time stock dividend in the amount of 0.015 shares of common stock to all common stockholders of record as of the close of business on September 27, 2016. We issued the one-time stock dividend, consisting of 254,287 shares, on October 6, 2016.

Distributions Declared

On October 11, 2016, our board of directors declared cash distributions on the outstanding shares of all classes of common stock based on daily record dates for the period from November 1, 2016 through November 30, 2016, which we expect to pay in December 2016. On November 10, 2016, our board of directors declared cash distributions on the outstanding shares of all classes of common stock based on daily record dates for the period from December 1, 2016 through December 31, 2016 and January 1, 2017 through January 31, 2017, which we expect to pay in January and February 2017, respectively. Distributions for the period from November 1, 2016 through December 31, 2016 will be calculated based on stockholders of record each day during these periods at a rate of (i) $0.00052404 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date. Distributions for the period from January 1, 2017 through January 31, 2017 will be calculated based on stockholders of record each day during these periods at a rate of (i) $0.00052548 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Also on October 11, 2016, our board of directors authorized monthly stock dividends for the month of November 2016, in the amount of 0.001667 shares of each class of our common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on November 30, 2016, which we expect to issue in December 2016. Also on November 10, 2016, our board of directors authorized monthly stock dividends for the months of December 2016 and January 2017, each in the amount of 0.001667 shares of each class of our common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on December 31, 2016 and January 31, 2017, respectively, which we expect to issue in January 2017 and February 2017, respectively. Stock dividends are issued in the same class of shares as the shares for which such stockholder received the stock dividend.

Springmaid Beach Resort

In October 2016, Springmaid Beach Resort Hotel, which is located in Myrtle Beach, South Carolina, sustained significant damage from Hurricane Matthew. We are in the process of assessing the extent of the property damage at Springmaid Beach Resort Hotel and quantify the financial impact to our financial statements.

Probable Real Estate Investment

210 West 31^st Street

On October 28, 2016, we, through a indirect wholly owned subsidiary, entered into a joint venture (the “210 West 31^st Street Joint Venture”) with Onyx 31^st Street LLC (the “210 West 31^st Street JV Partner”). A wholly owned subsidiary of the 210 West 31^st Street Joint Venture then entered into a purchase and sale agreement with the 210 West 31^st Street JV Partner whereby the 210 West 31^st Street JV Partner would assign 80% of its interest in a ground lease in 210 West 31^st Street, New York, New York (“210 West 31^st Street”) to the wholly owned subsidiary of the 210 West 31^st Street Joint Venture. The 210 West 31^st Street JV Partner would retain a 20% interest in the ground lease in 210 West 31^st Street and contribute this interest in exchange for a 20% interest in the 210 West 31^st Street Joint Venture. The 210 West 31^st Street JV Partner is not affiliated with us or our advisor.  The contractual purchase price of the 80% interest in the ground lease is $38.4 million plus closing costs and the remaining 20% interest has an attributable value of $9.6 million.

We own an 80% equity interest in the 210 West 31^st Street Joint Venture and is responsible for funding the purchase of the 80% interest in the ground lease. Income, losses and distributions are generally allocated based on the members’ respective equity interests, subject to adjustments based on certain performance thresholds set forth in the joint venture agreement. Additionally, in certain circumstances described in the joint venture agreement, we and the 210 West 31^st Street JV Partner may be required to make additional capital contributions to the joint venture, in proportion to the members’ respective equity interests.

The 210 West 31^st Street Joint Venture intends to fund the acquisition of 210 West 31^st Street with capital contributions from its members and with proceeds from a mortgage loan. The 210 West 31^st Street Joint Venture is currently negotiating the terms of the mortgage loan.

Pursuant to the purchase and sale agreement, the 210 West 31^st Street Joint Venture would be obligated to purchase the property only after satisfaction of agreed-upon closing conditions. There can be no assurance that the 210 West 31^st Street Joint Venture will complete the acquisition. In some circumstances, if the 210 West 31^st Street Joint Venture fails to complete the acquisition it may forfeit up to $3.0 million.

210 West 31^st Street is located in New York, New York and consists of an 8,637 square foot development site located directly across the street from Madison Square Garden and Penn Station. 210 West 31^st Street is currently a 23,110 square foot, 2-story building with basement. We intend to make significant renovations or improvements to 210 West 31^st Street, including demolishing the existing structure and redeveloping the property into a 2-story retail building with a lower level and a rooftop deck and currently estimates these renovation and improvements to cost approximately $14.2 million.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the financing of our real estate investment portfolio and operations. We are also exposed to the effects of changes in interest rates as a result of the origination of a mortgage loan. We are also exposed to the effects of foreign currency changes in the Euro with respect to our €2.1 million participating loan facility. Foreign currency exchange rate risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes and foreign currency changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and that the losses may exceed the amount we invested in the instruments.

As of September 30, 2016, we owned one fixed-rate real estate loan receivable. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate real estate loan receivable unless such instrument matures or is otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instrument. At September 30, 2016, the fair value and carrying value of our fixed rate real estate loan receivable was $3.4 million. The fair value estimate of our real estate loan receivable is estimated using an internal valuation model that considers the expected cash flows for the loan, underlying collateral value and the estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements. As we expect to hold our fixed rate instrument to maturity and the amounts due under such instrument would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instrument, would have a significant impact on our operations.

Conversely, movements in interest rates on variable rate debt would change our future earnings and cash flows, but would not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of floating rate instruments. As of September 30, 2016, we were exposed to market risks related to fluctuations in interest rates on $107.3 million of variable rate debt outstanding. Based on interest rates as of September 30, 2016, if interest rates were 100 basis points higher during the 12 months ending September 30, 2017, interest expense on our variable rate debt would increase by $1.1 million. As of September 30, 2016, one-month LIBOR was 0.53111% and if the LIBOR index was reduced to 0% during the 12 months ending September 30, 2017, interest expense on our variable rate debt would decrease by $0.6 million.

The annual effective interest rate of our fixed rate real estate loan receivable as of September 30, 2016 was 11.7%. The effective interest rate represents the effective interest rate as of September 30, 2016, using the interest method, which we use to recognize interest income on our real estate loan receivable. The weighted-average interest rate of our variable rate debt as of September 30, 2016 was 3.1%.  The weighted-average interest rate represent the actual interest rate in effect as of September 30, 2016 (consisting of the contractual interest rate and the effect of interest rate caps, if applicable), using interest rate indices as of September 30, 2016 where applicable.

For a discussion of the interest rate risks related to the current capital and credit markets, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Outlook - Real Estate and Real Estate Finance Markets” herein, the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC.

47

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

Internal Control Over Financial Reporting

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

48

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

The following risk factor supplements the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015.

Based on sales volume to date, we expect to raise substantially less than the maximum offering amount in our ongoing public offering. Because we expect to raise substantially less than the maximum offering amount, we will not be able to invest in as diverse a portfolio of properties as we otherwise would, which will cause the value of our stockholders’ investment to vary more widely with the performance of specific assets, and cause our general and administrative expenses to constitute a greater percentage of our revenue. Raising fewer proceeds in our offering, therefore, increases the risk that our stockholders will lose money in their investment.

Our public offering is being made on a “best efforts” basis, whereby the brokers participating in the offering have no firm commitment or obligation to purchase any of the shares. To date, the proceeds we have raised in the offering are lower than our sponsor and dealer manager originally expected. Unless we file a registration statement with the SEC to conduct a follow-on public offering, we expect our public offering to terminate in August 2017.  As a result, we do not expect to raise the maximum offering amount in the public offering. Therefore, we will make fewer investments than originally intended resulting in less diversification in terms of the number of investments owned and the geographic regions in which our investments are located. Adverse developments with respect to a single property, or a geographic region, will have a greater adverse impact on our operations than they otherwise would. In addition, our inability to raise substantial funds will increase our fixed operating expenses as a percentage of our revenue, reducing our net income and limiting our ability to pay distributions to our stockholders.

Regulatory developments related to how we report our estimated value per share under recently effective FINRA and NASD Conduct Rules and changes to the definition of “fiduciary” under ERISA and the Code, may significantly affect our ability to raise substantial additional funds in the public offering.

In April 2016, final regulations went into effect that require FINRA members and their associated persons that participate in our public offering to disclose a per share estimated value of our shares developed in a manner reasonably designed to ensure that the per share estimated value is reliable.  As a result, we report the net investment amount of our shares as our estimated value per share, which net investment amount is based on the “amount available for investment/net investment amount” percentage shown in our estimated use of proceeds table and is effectively the purchase price of our primary offering shares, less the associated selling commission, dealer manager fee, and estimated organization and other offering expenses as shown in our estimated use of proceeds table in the prospectus for the public offering.  Also in April 2016, the DOL issued a final regulation relating to the definition of a fiduciary under ERISA and Section 4975 of the Code. The final regulation broadens the definition of fiduciary and is accompanied by new and revised prohibited transaction exemptions relating to investments by employee benefit plans subject to Title I of ERISA or retirement plans or accounts subject to Section 4975 of the Code (including IRAs). The final regulation and the related exemptions will become applicable for investment transactions on and after April 10, 2017, but generally should not apply to purchases of our shares before that date. These regulatory developments may significantly affect our ability to raise substantial additional funds in the public offering.

49

PART II. OTHER INFORMATION (CONTINUED)

Item 1A. Risk Factors (continued)

We have paid distributions in part from financings and expect that in the future we may not pay distributions solely from our cash flow from operating activities. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have less funds available for investment in properties and other assets, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.

Our organizational documents permit us to pay distributions from any source, including offering proceeds or borrowings (which may constitute a return of capital), and our charter does not limit the amount of funds we may use from any source to pay such distributions. We have paid distributions in part from financings and expect that in the future we may not pay distributions solely from our cash flow from operating activities, in which case distributions may be paid in whole or in part from debt financing. We may also fund such distributions with proceeds from the sale of assets or from the maturity, payoff or settlement of debt investments. If we fund distributions from borrowings, our interest expense and other financing costs, as well as the repayment of such borrowings, will reduce our earnings and cash flow from operating activities available for distribution in future periods. If we fund distributions from the sale of assets or the maturity, payoff or settlement of debt investments, this will affect our ability to generate cash flow from operating activities in future periods. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have fewer funds available with which to make real estate investments, the overall return to our stockholders may be reduced and subsequent investors will experience dilution. In addition, to the extent distributions exceed cash flow from operating activities, 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 of distributions we may fund from sources other than from cash flow from operating activities.

During our public offering stage, when we may raise capital in this offering (and possibly future offerings) more quickly than we acquire income-producing assets, and from time to time during our operational stage, we may not pay distributions solely from our cash flow from operating activities.

For the year ended December 31, 2015, we paid aggregate distributions of $1.0 million in the fourth quarter of 2015, including $0.4 million of distributions paid in cash and $0.6 million of distributions reinvested in shares of our Class A common stock through our dividend reinvestment plan. Our net loss attributable to common stockholders for the year ended December 31, 2015 was $2.1 million. Cash flow provided by operating activities for the year ended December 31, 2015 was $0.3 million. We funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with $0.3 million of cash flow provided by operating activities and $0.7 million of debt financing.

For the nine months ended September 30, 2016, we paid aggregate distributions of $1.1 million, including $0.4 million of distributions paid in cash and $0.7 million of distributions reinvested through our dividend reinvestment plan. Our net loss attributable to common stockholders for the nine months ended September 30, 2016 was $2.3 million and cash flow provided by operations was $2.6 million. We funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with cash flow provided by operations.

From inception through September 30, 2016, we paid cumulative distributions of $2.1 million and our cumulative net loss during the same period was $6.9 million.

50

PART II. OTHER INFORMATION (CONTINUED)

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

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

b) On August 12, 2014, our Registration Statement on Form S-11 (File No. 333-192331), covering a public offering of up to 100,000,000 shares of common stock in a primary offering and 80,000,000 shares of common stock under our dividend reinvestment plan, was declared effective under the Securities Act of 1933. We commenced our initial public offering on August 12, 2014 upon retaining KBS Capital Markets Group LLC, an affiliate of our advisor, as the dealer manager of our offering. Initially, we were offering 100,000,000 shares of common stock in our primary offering at an aggregate offering price of up to $1.0 billion, or $10.00 per share with discounts available to certain categories of purchasers. The 80,000,000 shares offered under our dividend reinvestment plan were initially being offered at an aggregate offering price of $760 million, or $9.50 per share.

On February 11, 2016, we filed an amended registration statement on Form S-11 with the SEC to add a second class of common stock designated as Class T shares and to designate our currently outstanding common stock as Class A shares. Pursuant to the registration statement, as amended, effective February 17, 2016, we are offering up to $1,000,000,000 in shares of our common stock in the primary offering, consisting of two classes of shares: Class A shares at a price of $10.00 per share and Class T shares at a price of $9.59 per share. Both classes of shares have discounts available to certain categories of purchasers. We are also offering up to 76,366,006 in shares of our common stock pursuant to our dividend reinvestment plan: Class A shares at a price of $9.50 per share and Class T shares at a price of $9.12 per share. We are offering to sell any combination of Class A and Class T shares in our primary offering and dividend reinvestment plan offering but in no event may we sell more than 180,000,000 of shares of our common stock pursuant to the offering. We reserve the right to reallocate shares between the primary offering and our dividend reinvestment plan offering. Based on our current estimates, we have allocated 103,633,994 and 76,366,006 shares of our common stock to our primary and dividend reinvestment plan offerings, respectively.

We expect to terminate our initial public offering approximately 90 days (as determined by our Chief Executive Officer) after we have announced that we have raised $650 million in our primary initial public offering.  In no event may the primary offering  continue beyond the time period permitted by the rules promulgated by the SEC, which rules provide that absent the filing of a registration statement for a follow-on offering, this primary offering shall terminate after a three-year period. We may sell shares under the dividend reinvestment plan beyond the termination of the primary offering until we have sold all the shares under the plan.

As of September 30, 2016, we had sold 12,219,724 shares of common stock in our ongoing initial public offering for gross offering proceeds of $119.4 million, including 132,339 shares of common stock under our dividend reinvestment plan for gross offering proceeds of $1.3 million. As of September 30, 2016, we had incurred selling commissions, dealer manager fees and organization and other offering costs in connection with our initial public offering in the amounts set forth below. We pay selling commissions and dealer manager fees to KBS Capital Markets Group, and KBS Capital Markets Group reallows all selling commissions and a portion of the dealer manager fees to participating broker-dealers. In addition, we reimburse KBS Capital Advisors and KBS Capital Markets Group for certain offering expenses as described in our prospectus, as amended and supplemented.

Type of Expense Amount	Amount (in thousands)			Estimated/Actual
Selling commissions and dealer manager fees (1)	$	8,323		Actual
Organization and other offering costs (excluding selling commissions, dealer manager fees and stockholder servicing fees) (2)	1,247			Actual
Total expenses	$	9,570
Percentage of offering proceeds used to pay or reimburse affiliates for expenses above	8.0		%	Actual

______________________________________________

⁽¹⁾ Except as described in the “Plan of Distribution” section of our prospectus, as amended and supplemented, an annual stockholder servicing fee of 1.0% of the purchase price per share (ignoring any discounts that may be available to certain categories of purchasers) for the Class T shares sold in the primary portion of our initial public offering will be paid to our dealer manager and will accrue daily and be paid monthly in arrears. Our dealer manager will reallow all of the stockholder servicing fees paid to it. The stockholder servicing fee is an ongoing fee that is not paid at the time of purchase and is not intended to be a principal use of offering proceeds; it is therefore not included in the table above. As of September 30, 2016, we had accrued approximately $1.5 million in stockholder servicing fees, which is the maximum amount of the stockholder servicing fee payable with respect to all Class T shares sold in the primary portion of our initial public offering as of September 30, 2016.

⁽²⁾ Organization and other offering costs (which exclude selling commissions, dealer manager fees and stockholder servicing fees) are capped at 1.0% of gross offering proceeds from the primary portion of our initial public offering.  KBS Capital Advisors and its affiliates are responsible for any organization and other offering costs related to the primary portion of our initial public offering that exceed this limit.  The amount included above represents our maximum liability for organization and other offering costs based on the 1.0% limit.  As of September 30, 2016, KBS Capital Advisors and its affiliates had incurred an additional $6.5 million in organization and other offering costs on our behalf in connection with our initial public offering.

51

PART II. OTHER INFORMATION (CONTINUED)

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

We expect to use substantially all of the net proceeds from our initial public offering to invest in and manage a diverse portfolio of opportunistic real estate, real estate-related loans, real estate-related debt securities and other real estate-related investments located in the United States and Europe. Such investments will include the acquisition of distressed debt, the origination and acquisition of mortgage, mezzanine, bridge and other real estate-related loans, investment in opportunistic real estate and investments in real estate-related debt securities such as residential and commercial mortgage-backed securities and collateralized debt obligations. We may also invest in entities that make similar investments.

As of September 30, 2016, we had used the net proceeds from our now terminated private offering and our initial public offering and debt financing to invest $186.0 million in two hotel properties, two office properties, one first mortgage and an investment in an unconsolidated entity, including $5.4 million of acquisition fees and closing costs and origination fees and expenses.

c) On July 3, 2013, our board of directors adopted a share redemption program that has been amended at various times thereafter and that may enable stockholders to sell their shares to us in limited circumstances. The terms of the share redemption program described below are the terms as are currently in effect.

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

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

• During each calendar year, the share redemption program limits the number of shares we may redeem to those that we could purchase with the amount of the net proceeds from the issuance of shares under the dividend reinvestment plan during the prior calendar year. We may, however, increase or decrease the funding available for the redemption of shares pursuant to the program upon ten business days’ notice to our stockholders.

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

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

Pursuant to the program, as amended, unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence” (each as defined in the share redemption program), until we establish an estimated net asset value or NAV per share of our common stock, the price at which we will redeem the shares is as follows:

• For those shares held by the redeeming stockholder for at least one year, 92.5% of the price paid to acquire the shares from us;

• For those shares held by the redeeming stockholder for at least two years, 95.0% of the price paid to acquire the shares from us;

• For those shares held by the redeeming stockholder for at least three years, 97.5% of the price paid to acquire the shares from us; and

• For those shares held by the redeeming stockholder for at least four years, 100% of the price paid to acquire the shares from us.

Notwithstanding the foregoing, stock dividends will initially be redeemed at the “net investment amount” per share, which will be based on the “amount available for investment/net investment amount” percentage shown in our estimated use of proceeds table in our prospectus, as amended and supplemented. For each class of shares, this amount will initially equal $9.01 per share for redemptions of shares received as a result of a stock dividend.

52

PART II. OTHER INFORMATION (CONTINUED)

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

After we establish an estimated NAV per share of our common stock, and unless the shares are being redeemed in connection with a stockholder’s death, qualifying disability, or determination of incompetence, the price at which we will redeem the shares is as follows:

• For those shares held by the redeeming stockholder for at least one year, 92.5% of our most recent estimated NAV per share as of the applicable redemption date;

• For those shares held by the redeeming stockholder for at least two years, 95.0% of our most recent estimated NAV per share as of the applicable redemption date;

• For those shares held by the redeeming stockholder for at least three years, 97.5% of our most recent estimated NAV per share as of the applicable redemption date; and

• For those shares held by the redeeming stockholder for at least four years, 100% of our most recent estimated NAV per share as of the applicable redemption date.

For purposes of determining the time period a redeeming stockholder has held each share, the time period begins as of the date the stockholder acquired the share; provided, that shares purchased by the redeeming stockholder pursuant to our dividend reinvestment plan and shares received as a stock dividend will be deemed to have been acquired on the same date as the initial share to which the dividend reinvestment plan shares or stock dividend shares relate. The date of the share’s original issuance by us is not determinative. In addition, as described above, the shares owned by a stockholder may be redeemed at different prices depending on how long the stockholder has held each share submitted for redemption.

We expect to establish an estimated NAV per share no later than 150 days after the second anniversary of the date on which we broke escrow in our initial public offering.

The terms of our share redemption program with respect to redemptions sought upon a stockholder’s death, qualifying disability or determination of incompetence are as follows:

• There is no one-year holding requirement;

• Additional funds in an amount up to $500,000 are available for redemption;

• Until we establish an estimated NAV per share, which we expect to be no later than June 6, 2017 (as described above), the redemption price is the amount paid to acquire the shares from us; provided that, stock dividends will initially be redeemed at the “net investment amount” per share, which will be based on the “amount available for investment/net investment amount” percentage shown in our estimated use of proceeds table in our prospectus for our initial public offering, as amended and supplemented. For each class of shares, this amount will initially equal $9.01 per share for redemptions of shares received as a result of a stock dividend; and

• Once we have established an estimated NAV per share, the redemption price would be the estimated NAV of the shares, as determined by our board of directors.

Upon a transfer of shares any pending redemption requests with respect to such transferred shares will be canceled as of the date we accept the transfer. Stockholders wishing to continue to have a redemption request related to any transferred shares considered by us must resubmit their redemption request.

Our board may amend, suspend or terminate the share redemption program upon 30 days’ notice to stockholders, provided that we may increase or decrease the funding available for the redemption of shares pursuant to the share redemption program upon 10 business days’ notice.

53

PART II. OTHER INFORMATION (CONTINUED)

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

During the nine months ended September 30, 2016, we fulfilled redemption requests and redeemed shares pursuant to the share redemption program as follows:

Month	Total Number of Shares Redeemed	Average Price Paid Per Share (1)		Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
January 2016	—	$	—	(2)
February 2016	—	$	—	(2)
March 2016	534	$	8.64	(2)
April 2016	—	$	—	(2)
May 2016	—	$	—	(2)
June 2016	1,583	$	9.17	(2)
July 2016	—	$	—	(2)
August 2016	—	$	—	(2)
September 2016	2,257	$	9.15	(2)
	4,374

_____________________

⁽¹⁾ Pursuant to the program, as amended, we will initially redeem shares as follows:

•For those shares held by the redeeming stockholder for at least one year, 92.5% of the price paid to acquire the shares from us;

•For those shares held by the redeeming stockholder for at least two years, 95.0% of the price paid to acquire the shares from us;

•For those shares held by the redeeming stockholder for at least three years, 97.5% of the price paid to acquire the shares from us; and

•For those shares held by the redeeming stockholder for at least four years, 100% of the price paid to acquire the shares from us.

Notwithstanding the above, upon the death, “qualifying disability” or “determination of incompetence” of a stockholder, the redemption price will be the amount paid to acquire the shares from us. Furthermore, once we establish an estimated NAV per share of our common stock, the redemption price per share for all stockholders will be equal to the estimated value per share, as determined by our advisor or another firm chosen for that purpose. We expect to establish an estimated NAV per share no later than June 6, 2017.

⁽²⁾ We limit the dollar value of shares that may be redeemed under the program as described above. During the nine months ended September 30, 2016, we redeemed $40,000 of common stock, which represented all redemption requests received in good order and eligible for redemption through the September 2016 redemption date. Based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2015 and the $0.5 million set aside for stockholder’s death, qualifying disability or determination of incompetence, we have $1.1 million available for redemptions during 2016, subject to the limitations described above.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

54

PART II. OTHER INFORMATION (CONTINUED)

Item 6. Exhibits

Ex.	Description
3.1	Second Articles of Amendment and Restatement adopted on August 11, 2014, incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, filed September 19, 2014
3.2	Second Amended and Restated Bylaws adopted August 6, 2015, incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2015, filed August 11, 2015
3.3	Articles Supplementary for the Class T Shares of common stock, incorporated by reference to Exhibit 3.3 to Post-Effective Amendment no. 4 to the Company’s Registration Statement on Form S-11, Commission File no. 333-192331, dated February 16, 2016
3.4	Articles Supplementary for the Class A Shares of common stock, incorporated by reference to Exhibit 3.4 to Post-Effective Amendment no. 4 to the Company’s Registration Statement on Form S-11, Commission File no. 333-192331, date February 16, 2016
3.5	Articles of Amendment, incorporated by reference to Exhibit 3.5 to Post-Effective Amendment no. 4 to the Company’s Registration Statement on Form S-11, Commission File no. 333-192331, dated February 16, 2016
4.1	Form of Subscription Agreement, incorporated by reference to Appendix A to the prospectus filed in Pre-Effective Amendment No. 1 to Post-Effective Amendment no. 6 to the Company’s Registration Statement on Form S-11, Commission File no. 333-192331, dated April 26, 2016
4.2	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, filed September 19, 2014
4.3	Third Amended and Restated Dividend Reinvestment Plan adopted February 16, 2016, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed February 22, 2016
4.4	Escrow Agreement dated January 22, 2016, incorporated by reference to Exhibit 4.5 to Post-Effective Amendment no. 3 to the Company’s Registration Statement on Form S-11, Commission File No. 333-192331, dated February 11, 2016
4.5	Multiple Class Plan, incorporated by reference to Exhibit 4.6 to Post-Effective Amendment No. 4 to the Company’s Registration Statement on Form S-11, Commission File No. 333-192331, dated February 16, 2016
10.1	Advisory Agreement, by and between the Company and KBS Capital Advisors LLC, dated August 12, 2016
10.2	Limited Liability Company Agreement of KBS SOR II Lofts at Noho Commons, LLC by and between Noho Commons Pacific Investors LLC and KBS SOR II Lofts at Noho Commons JV, LLC, dated as of September 29, 2016
10.3	Sale, Purchase and Escrow Agreement by and between Redrock Noho Residential, LLC and Noho Commons Pacific Owner LLC dated as of September 29, 2016

55

PART II. OTHER INFORMATION (CONTINUED)

Item 6. Exhibits (continued)

Ex.	Description
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Third Amended and Restated Share Redemption Program adopted February 16, 2016, incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K, filed February 22, 2016
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

56

SIGNATURES

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

		KBS STRATEGIC OPPORTUNITY REIT II, INC.
Date:	November 14, 2016	By:	/S/ KEITH D. HALL
			Keith D. Hall
			Chief Executive Officer and Director
			(principal executive officer)
Date:	November 14, 2016	By:	/S/ JEFFREY K. WALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer, Treasurer and Secretary
			(principal financial officer)

57

EX-10.1

ADVISORY AGREEMENT

between

KBS STRATEGIC OPPORTUNITY REIT II, INC.

and

KBS CAPITAL ADVISORS LLC

August 12, 2016

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TABLE OF CONTENTS

			Page
ARTICLE 1 - DEFINITIONS			4
ARTICLE 2 - APPOINTMENT			12
ARTICLE 3 - DUTIES OF THE ADVISOR			12
	3.01	Organizational and Offering Services	13
	3.02	Acquisition Services	13
	3.03	Asset Management Services	13
	3.04	Stockholder Services	16
	3.05	Other Services	16
ARTICLE 4 - AUTHORITY OF ADVISOR			16
	4.01	General	16
	4.02	Powers of the Advisor	16
	4.03	Approval by the Board	17
	4.04	Modification or Revocation of Authority of Advisor	17
ARTICLE 5 - BANK ACCOUNTS			17
ARTICLE 6 - RECORDS AND FINANCIAL STATEMENTS			17
ARTICLE 7 - LIMITATION ON ACTIVITIES			18
ARTICLE 8 - FEES			18
	8.01	Acquisition Fees	18
	8.02	Asset Management Fees	19
	8.03	Disposition Fees	20
	8.04	Subscription Processing Fee	20
	8.05	Subordinated Share of Cash Flows	20
	8.06	Subordinated Incentive Fee	21
	8.07	Changes to Fee Structure	21
ARTICLE 9 - EXPENSES			22
	9.01	General	22
	9.02	Timing of and Limitations on Reimbursements	23
ARTICLE 10 - VOTING AGREEMENT			24
ARTICLE 11 - RELATIONSHIP OF ADVISOR AND COMPANY; OTHER ACTIVITIES OF THE ADVISOR			24
	11.01	Relationship	24
	11.02	Time Commitment	25
	11.03	Investment Opportunities and Allocation	25
ARTICLE 12 - THE KBS NAME			26
ARTICLE 13 - TERM AND TERMINATION OF THE AGREEMENT			26
	13.01	Term	26
	13.02	Termination by Either Party	26
	13.03	Payments on Termination and Survival of Certain Rights and Obligations	26
ARTICLE 14 - ASSIGNMENT			27

2

EAST\126969463.2

ARTICLE 15 - INDEMNIFICATION AND LIMITATION OF LIABILITY			27
	15.01	Indemnification	27
	15.02	Limitation on Indemnification	28
	15.03	Limitation on Payment of Expenses	28
ARTICLE 16 - MISCELLANEOUS			28
	16.01	Notices	28
	16.02	Modifications	29
	16.03	Severability	29
	16.04	Construction	29
	16.05	Entire Agreement	29
	16.06	Waiver	29
	16.07	Gender	29
	16.08	Titles Not to Affect Interpretation	30
	16.09	Counterparts	30

3

EAST\126969463.2

ADVISORY AGREEMENT

This Advisory Agreement, dated as of August 12, 2016 (the “Agreement”), is between KBS Strategic Opportunity REIT II, Inc., a Maryland corporation (the “Company”), and KBS Capital Advisors LLC, a Delaware limited liability company (the “Advisor”).

W I T N E S S E T H

WHEREAS, the Company desires to avail itself of the knowledge, experience, sources of information, advice, assistance and certain facilities available to the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of, the board of directors of the Company (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 to amend and restate the Advisory Agreement 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 and miscellaneous expenses related to the selection, acquisition or development of any property, loan or other potential investment.

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

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

4

EAST\126969463.2

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

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

“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 values at the end of each month during such period.

“Average Issue Price” means the weighted average price at which shares were purchased in the primary portion of an Offering which shall be calculated as of the end of the month preceding the date upon which the calculation is being made.

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

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

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

“Cash from Sales and Settlements” means the net cash proceeds realized by the Company (i) from the sale, exchange or other disposition of any of its assets or any portion thereof after deduction of all expenses incurred in connection therewith and (ii) from the prepayment, maturity, workout or other settlement of any Loan or Permitted Investment or portion thereof after deduction of all expenses incurred in connection therewith. In the case of a transaction described in clause (i) (C) of the definition of “Sale” and (i)(B) of the definition of “Settlement,” Cash from Sales and Settlements means the proceeds of any such transaction actually distributed to the Company from the Joint Venture or partnership. Cash from Sales and Settlements shall not include Cash from Financings.

5

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

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

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

“Company” means KBS Strategic Opportunity REIT II, Inc., a corporation organized under the laws of the State of Maryland.

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

“Conflicts Committee” shall have the meaning set forth in the Company’s 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 purchase price to be paid in connection with the sale of a Property, Loan or other Permitted Investment less any concessions agreed to in connection with the sale which may include but are not limited to credits for future building or tenant improvements, credits for future free rent given to tenants, credits for future lease up assumptions, or other future rental concessions; or, in the case of a discounted payoff of a Loan, the total funds received by the Company in connection with the payoff, less any expenses related thereto.

“Cost of Loans and other Permitted Investments” means the sum of the cost of all Loans and Permitted Investments held, directly or indirectly, by the Company or the Partnership, calculated each month on an ongoing basis, and calculated as follows for each investment: the lesser of (i) the amount actually paid or allocated to acquire or fund the Loan or Permitted Investment, including fees and expenses related thereto (but excluding any Acquisition Fees paid or payable to the Advisor or its affiliates under this Agreement), and (ii) the outstanding principal amount of such Loan or Permitted Investment, including fees and expenses related to the acquisition or funding of such investment (but excluding any Acquisition Fees paid or payable to the Advisor or its affiliates under this Agreement), as of the time of calculation. With respect to any Loan or Permitted Investment held by the Company or the Partnership through a Joint Venture or partnership of which it is, directly or indirectly, a co-venturer or partner, such amount shall be the Company’s proportionate share thereof. The Cost of Loans and other Permitted Investments is computed without regard to whether any portion of such cost is funded using debt financing secured by, or attributable to, such investments.

6

EAST\126969463.2

“Cost of Real Estate Investments” means the sum of (i) with respect to Properties wholly owned, directly or indirectly, by the Company, the amount actually paid or allocated to the purchase of Properties, including fees and expenses related thereto (but excluding any Acquisition Fees paid or payable to the Advisor or its affiliates under this Agreement), plus budgeted capital improvement costs for the development, construction or improvement of Properties once such funds are disbursed pursuant to a final approved budget (ii) in the case of Properties owned by any Joint Venture or partnership in which the Company or the Partnership is, directly or indirectly, a co-venturer or a partner, the portion of the amount actually paid or allocated to the purchase of Properties, including fees and expenses related thereto (but excluding any Acquisition Fees paid or payable to the Advisor or its affiliates under this Agreement), plus budgeted capital improvement costs for the development, construction or improvement of Properties once such funds are disbursed pursuant to a final approved budget, that is attributable to the Company’s investment in the Joint Venture or partnership. The Cost of Real Estate Investments is computed without regard to whether any portion of such cost is funded using debt financing secured by, or attributable to, the Properties.

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

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

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

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

“Distributions” means any distributions (which shall not include stock dividends) of money or other property by the Company to owners of Shares, including distributions that may constitute a return of capital for federal income tax purposes.

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

“Gross Investment Amount” means the amount calculated by multiplying the total number of Shares purchased by Stockholders by the issue price, reduced by the total number of shares repurchased by the Company (excluding the number of shares issued as stock dividends and subsequently repurchased by the Company) multiplied by the Average Issue Price.

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

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

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

“Listed” or “Listing” shall have the meaning set forth in the Company’s Charter.

“Loans” means mortgage loans and other types of debt financing investments made by the Company or the Partnership, either directly or indirectly, including through ownership interests in a Joint Venture or partnership, and including, without limitation, mezzanine loans, B-notes, bridge loans, convertible mortgages, wraparound mortgage loans, construction mortgage loans, loans on leasehold interests, and participations in such loans.

“Market Value” shall have the meaning set forth in Section 8.06.

“Merger” means any business combination, merger, reorganization or share exchange involving the Company or its subsidiaries into or with another corporation or other legal person (the “Acquiror”) and as a result of such transaction, less than 51% of the outstanding voting securities or other capital interests of the surviving, resulting or acquiring corporation or other legal person are owned in the aggregate by those who were Stockholders immediately prior to such transaction (other than the Acquiror or its Affiliates if they owned Shares immediately prior to such transaction).

“Merger Consideration Amount” means (i) in the case of a Merger in which the consideration consists solely of cash, the total consideration to be received by holders of Shares outstanding immediately prior to the closing of the Merger, (ii) in the case of a Merger in which the consideration consists of securities traded on a national securities exchange, the product of (x) the number of shares of such securities received by the Stockholders at the closing of the Merger and (y) the market value of such securities, measured by taking the average closing price or the average of the bid and asked price, as the case may be, over a period of 30 consecutive days during which such securities are traded, with such 30-day period ending on the trading day prior to the closing date of the Merger, (iii) in the case of a Merger in which the consideration consist of securities that are not traded on a national securities exchange, the aggregate the fair market value (as of the most recent practicable date) of the securities to be received by the Stockholders as estimated by an independent expert chosen by the Board of Directors, and (iv) in the case of a Merger in which the consideration is some combination of that described above, the sum of clauses (i) through (iii), as applicable.

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

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

“Offering” means a Private or Public Offering.

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

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

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

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

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

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

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

“Private Offering” means any private offering of Shares pursuant to a confidential Private Placement Memorandum, other than a private offering of shares under a distribution reinvestment plan.

“Private Placement Memorandum” means a confidential private placement memorandum, as supplemented, pursuant to which the Company offers its Shares in a Private Offering.

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

“Property Manager” means an entity that has been retained to perform and carry out property-management services at one or more of the Properties, 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 public offering of Shares pursuant to an effective Registration Statement filed under the Securities Act of 1933, as amended, other than a public offering of Shares under a distribution reinvestment plan.

“Registration Statement” means a registration statement filed by the Company with the SEC on Form S-11, as amended from time to time, in connection with a Public Offering.

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

“Sale” means any transaction or series of related transactions whereby: (A) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of any Property, Loan or other Permitted Investment or portion thereof, including the transfer of any Property that is the subject of a ground lease, and including any event with respect to any Property, Loan or other Permitted Investment that gives rise to a significant amount of insurance proceeds or condemnation awards, 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

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or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company or the Partnership in any Joint Venture or partnership in which it is, directly or indirectly, a co-venturer or partner; or (C) any Joint Venture or partnership in which the Company or the Partnership is, directly or indirectly, a co-venturer or partner, sells, grants, transfers, conveys, or relinquishes its ownership of any Property, Loan or other Permitted Investment or portion thereof, including any event with respect to any Property, Loan or other Permitted Investment that gives rise to insurance claims or condemnation awards, 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.

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

“Settlement” means 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.

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

“Stockholders” means the registered holders of the Shares.

“Stockholders’ 7% Return” means, as of any date, an aggregate amount equal to a 7% cumulative, non-compounded, annual return on Gross Investment Amount (calculated like simple interest on a daily basis based on a three hundred sixty-five day year). For purposes of calculating the Stockholders’ 7% Return, Gross Investment Amount shall be determined for each day during the period for which the Stockholders’ 7% Return is being calculated, including a daily adjustment to reflect shares repurchased by the Company (excluding shares issued as stock dividends and subsequently repurchased by the Company), and shall be calculated net of (1) Distributions of Cash from Sales, Settlements and Financings, and (2) Distributions of Operating Cash Flow to the extent such Distributions of Operating Cash Flow provide a cumulative, non-compounded, annual return in excess of 7%, as such amounts are computed on a daily basis based on a three hundred sixty-five day year.

“Subordinated Incentive Fee” means the fee payable to the Advisor under certain circumstances, as calculated in Section 8.06.

“Subordinated Performance Fee Due Upon Termination” means a fee payable in the form of a non-interest bearing promissory note (the “Performance Fee Note”) in a principal amount equal to (1) 15% of the amount, if any, by which (a) the Appraised Value of the Company’s Properties at the Termination Date, less amounts of all third-party indebtedness secured by the Company’s Properties, plus the fair market value of all other Loans and Permitted Investments of the Company at the Termination Date, less amounts of third-party indebtedness related to such Loans and Permitted Investments, plus the fair market value of the Company’s other assets and liabilities, plus total Distributions through the Termination Date exceeds (b) the Gross Investment Amount plus total Distributions required to be made to the stockholders in order to pay the Stockholders’ 7% Return from inception through the Termination Date. The Company shall repay the Performance Fee Note

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at such time as the Company completes the first Sale or Settlement after the Termination Date using Cash from Sales and Settlements. If the Cash from Sales and Settlements from the first Sale or Settlement after the Termination Date is insufficient to pay the Performance Fee Note in full, then the Performance Fee Note shall be paid in part from the Cash from Sales and Settlement from the first Sale or Settlement, and in part from the Cash from Sales and Settlements from each successive Sale or Settlement until the Performance Fee Note is repaid in full. If the Performance Fee Note has not been paid in full within five years from the Termination Date, then the Advisor, its successors or assigns, may elect to convert the balance of the fee into Shares at a price per Share equal to the average closing price of the Shares over the ten trading days immediately preceding the date of such election if the Shares are Listed at such time. If the Shares are not Listed at such time, the Advisor, its successors or assigns, may elect to convert the balance of the fee into Shares at a price per Share equal to the fair market value for the Shares as determined by the Board of Directors based upon the Appraised Value of Company’s Properties on the date of election plus the fair market value of all other Loans and Permitted Investments of the Company on the date of election.

“Subordinated Share of Cash Flows” has the meaning set forth in Section 8.05.

“Subscription Processing Fee” has the meaning set forth in Section 8.04.

“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:

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

3.02 Acquisition Services.

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

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

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

(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;

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

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

3.03 Asset Management Services.

(i) Real Estate and Related Services:

(a) Investigate, select and, on behalf of the Company, engage and conduct business with (including enter contracts with) such Persons as the Advisor deems necessary to the proper performance of its obligations as set forth in this Agreement, including but not limited to consultants, accountants, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries,

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custodians, agents for collection, insurers, insurance agents, developers, construction companies, Property Managers and any and all Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services;

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

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

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

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

(f) Consult with the Company’s officers and the Board and assist the Board in the formulation and implementation of the Company’s financial policies, and, as necessary 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;

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

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

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

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

(k) Consult with the Company’s officers and the Board and provide assistance with the evaluation and approval of potential asset disposition, sale and refinancing opportunities that are presented to the Board.

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(ii) Accounting and Other Administrative Services:

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

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

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

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

(e) Provide financial and operational planning services;

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

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

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

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

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

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

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

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

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

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

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

3.04 Stockholder Services.

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

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

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

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

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

ARTICLE 4

AUTHORITY OF ADVISOR

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

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into and perform all contracts and other undertakings that it may in its sole discretion deem necessary, advisable or incidental thereto to perform its obligations under this Agreement.

4.03 Approval by the Board. Notwithstanding the foregoing, the Advisor may not take any action on behalf of the Company without the prior approval of the Board or duly authorized committees thereof if the Charter or Maryland General Corporation Law require the prior approval of the Board. 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 prior to the date of receipt by the Advisor of such notification.

ARTICLE 5

BANK ACCOUNTS

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

ARTICLE 6

RECORDS AND FINANCIAL STATEMENTS

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

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ARTICLE 7

LIMITATION ON ACTIVITIES

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

ARTICLE 8

FEES

8.01 Acquisition Fees. As compensation for the investigation, selection, 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 wholly owned, directly or indirectly, by the Company, the Acquisition Fee payable to the Advisor shall equal 2.6% of the sum of the amount actually paid or allocated to fund (including future funding of Loans) the acquisition or origination 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, plus significant (as determined in the sole discretion of the Advisor) capital improvement costs budgeted as of the date of acquisition related to the development, construction or improvement of such Property, Loan or other Permitted Investment. 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, the Acquisition Fee payable to the Advisor shall equal 2.6% of the portion of the amount actually paid or allocated to fund (including future funding of Loans) the acquisition or origination 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, plus significant (as determined in the sole discretion of the Advisor) capital improvement costs budgeted at the time of acquisition related to the development, construction or improvement of such Property, Loan or other Permitted Investment that is attributable to the Company’s investment in such Joint Venture or partnership. 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,

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the Acquisition Fee payable to the Advisor shall be paid at the closing of the transaction upon receipt of the invoice by the Company. Notwithstanding the foregoing, Acquisition Fees calculated based on capital improvement costs budgeted as of the date of acquisition shall be paid at the time funds are disbursed pursuant to a final approved budget upon receipt of an invoice by the Company. However, the Acquisition Fee may or may not be taken, in whole or in part, as to any year in the sole discretion of the Advisor. All or any portion of the Acquisition Fees not taken as to any fiscal year shall be deferred without interest and may be paid in such other fiscal year as the Advisor shall determine.

Notwithstanding the foregoing, as compensation for the investigation, selection, sourcing and acquisition or origination (by purchase, investment or exchange) of Properties, Loans and other Permitted Investments with proceeds raised in the Public Offering on or prior to February 16, 2016, the Company shall pay an Acquisition Fee to the Advisor in a manner calculated as described above in the amount of 1.5% instead of 2.6%.

8.02 Asset Management Fees.

(i) Except as provided in Section 8.02(ii) hereof, the Company shall pay the Advisor as compensation for the services described in Section 3.03 hereof a monthly fee (the “Asset Management Fee”) in an amount equal to the lesser of one-twelfth of (a) 1.0% of the sum of the Cost of Real Estate Investments and the Cost of Loans and other Permitted Investments; and (b) 2.0% of the sum of (A) the Cost of Real Estate Investments less the amount of any debt financing secured by, or attributable to, the Properties as of the date of computation hereunder and (B) the Cost of Loans and other Permitted Investments less the amount of any debt financing secured by, or attributable to, such investments as of the date of computation hereunder. 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.

(ii) Notwithstanding anything contained in Section 8.02(i) to the contrary, a Property, Loan or other Permitted Investment that has suffered an impairment in value, reduction in cash flow or other negative circumstances may either be excluded from the calculation of the Cost of Real Estate Investments or the Cost of Loans and other Permitted Investments or included in such calculation at a reduced value that is recommended by the Advisor and the Company’s management and then approved by a majority of the Conflicts Committee, and the resulting change in the Asset Management Fee with respect to such an investment will be applicable upon the earlier to occur of the date on which (i) such investment is sold, (ii) such investment is surrendered to a Person other than the Company, its direct or indirect wholly owned subsidiary or a Joint Venture or partnership in which the Company has an interest, (iii) the Advisor determines that it will no longer pursue collection or other remedies

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related to such investment, or (iv) the Advisor recommends a revised fee arrangement with respect to such investment.

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”). For a Sale with a Contract Sales Price less than or equal to $50 million, the Disposition Fee will equal 1.5% of the Contract Sales Price. For a Sale with a Contract Sales Price greater than $50 million, the Disposition Fee will equal the sum of $750,000 (which amount is 1.5% of $50 million), plus 1.0% of the amount of the Contract Sales Price in excess of $50 million. Provided, however, that if in connection with such Sales commissions are paid to third parties other than the Advisor or its Affiliates, the fee paid to the Advisor or any of its Affiliates may not exceed the commissions paid to such unaffiliated third parties.The payment of any Disposition Fee 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) 6.0% of the aggregate Contract Sales Price of each Property, Loan or other Permitted Investment or (ii) the Competitive Real Estate Commission for each Property, Loan or other Permitted Investment. Substantial assistance in connection with the Sale of a Property includes the Advisor’s preparation of an investment package for the Property (including a new investment analysis, rent rolls, tenant information regarding credit, a property title report, an environmental report, a structural report and exhibits) or such other substantial services performed by the Advisor in connection with a Sale. The Advisor shall submit an invoice to the Company on or about the closing or closings of each disposition, accompanied by a computation of the Disposition Fee. Generally, the Disposition Fee payable to the Advisor shall be paid at the closing of the transaction upon receipt of the invoice by the Company. However, the Disposition Fee may or may not be taken, in whole or in part, as to any period in the sole discretion of the Advisor. All or any portion of the Disposition Fees not taken as to any period shall be deferred without interest and may be paid in such other period as the Advisor shall determine.

8.04 Subscription Processing Fee. The Company shall pay the Advisor as compensation for the services described in Section 3.04(iv) hereof a monthly fee (the “Subscription Processing Fee”) in an amount equal to $35 per subscription agreement for Shares received and processed by the Advisor. The Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the total amount of the Subscription Processing Fee for the applicable period. Generally, the Subscription Processing Fee payable to the Advisor shall be paid on the last day of such month, or the first business day following the last day of such month. However, the Subscription Processing Fee may or may not be taken, in whole or in part, as to any period in the sole discretion of the Advisor. All or any portion of the Subscription Processing Fees not taken as to any period shall be deferred without interest and may be paid in such other period as the Advisor shall determine. The Subscription Processing Fee is an Organization and Offering Expense of the Company and is subject to the limitations on Organization and Offering Expenses in Article 9 hereof.

8.05 Subordinated Share of Cash Flows. The Subordinated Share of Cash Flows shall be payable to the Advisor in an amount equal to 15% of Operating Cash Flow and Cash from Sales,

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Settlements and Financings remaining after the stockholders have received Distributions in an aggregate amount equal to the sum of:

a.    the Stockholders’ 7% Return and

b.    Gross Investment Amount.

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

If the Subordinated Share of Cash Flows is payable to the Advisor, the Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the total amount of the Subordinated Share of Cash Flows for the applicable period. Generally, the Subordinated Share of Cash Flows payable to the Advisor shall be paid on the last day of such month, or the first business day following the last day of such month. For the avoidance of doubt, to the extent the payment of the Subordinated Share of Cash Flows is funded other than from Cash From Sales and Settlements, such amounts shall be included in Operating Expenses and subject to the 2%/25% Guidelines.

8.06 Subordinated Incentive Fee.

(i)     Upon Listing, the Advisor shall be entitled to the Subordinated Incentive Fee in an amount equal to 15% of the amount by which (i) the market value of the outstanding Shares of the Company, measured by taking the average closing price or the average of the bid and asked price, as the case may be, over a period of 30 days during which the Shares are traded, with such period beginning 180 days after Listing (the “Market Value”), plus the total of all Distributions paid to Stockholders from the Company’s inception until the date that Market Value is determined, exceeds (ii) the sum of (A) Gross Investment Amount and (B) the total Distributions required to be paid to the Stockholders in order to pay the Stockholders’ 7% Return from inception through the date Market Value is determined. The Company shall have the option to pay such fee in the form of cash, Shares, a promissory note or any combination of the foregoing. In the event the Subordinated Incentive Fee is paid to the Advisor following Listing, no other performance fee will be paid to the Advisor.

(ii)    Upon a Merger, the Advisor shall be entitled to the Subordinated Incentive Fee in an amount equal to 15.0% of the amount by which (i) the Merger Consideration Amount, plus the total of all Distributions paid to Stockholders from the Company’s inception until the date of the closing of the Merger, plus all Distributions declared prior to the Merger but to be paid after the Merger, exceeds (ii) the sum of (A) Gross Investment Amount and (B) the total Distributions required to be paid to the Stockholders in order to pay the Stockholders’ 7% Return from inception through the date of the closing of the Merger. The Company shall have the option to pay such fee in the form of cash or Shares or any combination thereof. In the event the Subordinated Incentive Fee is paid to the Advisor in connection with a Merger, no other performance fee will be paid to the Advisor.

8.07 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.

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ARTICLE 9

EXPENSES

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

(i) (a)    Organization and Offering Expenses related to the Private Offering that commenced July 3, 2013 without limitation; (b) Organization and Offering Expenses related to the Public Offering that commenced August 12, 2014; provided that no reimbursement shall be made for wholesaling compensation expense; provided further that the Company shall not reimburse the Advisor to the extent such reimbursement would cause the total amount spent by the Company on Organization and Offering Expenses in the Public Offering to exceed 15% of the Gross Proceeds raised in the Public Offering as of the date of the reimbursement and provided further that within 60 days after the end of the month in which the primary portion of the Public Offering terminates, (a) the Advisor and its Affiliates shall reimburse the Company to the extent that Organization and Offering expenses, but excluding selling commissions, the dealer manager fee and the stockholder servicing fee, borne by the Company in connection with the Public Offering exceed 1% of Gross Proceeds raised in the primary portion of the completed Public Offering ;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

9.02 Timing of and Additional Limitations on Reimbursements.

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

(ii) Notwithstanding anything else in this Article 9 to the contrary, the expenses enumerated in this Article 9 shall not become reimbursable to the Advisor unless and until the Company has raised $2.0 million in the Initial Public Offering.

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

ARTICLE 10

VOTING AGREEMENT

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

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

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Advisor shall promptly disclose to the Board the existence of any condition or circumstance, existing or anticipated, of which it has knowledge, that creates or could create a conflict of interest between the Advisor’s obligations to the Company and its obligations to or its interest in any other Person.

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

11.03 Investment Opportunities and Allocation. The Advisor shall be required to use commercially reasonable efforts to present a continuing and suitable investment program to the Company that is consistent with the investment policies and objectives of the Company, but neither the Advisor nor any Affiliate of the Advisor shall be obligated generally to present any particular investment opportunity to the Company even if the opportunity is of character that, if presented to the Company, could be taken by the Company. In the event an investment opportunity is located that may be suitable for the Company and other programs sponsored by the Advisor or any of its Affiliates, including KBS Realty Advisors, the Advisor, in its sole discretion, will have to determine the program or investor for which the investment opportunity is most suitable based on the investment objectives, portfolio and criteria of each program or investor. This determination must be made in a manner that is fair without favoring any other program or investor. The factors that the Advisor shall consider when determining the program or investor for which an investment opportunity would be the most suitable are the following:

• the investment objectives and criteria of each program or investor;

• the cash requirements of each program or investor;

• the effect of the investment on the diversification of each program’s or investor’s portfolio by type of investment, risk of investment, type of commercial property, geographic location of properties, and tenants of properties and, in the case of debt-related investments, the characteristics of the underlying property;

• the policy of each program or investor 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 or investor;

• the size of the investment; and

• the amount of funds available to each program or investor and the length of time such funds have been available for investment.

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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 Advisor, to be more appropriate for another program or investor, they may offer the investment to another program or investor. It shall be the duty of the Board to ensure that the allocation method described above is applied fairly to the Company.

ARTICLE 12

THE KBS NAME

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

ARTICLE 13

TERM AND TERMINATION OF THE AGREEMENT

13.01 Term. This Agreement shall have a term of one year from August 12, 2016 and may be renewed for an unlimited number of successive one-year terms upon mutual consent of the parties. The Company (acting through the Conflicts Committee) will evaluate the performance of the Advisor annually before renewing this Agreement, and each such renewal shall be for a term of no more than one year. Any such renewal must be approved by the Conflicts Committee.

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

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

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

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

(ii) The Advisor shall promptly upon termination:

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

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

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

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

ARTICLE 14

ASSIGNMENT

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

ARTICLE 15

INDEMNIFICATION AND LIMITATION OF LIABILITY

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

Notwithstanding the foregoing, the Company shall not indemnify the Advisor or its Affiliates for any loss, liability or expense arising from or out of an alleged violation of federal or state

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securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged material securities law violations as to the particular indemnitee; (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the SEC and of the published position of any state securities regulatory authority in which securities of the Company were offered or sold as to indemnification for violations of securities laws.

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

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

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

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

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

ARTICLE 16

MISCELLANEOUS

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

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To the Company or the Board:

KBS Strategic Opportunity REIT II, Inc.

800 Newport Center Drive, Suite 700

Newport Beach, California 92660

To the Advisor:

KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, California 92660

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

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

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

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

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

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

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

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

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

[The remainder of this page is intentionally left blank. Signature page follows.]

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

the date and year first above written.

KBS STRATEGIC OPPORTUNITY REIT II, INC.

 By: /s/ Keith D. Hall

        Keith D. Hall, Chief Executive Officer

KBS CAPITAL ADVISORS LLC

 By: GKP Holding LLC, a Manager

     By: /s/ Peter McMillan III

            Peter McMillan III, Manager

     By: /s/ Keith D. Hall

            Keith D. Hall, Manager

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

     By: Schreiber Investments, LLC, as general partner

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

                Charles J. Schreiber, Jr., Manager

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EX-10.2

Execution Version

LIMITED LIABILITY COMPANY AGREEMENT
OF KBS SOR II LOFTS AT NOHO COMMONS, LLC

This LIMITED LIABILITY COMPANY AGREEMENT OF KBS SOR II LOFTS AT NOHO COMMONS, LLC (this “Agreement”), is entered into effective as of September 29, 2016, by and between NOHO COMMONS PACIFIC INVESTORS LLC, a Delaware limited liability company (“JV Member”), and KBS SOR II LOFTS AT NOHO COMMONS JV, LLC, a Delaware limited liability company (“KBS Member”). JV Member and KBS Member may hereinafter be referred to herein collectively, as the “Members” or individually as a “Member.”

RECITALS

WHEREAS, the Members desire to form KBS SOR II LOFTS AT NOHO COMMONS, LLC, a Delaware limited liability company (the “Company”).

WHEREAS, the Company shall cause NoHo Commons Pacific Owner LLC, a Delaware limited liability company (“Property Owner Subsidiary”) and a wholly owned subsidiary of the Company, to enter into that certain Sale, Purchase and Escrow Agreement (the “Purchase Agreement”) with Redrock Noho Residential, LLC, a Delaware limited liability company (“Seller”), in a form approved by the Members, for the purchase of a multifamily apartment project commonly known as the Lofts at NoHo Commons with an address of 11136 Chandler Boulevard, North Hollywood, Los Angeles, California (the “Property”), and the improvements located thereon (the “Improvements”, together with the Property are referred to as the “Project”).

WHEREAS, the Purchase Agreement requires Property Owner Subsidiary to deposit the amount of Three Million and No/100 Dollars (the “PurchaseDeposit”) with Escrow Agent (as defined in the Purchase Agreement) within two (2) business days of the effective date of the Purchase Agreement.

WHEREAS, at the closing of the transaction contemplated by the Purchase Agreement (the “Property Closing”), the Company will cause Property Owner Subsidiary to obtain a mortgage loan (“Mortgage Loan”) from the Federal Home Loan Mortgage Corporation (“Lender”), on and subject to the terms and conditions of this Agreement.

ARTICLE IFORMATION

1.01.Formation. The limited liability company created pursuant to this Agreement and the filing of that certain Certificate of Formation dated September 22, 2016 (the “Company”) was formed under and pursuant to the Act. The term “Act” means the 6 Delaware Code §§18 101, et. seq., Delaware Limited Liability Code, as hereafter amended from time to time. Robert M. Zimmerman, Esq. is designated as an “authorized person” within the meaning of the Act, and such “authorized person” has executed, delivered and filed the Certificate of Formation with the Secretary of State of the State of Delaware. Upon the filing of the Certificate of Formation, his power as an

SMRH:479102057.10 1#

“authorized person” ceased, and Managing Member thereupon became the designated “authorized person” and shall continue as the designated “authorized person” within the meaning of the Act. Subject to the terms of this Agreement, Managing Member or an attorney authorized by Managing Member shall execute, acknowledge and file such other documents and instruments as are necessary and/or appropriate to register, qualify to do business and/or operate the Company as a foreign limited liability company in any jurisdiction in which the Company may own property or wish to conduct business. The existence of the Company as a separate legal entity shall continue until cancellation of the Certificate of Formation as provided in the Act.

1.02.Names and Addresses. The name of the Company is KBS SOR II LOFTS AT NOHO COMMONS, LLC. The principal office of the Company in the State of Delaware. The name and address of the registered agent of the Company in the State of Delaware currently is National Registered Agents, Inc.,160 Greentree Drive, Suite 101, Dover, Delaware 19904, until changed by the Managing Member with written notice to all Members. The names and addresses of the Members are set forth on Exhibit A attached hereto. The organizational structure of the Company and any subsidiaries directly or indirectly owned by the Company, including Property Owner Subsidiary (each, a “Subsidiary” and collectively, the “Subsidiaries”), as of the date hereof, is as set forth on Exhibit G attached hereto. The ownership interests of the Members in the Company shall not be certificated interests, unless otherwise determined as a Major Decision pursuant to Section 2.02 below.

1.03.Nature of Business. The express, limited and only purposes of the Company shall be (i) to indirectly acquire, own, lease, hold for long-term investment, sell, exchange, dispose of and otherwise realize the economic benefit from the Project, and (ii) to conduct such other activities with respect to the Project as are appropriate to carrying out the foregoing purposes and to do all things incidental to or in furtherance of the above-enumerated purposes. Neither the Company nor any of the Subsidiaries shall engage in any other business or activity, unless such other business or activity has been approved as a Major Decision (as defined below).

1.04.Term of Company. The term of the Company shall commence on the date the Certificate of Formation for the Company is filed with the Office of the Delaware Division of Corporations and shall continue until dissolved pursuant to Article VIII. The existence of the Company as a separate legal entity shall continue until the cancellation of the Company’s Certificate of Formation.

1.05.Purchase Agreement. The Members acknowledge that the Purchase Agreement will provide for certain conditions to the Property Owner Subsidiary’s obligation to close, including the absence of a default by Seller (“Buyer Closing Conditions”). The decision as to whether each of such conditions have been satisfied as of the closing date under the Purchase Agreement shall be decided by the Members, subject to the following:

(a)Failed Conditions; Members Agree to Terminate. If both Members determine that any of the Buyer Closing Conditions have not been satisfied (after expiration of any notice and cure periods) and do not desire to close over any unsatisfied Buyer Closing Conditions, Managing Member (as defined below) shall deliver to Seller a termination notice under the Purchase Agreement and seek a return of the Purchase Deposit (as such term is defined under the Purchase Agreement)

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to the extent all or any portion of the Purchase Deposit is refundable and thereafter cause the Company to be dissolved pursuant to Article VIII.

(b)Failed Conditions; KBS Member Desires to Proceed. If KBS Member has notified JV Member in writing that it desires to close over any unsatisfied Buyer Closing Condition, but JV Member has notified KBS Member in writing of its desire to terminate the Purchase Agreement, then KBS Member shall have the right, in its sole and absolute discretion, to elect to (A) deliver to Seller a termination notice under the Purchase Agreement and seek a return of the Purchase Deposit to the extent all or any portion of the Purchase Deposit is refundable, or (B) deliver written notice to JV Member requiring JV Member to withdraw from the Company. If Managing Member elects to deliver a notice pursuant to clause (B), then the KBS Member shall reimburse JV Member for the amount of the Purchase Deposit then posted by JV Member and KBS Member shall be free to cause the Property Owner Subsidiary or an Affiliate of KBS Member to consummate the Property Closing without JV Member being a Member of the Company or otherwise a party to such transaction.

(c)Failed Conditions; JV Member Desires to Proceed. If JV Member has notified KBS Member in writing that it desires to close, but KBS Member has notified JV Member in writing of its desire to terminate the Purchase Agreement, then JV Member shall have the right, in its sole and absolute discretion, to elect to (A) deliver to Seller a termination notice under the Purchase Agreement and seek a return of the Purchase Deposit to the extent all or any portion of the Purchase Deposit is refundable, or (B) deliver written notice to KBS Member requiring KBS Member to withdraw from the Company. If JV Member elects to deliver a notice pursuant to clause (B), then JV Member shall reimburse KBS Member for the amount of the Purchase Deposit then posted by KBS Member and JV Member shall be free to cause the Property Owner Subsidiary or an Affiliate of JV Member to consummate the Property Closing without KBS Member being a Member of the Company or otherwise a party to such transaction.

ARTICLE II

MANAGEMENT OF THE COMPANY

2.01.Management of the Company.

(a)Generally. JV Member is hereby designated as the managing member (the “Managing Member”) of the Company and shall serve as the Managing Member of the Company unless and until it resigns or is removed pursuant to Section 2.06. Subject to the restrictions set forth in this Agreement, Managing Member shall manage and administer the day-to-day business and affairs of the Company and its Subsidiaries. Managing Member shall at all times faithfully perform its duties and responsibilities in compliance with all applicable laws, the Business Plan (as defined below), the Annual Budget (as defined below) and this Agreement, and in an efficient, thorough, businesslike manner, devoting such time, efforts and managerial resources to the business of the Company and its Subsidiaries as is reasonably necessary for the operation of the day-to-day business and affairs of the Company and its Subsidiaries. In the performance of its duties under this Agreement, Managing Member shall regularly consult with the KBS Member. Managing Member and KBS Member may each engage in business efforts and affairs which are not related to the Company or the Project, and will not be precluded from owning and operating other businesses

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and/or real estate projects and neither the Company nor the other Members shall have any interest in such businesses or real estate projects.

(b)Specific Day to Day Duties. Without limiting the generality of the foregoing, Managing Member shall perform the following duties with respect to the Project, all to be carried out in accordance with this Agreement, the Annual Budget and the Business Plan:

(i)Use reasonable commercial efforts to obtain and cause to be maintained all governmental and agency approvals, permits and other entitlements necessary for ownership, renovation, operation, management and leasing of the Project.

(ii)Coordinate the services of all employees, supervisors, architects, engineers, contractors, construction or development managers, accountants, attorneys, real estate brokers, advertising personnel and other persons necessary or appropriate for the ownership, renovation, operation, management and leasing of the Project.

(iii)Supervise the performance of all work in connection with the ownership, renovation, operation, management and leasing of the Project.

(iv)Except to the extent such action is a Major Decision, use commercially reasonable efforts to enforce all of the Company’s and its Subsidiaries’ rights and cause performance of all of the Company’s obligations arising in connection with any contract or agreement entered into in connection with the Project, excluding de minimis obligations where the cost to pursue the obligation exceeds the benefit to be gained.

(v)Deliver to the Members, promptly upon its receipt, copies of any written notices or other written materials received by Managing Member in connection with any material dispute or material claims relating to the Project.

(vi)Otherwise diligently perform those duties and services that are reasonably necessary in order to acquire, own, renovate, operate, manage and lease the Project in accordance with the Business Plan, the Annual Budget (including the Renovation Budget (as defined below)) and this Agreement.

(c)Additional Duties. Without limiting the generality of the foregoing, Managing Member shall have the following additional duties with respect to the overall operation of the Company and its Subsidiaries and the ownership of the Project, all to be carried out in accordance with this Agreement:

(i)Provide operating reports and financial statements in accordance with Article IX.

(ii)Notify KBS Member of such matters and render such reports to KBS Member from time to time as KBS Member may reasonably request in writing, including, without limitation, at all times and in each event no less frequently than monthly, keeping KBS Member informed of material information relating to the Project by (1) notifying KBS

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Member in advance of public hearings and other proceedings relating to any existing or proposed entitlements, mapping, subdivision or material permits for the Project and (2) notifying KBS Member within five (5) business days and promptly delivering to KBS Member copies of any written offers to purchase or otherwise acquire the Project, or any interest therein, and of any written indications of interest, written invitations to deal, written solicitations of sales which represent bona fide offers regarding the Project.

(iii)Comply with the Annual Budget, as it may be modified in accordance with this Agreement. Except for expenditures made and obligations incurred, in each case as previously approved pursuant to the Annual Budget and the Permitted Budget Variance (as hereinafter defined) or in writing by KBS Member, the Managing Member shall have no authority to make any expenditure or incur any obligation or liability on behalf of the Company or any Subsidiary. Subject to the Annual Budget and the Permitted Budget Variance or as may be approved in writing by KBS Member, the Managing Member shall not expend on behalf of the Company or any Subsidiary more than what it in good faith believes to be the fair and reasonable market value at the time and place of contracting or any goods purchased or services engaged on behalf of the Company or any Subsidiary. Subject to Section 2.02(d) below, Managing Member may enter into any such contracts on behalf of the Company or any Subsidiary for goods purchased or services contemplated by the Annual Budget, if any, provided that such contracts shall be terminable by the Company or any applicable Subsidiary upon thirty (30) days’ notice without penalty or if such contracts are not contemplated by the Annual Budget they shall be for an amount not to exceed (A) the sum of $10,000 as to any single expenditure, and (B) the sum of $50,000 annually (in each case, such expenditures may hereinafter be referred to as the "De Minimis Expenditures"). Any such contract (other than contracts that are for De Minimis Expenditures) that is either (x) not terminable by the Company or the applicable Subsidiary upon thirty (30) days’ notice or (y) are not contemplated by the Annual Budget shall in each case require the prior written approval of KBS Member. As used in this Agreement, the term “Permitted Budget Variance” means, with respect to any Annual Budget, any disbursement of funds in any amount that would not result in a particular line item being exceeded 10% of such line item for the year in question or the total Annual Budget being exceeded by more than 5% in the aggregate.

(d)Affiliate Agreements; Special Powers of KBS Member Regarding Affiliate Agreements.

(i)JV Member, in its capacity as Managing Member, shall not cause the Company or any of its Subsidiaries to enter any agreement or other arrangement for the furnishing to or by the Company or any Subsidiary of goods or services or for any other contract or agreement pursuant to which the JV Member or any Affiliate or Related Person (defined below) will receive any benefit with, or pay any fees or compensation to, itself or any Person that is an Affiliate of the JV Member or a Related Person (an “Affiliate Agreement”), unless such agreement or arrangement has been previously approved in writing by KBS Member. JV Member shall not amend, modify or terminate any such Affiliate Agreement after the entry by the Company, or any Subsidiary, into such Affiliate Agreement

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without the prior consent of KBS Member. As used in this agreement, the term “Related Person” shall mean the JV Member Principal (defined below) and such JV Member Principal’s spouse and the ancestors, descendants, aunts, uncles or first cousins of such JV Member Principal, whether by birth or adoption.

(ii)Notwithstanding anything to the contrary contained herein but subject to Section 2.06(d) below, KBS Member shall have the right, in its sole discretion upon prior written notice to JV Member, to take all actions on behalf of the Company or any Subsidiary with respect to: (A) the determination of the existence of any default by any Affiliate of JV Member under any Affiliate Agreements made between the Company or any Subsidiary and any Affiliate of JV Member, (B) the enforcement of all rights and remedies of the Company under any Affiliate Agreements made between the Company or any Subsidiary and any Affiliate of any JV Member, and (C) termination of any Affiliate Agreements made between the Company or any Subsidiary and any Affiliate of any JV Member (subject to the terms and conditions set forth therein for notice of defaults and applicable cure periods). All Affiliate Agreements shall be terminated upon sale of the portion of the Project to which they relate and in the event of other circumstances or defaults (including, without limitation, any Removal Event (as defined below)) as more particularly set forth therein or herein. JV Member will cooperate in good faith with KBS Member in the exercise by KBS Member of the foregoing rights and actions hereunder.

(iii)As used in this Agreement, the term “Affiliate” means any person or entity which, directly or indirectly through one (1) or more intermediaries, controls or is controlled by or is under common control with another person or entity. The term “control” as used herein (including the terms “controlling,” “controlled by,” and “under common control with”) means the possession, direct or indirect, of the power (i) to vote 51% or more of the outstanding voting securities of such person or entity, or (ii) to otherwise direct management policies of such person by contract (at commercially reasonable rates) or otherwise. Karl Slovin (the “JV Member Principal”) and his Related Persons and Affiliates shall be deemed “Affiliates” of JV Member. Any reference in this Agreement to a “Person and an Affiliate” shall be deemed to refer to such Person and an Affiliate of such Person and any references in this Agreement to a “Person or an Affiliate” shall be deemed to refer to such Person or an Affiliate of such Person.

2.02.Major Decisions. Notwithstanding anything contained in this Agreement to the contrary, Managing Member shall not take, or cause or permit the Company or any Subsidiary to enter into any agreement to take, any of the following actions on behalf of the Company or any Subsidiary (in each case the taking of which hereinafter shall be referred to as a “Major Decision”) without the prior written consent of KBS Member, which consent may be given or withheld in KBS Member’s sole and absolute discretion.

(a)Purchase Agreement. Except as set forth in Section 1.05 above, enter into, amend, modify, terminate, or expressly waive any material rights of the Property Owner Subsidiary under, the Purchase Agreement.

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(b)Annual Budget; Business Plan. Subject to Section 2.01(c)(iii) cause the Company or its Subsidiaries to deviate from, amend, update or replace the Business Plan or deviate from, amend, update or replace the Annual Budget (subject to the Permitted Budget Variance), except as provided in Section 2.10 below.

(c)Sale of the Company or the Project. Subject to Articles VI and VII, sell, convey, exchange, hypothecate, pledge, encumber or otherwise transfer any portion of or any interest in the Company or any Subsidiary or all or any portion of the Project, or enter into any agreement to sell, convey, exchange, hypothecate, pledge, encumber or otherwise transfer any portion or any interest in the Company or any Subsidiary or all or any portion of the Project.

(d)Pre-Approved Affiliate Agreements. Amend, modify, terminate, or waive any rights under, the any of the Pre-Approved Affiliate Agreements (as such term is defined below), or enter into any agreements that would replace any of the Pre-Approved Affiliate Agreements.

(e)Acquire Real Property. Purchase or otherwise acquire any interest in real property other than the Company’s indirect ownership interest in the Project.

(f)Financing. Cause the Company or any Subsidiary to enter into (or commit to enter into) the Mortgage Loan or to finance or refinance the operations of the Company or any Subsidiary and/or any of the Company’s or any Subsidiary’s assets (including, without limitation, any acquisition, development, construction, interim and long-term financing or refinancing in connection with the Project (or any portion thereof) or the improvement or expansion thereof) (each, a “Financing” including the Mortgage Loan) or retain any mortgage bankers or brokers on behalf of the Company or any Subsidiary in connection therewith or enter into any modifications, amendments, extensions, substitutions or other agreements regarding any Financing, provided, however, without KBS Member’s consent, JV Member may take such actions with respect to any Financing as necessary for JV Member to prevent a breach under the Financing that would reasonably be expected to trigger liability under any Guaranty (including the Completion Guaranty), provided such potential breach was not caused by the gross negligence, willful misconduct or acts taken in bad faith of JV Member or any of its Affiliates. Notwithstanding the foregoing, the Members agree that (1) it shall not be a Major Decision (and shall only require the consent of KBS Member and not of JV Member), for the Property Owner Subsidiary to enter into any interest rate swap agreement, interest rate cap agreement, or any other similar agreement (collectively, “Interest Rate Protection Agreements”), and (2) if necessary to amend any Financing in order to allow the Property Owner Subsidiary to enter into any Interest Rate Protection Agreements that KBS Member determines in its sole discretion is necessary or desirable, in each case, except to the extent the JV Member or its Affiliates have any personal liability under such Interest Rate Protection Agreement in which case the decisions in clauses (1) and (2) would be a Fundamental Decision (as defined below). In the event the Property Owner Subsidiary enters into any Interest Rate Protection Agreements in accordance with the preceding sentence, the Members shall each pay their pro rata share of the costs and expenses incurred by the Property Owner Subsidiary in connection therewith (including reasonable attorneys’ fees and expenses) in accordance with their Percentage Interests (as defined below).

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(g)Indemnity. Make, execute or deliver on behalf of the Company or any Subsidiary any indemnity bond or surety bond or obligate the Company, any Subsidiary or any other Member as a surety, guaranty, guarantor or accommodation party to any obligation or grant any lien or encumbrance on any of the assets of the Company or any Subsidiary, including the Project, other than with respect to any Financing that has been approved as a Major Decision.

(h)Loans. Lend funds belonging to the Company or any Subsidiary to any Member or its Affiliate or to any third party, or extend any person, firm or corporation credit on behalf of the Company or cause any Member Loan (as defined below) to be made to the Company as provided in Section 3.03.

(i)Expenditures. Except for De Minimis Expenditures and other amounts contemplated by the Annual Budget (subject to the Permitted Budget Variance), cause the Company or any Subsidiary to take any action or make any expenditure or incur any obligation by or on behalf of the Company or any Subsidiary (including, without limitation, obligating the Company or any Subsidiary to pay for any goods or services in excess of the foregoing), in addition, in the event that the then current Financing is within ninety (90) days of its stated maturity, or after its term has expired, or is in default, Managing Member may not reallocate any excess funds among line items or make any expenditures from any reserves without KBS Member’s consent.

(j)Duties. Delegate any of the duties of Managing Member set forth herein except as set forth in the Management Agreement or the Asset Management Agreement or any other approved contract with an Affiliate under the terms of this Agreement or to the officers and employees of Managing Member. For avoidance of doubt, accounting duties with respect to the Company and its Subsidiaries are to be handled by a certified public accounting firm engaged by Managing Member and approved by KBS Member pursuant to Section 2.02(bb) below.

(k)Assignment Benefiting Creditors. Make, execute or deliver on behalf of the Company or any Subsidiary an assignment for the benefit of creditors; file, consent to or cause the Company or any Subsidiary, a Member’s Interest, or the Project, or any part thereof or interest therein, to be subject to the authority of any trustee, custodian or receiver or be subject to any proceeding for bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, relief of debtors, dissolution or liquidation or similar proceedings.

(l)Partition of Company Assets. Partition all or any portion of the assets of the Company or any Subsidiary, or file any complaint or institute any proceeding at law or in equity seeking such partition.

(m)Governmental Proposals. Make application to, or enter into any agreements with, any government officials relating to mapping, development, zoning, subdivision, environmental or other land use or entitlement matters which may affect the Project or any portion thereof; provided the foregoing shall not include obtaining building permits and other routine approvals for construction work contemplated by the Business Plan.

(n)Purchase Assets. Except as may be provided in the then-applicable Annual Budget, (A) cause the Company or any Subsidiary to purchase any automobiles or vehicular

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equipment on behalf of or in the name of the Company or any Subsidiary or (B) purchase any fixed assets on behalf of or in the name of the Company or any Subsidiary.

(o)Commence Renovations. Commence the Renovations (defined below) unless and until the detailed Renovation Budget has been approved by KBS Member pursuant to Section 2.10(a) below. Except as otherwise expressly provided for in any Business Plan, Annual Budget (and/or the Renovation Budget after approval by KBS Member as set forth herein) or any Financing document, undertake any Renovations (defined below) or significant construction on the Project or any significant off-site improvement work, any environmental remediation on the Project.

(p)Confess Judgments; Legal Actions. Confess a judgment against the Company or any Subsidiary; settle or adjust any claims against the Company or any Subsidiary; or commence, negotiate and/or settle any legal actions or proceedings brought by the Company or any Subsidiary against unaffiliated third parties; in each case, other than any landlord-tenant actions in the ordinary course of business or actions defended by an insurance company and provided further Managing Member may settle or adjust any claim which is not the subject of a legal action or proceeding of $50,000 or less.

(q)Dissolve the Company. Except as provided in this Agreement, dissolve, terminate or liquidate the Company or any Subsidiary prior to the expiration of the term.

(r)Acts Making Business Impossible. Do any act that would make it impossible to carry on the business of the Company or any Subsidiary.

(s)Material Agreements. Except as provided in the Annual Budget or in the express terms of this Agreement, cause the Company or any Subsidiary to enter into any agreement obligating the Company or any Subsidiary to pay an amount of more than a De Minimis Expenditure and any amendment, modification or termination of any such agreement, including, without limitation, any agreement providing for the payment of any commission, fee or other compensation payable in connection with the sale of all or any portion of the Project or any portion thereof.

(t)Limited Liability Company Act. Take any other action for which the consent of the Members is required under the Act (and such consent is not waivable under the Act) or this Agreement.

(u)Leasing. Deviate in any material respect from, amend or replace the Leasing Guidelines (defined below). Cause or permit the Company or any Subsidiary to enter into any new space or other lease affecting the Project, unless such lease is in the standard form of lease approved by the Members with economic terms consistent with the Leasing Guidelines, or amend, modify, terminate, or waive rights under any existing leases with the Company or any Subsidiary except in the ordinary course of business consistent with the Leasing Guidelines. Prior to the Property Closing, the Members shall have approved leasing guidelines for the Project (the "Leasing Guidelines") setting forth the minimum approved rents, minimum required security and other deposits, and the maximum free rent periods, concessions and finder's fees that are to be used for the leasing of the Project. Upon the request of either Member, Managing Member shall prepare an update to the Leasing Guidelines for review and approval by KBS Member.

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(v)Insurance. Change the insurance program for the Company, any Subsidiary or the Project in a manner inconsistent with the Business Plan or inconsistent with the insurance requirements set forth in Section 2.05 below.

(w)Employees. Employ any individual as an employee of the Company or any Subsidiary.

(x)Awards and Proceeds. Settle, apply or dispose of any casualty insurance proceeds in excess $50,000 or any condemnation award, from any insurance company or any condemning authority, as applicable.

(y)No REIT Prohibited Transactions. Take, or permit to be taken, any action that is or results in a REIT Prohibited Transaction (as defined below).

(z)Pledge and Assignment. Subject to the provisions of Article VI below, sell, transfer or pledge JV Member’s interests in the Company or any Subsidiary.

(aa)Additional Capital Contributions. Except as expressly (1) set forth in Section 3.01 below, (2) set forth in the approved Annual Budget or (3) otherwise approved by the Members in writing, require any additional capital contributions of the Members

(bb)Consultants. Retain or dismiss on behalf of the Company or any Subsidiary any accountants, auditors, property managers or leasing agents. Ernst & Young is hereby approved as the approved audit and tax firm for the Company.

(cc)Member Loans. Except as expressly set forth in Section 3.03 or otherwise approved by the Members in writing, require or request any Member Loan.

(dd)Certificated Interests. Elect to have the Members interests in the Company become certificated interests.

(ee)Amendment to this Agreement. Except as contemplated by Section 2.06(e) or Section 6.03 or as otherwise approved by the Members, amend or supplement this Agreement.

(ff)Amendment to Subsidiary Documents. Except as necessary to consummate a Financing permitted by this Agreement or as otherwise approved by the Members, amend or supplement any formation documents or governing agreements of any Subsidiary.

In the event the KBS Member does not respond to any Major Decision in writing within ten (10) days after KBS Member’s receipt of a request therefor from Managing Member, Managing Member may send a second notice by certified mail, return receipt requested, containing a statement in all caps that the failure to respond to such Major Decision within five (5) days will result in deemed approval of such Major Decision. If KBS Member does not timely respond to the second notice, then the Major Decision shall be deemed approved. Nothing in this Agreement shall limit or prevent KBS Member from requesting that Managing Member initiate a Major Decision. If, however, Managing Member does not to implement the Major Decision requested by KBS Member, KBS Member shall have the right to cause the Company and any of its Subsidiaries to undertake

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such Major Decision notwithstanding Managing Member’s position; provided that prior to the removal of JV Member as Managing Member pursuant to Section 2.06, KBS Member shall not have the right to cause the Company or any of its Subsidiaries to undertake any action with respect to a Fundamental Decision without JV Member’s prior written consent; provided further that after any such removal with respect to Fundamental Decisions, (A) Section 2.06(c)(iv) shall govern if such removal was for cause, and (B) Section 2.06(d)(iii) shall govern if such removal was without cause.

2.03.Company Funds. No Company funds, assets, credit or other resources of any kind or description shall be paid to, or used for, the benefit of any Member, except as specifically provided in this Agreement or the Annual Budget or after the written approval of all the Members has been obtained. All funds of the Company shall be deposited only in such federally insured checking and savings accounts of the Company in the Company name with banks and other financial institutions having not less than $1,000,000,000 in assets as the KBS Member shall approve in writing, shall not be commingled with funds of any other person or entity, and shall be withdrawn only upon such signature or signatures as may be designated in writing from time to time by Managing Member after receiving approval of the KBS Member. KBS Member hereby pre-approves JP Morgan Chase Bank N.A. as the initial holder of the Company’s bank accounts.

2.04.Employees. The Company and the Subsidiaries shall not have employees. Except as may be otherwise provided for in the Management Agreement, each Member shall be solely responsible for all wages, benefits, insurance and payroll taxes with respect to any of its employees or those of its Affiliates. Each Member agrees to perform its duties under this Agreement as an independent contractor and not as the agent, employee or servant of the Company. Each Member shall be solely responsible for its own acts and those of its subordinates, employees and agents during the term of this Agreement and, subject to, and without the waiver of the benefits of, the provisions of Section 2.09, each Member hereby indemnifies and holds harmless the Company and each other Member from any liabilities, damages, costs and expenses (including, without limitation, reasonable attorneys’ fees) arising from the acts of any such subordinates, employees and agents of such Member or its Affiliates.

2.05.Insurance.

(a)Company Policies. Managing Member shall purchase and maintain, or shall cause to be purchased and maintained, for and at the expense of the Company, policies of insurance (i) for the Company’s and its Subsidiaries' operations, (ii) for the protection of the Company’s and its Subsidiaries' assets (including the Project), and (iii) as may be reasonably required to comply with third-party requirements in accordance with guidelines approved by KBS Member, and shall provide the Members upon request with the certificates or other evidence of insurance coverage as provided therein.

(b)Contractor’s Insurance Obligations. Managing Member shall require the Project’s general contractors and all subcontractors retained by the Company and any Subsidiary working at the Project, or any portion thereof, to obtain and maintain at all times during performance of work for the Company or any Subsidiary an occurrence form commercial general liability policy on a primary and non-contributing basis with a minimum of $1,000,000 per occurrence/$1,000,000

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annual aggregate, or in such other amounts as may be approved by the KBS Member, on which the Company or any Subsidiary is named as an additional insured. In addition, Managing Member shall require that the Project’s general contractors and all subcontractors retained by the Company and any Subsidiary carry worker’s compensation coverage as required by law.

(c)D&O Insurance. Managing Member may purchase and maintain insurance on behalf of the executive officers of Managing Member (and if requested by KBS Member, executive officers of KBS Member) against liability asserted against such Person and incurred by such Person arising out of such Person’s actions on behalf of Managing Member (or KBS Member, as applicable) under this Agreement; provided that the cost of such insurance is included in the approved Annual Budget for the applicable year and such coverage is available at commercially reasonable rates.

2.06.Election, Removal, Resignation of Managing Member.

(a)Number, Term and Qualifications of Managing Member. The Company shall have one Managing Member, which shall initially be JV Member.

(b)Removal of Managing Member for Cause. KBS Member may, but shall not be obligated to, exercise any of the remedies provided in Section 2.06(c) below under any of the following circumstances (each, a “Removal Event”):

(i)if JV Member, or any principal, officer, executive or employee of JV Member engages in fraud, misappropriation of funds, intentional misrepresentation or willful misconduct with respect to the Company, any Subsidiary or the Project;

(ii)if JV Member, or any principal, officer, executive or employee of JV Member is convicted or pleads guilty or nolo contendere to (1) any felony that involves the Company and/or any Subsidiary, and/or (2) any crime involving moral turpitude or breach of trust;

(iii)the affairs of JV Member cease to be principally controlled by a JV Member Principal;

(iv)a material default by the JV Member as the Managing Member under this Agreement which is not timely cured within ten (10) business days after written notice from KBS Member (or, if such default is not susceptible of cure within such ten (10) business day period, within such period as is required to effect such cure so long as JV Member has commenced such cure within such ten (10) business day period and thereafter prosecutes such cure to completion with diligence), not to exceed ninety (90) days in the aggregate;

(v)Bankruptcy of the Company or any Subsidiary filed by the Managing Member without the written approval of KBS Member;

(vi)Bankruptcy of JV Member or any JV Member Principal;

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(vii)if any default under any Financing, including under any Required Guaranty (defined below) (for which there are no notice and cure rights or for which such rights have expired and the lender has not otherwise waived such default in accordance with the terms of any Financing document) occurs, if such default is caused by JV Member or any Affiliate thereof; provided that it shall not be a Removal Event if the event of default in question is a result of the Company having insufficient funds or revenues due to the performance of the Project or if the default was caused by KBS Member or any Affiliate thereof;

(viii)the failure of JV Member to fund any capital contributions as and when required pursuant to Section 3.01(a) or Section 3.06 below, as applicable, and such failure is not cured within the earlier of: (A) ten (10) business days of written notice from KBS Member; or (B) with respect to the capital contributions set forth in Section 3.01(a)(i) and (ii), the date required under the Purchase Agreement; and

(ix)JV Member resigns as Managing Member without the prior written consent of KBS Member.

Notwithstanding the foregoing, a Removal Event shall not be deemed to have occurred and the following shall not give rise to any rights in favor of KBS Member if (A) the misappropriation of funds, intentional misrepresentation, willful misconduct, felony or crime of moral turpitude or breach of trust, as the case may be, that gave rise to any right to remove the Managing Member was the action or inaction solely of any person other than Karl Slovin, without the prior knowledge of Karl Slovin of the act or inaction in question, (B) to the extent permitted by applicable law, the employment of such person is terminated within ten (10) Business Days after the earlier of (i) receipt by Managing Member of notice, or (ii) the date on which Managing Member obtained actual knowledge of such employee’s misappropriation of funds, intentional misrepresentation, willful misconduct, felony or crime of moral turpitude or breach of trust and evidence thereof, and (C) Managing Member takes such actions as shall be reasonably required in order to cure or ameliorate (and provide for financial compensation for any actual losses suffered for) any damage suffered by the Company or the applicable Subsidiary as a consequence of such employee’s misappropriation of funds, intentional misrepresentation, willful misconduct, felony or crime of moral turpitude or breach of trust.

(c)Remedies Upon Removal Event(i)    terminate any or all of the Affiliate Agreements, in each case, without penalty or payment of termination fees, but any fees earned under any Affiliate Agreement prior to such termination shall be paid through the applicable termination date, but not thereafter;

(ii)    replace JV Member as Managing Member by delivering written notice of removal (“Removal Notice”) to JV Member, and designate a new Managing Member (which may be KBS Member or one of its Affiliates);

(iii)    terminate distributions of Net Cash (defined below) of the Company in accordance with Section 5.01 below and have any and all Net Cash of the Company thereafter distributed in accordance with the provisions of Section 5.02 (i.e., JV Member

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shall lose its “promote” and Net Cash shall be thereafter distributed pro rata to the Members in accordance with their Percentage Interests in accordance with Section 5.02);

(iv)    terminate JV Member’s right to participate in Major Decisions, other than the Fundamental Decisions set forth in Section 2.06(d)(iii)(1) through (7), inclusive, and (13) through (20), inclusive;

(v)    terminate JV Member’s right to sell the Project set forth in Section 7.02 below; and/or

(vi)    terminate any or all Affiliate Agreements.

If, after a Removal Event but prior to the date JV Member cures the underlying default that caused the Removal Event, KBS Member desires to exercise any or all of the foregoing remedies, KBS Member may do so at any time thereafter and from time to time, by delivering written notice to JV Member, which notice shall specify the effective date of the election of its remedies and which remedies KBS Member is electing. KBS Member shall not be required to exercise all of the foregoing remedies at one time and no delay in or decision not to exercise all of the foregoing remedies at one time shall limit or impair KBS Member’s right to exercise any other remedy at a later time or be construed as a waiver thereof provided that KBS Member delivers written notice to Managing Member or its decision to exercise such subsequent remedies.

As used in this Agreement, the term “Net Cash” shall mean the gross cash receipts of the Company from all sources as of any applicable date of determination, less the portion thereof used to pay (i) all cash disbursements (inclusive of any guaranteed payment within the meaning of Section 707(c) of the Code (as defined below) paid to any Member, including, without limitation, any reimbursements made to any Member and any amounts applied to repay any Member Loans (as defined below), of the Company prior to that date); and (ii) all reserves, established by the Annual Budget or any Financing or otherwise approved by KBS Member for anticipated cash disbursements that will have to be made before additional cash receipts from third parties will provide the funds therefor, including for payment of debt service, capital improvements and other anticipated contingencies and expenses of the Company.

(d)Removal of Managing Member Without Cause. JV Member may be removed as Managing Member for any reason or no reason upon sixty (60) days’ prior written notice by KBS Member. If KBS Member elects, in its sole discretion, to remove the Managing Member under this Section 2.06(d) and no Removal Event has occurred, then:

(i)KBS Member may elect to: (1) cause the Company to terminate any and all Affiliate Agreements as provided in Section 2.06(c)(i) above provided that the Company shall pay the Termination Fee to Managing Member within twenty (20) days after the effective date of any such termination, (2) replace Managing Member with a new Managing Member as provided in Section 2.06(c)(ii) above, and/or (3) terminate JV Member’s right to participate in Major Decisions as provided in Section 2.06(c)(iv) above (but not as to Fundamental Decisions), but in no event shall KBS Member have the remedies in Section 2.06(c)(iii) (terminate JV Member’s “promote”) or Section 2.06(c)(v) (terminate

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JV Member's right to sell the Project). For purposes of this Section 2.06(d)(i), the “Termination Fee” payable to JV Member shall be an amount equal the net present value of the future fees that JV Member (through its Affiliate) would have received under the Asset Management Agreement and the construction management fees to be paid pursuant to the Management Agreement (but not the monthly property management fees paid pursuant to the Management Agreement), discounted at 10%, assuming that the term of the Asset Management Agreement and the Management Agreement would be the greater of (i) five (5) years from the date of this Agreement or (ii) three (3) years from the effective date of the removal of the Manager. KBS shall deliver to JV Member a calculation of the Termination Fee with sufficient supporting information for JV Member to understand KBS’s calculation. The Termination Fee shall be determined by KBS using is good faith reasonable judgment, which determination shall be final and conclusive absent manifest error.

(ii)Intentionally omitted.

(iii)Notwithstanding the provisions of Section 2.06(d)(i)(3) above, in no event shall KBS Member, without the written consent of JV Member (each, a “Fundamental Decision” and collectively, the “Fundamental Decisions”):

1)amend or supplement this Agreement; provided, however, that the prior written consent of JV Member shall not be required to the extent such amendment or supplement is expressly contemplated herein to effect an otherwise approved decision or action;

2)amend or supplement any Subsidiary Documents; provided, however, that the prior written consent of JV Member shall not be required to the extent such amendment or supplement is expressly contemplated herein to effect an otherwise approved decision or action;

3)(A) cause the Company or any Subsidiary to enter any Financing, or (B) to enter into any modifications, amendments, extensions, of any existing Financing; provided, however, that, in each case, the prior written consent of JV Member shall not be required if: (1) the Financing is with a lender that is not an Affiliate of the KBS Member or the KBS Credit Party (as defined below); and (2) the Financing or the modification, amendments or extension of an existing Financing would not require (A) additional Capital Contributions from JV Member, or (B) a guaranty from JV Member or an Affiliate of JV Member;

4)cause the Company or any Subsidiary to issue any securities (debt or equity) which would have rights to distributions prior to the rights of JV Member;

5)admit a new member to the Company or any Subsidiary if and only if such new member would have rights to distributions that dilute the distribution to JV Member;

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6)cause the Company or any Subsidiary to acquire (directly or indirectly) any real property other than the Property;

7)cause the Company or any Subsidiary to enter into or modify any agreement or transaction with any Affiliate of KBS Member; provided, however, that the prior written consent of JV Member shall not be required if such agreement is on terms at least as favorable to the Company or any Subsidiary as it would receive pursuant to similar agreement with a third party;

8)distribution of any property in kind;

9)exercise any rights under Section 2.02(c) (Sale of the Company or the Project) other than in accordance with the provisions of Section 7.01;

10)confession of any judgement on behalf of the Company or any Subsidiary;

11)the merger or consolidation of the Company or any Subsidiary with any other entity;

12)any act by or on behalf of the Company or any Subsidiary in contravention of this Agreement or which would make it impossible to carry on the business of the Company or any Subsidiary;

13)any action or decision that would reasonably be expected to cause liability under any of the Required Guaranties or the Completion Guaranty;

14)the filing on behalf of the Company or any Subsidiary (where the Company or a Subsidiary is the debtor) of any petition, or consent to the appointment of a trustee or receiver or any judgement or order, under state or federal bankruptcy laws;

15)approving any distributions that would reasonably be expected to cause the Company to be unable to pay Necessary Costs (as hereinafter defined);

16)a loan by the Company or any Subsidiary to any Member or any other person or entity;

17)making a tax election that is disproportionately adverse to the tax position of JV Member after taking into account the Members' different Percentage Interests;

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18)any action that would reasonably be expected to result in JV Member or JV Member Principals to have any civil or criminal liability;

19)any action by the Company or any Subsidiary that would reasonably be expected to result in a violation of any law; or

20)the use of the name M West Holdings in any press release or otherwise.

(e)Attorney-in-Fact. If KBS Member elects to remove JV Member as Managing Member pursuant to Section 2.06(c) or Section 2.06(d), KBS Member shall deliver written notice to Managing Member and JV Member, which notice shall specify the effective date of the removal of JV Member as Managing Member in accordance with such Sections. Upon the occurrence of the removal of JV Member as Managing Member, JV Member hereby appoints KBS Member as its attorney in fact (such power of attorney coupled with an interest and irrevocable) for the purpose of executing, delivering and filing such documents that are necessary (including, without limitation, any amendment to the Certificate or this Agreement) for the purpose of effecting the remedies selected by KBS Member, but only to the extent such documents and remedies are consistent with this Agreement.

2.07.Members Have No Managerial Authority. The Members shall have no power to participate in the management of the Company, except as expressly authorized by this Agreement.

2.08.Meetings. The Company shall not be required to hold regular meetings of Members. Any Member may call a meeting of Members for the purpose of discussing Company business. Unless otherwise approved by the Members, any meeting of Members shall be held during normal business hours either telephonically or in person at the Company's principal office on such day and at such time as are reasonably convenient for the Members.

2.09.Liability and Indemnity. No Member (nor any officer, director, member, manager, constituent partner, agent or employee of the Company or a Member) shall be liable or accountable in damages or otherwise to the Company or to any other Member for any good faith error of judgment or any good faith mistake of fact or law in connection with this Agreement, or the services provided to the Company, except in the case of willful misconduct or gross negligence. To the maximum extent permitted by law, the Company does hereby indemnify, defend and agree to hold each Member and its Affiliates (and each such officer, director, member, manager, constituent partner, agent or employee) wholly harmless from and against any loss, expense or damage (including, without limitation, attorneys’ fees and costs) suffered by such Member and its Affiliates (and/or such officer, director, member, manager, constituent partner, agent or employee) by reason of anything which such Member and its Affiliates (and/or such officer, director, member, manager, constituent partner, agent or employee) may do or refrain from doing hereafter for and on behalf of the Company and in furtherance of its interest, except in the case of willful misconduct or gross negligence. To the maximum extent permitted by law, each Member does hereby indemnify, defend and agree to hold the Company and each other Member wholly harmless from and against any loss, expense or damage (including, without limitation, attorneys’ fees and costs) suffered by the Company or such other Member as a result of such indemnifying Member’s willful misconduct or

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gross negligence in performing or failing to perform such indemnifying Member’s duties hereunder. No person shall be entitled to indemnification under this Section 2.09 to the extent any losses arise directly or indirectly our of such Indemnitee’s gross negligence, willful misconduct, fraud, intentional misrepresentation or criminal conduct.

2.10.Business Plan and Budget. Attached hereto as Exhibit B is a plan which sets forth the general description of the overall business plan of the Company with respect to the Project (the “Business Plan”), which has been prepared by Managing Member on behalf of the Company, and which is hereby approved by the KBS Member. Notwithstanding the approval of such Business Plan by the KBS Member, in the event of any conflict or inconsistency between any provision of the Business Plan and any provision of this Agreement, the provisions of this Agreement shall control and supersede the provisions of the Business Plan. On or before the Update Date (defined below) in any year, Managing Member shall prepare an update and any other necessary modifications to the Business Plan for KBS Member’s review and approval.

(a)Annual Budget. Attached hereto as Exhibit C is an “Annual Budget” that has been approved by the KBS Member (except as set forth in this Section 2.10(a)) and sets forth, by category, the estimated costs that are projected to be incurred for the remainder of the 2016 fiscal year and the 2017 fiscal year in connection with the ownership, renovation, construction, and leasing of the Project by the Company. The initial Annual Budget (and each subsequent Annual Budget to the extent applicable until the completion of the renovations to be made by the Company at the Project as described in the Business Plan (the“Renovations”)) includes a budget setting forth the estimated renovation costs to be incurred by the Company in connection with the renovation and construction of the Project (the “Renovation Budget”). On or before the last business day of November of each year (each an “Update Date”), Managing Member shall prepare a new Annual Budget for the upcoming calendar year which shall be required to be approved by the KBS Member as a Major Decision under Section 2.02(b), which shall set forth, by individual category, the costs and expenses projected to be incurred by the Company for the ensuing fiscal year. In the event the KBS Member does not respond to the proposed Annual Budget within fifteen (15) business days after receipt of such budget, Managing Member may send a second notice by certified mail, return receipt requested, containing a statement in all caps that the failure to respond to such proposed Annual Budget within ten (10) days will result in deemed approval of such Annual Budget. If KBS Member does not timely respond to the second notice, then the Annual Budget shall be deemed approved. Notwithstanding anything to the contrary herein, the estimated Renovation Budget included in the initial Annual Budget attached hereto as Exhibit C-1 has not been approved by KBS Member and the Company shall not commence (nor shall Managing Member cause the commencement of) the Renovations or expend any funds with respect to the Renovations unless and until KBS Member has approved a detailed Renovation Budget prepared by Managing Member; provided, however, KBS Member shall not withhold its consent if such Renovation Budget is necessary to commence work in order to comply with the terms of the Mortgage Loan.Interim Annual Report. If any Annual Budget (excluding any portion which constitutes the Renovation Budget), or any category thereof, is not approved as a Major Decision under Section 2.02(b) for any fiscal year as of the commencement of such fiscal year (or other period), then the approved categories of the proposed Annual Budget shall be in effect, but as to the categories which were disapproved, the greater of (i) the increase in CPI plus three (3%) percent, and (ii) one hundred

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five percent (105%) of the last approved Annual Budget line items, shall be in effect until the new Annual Budget as to such categories is approved as a Major Decision under Section 2.02(b). Adjustments to the last approved Annual Budget shall automatically be made to reflect actual increases in real property taxes, insurance premiums, utility charges and payments required under contracts to which the Company is a party at the time of the expiration of the Annual Budget, and shall not require approval under Section 2.02(b). As used in this Agreement, the term “CPI” means the CONSUMER PRICE INDEX ALL URBAN CONSUMERS (CPI-U; SELECTED AREAS; ALL ITEMS; 1982-84 = 100) published by the United States Department of Labor, Bureau of Labor Statistics. With respect to the Project, the CPI shall be that of Los Angeles Metropolitan Area. If the base of the CPI changes from the 1982-1984 base (100), the CPI shall, thereafter, be adjusted to the 1982-84 base (100) before the computation utilizing the CPI is made. If the CPI cannot be converted to the 1982-84 base or if the CPI is otherwise revised, the adjustment under this Agreement shall be made with the use of such conversion factor, formula or table for converting the CPI as may be published by the Bureau of Labor Statistics. If the CPI is at any time hereafter no longer published, a comparable index generally accepted and employed by the real estate profession in Los Angeles, California, as determined by the Members, shall mean CPI.

(b)Reallocations within Renovation Budget. With respect to any Renovation Budget, Managing Member may, (i) to the extent covered by contingency funds in the Renovation Budget, with respect to any line item in the Renovation Budget, allocate from such contingency funds the lesser of 10% of such line item and $50,000, and (ii) if after the completion of any item, as certified by Managing Member to KBS Member, there remains an excess undisbursed balance, reallocate from such excess balance to any other line item in the Renovation Budget whose funds are insufficient to complete such item, so long as such amount does not exceed the lesser of 10% of such line item and $50,000; provided, however, in no event may any line item (contingency or otherwise) be reallocated to pay any fees or expenses to Managing Member or any Affiliate.

2.11.Pre-Approved Affiliate Agreements. The Members contemplate that the Company shall cause Property Owner Subsidiary to execute the following agreements at the Property Closing (individually a “Pre-Approved Affiliate Agreement” and collectively, the “Pre-Approved Affiliate Agreements”), but if any of them are entered into prior to the Property Closing, no fees or other amounts payable by the Property Owner Subsidiary thereunder shall accrue prior to the date on which the Property Closing occurs:

(a)Management Agreement. At or before the Property Closing, Property Owner Subsidiary shall enter into a property management agreement substantially in the form of Exhibit D attached hereto (the “Management Agreement”) with Polaris Property Management LLC (the "Property Manager") or such other entity approved by the Managing Member and the KBS Member. The fee payable to Property Manager shall be as set forth in the Management Agreement. The Management Agreement is an Affiliate Agreement and KBS Member hereby approves the entering into of the Management Agreement by the Property Owner Subsidiary.

(b)Intentionally Omitted.

(c)Asset Management Agreement. At or before the Property Closing, Property Owner Subsidiary shall also enter into an Asset Management Agreement substantially in the form

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of Exhibit E attached hereto (the “Asset Management Agreement”) with MWest Holdings LLC (the “Asset Manager”) or such entity approved by the Managing Member and the KBS Member. The fee payable to Asset Manager shall be as set forth in the Asset Management Agreement. The Asset Management Agreement is an Affiliate Agreement and KBS Member hereby approves the entering into of the Asset Management Agreement by the Property Owner Subsidiary.

2.12.Reimbursements and Fees.

(a)Reimbursements. Except as otherwise provided by this Agreement, none of the Members (or their respective Affiliates and/or other representatives) shall be paid any compensation for rendering services to the Company. Each Member shall be reimbursed for any costs and/or expenses incurred by such Member on behalf of the Company that relate to the business and affairs of the Company to the extent such Member had authority to act on behalf of the Company (without reduction to such Member’s capital account in the Company maintained in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv) (each a “Capital Account”)); provided, however, that except as otherwise provided in this Agreement or in the Annual Budget no Member shall be reimbursed for any such costs and/or expenses that exceed an aggregate amount of $2,000 during any calendar year without the approval of all of the Members. As used in this Agreement, the term: “Treasury Regulation” means any proposed, temporary, and/or final federal income tax regulation promulgated by the United States Department of the Treasury as heretofore and hereafter amended from time to time (and/or any corresponding provisions of any superseding revenue law and/or regulation).

(b)Acquisition Fee. The JV Member shall be paid an acquisition fee in an amount equal to $500,000.00, which shall be payable at the Property Closing.

(c)Reimbursement for Pre-Formation Costs. Subject to the prior reasonable approval of KBS Member, at or within five (5) business days after the acquisition of the Project by the Company, the Company shall reimburse KBS Member and JV Member for any and all reasonable legal and accounting fees, organizational costs and any other formation and due diligence costs incurred by KBS Member and JV Member (and/or any Affiliate or representative thereof) in connection with the formation of the Company, the negotiation and documentation of this Agreement and the acquisition of the Project. The foregoing reimbursements shall not be debited to or otherwise reduce any Member’s Capital Account. KBS Member and JV Member shall use good faith commercially reasonable efforts to cause all such amounts approved by KBS Member to be reimbursed hereunder to be included in the final escrow closing statement for the acquisition of the Project.

2.13.Limited Liability. Except as otherwise provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and the Members shall not be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member of the Company.

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2.14.Representations, Warranties and Covenants.

(a)Certain Representations and Warranties of the Members. Each Member hereby represents and warrants to the Company and the other Member as follows:Such Member is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.

(i)Such Member has all requisite power, authority and capacity to enter into and perform its obligations under this Agreement.

(ii)Such Member has duly authorized the execution and delivery of this Agreement, and this Agreement constitutes a binding obligation of such Member, enforceable against such Member in accordance with its terms.

(iii)The execution, delivery and performance of this Agreement by such Member will not violate any agreement to which such Member or any of its Affiliates is a party or order of a governmental body.

(iv)Such Member is otherwise duly qualified to purchase and hold its Interest and to execute and deliver this Agreement and all other instruments executed and delivered on behalf of it in connection with the acquisition of its Interest.

(b)Certain Representations and Warranties of JV Member. None.

ARTICLE III

MEMBERS’ CONTRIBUTIONS TO COMPANY

3.01.Initial Capital Commitments.

(a)    JV Member. JV Member shall commit to contribute to the capital of the Company, in cash, as follows:

(i)    concurrently with the execution and delivery of this Agreement, an amount equal to 10% of the Purchase Deposit (i.e., $300,000.00);

(ii)    at or prior to the Property Closing, an amount equal to 10% of the equity necessary to consummate the Property Closing, acquire the Project and capitalize the Company as set forth in the sources and uses schedule attached hereto Exhibit F; and

(iii)    within ten (10) Business Days after demand from Managing Member, an amount equal to the product of the JV Member’s Percentage Interest and the equity needed to complete the Renovations as set forth in the Renovation Budget or to comply with the requirement to make improvements to the Property as set forth in the Mortgage Loan.

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(b)    KBS Member. KBS Member shall commit to contribute to the capital of the Company, in cash, as follows:

(i)     concurrently with the execution and delivery of this Agreement, an amount equal to 90% of the initial equity necessary to fund the Purchase Deposit (i.e., $2,700,000.00);

(ii)     at or prior to the Property Closing, an amount equal to 90% of the equity necessary to consummate the Property Closing, acquire the Project and capitalize the Company as set forth in the sources and uses schedule attached hereto as Exhibit F; and

(iii)     within ten (10) Business Days after demand from Managing Member, an amount equal to the product of the KBS Member’s Percentage Interest and the equity needed to complete the Renovations as set forth in the Renovation Budget or to comply with the requirement to make improvements to the Property as set forth in the Mortgage Loan.

(c)    Failure to Close Property Closing. The Members acknowledge that upon execution of this Agreement, (i) the Property Owner Subsidiary will have funded (or may be obligated to fund) the Purchase Deposit under the Purchase Agreement and (ii) the Members shall be obligated to fund their respective initial capital contributions set forth in this Section 3.01. In the event a Member fails to fund the portion of its initial capital contribution required to be funded at or prior to the Property Closing pursuant to Section 3.01(a) or (b), as applicable, or otherwise refuses to allow the Property Owner Subsidiary to close the Property Closing under the Purchase Agreement and such failure to fund or close results in or would result in a default under the Purchase Agreement, then in addition to any other remedy set forth in this Agreement, the non-defaulting Member shall have the unilateral authority and without the consent of the defaulting Member to cause the Company and the Property Owner Subsidiary to close the Property Closing, in which event the defaulting Member shall be no longer be a Member of the Company and shall receive no return of its capital to the extent such defaulting Member had previously funded any part of its capital under this Section 3.01. In the event a Member fails to fund the portion of its initial capital contribution required to be funded at or prior to the Property Closing pursuant to Section 3.01(a) or (b), as applicable, or otherwise refuses to allow the Property Owner Subsidiary to close the Property Closing under the Purchase Agreement and such failure to fund or close results in or would result in a default under the Purchase Agreement and the non-defaulting member elects not to close the Property Closing, the defaulting Member shall be liable for the non-defaulting Member’s share of the Purchase Deposit that is not returned to the non-defaulting Member and for all costs and expenses incurred by such non-defaulting Member incurred in connection with this Agreement and the Project, including all costs to negotiate this Agreement, to the extent such costs and expenses have not previously been reimbursed to such non-defaulting Member (the lost Purchase Deposit and such costs and expenses, collectively, the “Reimbursable Expenses”). The defaulting Member shall pay to the non-defaulting Member such reimbursement within ten (10) days of the non-defaulting Member’s written request therefor, which request shall reasonably substantiate the costs and expenses incurred. If the defaulting Member is (i) KBS Member then KBS SOR US Properties II LLC (the “KBS Credit Party”) shall guaranty the payment of the Reimbursable Expenses incurred by JV Member, or (ii) JV Member then KEK Family Holdings, LLC, a Delaware limited liability

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company (the “JV Member Credit Party”) shall guaranty the Reimbursable Expenses incurred by KBS Member. Except as provided in Section 1.05 above, if the Property Closing does not otherwise occur and the Purchase Deposit is returned to the Property Owner Subsidiary, then the Company shall be dissolved pursuant to Article VIII.

3.02.Default in Capital Commitment. If JV Member or KBS Member (as applicable, the “Defaulting Member”)shall fail to contribute its share of any amounts required to be contributed pursuant to Section 3.01 or any approved additional capital contributions pursuant to Section 3.06 (the “Defaulted Amount”) and such failure shall continue for at least five (5) business days following notice to the Defaulting Member (provided that no notice or cure period shall apply to a Member’s failure to fund its share of the required capital to the Company for the Property Closing pursuant to the Purchase Agreement), KBS Member or JV Member, as applicable, (the “Non-Defaulting Member(s)”) may, but shall not be obligated to, contribute some or all of the Defaulted Amount as a capital contribution to the Company or as a loan to the Defaulting Member (a “Default Loan”). If the Non-Defaulting Member elects to contribute some or all of the Defaulted Amount as a capital contribution to the Company, then the Percentage Interests of KBS Member and the JV Member shall be adjusted as follows: (a) the amount which the Non-Defaulting Member elects to contribute to fund the Defaulted Amount shall be deemed to be equal to 150% of the amount that the Non-Defaulting Member actually funds (the “Deemed Capital”); (b) the Non-Defaulting Member’s Percentage Interest shall be equal to the percentage equivalent of a fraction, the numerator of which is equal to the aggregate capital contributed by the Non-Defaulting Member, exclusive of the amount funded to replace the Defaulted Amount, plus the Deemed Capital, and the denominator of which is the total capital contributed by all Members, other than the amount contributed to replace the Defaulted Amount, plus the Deemed Capital; and (c) the Defaulting Member’s Percentage Interest shall equal 100% minus the recomputed Percentage Interest of the Non-Defaulting Member. If the Non-Defaulting Member elects to provide the Default Loan, then it shall pay the proceeds directly to the Company. A Default Loan shall not be considered a capital contribution by the Non-Defaulting Member and shall not increase the Capital Account balance or the Percentage Interest of the Non-Defaulting Member, but instead shall be treated as a non-recourse loan by the Non-Defaulting Member to the Defaulting Member (and a capital contribution by the Defaulting Member) and shall bear interest at the lesser of (x) the Default Loan Rate (as defined below) or (y) the maximum amount permitted by law. To the extent not repaid directly by the Defaulting Member, a Default Loan, together with any accrued and unpaid interest thereon, shall be repaid out of any subsequent distributions of Net Cash or any other payment from the Company to which the Defaulting Member would otherwise be entitled (but such distributions actually paid to the lending Members shall nonetheless constitute a distribution to the Defaulting Member for purposes of this Agreement), and such payments shall be applied first to the payment of accrued but unpaid interest on each such obligation and then to the payment of the outstanding principal until the Default Loan is paid in full. “Default Loan Rate” is defined as a cumulative annual rate equal to twenty percent (20%), compounded quarterly (pro-rated for periods of less than one year), on the daily average outstanding balance during each fiscal year of the Member’s aggregate unreturned Default Loan.

3.03.Member Loans. In the event Managing Member determines, in its reasonable discretion, that funds in addition to those otherwise obtained pursuant to Section 3.01 are necessary

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for the Company or any Subsidiary to meet the Annual Budget, Business Plan or required to pay Necessary Costs, then Managing Member shall deliver written notice of such actual or projected cash deficit to the Members requesting that they agree that a loan (a “Member Loan”) should be made to the Company, which notice shall specify the term and interest rate of the requested Member Loan. Within 10 business days following the effective date of such notice, each such Member shall notify Managing Member (a) whether or not such Member agrees that Member Loan(s) to the Company should be made in the amount specified in Managing Member’s notice, and (b) whether such Member elects, in its sole and absolute discretion, to make such Member Loan. If all Members (y) agree that a Member Loan in the amount specified in Managing Member’s notice should be made, and (z) elect to advance such funds by the Company, such funds shall be advanced by Members in proportion to their respective percentage set forth opposite such Member's name under the column labeled “Percentage Interest” on Exhibit A attached hereto, as such Percentage Interests may be adjusted under this Agreement (the “Percentage Interests”) (or as such Members otherwise agree). Notwithstanding the foregoing, if KBS Member elects that the Member Loan should be made but the JV Member does not, the KBS Member may elect to make the entire Member Loan or such portion as it may so elect. Any and all advances made by any Member to the Company pursuant to this Section 3.03 shall be treated as a Member Loan with recourse only to the assets of the Company (and not to the assets of any Member), and shall bear annual interest as set forth in Managing Member’s notice. Furthermore, the Company and the KBS Member shall structure any Member Loan from the KBS Member such that the Member Loan is, at all times, a “real estate asset” under Section 856(c) of the Code. If, from any circumstances whatsoever, the Company ever receives as interest under a Member Loan in an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance due under such Member Loan and not to the payment of interest. Any and all Member Loans shall be due and payable from the first available funds of the Company and in any event upon the liquidation of the Company. The repayment of any Member Loan shall be made prior to any distributions of Net Cash or other cash proceeds to the Members. Accordingly, notwithstanding the provisions of Articles V and VIII, until any and all Member Loans are repaid in full, the Members shall draw no further distributions from the Company and all cash or property otherwise distributable with respect to the Interests of the Members shall be paid to the Member(s) making Member Loan(s) in proportion to, and as a reduction of, the outstanding balance(s) of such Member Loan(s), with such funds being applied first to reduce any interest accrued thereon, and then to reduce the principal amount thereof. As used in this Agreement, the term “Interest” means in respect to any Member, all of such Member’s right, title and interest in and to the Net Profits, Net Losses, Net Cash, and capital of the Company, and any and all other interests therein in accordance with the provisions of this Agreement and the Act. As used in this Agreement, the terms “Net Profits” and “Net Losses” mean, for each fiscal year or other period, an amount equal to the Company’s taxable income or loss, as the case may be, for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss and deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss); provided, however, for purposes of computing such taxable income or loss, (i) such taxable income or loss shall be adjusted by any and all adjustments required to be made in order to maintain Capital Account balances in compliance with Treasury Regulation Section 1.704-1(b), and (ii) any and all items of gross income or gain and/or partnership and/or partner “nonrecourse deductions” specially allocated to any Member pursuant to Section 4.02 shall not be taken into

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account in calculating such taxable income or loss. If KBS Member does not approve a Member Loan other than a Member Loan for Necessary Costs, such disapproval shall be deemed final and conclusive for all purposes. As used in this Agreement, the term “Necessary Costs” mean amounts necessary to timely pay (i) real estate taxes, utility costs, insurance premiums, costs to comply with legal requirements as to the Property or other similar non-discretionary expenses as to the Property, and (ii) scheduled payments of debt service on Financings to the Company or the Property Owner Subsidiary (but not payments of principal due at maturity or by acceleration of any such loan or prepayments of principal thereunder).

3.04.Determination of IRR Returns and Equity Multiple.

(a)    IRR Return. The IRR Return described in Section 5.01 below shall be determined based upon internal rate of return of KBS Member and JV Member. As used in this Agreement, the term “IRR Return” means for each of KBS Member and JV Member the annual discount rate that when compounded quarterly results in a net present value equal to zero when the discount rate is applied to all capital contributions by KBS Member and all distributions made by the Company to KBS Member pursuant to this Agreement. The IRR Return shall be calculated using the XIRR function provided in Microsoft Office Excel or any replacement software issued by Microsoft to compute internal rate of return. It is understood by the Members that the achievement of a particular IRR Return requires both a return of all capital contributions plus a cumulative return on such capital contributions at the applicable percentage IRR Return.

(b)    Equity Multiple. The “Equity Multiple” described in Section 5.01 below shall equal all actual distributions made by the Company to KBS Member pursuant to this Agreement divided by all of KBS Member’s capital contributions to the Company.

3.05.Capital Contributions in General. Except as otherwise expressly provided in this Agreement or as otherwise agreed to by all Members in writing (i) no Member may withdraw all or any portion of any contribution that such Member may have made to the capital of the Company without each other Member’s consent, (ii) no Member shall be entitled to receive interest on such Member’s contributions to the capital of the Company, and (iii) no Member shall be required or entitled to contribute additional capital to the Company

3.06.Additional Capital Contributions. Following the contribution of all the amounts described in Section 3.01, either Member shall have the right to make a capital call by delivering written notice to the other Member under this Section 3.06 if and only if such additional capital was either (1) set forth in the approved Annual Budget or Interim Annual Budget, as applicable, (2) otherwise approved as a Major Decision pursuant to Section 2.02, (3) pay for Necessary Costs, (4) Cost Overruns (other than any Cost Overruns governed by Section 3.07(c)(iii)(1)), or (5) if such Member, in its reasonable judgement concludes that the expenditure of funds is necessary (A) to avoid imminent material damage to all or any material portion of the Property, or (B) to protect the safety of any person at the Property from imminent harm, or (C) to avoid the imminent suspension of any necessary material service in or to the Property, provided, however that the approval of the KBS Member shall be required for a capital call with respect to Subsections (3) and (5) unless the failure to undertake the action in Subsections (3) or (5) is necessary to prevent a breach under a Financing that would reasonably be expected to trigger liability under any Guaranty

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(including the Completion Guaranty), provided such breach was not caused by the gross negligence, willful misconduct or acts taken in bad faith of JV Member or any of its Affiliates. Each Member shall contribute its share of the additional capital contributions required to be contributed under this Section 3.06 (in accordance with its Percentage Interest) in cash on or before the due date specified in the written notice, which due date shall be no less than ten (10) business days from the date of this written notice. If a Member fails to make its share of the additional capital contributions required to be contributed on or before the due date specified in Managing Member’s written notice, the Non-Defaulting Member shall have the right (but not the obligation and without waiving any remedies hereunder as a result of such failure) to receive a return of all or part of the additional Capital Contribution made by the Non-Defaulting Member, to make a Default Loan or to make a capital contribution to the Company of some or all of the Defaulted Amount pursuant to Section 3.02.

3.07.Guaranties.

(a)Required Guaranties; Completion Guaranty.

(i)Required Guaranties. Except as set forth in Section 2.02(f) or Section 3.07(a)(ii) below, if in connection with any Financing of the Property, a lender requires a guaranty of (i) standard non-recourse carve outs, (ii) certain environmental conditions and (iii) payment obligations related to Financing other than any Completion Guaranty (defined below) (each a “Required Guaranty” and collectively, the “Required Guaranties”), such Required Guaranties shall be from the Company and/or on or more entities (individually and collectively, the “Guarantor”) that are identified in connection with the approval of the applicable Financing pursuant to Section 2.02(f). The Guarantor shall not receive any fees or other compensation for making a Required Guaranty. The form, amount and terms and conditions of any Required Guaranty shall be approved by the Members as part of the approval of the applicable Financing pursuant to Section 2.02(f).

(ii)Completion Guaranties. In the event that, at any time or from time to time, a guaranty (or letter of credit or cash collateral in lieu of a guaranty) is required in connection with the completion of the Project pursuant to the terms of any Financing approved pursuant to Section 2.02(f) (individually, a “Completion Guaranty” and collectively, the “Completion Guaranties”), and such Completion Guaranty has been approved by the Completion Guarantor and the Members in connection with the approval of the applicable Financing pursuant to Section 2.02(f), the JV Member, either directly or through an Affiliate of the JV Member (individually and collectively, the “Completion Guarantor”), shall make such Completion Guaranty. The Completion Guarantor shall not receive any fees or other compensation for making a Completion Guaranty. The form, amount and terms and conditions of any Completion Guaranty shall be approved by the Members as part of the approval of the applicable Financing pursuant to Section 2.02(f).

(b)Proportionate Guaranty Obligations of the Members. Except to the extent Section 3.07(c) provides otherwise, if a Guarantor and/or Completion Guarantor shall deliver a Required Guaranty and/or a Completion Guaranty, as applicable, and if such Guarantor and/or Completion Guarantor shall make, or be required to make, any payment under any such Required

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Guaranty and/or such Completion Guaranty, as applicable, each Member hereby covenants and agrees to satisfy, or cause to be satisfied, its Proportionate Guaranty Obligation (as defined below) with respect to any and all of the Required Guaranties and/or Completion Guaranties, as applicable, and each Member’s payment or its Proportionate Guaranty Obligation shall be treated as an additional capital contribution to the Company by each Member for all purposes of this Agreement. If and to the extent a Member (or its Affiliate) has failed to fully satisfy its Proportionate Guaranty Obligation within fifteen (15) days following the date such Member is notified that such Guarantor and/or Completion Guarantor, as applicable has made, or is required to make, such payment under the applicable Required Guaranty and/or Completion Guaranty, the other Member may exercise its rights under Section 3.07(d) below. “Proportionate Guaranty Obligation” means with respect to any Required Guaranty and/or Completion Guaranty which any Guarantor and/or Completion Guarantor, as applicable, shall provide to a lender, the obligation of each Member pursuant to this Section 3.07(b) to make payments (to a third party lender, the Company, to any other Member or the Guarantor and/or Completion Guarantor, as applicable) in an amount equal to the product of (x) the aggregate amount paid and/or due and payable under any and all such Required Guaranties and/or Completion Guaranties, as applicable multiplied by (y) the Percentage Interest of such Member.

(c)Exceptions to Proportionate Guaranty Obligations. Notwithstanding anything to the contrary in Section 3.07(b):

(i)    Conduct By KBS Member. Any and all amounts paid by a Guarantor and/or Completion Guarantor with respect to any Required Guaranty and/or Completion Guaranty, as applicable, as a result of any conduct or action that KBS Member (or its Affiliates) shall have taken in violation of this Agreement or which is a result of any gross negligence, fraud or intentional misconduct of KBS Member (and/or its Affiliates) shall be funded solely by KBS Member (subject to the rights of indemnification set forth in Section 3.07(e)), JV Member (or its Affiliate) shall have no Proportionate Guaranty Obligation with respect to such payments, such amounts funded by KBS Member (or its Affiliates) shall not be considered a capital contribution by KBS Member, and KBS Member (or its Affiliate) shall reimburse the applicable Guarantor and/or Completion Guarantor for such amount within thirty (30) days of written demand. If KBS Member (or its Affiliate) fails to make such payment, JV Member shall, as its sole remedy, be entitled to exercise its rights set forth in Section 3.07(d) hereof; and

(ii)     Conduct by JV Member. Any and all amounts paid by a Guarantor and/or Completion Guarantor with respect to any Required Guaranty and/or Completion Guaranty, as applicable, as a result of any conduct or action that the JV Member (or its Affiliates) shall have taken in violation of this Agreement or which is a result of any gross negligence, fraud or intentional misconduct of JV Member (or its Affiliates) shall be funded solely by the JV Member (subject to the rights of indemnification set forth in Section 3.07(e)), KBS Member (or its Affiliate) shall have no Proportionate Guaranty Obligation with respect to such payments, such amounts funded by the JV Member (or its Affiliates) shall not be considered a capital contribution by the JV Member, the JV Member (or its Affiliate) shall reimburse the Guarantor and/or Completion Guarantor, as applicable, for such amount within thirty (30) days of written demand. If the JV Member (or its

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Affiliate) fails to make such payment, KBS Member shall, as its sole remedy, be entitled to exercise its rights set forth in Section 3.07(d) hereof.

(iii)    Cost Overruns Renovation. At such times as either Member determines that the Renovation reasonably requires additional funds to cover costs and expenses in excess of the amounts for either hard costs or soft costs included in the approved Renovation Budget (each, a “Cost Overrun”), after application of all available contingencies, and taking into account all actual cost savings for completed work (so long as such savings or contingency application is permitted under the Mortgage Loan), the following shall apply:

(1)    Each Cost Overrun that would constitute a breach by Managing Member under this Agreement or a breach by Property Manager under the Management Agreement shall be paid solely by JV Member and such amounts shall not be considered as capital contributions to the Company.

(2)     If the applicable Cost Overrun is not governed by Section 3.07(c)(iii)(1) above, the amount of the Cost Overrun shall be provided to the Company in cash prorata by the Members in accordance with their respective Percentage Interests as Capital Contributions to the Company, and Managing Member shall have the right to make a capital call to call such amounts pursuant to Section 3.06.

(d)Failure to Pay Portion of Guaranty Payment by a Member. If any Member fails to pay (A) its Proportionate Guaranty Obligation in accordance with Section 3.07(b) or (B) the amounts such Member is required to pay under Section 3.07(c)(iii)(2), as applicable, the non-defaulting Member affiliated with such guarantor may elect to either (X) contribute some or all of the amount incurred by the applicable Guarantor or Completion Guarantor, as applicable, that should have been repaid by the defaulting Member as a capital contribution to the Company (so the Company can reimburse the Guarantor or Completion Guarantor, as applicable), then, in accordance with Section 3.02, the Percentage Interests of the Members shall be adjusted as if the non-defaulting Member contributed 150% of the amount of capital actually contributed by the non-defaulting Member, or (Y) treat such amount incurred by the applicable Guarantor or Completion Guarantor, as applicable that should have been repaid by the defaulting Member as a Default Loan made to the defaulting Member. If KBS Member is the defaulting Member under Sections 3.07(b) or (c)(iii)(2), then the KBS Credit Party shall guaranty KBS Member’s payment obligations under these sections. If the JV Member is the defaulting Member under Sections 3.07(b) or (c)(iii)(2), then the JV Member Credit Party shall guaranty JV Member’s payment obligations under these sections.

(e)Indemnification. The Company shall indemnify, defend and hold harmless each Guarantor and Completion Guarantor, as applicable, for any and all losses suffered under any Required Guaranty or Construction Guaranty, as applicable, provided that no such indemnification shall be made (and a Guarantor or Completion Guarantor, as applicable, shall reimburse any funds advanced to them in connection with a defense of a claim and indemnify the Company and the other Member) to the extent a court of competent jurisdiction determines that the Member affiliated with such Guarantor is solely liable for the losses suffered under any Required Guaranty or Construction Guaranty, as applicable, pursuant to Section 3.07(c). The KBS Credit Party shall guaranty KBS

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Member’s indemnification obligations under this Section 3.07(e). The JV Member Credit Party shall guaranty JV Member’s indemnification obligations under this Section 3.07(e).

(f)Effect of Removal of JV Member as Managing Member – Guaranties. If JV Member is removed as Managing Member in accordance with Section 2.06: (i) KBS Member shall use commercially reasonable efforts to have any Guarantor or Completion Guarantor, as applicable, that is an Affiliate of JV Member replaced or removed as a guarantor(s) under any Required Guaranties or Construction Guaranty, as applicable, for liabilities arising from conduct, actions, inactions or events first occurring or arising after the date upon which a successor Managing Member replaces JV Member as Managing Member (but such Guarantor(s) or Construction Guarantor shall not be replaced with respect to conduct, actions, inactions, or events first occurring or arising on or before the date of such replacement) and (ii) to the extent that the Guarantor or Construction Guarantor, is an Affiliate of JV Member and is not replaced or removed as a guarantor under the Required Guaranties or Completion Guarantor, as applicable, as provided in clause (i), KBS Member shall indemnify, defend and hold harmless such Guarantor(s) or Construction Guarantor(s), as applicable for any liabilities arising from conduct, actions, inactions or events first occurring or arising after the date that JV Member is removed as Managing Member, except for any liabilities arising from the conduct, actions or inactions of JV Member, its Affiliates or the Guarantor or Construction Guarantor(s), as applicable, whether or not first arising after the date upon which successor KBS Member replaces JV Member as Managing Member. The KBS Credit Party shall guaranty KBS Member’s indemnification obligations under this Section 3.07(f).

ARTICLE IV

ALLOCATION OF PROFITS AND LOSSES

4.01.In General.

(a)Net Profits and Net Losses shall be allocated among the Members in such a manner so as, to the maximum extent possible, to make each Member’s Capital Account as of the close of each year (increased by the Member’s share of “partnership minimum gain” as defined in Treasury Regulation Section 1.704-2(b)(2) and “partner nonrecourse debt minimum gain” as defined in Treasury Regulation Section 1.704-2(i)(5)) equal the amount that the Member would receive if, as of the close of such year, all the assets of the Company were sold for their Deemed Book Values (as determined immediately before such deemed sale), the proceeds were applied to pay all Company liabilities and the remaining net proceeds were distributed to the Members in accordance with Section 5.01 or 5.02, as then applicable at the time of such allocations. As used in this Agreement, the term “Deemed Book Value” means the book value of the Company’s assets as determined under Treasury Regulation Section 1.704-1(b)(2)(iv) (i.e., the adjusted tax basis of such assets unless the asset was contributed to the capital of the Company or there has been a revaluation of book value under Treasury Regulation Section 1.704-1(b)(2)(iv)(f) and in such latter case the fair market value of such assets on the revaluation date).

(b)The Company shall maintain “Capital Accounts” for each Member in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv). The Company shall make all adjustments required under Treasury Regulation Section 1.704-1(b)(2)(iv), including the

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adjustments contained in Section 1.704-1(b)(2)(iv)(g), relating to Section 704(c) property as set forth in Section 4.03, below.

4.02.Special Allocations.

(a)MinimumGain Chargeback. Notwithstanding any other provision of this Agreement, if there is a net decrease in partnership minimum gain for a Company taxable year, each Member shall be allocated, before any other allocation of Company items for the taxable year, items of gross income and gain for the year (and, if necessary, for subsequent years) in proportion to, and to the extent of, the amount of the Member’s share of the net decrease in minimum gain during the year as provided in Treasury Regulation Section 1.704-2(f). The income allocated under this Section 4.02(a) in any taxable year shall consist first of gains recognized from the disposition of property subject to one or more nonrecourse liabilities of the Company, and any remainder shall consist of a pro rata portion of other items of income or gain of the Company. The allocation otherwise required by this Section 4.02(a) shall not apply to a Member to the extent not required, as provided in Treasury Regulation Section 1.704-2(f)(2) through (5).

(b)Qualified Income Offset. Notwithstanding any other provision of this Agreement, if a Member unexpectedly receives an adjustment, allocation or distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes or increases an Adjusted Capital Account Deficit with respect to the Member, items of Company gross income and gain shall be specially allocated to the Member in an amount and manner sufficient to eliminate such Adjusted Capital Account Deficit as quickly as possible.

(c)Gross Income Allocation. If at the end of any Company taxable year, a Member has an Adjusted Capital Account Deficit, the Member shall be specially allocated items of Company income or gain in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly as possible.

(d)Nonrecourse Deductions. Any “nonrecourse deductions” (as defined in Treasury Regulation Section 1.704-2(b)(1)) shall be allocated among the Members in accordance with their Percentage Interests.

(e)Partner Nonrecourse Debt. Notwithstanding any other provision of this Agreement, any “partner nonrecourse deductions” (as defined in Treasury Regulation Section 1.704-2(i)(2)) shall be allocated to those Members that bear the economic risk of loss for the applicable partner nonrecourse debt, and among those Members in accordance with the ratios in which they share the economic risk, determined in accordance with Treasury Regulation Section 1.704-2(i). If there is a net decrease for a Company taxable year in any partner nonrecourse debt minimum gain, each Member with a share of such partner nonrecourse debt minimum gain as of the beginning of such year shall be allocated items of gross income and gain in the manner and to the extent provided in Treasury Regulation Section 1.704-2(i)(4).

(f)Adjusted Capital Account Deficit. As used in this Agreement, “Adjusted Capital Account Deficit” means, with respect to any Member, the deficit balance, if any, in the Member’s Capital Account as of the end of the relevant taxable year, after giving effect to the

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following adjustments: (i) crediting thereto (A) the amount of the Member’s shares of partnership minimum gain and partner nonrecourse debt minimum gain, and (B) the amount of Company liabilities allocated to the Member under Section 752 of the Code with respect to which the Member bears the economic risk of loss (as defined in Treasury Regulation Section 1.752-2(a)), to the extent such liabilities do not constitute partner nonrecourse debt under Treasury Regulation Section 1.752-2 and (ii) reduced by all reasonably expected adjustments, allocations and distributions described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

(g)Interpretation. The foregoing provisions of this Section 4.02 are intended to comply with Treasury Regulation Sections 1.704-1(b) and 1.704-2 and shall be interpreted consistently with this intention. Any terms used in such provisions that are not specifically defined in this Agreement shall have the meaning, if any, given such terms in the Regulations cited above.

4.03.Differing Tax Basis; Tax Allocation.

(a)Except as otherwise provided in this Section 4.03, items of income, gain, loss and deduction of the Company to be allocated for income tax purposes shall be allocated among the Members on the same basis as the corresponding book items are allocated under Sections 4.01 and 4.02.

(b)Depreciation and/or cost recovery deductions and gain or loss with respect to each item of property treated as contributed to the capital of the Company or revalued under Treasury Regulation Section 1.704-1(b)(2)(iv)(f) shall be allocated among the Members for federal income tax purposes in accordance with the principles of Section 704(c) of the Code and the Treasury Regulations promulgated thereunder, and for state income tax purposes in accordance with comparable provisions of the applicable law in the state in which the property is located and the regulations promulgated thereunder, so as to take into account the variation, if any, between the adjusted tax basis of such property and its book value (as determined for purposes of the maintenance of Capital Accounts in accordance with this Agreement and Treasury Regulation Section 1.704-1(b)(2)(iv)(g)). For purposes of this Agreement, the term “Code” means the Internal Revenue Code of 1986, as heretofore and hereafter amended form time to time (and/or any corresponding provision of any superseding revenue laws).

ARTICLE V

DISTRIBUTION OF CASH FLOW

5.01.Distribution of Net Cash Prior to Removal of JV Member as Managing Member for Cause. Prior to any removal of the JV Member as Managing Member for Cause pursuant to Section 2.06 of this Agreement), Net Cash shall be determined and distributed quarterly (or at such other times as are determined in the reasonable discretion of KBS Member, taking into account the reasonable business needs of the Company, which determination shall be made in good faith without a goal of reducing the “promote”) in the following order of priority:

(a)First, 100% to KBS Member and JV Member, pari passu in proportion to their Percentage Interests (“Pari Passu”), until KBS Member has received an IRR Return of 12% and an Equity Multiple of 1.3;

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(b)Second, after KBS Member has received an IRR Return of 12% and an Equity Multiple of 1.3 and until distributions under this Section 5.01 have resulted in KBS Member having received an IRR Return of 16%, (i) 80% to the Members Pari Passu, and (ii) 20% to JV Member;

(c)Third, after KBS Member has received an IRR Return of 16% and until distributions under this Section 5.01 have resulted in KBS Member having received an IRR Return of 20% (i) 70% to the Members Pari Passu, and (ii) 30% to JV Member; and

(d)Fourth, after KBS Member has received an IRR Return of 20% and thereafter, (i) 65% to the Members Pari Passu, and (ii) 35% to JV Member.

5.02.Distribution of Net Cash After Removal of the JV Member for Cause. After the removal of the JV Member as Managing Member for Cause pursuant to Section 2.06(b) of this Agreement, KBS Member shall determine on a quarterly basis whether there is sufficient Net Cash so that distributions may be distributed quarterly (or at such other times as are determined in the reasonable discretion of KBS Member, taking into account the reasonable business needs of the Company) to the Members in accordance with their Percentage Interests.

5.03.Limitation on Distributions. Notwithstanding any other provision contained in this Agreement, the Company shall not make any distributions of Net Cash (or other proceeds) to any Member if such distribution would violate the Act or other applicable law.

5.04.In-Kind Distribution. Subject to Section 10.06, assets of the Company (other than cash) shall not be distributed in kind to the Members without approval of both Members. In the event of any distribution of real property in kind, each Member hereby waives any right of partition in respect thereof.

5.05.Tax Distributions. Unless this provision is waived by KBS Member notwithstanding anything to the contrary in Sections 5.01 or 5.02 but to the fullest extent possible consistent with the distribution provisions of this Article V, the Managing Member shall use best efforts to cause the Company to distribute cash to KBS Member by the end of each fiscal year in an amount not less than 100% of the taxable income (including any net capital gain) allocated, directly or indirectly, to KBS Member for federal income tax purposes for each such fiscal year so that KBS Member or any owner of KBS Member that is a REIT may satisfy the requirements of Section 857(a)(1) of the Code for its taxable year with respect to the income and gain allocated to that owner from KBS Member for the taxable year, and otherwise distribute 100% of its taxable income and net capital gain. In addition, notwithstanding anything to the contrary in Sections 5.01 or 5.02 but to the fullest extent possible consistent with the distribution provisions of this Article V, Managing Member shall have the right to cause Company to distribute cash to Managing Member in an amount sufficient to cover Managing Member’s reasonably estimated income tax liability arising from taxable income of the Company allocated to the Managing Member. Any cash distributed to a Member under this Section 5.05 shall be applied against and reduce the next distributions of Net Cash that would otherwise be made to the Member under Section 5.01 or Section 5.02 (as may apply), as if the cash distributed under this Section 5.05 were actually distributed under Section 5.01 or Section 5.02 (as may apply).

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ARTICLE VI
RESTRICTIONS ON TRANSFERS OF COMPANY INTERESTS

6.01.Limitations on Transfer. Except as set forth in Section 6.02 below, no Member shall be entitled to sell, exchange, assign, transfer or otherwise dispose of, pledge, hypothecate, encumber or otherwise grant a security interest in, directly or indirectly (collectively, a “Transfer”), all or any part of such Member’s Interest, without the prior written consent of the non-transferring Member (which consent may be withheld in such Member’s sole and absolute discretion). Any attempted Transfer in violation of the restrictions set forth in this Article VI shall be null and void ab initio and of no force or effect. Each Member shall indemnify, defend and hold the other Member and the Company harmless from and against any and all costs, expenses and losses associated with any Transfer (including any Permitted Transfer (as defined below)), including without limitation any transfer taxes and any increase in real estate or other taxes incurred as a result of such transfer.

6.02.Permitted Transfers. Any Member and/or any direct or indirect constituent owner of any Member may transfer all or any portion of such Member’s Interest and/or such constituent owner’s direct or indirect ownership interest in such Member as follows (each a “Permitted Transfer”) to a person or entity described below (a “Permitted Transferee”) without complying with the provisions of Section 6.01:

(a)Transfer Between Members. Notwithstanding anything stated to the contrary in this Article VI or elsewhere in this Agreement, any Member may sell, assign or otherwise transfer all or any part of its Interest to any other Member on such terms as are agreed to by both Members.

(b)KBS Member Indirect Transfers. Notwithstanding anything stated to the contrary in this Article VI or elsewhere in the Agreement, any Transfer of equity interests or other interests in KBS Member, or in any of the direct or indirect owners of KBS Member (including, without limitation, KBS SOR II Acquisition V, LLC, KBS SOR US Properties II, LLC, KBS Strategic Opportunity Limited Partnership II or KBS Strategic Opportunity REIT II, Inc.) shall not be prohibited (and shall be expressly permitted) provided that KBS Strategic Opportunity REIT II, Inc. continues to control and own, either directly or indirectly, at least fifty-one percent (51%) of the ownership interests in KBS Member. All such transfers permitted pursuant to this Section 6.02(b) shall be at the sole cost and expense of KBS Member or a KBS Affiliate (defined below) and none of the Managing Member, JV Member or the Company nor any Subsidiary or Affiliate of the Company shall bear any cost with respect thereto.

(c)KBS Member Transfers. Notwithstanding anything stated to the contrary in this Article VI or elsewhere in this Agreement, KBS Member shall have the right to Transfer all of its Interest (a) to a KBS Affiliate without JV Member’s approval, and (b) to another entity that is not a KBS Affiliate with JV Member’s approval, which approval may be withheld in JV Member’s reasonable discretion, provided, however, it shall not be unreasonable for JV Member to withhold its consent if the proposed transferee is not an institutional investor with an IRR driven business plan or who has been a party to a litigation or action with JV Member or JV Member’s Principal. JV Member’s failure to respond to KBS Member’s request for the approval of a Transfer, which written request for approval shall include a detailed description of the proposed transfer, an organizational chart of the proposed transferee and a biography of the proposed transferee, within

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ten (10) business days following delivery of KBS Member’s written request for such consent (the “Consent Period”) shall be deemed to constitute JV Member’s consent. A “KBS Affiliate” is any entity in which at least fifty-one percent (51%) of the ownership interests is owned, directly or indirectly, through one or more intermediaries, by KBS Strategic Opportunity REIT II, Inc. All such transfers permitted pursuant to this Section 6.02(c) shall be at the sole cost and expense of KBS Member or a KBS Affiliate and none of the Managing Member, JV Member or the Company nor any Subsidiary or Affiliate of the Company shall bear any cost with respect thereto. Notwithstanding anything to the contrary contained herein, in the event KBS Member elects to transfer KBS Member’s Interest to an entity that is not a KBS Affiliate, JV Member may, during the Consent Period, require, as a condition of its consent to the transaction (which KBS Member hereby agrees is a condition precedent to the consummation of the transaction) that the third-party also purchase all of JV Member’s Interest on the same terms, including the same purchase price (adjusted for the different percentages of Interest) as those offered to KBS Member.

(d)JV Member Transfers. Notwithstanding anything stated to the contrary in this Article VI or elsewhere in the Agreement, any direct or indirect constituent owner of JV Member may transfer all or any portion of such constituent owner’s direct or indirect ownership interest in JV Member so long as JV Member Principal, or if JV Member Principal dies or becomes incapacitated, either Matthew Ellis or Bruce Slovin, continues to directly or indirectly have the power to direct management decisions of the JV Member and the Slovin Family continues to own, directly or indirectly, at least eighty percent (80%) of the ownership interests in JV Member. All such transfers permitted pursuant to this Section 6.02(d) shall be at the sole cost and expense of JV Member and none of KBS Member, the Company nor any Subsidiary or Affiliate of the Company shall bear any cost with respect thereto. As used in this Agreement, the term “Slovin Family” means (i) Bruce Slovin, Karl Slovin, Eric Slovin, and Karen French, and the respective lineal descendants of the aforesaid whether by birth or adoption (ii) any business entity which is wholly owned and controlled by anyone listed in subclause (i) or, (iii) a trust in which substantially all of the beneficial interests are held by one (1) or more members of listed in subclause (i).    

In the event of any Permitted Transfer, any such Permitted Transferee shall receive and hold such Interest, such ownership interest or portion thereof subject to the terms of this Agreement and to the obligations hereunder of the transferor and there shall be no further transfer of such Interest, such ownership interest or portion thereof except to a person or entity to whom such Permitted Transferee could have transferred such Interest, such ownership interest or portion thereof in accordance with this Section 6.02 had such Permitted Transferee originally been a Member or a constituent owner of a Member as of the date hereof or otherwise in accordance with the terms of this Agreement. Notwithstanding any provision of this Agreement to the contrary, no Member and/or any direct or indirect constituent owner of any Member shall transfer all or any portion of such Member’s Interest or permit the transfer of any direct or indirect ownership interest in such Member if such transfer would be a default under any Financing.

6.03.Admission of Substituted Members. If any Member transfers such Member’s Interest to a transferee in accordance with Sections 6.01 or 6.02, then such transferee shall only be entitled to be admitted into the Company as a substituted Member if (i) the non-transferring Member approves such admission in writing and this Agreement is amended to reflect such admission; (ii)

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the non-transferring Member approves the form and content of the instrument of transfer, such approval not to be unreasonably withheld; (iii) the transferor and transferee named therein execute and acknowledge such other instruments as the non-transferring Member may deem reasonably necessary to effectuate such admission; (iv) the transferee in writing accepts and adopts all of the terms and conditions of this Agreement, as the same may have been amended; (v) the transferor pays, as the non-transferring Member may reasonably determine, all reasonable expenses incurred in connection with such admission, including, without limitation, legal fees and costs; and (vi) to the extent required the lender under any Financing has consented to such transfer. To the maximum extent permitted by applicable law, any transferee of an Interest who does not become a substituted Member shall have no right to require any information or account of the Company’s transactions, to inspect the Company books, or to vote on any of the matters as to which a Member would be entitled to vote under this Agreement. Any such transferee shall only be entitled to share in such Net Profits and Net Losses, to receive such distributions, and to receive such allocations of income, gain, loss, deduction or credit or similar items to which the transferor was entitled, to the extent transferred. A Member that transfers such Member’s Interest pursuant to Section 6.02 shall not cease to be a Member of the Company until the admission of the transferee as a substituted Member in accordance with this Agreement and, except as provided in the preceding sentence, shall continue to be entitled to exercise, and shall continue to be subject to, all of the other rights, duties and obligations of such Member under this Agreement.

6.04.Election; Allocations Between Transferor and Transferee. Upon the transfer of the Interest of any Member or the distribution of any property of the Company to a Member, the Company shall file, in the reasonable discretion of the Members, an election in accordance with applicable Treasury Regulations, to cause the basis of the Company property to be adjusted for federal income tax purposes as provided by Sections 734 and 743 of the Code. Upon the transfer of all or any part of the Interest of a Member as hereinabove provided, Net Profits and Net Losses shall be allocated between the transferor and transferee on the basis of a computation method that is in conformity with the methods prescribed by Section 706 of the Code and Treasury Regulation Section 1.706-1(c)(2) and approved by the Members affected by the method.

6.05.Waiver of Withdrawal and Purchase Rights. In accordance with the Act, each Member acknowledges and agrees that such Member may not voluntarily withdraw, resign or retire from the Company without the prior written consent of each other Member, which consent may be withheld in each such other Member’s sole and absolute discretion. Each Member further acknowledges and agrees that such Member shall not be entitled to receive the fair market value of such Member’s Interest in the Company pursuant to the Act.

ARTICLE VII
MEMBERS’ RIGHT TO CAUSE SALE OF THE PROJECT

7.01.Member’s Right to Sell Project.

(a)    At any time after (i) the second anniversary of the date of this Agreement with respect to the KBS Member, and (ii) the fourth anniversary of the date of this Agreement with respect to the JV Member, each Member (the “Offering Member”) shall have the continuing right to solicit offers from third parties to sell the Project; provided that prior to soliciting any such offers

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the Offering Member shall provide written notice (a “Sale Notice”) to the other Member (the “Purchasing Member”) of its intent to solicit offers for the Project. The Sale Notice shall set forth the proposed sales price of the Project (the “Proposed Project Value”). For forty-five (45) days following receipt of a Sale Notice, the Purchasing Member may elect to buy the Offering Member’ Interest in the Company (a “Purchase Election”) in lieu of having the Project sold. If a Purchase Election is timely made, the purchase price for the Offering Member’s Interest shall be the amount the Offering Member would receive if the Project were to be sold for the Proposed Project Value and the proceeds distributed upon a liquidation of the Company had the Project been sold for the Proposed Project Value as provided in this Agreement. The closing of the purchase and sale of the Offering Member’s Interest in the Company shall take place on a date agreed upon by the Members, which date may not be later than sixty (60) days following the date of the Purchase Election (the “Purchase Closing Date”). To be effective, the Purchase Election must be accompanied by (a) a non-refundable (but applicable to the purchase price) cash deposit (the “Member Deposit”) to an escrow agent appointed by the Offering Member equal to five percent (5%) of the Proposed Project Value, and (b) a draft sales agreement (“Member Purchase Agreement”) to be executed by the Offering Member and the Purchasing Member containing such terms to which such parties may agree that are consistent with the provisions of this Section 7.01 and that provides for the transfer of the Offering Member's Interest in the Company to such Purchasing Member free and clear of all liens, encumbrances and similar claims. The Offering Member and the Purchasing Member shall use their good faith diligent efforts to execute the Member Purchase Agreement within ten (10) business days thereafter. Notwithstanding anything stated to the contrary herein, if the parties are unable to agree upon the Member Purchase Agreement within thirty (30) days after the Purchase Election after good faith and diligent efforts to do so then the Offering Member shall have the right to terminate the Purchase Election, and upon the return of the Member Deposit to the Purchasing Member, the Offering Member shall have the right to cause the Company to sell the Project pursuant to this Section 7.01. In the event the Purchasing Member fails to close the purchase of the Offering Member's Interests on or before the Purchase Closing Date (other than by reason of a default by the Offering Member) (a “”Purchase Default Event”), the Offering Member shall have the right to terminate the Member Purchase Agreement and retain the Member Deposit as liquidated damages, and the Member Purchase Agreement shall so provide, and thereafter, the Offering Member shall have the right to cause the Company to sell the Project pursuant to this Section 7.01 subject to the restriction’s set forth in Sections 7.01(b) and (c).

(b)If a Purchase Election is not timely made or if a Purchase Default Event has occurred, the Offering Member shall have the right to retain brokers on behalf of the Company and to advertise the Project for sale and consummate a sale of the Project so long as such sale is consummated in two hundred forty (240) days after the expiration of the Purchase Election and which sale price shall be no less than ninety five (95%) percent of the Proposed Project Value. The Offering Member shall keep the other Member informed of the progress of the sale of the Project. The Members shall cooperate in connection with the sale of the Project and Managing Member shall execute such documents (in its capacity as a Member in the Company, and/or as the Managing Member, as applicable) as may be reasonably required to effectuate the sale of the Project; provided that the Members and Managing Member shall not be exposed to any personal liability. In the event the Offering Member is unable to close the sale of the Project within two hundred forty (240) days after the expiration of the Purchase Election, then the Offering Member’s right to sell the Project

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shall expire and any future sale shall be subject to the terms of Section 7.01(a). JV Member hereby irrevocably constitutes and appoints KBS Member as its agent and attorney-in-fact, coupled with an interest, for the purpose of executing and delivering any documents required to be executed and delivered by Managing Member (in its capacity as a member in the Company and, so long as it is the Managing Member, as the Managing Member of the Company) pursuant to this Section 7.01 in the event Managing Member fails or refuses to execute the same upon the request of KBS Member.

(c)Notwithstanding the foregoing and provided that a Purchase Default Event has not occurred, if as a result of the Offering Member’s marketing efforts, the Offering Member receives a bona fide offer from a third party purchaser and desires to sell the Project in a sale that will result in a purchase price that is less than ninety five percent (95%) of the Proposed Project Value, the Offering Member shall deliver a revised Sale Notice to the Purchasing Member, which shall set forth the new proposed sales price for the Project, and the Purchasing Member shall have twenty (20) business days following receipt of the revised Sale Notice to make a Purchase Election in the manner described in Section 7.01(a) above in lieu of having the Project sold. If a Purchase Election with respect to the revised Sale Notice is not timely made, the Offering Member shall have the right to cause the Company and its Subsidiary to sell the Project pursuant to Section 7.01(b). If a Purchase Election is timely made with respect to the revised Sale Notice, the Members shall follow the procedures set forth in Section 7.01(a)above; provided, however, that references to Proposed Project Value shall instead refer to the Proposed Project Value set forth in the revised Sale Notice. If a Purchase Election is timely made and a Purchase Default Event occurs, the Offering Member shall be entitled to retain the Member Deposit, and Offering Member shall be thereafter be entitled to sell the Project pursuant to this Section 7.01 without further restriction.

ARTICLE VIII
DISSOLUTION AND WINDING UP OF THE COMPANY

8.01.Events Causing Dissolution of the Company. Upon any Member’s bankruptcy, retirement, resignation, expulsion or other cessation to serve or the admission of any new member into the Company, the Company shall not dissolve, but the business of the Company shall continue without interruption and without any break in continuity. The Company shall be dissolved and its affairs wound up upon the first to occur of: (i) the sale, transfer or other disposition by the Company of all or substantially all of its assets and the collection by the Company of any and all Net Cash derived therefrom; (ii) the agreement of the Members to dissolve the Company; or (iii) the entry of a decree of judicial dissolution pursuant to the Act.

8.02.Winding Up of the Company. Upon the Liquidation of the Company caused by other than the termination of the Company under Code Section 708(b)(1)(B) (in which latter case the Company shall remain in existence in accordance with the provisions of such Section of the Code), the Managing Member shall proceed to the winding up of the affairs of the Company. During such winding up process, the Net Profits, Net Losses and Net Cash distributions shall continue to be shared by the Members in accordance with this Agreement. The assets shall be liquidated as promptly as consistent with obtaining a fair value therefor, and the proceeds therefrom, to the extent available, shall be applied and distributed by the Company on or before the end of the taxable year of such Liquidation or, if later, within ninety (90) days after such Liquidation, in the

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following order: (i) first, to creditors of the Company (including Members who are creditors in the order of priority as provided by law including, without limitation, any Members that have made Member Loans); (ii) second, to the setting up of any reserves which KBS Member determines, in its reasonable discretion, are necessary for any contingent, conditional or unmatured liabilities or obligations of the Company (which shall be distributed at such time as is determined in the reasonable discretion of KBS Member); and (iii) the balance, if any, to the Members in accordance with the distribution schedule of Section 5.01 or Section 5.02, as then applicable at the time of such Liquidation. Such distribution shall be made by the date specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(2). As used in this Agreement, the term “Liquidation” means (i) in respect to the Company the earlier of the date upon which the Company is terminated under Code Section 708(b)(1)(A) or the date upon which the Company ceases to be a going concern (even though it may continue in existence for the purpose of winding up its affairs, paying its debts and distributing any remaining balance to its Members), and (ii) in respect to a Member wherein the Company is not in Liquidation, means the liquidation of a Member’s interest in the Company under Treasury Regulation Section 1.761-1(d).

8.03.Negative Capital Account Restoration. No Member shall have any obligation whatsoever upon the Liquidation of such Member’s Interest, the Liquidation of the Company or in any other event, to contribute all or any portion of any negative balance in such Member’s Capital Account to the Company, to each other Member or to any other person or entity.

ARTICLE IX

BOOKS AND RECORDS

9.01.Books of Account and Bank Accounts. The fiscal year and taxable year of the Company shall be the year ending December 31. Managing Member shall: (i) maintain all of the books and records of the Company on an accrual basis in accordance with generally accepted accounting principles, consistently applied and (ii) provide operating reports and financial statements to the Members not less frequently than once each month summarizing the operating activities of the Company during the immediately preceding calendar month and on a year-to-date basis, any material deviations from the Business Plan or the Annual Budget during such preceding calendar month, and such other information as is reasonably requested by any Member, all by the fifteenth (15^th) day of each succeeding calendar month. During normal business hours at the Project, on not less than five (5) business days prior notice, all of the following shall be made available for inspection and copying by all of the Members at their own expense for any purpose reasonably related to each such Member’s Interest in the Company: (i) all books and records kept by JV Member relating to the business and financial condition of the Company, (ii) intentionally omitted, (iii) a copy of this Agreement, the Certificate of Formation and all amendments thereto, together with executed copies of any written powers-of-attorney pursuant to which this Agreement, the Certificate of Formation and all amendments thereto have been executed, (iv) the amount of cash and a description and statement of the agreed value of any other property or services contributed by each Member to the capital of the Company and which each Member has agreed to contribute in the future, and (v) the date upon which each Member became a Member of the Company.

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9.02.Audits. KBS Member is indirectly owned by a non-traded public REIT. As such, KBS Member is obligated to make disclosures to the Securities and Exchange Commission and to maintain its books and records and establish certain controls and test such controls for its investments. KBS Member shall have the right to conduct audits of the books and records and operations of the Company and its Subsidiaries from time to time, which may be on a regular basis or on a periodic basis as the KBS Member determines may be necessary. Such audits may be performed by KBS Member personnel and its outside auditors, which is currently Ernst & Young. The costs of such audits incurred by KBS Member shall be borne by KBS Member. Managing Member shall cooperate with each such audit and shall cause Property Manager to cooperate with such audit, which cooperation shall include, without limitation, making the materials and information requested available to KBS Member and the necessary personnel available to KBS Member to answer questions and inquiries and to provide any follow-up information or materials in response to such questions or inquiries. KBS Member acknowledges that Managing Member will not have obtained a SOC1 report that covers a date prior to February 1, 2017.

9.03.Tax Returns. Managing Member shall cause to be prepared and timely filed and distributed to each Member, at the expense of the Company (and prepared by an accounting firm approved pursuant to Section 2.02(bb) above), all required federal and state Company tax returns, which shall be delivered to the Members by no later than March 31 each year; provided however, in the event that it is not possible for Managing Member to have such materials by said date using best efforts to meet the deadline, Managing Member shall: (i) notify the other Members by March 15 that such materials will not be available, (ii) deliver estimated drafts of such information to the other Members by March 31, and (iii) deliver all such information to the other Members by June 30 of said year. Managing Member shall not file any tax return on behalf of the Company without the prior written approval of KBS Member; provided that if the KBS Member shall not respond to a written request to approve a tax return within ten (10) days prior to the final filing date for such tax return the KBS Member shall be deemed to have approved such tax return.

9.04.Tax Matters.

(a)    Tax Matters Partner. JV Member is designated as the initial “Tax Matters Partner” of the Company as provided in Section 6231(a)(7) of the Code and corresponding provisions of applicable state law. This designation is effective only for the purpose of activities performed pursuant to the Code, corresponding provisions of applicable state law, the applicable laws of any non-U.S. jurisdiction (and political subdivisions thereof), and under this Agreement. The Tax Matters Partner shall inform the Members before making any material decision or taking any material action. In addition, the Tax Matters Partner shall (a) provide the Internal Revenue Service with the information required to provide the notices contemplated in Section 6223(a) of the Code, and (b) keep the Members informed of all material information pertaining to all administrative and judicial proceedings involving taxes and provide timely notice of all administrative adjustments with respect thereto. The Tax Matters Partner shall be reimbursed by the Company for any reasonable out-of-pocket expenses incurred in its capacity as Tax Matters Partner. KBS Member may replace the Tax Matters Partner with any entity appointed by KBS Member (including KBS Member) at any time after the occurrence of a Removal Event.

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(b)    Partnership Representative. JV Member is designated as the “partnership representative” of the Company under section 6223 of the Code (as modified by the Bipartisan Budget Act of 2015, as amended (and any comparable provisions of state or local tax law) (the “BB Act”)) (the “Partnership Representative”); provided, however, the Partnership Representative shall consult with KBS Member and obtain KBS Member’s consent (not to be unreasonably withheld, conditioned or delayed) before taking any binding action with respect to this clause (b) or otherwise with respect to any tax matters that either (A) could reasonably be expected to adversely impact KBS Member or its direct or indirect owners or (B) is material and made pursuant to tax audit provisions of the BB Act (other than an election to apply sections 6226 of the Code to the Company). Furthermore, to the maximum extent permitted by applicable law, the Partnership Representative shall have the same obligations, be subject to the same restrictions and limitations, and granted the rights and protections in each case, as imposed on or granted to the Tax Matters Partner pursuant to this Section 9.04. In addition, unless the KBS Member provides otherwise, the Partnership Representative shall make an election on behalf of the Company to treat a “Partnership Adjustment” as an adjustment to be taken into account by each Member in accordance with Section 6226(b) of the Code as modified by the BB Act. KBS Member may replace the Partnership Representative with any entity appointed by KBS Member (including KBS Member) at any time after the occurrence of a Removal Event.

(c)    In the event the Company incurs any liability for taxes, interest or penalties pursuant to the BB Act: (A) each Member (including any former Member, it being understood that this Section 9.04(c) shall survive the transfer by any Member of its Interest) shall pay the amount attributable to such Member (or former Member) as determined in good faith by KBS Member, and such payment shall not be treated as a capital contribution hereunder for any purpose; (B) any amount not paid within five (5) days following request from the Partnership Representative shall accrue interest at the rate of ten percent (10%) per annum, compounded quarterly, until paid, and such Member (or former Member) shall also be liable to the Company for any damages resulting from a delay in making such payment beyond the date such payment is requested by the Partnership Representative (for this purpose the fact that the Company could have paid this amount with other funds shall not be taken into account in determining such damages); (C) without reduction in a Member’s (or former Member’s) obligation under clauses (A) or (B) of this Section 9.04(c), any amount paid by the Company that is attributable to a Member (or former Member), and that is not paid by such Member pursuant to clauses (A) or (B) of this Section 9.04(c), shall be treated for purposes of Article V as a distribution to such Member (or former Member) (including for purposes of maintaining Capital Accounts), and the Company may deduct from, and set off against, any distribution or other amount otherwise due or payable to a Member (or former Member) by the Company pursuant to this Agreement or otherwise, the payment obligations of such Member (or former Member) under clauses (A) or (B) of this Section 9.04(c).

ARTICLE X
MISCELLANEOUS

10.01.Notices. All notices or other communications required or permitted hereunder shall be in writing, and shall be delivered or sent, as the case may be, by any of the following methods: (i) personal delivery, (ii) overnight commercial carrier, (iii) registered or

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certified mail, postage prepaid, return receipt requested, or (iv) telecopy or facsimile. Any such notice or other communication shall be deemed received and effective upon the date of acceptance or rejection of delivery. Any notice or other communication sent by cable, telex, or telecopy must be confirmed within 48 hours by letter mailed or delivered in accordance with the foregoing. Any reference herein to the date of receipt, delivery, or giving, or effective date, as the case may be, of any notice or communication shall refer to the date such communication becomes effective under the terms of this Section 10.01. Any such notice or other communication so delivered shall be addressed to the party to be served at the address for such party set forth on Exhibit A attached hereto. Such addresses may be changed by giving written notice to the other parties in the manner set forth in this Section 10.01. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to constitute receipt of notice or other communication sent.

10.02.Construction of Agreement. This Agreement contains the entire understanding between the parties hereto and supersedes any prior or contemporaneous understanding, correspondence, negotiations or agreements between them respecting the within subject matter. No alteration, modification or interpretation hereof shall be binding unless in writing signed by all of the Members (and the KBS Credit Party and the JV Member Credit Party, as applicable, if such modification would affect such credit party’s obligations under the Agreement). The Article and Section headings of this Agreement are used herein for reference purposes only and shall not govern, limit, or be used in construing this Agreement or any provision hereof. Any Exhibit attached hereto is incorporated herein by this reference and expressly made a part of this Agreement for all purposes. Time is of the essence of this Agreement. The provisions of this Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, and all rights, duties, obligations and remedies shall be governed by the Act without regard to principles of conflict of laws. If any legal action is brought by any Member against any other Member that arises out of this Agreement, then the prevailing Member in such legal action shall be entitled to recover reasonable attorneys’ fees and costs. Subject to the restrictions set forth in Articles VI and VII, and Section 10.04, this Agreement shall inure to the benefit of and shall bind the parties hereto and their respective personal representatives, successors, and assigns. Any agreement to pay any amount and any assumption of liability herein contained, express or implied, shall be only for the benefit of the Members and their respective successors and assigns, and such agreements and assumptions shall not inure to the benefit of the obligees of any indebtedness or any other party, whomsoever, deemed to be a third-party beneficiary of this Agreement. Each of the Exhibits attached hereto is incorporated herein by this reference and expressly made a part of this Agreement for all purposes. References to any Exhibit made in this Agreement shall be deemed to include this reference and incorporation. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original Agreement, but all of which shall constitute a single Agreement, binding on the parties hereto. Where the context so requires, the use of the neuter gender shall include the masculine and feminine genders, the masculine gender shall include the feminine and neuter genders, and the singular number shall include the plural and vice versa. The signature of any party hereto to any counterpart hereof shall be deemed a signature to, and may be appended to, any other counterpart. Every provision of this Agreement is intended to be severable. Each Member acknowledges that (i) each Member is of equal bargaining strength and (ii) each Member has actively participated in the drafting, preparation and negotiation of this Agreement. The Recitals set forth

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at the beginning of this Agreement are a material part of this Agreement and are incorporated into this Agreement.

10.03.Partnership Intended Solely for Tax Purposes. The Members have formed the Company as a Delaware limited liability company under the Act, and do not intend to form a corporation or a general or limited partnership under Delaware or any other state law. The Members do not intend to be shareholders and/or partners to one another or to any third party. The Members intend the Company to be classified and treated as a partnership solely for federal and state income taxation purposes. Each Member agrees to act consistently with the foregoing provisions of this Section 10.03 for all purposes, including, without limitation, for purposes of reporting the transactions contemplated herein to the Internal Revenue Service and all state and local taxing authorities.

10.04.Investment Representations. Each Member agrees as follows with respect to investment representations:

(a)Each Member understands:

(i)That the Interests in the Company evidenced by this Agreement have not been registered under the Securities Act of 1933, 15 U.S.C. § 15b et seq., or any state securities laws (collectively, the “Securities Acts”) because the Company is issuing Interests in the Company in reliance upon the exemptions from the registration requirements of the Securities Acts providing for issuance of securities not involving a public offering;

(ii)That the Company has relied upon the representation made by each Member that such Member’s Interest in the Company is to be held by such Member for investment; and

(iii)That exemption from registration under the Securities Acts would not be available if any Interest in the Company was acquired by a Member with a view to distribution. Each Member agrees that the Company is under no obligation to register the Interests in the Company or to assist the Members in complying with any exemption from registration under the Securities Acts if the Member should at a later date wish to dispose of such Member’s Interest in the Company.

(b)Each Member hereby represents to the Company that such Member is acquiring such Member’s Interest in the Company for such Member’s own account, for investment and not with a view to the resale or distribution of such Interest (except for any transfers made in accordance with the provisions of Article VI).

(c)    Each Member recognizes that no public market exists with respect to the Interests and no representation has been made that such a public market will exist at a future date.

(d)    Each Member hereby represents that such Member has not received any advertisement or general solicitation with respect to the sale of the Interests.

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(e)    Each Member acknowledges that such Member has a preexisting personal or business relationship with the Company or its officers or principal Interest holders, or, by reason of such Member’s business or financial experience or the business or financial experience of such Member’s financial advisors (who are not affiliated with the Company), could be reasonably assumed to have the capacity to protect such Member’s own interest in connection with the purchase of such Member’s Interest. Each Member further acknowledges that such Member is familiar with the financial condition and prospects of the Company’s business, and has discussed with each other Member the current activities of the Company. Each Member believes that the Interests are securities of the kind such Member wishes to purchase and hold for investment, and that the nature and amount of the Interests to be acquired by such Member is consistent with such Member’s investment program.

(f)    Before acquiring any Interest in the Company, each Member has investigated the Company and its business and the Company has made available to each Member all information necessary for the Member to make an informed decision to acquire an Interest in the Company. Each Member considers itself to be a person possessing experience and sophistication as an investor adequate for the evaluation of the merits and risks of the Member’s investment in the Company.

(g)    Each Member understands the meaning and consequences of the representations, warranties and covenants made by such Member set forth herein and that the Company has relied upon such representations, warranties and covenants. Each Member hereby indemnifies, defends, protects and holds wholly free and harmless the Company and each other Member from and against any and all losses, damages, expenses or liabilities arising out of the breach and/or inaccuracy of any such representation, warranty and/or covenant. All representations, warranties and covenants contained herein and the indemnification contained in this Section 10.04(g) shall survive the execution of this Agreement, the formation of the Company, and the liquidation of the Company.

10.05.    Waiver of Conflict of Interest. The Company is not represented by separate counsel; provided, however, in connection with the formation of the Company and the drafting and negotiation of this Agreement, JV Member and the Company (and not KBS Member) have been represented by Goldfarb & Fleece LLP, Attention, Robert Zimmermann, and KBS Member (and not JV Member or the Company) has been represented by Sheppard Mullin Richter & Hampton, LLP, Attention, Scott Morehouse. To the extent that the foregoing representation constitutes a conflict of interest, the Company and each Member hereby expressly waive any such conflict of interest. Upon creation of the Company, the Company shall only be represented by counsel in accordance with Section 2.02 above.

10.06.Section 1031 Exchange. Subject to the provisions of this Section 10.06, each Member agrees to take any and all actions reasonably necessary to accommodate each other Member in effectuating a like-kind exchange pursuant to Section 1031 of the Code prior to the negotiation of or in connection with any proposed sale of all or any portion of the Project and any purchase and sale of a Member’s Interest pursuant to Article VII or otherwise including, without limitation, allowing any Member to cause the Company to make an in-kind distribution of a portion of the Project to such Member (and/or any Affiliate thereof). In furtherance of the foregoing, each Member

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hereby agrees to execute any and all deeds, documents and/or other instruments that may be required to distribute and vest an undivided interest in the Project in such Member and/or otherwise necessary to effect such Code Section 1031 exchange, provided that (i) the distribution and exchange of such portion of the Project does not reduce the cash proceeds that otherwise would be distributed to any non-exchanging Member from the sale of the Project; (ii) the distribution and exchange does not materially delay or otherwise adversely affect the closing of any such sale of the Project; (iii) the exchanging Member pays any and all additional costs, fees, and/or expenses, including, without limitation, attorneys’ fees and costs incurred as a result of the proposed distribution and exchange; and (iv) there is no additional loss, cost or damage incurred (or which may be incurred) by the Company or any non-exchanging Member as a direct consequence of the distribution and exchange. In addition, nothing contained herein shall obligate any Member to offer to any other Member any interest in any particular Code Section 1031 exchange structured by the exchanging Member.

10.07.Outside Activities. Any Member may engage in business efforts and affairs which are not related to the Company, and will not be precluded from owning and operating other businesses and/or real estate projects and neither the Company nor the other Members shall have any interest in such business or real estate projects. No Member shall have any obligations (fiduciary or otherwise) with respect to the Company or the other Members insofar as making other investment opportunities available to the Company or to the other Members. Except as provided above, the Members may, notwithstanding the existence of this Agreement, engage in whatever activities they may choose, whether the same are competitive with the Company or otherwise, without having or incurring any obligation to offer any interest in such activities to the Company or to the other Members. Neither this Agreement nor any activities undertaken pursuant hereto shall prevent a Member from engaging in such activities.

10.08. Tax Consequences. Each Member acknowledges and agrees that it has relied fully upon the advice of its own legal counsel and/or accountant in determining the tax consequences of this Agreement and the transactions contemplated hereby and not upon the representations or advice by any other Member.

ARTICLE XI

REIT PROTECTION

11.01.Certain Definitions. For the purposes of this Article XI, the following terms shall have the following meanings:

(a)“KBS” shall mean KBS Member as defined in the recitals hereto and KBS Strategic Opportunity REIT, Inc., a Maryland corporation that has elected to be taxable for federal income tax purposes as a real estate investment trust under the Code (herein, a “REIT”); and/or any subsidiary or affiliate of KBS.

(b) “REIT Prohibited Transactions” shall mean any action specified in Section 11.02.

11.02.    Prohibited Transactions. Unless expressly defined herein, all capitalized terms used herein shall have the meaning ascribed to such terms in this Agreement. Notwithstanding

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anything to the contrary contained in this Agreement, during the time KBS is a Member of the Company, neither the Company nor any Subsidiary nor the Managing Member nor any other Member of the Company, shall take any of the following actions:

(a)Entering into any lease or permitting any sublease that provides for rent based in whole or in part on the income or profits of any person, excluding for this purpose a lease that provides for rent based in whole or in part on a fixed percentage or percentages of gross receipts or gross sales of any person without reduction for any sublessor costs;

(b)    Leasing personal property, excluding for this purpose a lease of personal property that is entered into in connection with a lease of real property where the rent attributable to the personal property is less than 15% of the total rent provided for under the lease, determined as set forth in Section 856(d)(1) of the Code;

(c)    Acquiring or holding debt (other than Member Loans and Default Loans) unless (a) the amount of interest income received or accrued by the Company (directly or indirectly) under such loan does not, directly or indirectly, depend in whole or in part on the income or profits of any person, and (b) the debt is fully secured by mortgages on real property or on interests in real property;

(d)    Acquiring or holding more than 10% of the outstanding voting securities of any one issuer other than a corporation that has properly elected to be a “taxable REIT subsidiary” of KBS;

(e)    Acquiring or holding more than 10% of the total value of the outstanding securities (debt or equity) of any one issuer other than a corporation that has properly elected to be a “taxable REIT subsidiary” of the REIT;

(f)    Making an election or taking any action that would cause the Company to be treated as (i) an entity that is not classified as a partnership for federal income tax purposes or (ii) a publicly traded partnership as defined in Section 7704 of the Code;

(g)    Entering into any agreement where the Company receives amounts, directly or indirectly, for rendering services to the tenants of the properties that are owned, directly or indirectly, by the Company other than (i) amounts received for services that are customarily furnished or rendered in connection with the rental of real property of a similar class in the geographic areas in which the properties are located where such services are either provided by (a) an Independent Contractor (as defined in Section 856(d)(3) of the Code) who is adequately compensated for such services and from which the Company does not, directly or indirectly, derive revenue or (b) a taxable REIT subsidiary of KBS (as defined in Section 856(l) of the Code) who is adequately compensated for such services or (ii) amounts received for services that are customarily furnished or rendered in connection with the rental of space for occupancy only (as opposed to being rendered primarily for the convenience of the Company’s Subsidiary’s tenants);

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(h)    Holding cash of the Company or any Subsidiary for operations or distribution in any manner other than a traditional bank checking or savings account, or money market account; or

(i)    Entering into any agreement where income or gain, as applicable, received or accrued by the Company under such agreement, directly or indirectly, (a) does not qualify as “rents from real property” within the meaning of Section 856 of the Code, (b) does not qualify as “interest on obligations secured by mortgages on real property or on interests in real property” within the meaning of Section 856 of the Code or (c) constitutes income from a sale of “inventory” or “stock in trade” or property held “primarily for sale to customers” in the ordinary course of trade or business of the Company within the meaning of Section 1221(a)(1) of the Code other than a sale that would qualify under the Section 857(b)(6)(C) “safe harbor” with respect to KBS.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first above written.

“JV MEMBER”

NOHO COMMONS PACIFIC INVESTORS LLC,a Delaware limited liability company

By:    Slovin Properties, Inc.

A Delaware corporation, its Manager

By: /s/ Karl Slovin

Karl Slovin, President

Solely as to express its agreement in Sections 3.01 and 3.07:

“JV MEMBER CREDIT PARTY”

KEK FAMILY HOLDINGS, LLC,

a Delaware limited liability company

By:    /s/ Robert Zimmerman

Robert Zimmerman, Manager

SMRH:479102057.10 47

“KBS MEMBER”

KBS SOR II LOFTS AT NOHO COMMONS JV, LLC,

a Delaware limited liability company

By:     KBS SOR II ACQUISITION V, LLC,

a Delaware limited liability company,

its sole member

By:     KBS SOR US PROPERTIES II, LLC,

a Delaware limited liability company,

its sole member

By:    KBS STRATEGIC OPPORTUNITY                 LIMITED PARTNERSHIP II,

a Delaware limited partnership,

its sole member

By:    KBS STRATEGIC OPPORTUNITY                 REIT II, INC.,

a Maryland corporation,

its sole general partner

By:    /s/ Jeffrey K. Waldvogel

Jeffrey K. Waldvogel

Chief Financial Officer

SMRH:479102057.10 48

Solely as to express its agreement in Sections 3.01 and 3.07

“KBS CREDIT PARTY”

KBS SOR US PROPERTIES II, LLC,

a Delaware limited liability company

By: KBS STRATEGIC OPPORTUNITY LIMITED PARTNERSHIP II, a Delaware limited partnership,
its sole member

By: KBS STRATEGIC OPPORTUNITY REIT II, INC.,
a Maryland corporation,
its sole general partner

By: /s/ Jeffrey K. Waldvogel

Jeffrey K. Waldvogel

Chief Financial Officer

SMRH:479102057.10 49

EXHIBITS:

Exhibit A NAMES AND ADDRESS, PERCENTAGE INTERESTS OF THE MEMBERS

Exhibit B    BUSINESS PLAN

Exhibit C    ANNUAL BUDGET

Exhibit C-1    ESTIMATED RENOVATION BUDGET

Exhibit D    FORM OF MANAGEMENT AGREEMENT

Exhibit E    FORM OF ASSET MANAGEMENT AGREEMENT

Exhibit F    SCHEDULE OF SOURCES AND USES OF FUNDS

Exhibit G    ORGANIZATIONAL CHART OF THE COMPANY

SMRH:479102057.10 Exhibits

EXHIBIT A

NAMES, ADDRESSES, PERCENTAGE INTERESTS
OF THE MEMBERS

Names and Addresses of the Members:	Percentage Interest
KBS SOR II Lofts at NoHo Commons JV, LLC c/o KBS Capital Advisors LLC 620 Newport Center Drive, Suite 1300 Newport Beach, CA 92660	90%
NoHo Commons Pacific Investors LLC c/o M West Holdings, LLC 13949 Ventura Blvd., Suite 350 Sherman Oaks, CA 91423	10%

SMRH:479102057.10 Exhibits A

EXHIBIT B

BUSINESS PLAN

At least five (5) business days before the Property Closing, the Members will agree upon the Business Plan and attach as Exhibit B (or otherwise amend this Agreement to reflect the approval of the Business Plan).

SMRH:479102057.10 Exhibit B

EXHIBIT C

ANNUAL BUDGET

At least five (5) business days before the Property Closing, the Members will agree upon the initial Annual Budget and attach as Exhibit C (or otherwise amend this Agreement to reflect the approval of the initial Annual Budget).

SMRH:479102057.10 Exhibit C

EXHIBIT C-1

RENOVATION BUDGET

At least five (5) business days before the Property Closing, the Members will agree upon the Renovation Budget and attach as Exhibit C-1 (or otherwise amend this Agreement to reflect the approval of the Renovation Budget).

SMRH:479102057.10 Exhibit C-1

EXHIBIT D

FORM OF MANAGEMENT AGREEMENT

See Attached.

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PROPERTY MANAGEMENT AGREEMENT

This Property Management Agreement (this “Agreement”), dated ______ ___, 2016, is made between NoHo Commons Pacific Owner LLC, a Delaware limited liability company (“Owner”), and Polaris Property Management LLC, a California limited liability company (“Manager”).

RECITALS

Owner is the owner of a residential apartment complex commonly known as the Lofts at NoHo Commons, located at 11136 Chandler Boulevard in North Hollywood, City of Los Angeles, State of California (the “Project”).

Owner desires to employ Manager in the management and operation of the Project, and Manager is willing to accept such engagement on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants herein contained, Owner and Manager agree as follows:

ARTICLE I

DEFINITIONS

In addition to terms defined in other provisions of this Agreement, the following terms shall have the following meanings when used in this Agreement:

1.01.    Term. The term of this Agreement shall commence on the Commencement Date and shall, continue for so long as NoHo Commons Pacific Investors, LLC (“MWEST Member”) is the Managing Member of Owner’s sole member, KBS SOR II LOFTS AT NOHO COMMONS, LLC (the “Venture”), unless sooner terminated by either party in accordance with Article VII.

1.02.    Operating Account. An account in the name of Owner maintained with an FDIC-insured bank designated by Manager and approved by Owner.

1.03.    Working Capital Reserve. A cash reserve, to be available to Manager during the Term hereof in connection with the operation of the Project in accordance with the terms hereof, equal to the amount budgeted for the first full month of each Fiscal Year for (a) the management fee under Section 3.01, (b) the Personnel Costs (as defined in Section 2.04(d)) for Project Employees (as defined in Section 1.10); provided, however, that for Project Employees hired by a sub-manager, such Personnel Costs shall only be payable by Owner to the extent the same are reimbursable by Manager to sub-manager pursuant to any applicable sub-management agreement, and (c) Project utility costs.

1.04.    Fiscal Year. The period beginning on the Commencement Date of this Agreement through December 31^st of that year and then January 1^st through December 31^st of every year thereafter.

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1.05.    Budget. A composite of (a) an operations budget, which shall be an estimate of receipts and expenditures for the operation of the Project during a Fiscal Year, including a schedule of expected apartment rentals (excluding security deposits) for the Fiscal Year (the “Operations Budget”), and (b) a capital budget, which shall be an estimate of capital replacements, substitutions and additions for the Project (other than routine repairs and maintenance) for the Fiscal Year (the “Capital Budget”, and, together with the Operations Budget, collectively, the “Budget”). The initial Budget is attached to this Agreement as Exhibit A and is incorporated herein.

1.06.    Business Plan. The business plan annexed to the Venture’s Operating Agreement which includes a property management and leasing program as the same may be replaced or modified from time to time.

1.07.    Gross Collections. The entire amount of all Project receipts, determined on a cash basis, from (a) tenant rentals and other sums collected pursuant to tenant leases (excluding security deposits relating to the Project, except as provided below) and other amounts collected for rental of the Project, including parking income, parking fees and similar amounts, but excluding all prepaid rents except for the portion applied to the then-current month, (b) income from concessions, including cable television, telephone, internet access, security monitoring, laundry and vending machines, (c) proceeds from rental loss or business interruption insurance, (d) and (d) application fees, cleaning fees, pet fees, redecorating fees and other similar miscellaneous income. Gross Collections do not include the proceeds of (i) any sale, exchange, refinancing, condemnation, or other disposition of all or any part of the Project, (ii) any loans to Owner, whether or not secured by all or any part of the Project, (iii) any capital contributions to Owner, (iv) any insurance (other than rental loss or business interruption insurance) maintained with regard to the Project, (v) tenant reimbursements for utility costs, (vi) security deposits (until applied to obligations that constitute Gross Collections), (vii) any sums and charges collected in connection with termination of the tenant leases or settlement of rent claims, and (viii) sums collected or paid for sales, excise or use taxes.

1.08.    KBS Member. The KBS Member as defined in the Venture’s Operating Agreement.

1.09.    Project Employees. Those persons employed by Manager (or a sub-manager) on-site as a management and maintenance staff (e.g., manager, assistant managers, leasing consultants and maintenance personnel), including any personnel who work at the Project on a part-time basis to the extent of the time they spend at the Project, in each case consistent with the Business Plan, and provided that Manager and sub-manager shall not employ duplicative staff for the same positions. Manager shall maintain a list on a continuing monthly basis of Project Employees assigned to the Project

1.10.    Commencement Date. The Commencement date shall be the date Owner acquires title to the Project.

1.11.    Construction Management Services. Those services, including, without limitation, contractor bidding and selection and contract negotiation and performance evaluation, to be performed by Manager hereunder in connection with any capital improvements or construction projects at the Project approved by Owner, including, without limitation, unit refurbishment, major

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repairs, landscaping upgrades and the construction of a fitness center. Construction Management Services shall not include routine maintenance and repairs at the Project done by the Project Employees for which Manager is compensated pursuant to the Management Fee.

1.12    Company Manager. The Company Manager as defined in the Venture’s Operating Agreement.

1.13    Owner’s Operating Agreement. The Operating Agreement of Owner dated _____________, 2016, as the same may be modified or amended from time to time.

1.14    Standard. With respect to Manager’s services, equivalent to or exceeding the performance of professional managers of apartment buildings similar in size, quality and class as the Project and located in Los Angeles, California; and with respect to the Project, the quality, condition and repair to be expected at apartment buildings similar in size, quality and class as the Project and located in Los Angeles, California.

1.15     Manager Affiliate. (1) Any entity or person directly or indirectly controlling, controlled by, or under common control with, Manager, (2) any entity or person owning or controlling ten (10%) percent or more of the outstanding voting rights, equity, ownership or profits of Manager; (3) any entity which Manager or Manager’s officers, directors, members, partners or employees own or control; and (4) any employee, officer, director, partner or family member of Manager or of any Manager Affiliate. As used in this Agreement, “Control”, “control”, “controlling” and phrases of similar import means, with respect to any person or entity, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity.

1.16    Venture’s Operating Agreement. The Limited Liability Company Agreement of the Venture dated ___________, 2016, as the same may be modified or amended from time to time.

ARTICLE II

DUTIES AND RIGHTS OF MANAGER

2.01.    Appointment of Manager. Manager agrees that, for and in consideration of the compensation hereinafter provided, during the Term of this Agreement, Manager will manage and direct the operation of the Project (whether by supervision or direction of a sub-manager or otherwise). Everything performed by Manager under this Agreement shall be done as an independent contractor of Owner; provided that Manager shall have the right to execute and deliver documents on behalf of Owner and to otherwise bind Owner solely to the extent provided in this Agreement.

2.02    Performance of Duties. Manager shall perform its duties in an efficient and satisfactory manner consistent with the Standard and at all times maintain systems and personnel sufficient to enable it to carry out all of its duties, obligations and functions under this Agreement. Manager’s duties shall be carried out in accordance with (i) the Budget (subject to the discretionary authority of Manager expressly provided for Section 2.04 hereof), (ii) the terms of any secured financing applicable to the Project that has been incurred by Owner, and (iii) in compliance with the Owner’s Operating Agreement and the Venture’s Operating Agreement. Manager shall (directly or through a sub-manager) institute and supervise all operational activities for the Project including, but not

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limited to, cleaning, landscaping, window washing, maintenance and operation of central plant and other HVAC equipment, and all necessary maintenance of and repairs to the Project to the extent funds are made available within a reasonable period of time after Owner has received written notice of the need for such funds from Manager.

2.03.    Rental Activities. Manager (directly or through a sub-manager) shall:

(a) Use diligent and all commercially reasonable efforts to collect all monthly rentals due from tenants and rent from users or lessees of other non-dwelling facilities in the Project, if any, and at Owner’s expense institute legal action to evict tenants delinquent in payment of monthly rental or other charges as more particularly described in Section 2.10 below. All monies so collected shall be immediately deposited into the Owner’s Operating Account. Manager shall not collect any such rents, charges, or revenues, other than security deposits, more than one month in advance of when the same shall be due and payable under any Lease (except to the extent such advance payment is otherwise approved by Owner).

(b) When necessary and in accordance with the Budget, advertise at Owner’s expense the availability of Project units for rental and, subject to limitations imposed by local laws or restrictive covenants applicable to the Project, display “for rent” or other similar signs upon the Project; and use commercially reasonable efforts to lease apartment units to tenants in compliance with the parameters set forth in Section 2.12, unless otherwise approved in writing by Owner, including, without limitation, to tenants meeting the tenant credit criteria approved by Owner, and using lease forms approved by Owner. Owner specifically authorizes Manager to execute leases in Owner’s name and on Owner’s behalf, consistent with the parameters established by Owner, and any lease so executed will be binding on Owner to the same extent as if executed by Owner.

2.04.    Budget.

(a)    Manager shall assist Company Manager in the preparation of a Budget and Business Plan for approval by Owner as required under the Venture’s Operating Agreement. Until a complete new Budget is approved, Manager shall operate on the part of the proposed Budget which is approved, and shall operate under the prior Budget until the new Budget is received and approved by the Owner.

(b)    The Budget shall constitute a major control under which Manager shall operate the Project, and there shall be no Substantial Variance (as defined below) therefrom, except as expressly set forth in Section 2.04(c) below or otherwise expressly permitted by other provisions of this Agreement. Consequently, except as expressly permitted by other provisions of this Agreement, no expenses may be incurred or commitments made by Manager in connection with the maintenance and operation of the Project which exceed the budgeted line item for the period in question by more than 10% without the prior written consent of Owner; provided that the foregoing limitation shall not apply to expenses for taxes, insurance, utilities or necessary expenditures as set forth in Section 2.07(a).

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(c)    In the event there shall be (i) any variance in any budgeted line item for capital expenditures, or (ii) a variance of more than 10% (collectively, a “Substantial Variance”) between the results of operations for any month and the estimated results of operations for such month as set forth in the Budget, Manager shall furnish to Owner, within twenty (20) days after the expiration of such month, a written, reasonably detailed explanation as to why the variance occurred. If Substantial Variances have occurred or are anticipated by Manager during the remainder of any Fiscal Year, Manager shall prepare and submit to Owner, for review and approval by Owner, a revised Budget covering the remainder of the Fiscal Year with a written, reasonably detailed explanation for the need for such revision.

2.05.    Manager and Other Personnel.

(a)    Manager (directly or through a sub-manager) shall investigate, hire, train, instruct, pay, promote, discharge and supervise the work of the Project Employees. The Project Employees shall be employees or independent contractors of Manager or of an affiliate of Manager. No Project Employees shall be employed by Owner. Manager shall be solely responsible for legal compliance concerning the foregoing activities, and Manager shall indemnify and hold harmless Owner, and defend Owner with counsel reasonably satisfactory to Owner, against any and all liabilities, claims, causes of action, losses, demands, judgments, settlements and costs and expenses (including attorneys’ fees and court costs) arising out of or in connection with violations of employment-related laws by Manager with respect to any Project Employee.

(b)    Manager may request that a Project Employee be permitted to reside at the Project and be available full-time in order to perform properly the duties of his/her employment. The terms and conditions of the use of said residential unit shall be agreed to in advance in each instance.

(c)    Manager (or the sub-manager) shall prepare or cause to be prepared, for execution and filing by Manager (or the sub-manager) as an independent contractor, all forms, reports and returns required by all federal, state or local laws in connection with unemployment insurance, workmen’s compensation insurance, disability benefits, social security and other similar taxes now in effect or hereafter imposed with respect to Project Employees.

(d)    Owner shall pay Manager each pay period for the all reasonable personnel costs, including salary, fringe benefits, and processing costs payable with respect to the Project Employees, whether permanent or temporary employees; provided, however, that for Project Employees hired by sub-manager, such Personnel Costs shall only be payable by Owner to the extent the same are reimbursable by Manager to sub-manager pursuant to any applicable sub-management agreement. The term “fringe benefits”, as used herein, shall include Manager’s (or the sub-manager) standard fringe benefits offered to all Project Employees. Project Employee personnel costs payable by Owner shall be debited from Owner’s operating account via ACH wire one (1) business days prior to the day the Project Employees are to received their regularly scheduled salary payment. Manager’s overhead and the costs of Manager’s corporate/home office shall be paid by Manager and in no event shall Manager be entitled to reimbursement for same by Owner.

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(e)    In no event shall any Project Employees be subject to a collective bargaining agreement or union contract unless approved by Owner in its sole and absolute discretion, and if so approved, in Owner shall not be the counterparty to such collective bargaining agreement or union contract.

2.06.    Contracts and Supplies. Manager shall, in the name of and on behalf of Owner and at Owner’s expense, negotiate and consummate arrangements with unrelated third party concessionaires, licensees and suppliers for services, ancillary income and supplies for the Project, including but not limited to telephone, cleaning, furnace and air-conditioning maintenance, on-site licenses and supplies, pest control, landscaping and other similar items that are customarily provided in accordance with the Standard (collectively, the “Contracts”). Manager shall, where appropriate and where the Company Manager is authorized to do so under the Venture’s Operating Agreement, execute the Contracts in the name of and on behalf of Owner. Manager shall arrange for the purchase by Owner, in an economical and efficient manner of all inventories, supplies and equipment which, in the ordinary course of business, are necessary and appropriate to maintain and operate the Project in a manner consistent with the Standard, subject to the limitations in the Budget. If Manager qualifies for early payment, cash and trade discounts, refunds, rebates, credits and concessions, Owner shall be credited with the full amount of any such discount, commission or compensation actually obtained or received by Manager, directly or indirectly, in connection with any such purchase. Manager shall not enter into any Contract with a Manager Affiliate unless Manager has received prior written approval from KBS Member. Owner recognizes that the Project may be operated in conjunction with other projects in an effort to provide for more efficient and less expensive methods of operation, and Owner agrees that the reasonable costs for such shared activities may be allocated or shared between the Project and such other projects on an equitable basis (provided that Owner and KBS Member shall be notified of any such cost-sharing, together with reasonable accounting of such costs and allocations).

2.07.    Alterations, Repairs and Maintenance.

(a)    Manager shall, at Owner’s expense, maintain the Project in good repair and condition in accordance with the Standard and shall promptly notify Owner upon obtaining actual knowledge that the condition of the Project fails to meet the Standard. Manager shall, in Owner’s name and at Owner’s expense, hire and discharge independent contractors for the repair and maintenance of the Project to the extent involvement of outside parties is necessary for completion of such work. Expenditures for such maintenance and repair are subject to the previously approved line item Budget-related limitations of this Agreement, except in the case of the following necessary expenditures: emergency repairs necessary to prevent imminent threat of injury to residents or others on or about the Project or imminent threat of damage to the Project or property of others located on or about the Project, in which case Manager agrees to give prompt notice to Owner of any emergency repairs and to make reasonable efforts to secure Owner’s prior written approval of such emergency repairs in accordance with this Agreement; provided, however, that if Manager is unable to obtain Owner’s prior written approval despite such reasonable efforts, such necessary expenditures may be made by Manager without prior approval and irrespective of the cost limitations imposed by this Agreement (provided, further, that Manager shall notify Owner promptly

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(and in any event no later than three (3) business days) following the incurrence of such expenditures, together with a written, reasonably detailed break-down and explanation therefor).

(b)    Manager shall provide Construction Management Services in connection with any capital improvements or major repairs for the Project approved by Owner and provided for in the Capital Budget. The Construction Management Services shall include, to the extent required in connection with any particular work (but subject to Owner’s approval in all events, as applicable), analyzing plans and specifications and suggesting revisions thereof; suggesting contractors; negotiating all contracts; monitoring the construction schedule and the quality of workmanship (without liability for latent or patent defects); obtaining or causing to be obtained all necessary governmental permits and approvals; coordinating labor and material suppliers; managing the change order process; obtaining and reviewing all necessary lien waivers and releases; reviewing all payment requests pursuant to the contract documents; assisting contractors in obtaining certificates of occupancy, or equivalent documents; conducting final walk‑throughs and reviewing punch lists. Owner acknowledges that Manager shall have no responsibility for the actual design and/or performance of such construction work and that all liability for the actual performance of such services in accordance with the requirements of the Contracts shall be borne by the third party service providers pursuant to such Contracts with Owner, except to the extent of Manager’s gross negligence or willful misconduct. Manager shall receive a fee for such oversight of capital replacements in accordance with Section 3.01.

(c)    Manager is not responsible for uncovering violations of building, zoning, subdivision, environmental, fire or other codes or other laws and regulations (including laws relating to accessibility) or for defects or other shortcomings in the Project or its construction. Manager’s responsibility as to such matters will be limited to advising Owner of problems that come to the attention of Manager and implementing, at Owner’s cost, remedial steps directed by Owner on terms consistent with Section 2.07(b).

(d)    No single expenditure to any individual or entity in excess of $10,000 not set forth in the Budget shall be allowed without the prior written approval of Owner. Owner may, as to any Contract for which calls for expenditure by the Company [in excess of $10,000 require Manager to obtain such a number of competitive bids from qualified contractors and vendors for such Contract as Owner may reasonably determine and otherwise in accordance with a competitive bidding process Owner reasonably instructs Manager to implement. Any vendors who are Manager Affiliates are to be disclosed to Owner prior to the commencement of any bidding process.

2.08.    Licenses and Permits. Manager shall, in a timely manner, apply for, obtain and maintain all licenses and permits (including deposits and bonds) required for Manager to operate as the property manager of the Project. Owner agrees to execute and deliver any and all reasonably requested applications and other documents and to otherwise cooperate in a commercially reasonable manner (but at no cost or expense to Owner) with Manager in applying for, obtaining and maintaining such licenses and permits. Owner will be responsible for all other licenses and permits required for the Project, and Manager will have no obligation to obtain any of such licenses and permits.

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However, Manager agrees to cooperate with Owner in processing applications for permits and licenses that Owner pursues for the Project (but at no cost or expense to Manager).

2.09.    Compliance with Laws. Manager shall comply with all laws applicable to it in the performance of its duties hereunder, including laws prohibiting discrimination in housing, employment laws (including those related to unfair labor practices), and laws regarding tenant security deposits. Manager shall not be responsible for causing the Project’s compliance with laws relating to the condition of the Project, including building, zoning, subdivision, fire and other codes or laws, including laws regulating hazardous materials or toxic substances (except as applied to materials released by Manager or Project Employees), but Manager shall promptly notify Owner of any violation of any such laws of which Manager becomes aware. Manager and Owner each shall notify the other of any notice of violation of law with respect to the Project that it receives from any governmental authority or any notice of violation or required corrective action that it receives from any board of fire underwriters or similar agency. Manager shall be entitled to rely on the advice of legal counsel and experts in its determination of the requirements of any applicable law.

2.10.    Legal Proceedings. Manager shall institute, in its own name or in the name of Owner (as Manager may elect), but in any event at the expense of Owner, legal actions which Manager deems appropriate to (i) collect rent and incidental rent charges from tenants at the Project, (ii) enforce any other right, privilege, benefit, or remedy available to Owner pursuant to any of the leases or applicable law; (iii) dispossess tenants or other persons in possession who default under their leases; or (iv) cancel or terminate any lease agreement for the breach thereof. All other legal proceedings arising in connection with the Project shall be commenced only with the prior written approval of Owner. Manager shall not institute or settle any litigation or insurance matter where the amount in controversy [exceeds $25,000] without Owner’s consent.

2.11.    Security Services. Owner acknowledges that Manager has not undertaken to provide, and is not responsible for providing, security services to the Project. Should Owner choose to do so, Owner may separately contract with a company providing alarm monitoring, patrol or similar services but Manager shall have no responsibility in respect of those services.

2.12     LeasingParameters. Manager is authorized to charge only rents in excess of ninety percent (90%) of the amounts listed on the initial guidelines attached hereto as Exhibit B, as the same may be modified by Owner from time to time or as otherwise authorized by Owner. Unless otherwise approved by Owner, Tenants must have and the following qualifications:

            Minimum Monthly Income: 2.25 times monthly rent

            Job History: Minimum 1 year in same industry

            Rental History: Minimum 1 year at the same location

            Dogs with a pet deposit and pet agreement with breed restrictions

            Clean Eviction record.

2.13Assistance with Sale or Financing. At Owner’s written request and direction, Manager agrees to cooperate with and assist Owner in all attempts by Owner to sell, or mortgage or otherwise

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finance all or any part of Owner’s interest in the Project. Such cooperation shall not give rise to any claim by Manager for a commission or any compensation for such services other than reimbursement for all out-of-pocket expenses together with pre-approved overtime by employees and consultant fees incurred by Manager in providing such services. Such cooperation shall include, without limitation (but without including those services typically provided by an advisor rather than a property manager), but only if requested by Owner in writing, answering prospective purchasers’ and lenders’ questions about the Project or the leases and notifying tenants about the sale of the Project. When requested by Owner, Manager shall: (i) prepare (and update from time to time) a current rent roll (including security deposits, if any) with respect to the Leases, certified to be true, accurate and complete; (ii) prepare a list of all personal property owned or leased by Owner and used at or in the operation of the Project; (iii) prepare a schedule of all trade, service and utility contracts affecting the Project accompanied by copies of the same.

2.14    Rules and Regulations. Subject to the approval of Owner, and if requested by Owner, Manager agrees to draft and promulgate reasonable rules and regulations relating to the occupancy, use and operation of the Project (including rules related to signage), and to enforce the same as promulgated as well as such other regulations Owner may reasonably require.

2.15    KBS Member. Manager acknowledges that, as an affiliate of one or more members of Owner, Manager has knowledge of the terms and conditions of the Venture’s Operating Agreement, including without limitation the requirements for obtaining the consent or approval of the KBS Member for certain decisions as set forth in the Venture’s Operating Agreement, and the rights of the KBS Member to terminate this Agreement in certain circumstances. Neither Owner nor Manager will act on any matter requiring the consent or approval of the KBS Member under the Venture’s Operating Agreement without first obtaining the consent or approval of the KBS Member in accordance with the Venture’s Operating Agreement. The KBS Member, for so long as it is a member of the Venture, is expressly made and designated a third party beneficiary of this Agreement with respect to the rights provided to the KBS Member under this Agreement.

2.16    Sub-Managers. If Manager subcontracts with any sub-manager for the performance of any of the services to be performed by Manager pursuant to this Agreement, Manager shall continue to be responsible to Owner for such services and shall supervise and oversee the performance of such services by the sub-manager. Unless a particular requirement is waived by the KBS Member, any agreement between Manager and any sub-manager (i) shall be terminable by the Manager or Owner upon not more than thirty (30) days’ notice, without penalty, (ii) shall have a stated term of not more than one year, (iii) shall terminate automatically upon termination of this Agreement, and (iv) shall require the sub-manager to meet with representatives of Owner and the KBS Member, upon reasonable request, to discuss the sub-managers services in connection with the Project.

2.17    Meetings. Manager shall meet with representatives of Owner and the KBS Member upon reasonable request, but not less frequently than monthly, to review the operation and management of the Project by Manager and any sub-managers pursuant to this Agreement. Manager shall require each sub-manager to be available for such meetings.

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ARTICLE III

MANAGEMENT FEES; PAYMENTS TO MANAGER

3.01. Management Fees. Owner shall pay to Manager, (i) as compensation for its operating management services, a management fee of two and a half percent (2.5%) of the Gross Collections, and (ii) as compensation for Construction Management Services, a construction management fee equal to five percent (5%) of the hard cost of construction.

3.02.    Expenses. Owner shall be liable for the costs and expenses of maintaining and operating the Project, and except as otherwise specifically provided in this Agreement, Owner shall pay for all reasonable costs and expenses incurred by Manager in connection with the maintenance or operation of the Project and the performance by Manager of its other duties under this Agreement, in each case to the extent the same are incurred in accordance with and subject to the limitations set forth in Sections 2.04 and 2.07 of this Agreement. Purchases of, or contracts for, materials or services may be made in bulk by Manager in connection with its operation of apartment projects generally, and Owner agrees that the pro rata portion of the net costs of such materials or service used in connection with, or for the benefit of, the Project shall be allowed as a cost payable by Owner hereunder. Owner shall not be obligated to pay Manager for any overhead expenses of Manager incurred with respect to its general offices, or for any salaries or other personnel costs including fringe benefits, and processing costs) of off-site supervisory personnel, Owner shall reimburse Manager for postage and office supplies used exclusively in the management of the Project. Manager shall not be obligated to make any advance to or for the account of Owner or to pay any sums except out of funds in the Operating Account. Manager will be excused from performance of its responsibilities under this Agreement to the extent that funds are not available in the Operating Account to pay related expenses (other than expenses for which Manager is not entitled to payment under the terms of this Agreement), provided that Owner does not provide funds after written, reasonably detailed request therefor by Manager.

ARTICLE IV

PROCEDURE FOR HANDLING RECEIPTS AND OPERATING CAPITAL

4.01.    Bank Deposits. All monies received by Manager for, or on behalf of, Owner shall be deposited daily by Manager in the Operating Account or, if required by a Lender providing financing for the Project (a “Project Lender”), in a “lockbox” account designated by the Project Lender. All monies of Owner held by Manager pursuant to the terms hereof shall be held by Manager in trust for the benefit of Owner to be disbursed as herein provided, and such funds shall not, unless Owner otherwise has agreed or directed, be commingled with the funds of any other person, including Manager or any Affiliate of Manager.

4.02.    Security Deposit Account. Manager shall comply with all applicable laws with respect to security deposits received from tenants in respect of the Project. All security deposit funds held by Manager shall at all times be the property of Owner, subject to all applicable laws with respect thereto and shall be held is a segregated account insured by an agency of the United States Government. The security deposit account shall be used only for maintaining tenant security deposits. The depository shall be informed that the funds are held in trust for Owner and/or tenants. Manager may not under any circumstances write a check on the security deposit account payable

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to or in favor of Manager or any affiliate of Manager other than to reimburse itself or such affiliate for advances made on behalf of Owner and approved by Owner. Manager shall maintain detailed records of all security deposits relating to the Project, and such records will be open for inspection by Owner’s employees or agents. Manager shall only transfer funds from the security deposit account to the Operating Account for a security deposit refund or a security deposit forfeiture. Manager shall establish the security deposit account using Owner’s Taxpayer ID Number.

4.03.    Disbursement of Deposits. Manager shall disburse funds in the Operating Account on behalf of Owner for payment of Project expenses incurred by Manager in the performance of its duties hereunder and other Project expenses identified to Manager by Owner. Owner specifically authorizes Manager to expend funds in the Operating Account as contemplated by other provisions of this Agreement, including Article III.

4.04.    Working Capital. Concurrently with its execution and delivery hereof, Owner shall deposit the Working Capital Reserve into the Operating Account, or such other account required by the Project Lender. As more fully described in Section 1.03, Owner also shall deposit in the Operating Account, or such other account required by the Project Lender funds sufficient to pay the expenses of the Project to the extent that such expenses exceed funds derived from the operation of the Project.

4.05.    Excess Funds. Any funds in the Operating Account in excess of the Working Capital Reserve shall be transferred from time to time, at Owner’s direction, to an account of Owner.

4.06.    General Provisions. Persons designated by Manager, and approved by Owner, from time to time shall be authorized signatories on all bank accounts established by Manager hereunder and shall have authority to make disbursements from such accounts, and, to the extent necessary, Owner shall make arrangements with the related depository to authorize such action by those persons. All persons designated by Manager as authorized signatories or who otherwise handle funds for the Project shall be covered by crime policy insurance maintained by Manager but at Owner’s cost with coverage in the minimum amount of $1,000,000. Manager shall have no liability for loss of funds due to the insolvency of any depository institution, even if the amount of funds maintained exceeds the available federal or other deposit insurance; provided, however, that Manager shall promptly notify Owner if the funds in any deposit account exceed $100,000.

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ARTICLE V

ACCOUNTING

5.01.    Books and Records. Manager shall keep, or shall supervise and direct the keeping of, a comprehensive system of office records, books and accounts pertaining to the Project. Unless otherwise specified by Owner, such accounts shall be maintained in accordance with generally accepted accounting principles, consistently applied, provided that receivables from residents shall be fully reserved to facilitate review of the profit and loss statement. Such records shall be subject to examination by Owner, Owner’s lenders, and their respective authorized agents, attorneys and accountants during normal business hours on reasonable advance notice (at least one day, unless Owner determines exigent circumstances preclude its providing any prior notice). Manager shall preserve all invoices at the Project for three (3) years or as otherwise directed by Owner. Manager shall cooperate fully with any auditors or other persons authorized by Manager to review office records, books and accounts pertaining to the Project.

ARTICLE VI

GENERAL COVENANTS OF OWNER AND MANAGER

6.01.    Owner’s Right of Inspection and Review. Owner, its lenders, the KBS Member and their respective accountants, attorneys and agents shall have the right to enter upon any part of the Project at any reasonable time during the Term of this Agreement for the purpose of examining or inspecting the Project, but any inspection shall be done with as little disruption to the business of the Project as possible and subject to rights of tenants to limit or prohibit access to space in their possession.

6.02.    Indemnification.

(a)    Indemnification by Owner. Owner agrees to indemnify, defend, and hold Manager and any sub-manager, and their direct and indirect members, shareholders, principals, Affiliates, officers, directors and employees harmless from and against any and all liabilities, losses, damages, costs or expenses (including, without limitation, reasonable attorneys’ fees) threatened or assessed against, levied upon, or collected from, Manager, arising out of any claims by third parties in connection with the management of the Property. Notwithstanding the foregoing, Owner shall not be required to indemnify Manager with respect to any liability, loss, damages, cost or expense suffered as a result of any breach of this Agreement by Manager or the fraud, gross negligence, willful misconduct or bad faith of Manager or employees of Manager. Owner shall not be required to indemnify Manager with respect to any liability, loss, damage, cost or expense to the extent that the same is covered by proceeds received by Manager pursuant to insurance maintained by Owner or Manager.

(b)    Indemnification by Manager. Manager agrees to indemnify and hold Owner, its direct and indirect members, shareholders, principals, Affiliates, officers, directors and employees harmless from and against any and all liabilities, losses, damages, costs or expenses (including without limitation, reasonable attorneys’ fees), threatened or assessed against, levied upon, or collected from, Owner arising from any breach of this Agreement by Manager or the gross negligence, willful misconduct or bad faith of Manager or employees

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of Manager. Notwithstanding the foregoing, Manager shall not be required to indemnify Owner with respect to any liability, loss, damage, cost or expense to the extent that the same is covered by proceeds received by Owner pursuant to insurance maintained by Owner or Manager. The forgoing indemnity shall be for the benefit of Owner and any partner, member, officer, director, agent, representative, affiliate or employee of Owner (“Owner’s Representatives”) and shall survive the expiration and any termination of this Agreement.

(c)    The indemnity obligations of the parties in this Agreement shall survive expiration or earlier termination of this Agreement.

6.03.    Covenants Concerning Payment of Operating Expenses. Owner covenants to pay all sums for expenses of maintaining and operating the Project to the extent that such expenses are properly incurred pursuant to the terms and conditions of this Agreement and exceed receipts from the Project available in the Operating Account. Such deposits shall be made upon written notice from Manager within five (5) days after receipt by Owner of written notice.

6.04.    Limitation of Owner’s Liability. Owner’s liability to Operator hereunder shall be limited to Owner’s interest in the Project and the proceeds thereof and Operator shall not look to any other property or assets of Owner or the property or assets of any of the Owner Parties (as hereinafter defined) in seeking either to enforce Owner’s obligations under this Agreement or to satisfy a judgment for Owner’s failure to perform such obligations. Neither the direct or indirect shareholders, partners, or members comprising Owner nor the shareholders, partners, members, directors or officers of any of the foregoing (the “Owner Parties”) shall be liable for the performance of Owner’s obligations under this Agreement. The terms of this Section 6.04 shall survive the expiration or earlier termination of this Agreement.

ARTICLE VII

DEFAULTS AND TERMINATION RIGHTS

7.01.    General Default by Manager. Manager shall be deemed to be in default hereunder in the event Manager shall fail to keep, observe or perform any material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Manager and Manager does not cure such default within thirty (30) days after notice thereof by Owner to Manager or, if such default cannot be cured within thirty (30) days, then within such additional period as shall be reasonably necessary to effect a cure so long as Manager commences efforts to cure within the original 30-day period and thereafter diligently pursues the cure.

7.02    Termination Rights of Owner For Cause. This Agreement may be terminated by Owner upon the occurrence of any of the following circumstances:

(a)    If a petition for bankruptcy, reorganization or the like is filed under any state or federal bankruptcy or insolvency statutes by or against Manager or Manager makes an assignment for the benefit of creditors or take advantage of any insolvency or similar law.

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(b)    If Manager defaults in the performance of any of its obligations hereunder and such default shall continue beyond the notice and cure period provided therefor in Sections 7.01, including, without limitation, the failure by Manager to do so in accordance with the Standard.

(c)    fraud or intentional misappropriation or misapplication of the Company’s or Owner’s funds by Manager (or any employee thereof) that is not cured within thirty (30) days (provided, that such thirty (30) day cure period shall not be available in the case of fraud, misappropriation or misapplication by Karl Slovin or Matthew Ellis (or any other similar person who may replace Karl Slovin as the chief executive of Manager);

(d)    a final, non-appealable finding or determination by a court of willful misconduct or gross negligence by Manager in connection with the performance by Manager it of its obligations hereunder;

(e)     any direct or indirect transfer of the interest held by MWEST Member (as defined in the Venture’s Operating Agreement) in the Venture that is expressly prohibited under the Venture’s Operating Agreement;

(f)    if at any time Manager is no longer Controlled by Karl Slovin, Bruce Slovin or Matthew Ellis; provided that if the Manager is no longer controlled by Karl Slovin and is instead controlled by Bruce Slovin and/or Matthew Ellis and the quality and standard of services provided by Manager hereunder decreases below the quality and standard of services provided by Manager prior to Karl Slovin ceasing to Control Manager, then the same shall constitute an event pursuant to which Owner may terminate this Agreement pursuant to this subclause (f);

(g) if MWEST Member ceases to be a member of the Company;

(h)if MWEST Member is removed as the Managing Member of the Venture; or

(i)    If Owner sells the Project.

The parties to this Agreement understand and acknowledge that, pursuant to the Venture’s Operating Agreement, KBS Member (or its permitted successors and assigns under the Venture’s Operating Agreement) shall have the right to independently terminate this Agreement, without the consent of MWEST Member or any other member of the Venture but only in the event of the occurrence of any of the events described in this Section 7.02 and provided that KBS Member (or its permitted successors or assigns) is then a member of Owner.

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7.03.    Defaults by Owner. Owner shall be deemed to be in default hereunder in the event Owner shall fail to keep, observe or perform any covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Owner and Owner does not cure such default within thirty (30) days after written notice thereof by Manager to Owner or, if such default cannot be cured within thirty (30) days, then within such additional period as shall be reasonably necessary to effect a cure so long as Owner commences efforts to cure within the original 30-day period and thereafter diligently pursues the cure. Owner also shall be deemed to be in default hereunder in the event (i) Owner shall fail to pay any amount due Manager hereunder and Owner does not cure such default within seven (7) days after receipt by Owner of written notice of such default, or (ii) Owner shall fail to timely provide funds for operation of the Project as required by Section 6.03.

7.04.    Remedies of Manager. Upon the occurrence of an event of default by Owner and the expiration of any notice and cure period as specified in Section 7.03 hereof, Manager shall have the right to terminate this Agreement with thirty (30) days written notice.

7.05.    Termination by Owner Without Cause. Owner may, for any reason or for no reason and without a fee, terminate this Agreement on thirty (30) days written notice to Manager.

7.06    Payment Obligations to Survive. Upon any termination of this Agreement in accordance with this Article VII, regardless of the cause, Owner shall continue to be obligated to pay Manager all amounts due Manager pursuant to the terms and conditions of this Agreement in respect of the period prior to termination for the period ending on the date of termination, and with respect to any Termination Without Cause under Section 7.05 only, all costs and expenses reasonably incurred by Manager in terminating its involvement with respect to the Project.

7.07    Obligations Upon Termination. As soon as practicable (but no later than five (5) business days) after termination, Manager shall (i) vacate the Manager’s office (if any) maintained at the Project; (ii) remove all signs that it has placed at the Project indicating that it is the Manager of same; (iii) assign all unexpired services and supply contracts (to which Owner is not already a party) to Owner or parties specified by Owner, provided Manager is indemnified from any liability thereunder from and after the effective date of such assignment; and (iv) return intact (normal wear and tear excepted) all personal property owned exclusively by Owner in connection with the Project, whether on the Project or elsewhere and which is in Manager’s possession or control; (v) transfer the bank accounts relating to the Project as directed by Owner; and (vi) deliver to Owner the originals (or copies if such originals are not available) of all books, permits, warranties, plans, records, leases, licenses, contracts and other documents pertaining to the Project and its operation, any insurance policies, bills of sale or other documents evidencing title or rights of Owner, and any and all other records or documents pertaining to the Project, provided such records or documents are not proprietary in nature to or the exclusive property of the Manager, and which are in the possession of Manager, its officers, agents or employees; provided, however, that Manager shall have the right at its expense to make or retain a copy (in hard copy or electronic form) of all such materials for archival purposes. Within twenty (20) days after the date of termination of this Agreement, Manager shall deliver to Owner an accounting reflecting the balance of income and expenses of and from the Project to the date of termination of the Agreement. Any funds received by Manager after the date of termination which derive from the Owner shall be received in trust for the benefit of Owner and promptly remitted by Manager to Owner. Manager shall deliver to Owner all funds (including

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tenant security deposits), books and records of Owner then in possession or control of Manager, in the case of funds, after deducting therefrom such sums as are then due and owing (and not being disputed by Owner) to Manager hereunder. Within sixty (60) days following expiration or termination of the Term, Manager shall deliver to Owner a final accounting, in writing, with respect to the operations of the Project.

7.08    Non-Solicitation/Non-Hire. During the term of this Agreement and for a period of one (1) year following the termination of this Agreement, Owner hereby covenants and represents that it will not, directly or indirectly, solicit, hire or contract with any of Manager’s non-Project Employees, unless Manager consents in writing.

ARTICLE VIII
INSURANCE

8.01.    Owner’s Insurance. The Owner hereby agrees to maintain at all times the following coverages:

(a) Commercial General Liability Insurance. Commercial general liability insurance, including coverage for premises-operations, products-completed operations, independent contracts, blanket contractual liability, personal injury and broad form property damage, and including cross liability and severability of interests with the minimum limits of $1,000,000 each occurrence, $2,000,000 general aggregate, $1,000,000 personal and advertising injury, and $2,000,000 products-completed operations aggregate. Such policy shall include “your real estate manager” within the definition of “Insured”. Coverage for additional insureds shall apply as primary and non-contributing insurance before any other insurance or self insurance, including any deductible, maintained by or provided to the additional insureds. If coverage for Manager is not available on the Owner’s Commercial Liability Policy, then Manager shall obtain such coverage under its own name.

(b) Umbrella Insurance. Excess/umbrella liability insurance on a follow form basis with a limit of $10,000,000.

(c) Property Insurance. Owner shall cause to be placed and kept in force fire and extended coverage insurance and such other property and casualty insurance as Owner may elect, at Owner’s expense.

Prior to the commencement of work under this Agreement, the Owner shall provide a current and original certificate of insurance providing evidence of the aforementioned insurance requirements. Said certificate shall show the Manager as “additional insured” on the Commercial General Liability policy or in its policy definitions, and not merely a certificate holder. In the “Cancellation” provision of the certificate it shall read as follows: “Should any of the above described policies be canceled before the expiration date thereof to certificate holder named in the certificate”. It is agreed by all parties that no work shall commence under the terms of this Agreement until said certificate of insurance is received and approved by the Manager. No later than the renewal date

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of any insurance policies required by this Agreement, the Owner will supply the Manager with a current certificate of insurance in compliance with the terms of this Agreement.

8.02.    Manager’s Insurance. During the Term of this Agreement, subject to certain coverages being provided by a sub-manager, if a sub-manager is responsible for day to day management of the Project, Manager, at Manager’s expense, shall carry and maintain insurance for the benefit of Manager (with blanket contractual liability coverage) on an “occurrence” basis, naming Owner as an additional insured (the “Manager’s Liability Insurance”), with limits of not less than the following:

(a)    employers’ liability insurance, $500,000 each accident for bodily injury by accident, $500,000 each employee for bodily injury by disease, and $500,000 policy limit for bodily injury by disease, or such other amount as may be required by umbrella policy to effect umbrella coverage;

(b)    commercial automobile liability insurance, including coverage for owned, non-owned, leased and hired autos in the minimum amount of $1,000,000 combined single limits for bodily injury and property damage;

(c)    comprehensive crime insurance in an amount of not less than $1,000,000, including third-party crime coverage naming Owner as a loss payee;

(d)    errors and omissions insurance of not less than $1,000,000 or such other minimum amount, if higher, as may be required by applicable law, including the Owner as a named insured; and

(e)    worker’s compensation insurance in compliance with all applicable federal, state and local laws and regulations covering all Project Employees of Manager.

Owner shall pay Manager for the pro rata expense of worker’s compensation insurance on the basis of Manager’s (or, if applicable, the sub-manager’s) current worker’s compensation rates, the payroll of the Project and Manager’s (or, if applicable, the sub-manager’s) current premium discounts. Owner’s reimbursement obligation shall extend to any increase to expense derived from subsequent audits, and if any subsequent audit results in an increase in the workers’ compensation costs, Owner shall pay Manager an amount equal to the increased amount.

At the start of each Fiscal Year following the current Fiscal Year, Manager shall provide to Owner a written certificate from the carrier reflecting that Manager’s Liability Insurance is effective in accordance with this Section 8.02. The insurance carriers providing the coverages outlined above must be financially sound and acceptable to Owner.

8.03.    Handling Claims. Manager shall report to Owner, as soon as practicable after Manager becomes aware of the same, all accidents occurring on or about the Project and any damage or destruction to the Project coming to the attention of Manager. Manager will promptly notify Owner and the appropriate insurance carrier(s) of any incidents which Manager believes could likely give rise to a claim under any of the insurance policies carried by either the Owner or the Operator. Manager shall facilitate the processing and/or settlement of claims against Owner’s insurers.

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8.04    Mutual Waiver of Subrogation. Each of Owner and Manager shall waive all rights of subrogation under their insurance policies referred to in this Section 8 and such waiver of subrogation will not affect the effective of coverage of such policies and each of Owner and Manager will obtain an endorsement, if necessary to confirm that the waiver of subrogation herein granted will in no manner affect the coverage of such policies.

ARTICLE IX

MISCELLANEOUS PROVISIONS

9.01.    Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California. Venue shall be in Los Angeles County, State of California.

9.02    Notice. Unless otherwise provided herein, all notices, consents, requests, demands, claims and other communications provided for under the terms of this Agreement shall be in writing. Any such written notice, consent, request, demand, claim or other communication hereunder shall be sent by (i) personal delivery (including receipted courier service) or overnight delivery service, with confirmation of receipt, (ii) reputable commercial overnight delivery service courier, with confirmation of receipt, (iii) electronic mail (provided that any written consent required under Section 7.01(d) may not be sent by electronic mail), or (iv) registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below:

If to Manager:        Polaris Property Management, LLC

13949 Ventura Boulevard, Suite 350

Sherman Oaks, California 91423

Attn: Karl Slovin                Telephone: (818) 501-5600

Fax: (818) 501-5655

Email:    kslovin@mwestholdings.com

with a copy to:        Goldfarb & Fleece LLP

560 Lexington Avenue

New York, New York 10022

Attn: Robert M. Zimmerman, Esq.

Telephone: (212) 891-9117

Fax: (212) 751-3738

Email: rzimmerman@gflegal.com

If to Owner:         M West Holdings LLC

13949 Ventura Boulevard, Suite 350

Sherman Oaks, California 91423

Attn: Karl Slovin    Telephone: (818) 501-5600

Fax: (818) 501-5655

Email:    kslovin@mwestholdings.com

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with a copy to:     KBS Capital Advisors LLC

11150 Santa Monica Blvd., Suite 400

Los Angeles, California 90025

Attn: Holden Slusher

Telephone: (424) 208-8105

Email: hslusher@kbs.com

And: KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, California 92660

Attn: Brian Ragsdale

Telephone: (949) 797-0305

Email: bragsdale@kbs.com

All such notices, requests, consents and other communications shall be deemed to have been given when received. Either party may change its email address, facsimile number or its address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other parties hereto notice in the manner then set forth.

9.03    Intentionally Blank.

9.04.    Severability. If any term, covenant or condition of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to a person or circumstance other than those as to which it is held invalid or unenforceable, shall not be affected thereby. Each term, covenant or condition of this Agreement shall be enforced to the fullest extent permitted by law.

9.05.    No Joint Venture or Partnership. Owner and Manager hereby agree that nothing contained herein or in any document executed in connection herewith shall be construed as making Manager and Owner joint venturers or partners. In no event shall Manager have any obligation or liability whatsoever with respect to any debts, obligations or liabilities of Owner.

9.06.    Integration Clause. This Agreement embodies the entire agreement and understanding between Owner and Manager with respect to its subject matter and supersedes all prior agreements and understandings, written and oral, between Owner and Manager related to that subject matter.

9.07.    Modification and Waiver. This Agreement and the obligations of the parties under this Agreement may be amended, waived and discharged only by an instrument in writing executed by the party against which enforcement of the amendment, waiver or discharge is sought. In the case of Owner, no such instrument shall be deemed binding unless the same shall be executed by KBS Member or an authorized person on its behalf, in each case on behalf of the Owner.

9.08.    Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of Manager and Owner and their respective successors and assigns. Any indemnity in favor of a

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party also will benefit each person who holds a direct or indirect ownership interest in such party and the respective officers, directors, trustees, agents, employees and affiliates of such party and such owners, and all such persons are third-party beneficiaries of this Agreement to the extent of their indemnity, defense and similar rights under the related provision and may enforce that provision against Owner or Manager, as applicable.

9.09    Assignment. Neither Owner nor Manager may assign this Agreement or its rights hereunder. The preceding sentence notwithstanding, Manager may enter into a sub-management agreement with a third party pursuant to which such third party shall fulfill some or all of the obligations of Manager hereunder; but the execution of such sub-management agreement shall not relieve Manager of its obligation to timely fulfill, and its liability with respect to, its obligations hereunder.

9.10    OFAC Representations, Warranties, and Indemnification. Owner and Manager each represents and warrants that it is not, and none of its officers, directors, or shareholder (and such shareholder’s trustees and directors, but expressly excluding the shareholders of any indirect owner(s) of Owner if such indirect Owner is a publicly-held REIT or other similar SEC-reporting entity) is, a person or entity with whom U.S. persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”)of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Project and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or under any other law, rule, order, or regulation that is enforced or administered by OFAC (such persons and entities each being a “Prohibited Person”).

9.11    Time of the Essence; Unavoidable Delays. Time is of the essence of this Agreement. Each Party shall be excused from performing its obligations under this Agreement for so long as and to the extent that performance is prevented or delayed by Unavoidable Delay. “Unavoidable Delay” shall mean if any of Manager or Owner is prevented or delayed from performing its obligations hereunder by reason of strikes or labor troubles, or by any cause whatsoever reasonably beyond such party’s control, including but not limited to, laws, governmental preemption in connection with a national emergency or by reason of any Requirements of any governmental authority or by reason of the conditions of supply and demand which have been or are affected by war or other emergency.

9.12    Costs of Litigation. If either party shall institute an action or proceeding against the other party relating to this Agreement, the unsuccessful party in such action or proceeding shall reimburse the successful party for its disbursements incurred in connection therewith and for the reasonable out-of-pocket attorneys’ fees actually incurred.

9.13    Waiver of Jury Trial; Judicial Reference. Owner and Manager agree that any disputes arising between them in connection with any matter arising under, related to or in connection this Agreement (including a determination of any and all issues in such dispute, whether of fact or of law) shall be resolved (and a decision shall be rendered) by way of a consensual general reference as provided for in Part 1, Title 8, Chapter 6 (§§ 638, et seq.) of the California Code of Civil Procedure, or any successor California statute governing resolution of disputes by a court-appointed referee. Submission of a dispute to a reference proceeding shall be commenced by a written notice thereof

22

SMRH:479313063.2

made by one party to the other party, or by mutual written election of both parties (in either case, a “Reference Notice”). The reference proceeding shall be conducted in the county in which the Project is located, and Owner and Manager waive their rights to initiate any legal proceedings against each other in any court or jurisdiction other than Superior Court of the State of California in and for the County in which the Project is located (the “Court”). The referee shall be a retired California federal or state judge selected by mutual agreement of Manager and Owner from the “Neutrals” list maintained by JAMS, and if the parties cannot so agree within twenty (20) days after the Reference Notice is given, the referee shall be selected by the presiding judge of the Court (or his or her representatives). The referee shall not have any power to alter, amend, modify or change any of the terms of this Agreement nor grant any remedy which is either prohibited by the terms of this Agreement, or not available in a court of law or equity

9.14    Authority, Good Standing, and Conflicts.Each of Manager and Owner represent and warrant to the other that (i) it is an entity duly authorized, validly existing and in good standing under the laws of the state in which it is formed and is qualified to do business in the state in which the Property is located, (ii) it has full power, authority and legal right to execute, deliver and perform this Agreement and to perform all of its obligations hereunder and (iii) said execution, delivery and performance of all or any portion of its obligations under this Agreement does not require any consent or approval of any governmental authority, does not violate any provisions of law or any governmental order, and does not conflict with, result in a breach of, or constitute a default under its operating agreement or any instrument to it is a party or by which it or any of its affiliates is bound.

9.15    Approvals. Whenever the Owner’s or KBS Member’s approval for any matter is required pursuant to this Agreement, such approval shall be required to be obtained in advance and in writing, unless otherwise expressly provided herein. An approval by email shall be deemed in writing under this Agreement.

9.16    Acknowledgement. Subject to the limitations contained in the following sentence, parties understand and agree that for as long as KBS Member directly or indirectly owns an interest in the Venture, KBS Member shall be entitled to exercise independently the rights of the Owner as set forth in this Agreement. Such rights shall be exercisable by the KBS Member in the same manner and to the same extent that such rights could otherwise be exercised or enforced by the Owner, provided, however that KBS Member acknowledges and agrees that its rights pursuant to this Section 9.16 shall be subject to and limited by any rights of MWEST Member in its capacity as the Managing Member under the Venture’s Operating Agreement. It is the intention of KBS Member, Owner, Manager and MWEST Member that such rights constitute substantial direct participation and management rights with respect to the property governed by this Agreement and that such rights shall be independently enforceable by KBS Member, consistent with its status as a “real estate operating company” as defined in regulation issued by the U.S. Department of Labor under the Employee Retirement Income Security Act of 1974.

[signatures appear on following page]

23

SMRH:479313063.2

IN WITNESS WHEREOF, the parties hereto have set their hands and seals and have caused these presents to be signed respectively by their proper representative(s) as of the date of this Agreement.

OWNER:

NOHO COMMONS PACIFIC OWNER LLC,

a Delaware limited liability company

By:    KBS SOR II LOFTS AT NOHO COMMONS, LLC,

a Delaware limited liability company,

its Sole Member

By:    NOHO COMMONS PACIFIC INVESTORS LLC,

a Delaware limited liability company,

its Managing Member

By:     SLOVIN PROPERTIES, INC.,

a ____________ corporation,

its Managing Member

By:    ________________________

Karl Slovin,

President    

MANAGER:

Polaris Property Management, LLC

By: ________________________

Karl Slovin, Managing Member

SMRH:479102057.10 Exhibit D

ACKNOWLEDGED AND AGREED TO BY:

KBS MEMBER:

KBS SOR II LOFTS AT NOHO COMMONS JV, LLC,

a Delaware limited liability company

By:    KBS SOR II ACQUISITION V, LLC,

a Delaware limited liability company,

its sole member

By:    KBS SOR US PROPERTIES II LLC,

a Delaware limited liability company,

its sole member

By:    KBS STRATEGIC OPPORTUNITY LIMITED PARTNERSHIP II,

a Delaware limited partnership,

its sole member

By:    KBS STRATEGIC OPPORTUNITY REIT II, INC.,

a Maryland corporation,

its sole general partner

By:    ________________________

Jeffrey K. Waldvogel,

Chief Financial Officer

SMRH:479102057.10 Exhibit D

Exhibit A

Initial Budget

SMRH:479102057.10 Exhibit D

Exhibit B

Leasing Guidelines

SMRH:479102057.10 Exhibit D

EXHIBIT E

FORM OF ASSET MANAGEMENT AGREEMENT

See Attached.

00339561.1 00263229.3 5

SMRH:479313556.2

ASSET MANAGEMENT AGREEMENT

THIS AGREEMENT ("Agreement") is dated as of September ____, 2016 (the "Effective Date"), by and between NoHo Commons Pacific Owner LLC, a Delaware limited liability company maintaining an office at c/o M West Holdings, 13949 Ventura Blvd., Suite 350, Sherman Oaks, CA 91423 ("Owner") and M West Holdings, LLC, a California limited liability company, maintaining an office at 13949 Ventura Blvd., Suite 350, Sherman Oaks, CA 91423 ("Asset Manager").

RECITALS

Owner is the owner of the building known as Lofts at Noho Commons, located at 11136 Chandler Blvd., North Hollywood, California (the "Property"). Owner wishes to engage Asset Manager to perform certain services with respect to the management and development of the Property, and Asset Manager has agreed to perform such services in accordance with, and subject to, the terms and conditions set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises, undertakings and covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

1.Appointment.

Owner hereby appoints Asset Manager as asset manager of the Property, and Asset Manager hereby accepts such appointment, for the term specified in Section 8 below and on the terms and conditions set forth in this Agreement. Asset Manager shall perform all of its duties hereunder in good faith in a diligent, prudent and businesslike manner and in accordance with usual and customary professional, first-class asset management practices, and shall exercise in the performance of such duties at least the care, skill and diligence customarily exercised by prudent professional property asset managers of properties similar in nature, size and quality to the Property in properly conducting the affairs of the Property (all of the foregoing being referred to as "Business Prudent Practice"). Asset Manager shall make available to Owner the full benefit of the judgment, experience and advice of Asset Manager's senior management team in performing the services called for hereunder.

2.General Duties and Authority.

Subject to the provisions of this Agreement, Asset Manager shall formulate and propose to Owner strategies for promotion, operation, management, improvement, maintenance and leasing of the Property. Asset Manager, on behalf of Owner, shall supervise the conduct by the Property Manager (as hereinafter defined) of the ordinary and usual business affairs of Owner pertaining to the promotion, operation, management, improvement, maintenance and leasing of the Property

00339561.1 00263229.3 6

SMRH:479313556.2

solely as provided in this Agreement and the written agreement between Owner and the Property Manager.

3.Property Manager.

Notwithstanding anything to the contrary contained in this Agreement, but without intending to limit the nature and scope of the services to be provided by Asset Manager under this Agreement, it is agreed and understood that Owner shall engage the services of (a) a property management company (the "Property Manager") pursuant to a property management agreement and (b) one or more leasing agents, pursuant to one or more leasing brokerage agreements, and if Owner shall determine in its sole discretion, Owner may retain or cause to be retained one or more professional consultants to perform significant services on behalf of the Property, including, without limitation, environmental consultants, engineers, construction contractors, SOC 1 consultants, accountants, architects, tax certiorari counsel, leasing counsel and insurance agents. Asset Manager shall make recommendations to Owner with respect to all such third parties; shall negotiate any such agreements in consultation with and on behalf of Owner; and shall monitor and supervise, in conjunction with the Property Manager, the performance by all such subcontractors and professional consultants. The fees and expenses of any such subcontractors and any such professional consultants shall be paid by the Company from revenues of the Property. All of the contracts with such subcontractors and professional consultants shall be subject to Owner's prior written approval.

4.Specific Duties.

Except as otherwise expressly set forth herein, Asset Manager's duties shall be limited to the duties of the Managing Member as set forth in the Limited Liability Company Agreement of KBS SOR II LOFTS AT NOHO COMMONS, LLC, dated September ___, 2016 (the “Operating Agreement”). Asset Manager shall perform no duties and shall possess no authority not explicitly granted to the Managing Member under the Operating Agreement. Notwithstanding any provision to the contrary in this Section 4, Asset Manager shall have the right, and intends to, delegate to Property Manager those duties and responsibilities of Asset Manager hereunder which are capable of being performed by Property Manager, excluding, however, all supervisory, monitoring or oversight duties and responsibilities of Asset Manager as set forth herein. For so long as that certain Property Management Agreement dated as of the date hereof between Owner and Polaris Property Management LLC (“Polaris Management”) shall be in effect, Polaris Management shall be the Property Manager for purposes of this Agreement. By its signature below, Polaris Management hereby agrees to accept and perform all duties and responsibilities so delegated by Asset Manager, without additional compensation or other remuneration, on all of the terms and conditions of this Agreement.

5.Restrictions on Asset Manager's Authority.

Notwithstanding anything to the contrary contained in this Agreement, and without limiting the application of the first paragraph of Section 4, Asset Manager shall not have the right or authority, without the prior written consent of Owner, to undertake actions which are not specifically authorized by the Operating Agreement to be taken by the Managing Member or otherwise agreed to in writing by Owner.

00339561.1 00263229.3 7

SMRH:479313556.2

6.Insufficient Income.

If at any time the cash in the operating account of Owner is not sufficient to pay expenses and fees incurred with respect to the Property, Asset Manager shall notify Owner immediately of such condition or the potential of such condition and Owner may, at its option, provide sufficient monies to eliminate such cash shortage. Asset Manager shall not be required to advance any of its own funds to pay expenses and fees incurred with respect to the Property.

7.Compensation.

In full consideration of all of the services to be provided by Asset Manager hereunder, beginning on the Effective Date and continuing on the first (1^st) calendar day of each month thereafter, Owner agrees to pay Asset Manager One Percent (1%) of the estimated Gross Revenues (as hereafter defined) of the Property for the then current calendar month. In each subsequent month following the payment of a fee to Asset Manager hereunder, Owner shall add to or deduct from, as applicable, the fee payable to Asset Manager for the then current calendar month, the difference between the fee paid to Asset Manager in the previous calendar month (based on the estimated Gross Revenues) and the fee that would have been paid to Asset Manager based on the actual Gross Revenues for such preceding month. In the event the term of this Agreement does not begin on the first (1^st) day of the month, the fee payable to Asset Manager for the first (1^st) month of this Agreement shall be prorated. For purposes hereof, the term “Gross Revenues” shall mean the entire amount of all Property receipts, determined on a cash basis, from (a) tenant rentals and other sums collected pursuant to tenant leases (excluding security deposits relating to the Property, except as provided below) and other amounts collected for rental of the Property, including parking income, parking fees and similar amounts, but excluding all prepaid rents except for the portion applied to the then-current month, (b) income from concessions, including cable television, telephone, internet access, security monitoring, laundry and vending machines, (c) proceeds from rental loss or business interruption insurance, (d) and (d) application fees, cleaning fees, pet fees, redecorating fees and other similar miscellaneous income. Gross Revenues do not include the proceeds of (i) any sale, exchange, refinancing, condemnation, or other disposition of all or any part of the Property, (ii) any loans to Owner, whether or not secured by all or any part of the Property, (iii) any capital contributions to Owner, (iv) any insurance (other than rental loss or business interruption insurance) maintained with regard to the Property, (v) tenant reimbursements for utility costs, (vi) security deposits (until applied to obligations that constitute Gross Revenues), (vii) any sums and charges collected in connection with termination of the tenant leases or settlement of rent claims, and (viii) sums collected or paid for sales, excise or use taxes.

8.    Term.

The term of Asset Manager's appointment pursuant to this Agreement shall commence on the Effective Date and shall continue in full force and effect for as long as NoHo Commons Pacific Investors LLC is the Managing Member of KBS SOR II LOFTS AT NOHO COMMONS, LLC. Upon the removal of NoHo Commons Pacific Investors LLC as the Managing Member of KBS SOR II LOFTS AT NOHO COMMONS, LLC, this Agreement shall immediately terminate.

00339561.1 00263229.3 8

SMRH:479313556.2

9.    Notices.

All notices or other communications required or permitted hereunder shall be in writing, and shall be delivered or sent, as the case may be, by any of the following methods: (i) personal delivery, (ii) overnight commercial carrier, (iii) registered or certified mail, postage prepaid, return receipt requested, or (iv) telecopy or facsimile. Any such notice or other communication shall be deemed received and effective upon the date of acceptance or rejection of delivery. Any notice or other communication sent by cable, telex, or telecopy must be confirmed within 48 hours by letter mailed or delivered in accordance with the foregoing. Any reference herein to the date of receipt, delivery, or giving, or effective date, as the case may be, of any notice or communication shall refer to the date such communication becomes effective under the terms of this Section 9. Any such notice or other communication so delivered shall be addressed to the party to be served at the address for such party set forth in this Section 9. Such addresses may be changed by giving written notice to the other parties in the manner set forth in this Section 9. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to constitute receipt of notice or other communication sent.

All notices to Asset Manager shall be sent to:

M West Holdings, LLC

13949 Ventura Blvd., Suite 350

Sherman Oaks, CA 91423

With a copy to:

Goldfarb & Fleece LLP

560 Lexington Avenue, 6^th Floor

New York, New York 10022

Attn: Robert Zimmerman, Esq.

All notices to Owner shall be sent to:

[NoHo Commons Pacific Owner LLC]

13949 Ventura Blvd., Suite 350

Sherman Oaks, CA 91423

With a copy to:

KBS SOR II LOFTS AT NOHO COMMONS JV, LLC

c/o KBS Capital Advisors

11150 Santa Monica Blvd., Suite 400

Los Angeles, CA 90025

Attn: Holden Slusher

00339561.1 00263229.3 9

SMRH:479313556.2

With a copy to:

KBS SOR II LOFTS AT NOHO COMMONS JV, LLC

c/o KBS Capital Advisors

800 Newport Center Drive, Suite 700

Newport Beach, CA 92660

Attn: Brian Ragsdale

10.    Integration; Modification; Waiver.

This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and shall supersede and integrate for all purposes any and all other agreements and understandings, oral and written, between the parties (or their agents or representatives on their behalf) with respect to the subject matter hereof, except in the case of any prior or contemporaneous written agreement which expressly provides that it shall survive the execution of this Agreement. This Agreement may not be changed or modified orally but only by written instrument signed by duly authorized officers or representatives of the parties hereto. No failure of either party to exercise, or delay in exercising, any right hereunder shall operate as a waiver thereof, and no waiver or partial exercise of any right in any one instance shall prevent the further partial or full exercise of such right in future instances.

11.    Assignment.

Neither this Agreement nor any of the rights and/or duties of either party hereunder may be assigned without the prior written consent of Owner, which consent may be withheld by Owner in its sole and absolute discretion.

12.    Counterparts.

To facilitate execution, this Agreement may be executed in counterparts, and it shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required to bind any party, appear on each counterpart; but it shall be sufficient that the signatures of, or on behalf of each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto.

13.    Severability.

If any term or provision of this Agreement, or the application thereof to any person or circumstance, shall to any extent be held invalid or unenforceable by a court of competent jurisdiction, such invalidity shall not affect other provisions of this Agreement or the applications thereof which can be given effect without the invalid provision or application, and to this end the

00339561.1 00263229.3 10

SMRH:479313556.2

parties hereto agree that the provisions of this Agreement are and shall be severable. If any provision or provisions of this Agreement shall be held unenforceable or void, this Agreement shall not thereby be terminated, but the parties shall promptly negotiate a replacement provision or provisions designed to remove the terms which caused the original provisions to be unenforceable or void and, insofar as is lawful and commercially reasonable, to achieve their original purposes.

14.        Binding Effect.

Subject to Section 11 of this Agreement, this Agreement shall be binding on and inure to the benefit of the parties hereto, their respective successors and assigns.

15.    Governing Law.

This Agreement shall be governed by and construed in accordance with the internal laws of the State of California.

[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

00339561.1 00263229.3 11

SMRH:479313556.2

Asset Mngmnt Agm’t
September, 2016

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

OWNER:

NOHO COMMONS PACIFIC OWNER LLC,

a Delaware limited liability company

By:    KBS SOR II LOFTS AT NOHO COMMONS, LLC,

a Delaware limited liability company,

its Sole Member

By:    NOHO COMMONS PACIFIC INVESTORS LLC,

a Delaware limited liability company,

its Managing Member

By:     SLOVIN PROPERTIES, INC.,

a ____________ corporation,

its Managing Member

By:    ________________________

Karl Slovin,

President

ASSET MANAGER:

M WEST HOLDINGS, LLC

By:     ________________________

    Karl Slovin,

President

SMRH:479102057.10 Exhibit E

AGREED AND ACCEPTED AS TO SECTION 4:

POLARIS PROPERTY MANAGEMENT LLC

By:_______________________________

Name:

Title:    

SMRH:479102057.10 Exhibit E

APPROVED BY:

KBS SOR II LOFTS AT NOHO COMMONS JV, LLC,

a Delaware limited liability company

By:    KBS SOR II ACQUISITION V, LLC,

a Delaware limited liability company,

its sole member

By:    KBS SOR US PROPERTIES II LLC,

a Delaware limited liability company,

its sole member

By:    KBS STRATEGIC OPPORTUNITY LIMITED PARTNERSHIP II,

a Delaware limited partnership,

its sole member

By:    KBS STRATEGIC OPPORTUNITY REIT II, INC.,

a Maryland corporation,

its sole general partner

By:    ________________________

Jeffrey K. Waldvogel,

Chief Financial Officer

SMRH:479102057.10 Exhibit E

EXHIBIT F

SCHEDULE OF SOURCES AND USES OF FUNDS

At least five (5) business days before the Property Closing, the Members will agree upon a schedule of sources and uses of, and the amount of, the Member’s initial capital contributions to be made pursuant to Section 3.01(a) and (b) of this Agreement and attach as Exhibit F with such approved schedule, which shall set forth the amounts to be funded by the JV Member pursuant to Section 3.01(a)(ii) and the amounts to be funded by the KBS Member pursuant to Section 3.01(b)(ii).

SMRH:479102057.10 Exhibit F

EXHIBIT G

ORGANIZATIONAL CHART

See Attached.

SMRH:479102057.10 Exhibit G

SMRH:479102057.10

LIMITED LIABILITY COMPANY AGREEMENT
OF KBS SOR II LOFTS AT NOHO COMMONS, LLC

THIS AGREEMENT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, 15 U.S.C. § 15b ET SEQ., AS AMENDED (THE “FEDERAL ACT”), IN RELIANCE UPON ONE (1) OR MORE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL ACT. IN ADDITION, THE ISSUANCE OF THIS SECURITY HAS NOT BEEN QUALIFIED UNDER THE DELAWARE SECURITIES ACT OR ANY OTHER STATE SECURITIES LAWS (COLLECTIVELY, THE “STATE ACTS”), IN RELIANCE UPON ONE (1) OR MORE EXEMPTIONS FROM THE REGISTRATION PROVISIONS OF THE STATE ACTS. IT IS UNLAWFUL TO CONSUMMATE A SALE OR OTHER TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN TO, OR TO RECEIVE ANY CONSIDERATION THEREFOR FROM, ANY PERSON OR ENTITY WITHOUT THE OPINION OF COUNSEL FOR THE COMPANY THAT THE PROPOSED SALE OR OTHER TRANSFER OF THIS SECURITY DOES NOT AFFECT THE AVAILABILITY TO THE COMPANY OF SUCH EXEMPTIONS FROM REGISTRATION AND QUALIFICATION, AND THAT SUCH PROPOSED SALE OR OTHER TRANSFER IS IN COMPLIANCE WITH ALL APPLICABLE STATE AND FEDERAL SECURITIES LAWS. THE TRANSFER OF THIS SECURITY IS FURTHER RESTRICTED UNDER THE TERMS OF THE LIMITED LIABILITY COMPANY AGREEMENT GOVERNING THE COMPANY, A COPY OF WHICH IS ON FILE WITH THE COMPANY.

SMRH:479102057.10

EX-10.3

EXECUTION VERSION

“SALE, PURCHASE AND ESCROW AGREEMENT

This Sale, Purchase and Escrow Agreement (this “Agreement”), dated as of September 29, 2016, (the “Effective Date”) is made by and between REDROCK NOHO RESIDENTIAL, LLC, a Delaware limited liability company (“Seller”) and NOHO COMMONS PACIFIC OWNER LLC, a Delaware limited liability company(“Purchaser”) and constitutes (i) a contract of sale and purchase between Seller and Purchaser; and (ii) an escrow agreement among Seller, Purchaser, and Chicago Title Insurance Company (“Escrow Agent”), the consent of which appears herein.

ARTICLE I
RECITALS

1.1Real Property. Seller owns and holds fee title to that certain land (the “Land”) described in Exhibit A, together with all improvements (the “Improvements”) located thereon commonly known as the Lofts at NoHo Commons, a residential property located at 11136 Chandler Boulevard in North Hollywood, City of Los Angeles, County of Los Angeles, State of California (collectively, the “Real Property”).

1.2Personal Property. In connection with the Real Property, Seller has: (i) obtained certain contractual rights and other intangible assets, including, without limitation, permits, licenses, approvals, development rights, warranties, guaranties, and plans, specifications, models and other construction documents (collectively, “Intangible Property”); (ii) entered into certain service contracts, equipment leases, maintenance agreements and other contracts affecting the Real Property enumerated in Exhibit F attached hereto (collectively, the “Contracts”); (iii) acquired certain other items of tangible personal property which are located on the Real Property and used by Seller in connection with the operation and maintenance thereof, including, but not limited to, any desktop computers (with all data removed), and such other items of personal property identified in Schedule 1 of the Bill of Sale (collectively, the “Personal Property”); (iv) entered into the leases enumerated on the rent roll attached hereto as Exhibit K (the “Rent Roll” and, together with any leases executed in accordance with this Agreement after the date hereof, collectively, the “Leases”), and currently holds certain unapplied tenant security deposits under the Leases (collectively, the “Tenant Deposits”); and (v) acquired certain items, including all master keys and keys to common areas and any and all other rights, privileges and/or appurtenances owned by Seller and used exclusively in connection with the existing business operation of the Real Property and other transferable intangible property, miscellaneous rights, benefits or privileges of any kind or character used exclusively in connection with the existing business operation of the Real Property, including, without limitation, the right to use the name “Lofts at NoHo Commons” and variations thereof, trade marks, trade names, service marks, social media set up exclusively in connection with the Property, phone accounts, phone numbers and phone lines, and the domain names as set forth in Schedule 1.2 hereto (collectively, the “Miscellaneous Property”). The Real Property, the Intangible Property, the

EXECUTION VERSION

Contracts, the Personal Property, the Leases, the Tenant Deposits, and the Miscellaneous Property are collectively referred to as the “Property.”

1.3Owner Participation Agreement. The Property is subject to that certain Owner Participation Agreement, dated March 5, 2002, as subsequently amended, (the “OPA”), by and between The Community Redevelopment Agency of the City of Los Angeles (including any successor, the “Agency”) and NO HO Lofts, LLC, a Delaware limited liability company, and predecessor-in-interest, by partial assignment, to Seller.

1.4Purchase and Sale. Seller now desires to sell and Purchaser now desires to purchase the Property, upon the terms and covenants and subject to the conditions set forth below.

ARTICLE II
PURCHASE PRICE

2.1Price. In consideration of the covenants herein contained, Seller hereby agrees to sell and Purchaser hereby agrees to purchase the Property for a total purchase price of One Hundred Two Million Five Hundred Thousand Dollars ($102,500,000) (the “Purchase Price”), which shall be paid by Purchaser as follows:

2.1.1Deposit. Purchaser shall deliver, within two (2) business days of the Effective Date to Escrow Agent by bank wire of immediately available funds the sum of Three Million Dollars ($3,000,000) (the “Initial Deposit”). If Purchaser elects to extend the Closing Date (as hereinafter defined) as provided in Section 6.1 to the First Extension Date (as hereinafter defined), Purchaser shall deliver, together with the First Extension Notice (as hereinafter defined), to Escrow Agent by bank wire of immediately available funds the sum of One Million Five Hundred Thousand Dollars ($1,500,000) (the “First Extension Deposit”). If Purchaser further elects to extend the Closing Date as provided in Section 6.1 to the Second Extension Date (as hereinafter defined), Purchaser shall deliver, together with the Second Extension Notice (as hereinafter defined), to Escrow Agent by bank wire of immediately available funds an additional sum of One Million Five Hundred Thousand Dollars ($1,500,000) (the “Second Extension Deposit”). The Initial Deposit, together with the First Extension Deposit if made, and the Second Extension Deposit if made, shall be referred to herein as the “Deposit.” If Purchaser fails to deliver the Initial Deposit in full to Escrow Agent on or before the expiration of the two (2) business day period as provided above, or the First Extension Deposit or Second Extension Deposit together with the First Extension Date Notice (if the First Extension Date Notice is delivered) or Second Extension Date Notice (if the Second Extension Date Notice is delivered), as applicable, then Purchaser shall be deemed to have terminated this Agreement, and the Deposit, to the extent then made

EXECUTION VERSION

by Purchaser, shall be immediately disbursed to Purchaser by Escrow Agent without the necessity of any further escrow instruction. The Deposit, once made shall be non-refundable to the Purchaser, except as otherwise set forth herein to the contrary. The Deposit shall be held in an interest-bearing escrow account by Escrow Holder in an institution as directed by Purchaser and reasonably acceptable to Seller, and all interest earned on the Deposit shall be deemed part of the Deposit for all purchase under this Agreement.

2.1.2Balance of Purchase Price. Purchaser shall, on the day of Closing (as defined in Section 6.1), deliver to Escrow Agent, by bank wire transfer of immediately available funds, a sum equal to the balance of the Purchase Price; provided, however, that if Purchaser fails to effectuate such wire transfer in time to allow Seller to pay off the existing mortgage lender on the Closing Date, Purchaser shall reimburse Seller for per diem interest and any other fees, expenses or penalties it accrues as a result of its inability to make a timely payoff of the loan. The balance of the Purchase Price received by Seller at Closing shall be adjusted to reflect prorations and other adjustments pursuant to Section 7.1 and Section 2.3.

2.2Investments. Following the collection of the Deposit, Escrow Agent shall, at the direction of Purchaser, invest the Deposit in:

(i)obligations of the United States government, its agencies or independent departments;

(ii)certificates of deposit issued by a banking institution whose principal office is in New York City, San Francisco, or Los Angeles, with assets in excess of One Billion Dollars ($1,000,000,000); or

(iii)an interest-bearing account of a banking institution whose principal office is in New York City, San Francisco, or Los Angeles, with assets in excess of One Billion Dollars ($1,000,000,000).

No investment of the Deposit shall have a maturity date beyond the Closing Date (as defined in Section 6.1).

2.3Interest on the Deposit. Any interest earned on the Deposit shall be credited and delivered to the party receiving the Deposit; provided, however, that if the transaction closes, at Closing any interest earned on the Deposit shall be credited to Purchaser by applying the same against the Purchase Price.

2.4Release of Deposit Upon Termination. If this Agreement terminates for any reason other than solely as a result of Purchaser’s Default in accordance with the terms and conditions hereof, Escrow Agent shall automatically and promptly refund the Deposit, together with all accrued

EXECUTION VERSION

interest, to Purchaser, and no party hereto shall have any further obligation under this Agreement except for such obligations which by their terms expressly survive the Closing or other termination of this Agreement (the “Surviving Obligations”). If Seller terminates this Agreement as a result of Purchaser’s Default, the Deposit, together with all accrued interest, shall be immediately released by Escrow Agent to Seller as liquidated damages as provided in Section 10.1, and no party hereto shall have any further obligation under this Agreement except for the Surviving Obligations.

ARTICLE III

CONDITIONS TO THE PARTIES’ OBLIGATIONS

3.1Conditions to Purchaser’s Obligation to Purchase. Purchaser’s obligation to purchase, unless waived in writing by Purchaser, is expressly conditioned upon the fulfillment of, on or prior to the Closing Date, each of the following:

3.1.1Performance by Seller. Performance in all material respects of the obligations and covenants of, and deliveries required of, Seller hereunder.

3.1.2Delivery of Title and Possession. Delivery at the Closing of (i) the Deed (as defined in Section 4.2.1) and (ii) possession as provided in Section 15.1.

3.1.3Title Insurance.

(a)Delivery at the Closing of the standard current form of California Land Title Association (CLTA) owner’s policy of title insurance (the “Title Policy”), or an irrevocable commitment to issue the same, with liability in the amount of the Purchase Price issued by Chicago Title Insurance Company (the “Title Company”), insuring that fee title to the Real Property vests in Purchaser subject to the Permitted Encumbrances (as defined in Section 15.1). (At its option, Purchaser may direct the Title Company to issue an American Land Title Association (ALTA) 2006 extended coverage owner’s policy and title insurance endorsements, provided that Purchaser is solely responsible for, and timely pays, any additional expense associated with such extended coverage and additional endorsements, and further provided that the Title Company’s failure to issue any such extended coverage and additional endorsements shall not affect Purchaser’s obligations under this Agreement).

(b)If additional exceptions to the Title Report (as defined in the Access Agreement) are first identified by the Title Company following the Effective Date, Purchaser shall have until the date that is three (3) business days after receipt of an amendment or supplement to the Title Report (“TitleSupplement”), as applicable (the “Supplement Interim Date”), to provide written notice (the “Supplement Title

EXECUTION VERSION

Notice”) to Seller of any matters shown by the Title Supplement which are material and adverse to the use, access or operation of the property, in Purchaser’s commercially reasonable discretion, and of which Purchaser objects. If Seller has not received such written notice from Purchaser by the applicable Supplement Interim Date, Purchaser shall be deemed to have approved of the subject PTR Supplement. Except as provided herein, Seller may have until the Closing Date (as the same may be reasonably extended by Seller as necessary to make such arrangements to satisfy Purchaser’s objectives) to make such arrangements or take such steps as the parties shall mutually agree to satisfy Purchaser’s objection(s); provided, however, that, except with respect to Mandatory Removal Item (as defined below), Seller shall have no obligation whatsoever to expend or agree to expend any funds, to undertake or agree to undertake any obligations or otherwise to cure or agree to cure any title objections. Within three (3) business days of receipt of a Supplement Title Notice, Seller shall deliver written notice to Purchaser and Escrow Agent identifying which disapproved exceptions (other than Mandatory Removal Items) Seller shall undertake to cure or not cure (“Seller’s Supplement Response”). If Seller does not deliver a Seller’s Supplement Response within said three (3) Business Day period, Seller shall be deemed to have elected not to remove or otherwise cure any disapproved exceptions included in Seller’s Supplement Title Notice. If Seller elects, or is deemed to have elected, not to remove or otherwise cure a disapproved exception included in Seller’s Supplement Title Notice, Purchaser shall have until three (3) Business Days after receipt of Seller’s Supplement Response (or the date Seller is deemed to have made an election) to notify Seller and Escrow Agent, in writing, of Purchaser’s election to either waive the objection or terminate this Agreement due to such objection and the Escrow. If Seller and Escrow Agent have not received written notice from Purchaser within such period of time, Purchaser shall be deemed to have approved of Seller’s Supplement Response and elected to proceed with the Closing. Except for Mandatory Removal Item, all title exceptions shown in a Title Supplement for which Purchaser fails to give a Supplement Title Notice on or before the applicable Supplement Interim Date shall be deemed to be approved by Purchaser. If this Agreement is terminated by Purchaser pursuant to this Section, the Deposit shall be returned to Purchaser in full.

3.1.4Seller’s Representations. The representations and warranties by Seller set forth in Section 11.1 being true and correct in all material respects as of the Closing except as modified by notice (in accordance with Section 11.1) to which Purchaser does not object in writing by the later of three business days after receipt thereof.

3.1.5Seller Termination of Property Management Agreement. Prior to Closing, Seller shall terminate its existing property management and leasing agreements.

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3.1.6Transfer and Assignment of OPA. Consummation of the transfer by Seller, by that certain Seventh Partial Assignment of Owner Participation Agreement and Consent to Assignment substantially in the form attached hereto as Exhibit J (such form subject to reasonable comments by Agency), which form includes the total and complete release of Seller from its obligations under the OPA, of all Seller’s right, title, interest, and obligation under the OPA and approval, by Agency, of such transfer; provided, however, that such transfer shall be deemed consummated only at such time as executed in counterparts by an authorized signatory of Agency and its counsel, and each of Seller and Purchaser (the “OPA Assignment”); provided that Seller (upon written notice to Purchaser) shall be entitled to delay the Closing Date as necessary to accommodate Agency’s execution of the OPA Assignment. In addition to the execution of the OPA Assignment, which is a closing condition in favor of Purchaser, in connection with the above, Seller agrees to use commercially reasonable efforts to obtain an estoppel from Agency on a form reasonably acceptable to Purchaser, provided that obtaining any such estoppel shall not be a condition precedent to Purchaser’s obligation to close pursuant to the terms of this Agreement.

3.1.7CC&R Estoppel. Purchaser’s receipt of: (i) an estoppel (the “Retail Estoppel”) in the form attached hereto as Exhibit E relating to matters contained in that certain Second Amended and Restated Declaration and Establishment of Covenants, Conditions and Restrictions and Grant of Easements dated as of December 31, 2014 (the “CC&R”) from the successor in interest to Noho Redrock Retail LLC (“Retail Owner”), as party to the CC&R, (ii) an estoppel (the “Residential Estoppel”) in the form attached hereto as Exhibit N relating to the CC&R” from Seller and (iii) an Assignment by Seller, in its capacity as Declarant of the CC&R, in the form attached hereto as Exhibit M (the “Declarant Assignment”).

If any condition precedent to Purchaser’s obligation to close is not satisfied by the Closing Date, unless such condition precedent is waived in writing by Purchaser, this Agreement shall be automatically terminated, the Deposit shall be returned to Purchaser without the necessity of any further escrow instruction or any further action required from either party, and neither party shall have any continuing obligations hereunder; provided, however, if such failure constitutes a breach or default of Seller’s covenants, representations or warranties Seller shall remain liable for such breach or default as otherwise set forth in this Agreement.

3.2Conditions to Seller’s Obligation to Sell. Seller’s obligation to sell, unless waived in writing by Seller, is expressly conditioned upon the fulfillment of, on or prior to the Closing Date, each of the following:

3.2.1Performance by Purchaser. Performance in all material respects of the obligations and covenants of, and deliveries required of, Purchaser hereunder.

EXECUTION VERSION

3.2.2Purchaser’s Representations. The representations and warranties by Purchaser set forth in Section 11.2 being true and correct in all material respects as of the Closing.

3.2.3Receipt of Purchase Price. Receipt of the Purchase Price and any adjustments due Seller under Article VII at the Closing in the manner herein provided.

3.2.4Transfer and Assignment of OPA. Consummation of the transfer to Purchaser pursuant to the OPA Assignment; approval, by Agency, of such transfer; and consent, by Agency, of the total and complete release of Seller from its obligations under the OPA; provided, however, that such transfer shall be deemed consummated only at such time as executed in counterparts by an authorized signatory of Agency, and each of Seller and Purchaser.

If any condition precedent to Seller’s obligation to close, other than the condition precedent set forth in Section 3.2.4 above, is not satisfied by the Closing Date, unless such condition precedent is waived in writing by Seller, this Agreement shall be automatically terminated, the Deposit shall be disbursed to Seller by Escrow Agent as liquidated damages in accordance with Section 10.1 without the necessity of any further escrow instruction or further action required from either party, and neither party shall have any continuing obligations hereunder. If the condition precedent set forth in Section 3.2.4 above is not satisfied, unless such condition precedent is waived in writing by Seller and Buyer, this Agreement shall be automatically terminated, the Deposit shall be returned to Purchaser without the necessity of any further escrow instruction or further action required from either party, and neither party shall have any continuing obligations hereunder.

ARTICLE IV

PURCHASER’S DELIVERIES AND SELLER’S DELIVERIES TO ESCROW AGENT

4.1Purchaser’s Deliveries. Purchaser shall, at or before the Closing, deliver to Escrow Agent each of the following:

4.1.1Purchase Price. The Purchase Price as set forth in Article II.

4.1.2Assignment of Leases and Contracts. Four (4) executed counterparts of the Assignment and Assumption of Leases, Contracts and Other Property Interests in the form of Exhibit C (the “Assignment of Leases and Contracts”).

4.1.3Bill of Sale. Four (4) executed counterparts of a bill of sale in the form of Exhibit D (the “Bill of Sale”).

4.1.4Closing Statement. An executed Purchaser’s settlement statement reflecting the prorations and adjustments required under Article VII.

EXECUTION VERSION

4.1.5Cash – Prorations. The amount, if any, required of Purchaser under Article VII.

4.1.6Assignment of OPA. Four (4) executed counterparts of the OPA Assignment.

4.1.7Holdback Agreement. Four (4) executed counterparts of the holdback escrow Agreement in the form of Exhibit B (the “Holdback Agreement”).

4.1.8Declarant Assignment. Four (4) executed counterparts of the Declarant Assignment.    

4.2Seller’s Deliveries. Seller shall, at or before the Closing, deliver to Escrow Agent each of the following:

4.2.1Deed. A grant deed in the form of Exhibit I (the “Deed”) with respect to the Real Property, executed and acknowledged by Seller, pursuant to which Seller shall convey title to the Real Property.

4.2.2Assignment of Leases and Contracts. Four (4) executed counterparts of the Assignment of Leases and Contracts, and (whether through the closing escrow or through such other method of delivery as the parties may establish) original executed Leases and Contracts (or copies if originals are not in Seller’s possession) assigned thereby.

4.2.3Bill of Sale. Four (4) executed counterparts of the Bill of Sale.

4.2.4Notices to Tenants. A notice signed by Seller (or Seller’s manager for the Improvements) addressed to the tenants under the Leases in the form of Exhibit G (“Notice to Tenants”).

4.2.5FIRPTA Affidavit. Four (4) executed copies of an affidavit in the form of Exhibit H with respect to the Foreign Investment in Real Property Tax Act (the “FIRPTA Affidavit”).

4.2.6California Withholding Exemption. Four (4) executed copies of an affidavit in the form of Exhibit L with respect to the California Withholding Law (the “California Withholding Affidavit”).

4.2.7Closing Statement. An executed Seller’s settlement statement reflecting the prorations and adjustments required under Article VII.

4.2.8Cash – Prorations. The amount, if any, required of Seller under Article VII.

EXECUTION VERSION

4.2.9Assignment of OPA. Four (4) executed counterparts of the OPA Assignment.

4.2.10Holdback Agreement. Four (4) executed counterparts of the Holdback Agreement.

4.2.11Retail Estoppel. The executed Retail Estoppel.

4.2.12Residential Estoppel. The executed Residential Estoppel.

4.2.13Declarant Assignment. Four (4) executed counterparts of the Declarant Assignment.    

4.2.14Rent Roll.     A Rent Roll updated as of the Closing Date.

4.2.15Title Documents.    Such other documents and instruments executed and acknowledged by Seller, if applicable, as the Title Company may require from Seller to issue the Title Policy.

4.2.16Certificate. A certificate executed by Seller reaffirming and updating to the Closing Date the representations and warranties given by Seller under this Agreement, which certificate will include an updated Rent Roll (certifying as to its accuracy in all material respects).

4.3Failure to Deliver. The failure of Purchaser or Seller to make any delivery required above by and in accordance with this Article IV which is not waived by the other party shall constitute a default hereunder by Purchaser or Seller, as applicable.

ARTICLE V

INVESTIGATION OF PROPERTY

5.1Delivery of Documents. Purchaser and Seller are parties to that certain Access and Indemnity Agreement dated August 30, 2016 (the “Access Agreement”). To the extent any matters, terms and conditions set forth in the Access Agreement are in conflict with any matters, terms and conditions set forth in this Agreement, this Agreement shall control.

Pursuant to the Access Agreement, Seller has delivered, caused to be delivered, or made available to Purchaser the following (the “Diligence Items”):

5.1.1Preliminary Title Report. A current preliminary title report covering the Real Property issued by the Title Company, together with copies of all documents referred to as exceptions therein (collectively, the “Title Report”).

EXECUTION VERSION

5.1.2Survey. The existing survey of the Real Property in Seller’s possession prepared by a licensed surveyor (the “Survey”).

5.1.3Contracts. Copies of the Contracts.

5.1.4Plans and Specifications. To the extent in Seller’s possession, copies of all plans and specifications for the Improvements.

5.1.5Reports. To the extent in Seller’s possession, copies of all environmental reports prepared by third parties.

5.1.6Permits. To the extent in Seller’s possession, copies of all governmental permits, certificates of occupancy and approvals, in each case regarding the Property.

5.1.7Construction Repairs. Documentation identifying construction repairs concerning the Improvements on the Property as listed on Schedule 5.1.7 hereto.

5.1.8Insurance Loss. Insurance loss run for the prior three years related to the construction repairs identified on Schedule 5.1.7 hereto.

5.1.9Government Notices. All written correspondence which to Seller’s knowledge have been received by Seller from governmental agencies concerning current open violations at the Property.

5.1.10Operating Statement. Operating statements and profit and loss statements for the Property for the prior three years.

5.1.11Utilities. Copies of utility capacity letters and utility bills for the prior year.

5.1.12Property Taxes. Copies of property tax bills for prior three years.

5.1.13Leases. Copies of all residential and non-residential leases, including a current rent roll for the Property listing tenant names, unit occupied, monthly rentals, security deposits, and the names of any tenants in arrears on their lease payments together with the amount of such arrearages.

5.1.14Personal Property. Inventory of Personal Property.

5.2Physical Inspection of the Property.

5.2.1Pursuant to the Access Agreement, Seller has allowed, and as provided herein, shall continue to allow Purchaser and Purchaser’s engineers, consultants, representatives, architects or other employees and agents reasonable access to the Property

EXECUTION VERSION

during normal business hours for the limited purposes of (i) reviewing contracts, books and records relating to the Property (other than any privileged, proprietary or confidential records), soil reports, environmental studies and reports, surveys, and building and systems plans; (ii) reviewing records relating to operating expenses and other instruments and correspondence relating to the Property; (iii) interviewing tenants of the Property; and (iv) inspecting the physical condition of the Property and conducting non-intrusive physical and environmental tests and inspections thereof. Purchaser shall not interview any tenant of the Property without providing prior notice to Seller and affording Seller or its representative(s) the right to be present during such interview. PURCHASER SHALL NOT CONDUCT OR ALLOW ANY PHYSICALLY INTRUSIVE TESTING OF, ON OR UNDER THE PROPERTY WITHOUT FIRST OBTAINING SELLER’S WRITTEN CONSENT AS TO THE TIMING AND SCOPE OF THE WORK TO BE PERFORMED AND THE PARTIES ENTERING INTO AN AMENDMENT HERETO MEMORIALIZING SUCH SCOPE OF WORK AND ANY ADDITIONAL AGREEMENTS OF THE PARTIES WITH RESPECT TO SUCH TESTING.

5.2.2Purchaser agrees that it will cause it and any person accessing the Property hereunder to be covered by not less than Two Million Dollars ($2,000,000) commercial general liability insurance (with, in the case of Purchaser’s coverage, a contractual liability endorsement, insuring its indemnity obligation under this Agreement), insuring all activity and conduct of such person while exercising such right of access and naming Seller and Rockwood Capital, LLC (“Advisor”) as the insureds, issued by a licensed insurance company qualified to do business in the State in which the Property is located and otherwise acceptable to Seller.

5.2.3Purchaser agrees that, in the exercise of the right of access granted hereby, it will not unreasonably interfere with or permit unreasonable interference with any person occupying or providing service at the Property. Purchaser agrees that it or its agents will not communicate with any tenants without the participation or presence of Seller or Seller’s agent or representative unless Purchaser first obtains the consent of Seller which consent shall not be unreasonably withheld.

5.2.4Purchaser agrees to indemnify, defend and hold harmless Seller and Advisor and their respective affiliates, members, partners, subsidiaries, shareholders, officers, directors and agents (collectively, “Seller Indemnified Parties”) from any loss, injury, damage, cause of action, liability, claim, lien, cost or expense, including reasonable attorneys’ fees and costs (collectively, “Loss”), arising from the exercise by Purchaser or its employees, consultants, agents, engineers, architects or representatives of the right of access under this Agreement or out of any of the foregoing; provided, however, that Purchaser shall have no obligation to so indemnify, defend and hold harmless Seller Indemnified Parties

EXECUTION VERSION

with respect to any liability resulting from: (i) Seller’s or any Seller Indemnified Party’s gross negligence or willful misconduct; (ii) any preexisting hazardous materials; or (iii) any preexisting condition at the Real Property, in the case of (ii) and (iii), not exacerbated by Buyer. The indemnity in this Section 5.2.4 shall survive the Closing or any termination of this Agreement.

5.2.5Purchaser agrees to give Seller reasonable prior notice of its intent to conduct any inspections or tests so that Seller will have the opportunity to have a representative present during any such inspection or test, the right to do which Seller expressly reserves. Purchaser agrees to cooperate with any reasonable request by Seller in connection with the timing of any such inspection or test.

5.2.6Purchaser agrees that any inspection, test or other study or analysis of the Property shall be performed at Purchaser’s expense and in strict accordance with applicable law.

5.2.7Purchaser agrees at its own expense to promptly repair or restore the Property, or, at Seller’s option, to reimburse Seller for any repair or restoration costs, if any inspection or test requires or results in any damage to or alteration of the condition of the Property. The obligations set forth in this Section 5.2.7 shall survive the Closing or any termination of this Agreement.

5.3Effect of Prior Investigation As of the Effective Date, Purchaser has waived all objections it may have had to any matters on the Title Report, the Survey or any other aspects of the Property and, subject to any express conditions set forth herein, agrees to accept the Property “as is”.

ARTICLE VI

THE CLOSING

6.1Date and Manner of Closing. Escrow Agent shall close the escrow (the “Closing”) on November 7, 2016 (the “Initial Scheduled Closing Date”) time being of the essence (subject only to Seller’s express rights of remedy or cure provided herein, in which event Seller will give Purchaser not less than three (3) business days’ notice of the date of the Closing); provided, however, that all conditions to closing contained in this Agreement have been satisfied (or deemed satisfied) or waived in writing. Notwithstanding the foregoing, Purchaser shall have the right to (a) extend Closing to November 17, 2016 (the “First Extension Date”) by delivery of written notice of such extension to Seller (the “First Extension Notice”) along with the deposit to Escrow Agent of the First Extension Deposit as required by Section 2.1.1, not less than three (3) business days prior to the Initial Scheduled Closing Date and (b) further extend Closing to November 30, 2017 (the “Second

EXECUTION VERSION

Extension Date”) by delivery of written notice of such extension to Seller (the “Second Extension Notice”) along with the deposit to Escrow Agent of the Second Extension Deposit as required by Section 2.1.1, not less than three (3) business days prior to the First Extension Date. The Initial Scheduled Closing Date, as same may be adjourned pursuant to the First Extension Date and Second Extension Date, is referred to herein as the “Closing Date”.

ARTICLE VII

PRORATION, FEES, COSTS AND ADJUSTMENTS

7.1Prorations. Prior to the Closing, Seller shall determine the amounts of the prorations in accordance with this Agreement and notify Purchaser thereof. Purchaser shall review and approve such determination promptly and prior to the Closing, such approval not to be unreasonably withheld or delayed. Thereafter, Purchaser and Seller shall each inform Escrow Agent of such amounts. All income accruing from the ownership of the Property and expenses incurred in the operation of the Property shall be pro-rated as of 12:01 a.m. on the Closing Date (the “Cut-off Time”) on the basis of a 365-day year, and the pro-rated amount attributable to the period following the Closing shall either be paid to Purchaser at the Closing or credited against the Purchase Price as set forth below.

7.1.1Intentionally Omitted.

7.1.2Collected Rents. All rents collected by Seller under the Leases in effect on the Closing Date and other charges paid by tenants (“Collected Rents”) shall be pro-rated as of the Closing by charging Seller and crediting Purchaser for any Collected Rents applicable to periods after the Closing.

7.1.3Uncollected and Delinquent Rents. All unpaid rents that are due and owed to Seller under the Leases in effect on the Closing Date (“Delinquent Rents”) shall remain the exclusive property of Seller. Purchaser shall apply rent and other income from tenants that are collected after the Closing first to then current rents and then to Delinquent Rents in inverse order of maturity. For a period of six (6) months subsequent to the Closing, to the extent that any Delinquent Rents, other amounts and other income are actually received by Purchaser, all such amounts shall first be applied to any costs of collection, and then shall be promptly paid by Purchaser to Seller. During such six (6) month period, Purchaser shall make a commercially reasonable effort to collect any such Delinquent Rents; provided, however, that Purchaser shall not be required to expend any funds or institute any litigation in its collection efforts. Following the Closing, Seller shall not have the right to pursue the collection of Delinquent Rents from any tenant and shall rely solely on Purchaser’s efforts pursuant to the preceding sentence with respect to all Delinquent Rents.

EXECUTION VERSION

7.1.4Security Deposits. At Closing, Purchaser shall be credited and Seller shall be charged with the amount of all pre-paid rents, security and other deposits (together with any interest accrued thereon only if interest is specifically required to be paid thereon under applicable law or under the terms of a specific Lease) held by Seller as of the Closing Date.

7.1.5Capital Expenditures and Accounts Payable. Except as otherwise provided herein, all capital and other improvements (including labor and material) that are performed or contracted for, by or on behalf of Seller before the Closing Date, and all sums due for accounts payable that were owed or incurred before the Closing Date, shall be paid by Seller.

7.1.6Rent Ready Credit. Seller shall, at its expense, cause each unit at the Property that has become vacant prior to the Closing Date to be placed in a condition ready to be leased in accordance with Seller’s current practice. Prior to Closing, Seller shall reasonably determine the number of vacant apartment units that are not in rent ready condition. A vacant apartment unit shall be “rent ready” if its condition is consistent with the condition of vacant units currently being marketed to and accepted for rental by tenants of comparable vacant apartment units in the Property and such units have a full complement of operating appliances and components. If Seller reasonably determines within five (5) business days before the Closing that fewer than all vacant apartment units are in a rent ready condition at Closing, Purchaser shall accept such apartment units in “as-is” condition at Closing and Purchaser shall receive a credit (the “Estimated Rent Ready Credit”) against the Purchase Price at Closing in an amount equal to $750.00 for each such apartment unit which is not in a rent ready condition on the Closing Date.

7.1.7Property Taxes. All real property taxes and assessments shall be prorated on the basis of the fiscal period for which assessed (if the Closing shall occur before the tax rate is fixed, the apportionment of taxes shall be based on the tax rate for the preceding period applied to the latest assessed valuation and after the Closing, when the actual real property taxes are finally fixed, Seller and Purchaser shall promptly make a recalculation of such proration, and the appropriate party shall make the applicable payment reflecting the recalculation to the other party). If after the Closing there is any retroactive increase in the real or personal property taxes or assessments imposed on the Property: (1) if such increase relates to the tax year in which the Closing occurred (not including any assessment of supplemental taxes for the period after Closing due to any reappraisal of the Property after the sale contemplated herein, which supplemental taxes shall be Purchaser’s sole responsibility), such increase shall be prorated by Seller and Purchaser on a per diem basis based on their respective periods of ownership during the period to which such increase applies, (2) if such increase relates to any tax year subsequent to the tax year which the Closing occurred, such increase shall be the obligation of Purchaser, and (3) if such increase

EXECUTION VERSION

relates to any tax year prior to the tax year in which the Closing occurred, such increase shall be the obligation of Seller.

(1)Real property tax refunds and credits received after the Closing which are attributable to a fiscal tax year prior to the Closing shall belong to Seller. Any such refunds and credits attributable to the fiscal tax year during which the Closing occurs shall be apportioned between Seller and Purchaser after deducting the reasonable out-of-pocket expenses of collection thereof. This apportionment obligation shall survive the Closing.

(2)If any tax appeal or certiorari proceedings shall not have been finally resolved or settled prior to the Closing and shall relate to any tax period a portion or all of which precedes the Closing, Seller shall be entitled to control the disposition of any such tax appeal or certiorari proceeding and any refunds received therefrom, net of any reasonable expenses incurred by Seller in connection therewith, shall be prorated between the parties on the basis of the portions accruing to periods before and after the Closing.

7.1.8Intentionally Omitted.

7.1.9Utility Charges. Charges for utilities, including water, sewer, electric, and gas (“Utilities”) shall be pro-rated as of the Closing Date based on the then most recent bills for such services. Seller shall pay for all utility services to the Property for all periods before the Closing and Purchaser shall pay for all utility services to the Property for the Closing Date and all periods thereafter. Purchaser shall be responsible for making its own arrangements with respect to future utility billings and deposits. If the Closing shall occur before the actual amount of utilities and all other operating expenses with respect to the Property for the month in which the Closing occurs are determined, the apportionment of such utilities and other operating expenses shall be upon the basis of a reasonable estimate by Seller of such utilities and other operating expenses for such month, and thereafter, shall be adjusted as provided herein.

7.1.10Insurance. Seller’s existing liability and property insurance pertaining to the Property shall be canceled as of the Closing Date, and Seller shall receive any premium refund due thereon.

7.1.11Assumed Contracts. All service fees and charges under the Assumed Contracts assumed by Purchaser at the Closing whether paid, accrued or not yet due and payable shall be pro-rated as of the Closing for periods before and after the Closing.

EXECUTION VERSION

7.1.12Post-Closing Reconciliation. Notwithstanding the foregoing provisions, the pro-rated Collected Rents, Payable Rents and Utilities are subject to adjustment for six (6) months after the Closing Date if such items of income or expense were incorrectly applied to the pre-closing or post-closing periods. The party receiving evidence of such incorrect prorations must provide written notice to the other within forty-five (45) days after receipt of such information and the parties shall re-prorate such items of income or expense to adjust for any excess credit by immediate reimbursement for such excess credit. There shall be no right to adjust such items of income or expense after the sixth (6th) month following the Closing Date.

7.1.13Settlement Statement. Purchaser and Seller agree to use their good faith efforts to prepare and approve the estimated settlement statement consistent with this Section 7.1 no less than two (2) business days prior to the Closing.

7.1.14Survival. This Section 7.1 shall survive Closing.

7.1.15Insurance. Seller’s existing liability and property insurance pertaining to the Property shall be canceled as of the Closing, and Seller shall receive any premium refund due thereon.

7.2Seller’s Closing Costs. Seller shall pay (i) one-half of Escrow Agent’s escrow fee or escrow termination charge; (ii) one-hundred percent (100%) of the County transfer taxes and any city documentary stamp tax or transfer tax; (iii) the cost of the Title Report, the title premium for the standard coverage for the Title Policy, and the cost of any other endorsement ordered by Seller; (iv) Seller’s own attorneys’ fees; (v) any costs incurred in recording the Deed or any other instruments; and (vi) any recording fees or administrative fees payable to the Agency pursuant to the OPA ( but not legal fees) and costs associated with the assignment of the OPA.

7.2.1Purchaser’s Closing Costs. Purchaser shall pay (i) Escrow Agent’s escrow fee or escrow termination charge; (ii) the cost of extended coverage portion of the title premium for the Title Policy and the cost of any other title insurance endorsements ordered by Purchaser; (iii) any fees and costs to update the Survey, (iv) any costs incurred in connection with Purchaser’s investigation of the Property pursuant to Article V, including the cost of any new environmental assessment commissioned by Purchaser, and (v) Purchaser’s own attorneys’ fees.

EXECUTION VERSION

ARTICLE VIII
DISTRIBUTION OF FUNDS AND DOCUMENTS

8.1Delivery of the Purchase Price. At the Closing, Escrow Agent shall deliver the Purchase Price to Seller, and the transaction shall not be considered closed until such delivery occurs.

8.2Other Monetary Disbursements. Escrow Agent shall, at the Closing, hold for personal pickup or arrange for wire transfer: (i) to Seller, or order, as instructed by Seller, all sums and any proration or other credits to which Seller is entitled as adjusted by any appropriate proration or other charges as set forth in the closing statement; and (ii) to Purchaser, or order, as instructed by Purchaser, any excess funds therefor delivered to Escrow Agent by Purchaser as adjusted by any sums and any proration or other credits to which Purchaser is entitled as adjusted by any appropriate proration or other charges as set forth in the closing statement.

8.3Recorded Documents. Escrow Agent shall cause the Deed and any other documents that Seller or Purchaser desires to record to be recorded with the appropriate county recorder and, after recording, returned to the grantee, beneficiary or person acquiring rights under said document or for whose benefit said document was required.

8.4Documents to Purchaser. Escrow Agent shall at the Closing deliver by overnight express delivery to Purchaser the following:

(1)one conformed copy of the Deed showing all recording data;

(2)two originals of the Assignment of Leases and Contracts;

(3)two originals of the Bill of Sale;

(4)one original of the Notice to Tenants;

(5)two originals of the FIRPTA Affidavit;

(6)two originals of the California Withholding Affidavit;

(7)one original of the Purchaser’s settlement statement;

(8)one original of the Title Policy; and

(9)one original of the OPA Assignment.

8.5Documents to Seller. Escrow Agent shall at the Closing deliver by overnight express delivery to Seller, the following:

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(1)one conformed copy of the Deed showing all recording data;

(2)two originals of the Assignment of Leases and Contracts;

(3)two originals of the Bill of Sale;

(4)one copy of the Notice to Tenants;

(5)two originals of the FIRPTA Affidavit;

(6)two originals of the California Withholding Affidavit;

(7)one original of the Seller’s settlement statement;

(8)one copy of the Title Policy; and

(9)one original of the OPA Assignment.

8.6All Other Documents. Escrow Agent shall at the Closing deliver by overnight express delivery, each other document received hereunder by Escrow Agent to the person acquiring rights under said document or for whose benefit said document was required.

ARTICLE IX

RETURN OF DOCUMENTS AND FUNDS UPON TERMINATION

9.1Return of Seller’s Documents. If escrow or this Agreement is terminated for any reason, Purchaser shall, within five (5) days following such termination, deliver to Seller all documents and materials relating to the Property previously delivered to Purchaser by Seller and; provided, however, Purchaser shall have the right to retain copies of such Seller delivered documents and materials to comply with internal record retention policies. In addition, Purchaser shall deliver to Seller copies of all reports, studies, documents and materials obtained by Purchaser from third parties in connection with the Property and Purchaser’s investigation thereof so long as: (i) Seller reimburses Purchaser the cost of such due diligence materials, and (ii) Purchaser shall not be obligated to deliver any materials that are either protected by the attorney-client privilege or work product doctrine or are internally prepared analyses and studies by Purchaser, its members, employees, affiliates or related parties. Such items shall be delivered without representation or warranty as to accuracy or completeness and with no right of Seller to rely thereon without the consent of the third party. Escrow Agent shall deliver all documents and materials deposited by Seller and then in Escrow Agent’s possession to Seller. Upon delivery by Escrow Agent to Seller of such documents and materials, Escrow Agent’s obligations with regard to such documents and

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materials under this Agreement shall be deemed fulfilled and Escrow Agent shall have no further liability with regard to such documents and materials to either Seller or Purchaser.

9.2Return of Purchaser’s Documents. If escrow or this Agreement is terminated for any reason, Escrow Agent shall deliver all documents and materials deposited by Purchaser and then in Escrow Agent’s possession to Purchaser. Upon delivery by Escrow Agent to Purchaser of such documents and materials, Escrow Agent’s obligations with regard to such documents and materials under this Agreement shall be deemed fulfilled and Escrow Agent shall have no further liability with regard to such documents and materials to either Seller or Purchaser.

9.3Deposit. If escrow or this Agreement is terminated (i) pursuant to Section 10.2 or Article XII, or (ii) due to the failure of a condition set forth in Section 3.1, or (iii) as otherwise set forth herein, then Purchaser shall be entitled to obtain the return of the Deposit pursuant to Section 9.4 below. If the Closing does not take place and escrow or this Agreement is terminated for any other reason, Seller shall be entitled to the Deposit by retaining or causing Escrow Agent to deliver the Deposit to Seller pursuant to Section 9.4 below.

9.4Disbursement of Deposit. If Escrow Agent receives a notice from either party instructing Escrow Agent to deliver the Deposit to such party, Escrow Agent shall deliver a copy of the notice to the other party within three (3) days after receipt of the notice. If the other party does not object to the delivery of the Deposit as set forth in the notice within three (3) business days after receipt of the copy of the notice, Escrow Agent shall, and is hereby authorized to, deliver the Deposit to the party requesting it pursuant to the notice. Any objection hereunder shall be by notice setting forth the nature and grounds for the objection and shall be sent to Escrow Agent and to the party requesting the Deposit.

9.5No Effect on Rights of Parties; Survival. The return of documents and monies as set forth above shall not affect the right of either party to seek such legal or equitable remedies as such party may have under Article X with respect to the enforcement of this Agreement. The obligations under this Article IX shall survive termination of this Agreement.

ARTICLE X

DEFAULT

10.1Seller’s Remedies. If, for any reason whatsoever (other than the failure of a condition set forth in Section 3.1 and other than a termination of this Agreement pursuant to Section 10.2 or Article XII), or arising out of any material default of this Agreement by Seller, Purchaser fails to complete the acquisition as herein provided, Purchaser shall be in breach of its obligations hereunder and Seller shall be released from any further obligations hereunder. BY INITIALING BELOW, PURCHASER AND SELLER HEREBY ACKNOWLEDGE AND AGREE THAT SELLER’S

EXECUTION VERSION

ACTUAL DAMAGES IN THE EVENT OF SUCH A BREACH OF THIS AGREEMENT BY PURCHASER WOULD BE EXTREMELY DIFFICULT OR IMPOSSIBLE TO DETERMINE, THAT THE AMOUNT OF THE DEPOSIT IS THE PARTIES’ BEST AND MOST ACCURATE ESTIMATE OF THE DAMAGES SELLER WOULD SUFFER IN THE EVENT THE TRANSACTION PROVIDED FOR IN THIS AGREEMENT FAILS TO CLOSE, AND THAT SUCH ESTIMATE IS REASONABLE UNDER THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT. PURCHASER AND SELLER AGREE THAT SELLER’S RIGHT TO RETAIN THE DEPOSIT SHALL BE THE SOLE REMEDY OF SELLER AT LAW IN THE EVENT OF SUCH A BREACH OF THIS AGREEMENT BY PURCHASER. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION 10.1, IF PURCHASER BRINGS AN ACTION AGAINST SELLER FOR AN ALLEGED BREACH OR DEFAULT BY SELLER OF ITS OBLIGATIONS UNDER THIS AGREEMENT, RECORDS A LIS PENDENS OR OTHERWISE ENJOINS OR RESTRICTS SELLER’S ABILITY TO SELL AND TRANSFER THE PROPERTY OR REFUSES TO CONSENT TO OR INSTRUCT RELEASE OF THE DEPOSIT TO SELLER IF REQUIRED BY ESCROW AGENT (EACH A “PURCHASER’S ACTION”), SELLER SHALL NOT BE RESTRICTED BY THE PROVISIONS OF THIS SECTION 10.1 FROM BRINGING AN ACTION AGAINST PURCHASER SEEKING EXPUNGEMENT OR RELIEF FROM ANY IMPROPERLY FILED LIS PENDENS, INJUNCTION OR OTHER RESTRAINT, AND/OR RECOVERING FEES, COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES) WHICH SELLER MAY SUFFER OR INCUR AS A RESULT OF ANY PURCHASER’S ACTION BUT ONLY TO THE EXTENT THAT SELLER IS THE PREVAILING PARTY; AND THE AMOUNT OF ANY SUCH FEES, COSTS AND EXPENSES AWARDED TO SELLER SHALL BE IN ADDITION TO THE LIQUIDATED DAMAGES SET FORTH HEREIN. NOTHING IN THIS AGREEMENT SHALL, HOWEVER, BE DEEMED TO LIMIT PURCHASER’S LIABILITY TO SELLER FOR DAMAGES OR INJUNCTIVE RELIEF FOR BREACH OF PURCHASER’S INDEMNITY OBLIGATIONS UNDER THE ACCESS AGREEMENT OR UNDER SECTION 5.2.4 ABOVE OR FOR ATTORNEYS’ FEES AND COSTS AS PROVIDED IN SECTION 16.5 BELOW.

ACCEPTED AND AGREED TO:

/s/ Authorized Signatory/s/ Authorized Signatory

Seller    Purchaser

10.2Purchaser’s Remedies. If the sale is not completed as herein provided by reason of any material default of Seller, Purchaser shall be entitled, as its sole and exclusive remedy, to either (i) terminate this Agreement (by delivering written notice to Seller which includes a waiver of any right, title or interest of Purchaser in the Property) in which event Escrow Agent shall refund the Deposit to Purchaser and Seller shall reimburse Purchaser’s actual out-of-pocket third-party costs

EXECUTION VERSION

incurred as part of Purchaser’s efforts to acquire the Property, subject to a cap of One Hundred Thousand Dollars ($100,000); provided, however, solely in the event Seller transfers the Property to a third party in violation of this Agreement and Purchaser’s remedy of specific performance is thus unavailable, Purchaser shall be entitled to receive payment of Purchaser’s Costs from Seller in an amount not to exceed Five Hundred Thousand Dollars ($500,000) or; (ii) treat this Agreement as being in full force and effect and pursue only the specific performance of this Agreement, provided that Purchaser must commence any action for specific performance within sixty (60) days after the scheduled Closing Date. Purchaser waives any right to pursue any other remedy at law or equity for such default of Seller, including, without limitation, any right to seek, claim or obtain damages (other than for costs under (i) (b) above), punitive damages or consequential damages. In no case shall Seller ever be liable to Purchaser under any statutory, common law, equitable or other theory of law, either prior to or following the Closing, for any lost rents, profits, “benefit of the bargain,” business opportunities or any form of consequential damage in connection with any claim, liability, demand or cause of action in any way or manner relating to the Property, the condition of the Property, this Agreement, or any transaction or matter between the parties contemplated hereunder. Purchaser’s remedies hereunder are in addition to the right to receive the return of the Deposit, subject to Section 9.4, to the extent it is not applied to the Purchase Price in connection with Purchaser’s action for specific performance.

ARTICLE XI

REPRESENTATIONS AND WARRANTIES

11.1Seller’s Warranties and Representations. The matters set forth in this Section 11.1 constitute representations and warranties by Seller which are now and (subject to matters contained in any notice given pursuant to the next succeeding sentence) shall, in all material respects, at the Closing be true and correct. Notwithstanding the veracity of Seller’s representation and warranties contained in this Agreement when made, if Seller later acquires actual knowledge of new information that may cause any of Seller’s representation and warranties to be inaccurate or untrue in any material respect, then Seller shall give prompt notice to Purchaser (which notice shall include copies of the instrument, correspondence, or document, if any, upon which Seller’s notice is based). As used in this Section 11.1, the phrase “to the extent of Seller’s actual knowledge” shall mean the actual, current knowledge of Scott McCarter. Seller represents that Scott McCarter is the person most knowledgeable regarding Seller’s representations and warranties. There shall be no duty imposed or implied to investigate, inquire, inspect, or audit any such matters, and there shall be no personal liability on the part of such asset manager or disposition director. To the extent Purchaser has actual knowledge or is deemed to know prior to the date hereof that these representations and warranties are inaccurate, untrue or incorrect in any way, such representations and warranties shall be deemed modified to reflect Purchaser’s knowledge or deemed knowledge.

EXECUTION VERSION

11.1.1No Broker. Seller has not engaged or dealt with any broker or finder in connection with the sale contemplated by this Agreement, except ARA Cal, Inc. (the “Seller’s Broker”). Seller shall pay a brokerage commissions to the Seller’s Broker in accordance with a separate agreement. Seller shall indemnify and hold harmless Purchaser from Loss arising from any breach of the representation contained in this Section 11.1.1 or if the same shall be based on any statement, representation or agreement by Seller with respect to the payment of any brokerage commissions or finder’s fees. The foregoing indemnification shall survive Closing.

11.1.2Organization. Seller has been duly formed, validly exists and is in good standing in the jurisdiction of its formation and in the state in which the Property is located.

11.1.3Power and Authority. Seller has the legal power, right and authority to enter into this Agreement and to consummate the transactions contemplated hereby.

11.1.4Proceedings. To the best of Seller’s actual knowledge, Seller has not received any written notice of any pending or threatened condemnation or similar proceeding affecting any part of the Property.

11.1.5Contravention. To the best of Seller’s actual knowledge, Seller is not prohibited from consummating the transactions contemplated by this Agreement by any law, regulation, agreement, instrument, restriction, order or judgment.

11.1.6Leases and Contracts. The Leases and Contracts comprise all of the leases and material contracts which will affect the Property on and after the Closing.

11.1.7Compliance. To the best of Seller’s actual knowledge, Seller has not received written notice from any governmental authority that the Property is not in material compliance with all applicable laws, except for such failures to comply, if any, which have been remedied or otherwise disclosed to Purchaser.

11.1.8Employees. Seller has no employees on-site at the Property providing on-site services to the Property and all such services are performed by Seller’s manager of the Property.

11.1.9Litigation. Except as set forth on Schedule 11.1.9 attached hereto, there is no litigation, suit, action or administrative proceeding (including but not limited to LAHD, HUD and other housing agencies) pending against the Property, nor to the best of Seller’s knowledge has Seller received any written notice of any threatened litigation, suit, action or administrative proceeding against the Seller or the Property.

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11.1.10PATRIOT Act.

(1)Seller is in compliance with the requirements of Executive Order No. 133224, 66 Fed. Reg. 49079 (Sept. 25, 2001) (the “Order”) and other similar requirements contained in the rules and regulations of the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) and in any enabling legislation or other Executive Orders or regulations in respect thereof (the Order and such other rules, regulations, legislation, or orders are collectively called the “Orders”). Further, Seller covenants and agrees to make its policies, procedures and practices regarding compliance with the Orders, if any, available to Purchaser for its review and inspection during normal business hours and upon reasonable prior notice.

(2)To the best of Seller’s knowledge, neither Seller nor any beneficial owner of Seller:

is listed on the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to the Order and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Orders (such lists are collectively referred to as the “Lists”);

(b)is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders; or

(c)is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders.

Notwithstanding anything contained herein to the contrary, for the purposes of this provision, the phrase “any beneficial owner of Seller” shall not include (x) any holder of a direct or indirect interest in a publicly traded company whose shares are listed and traded on a United States national stock exchange, or (y) any limited partner, unit holder or shareholder owning an interest of five percent (5%) or less in Seller or in the holder of any direct or indirect interest in Seller.

11.1.11Leases. The Rent Roll lists all of the Leases affecting the Property and is otherwise be accurate and complete as of its date. Seller has or will, deliver to Purchaser true, accurate and complete copies of all of the Leases and there are no leases, subleases, licenses, occupancies or tenancies in effect pertaining to any portion of the Property, and no persons, tenants or entities occupy space in the Property, except as stated on the most current Rent Roll. There are no rights to renew, extend or terminate the Leases or expand any Lease premises, or options to purchase, except as shown in the Rent Roll and the Leases. Except as disclosed on Schedule 11.1.11 hereto, no brokerage commission or similar fee is

EXECUTION VERSION

due or unpaid by Seller with respect to any Lease, and there are no written or oral agreements that will obligate Purchaser, as Seller’s assignee, to pay any such commission or fee under any Lease or extension, expansion or renewal thereof. To Seller’s actual knowledge, except as disclosed on Schedule 11.1.11 hereto, the Leases and any guaranties thereof are in full force and effect, neither Seller nor any tenant is in default under its Lease, and the Leases and guaranties are subject to no defenses, setoffs or counterclaims for the benefit of the tenants thereunder. Seller is in compliance with all of the landlord’s material obligations under the Leases, and except as disclosed on Schedule 11.1.11 hereto, Seller has no obligation to any tenant under the Leases to further improve such tenant’s premises or to grant or allow any rent or other concessions. Except as disclosed on Schedule 11.1.11 hereto or on the Rent Roll, no rent or other payments have been collected in advance for more than one (1) month and no rents or other deposits are held by Seller, except the security deposits described on the Rent Roll and rent for the current month.

11.1.12Environmental Reports. Schedule 11.1.12 lists all environmental reports, studies and assessments relating to the Property that are in the possession of Seller (the “Environmental Reports”) and Seller has delivered or made available to Purchaser a true and correct copy of each of the Environmental Reports.

11.1.13Repairs. Seller has not received any estimate or other written evaluation of any condition existing at the Property for which a written violation notice has been received, of a material nature for which the underlying repair work has not been completed. For purposes of the foregoing, “material” means any condition that requires more than $25,000 of labor and/or materials to remedy.

11.1.14Documents and Materials. The contents contained in the documents and materials provided by Seller to Purchaser regarding the Property are true and correct, and Seller has used commercially reasonable efforts to provide all such documents and materials in the possession or control of Seller to Purchaser.

11.1.15Operating Statements. The operating statements and financial statements delivered by Seller (or on Seller’s behalf) to Purchaser are the actual operating statements used to operate the Property.

11.1.16Insolvency. Seller has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Seller’s creditors, (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of Seller’s assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Seller’s assets, (v) admitted in writing its

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inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally.

11.1.17OPA. To the best of Seller’s knowledge, Seller has not received any written notice that it is in default under the OPA.

11.2Purchaser’s Warranties and Representations. The matters set forth in this Section 11.2 constitute representations, warranties and covenants by Purchaser which are now and shall, at the Closing, be true and correct.

11.2.1No Broker. Except for Seller’s Broker, Purchaser has not engaged or dealt with any broker or finder in connection with the sale contemplated by this Agreement. Purchaser shall indemnify and hold harmless Seller Indemnified Parties from any Loss arising from any breach of the representation contained in this Section 11.2.1 or if the same shall be based on any statement, representation or agreement by Purchaser with respect to the payment of any brokerage commissions or finder’s fees. The foregoing indemnification shall survive Closing.

11.2.2Organization. Purchaser has been duly formed, validly exists and is in good standing in the jurisdiction of its formation and in the state in which the Property is located.

11.2.3Power and Authority. Purchaser has the legal power, right and authority to enter into this Agreement and to consummate the transactions contemplated hereby.

11.2.4Independent Investigation. The consummation of this transaction shall constitute Purchaser’s acknowledgment that it has independently inspected and investigated the Property and has made and entered into this Agreement based upon such inspection and investigation and its own examination of the condition of the Property.

11.2.5Purchaser Reliance. Purchaser is experienced in and knowledgeable about the ownership and management of real estate, and it has relied and will rely exclusively on its own consultants, advisors, counsel, employees, agents, principals and/or studies, investigations and/or inspections with respect to the Property, its condition, value and potential.

11.2.6ERISA. Purchaser represents, warrants and covenants that it is not using the assets of any (i) ”employee benefit plan” (within the meaning of Section 3 (3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)); (ii) ”plan” (within the meaning of Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the “Code”)); or (iii) entity whose underlying assets include “plan assets” by

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reason of a plan’s investment in such entity, to fund its purchase of the Property under this Agreement.

11.2.7PATRIOT Act.

(1)Purchaser is in compliance with the requirements of the Orders. Further, Purchaser covenants and agrees to make its policies, procedures and practices regarding compliance with the Orders, if any, available to Seller for its review and inspection during normal business hours and upon reasonable prior notice.

(2)To the best of Purchaser’s knowledge, Purchaser is not:

(a)    listed on the Lists;

(b)    a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders; or

(c)    owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders.

11.2.8PATRIOT Act Notice. Purchaser hereby covenants and agrees that if Purchaser obtains knowledge that Purchaser becomes listed on the Lists or is indicted, arraigned, or custodially detained on charges involving money laundering or predicate crimes to money laundering, Purchaser shall immediately notify Seller in writing, and in such event, Seller shall have the right to terminate this Agreement without penalty or liability to Purchaser immediately upon delivery of written notice thereof to Purchaser.

11.3No Other Warranties and Representations. Except as specifically set forth in this Article XI, neither Seller nor Advisor has made, makes, or has authorized anyone to make, any warranty or representation as to the Leases, the Contracts, any written materials delivered to Purchaser, the persons preparing such materials, the truth, accuracy or completeness of such materials, the present or future physical condition, development potential, zoning, building or land use law or compliance therewith, the operation, income generated by, or any other matter or thing affecting or relating to the Property or any matter or thing pertaining to this Agreement. Purchaser expressly acknowledges that no such warranty or representation has been made and that Purchaser is not relying on any warranty or representation whatsoever other than as is expressly set forth in this Article XI. Purchaser shall accept the Property “as is” and in its condition on the date of Closing subject only to the express provisions of this Agreement and hereby acknowledges and agrees that SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND

EXECUTION VERSION

DISCLAIMS ANY REPRESENTATIONS, WARRANTIES OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT, FUTURE OR OTHERWISE, OF, AS TO, CONCERNING OR WITH RESPECT TO, THE PROPERTY.

11.3.1No Environmental Representations. Seller makes no representations or warranties as to whether the Property contains asbestos, radon or any hazardous materials or harmful or toxic substances, or pertaining to the extent, location or nature of same, if any. Further, to the extent that Seller has provided to Purchaser information from any inspection, engineering or environmental reports concerning asbestos, radon or any hazardous materials or harmful or toxic substances, Seller makes no representations or warranties with respect to the accuracy or completeness, methodology of preparation or otherwise concerning the contents of such reports.

11.3.2Release of Claims. Except for the representation and warranties, covenants, obligations and requirements of Seller under this Agreement, Purchaser acknowledges and agrees that Seller makes no representation or warranty as to, and Purchaser, for itself, its successors and assigns, hereby waives and releases Seller from any present or future claims, at law or in equity, whether known or unknown, foreseeable or otherwise, arising from or relating to, the Property, this Agreement or the transactions contemplated hereby, including without limitation the presence or alleged presence of asbestos, radon or any hazardous materials or harmful or toxic substances in, on, under or about the Property, including without limitation any claims under or on account of (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as the same may have been or may be amended from time to time, and similar state statutes, and any regulations promulgated thereunder; (ii) any other federal, state or local law, ordinance, rule or regulation, now or hereafter in effect, that deals with or otherwise in any manner relates to, environmental matters of any kind; (iii) this Agreement; or (iv) the common law. Purchaser hereby specifically acknowledges that Purchaser has carefully reviewed this Section 11.3.2 and has discussed its import with legal counsel and that the provisions of this Section 11.3.2 are a material part of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, the foregoing release shall not extend to (a) a breach by Seller of Seller’s representations and warranties set forth in this Agreement, (b) Seller’s actual fraud and (c) a breach by Seller of any of Seller’s obligations or covenants (including indemnity obligations) under this Agreement, including but not limited to, Purchaser’s rights under the Holdback Agreement and Seller’s indemnity with respect to the administrative proceedings as set forth in Section 16.8.2(b).

This Section 11.3.2 shall survive the Closing in perpetuity.

EXECUTION VERSION

ARTICLE XII

CASUALTY AND CONDEMNATION

Promptly upon learning thereof, Seller shall give Purchaser written notice of any condemnation, damage or destruction of the Property occurring prior to the Closing. If prior to the Closing all or any portion of the Property is condemned, damaged or destroyed by an insured casualty, Purchaser shall have the option of either (i) proceeding to Closing without a reduction on the Purchase Price and applying the proceeds of any condemnation award or payment under any insurance policies (other than business interruption or rental loss insurance) toward the payment of the Purchase Price to the extent such condemnation awards or insurance payments have been received by Seller, receiving from Seller an amount equal to any applicable deductible under any such insurance policy and receiving an assignment from Seller of Seller’s right, title and interest in any such awards or payments not theretofore received by Seller; or (ii) terminating this Agreement by delivering written notice of such termination to Seller and Escrow Agent within ten (10) days after Purchaser has received written notice from Seller of such material condemnation, damage or destruction. If, prior to the Closing, a portion of the Property is condemned, damaged or destroyed and such portion is not a material portion of the Property, the proceeds of any condemnation award or payment and any applicable deductible under any insurance policies shall be applied toward the payment of the Purchase Price to the extent such condemnation awards or insurance payments have been received by Seller and Seller shall assign to Purchaser all of Seller’s right, title and interest in any unpaid awards or payments. For purposes of this Article XII, the term “material portion” shall mean greater than three and one half percent (3.5%) of the Purchase Price or a material and adverse impact on the operation or use of the Property (including, in the case of condemnation, loss of access to the parking area of the Property). If the damage or destruction arises out of an uninsured (or underinsured) risk, Seller shall elect, by written notice within ten (10) days of the occurrence of such damage or destruction either to terminate this Agreement or to close the transaction contemplated hereby with a reduction of the Purchase Price equal to the costs of repairing the Property, as reasonably estimated by an engineer engaged by Seller and reasonably acceptable to Purchaser.

ARTICLE XIII
CONDUCT PRIOR TO CLOSING

13.1Conduct. From and after the date hereof, Seller shall operate the Property in accordance with its standard business procedures.

13.2Actions Prohibited. Seller shall not, without the prior written approval, such approval not to unreasonably withheld, conditioned, or delayed, of Purchaser:

(i)make any material structural alterations or additions to the Property except as (a) in the ordinary course of operating the Property, (b) required for

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maintenance and repair, (c) required by any of the Leases or the Contracts, or (d) required by this Agreement;

(ii)sell, transfer, encumber or change the status of title of all or any portion of the Property;

(iii)change or attempt to change, directly or indirectly, the current zoning of the Real Property in a manner materially adverse to it;

(iv)cancel, amend or modify, in a manner materially adverse to the Property, any license or permit held by Seller with respect to the Property or any part thereof which would be binding upon Purchaser after the Closing;

(v)remove any Personal Property except in the ordinary course of business as may be required for necessary repair or replacement;

(vi)stop maintaining in full force and effect fire and commercial general liability insurance on the Property which is at least equivalent in all material respects to the insurance policies covering the Property as of the Effective Date; or

(vii)agree to pay third party brokers any commissions for any Leases entered into after the Effective Date, which commission is not fully paid for by Seller prior to the Closing Date.

13.3New Leases and Contracts. Seller may enter into any new lease (on its standard lease form and as long as consistent with current market terms) or contract without Purchaser’s consent so long as: (i) Seller provides Purchaser prior written notice of such lease and (ii) such leases are entered into in accordance with Seller’s past practices, at current market rents, on Seller’s standard lease form and for a length of term no longer than one (1) year (with respect to residential leases); provided, however, in no event shall Seller enter into a new lease, renew or otherwise modify the current lease for Unit 131 other than allowing the tenant in Unit 131 to move into Unit 132. Seller may not enter into any new non-residential leases or amend any existing non-residential leases without receiving Purchaser’s prior written consent, which consent may be withheld in its sole discretion. Notwithstanding the preceding sentence Seller may only enter into any new contracts without Purchaser’s consent if doing so is in the ordinary course of operating the Property and the contract (i) will not be binding on Purchaser; or (ii) is cancelable on thirty (30) days or less notice without penalty or premium.

13.4Confidentiality. Seller and Purchaser shall, prior to the Closing, maintain the confidentiality of this sale and purchase and shall not, except as required by law or governmental regulation applicable to Seller or Purchaser, disclose the terms of this Agreement or of such sale

EXECUTION VERSION

and purchase to any third parties whomsoever other than investors or prospective investors in Seller or Purchaser or the principals of Seller’s Broker, Escrow Agent, the Title Company, Purchaser's accountants, attorney's architects, engineers and such other persons whose assistance is required in carrying out the terms of this Agreement (“Purchaser’s Representatives”); notwithstanding the foregoing, Purchaser shall not disclose to investors or prospective investors the name of Seller or any of its affiliates without the prior written consent of Seller, which consent may be withheld in Seller’s sole and absolute discretion. Neither Seller nor Purchaser shall at any time issue a press release or otherwise communicate with media representatives regarding this sale and purchase unless such release or communication has received the prior written approval of the other. Purchaser agrees that all documents and information regarding the Property of whatsoever nature made available to it by Seller or Seller’s agents and the results of all tests and studies of the Property (collectively, the “Proprietary Information”) are confidential and Purchaser shall not disclose any Proprietary Information to any other person except those assisting it with the analysis of the Property and/or Purchaser’s Loan Parties (as hereinafter defined), and only after procuring such person’s agreement to abide by these confidentiality restrictions. As used in this Agreement, “Purchaser’s Loan Parties” shall mean (A) any lender who contemplates providing or provides financing to Purchaser in connection with the transactions contemplated by this Agreement, together with the officers, employees, agents, representatives, consultants and attorneys of such lender or prospective lender, and (B) any broker who is engaged by Purchaser to identify a lender or prospective lender for Purchaser in connection with the transactions contemplated by this Agreement. The term “Proprietary Information” does not include information which (i) becomes generally available to the public other than as a result of a disclosure by Purchaser; (ii) was available to Purchaser or any of the Purchaser’s Representatives or Purchaser’s Loan Parties on a non-confidential basis prior to its disclosure by Seller; or (iii) becomes available on a non-confidential basis from a source other than Seller, provided that such source is not bound by a confidentiality agreement with Seller or otherwise is prohibited from transmitting the information to Purchaser by a contractual, legal or fiduciary obligation. Notwithstanding the foregoing and anything to the contrary in this Agreement, nothing contained herein shall impair Purchaser’s (or any Purchaser affiliate’s) right to disclose information relating to this Agreement or the Property (a) to any due diligence representatives and/or consultants that are engaged by, work for or are acting on behalf of, any securities dealers and/or broker dealers evaluating Purchaser or its affiliates, (b) in connection with any filings (including any amendment or supplement to any S 11 filing) with governmental agencies (including the United States Securities and Exchange Commission) by any REIT holding an interest (direct or indirect) in Purchaser, and (c) to any broker/dealers in the Purchaser’s or any REIT’s broker/dealer network and any of the REIT’s or Purchaser’s investors. This Section 13.5 shall survive the Closing or termination of this Agreement.

13.5Right to Cure. If any title defect or other matter which would entitle Purchaser to terminate this Agreement shall first arise after execution of this Agreement, or if Seller shall have

EXECUTION VERSION

breached any representation or warranty hereunder, Seller may elect, by written notice to Purchaser, to cure such title defect or other matter by causing it to be removed, insured over or bonded to cure such breach and Seller may adjourn the Closing for up to thirty (30) business days to do so. Nothing contained in this Section 13.6 shall require Seller to cure any matter or to incur any liability or expense to do so.

ARTICLE XIV

NOTICES

All notices, demands or other communications given hereunder shall be in writing and shall be deemed to have been duly delivered (i) upon the delivery (or refusal to accept delivery) by messenger or overnight express delivery service (or, if such date is not on a business day, on the business day next following such date), or (ii) on the third (3rd) business day next following the date of its mailing by certified mail, postage prepaid, at a post office maintained by the United States Postal Service, or (iii) upon the receipt by facsimile transmission as evidenced by a written transmission confirmation produced by the facsimile transmitting machine or (iv) upon the receipt of an electronic email transmission, followed by delivery by one of the other means identified in (i)-(iii), addressed as follows:

If to Purchaser:    NOHO COMMONS PACIFIC OWNER LLC

c/o M West Holdings, LLC

13949 Ventura Blvd., Suite 350

Sherman Oaks, CA 91423

Attn: Karl Slovin

Email: kslovin@mwestholdings.com

And to:    c/o KBS Capital Advisors LLC

11150 Santa Monica Boulevard, Suite 400

Los Angeles, CA 90025

Attn: Jamie Rodgers

Telephone: (310) 432-2103

Email: jrodgers@kbs.com

c/o KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, CA 92660

Attn: Brian Ragsdale

Telephone: (949) 797-0305

Email:bragsdale@kbs.com

EXECUTION VERSION

With a copy to:    Sklar Kirsh LLP

1880 Century Park East, Suite 300

Los Angeles, CA 90067

Attn: Andrew Kirsh

Email: akirsh@sklarkirsh.com

And to:Sheppard Mullin Richter and Hampton, LLP

650 Town Center Drive, 4^th Floor

Costa Mesa, CA 92626

Attn: Scott A. Morehouse, Esq.

Telephone: (714) 424-2865

Email: smorehouse@sheppardmullin.com

If to Seller, to:    Redwood Partners, Inc.

32932 Pacific Coast Highway, 14-388

Dana Point, CA 92629

Attention: Scott McCarter

Facsimile: 949-2008772

Email: srm@redwoodpartnersinc.com

and

Rockwood Capital, LLC

140 East 45th Street

34th Floor

New York, NY 10017

Attention: Maysa Vahidi, Esq.

Facsimile: 212-867-2394

E-mail: mvahidi@rockwoodcap.com

with a copy to:    Akin, Gump, Strauss, Hauer & Feld, LLP

1999 Avenue of the Stars

Suite 600

Los Angeles, CA 90067

Attention: David Phelps

Facsimile: (310) 229-1001

Email: dphelps@akingump.com

If to Escrow Agent, to:    

Either party may, by notice given as aforesaid, change the address or addresses, or designate an additional address or additional addresses, for its notices, provided, however, that no notice of a change of address shall be effective until actual receipt of such notice.

EXECUTION VERSION

ARTICLE XV

TRANSFER OF POSSESSION

15.1Transfer of Possession.

15.1.1Possession of the Property shall be transferred to Purchaser at the time of Closing subject to the following (the “Permitted Encumbrances”):

(a)Non delinquent real property taxes and all assessments and unpaid installments thereof which are not delinquent.

(b)The Leases and the rights of tenants thereunder.

(c)Any other lien, encumbrance, easement or other exception or matter voluntarily imposed or consented to by Purchaser prior to or as of the Closing.

(d)All exceptions (including printed exceptions) to title contained or disclosed in the Title Report (as defined in Section 5.1.1) other than any objections to title identified which Seller commits in writing to remove or have removed and not thereafter waived by Purchaser). Notwithstanding the above, any non-material exception to title first appearing after the Effective Date which does not materially impair access to or value of the Property (a “Non-Material Exception”) shall be considered a Permitted Encumbrance.

(e)All matters, rights and interests that would be discovered by the survey of the Property to be obtained by Purchaser.

15.1.2Permitted Encumbrances shall not include, and Seller shall affirmatively (i) discharge all liens of deeds of trust and/or mortgages or other collateral financing interests and all other monetary liens created by, under or through Seller, or assumed by Seller (with Seller having the right to apply the Purchase Price or a portion thereof for such purpose), whether voluntary or involuntary, (ii) discharge all mechanics’ or materialman’s liens for work performed by or at the direction of Seller, (iii) satisfy or otherwise eliminate to the satisfaction of the Title Company any and all judgment liens against Seller and (iv) cure and/or remove any other exception or encumbrance created by, under or through Seller after the Effective Date and not approved by the Purchaser (each a “Mandatory Removal Item”).

15.2Delivery of Documents at Closing. At the time of Closing, Seller shall deliver to Purchaser, or leave at the Property: originals or copies of any additional documents, instruments, records, keys, passwords, pass cards, original leases, original Contracts and original plans, permits

EXECUTION VERSION

and warranties in the possession of Seller or its agents which are necessary for the ownership and operation of the Property.

ARTICLE XVI

GENERAL PROVISIONS

16.1Captions. Captions in this Agreement are inserted for convenience of reference only and do not define, describe or limit the scope or the intent of this Agreement or any of the terms hereof.

16.2Exhibits. All exhibits referred to herein and attached hereto are a part hereof.

16.3Entire Agreement. This Agreement contains the entire agreement between the parties relating to the transaction contemplated hereby and all prior or contemporaneous agreements, understandings, representations and statements, oral or written, are merged herein.

16.4Modification. No modification, waiver, amendment, discharge or change of this Agreement shall be valid unless the same is in writing and signed by the party against which the enforcement of such modification, waiver, amendment, discharge or change is or may be sought.

16.5Attorneys’ Fees. Should any party hereto employ an attorney for the purpose of enforcing or construing this Agreement, or any judgment based on this Agreement, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief or other litigation, the prevailing party shall be entitled to receive from the other party or parties thereto reimbursement for all reasonable attorneys’ fees and all costs, whether incurred at the trial or appellate level, including without limitation service of process, filing fees, court and court reporter costs, investigative costs, expert witness fees and the cost of any bonds, whether taxable or not, and such reimbursement shall be included in any judgment, decree or final order issued in that proceeding. The “prevailing party” means the party in whose favor a judgment, decree, or final order is rendered.

16.6Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of California.

16.7Time of Essence. Time is of the essence to this Agreement and to all dates and time periods set forth herein.

16.8Survival of Warranties/Holdback/Indemnity.

16.8.1Unless otherwise expressly stated otherwise in this Agreement, only those warranties and representations contained in Sections 11.1 and 11.2 and the provisions of

EXECUTION VERSION

Section 11.3, shall survive the Closing, the delivery of the Deed and the payment of the Purchase Price; provided, however, that (i) such representations and warranties (but not such provisions) shall cease and terminate nine (9) months after the date of Closing, except in respect of any representation or warranty as to which Purchaser or Seller, as the case may be, shall have commenced, on or before such nine (9) month anniversary, a legal proceeding based on the breach thereof as of the date of Closing, and then only for so long as such proceeding shall continue and limited to the breach therein claimed; (ii) Seller shall have no liability to Purchaser with respect thereto unless and until the damages suffered by Purchaser as a result thereof shall equal or exceed Seventy Five Thousand Dollars ($75,000) in the aggregate (the “Floor”) (in which event Purchaser shall be entitled to damages without regard to the Floor); and (iii) the maximum total liability for which Seller shall be responsible with respect to all representations and warranties shall not exceed the Maximum Liability Cap in the aggregate. Unless otherwise expressly herein stated to survive, all other representations, covenants, indemnities, conditions and agreements contained herein shall merge into and be superseded by the various documents executed and delivered at Closing and shall not survive the Closing. For the avoidance of doubt, pursuant to Section 11.1, Seller shall have no liability to Purchaser after Closing for any matter disclosed by Seller or learned of by Purchaser prior to Closing.

16.8.2

(a)At the Closing, an amount equal to Three Hundred Eighty Five Thousand Dollars ($385,000.00) (less any sums expended by Seller prior to Closing directly in connection with the Mandated Improvement Work (as defined below)) (the “Escrow Sum”) shall be deposited in an escrow established by Escrow Agent for purposes of securing payment and performance of any work required to be performed on the Property (“Mandated Improvement Work”) to comply with any court order or settlement agreement stemming from that certain law suit (the “UFAS Litigation”) known as “Independent Living Center et al. v. City of Los Angeles, Redrock Noho Residential, LLC et al.; Docket No. 2:12-cv-00551-FMO-PJW (C.D. CA)” as more particularly described in Schedule 11.1.0 of the Purchase Agreement (the “UFAS Litigation”). The Escrow Sum will be invested, disbursed or otherwise dealt with and disposed of pursuant to the terms of the Holdback Escrow Agreement (the “Holdback Agreement”), the form of which is attached hereto as Exhibit B. Seller and Purchaser shall deliver a duly executed copy of the Holdback Agreement to Escrow Agent at the Closing. It is the parties’ understanding that Seller and/or its insurance shall continue to handle the UFAS Litigation after the Closing Date directly, and at Seller’s or Seller’s insurance company’s sole cost and expense, provided that Seller agrees to provide notice to Purchaser of any status updates or other notifications it receives concerning the UFAS Litigation.

EXECUTION VERSION

(b)The Property is currently subject to certain HUD administrative proceedings (the “HUD Proceedings”) as more particularly described on Schedule 11.1.9 hereto. It is the parties’ understanding that Seller and/or its insurance shall continue to handle the HUD Proceedings after the Closing Date directly, provided that Seller agrees to provide notice to Purchaser of any status updates or other notifications it receives concerning the HUD Proceedings. Seller agrees to indemnify, defend and hold harmless Purchaser and its respective affiliates, members, partners, subsidiaries, shareholders, officers, directors and agents from any loss, injury, damage, cause of action, liability, claim, lien, cost or expense, including reasonable attorneys’ fees and costs arising directly from the HUD Proceedings. To the extent any new HUD proceedings (“New HUD Proceedings”) arise in relation to the Property after Closing, which Seller did not receive written notice of prior to the Closing, Purchaser agrees to indemnify, defend and hold harmless Seller and its respective affiliates, members, partners, subsidiaries, shareholders, officers, directors and agents from any loss, injury, damage, cause of action, liability, claim, lien, cost or expense, including reasonable attorneys’ fees and costs arising directly from the New HUD Proceedings. The indemnities in this Section 16.8.2 shall survive the Closing or any termination of this Agreement.

16.9Assignment by Purchaser. Purchaser may not assign its rights under this Agreement; provided, however, that Purchaser reserves the right to take title to the Property in the name of an affiliate, or in the name of one or more institutional investors for which Purchaser or one of its affiliates is then acting as investment manager; provided Purchaser delivers to Seller written notice of its intention to do so no less than five (5) business days prior to the Closing including the legal name and structure of the assignee. No assignment of Purchaser's rights hereunder shall relieve Purchaser of its liabilities and obligations under this Agreement. This Agreement is solely for the benefit of Seller and Purchaser; there are no third party beneficiaries hereof. Any assignment of this Agreement in violation of the foregoing provisions shall be null and void. Notwithstanding the foregoing, under no circumstances shall Purchaser have the right to assign this Agreement to any person or entity or employee benefit plan if Seller’s sale of the Property to such person or entity or plan would, in the judgment of Seller, create or otherwise cause a “prohibited transaction” under or violation of ERISA.

16.10Severability. If any term, covenant, condition, provision or agreement herein contained is held to be invalid, void or otherwise unenforceable by any court of competent jurisdiction, the fact that such term, covenant, condition, provision or agreement is invalid, void or otherwise unenforceable shall in no way affect the validity or enforceability of any other term, covenant, condition, provision or agreement herein contained.

EXECUTION VERSION

16.11Successors and Assigns. All terms of this Agreement shall be binding upon, inure to the benefit of and be enforceable by, the parties hereto and their respective legal representatives, successors and assigns (subject to Section 16.9).

16.12Interpretation. Seller and Purchaser acknowledge each to the other that both they and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto.

16.13Counterparts. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed an original; such counterparts shall together constitute but one agreement.

16.14Recordation. This Agreement may not be recorded and any attempt to do so shall be of no effect whatsoever.

16.15Limitation on Liability. In any action brought to enforce the obligations of Seller under this Agreement or any other document delivered in connection herewith, the judgment or decree shall be subject to the provisions of Section 16.8 and shall, otherwise in any event, be enforceable against Seller only up to an amount not to exceed two percent (2%) of the Purchase Price (the “Maximum Liability Cap”); provided, however, any recovery by Purchaser pursuant to the Holdback Agreement and Seller’s indemnity with respect to the litigation and administrative proceedings as set forth in Section 16.8.2 shall be excluded from the Maximum Liability Cap. In light of Seller’s indemnities and surviving obligations expressly set forth in this Agreement, Seller shall not distribute 100% of the purchase proceeds from the Closing to its members if such distribution would violate Section 18-607 of the Delaware Limited Liability Company Act (6 Del. C. Section 18-101 et. seq.) and shall maintain reserves reasonably sufficient to avoid such violation, as determined in Seller’s reasonable determination. In connection with this Agreement, Advisor is acting as the investment advisor to Seller and shall not have any individual liability hereunder. No shareholder, officer, employee or agent of or consultant to Advisor or of or to Seller shall be held to any personal liability hereunder, and no resort shall be had to their property or assets, or the property or assets of Advisor or of Seller for the satisfaction of any claims hereunder or in connection with the affairs of Advisor or of Seller. Purchaser shall have no recourse against any other property or assets of Seller, any assets of the Advisor, or to any of the past, present or future, direct or indirect, shareholders, partners, members, managers, principals, directors, officers, agents, incorporators, affiliates or representatives of Seller or the Advisor (collectively, “Seller Parties”) or of any of the assets or property of any of the foregoing for the payment or collection of any amount, judgment, judicial process, arbitral award, fee or cost or for any other obligation or claim arising out of or based upon this Agreement and requiring the payment of money by Seller. Except as otherwise expressly set forth in this Section 16.15, neither Seller nor any Seller Party shall be subject to levy,

EXECUTION VERSION

lien, execution, attachment or other enforcement procedure for the satisfaction of any of Purchaser’s rights or remedies under or with respect to this Agreement, at law, in equity or otherwise. The provisions of this Section shall survive the termination of this Agreement.

16.16Possession of Advisor. As used in this Agreement, the “possession” or “receipt” of a document, notice or similar writing by Seller shall be deemed to be only the possession, receipt or notice such document by Advisor.

16.17Business Day. As used in this Agreement, “business day” shall be deemed to be any day other than a day on which banks in the state of California shall be permitted or required to close.

16.18Energy Disclosure. Purchaser hereby acknowledges that Seller has complied with California Public Resource Code § 25402.10 and the disclosure regulations issued in connection therewith (e.g., California Code of Regulations, Title 20, Sections 1680 – 1684) by, among other things, delivering to Purchaser the Data Verification Checklist (as such term is defined in California Code of Regulations, Title 20, Section 1681) for the Property prior to the date hereof. By Purchaser's execution of this Agreement, Purchaser acknowledges Purchaser's receipt of the Data Verification Checklist.

16.191031 Exchange. Either party may consummate at such party’s expense the sale of the Property as part of a so-called like kind exchange (the “Exchange”) pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”), provided that: (i) the Closing shall not be delayed or affected by reason of the Exchange nor shall the consummation or accomplishment of the Exchange be a condition precedent or condition subsequent to the other party’s obligations under this Agreement; (ii) the electing party shall effect the Exchange through assignment of its right under this Agreement to a qualified intermediary; (iii) the other party shall not be required to take an assignment of the purchase agreement for the relinquished or replacement property of the Exchange; (iv) the electing party shall indemnify and hold the other party harmless with respect to any liability in connection with the Exchange and (v) the electing party shall remain primarily liable under this Agreement and indemnify the other party from any liability in connection with the Exchange. The other party shall not by this Agreement or acquiescence to the Exchange (1) have its right under this Agreement affected or diminished in any matter or (2) be responsible for compliance with or be deemed to have warranted to the electing party that the Exchange in fact complies with Section 1031 of the Code.

16.20Exclusivity. Notwithstanding anything to the contrary provided elsewhere herein, Seller acknowledges that neither Seller nor any affiliate, representative, advisor, officer, director, employee or agent of Seller shall enter into any purchase and sale agreements or term sheets regarding the sale of the Property with any third party, during the period commencing on the Effective Date

EXECUTION VERSION

hereof and expiring on the earlier of the date on which this Agreement is terminated or the Closing Date.

ARTICLE XVII

ESCROW AGENT DUTIES AND DISPUTES

17.1Other Duties of Escrow Agent. Escrow Agent shall not be bound in any way by any other agreement or contract between Seller and Purchaser, whether or not Escrow Agent has knowledge thereof. Escrow Agent’s only duties and responsibilities with respect to the Deposit shall be to hold the Deposit and other documents delivered to it as agent and to dispose of the Deposit and such documents in accordance with the terms of this Agreement. Without limiting the generality of the foregoing, Escrow Agent shall have no responsibility to protect the Deposit and shall not be responsible for any failure to demand, collect or enforce any obligation with respect to the Deposit or for any diminution in value of the Deposit from any cause, other than Escrow Agent’s gross negligence or willful misconduct. Escrow Agent may, at the expense of Seller and Purchaser, consult with counsel and accountants in connection with its duties under this Agreement. Escrow Agent shall not be liable to the parties hereto for any act taken, suffered or permitted by it in good faith in accordance with the advice of counsel and accountants. Escrow Agent shall not be obligated to take any action hereunder that may, in its reasonable judgment, result in any liability to it unless Escrow Agent shall have been furnished with reasonable indemnity satisfactory in amount, form and substance to Escrow Agent.

17.2Disputes. Escrow Agent is acting as a stakeholder only with respect to the Deposit. If there is any dispute as to whether Escrow Agent is obligated to deliver the Deposit or as to whom the Deposit is to be delivered, Escrow Agent shall not make any delivery, but shall hold the Deposit until receipt by Escrow Agent of an authorization in writing, signed by all the parties having an interest in the dispute, directing the disposition of the Deposit, or, in the absence of authorization, Escrow Agent shall hold the Deposit until the final determination of the rights of the parties in an appropriate proceeding. Escrow Agent shall have no responsibility to determine the authenticity or validity of any notice, instruction, instrument, document or other item delivered to it, and it shall be fully protected in acting in accordance with any written notice, direction or instruction given to it under this Agreement and believed by it to be authentic. If written authorization is not given, or proceedings for a determination are not begun, within thirty (30) days after the date scheduled for the closing of title and diligently continued, Escrow Agent may, but is not required to, bring an appropriate action or proceeding for leave to deposit the Deposit with a court of the State of pending a determination. Escrow Agent shall be reimbursed for all costs and expenses of any action or proceeding, including, without limitation, attorneys’ fees and disbursements incurred in its capacity as Escrow Agent, by the party determined not to be entitled to the Deposit. Upon making delivery of the Deposit in the manner provided in this Agreement, Escrow Agent shall have no further liability

EXECUTION VERSION

hereunder. In no event shall Escrow Agent be under any duty to institute, defend or participate in any proceeding that may arise between Seller and Purchaser in connection with the Deposit.

17.3Reports. Escrow Agent shall be responsible for the timely filing of any reports or returns required pursuant to the provisions of Section 6045(e) of the Internal Revenue Code of 1986 (and any similar reports or returns required under any state or local laws) in connection with the closing of the transaction contemplated by this Agreement.

[SIGNATURE PAGE TO FOLLOW]

IN WITNESS WHEREOF, this Agreement has been executed as of the date first set forth above.

SELLER:

REDROCK NOHO RESIDENTIAL, LLC,

a Delaware limited liability company

By:    Redrock NoHo, LLC,

a Delaware limited liability company,

its sole member

By:    Redwood Partners, Inc.,

a California corporation,

its manager

By:     /s/ Scott McCarter

Name: Scott McCarter

Title: President

[Signature Page to Sale Purchase and Escrow Agreement]

PURCHASER:

NOHO COMMONS PACIFIC OWNER LLC,

a Delaware limited liability company

By:  KBS SOR II Lofts at NoHo Commons, LLC,

a Delaware limited liability company,

its sole member

By: NoHo Commons Pacific Investors LLC,

a Delaware limited liability company,

its Managing Member

By: Slovin Properties, Inc.,

a Delaware corporation,

its Manager

By: /s/ Karl Slovin

Karl Slovin, President

[Signature Page to Sale Purchase and Escrow Agreement]

CONSENT AND AGREEMENT OF ESCROW AGENT

The undersigned Escrow Agent hereby agrees to (i) accept the foregoing Agreement; (ii) be the escrow agent under said Agreement; and (iii) be bound by said Agreement in the performance of its duties as escrow agent.

Chicago Title Insurance Company

By:    /s/ Authorized Signatory

Name:    

Title:    

[Signature Page to Sale Purchase and Escrow Agreement]

EXHIBIT A

Description of Land

PARCEL 1A:

PARCEL B OF PARCEL MAP L.A. NO. 2002-6231, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 340 PAGES 78 to 80 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN LOT 25 OF BLOCK 6 OF LANKERSHIM, AS PER MAP RECORDED IN BOOK 16 PAGES 114 AND 115 OF MAPS, IN THE OFFICE OF THE LOS ANGELES COUNTY RECORDER, ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER SAID LAND, BUT WITHOUT ANY RIGHT TO PENETRATE, USE OR DISTURB SAID PROPERTY WITHIN 500 FEET OF THE SURFACE THEREOF, AS EXCEPTED AND RESERVED IN DEED RECORDED SEPTEMBER 10, 1986 AS INSTRUMENT NO. 86-1190583, OFFICIAL RECORDS.

ALSO EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN LOT 27 OF SAID BLOCK 6 OF SAID LANKERSHIM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER ALL OF THE ABOVE DESCRIBED REAL PROPERTY, BUT WITHOUT ANY RIGHT TO PENETRATE, USE OR DISTURB SAID PROPERTY WITHIN 500 FEET OF THE SURFACE THEREOF, AS EXCEPTED AND RESERVED BY DAVID FEIGIN, ET AL, IN A DEED RECORDED ON MAY 26, 1989, AS INSTRUMENT NO. 89-854239 OFFICIAL RECORDS.

ALSO EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN LOTS 20, 21 AND 22 IN SAID BLOCK 6 OF SAID LANKERSHIM ALL OIL, GAS, WATER, AND MINERAL RIGHTS NOW VESTED IN THE CITY OF LOS ANGELES WITHOUT, HOWEVER, THE RIGHT TO USE THE SURFACE OF SAID LAND OR ANY PORTION THEREOF TO A DEPTH OF 500 FEET BELOW THE SURFACE, FOR THE EXTRACTION OF SUCH OIL, GAS, WATER AND MINERALS, AS EXCEPTED AND RESERVED BY THE CITY OF LOS ANGELES RECORDED APRIL 12, 2004 AS INSTRUMENT NO. 04-0870960 OF OFFICIAL RECORDS.

PARCEL 1B:

A NON-EXCLUSIVE EASEMENT AS PROVIDED IN THAT CERTAIN AMENDED AND RESTATED DECLARATION AND ESTABLISHMENT OF COVENANTS, CONDITIONS AND RESTRICTIONS AND GRANT OF EASEMENTS, RECORDED JANUARY 5, 2007 AS INSTRUMENT NO. 07-26534, OF OFFICIAL RECORDS, (THE “DECLARATION”), FOR INGRESS AND EGRESS IN, ON, OVER, ACROSS AND THROUGH THAT PORTION OF THE NOHO ALLEY (AS DEFINED IN THE DECLARATION) LOCATED WITHIN PARCEL “A” OF SAID PARCEL MAP L.A. NO. 2002-6231.

Exhibit A-1

208130846 v5

4812-0574-7510, v. 6

EXHIBIT B

Holdback Escrow Agreement

THIS HOLDBACK ESCROW AGREEMENT (this “Agreement”) is made and entered into as of the ___ day of [_____], 2016, by and among [_______________________](“Seller”), [_______________________] (“Purchaser”), and [_____________________________] (“Escrow Holder”).

RECITALS

A.     Seller, Purchaser and Escrow Holder entered into that certain Purchase and Sale Agreement dated [_________], 2016 (as amended and supplemented from time to time, the “Purchase Agreement”).

B.    Pursuant to Purchase Agreement, Purchaser is acquiring the interests of Seller in the property described therein (the “Property”). Each capitalized term not defined herein shall have the respective meaning given to that term in the Purchase Agreement.

C.     Section 16.8.2 of the Purchase Agreement provides, in part, that, upon the Closing, the Escrow Sum will be deposited into the Escrow (as hereinafter defined) for purposes of securing payment and performance of the Mandated Improvement Work. It is the understanding of Seller and Purchaser that Seller and/or its insurance company shall continue working towards a final settlement agreement of the UFAS Litigation (the “Settlement Agreement”) after Closing directly upon terms as further outlined in the attached Exhibit 1, provided that Seller agrees to provide notice to Purchaser of any status updates or other notifications it receives and Purchaser covenants and agrees to execute the Settlement Agreement if ultimately required by the court. Upon execution of the Settlement Agreement, Seller and Purchaser will jointly retain Christy Kim (the “Consultant”) at Seller’s sole cost and expense, to assist Seller and Purchaser in agreeing upon a reasonable estimate of the total costs plus an additional 25% for Purchaser oversight of the Mandated Improvement Work (collectively, the “Improvement Cost Amount”) to complete the Mandated Improvement Work. In estimating the Improvement Cost Amount, Seller and Purchaser agree that the most cost-effective solutions (consistent with the current fit and finish of the Property and utilizing units with existing UFAS features where possible) shall be used for completion of the Mandated Improvement Work.

D.     Except as otherwise expressly provided herein, this Agreement is not intended to modify or alter in any way the obligations of the parties under the Purchase Agreement.

NOW, THEREFORE, in consideration of the above Recitals and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser hereby agree as follows:

1.     Deposit; Investment of Funds.

208130846 v9

(a)     Upon the Closing under the Purchase Agreement, The Escrow Sum shall be deposited into an account maintained by the Escrow Holder (the “Escrow”). Such amount, plus any interest, dividends and other proceeds earned on all escrowed funds, shall at all times remain in the Escrow except as expressly provided otherwise in this Agreement.

(b)    Escrow Holder shall invest all escrowed funds in an interest-bearing bank account at a bank that Purchaser and Seller approve, or in such other investments as shall be approved in writing by Seller and Purchaser. The Escrow Holder is hereby authorized and directed to sell or redeem any such investments as it deems necessary to make any payments or distributions required under this Agreement. The Escrow Holder shall have no responsibility or liability for any loss which may result from any investment or sale of investment made pursuant to this Agreement. The Escrow Holder is hereby authorized, in making or disposing of any investment permitted by this Agreement, to deal in good faith with itself (in its individual capacity) or with any one or more of its affiliates, whether it or any such affiliate is acting as agent of the Escrow Holder or for any third person or dealing as principal for its own account. The Parties acknowledge that the Escrow Holder is not providing investment supervision, recommendations or advice.

(c)     All interest, dividends and other income or proceeds earned on the Escrow Sum shall be treated as part of the Escrow Sum and shall be disbursed as provided herein. Neither Purchaser nor Seller shall be liable in any manner to the other as a result of any investment decision made, or any approval of or failure to approve any investment decision, with respect to the Escrow.

2.     Disbursement of Escrow Sum and Indemnity. Within two (2) business days after issuance of a final court order with respect to the UFAS Litigation or the execution of the Settlement Agreement and agreement by Seller and Purchaser (in consultation with the Consultant) of the Improvement Cost Amount, Escrow Holder shall promptly disburse from the Escrow Sum to Purchaser the Improvement Cost Amount, with the remainder of the Escrow Sum, if any, going to Seller. Purchaser covenants and agrees, following the disbursement of the Improvement Cost Amount to Purchaser, to complete the Mandated Improvement Work in a lien free manner and hereby agrees to indemnify, defend and hold harmless Seller and its respective affiliates, members, partners, subsidiaries, shareholders, officers, directors and agents from any loss, injury, damage, cause of action, liability, claim, lien, cost or expense, including reasonable attorneys’ fees and costs arising from any claims relating to the Mandated Improvement Work under the Settlement Agreement or any defects related thereto.

3.     Controversies. In the event that any controversy arises between the Parties hereto or with any third person, Escrow Holder shall not be required to make any determination of the same or take any action with regard to the same, but may await settlement of the controversy by mutual instructions of the parties or by appropriate legal or arbitration proceedings.

4.    Compensation. Escrow Holder shall be entitled to compensation for its services in the amount of $_______________, which compensation shall be paid one-half by Seller and one-half by Purchaser. The fee agreed upon for the services rendered hereunder is intended as full compensation for Escrow Holder's services as contemplated by this Agreement; provided, however, that in the event that conditions for the disbursement of funds under this Agreement are not fulfilled or Escrow Holder renders any services not contemplated in this Agreement or the Escrow Holder

is made a party to any litigation pertaining to this Agreement or the subject matter hereof, Escrow Holder shall be compensated for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorneys' fees and expenses occasioned by any such delay, controversy, litigation, or event.

5.     Harmless. Seller and Purchaser hereby jointly and severally promise and agree to pay promptly on demand and to indemnify and hold harmless Escrow Holder from and against all costs, damages, judgments, attorneys’ fees, expenses, obligations and liabilities of every kind which in good faith are incurred or suffered by the Escrow Holder in connection with or arising out of the Escrow (it being expressly understood and agreed, however, that nothing in this Section 4 shall alter or impair the right of Seller or Purchaser to recover from the other any amount due from one to the other with respect to sums paid to Escrow Holder pursuant to this Section 4).

6.     Notices.

(a)     Whenever any notice, demand, request or other communication is required or permitted hereunder, such notice, demand, request or communication shall be made in writing and shall be personally delivered to the addresses set forth in the Purchase Agreement, sent via prepaid courier or telecopier, or deposited in the United States mail, registered or certified, return receipt requested, postage prepaid, addressed to the addresses set forth in the Purchase Agreement (with respect to Seller or Purchaser), and any notices to Escrow Holder shall be sent to:

(b)     Except as provided in subsection (c), below, any notice, demand, request or other communication sent in the manner specified in this Section 6 shall be deemed to have been delivered upon receipt by the person to whom such notice was addressed.

(c)    The inability to deliver any notice, demand or request because the individual to whom it is properly addressed in accordance with this Section 6 refuses delivery thereof or no longer can be located at that address shall constitute delivery thereof to such individual.

(d)     Each party hereto shall have the right from time to time to designate by written notice to the other parties thereto such other person or persons and such other place or places as said party may desire written notices to be delivered or sent in accordance herewith.

7.     Modification. No provision of this Agreement may be modified, amended, supplemented or terminated nor may the obligations of the parties hereunder be waived except by an agreement in writing signed by the parties hereto or their respective successors in interest.

8.     Charges. Except as otherwise provided herein, all charges and expenses of Escrow are to be shared equally by Purchaser and Seller.

9.     Governing Law. This Agreement and the transactions contemplated herein shall be construed in accordance with and governed by laws of the State of Louisiana, without giving effect to the conflict-of-law rules and principles of said state.

10.     Incorporation of Prior Agreements. This Agreement, together with the Purchase Agreement and any documents delivered in connection therewith, contain the entire understanding of the parties hereto with respect to the subject matter hereof, and no other prior or contemporaneous written or oral agreement or understanding pertaining to any such matter shall be effective for any purpose. The parties do not intend to confer any benefit hereunder on any person, corporation or firm other than the parties hereto or their permitted successors and assigns.

11.     Costs and Attorneys’ Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, default, or misrepresentation in connection with any of the provisions of this Agreement, or if Escrow Holder commences any action with respect to the Escrow, the successful or prevailing party shall be entitled to recover actual attorneys’ fees and other costs incurred in that action or proceeding (together with costs of enforcing any judgments or rulings), in addition to any other relief to which it may be entitled.

12.     Conflict. In the event of any conflict between the provisions of this Agreement and the Purchase Agreement, the provisions of this Agreement shall control.

13.     Time of Essence. All terms provided for in this Agreement for the performance of any act will be strictly construed, time being of essence.

14.     Further Assurances. Purchaser and Seller agree to execute such further instructions to Escrow Holder and such other instruments as may be reasonably necessary to carry out the provisions of this Agreement.

15.     Counterparts. This Agreement, and any document or instrument entered into, given or made pursuant to this Agreement or authorized hereby, and any amendment or supplement thereto, may be executed in two or more counterparts, and, when so executed, will have the same force and effect as though all signatures appeared on a single document. Any signature page of this Agreement or of such an amendment, supplement, document or instrument may be detached from any counterpart without impairing the legal effect of any signatures thereon, and may be attached to another counterpart identical in form thereto but having attached to it one or more additional signature pages.

16.     Severability. If any term or provision of this Agreement is determined to be illegal, unconscionable or unenforceable, all of the other terms, provisions and selections hereof will nevertheless remain effective and be in force to the fullest extent permitted by law.

17.     Construction of Agreement. The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against any of the parties hereto, despite the fact that the Agreement may have been prepared in whole or part by one party or its counsel. Headings at the beginning of paragraphs and subparagraphs of this Agreement are solely for the convenience of the parties and are not a part of this Agreement. When required by the context, whenever the singular number is used in this Agreement, the same shall include the plural, and the plural shall include the singular, the masculine gender shall include the feminine and neutral genders, and vice versa.

[signatures follow on next page]

IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written.

PURCHASER:

[____________________________]

By:____________________________

Name:__________________________

Title:___________________________

SELLER:

[_________________________________]

By:____________________________

Name:__________________________

Title:___________________________

ESCROW HOLDER ACKNOWLEDGES RECEIPT OF THE FOREGOING AGREEMENT AND ACCEPTS AND AGREES TO THE INSTRUCTIONS CONTAINED THEREIN AND THE OTHER MATTERS PERTAINING THERETO.

CHICAGO TITLE INSURANCE COMPANY

By________________________________

Print Name________________________

Title_____________________________

Date: ____________________, 2016

Exhibit 1

Proposed Settlement Terms

1) Adoption of accessibility policies to manage the leasing preferences for the UFAS units.

2) Modifications to make 15 units (5%) UFAS MOBILITY compliant.

3) Modification to make 6 units (2%) UFAS SENSORY compliant.

4) Distribution of the UFAS units in both affordable and market rate categories, with Purchaser attempting to distribute the bulk of the UFAS MOBILITY units to the affordable category per what is believed to be the City of Los Angeles’ goal.

5) To the extent that the fire alarms already installed in units 201, 249, 349, 401, 252, 292, 352, 452, 492, 250, 302, 350, 450, 116 satisfy the UFAS-SENSORY modifications then those units will be designated as the UFAS SENSORY UNITS.

6) Reasonable periods of time to complete the improvements: at least 6 months with an attempt to have unit work to not be required until the particular unit to be modified becomes vacant.

EXHIBIT C

Assignment and Assumption of Leases,Contracts and Other Property Interests

For good and valuable consideration, the receipt of which is hereby acknowledged, REDROCK NOHO RESIDENTIAL, LLC, a Delaware limited liability company (“Assignor”) hereby irrevocably assigns, transfers and sets over to ______________, a _____________ (“Assignee”) all of Assignor’s right, title and interest in and to (i) the lease agreements (the “Leases”) enumerated on Schedule A attached hereto and made a part hereof, together with tenant security deposits held by Assignor under the Leases; (ii) to the extent assignable, the contracts (the “Contracts”) enumerated in Schedule B attached hereto and made a part hereof; (iii) to the extent assignable, any governmental permits and approvals (the “Permits and Approvals”) related to the improvements (the “Improvements”) located on the land (the “Land”) being conveyed by Assignor to Assignee by Deed, dated the date hereof; and (iv) to the extent assignable, all contract rights (including, without limitation, all existing third‑party warranties, if any, on materials and equipment constituting a part of or used in the operation and maintenance of the Improvements), licenses, permits, plans and specifications, surveys, soils reports, insurance proceeds by reason of damage to the Improvements, condemnation awards and all other rights, privileges or entitlements necessary to continue the use and operation of the Land and the Improvements.

Assignee hereby assumes all obligations in connection with the Leases, the Contracts and the Permits and Approvals, arising or first becoming due and payable after the date hereof, including without limitation, all leasing commission and tenant improvement costs at any time owed or owing on the Leases.

Assignor hereby represents and warrants only that it has not previously assigned the Leases, the Contracts, the Permits and Approvals, contract rights and other rights assigned hereby. Assignor makes no other representation or warranty in connection with this Assignment and, except for the foregoing, this Assignment is made without recourse to Assignor.

All terms of this Assignment shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective legal representatives, successors and assigns.

No modification, waiver, amendment, discharge or change of this Assignment shall be valid unless the same is in writing and signed by the party against which the enforcement of such modification, waiver, amendment, discharge or change is or may be sought.

This Assignment shall be construed and enforced in accordance with the laws of the State of California.

In any action brought to enforce the obligations of Assignor under this Assignment, the judgment or decree shall be subject to Sections 16.8 and 16.15 of that certain Sale, Purchase and Escrow Agreement, dated as of __________, 2016, between Assignor, Assignee and [______________].

This Assignment may be executed in any number of counterparts, each of which so executed shall be deemed an original; such counterparts shall together constitute but one agreement.

[SIGNATURE PAGE TO FOLLOW]

IN WITNESS WHEREOF, Assignor and Assignee have each executed this Assignment of this ______ day of __________, 2016.

ASSIGNOR:

]REDROCK NOHO RESIDENTIAL, LLC,

a Delaware limited liability company

By:    Redrock NoHo, LLC,

a Delaware limited liability company,

its sole member

By:    Redwood Partners, Inc.,

a California corporation,

its manager]

By:     

Name:    

Title:

ASSIGNEE:

[PURCHASER ENTITY]

By:     

Name:    

Title:    

EXHIBIT D

Form of Bill of Sale

KNOW ALL MEN BY THESE PRESENTS, that [REDROCK NOHO RESIDENTIAL, LLC., a Delaware limited liability company] (“Seller”), for good and valuable consideration paid by_____________, a _______________ (“Purchaser”), hereby sells to Purchaser, its successors and assigns, the personal property (“Personal Property”) more particularly referred to in Schedule A attached hereto.

TO HAVE AND TO HOLD the same unto Purchaser, its successors and assigns to and for its own use and behalf forever.

This Bill of Sale shall be without representation or warranty by, and without recourse to, Seller.

This Bill of Sale may be executed in any number of counterparts, each of which so executed shall be deemed an original; such counterparts shall together constitute but one agreement.

[SIGNATURE PAGE TO FOLLOW]

IN WITNESS WHEREOF, Seller and Purchaser have caused these presents to be signed by their duly authorized officers as of this _______ day of ______________, 2016.

SELLER:

[REDROCK NOHO RESIDENTIAL LLC,

a Delaware limited liability company

By:    Redrock NoHo, LLC,

a Delaware limited liability company,

its sole member

By:    Redwood Partners, Inc.,

a California corporation,

its manager]

By:     

Name:    

Title:    

PURCHASER:

[PURCHASER ENTITY]

By:     

Name:    

Title:    

EXHIBIT E

Form of Retail Estoppel

ESTOPPEL CERTIFICATE

This ESTOPPEL CERTIFICATE (this “Certificate”), is made with the knowledge that [NoHo Commons Pacific Owner LLC, a Delaware limited liability company], and/or its assignee (“Buyer”), is relying on it in connection with its acquisition of the real property and improvements located at 11136 Chandler Blvd, North Hollywood, CA 91601 (the “Property”), which is subject to the CC&Rs (as defined below), and, in connection therewith, Buyer and its successors, assigns and lenders (if any) (collectively, the “Beneficiaries”) may rely on this Certificate for all purposes.

The undersigned does hereby certify to the Beneficiaries and to each of them, that the following statements are true, correct and complete as of the date hereof:

1.    The Property is subject to that certain the Second Amended and Restated Declaration and Establishment of Covenants, Conditions and Restrictions and Grant of Easements dated as of December 31, 2014, made by Redrock Noho Retail, LLC, a Delaware limited liability company (“NoHo Retail”), and Redrock Noho Residential, LLC, a Delaware limited liability company, as declarant (“Declarant”), recorded in the Official Records, Los Angeles County (the “Official Records”), on January 20, 2015 as Instrument No. 20150061853 (the “CC&Rs”). A true, correct and complete copy of the CC&Rs are attached hereto as Exhibit A, and by this reference incorporated herein. Any and all terms used in this Certificate and not herein defined shall have the meanings ascribed to them in the CC&Rs.

2.    The undersigned is the sole owner of the Retail Parcel.

3.    There are no past due or delinquent amounts due and payable under the CC&Rs by the undersigned to Residential Owner. The amounts allocated to Retail Owner for the fiscal year ended December 31, 2015 were (a) $_____________ for utilities, in accordance with Section 8.2 of the CC&Rs (b) $_____________ for Non-Segregable Maintenance Items, in accordance with Section 8.5 of the CC&Rs, and (c) $_____________ for and Retail Owner’s Insurance Share, in accordance with Section 10.2.5 of the CC&Rs, which amounts were all timely paid in full.

4.    The CC&Rs are in full force and effect and, except as set forth on Exhibit A, there have been no amendments, modifications, supplements or revisions thereto.

5.    No event of default by the undersigned or, to the knowledge of undersigned, Residential Owner exists under the CC&Rs and the undersigned has no knowledge of any facts or circumstances which, with the giving of notice, the lapse of time, or both, would constitute a default by either the undersigned or Residential Owner thereunder.

6.    The undersigned is duly authorized to execute and deliver this Certificate.

[Remainder of Page Intentionally Left Blank]

[Signatures Set Forth on Following Page]

Executed as of the __ day of ____________, 2016.

[TBD], a [TBD]

By:

Name:

Its:

Exhibit A

CC&Rs

[See Attached]

EXHIBIT F

Contracts

Vendor	Description
Grounds
Eco Concepts	Pest Control Contract
Securitas	Courtesy Patrol
Landsco	Landscaping Contract
Republic Services	Trash Removal
Better Pools	Pool/Spa Contract
Total Access	Elevator Contract
Day-Lite Maintenance	Garage Light Bulb Replacement Contract
Utilities
So Cal Gas	Boiler
So Cal Gas	Models (2)
So Cal Gas	Pool
LADWP	Chandler Common Electricity
LADWP	Weddington - Fire Service/Irrigation
LADWP	Property
LADWP	Models (2)
Yes Energy	RUBS Utility Billing
Phones/Internet
8x8	Office Phones
BAI	Bulk Contract
BAI	Bus. Center Internet/Fitness Center Cable
BAI	Internet - Siemens
Vellarus	Business Center Computer Maintenance
AT&T	Call Boxes
AT&T	Fire Alarm, Elevators
Sprint	Maintenance Phones
Quarterly/Annual Contracts
Fitness Repair Shop	Fitness Center Maintenance
Regency Fire	Fire Monitoring
PFP	REf-4 Testing
Duthie	Generator Contract
Benrich	Boiler Contract
Jobe Roofing	Roof Contract
Siemens	Entry Systems Contract
Misc.
RICOH USA	Office Copier Machine
Rent Grow	Credit Screening
Handy Trac	Key Control Monthly Maintenance
PNPS	Maintenance Service Contract

EXHIBIT G

Form of Notice to Tenants

____________, 20___

[TENANT]

Re:    ____________________________

Dear Tenant:

Please be advised that effective _______________, 2016, _________________________ has sold the above-referenced property to ________________________________ [with an address at ___________________]. Your security deposit has been transferred to such entity and such entity shall be responsible for holding the same in accordance with the terms of your lease. Effective ___________, 20___, all future rental payments should be sent to the following address:

Any questions regarding maintenance and management of the property should be addressed to:

Very truly yours,

[REDROCK NOHO RESIDENTIAL LLC,

a Delaware limited liability company

By:    Redrock NoHo, LLC,

a Delaware limited liability company,

its sole member

By:    Redwood Partners, Inc.,

a California corporation,

its manager]

By:     

Name:

Title:    

EXHIBIT H

FIRPTA Affidavit

Transferor’s Certification of Non-Foreign Status

To inform [PURCHASER ENTITY], a [_______] (“Transferee”), that withholding of tax under Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”), will not be required upon the transfer of certain real property to Transferee by [REDROCK NOHO RESIDENTIAL, LLC, a Delaware limited liability company] (“Transferor”), the undersigned hereby certifies the following on behalf of Transferor:

1.    Transferor is not a foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in the Code and the Income Tax Regulations promulgated thereunder);

2.    Seller is not a disregarded entity as defined in §1.1445-2(b)(2)(iii);

3.    Transferor’s U.S. employer identification number is __________; and

4.    Transferor’s office address is [________].

Transferor understands that this Certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

[SIGNATURE PAGE TO FOLLOW]

Under penalty of perjury I declare that I have examined this Certification and to the best of my knowledge and belief it is true, correct and complete, and I further declare that I have authority to sign this document on behalf of Transferor.

Dated: ______________, 2016

[REDROCK NOHO RESIDENTIAL, LLC,

a Delaware limited liability company

By:    Redrock NoHo, LLC,

a Delaware limited liability company,

its sole member

By:    Redwood Partners, Inc.,

a California corporation,

its manager]

By:    

Name:    

Title:    

EXHIBIT I

Form of Deed

RECORDING REQUESTED BY

AND WHEN RECORDED MAIL TO

AND MAIL TAX STATEMENTS TO:

_____________________________________________________________________________

SPACE ABOVE THIS LINE FOR RECORDER’S USE

______________________________________________________________________________

ASSESSOR’S PARCEL NO. _____________ and __________________

GRANT DEED

THE UNDERSIGNED GRANTOR(S) DECLARE(S)

DOCUMENTARY TRANSFER TAX IS $, CITY TAX $

¨ computed on full value of property conveyed,

¨ computed on full value less value of liens or encumbrances,

FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, [REDROCK NOHO RESIDENTIAL LLC], a Delaware limited liability company (“Grantor”), hereby grants, to __________________________a ____ (“Grantee”), that certain real property located in the City of North Hollywood, County of Los Angeles, State of California, as more particularly described in Exhibit “A” attached hereto and all buildings and improvements, if any, situated thereon and all appurtenances with respect thereto (the “Property”), subject to all matters of title and subject to all covenants, conditions and restrictions, easements, and other encumbrances of record and all other matters matters, rights and interests that would be discovered by a survey or personal investigation of the Property.

THE PROPERTY IS CONVEYED SUBJECT TO THE PERMITTED EXCEPTIONS ATTACHED AS EXHIBIT “B” attached hereto.

[SIGNATURE PAGE TO FOLLOW]

IN WITNESS WHEREOF, Grantor has executed this Grant Deed as of _______, 20__.

GRANTOR:

[REDROCK NOHO RESIDENTIAL LLC,

a Delaware limited liability company

By:    Redrock NoHo, LLC,

a Delaware limited liability company,

its sole member

By:    Redwood Partners, Inc.,

a California corporation,

its manager]

By:    

Name:

Title:

[Notary acknowledgment on following page]

ACKNOWLEDGMENT

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

State of California

County of _____________________________)

On _________________________ before me, ________________________________________     (insert name and title of the officer)

personally appeared ____________________________________________________________,

who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature ______________________________ (Seal)

EXHIBIT “A” TO GRANT DEED

LEGAL DESCRIPTION

PARCEL 1A:

PARCEL B OF PARCEL MAP L.A. NO. 2002-6231, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 340 PAGES 78 to 80 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN LOT 25 OF BLOCK 6 OF LANKERSHIM, AS PER MAP RECORDED IN BOOK 16 PAGES 114 AND 115 OF MAPS, IN THE OFFICE OF THE LOS ANGELES COUNTY RECORDER, ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER SAID LAND, BUT WITHOUT ANY RIGHT TO PENETRATE, USE OR DISTURB SAID PROPERTY WITHIN 500 FEET OF THE SURFACE THEREOF, AS EXCEPTED AND RESERVED IN DEED RECORDED SEPTEMBER 10, 1986 AS INSTRUMENT NO. 86-1190583, OFFICIAL RECORDS.

ALSO EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN LOT 27 OF SAID BLOCK 6 OF SAID LANKERSHIM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER ALL OF THE ABOVE DESCRIBED REAL PROPERTY, BUT WITHOUT ANY RIGHT TO PENETRATE, USE OR DISTURB SAID PROPERTY WITHIN 500 FEET OF THE SURFACE THEREOF, AS EXCEPTED AND RESERVED BY DAVID FEIGIN, ET AL, IN A DEED RECORDED ON MAY 26, 1989, AS INSTRUMENT NO. 89-854239 OFFICIAL RECORDS.

ALSO EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN LOTS 20, 21 AND 22 IN SAID BLOCK 6 OF SAID LANKERSHIM ALL OIL, GAS, WATER, AND MINERAL RIGHTS NOW VESTED IN THE CITY OF LOS ANGELES WITHOUT, HOWEVER, THE RIGHT TO USE THE SURFACE OF SAID LAND OR ANY PORTION THEREOF TO A DEPTH OF 500 FEET BELOW THE SURFACE, FOR THE EXTRACTION OF SUCH OIL, GAS, WATER AND MINERALS, AS EXCEPTED AND RESERVED BY THE CITY OF LOS ANGELES RECORDED APRIL 12, 2004 AS INSTRUMENT NO. 04-0870960 OF OFFICIAL RECORDS.

PARCEL 1B:

A NON-EXCLUSIVE EASEMENT AS PROVIDED IN THAT CERTAIN AMENDED AND RESTATED DECLARATION AND ESTABLISHMENT OF COVENANTS, CONDITIONS AND RESTRICTIONS AND GRANT OF EASEMENTS, RECORDED JANUARY 5, 2007 AS INSTRUMENT NO. 07-26534, OF OFFICIAL RECORDS, (THE “DECLARATION”), FOR INGRESS AND EGRESS IN, ON, OVER, ACROSS AND THROUGH THAT PORTION OF THE NOHO ALLEY (AS DEFINED IN THE DECLARATION) LOCATED WITHIN PARCEL “A” OF SAID PARCEL MAP L.A. NO. 2002-6231.

EXHIBIT “B” TO GRANT DEED

PERMITTED EXCEPTIONS

1. Non delinquent real property taxes and all assessments and unpaid installments thereof which are not delinquent.

2. The Leases and the rights of tenants thereunder.

3. Any other lien, encumbrance, easement or other exception or matter voluntarily imposed or consented to by Purchaser prior to or as of the Closing.

4. All exceptions (including printed exceptions) to title contained or disclosed in the Title Report (as defined in Section 15.1 of the Sale, Purchase and Escrow Agreement between Grantor and Grantee dated __, 2016 (the “Purchase Agreement”)) other than any objections to title identified which Grantor commits in writing to remove or have removed and not thereafter waived by Purchaser), and any other Non-Material Exceptions (as defined in the Purchase Agreement).

5. All matters, rights and interests that would be discovered by a survey of the Property.

EXHIBIT J

Form of Seventh Partial Assignment of OPA

Recording Requested by and
When Recorded return to:

Sklar Kirsh LLP
1880 Century Park East, Suite 300
Los Angeles, CA 90067

Attention: Andrew T. Kirsh

______________________________________________________________________________

SEVENTH PARTIAL ASSIGNMENT OF
OWNER PARTICIPATION AGREEMENT
AND CONSENT TO ASSIGNMENT

THIS SEVENTH PARTIAL ASSIGNMENT OF OWNER PARTICIPATION AGREEMENT AND CONSENT TO ASSIGNMENT (this“Agreement”) is entered into as of this ___ day of November, 2016, by and between REDROCK NOHO RESIDENTIAL, LLC, a Delaware limited liability company (“Assignor”), [___________], a [_____________] (“Assignee”) and CRA/LA, A DESIGNATED LOCAL AUTHORITY, a public body formed pursuant to California Health & Safety Code Section 34173(d)(3) (the“CRA/LA”) (as successor to The Community Redevelopment Agency of the City of Los Angeles (the “Former Agency”)). Assignor, Assignee and CRA/LA shall hereinafter sometimes be referred to individually as a“Party” and collectively as the“Parties”.

RECITALS

WHEREAS, SL No Ho, LLC, a California limited liability company (“Developer”) and the Former Agency entered into that certain Owner Participation Agreement dated as of March 5, 2002, as supplemented and amended by (i) that certain First Implementation Agreement dated as of November 18, 2002, (ii) that certain Second Implementation Agreement dated as of December 12, 2003, (iii) that certain Third Implementation Agreement dated as of October 1, 2004, (iv) that certain Partial Assignment and Assumption Agreement dated as of December 18, 2003, (v) that certain Second Partial Assignment and Assumption Agreement dated as of October 1, 2004, (vi) that certain Third Partial Assignment of Owner Participation Agreement and Consent to Assignment, dated as of January 9, 2007, (vii) that certain letter agreement dated August 31, 2005 correcting Attachment 10, (viii) that certain Fourth Partial Assignment of Owner Participation Agreement and Consent to Assignment, dated as of August 3, 2007, (ix) that certain Fourth Implementation Agreement dated June 16, 2008, (x) that certain Fifth Partial Assignment of Owner Participation Agreement and Consent to Assignment dated as of August 19, 2008 and (xi) that certain Sixth Partial Assignment of Owner Participation Agreement and Consent to Assignment dated as of May 1, 2015 (collectively, the“OPA”).

WHEREAS, any capitalized terms not otherwise defined in this Agreement shall have the respective meanings ascribed to such terms in the OPA.

WHEREAS, pursuant to that certain Partial Assignment of Owner Participation Agreement and Consent to Assignment, dated as of December 18, 2003 (the“Subarea A Assignment”), Developer assigned to SF No Ho, LLC, a California limited liability company (the“Subarea A Assignee”) certain rights, duties and obligations relating to the construction, operation and maintenance of Subarea A.

WHEREAS, pursuant to the that certain Second Partial Assignment of Owner Participation Agreement and Consent to Assignment, dated as of October 1, 2004 (the“Subarea B Assignment”), Developer assigned to NO HO Lofts, LLC, a Delaware limited liability company (“NO HO Lofts”) all of its rights, duties and obligations relating to the construction, operation and maintenance of Subarea B and the Subarea B Improvements.

WHEREAS, pursuant to the that certain Third Partial Assignment of Owner Participation Agreement and Consent to Assignment, dated as of January 9, 2007 (the“Subarea B-2 Assignment”), NO HO Lofts assigned to Assignor as to an approximate 90% undivided interest, and SMA SPE, LLC, a Delaware limited liability company (“SMA”), an affiliate of Assignor, as to an approximate 10% undivided interest, as tenants in common, certain rights, duties and obligations relating to the operation and maintenance of Subarea B-2 and the Subarea B-2 Improvements and SMA subsequently transferred its approximate 10% undivided interest in the Property to Assignor.

WHEREAS, pursuant to the that certain Fourth Partial Assignment of Owner Participation Agreement and Consent to Assignment, dated as of August 3, 2007 (the“Subarea B-1 Assignment”), NO HO Lofts assigned to Redrock Noho Retail, LLC, a Delaware limited liability company (“Redrock Retail”) certain rights, duties and obligations relating to the operation and maintenance of Subarea B-1 and the Subarea B-1 Improvements.

WHEREAS, pursuant to that certain Fifth Partial Assignment of Owner Participation Agreement and Consent to Assignment, dated as of August 8, 2008 (the “Subarea C Assignment”), Developer assigned to Snyder Noho III, LLC, a California limited liability company (the “Subarea C Assignee”), certain rights, duties and obligations relating to the operation and maintenance of Subarea C and the Subarea C Improvements.

WHEREAS, pursuant to the that certain Sixth Partial Assignment of Owner Participation Agreement and Consent to Assignment, dated as of May 1, 2015 (the“Subarea B-1 Assignment”), Redrock Retail assigned to Noho Lakewood Retail IX, LLC, a Delaware limited liability company, as to a 12% undivided interest, and Noho Meadowridge Retail IX, LLC, a Delaware limited liability company, as to an 88% undivided interest, as tenants in common (collectively, the“Subarea B-1 Assignee”), certain rights, duties and obligations relating to the operation and maintenance of Subarea B-1 and the Subarea B-1 Improvements.

WHEREAS, Assignor has agreed to transfer and convey to Assignee its fee interest in that portion of Subarea B and the Subarea B Improvements referred to in the OPA as Subarea B-2 and to assign Assignor’s rights, duties and obligations under the OPA to Assignee relating to the operation

and maintenance of Subarea B-2 and the Subarea B-2 Improvements, including that certain 278 unit residential apartment complex and approximately 14 live/work units and subterranean parking structure located thereon (collectively, the“Property”), all subject to the terms and conditions of this Agreement.

WHEREAS, Assignor and Assignee require CRA/LA’s acknowledgement of those obligations and restrictions in the OPA which continue to attach to the Property and a release of Assignor from any responsibility or liability for the Assigned Interests (as defined below) to the extent arising out of or accruing from and after the Effective Date (as defined below), all as more particularly set forth in this Agreement;

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

DEFINITIONS

Defined Terms. In addition to terms defined elsewhere herein, the following terms shall have the following respective meanings:

“Assigned Interests” means all Assignor’s right, title and interest under the OPA to the operation and maintenance of the Property together with any and all benefits associated therewith as are specifically set forth in the Subarea B-2 Assignment.

“Assumed Obligations” means all of Assignor’s duties and obligations under the OPA relating to the operation and maintenance of the Property as are specifically set forth in the Subarea B-2 Assignment.

“Business Day” means any day on which banks are open to conduct business in the state of California.

“Effective Date” means the date upon which fee title to the Property shall be conveyed to Assignee.

ASSIGNMENT AND ASSUMPTION

Assignment. Assignor hereby assigns and transfers to Assignee all of Assignor’s right, title and interest in and to the Assigned Interests, without recourse, representation or warranty.

Acceptance and Assumption. Assignee hereby accepts the foregoing assignment and transfer from Assignor, and Assignee hereby assumes and agrees to perform all of the Assumed Obligations which first arise or occur from and after the Effective Date, and to be bound by, and to comply from and after the Effective Date with, all of the terms and provisions of the OPA to the extent same relate to the Assigned Interests and the Assumed Obligations.

Effect of Assignment. From and after the Effective Date: (a) Assignee shall be deemed a party to the OPA and any reference therein to “Developer” shall be deemed to refer to Assignee to the extent said reference relates to the Property, the Assigned Interests and/or the Assumed Obligations; (b) Assignee shall be entitled to exercise and enforce all rights to the Assigned Interests under the OPA as if Assignee had been a signatory to the OPA or a beneficiary thereunder as of the date of its original execution and Assignor shall no longer have any entitlement thereto; (c) CRA/LA shall release Assignee, its successors and assigns and the Property from all obligations, restrictions and requirements described in the OPA except for the Assumed Obligations; and (d) Assignor is released by CRA/LA from the obligations related to the Property, the Assigned Interests and/or the OPA (to the extent applicable to the Property) in each case to the extent first arising or accruing after the Effective Date.

Consent to Amendment. From and after the Effective Date, any future amendment of the OPA which does not affect any of the Property, the Assigned Interests, or the Assumed Obligations, shall not require the consent or signature of Assignee. In addition, in the event CRA/LA has received written notice of the existence of a Lender (as defined in Section 3.6, below) from Assignee, then from and after the Effective Date, CRA/LA shall make a good faith effort to provide written notification to such Lender, at least ten (10) days prior to executing any proposed amendments or modifications to any of the provisions of the OPA which are binding on the Assignee Property.

CRA/LA CONSENT

Consent to Assignment. CRA/LA consents to: (i) the assignment of Assignor’s interest in the Property and the OPA to Assignee, (ii) the assignment, transfer and/or hypothecation of Assignee’s interest in the Property and the OPA as security for any Lender financing and (iii) any future assignment of the Property and the OPA by Assignee to any Lender. CRA/LA shall have the right to require any transferee of the Property to comply with the terms and obligations of the OPA accruing and arising during the transferee’s period of ownership in order for the transferee to enforce any benefits of, and obligations of CRA/LA under, the OPA relating to the Property.

No Breach of the Assumed Obligations. CRA/LA hereby certifies to Assignee and to Lender that Assignor is not currently in default of any of its obligations with regards to Subarea B-2. CRA/LA acknowledges that Assignee is entering into this Agreement in reliance upon said certification and that CRA/LA shall hereafter be estopped from pursuing any rights or remedies against Assignee or Lender in connection with any alleged breach of an Assumed Obligation prior to the date hereof; notwithstanding this certification, however, CRA/LA does not waive any rights it may have against Assignor for any such alleged breach.

Waiver and Release of Claims.

CRA/LA hereby acknowledges and agrees that, from and after the Effective Date, Assignee (and its successors) shall only be responsible for (and the Property shall only be bound and encumbered by) the Assumed Obligations, and from and after the Effective Date, CRA/LA expressly, fully and forever releases and discharges Assignee and the Property from any and all losses, expenses, claims, costs, damages, debts, attorneys’ fees, actions, suits, judgments, awards,

obligations and/or liabilities of any kind, whether foreseeable or unforeseeable, known or unknown, suspected or unsuspected, with respect to or in any way relating to or arising out of the Retained Obligations (as defined in the Subarea B-2 Assignment), the Assignor Property (as defined in the Subarea B-1 Assignment) and/or any and all obligations assumed by (i) the Subarea A Assignee or Subarea C Assignee and/or relating to the “Assignee Property” as defined in the Subarea A Assignment or Subarea C Assignment, as applicable, or (ii) Subarea B-1 Assignee and/or relating to the “Property” as defined in the Subarea B-1 Assignment.

CRA/LA acknowledges and agrees, and without limiting the terms of any release and/or other partial termination previously executed, delivered and/or recorded by CRA/LA or in respect of the Property (or any portion thereof) that except for the rights and obligations specifically enumerated in the Subarea B-2 Assignment with respect to Subarea B-2, no other portion of the OPA is applicable to the Property. CRA/LA acknowledges and agrees that the HUD Loan (as defined in the Subarea B-2 Assignment) does not impact or encumber the Property and reaffirms its release of the Assignor and Assignee (together with its successors, assigns and/or lenders) and the Property from any remedies which might be construed as in any way relating to or arising out of a default of the HUD Loan or any other financing contemplated under the OPA. CRA/LA further acknowledges and agrees that any Agency Participation Payment which was payable under the OPA in respect of the sale of any portion of the Property has been previously paid in full by Assignor’s predecessors in interest and that no Agency Participation Payment shall be due in connection with the transactions contemplated by that certain Sale, Purchase and Escrow Agreement dated as of [_________], 2016, between Redrock Residential Noho, LLC and [____________] with respect to the sale of the Property (as amended from time to time, the “Purchase Agreement”).

No Cross Default. CRA/LA hereby acknowledges that:

In the event the Subarea A Assignee defaults on any of the obligations assigned under the Subarea A Assignment, then CRA/LA shall have no rights or remedies against Assignee or the Property and, to the extent that such a default would entitle CRA/LA to terminate the OPA, then CRA/LA shall have no right to terminate the OPA to the extent it relates to Subarea B-2 or the Subarea B-2 Improvements, including without limitation, any of the Assigned Interests.

In the event the Subarea B-1 Assignee defaults on any of the obligations assigned under the Subarea B-1 Assignment, then CRA/LA shall have no rights or remedies against Assignee or the Property and, to the extent that such a default would entitle CRA/LA to terminate the OPA, then CRA/LA shall have no right to terminate the OPA to the extent it relates to Subarea B-2 or the Subarea B-2 Improvements, including without limitation, any of the Assigned Interests.

In the event the Subarea C Assignee defaults on any of the obligations assigned under the Subarea C Assignment, then CRA/LA shall have no rights or remedies against Assignee or the Property and, to the extent that such a default would entitle CRA/LA to terminate the OPA, then CRA/LA shall have no right to terminate the OPA to the extent it relates to Subarea B-2 or the Subarea B-2 Improvements, including without limitation, any of the Assigned Interests.

In the event Developer defaults on any obligations relating to Subarea D, then CRA/LA shall have no right to terminate the OPA to the extent it relates to Subarea B-2 or the Subarea B-2 Improvements, including without limitation, any of the Assigned Interests.

Consent to Financing and Security Interest. CRA/LA hereby acknowledges and agrees that Assignee, and any successors to Assignee, shall have the right, at any time and without notice to or the need for approval from CRA/LA, to encumber all or any portion of the Property.

Lender Reliance. Each Party hereto hereby acknowledges and agrees that any lender to Assignee (“Lender”) shall have the right to rely on the contents and provisions of this Agreement and that such lender will rely on such content and provisions in connection with its loan to Assignee.

MISCELLANEOUS

Further Assignment of Assigned Interests. CRA/LA acknowledges that, from and after the Effective Date, Assignee may sell, assign, transfer, encumber or grant to any third parties any rights, duties or interests in the Assigned Property without the prior written consent of CRA/LA.

Receipt of Further Payments. If Assignor receives, after the Effective Date, any payments or benefits on account of any Assigned Interests, Assignor shall promptly notify Assignee thereof, hold such amounts in trust for Assignee, and promptly (but in no event later than thirty (30) days after Assignor’s receipt thereof) turn over such amounts in full to Assignee or as Assignee may direct, in the same or equivalent form received, without recourse, representation or warranty of Assignor.

Survival. All representations, warranties, covenants and agreements made by the Parties hereunder shall be considered to have been relied upon by the Parties and shall survive the execution, delivery and performance of this Agreement and all other documents contemplated herein.

Successors and Assigns. This Agreement, including, without limitation, the representations, warranties, covenants and agreements contained herein (a) shall inure to the benefit of and be enforceable by the Parties and their respective permitted successors, assigns and transferees, and (b) shall be binding upon and enforceable against the Parties and their respective successors, assigns and transferees.

Further Assurances. Each of the Parties agrees to execute and deliver, or cause to be executed and delivered, all such instruments, and to take all such action, as the other Parties may reasonably require in order to effectuate the intent and purposes of, and to carry out the terms of, this Agreement.

Costs and Expenses. Except as otherwise expressly provided herein, each Party shall bear its own costs and expenses (including but not limited to attorneys’ fees and expenses) in connection with the negotiation and preparation of this Agreement.

Counterpart Execution. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original, but all of which together shall

constitute one Agreement binding on all of the Parties. Any signature delivered by facsimile or telecopier shall be deemed to constitute an original signature hereto.

Amendments; Waivers.

No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by all the Parties, and no waiver of any provision of this Agreement, nor consent to any departure by a Party therefrom, shall be effective unless it is in writing and signed by the other Parties, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

No failure on the part of any Party to excuse, and no delay in exercising any right hereunder or under any related document shall operate as a waiver thereof by such Party, nor shall any single or partial exercise of any right hereunder or under any other related document preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of each Party provided herein and in other related documents (i) are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law, and (ii) are not conditional or contingent on any attempt by such Party to exercise any of its rights under any other related document against the other Parties or any other entity.

Governing Law. This Agreement shall be governed by and construed under, and the obligation of the Parties hereunder shall be determined in accordance with, the laws of the State of California (without regard to any conflict of laws provisions thereof).

Notices. All demands, notices, requests, consents and communications required hereunder or under the OPA shall be in writing and shall be deemed to have been duly given if personally delivered by courier service or messenger, sent by overnight delivery service, or facsimile transmission, or deposited in the mails, by certified or registered mail, postage prepaid, return receipt requested, to the following addresses, or such other addresses as may be furnished hereafter by notice in writing:

To Assignee:    c/o KBS Capital Advisors LLC

11150 Santa Monica Boulevard, Suite 400

Los Angeles, CA 90025

Attention: Jamie Rodgers

Telephone: (310) 432-2103

Facsimile:

Email: jrodgers@kbs.com

c/o KBS Capital Advisors LLC

800 Newport Center Drive, Suite 700

Newport Beach, CA 92660

Attention: Brian Ragsdale

Telephone: (949) 797-0305

Facsimile:

Email: bragsdale@kbs.com

To Assignor:    RedRock Noho Retail, LLC

c/o Redwood Partners

32932 Pacific Coast Hwy, #14-388

Dana Point, CA 92629

Attention: Scott McCarter

Facsimile: 949-200-8772

Email: srm@redwoodpartnersinc.com

To CRA/LA:    CRA/LA

448 S. Hill Street, Suite 1200

Los Angeles, CA 90013

Attn: Chief Executive Officer

CRA/LA

448 S. Hill Street, Suite 1200

Los Angeles, CA 90013

Attn: General Counsel

All demands, requests, consents, notices and communications shall be deemed to have been received if addressed in the same manner described above (i) at the time of actual delivery thereof if delivered by hand, by courier service or by facsimile transmission, or (ii) if sent by overnight delivery service, then one (1) Business Day after deposit thereof with such delivery service, or (iii) if sent by certified or registered mail, then three (3) Business Days after certification or registration thereof.

Integration. This Agreement, together with the OPA, and any exhibits attached hereto, constitute the entire agreement and understanding between the Parties with respect to the subject matter hereof and supersede all prior agreements, understandings or representations pertaining to the subject matter hereof, whether oral or written. There are no representations, warranties or other agreements between the Parties in connection with the subject matter hereof except as specifically set forth or incorporated herein.

Severability. If any provision of this Agreement or any other agreement or document delivered in connection herewith, is partially or completely invalid or unenforceable in any jurisdiction, then that provision shall be ineffective in that jurisdiction to the extent of its invalidity or unenforceability, but the invalidity or unenforceability of that provision shall not affect the validity or enforceability or any provision of this Agreement, all of which shall be construed and enforced as if that invalid or unenforceable provision were omitted, nor shall the invalidity or unenforceability of that provision in one jurisdiction affect its validity or enforceability in any other jurisdiction.

Captions and Headings. The section captions and headings in this Agreement are for convenience of reference only and are not intended to be full or accurate descriptions of the contents thereof. They shall not be deemed to be part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof.

[The remainder of this page has been intentionally left blank. Signatures appear on the
following page.]

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above.

“ASSIGNOR”:

REDROCK NOHO RESIDENTIAL, LLC,

a Delaware limited liability company

By:    Redrock NoHo, LLC,

a Delaware limited liability company,

its sole member

By:    Redwood Partners, Inc.,

a California corporation,

its manager

By:

Name:

Title:

“ASSIGNEE”:

[PURCHASING ENTITY]

By:     

Name:    

Title:

“CRA/LA”

CRA/LA, A DESIGNATED LOCAL AUTHORITY

By: __________________________________

Barron McCoy

Chief Operating Officer

APPROVED AS TO FORM:

GOLDFARB & LIPMAN LLP

By: __________________________________

Thomas H. Webber

CRA/LA Counsel

ACKNOWLEDGMENT

State of California

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

County of _____________________________)

On _________________________ before me, ________________________________________         (insert name and title of the officer)

personally appeared ____________________________________________________________,

who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature ______________________________ (Seal)

ACKNOWLEDGMENT

State of California

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

County of _____________________________)

On _________________________ before me, ________________________________________     (insert name and title of the officer)

personally appeared ____________________________________________________________,

who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature ______________________________ (Seal)

ACKNOWLEDGMENT

State of California

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

County of _____________________________)

On _________________________ before me, ________________________________________     (insert name and title of the officer)

personally appeared ____________________________________________________________,

who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature ______________________________ (Seal)

EXHIBIT K

Rent Roll

[Attached hereto]

EXHIBIT L

California Withholding Affidavit

[Attached hereto]

EXHIBIT M

Declarant Assignment

RECORDING REQUESTED BY AND

WHEN RECORDED RETURN TO:

SKLAR KIRSH, LLP

1880 Century Park East, Suite 300

Los Angeles, California 90067

Attn:    Andrew T. Kirsh, Esq.

Space above line for recorder’s use.

ASSIGNMENT OF DECLARANT’S RIGHTS UNDER SECOND AMENDED AND RESTATED DECLARATION AND ESTABLISHMENT OF COVENANTS, CONDITIONS, RESTRICTIONS AND GRANT OF EASEMENTS

THIS ASSIGNMENT OF DECLARANT’S RIGHTS UNDER SECOND AMENDED AND RESTATED DECLARATION AND ESTABLISHMENT OF COVENANTS, CONDITIONS, RESTRICTIONS AND GRANT OF EASEMENTS (this “Assignment”) is made as of the ___ day of ___________, 2016 (the “Effective Date”), by REDROCK NOHO RESIDENTIAL, LLC, a Delaware limited liability company (“Assignor”), in favor of NOHO COMMONS PACIFIC OWNER LLC, a Delaware limited liability company (“Assignee”).

RECITALS

A. Assignor is the Declarant under that certain Second Amended and Restated Declaration and Establishment of Covenants, Conditions, Restrictions and Grant of Easements (the “Declaration”) recorded on January 20, 2015, in the Official Records of Los Angeles County, California (“the “Official Records”), as Instrument No. 20150061853.

B. Assignor is the owner of certain land and improvements located in the County of Los Angeles, State of California,as more particularly described in Exhibit A attached hereto and made a part hereof (the “Property”).

C. Assignor is simultaneously herewith conveying the Property to Assignee, pursuant to that certain Sale, Purchase and Escrow Agreement dated effective as of __________, 2016 ([as subsequently amended and assigned to date,] the “Purchase Agreement”).

D. The Declaration affects the Property.

E. Assignor wishes to assign any and all of its rights under the Declaration to Assignee in connection with the conveyance of the Property, and Assignee wishes to accept such assignment.

ASSIGNMENT

NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Assignor and Assignee agree as follows:

1. Assignment. Assignor hereby expressly sells, transfers, assigns and conveys to Assignee any and all of the rights, responsibilities and obligations of Declarant under the Declaration including, without limitation, the power and authority to perform all acts of Declarant under the Declaration.

2. Assumption. Assignee agrees to assume, discharge and be bound by, in accordance with the terms of the Declaration, all of the responsibilities and obligations of Declarant under the Declaration, accruing upon and after the Effective Date, and Assignor shall have no further liability under the Declaration from and after the Effective Date.

3. Recordation. This Assignment may be recorded in the Official Records and shall serve as the express written assignment required by Section 1.6 of the Declaration.

4. No Warranties. This Assignment is made without representations or warranties, express or implied, of any kind or nature.

5. Counterparts. This Assignment may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURES COMMENCE ON FOLLOWING PAGE]

IN WITNESS WHEREOF, the parties have executed this Assignment as of the Effective Date.

ASSIGNOR:

REDROCK NOHO RESIDENTIAL, LLC,

a Delaware limited liability company

By:    Redrock NoHo, LLC,

a Delaware limited liability company,

its sole member

By:    Redwood Partners, Inc.,

a California corporation,

its manager

By:     

Name:

Title:    

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

State of California

County of Los Angeles

On ________________, 2016, before me, ______________________, Notary Public, personally appeared ____________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature:

Signature of Notary Public

(Notary Seal)

ASSIGNEE:

NOHO COMMONS PACIFIC OWNER LLC,

a Delaware limited liability company

By:

Name:

Title:

A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

State of California    )

County of Los Angeles    )

On ________________, 2016, before me, ______________________, Notary Public, personally appeared ____________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature:

Signature of Notary Public

(Notary Seal)

EXHIBIT “A”

THE LAND SITUATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AND DESCRIBED AS FOLLOWS:

PARCEL 1:

PARCEL B OF PARCEL MAP L.A. NO. 2002-6231, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 340 PAGES 78 to 80 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, AS AMENDED BY A CERTIFICATE OF CORRECTION RECORDED APRIL 24, 2009 AS INSTRUMENT NO. 2009-0604533 OF OFFICIAL RECORDS.

EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN LOT 25 OF BLOCK 6 OF LANKERSHIM, AS PER MAP RECORDED IN BOOK 16 PAGES 114 AND 115 OF MAPS, IN THE OFFICE OF THE LOS ANGELES COUNTY RECORDER, ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER SAID LAND, BUT WITHOUT ANY RIGHT TO PENETRATE, USE OR DISTURB SAID PROPERTY WITHIN 500 FEET OF THE SURFACE THEREOF, AS EXCEPTED AND RESERVED IN DEED RECORDED SEPTEMBER 10, 1986 AS INSTRUMENT NO. 86-1190583, OFFICIAL RECORDS.

ALSO EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN LOT 27 OF SAID BLOCK 6 OF SAID LANKERSHIM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER ALL OF THE ABOVE DESCRIBED REAL PROPERTY, BUT WITHOUT ANY RIGHT TO PENETRATE, USE OR DISTURB SAID PROPERTY WITHIN 500 FEET OF THE SURFACE THEREOF, AS EXCEPTED AND RESERVED BY DAVID FEIGIN, ET AL, IN A DEED RECORDED ON MAY 26, 1989, AS INSTRUMENT NO. 89-854239 OFFICIAL RECORDS.

ALSO EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN LOTS 20, 21 AND 22 IN SAID BLOCK 6 OF SAID LANKERSHIM ALL OIL, GAS, WATER, AND MINERAL RIGHTS NOW VESTED IN THE CITY OF LOS ANGELES WITHOUT, HOWEVER, THE RIGHT TO USE THE SURFACE OF SAID LAND OR ANY PORTION THEREOF TO A DEPTH OF 500 FEET BELOW THE SURFACE, FOR THE EXTRACTION OF SUCH OIL, GAS, WATER AND MINERALS, AS EXCEPTED AND RESERVED BY THE CITY OF LOS ANGELES RECORDED APRIL 12, 2004 AS INSTRUMENT NO. 04-0870960 OF OFFICIAL RECORDS.

PARCEL 2:

A NON-EXCLUSIVE EASEMENT AS PROVIDED IN THAT CERTAIN SECOND AMENDED AND RESTATED DECLARATION AND ESTABLISHMENT OF COVENANTS, CONDITIONS AND RESTRICTIONS AND GRANT OF EASEMENTS, RECORDED JANUARY 20, 2015 AS INSTRUMENT NO. 2015-0061853 OF OFFICIAL RECORDS (THE “DECLARATION”), FOR INGRESS AND EGRESS IN, ON, OVER, ACROSS AND THROUGH THAT PORTION OF THE

NOHO ALLEY (AS DEFINED IN THE DECLARATION) LOCATED WITHIN PARCEL “A” OF SAID PARCEL MAP L.A. NO. 2002-6231.

APN: 2350-015-115

Exhibit N

Residential Estoppel

ESTOPPEL CERTIFICATE

This ESTOPPEL CERTIFICATE (this “Certificate”), is made with the knowledge that [NoHo Commons Pacific Owner LLC, a Delaware limited liability company], and/or its assignee (“Buyer”), is relying on it in connection with its acquisition of the real property and improvements located at 11136 Chandler Blvd, North Hollywood, CA 91601 (the “Property”), which is subject to the CC&Rs (as defined below), and, in connection therewith, Buyer and its successors, assigns and lenders (if any) (collectively, the “Beneficiaries”) may rely on this Certificate for all purposes.

The undersigned does hereby certify to the Beneficiaries and to each of them, that the following statements are true, correct and complete as of the date hereof:

1.    The Property is subject to that certain the Second Amended and Restated Declaration and Establishment of Covenants, Conditions and Restrictions and Grant of Easements dated as of December 31, 2014, made by Redrock Noho Retail, LLC, a Delaware limited liability company (“NoHo Retail”), and Redrock Noho Residential, LLC, a Delaware limited liability company, as declarant (“Seller”), recorded in the Official Records, Los Angeles County (the “Official Records”), on January 20, 2015 as Instrument No. 20150061853 (the “CC&Rs”). A true, correct and complete copy of the CC&Rs are attached hereto as Exhibit A, and by this reference incorporated herein. Any and all terms used in this Certificate and not herein defined shall have the meanings ascribed to them in the CC&Rs.

2.    The undersigned is the Declarant under the CC&Rs.

3.    The undersigned is the “manager” in accordance with Section 8.5 of the CC&Rs.

4.    The CC&Rs are in full force and effect and, except as set forth on Exhibit A, there have been no amendments, modifications, supplements or revisions thereto.

5.    No event of default, by the undersigned or, to the knowledge of undersigned, Retail Owner exists under the CC&Rs and the undersigned has no knowledge of any facts or circumstances which, with the giving of notice, the lapse of time, or both, would constitute a default by either the undersigned or Retail Owner thereunder.

6.    The undersigned is duly authorized to execute and deliver this Certificate.

[Remainder of Page Intentionally Left Blank]

[Signatures Set Forth on Following Page]

Executed as of the __ day of ____________, 2016.

REDROCK NOHO RESIDENTIAL, LLC,

a Delaware limited liability company

By:    Redrock NoHo, LLC,

a Delaware limited liability company,

its sole member

By:    Redwood Partners, Inc.,

a California corporation,

its Manager

By:

Name:

Its:

Exhibit A

CC&Rs

[See Attached]

Schedule 1.2

Domain Names

Schedule 5.1.7

Construction Defect Documenation

[Attached hereto]

RedRock NoHo Residential, LLC

v.

Hill Contracting Group, et al.

CLOSEOUT BINDER - INDEX

TAB #	DATE	DESCRIPTION
1.	8/4/2010	Letter from D. McPherson to insurance carriers and Hill Contracting Group-Icon Builders, Joint Venture regarding construction defects
2.	12/02/2010	RedRock NoHo Residential LLC’s Complaint
3.	6/29/2012	Hill Contracting Group and Hill Contracting Group-Icon Builders’ First Amended Cross-Complaint
	10/26/2012	Hill Contracting Group and Hill Contracting Group-Icon Builders’ ROE Amendment to Cross-Complaint
4.	8/8/2012	Defect List
5.	1/25/2012	Repair List
6.	7/30/2013	WJE Final Report
7.	8/1/2013	John Duntemann Supplemental Report to WJE’s Exterior Enclosure Defect Report
8.	12/26/2013	Request for Dismissal of Complaint
9.	12/26/2013	Request for Dismissal of Cross-Complaint of Hill Contracting Group
10.	1/10/2014	Request for Dismissal of Cross-Complaint of Hill Contracting Group-Icon Builders
11.	4/26/2013	Permit Set of Drawings
12.	7/18/2013	Adapt's Podium Level Slab Strip Revised Design Loads
13.	Various	Hopkins Contracts (repair contracts and invoices)
14.	3/18/2014	Ace Restoration & Waterproofing, Inc.'s Contract
15.	4/2/2014	NoHo Closeout CD (with attached index)

SCHEDULE 11.1.9

Litigation/Administrative Proceedings

[Attached hereto]

Pending Litigation -

The Lofts at Noho Commons

1.    HUD Administrative Complaints

Each of the following complaints alleges disability discrimination and failure to accommodate by providing the complainant with an accessible apartment. Each of the complainants is of limited income, and requires an apartment in the affordable housing program. The first two (Burns and Stansell) are not on the affordable housing waitlist, which is closed. The last (Ling) is on the waitlist, and was offered an affordable apartment at one time, but rejected it because of its size.

Each of these three is under investigation by HUD to determine whether there is cause to believe any unlawful discrimination has occurred.

Patrick Burns v. Redrock Noho Residential, LLC

HUD Case No. 09-13-0139-8

Daniel Stansell v. Redrock Noho Residential, LLC

HUD Case No. 09-13-0685-8

Mei Ling v. Redrock Noho Residential LLC

HUD Case No. 09-13-0686-8

(Note: This is the second administrative complaint filed by Ling against the Lofts. The first was dismissed with “no cause” by HUD. The current complaint was filed - with identical allegations - after Ling’s federal court litigation on the same subject was dismissed by summary judgment; see Ling v. City of Los Angeles, below.)

7/26/16 Update: I have heard nothing further from HUD on these complaints. I understand they are still pending with HUD, and HUD considers them “open” investigations, but nothing is happening on them with regard to anything the Respondents must do.

2. Federal Court Litigation

Mei Ling v. City of Los Angeles, Redrock Noho Residential, LLC et al.

Docket No. 2:11-cv-07774 (C.D. CA)

on appeal as:

Mei Ling v. City of Los Angeles, Redrock Noho Residential, LLC et al.

Docket No. 12-57263 (9th Cir.)

In this lawsuit, Ling alleges that Redrock failed to reasonably accommodate her disability by providing her a one-bedroom apartment at the Lofts. Ling is of limited income, and only qualifies for the “affordable” units at the Lofts. The designated “affordable” units at this property are all studio units; the only one bedroom plan is only available as a market rate unit. Ling requests that she be offered a one bedroom unit at the affordable rate.

The United States District Court for the Central District of California granted summary judgment on all of Ling’s claims in November 2012. Ling appealed to the Ninth Circuit Court of Appeals. Briefing has been complete in the Ninth Circuit since February 2014, and oral argument on the appeal is scheduled for February 4, 2015.

7/26/16 Update: The Ninth Circuit Court of Appeals affirmed the grant of summary judgment by order of March 5, 2015. No further appeal was taken by Ling, and the matter is closed.

Independent Living Center et al. v. City of Los Angeles, Redrock Noho Residential, LLC et al.

Docket No. 2:12-cv-00551-FMO-PJW (C.D. CA)

This lawsuit was filed in 2012 by three different disabled advocacy groups. The advocacy groups allege that the City of Los Angeles did not ensure that its receipt and use of federal funds complied with the obligations of Section 504 of the Rehabilitation Act. In particular, the advocacy groups allege the City failed to ensure funds used for construction and renovation of housing included adequate provision of housing accessible for people with disabilities.

The plaintiffs in this action have named 61 owners of housing that allegedly received City funds for construction or renovation as “necessary” parties, meaning they are necessary to obtain full resolution of the complaint. Specifically, the plaintiffs named the Owner Defendants (Redrock Noho Residential, LLC is one) to ensure that the Court could order physical modifications to the properties as necessary.

The Owner Defendants have made substantial efforts to achieve settlement as to their participation in the case. The Plaintiffs are not seeking any monetary relief from the Owner Defendants, and the City’s cross-claims against the Owner Defendants were dismissed by the Court. On January 21, 2015, the Court entered a 90 day stay of the litigation on representations from the plaintiffs and the City that they intended to engage in substantive, global settlement negotiations. The Owner Defendants will participate in those negotiations.

7/26/16 Update: I do not represent the Lofts at Noho Commons in this litigation; Bill Goines from Greenburg Traurig is insurance defense counsel. However, I have been in close contact with Bill, and I do represent other Owner Defendants in this action. In July 2015, the Plaintiffs announced they had reached settlement with the City that needed to be approved by the Mayor and City Council, then the Court. That approval is pending.

Under the settlement, the City would provide funds to reach a target goal of a certain number of accessible units over a ten year period, and would require all properties it funds to adopt and implement certain policies and procedures. However, 22 properties were specifically excluded from the settlement because of the involvement of the CRA, and Lofts at Noho is one of those properties. The litigation continues against the CRA, and the outcome for the Lofts at Noho Commons is presumed to be essentially the same as for the other Owner Defendants.

SCHEDULE 11.1.11

Lease Disclosures

[Attached hereto]

SCHEDULE 11.1.12

[Environmental Reports]

1.Preliminary Environmental Site Assessment – Phase I (October, 2006)

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Keith D. Hall, certify that:

1. I have reviewed this quarterly report on Form 10-Q of KBS Strategic Opportunity REIT II, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

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

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 14, 2016	By:	/S/ KEITH D. HALL
			Keith D. Hall
			Chief Executive Officer and Director
			(principal executive officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey K Waldvogel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of KBS Strategic Opportunity REIT II, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

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

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 14, 2016	By:	/S/ JEFFREY K. WALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer
			(principal financial officer)

EX-32.1

Exhibit 32.1

Certification pursuant to 18 U.S.C. Section 1350,

as Adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of KBS Strategic Opportunity REIT II, Inc. (the “Registrant”) for the quarter ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Keith D. Hall, Chief Executive Officer and Director of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:	November 14, 2016	By:	/S/ KEITH D. HALL
			Keith D. Hall
			Chief Executive Officer and Director
			(principal executive officer)

EX-32.2

Exhibit 32.2

Certification pursuant to 18 U.S.C. Section 1350,

as Adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of KBS Strategic Opportunity REIT II, Inc. (the “Registrant”) for the quarter ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jeffrey K. Waldvogel, the Chief Financial Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:	November 14, 2016	By:	/S/ JEFFREY K. WALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer
			(principal financial officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 08, 2016
Entity Listings [Line Items]
Entity Registrant Name	KBS Strategic Opportunity REIT II, Inc.
Entity Central Index Key	0001580673
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false
Class A [Member]
Entity Listings [Line Items]
Entity Common Stock, Shares Outstanding		13,666,035
Class T [Member]
Entity Listings [Line Items]
Entity Common Stock, Shares Outstanding		4,837,882

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Assets
Real estate, net	$ 171,299	$ 109,973
Real estate loan receivable, net	3,424	3,372
Total real estate and real estate-related investments, net	174,723	113,345
Cash and cash equivalents	66,502	24,768
Restricted cash	2,432	598
Investment in unconsolidated entity	2,587	0
Rents and other receivables	2,220	311
Above-market leases, net	22	37
Prepaid expenses and other assets	4,477	670
Total assets	252,963	139,729
Liabilities and equity
Notes payable, net	106,238	60,836
Accounts payable and accrued liabilities	4,852	3,885
Due to affiliates	1,921	2,356
Below-market leases, net	1,145	0
Distributions payable	1,078	0
Other liabilities	3,031	818
Total liabilities	118,265	67,895
Commitments and contingencies (Note 12)
Redeemable common stock	1,716	1,092
Equity
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding	0	0
Additional paid-in capital	147,236	79,622
Cumulative distributions and net losses	(19,429)	(13,266)
Accumulated other comprehensive income	40	0
Total KBS Strategic Opportunity REIT II, Inc. stockholders’ equity	128,017	66,452
Noncontrolling interests	4,965	4,290
Total equity	132,982	70,742
Total liabilities and equity	252,963	139,729
Class A [Member]
Equity
Common stock	131	96
Class T [Member]
Equity
Common stock	$ 39	$ 0

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Class A [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	13,102,528	9,619,143
Common stock, shares outstanding	13,102,528	9,619,143
Class T [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	3,941,104	0
Common stock, shares outstanding	3,941,104	0

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Hotel revenues	$ 8,599	$ 7,222	$ 20,563	$ 14,119
Office revenues	1,892	0	3,289	0
Interest income from real estate loan receivable	101	99	298	291
Total revenues	10,592	7,321	24,150	14,410
Expenses:
Hotel expenses	5,157	3,689	13,466	9,105
Office expenses	521	0	860	0
Asset management fees to affiliate	359	89	908	257
Real estate acquisition fees to affiliate	0	0	1,341	0
Real estate acquisition fees and expenses	0	0	123	0
General and administrative expenses	694	616	2,106	1,560
Depreciation and amortization	2,314	185	5,299	550
Interest expense	931	290	2,379	869
Total expenses	9,976	4,869	26,482	12,341
Other income:
Other interest income	75	18	132	31
Equity in income of unconsolidated entity	58	0	58	0
Total other income	133	18	190	31
Net income (loss)	749	2,470	(2,142)	2,100
Net income attributable to noncontrolling interests	(148)	(300)	(160)	(341)
Net income (loss) attributable to common stockholders	601	2,170	(2,302)	1,759
Class A [Member]
Other income:
Net income (loss) attributable to common stockholders	$ 493	$ 2,145	$ (2,235)	$ 1,736
Net income (loss) per common share, basic and diluted (in dollars per share)	$ 0.04	$ 0.30	$ (0.19)	$ 0.28
Weighted-average number of common shares outstanding, basic and diluted (in shares)	12,915,552	7,165,984	12,053,850	6,241,190
Class T [Member]
Other income:
Net income (loss) attributable to common stockholders	$ 108	$ 25	$ (67)	$ 23
Net income (loss) per common share, basic and diluted (in dollars per share)	$ 0.05	$ 0.30	$ (0.07)	$ 0.28
Weighted-average number of common shares outstanding, basic and diluted (in shares)	2,363,520	82,126	934,651	82,126

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 749	$ 2,470	$ (2,142)	$ 2,100
Other comprehensive income:
Foreign currency translation gain	27	0	40	0
Total other comprehensive income	27	0	40	0
Total comprehensive income (loss)	776	2,470	(2,102)	2,100
Total comprehensive income attributable to noncontrolling interests	(148)	(300)	(160)	(341)
Total comprehensive income (loss) attributable to common stockholders	$ 628	$ 2,170	$ (2,262)	$ 1,759

XML

CONSOLIDATED STATEMENTS OF EQUITY - USD ($) $ in Thousands	Total	Class A [Member]	Class T [Member]	Total Stockholders’ Equity [Member]	Common Stock [Member] Class A [Member]	Common Stock [Member] Class T [Member]	Additional Paid-in Capital [Member]	Cumulative Distributions and Net Losses [Member]	Accumulated Other Comprehensive Income [Member]	Noncontrolling Interests [Member]
Balance, shares at Dec. 31, 2014					3,893,812	0
Balance, value at Dec. 31, 2014	$ 30,658			$ 29,001	$ 39	$ 0	$ 31,489	$ (2,527)	$ 0	$ 1,657
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock, shares					4,959,727
Issuance of common stock, value	48,973			48,973	$ 49		48,924
Transfers to redeemable common stock	(1,092)			(1,092)			(1,092)
Stock dividends issued, shares					765,604
Stock dividends issued, value	0				$ 8		7,648	(7,656)
Distributions declared	(1,027)			(1,027)				(1,027)
Commissions on stock sales, related dealer manager fees and stockholder servicing fees to affiliate	(4,055)			(4,055)			(4,055)
Other offering costs	(3,292)			(3,292)			(3,292)
Net income (loss)	(1,949)			(2,056)				(2,056)		107
Noncontrolling interests contributions	2,532									2,532
Distribution to noncontrolling interest	(6)									(6)
Balance, shares at Dec. 31, 2015		9,619,143	0		9,619,143	0
Balance, value at Dec. 31, 2015	70,742			66,452	$ 96	$ 0	79,622	(13,266)	0	4,290
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock, shares					3,328,739	3,931,258
Issuance of common stock, value	70,399			70,399	$ 33	$ 39	70,327
Transfers to redeemable common stock	(624)			(624)			(624)
Stock dividends issued, shares					159,020	9,846
Stock dividends issued, value	0				$ 2		1,683	(1,685)
Redemptions of common stock, shares					(4,374)
Redemptions of common stock	(40)			(40)			(40)
Distributions declared	(2,176)			(2,176)				(2,176)
Commissions on stock sales, related dealer manager fees and stockholder servicing fees to affiliate	(5,777)			(5,777)			(5,777)
Reduction of other offering costs	2,045			2,045			2,045
Net income (loss)	(2,142)			(2,302)				(2,302)		160
Other comprehensive income	40			40					40
Noncontrolling interests contributions	515									515
Balance, shares at Sep. 30, 2016		13,102,528	3,941,104		13,102,528	3,941,104
Balance, value at Sep. 30, 2016	$ 132,982			$ 128,017	$ 131	$ 39	$ 147,236	$ (19,429)	$ 40	$ 4,965

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash Flows from Operating Activities:
Net (loss) income	$ (2,142)	$ 2,100
Adjustment to reconcile net (loss) income to net cash provided by operating activities
Equity in income of unconsolidated entity	(58)	0
Depreciation and amortization	5,299	550
Noncash interest income on real estate-related investment	(52)	(45)
Deferred rents	(172)	0
Amortization of above-market leases	(285)	0
Amortization of deferred financing costs	384	173
Unrealized loss on derivative instrument	43	68
Changes in operating assets and liabilities:
Restricted cash for operational expenditures	(1,603)	(1,118)
Rents and other receivables	(1,737)	(280)
Prepaid expenses and other assets	(845)	18
Accounts payable and accrued liabilities	1,594	1,596
Due to affiliates	(10)	(697)
Other liabilities	2,213	231
Net cash provided by operating activities	2,629	2,596
Cash Flows from Investing Activities:
Acquisition of real estate	(51,341)	0
Improvements to real estate	(14,298)	(2,547)
Investment in unconsolidated entity	(2,486)	0
Escrow deposits for future real estate purchases	(3,000)	0
Restricted cash for capital expenditures	(231)	(118)
Net cash used in investing activities	(71,356)	(2,665)
Cash Flows from Financing Activities:
Proceeds from notes payable	45,500	0
Payments of deferred financing costs	(492)	(14)
Proceeds from issuance of common stock	69,735	26,681
Payments to redeem common stock	(40)	0
Distributions paid	(434)	0
Payments of commissions on stock sales, related dealer manager fees and stockholder servicing fees	(4,303)	(2,109)
Payments of other offering costs	(20)	(23)
Noncontrolling interests contributions	515	0
Distribution to noncontrolling interest	0	(6)
Net cash provided by financing activities	110,461	24,529
Net increase in cash and cash equivalents	41,734	24,460
Cash and cash equivalents, beginning of period	24,768	13,257
Cash and cash equivalents, end of period	66,502	37,717
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $126 and $0 for the nine months ended September 30, 2016 and 2015, respectively	1,788	562
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	664	0
Increase in accrued improvements to real estate	0	447
Increase in acquisition fees due to affiliate	166	0
Increase in other offering costs due to affiliates	157	1,870
Reversal of accrued organization and offering expenses due to affiliates	(2,222)	0
Increase in stockholder servicing fees due to affiliate	1,474	0
Stock dividends issued	1,685	1,665
Increase in distributions payable	1,078	0
Foreign currency translation gain on investment in unconsolidated entity	$ 40	$ 0

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Income Statement [Abstract]
Interest capitalized	$ 126	$ 0

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ORGANIZATION

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION

ORGANIZATION

KBS Strategic Opportunity REIT II, Inc. (the “Company”) was formed on February 6, 2013 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2014 and intends to continue to operate in such a manner. The Company’s business is conducted through KBS Strategic Opportunity Limited Partnership II (the “Operating Partnership”), a Delaware limited partnership formed on February 7, 2013. The Company is the sole general partner of, and owns a 0.1% partnership interest in, the Operating Partnership. KBS Strategic Opportunity Holdings II LLC (“REIT Holdings”), a Delaware limited liability company formed on February 7, 2013, owns the remaining 99.9% partnership interest in the Operating Partnership and is the sole limited partner. The Company is the sole member and manager of REIT Holdings. The Company has three wholly owned taxable REIT subsidiaries (“TRS”), two of which lease the Company’s hotel properties and in turn contract with independent hotel management companies that manage the day-to-day operations of the Company’s hotels; the third consolidates the Company’s wholly owned TRSs.  The Company’s TRSs are subject to federal and state income tax at regular corporate tax rates.

Subject to certain restrictions and limitations, the business of the Company has been externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, since July 2013 pursuant to an advisory agreement (the “Advisory Agreement”). The Advisor conducts the Company’s operations and manages its portfolio of real estate loans, opportunistic real estate and other real estate-related investments. The Advisor has entered into a sub-advisory agreement with STAM, a real estate operating company to provide real estate acquisition and portfolio management services to the Advisor in connection with any investments the Company may make in value-added real estate, distressed debt, and real estate-related investments in Europe. On July 3, 2013, the Company issued 21,739 shares of its common stock to the Advisor at a purchase price of $9.20 per share.

The Company expects to invest in and manage a diverse portfolio of opportunistic real estate, real estate-related loans, real estate-related debt securities and other real estate-related investments located in the United States and Europe. Such investments may include the acquisition of distressed debt, the origination and acquisition of mortgage, mezzanine, bridge and other real estate-related loans, investment in opportunistic real estate and investments in real estate-related debt securities such as residential and commercial mortgage-backed securities and collateralized debt obligations. The Company may also invest in entities that make similar investments. As of September 30, 2016, the Company owned two hotel properties, two office properties, one first mortgage loan and an investment in an unconsolidated entity.

From July 3, 2013 to August 11, 2014, the Company conducted a private placement offering (the “Private Offering”) exempt from registration under Regulation D of the Securities Act of 1933, as amended (the “Act”). The Company sold 3,619,851 shares of common stock for gross offering proceeds of $32.2 million in the Private Offering.

On November 14, 2013, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a maximum of 180,000,000 shares of common stock for sale to the public (the “Public Offering”), of which 100,000,000 shares were registered in a primary offering and 80,000,000 shares were registered to be sold under the Company’s dividend reinvestment plan. The SEC declared the Company’s registration statement effective on August 12, 2014. On February 11, 2016, the Company filed an amended registration statement on Form S-11 with the SEC to offer a second class of common stock designated as Class T shares and to designate its initially offered and outstanding common stock as Class A shares. Pursuant to the amended registration statement, the Company is offering to sell any combination of Class A and Class T shares in the Public Offering but in no event may the Company sell more than 180,000,000 of shares of its common stock pursuant to the Public Offering. The Company commenced offering Class T shares of our common stock for sale to the public on February 17, 2016.  KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Advisor, serves as the dealer manager of the Public Offering pursuant to a dealer manager agreement originally dated August 12, 2014 and amended and restated February 17, 2016 (the “Dealer Manager Agreement”). Previously the Dealer Manager served as dealer manager for the Private Offering. The Dealer Manager is responsible for marketing the Company’s shares.

On January 7, 2015, the Company broke escrow in the Public Offering and through September 30, 2016, the Company had sold 8,288,466 and 3,931,258 shares of Class A and Class T common stock in the Public Offering, respectively, for aggregate gross offering proceeds of $119.4 million, including 129,281 and 3,058 shares of Class A and Class T common stock sold under its dividend reinvestment plan, respectively, for aggregate gross offering proceeds of $1.3 million. Also as of September 30, 2016, the Company had redeemed 4,374 shares of Class A common stock for $40,000.

On each of April 2, 2014 and July 31, 2014, the Company issued 120,106 shares of Class A common stock to Willowbrook Capital Group LLC, an entity owned and controlled by Keith D. Hall, one of the Company’s directors and the Company’s Chief Executive Officer, and Peter McMillan III, also one of the Company’s directors and the Company’s President, for $1.0 million. The Company issued these shares of common stock in a private transaction exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2015, except for the addition of an accounting policy related to foreign currency translation. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the SEC.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership and their direct and indirect wholly owned subsidiaries and joint ventures in which the Company has a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

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

Selling Commissions, Dealer Manager Fees and Stockholder Servicing Fee

Prior to February 17, 2016, the Company paid the Dealer Manager up to 6.5% of the price per share of Class A common stock sold in the Private Offering and the Public Offering as a selling commission. The Dealer Manager reallowed 100% of commissions earned to participating broker-dealers. No sales commissions were paid on shares sold through the dividend reinvestment plan.  The Company paid the Dealer Manager up to 3.0% of the price per share of Class A common stock sold in the Private Offering and the Public Offering as a dealer manager fee. No dealer manager fee was payable on shares sold under the dividend reinvestment plan. From its dealer manager fee, the Dealer Manager reallowed to any participating broker-dealer up to 1.0% of the price per share of Class A common stock sold in the Private Offering and the Public Offering attributable to that participating broker-dealer as a marketing fee and in special cases the dealer manager could increase the reallowance. A reduced dealer manager fee was payable with respect to certain volume discount sales.

On February 17, 2016, the Company and the Dealer Manager entered into an Amended and Restated Dealer Manager Agreement (the “Amended Dealer Manager Agreement”) to provide the terms pursuant to which the Dealer Manager will offer and sell the Company’s Class A and Class T shares of common stock in the Public Offering. Under the Amended Dealer Manager Agreement, the Company pays selling commissions to the Dealer Manager in amounts up to 6.5% of the price per share of Class A common stock sold and up to 3.0% of the price per share of Class T common stock sold. Additionally, the Company pays dealer manager fees to the Dealer Manager in an amount up to 2.0% of the price per share of Class A and Class T common stock sold. The Dealer Manager reallows all selling commissions to participating broker dealers and may generally reallow (from its dealer manager fee) to any participating broker dealer up to 1.0% of the gross proceeds from the primary portion of the Public Offering attributable to that participating broker dealer as a marketing fee; in select cases up to 1.5% of the gross proceeds from the primary portion of the Public Offering may be reallowed. No selling commissions or dealer manager fees are payable on shares of common stock sold under the dividend reinvestment plan.

Also, under the Amended Dealer Manager Agreement, the Dealer Manager receives an annual stockholder servicing fee of 1.0% of the purchase price per share (ignoring any discounts that may be available to certain categories of purchasers) of Class T common stock sold in the primary portion of the Public Offering solely to the extent there is a broker dealer of record with respect to such Class T share that has entered a currently effective selected dealer agreement or servicing agreement that provides for the payment to such broker dealer of the stockholder servicing fee with respect to such Class T share, and such broker dealer of record is in compliance with the applicable terms of such selected dealer agreement or servicing agreement related to such payment. To the extent payable, the stockholder servicing fee accrues daily and is paid monthly in arrears, and the Dealer Manager reallows 100% of the stockholder servicing fee to such broker dealer of record for services provided to Class T stockholders after the initial sale of the Class T share.  In addition, no stockholder servicing fee is paid with respect to Class T shares purchased through the dividend reinvestment plan or issued pursuant to a stock dividend.

The Company records the stockholder servicing fee as a reduction to additional paid-in capital and the related liability in an amount equal to the maximum stockholder servicing fee payable in relation to the Class T share on the date the share is issued. For each share of Class T common stock in the Primary Offering, the maximum stockholder servicing fee equals 4% of the purchase price per share (ignoring any discounts in purchase price that may be available to certain categories of purchasers). The liability will be reduced over time, as the fees are paid to the Dealer Manager, or it will be adjusted if the fees are no longer payable as a result of the occurrence of any of the following events: (i) the date at which aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the Primary Offering in which the Class T share was sold, as calculated by the Company with the assistance of the Dealer Manager after the termination of the Primary Offering in which the Class T share was sold, (ii) a listing of the Company’s common stock on a national securities exchange, (iii) a merger or other extraordinary transaction, and (iv) the date the Class T share associated with the stockholder servicing fee is no longer outstanding such as upon its redemption or the Company’s dissolution.

Foreign Currency Translation

The Company has a participating loan facility funded in Euros which is accounted for under the equity method of accounting and recorded as an investment in unconsolidated entity in the accompanying balance sheet.  The Company’s reporting currency is the U.S. dollar, however the functional currency of the unconsolidated entity is the Euro.  At the end of each reporting period, before determining the Company’s share of its equity investment, the results of operations of the unconsolidated entity is translated into U.S. dollars using the average currency rates of exchange in effect during the period, and the assets and the liabilities of the unconsolidated entity are translated using the currency exchange rate in effect at the end of the period.  The resulting foreign currency translation adjustment is recorded as other comprehensive income (loss) on the accompanying consolidated statements of comprehensive income (loss) and consolidated statements of stockholders’ equity.

Segments

The Company has invested in opportunistic real estate investments and originated a loan secured by a non-stabilized real estate asset. In general, the Company intends to hold its investments in opportunistic real estate and other real estate-related assets for capital appreciation. Traditional performance metrics of opportunistic real estate and other real estate-related assets may not be meaningful as these investments are generally non-stabilized and do not provide a consistent stream of interest income or rental revenue. These investments exhibit similar long-term financial performance and have similar economic characteristics. These investments typically involve a higher degree of risk and do not provide a constant stream of ongoing cash flows. As a result, the Company’s management views opportunistic real estate and other real estate-related assets as similar investments. Substantially all of its revenue and net income (loss) is from opportunistic real estate and other real estate-related assets, and therefore, the Company currently aggregates its operating segments into one reportable business segment.

Per Share Data

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock issued and outstanding for each class of share outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and nine months ended September 30, 2016 and 2015. For the purpose of determining the weighted average number of shares outstanding, stock dividends issued are adjusted retroactively and treated as if they were issued and outstanding for all periods presented. 

The Company’s board of directors has declared and issued the following stock dividends on shares of the Company’s common stock through the filing date of this report:

Declaration Date	Record Date	Issue Date	Amount Declared per Share Outstanding	Total Shares Issued
March 24, 2015	March 25, 2015	March 27, 2015	0.01 shares	44,538
April 7, 2015	June 24, 2015	June 29, 2015	0.01 shares	56,219
August 6, 2015	September 22, 2015	September 29, 2015	0.01 shares	65,710
November 10, 2015	December 16, 2015	December 22, 2015	0.01 shares	85,591
December 10, 2015	December 16, 2015	December 21, 2015	0.06 shares	513,546
March 21, 2016	March 31, 2016	April 1, 2016	0.005 shares	57,172
March 21, 2016	April 30, 2016	May 3, 2016	0.001667 shares	19,781
March 21, 2016	May 31, 2016	June 1, 2016	0.001667 shares	20,257
May 10, 2016	June 30, 2016	July 1, 2016	0.001667 shares	21,900
May 10, 2016	July 31, 2016	August 2, 2016	0.001667 shares	23,719
July 6, 2016	August 31, 2016	September 1, 2016	0.001667 shares	26,037
August 11, 2016	September 30, 2016	October 4, 2016	0.001667 shares	28,420
August 11, 2016	October 31, 2016	November 2, 2016	0.001667 shares	30,341
September 27, 2016	September 27, 2016	October 6, 2016	0.015 shares	254,287

For the purpose of calculating the dollar amount of the Class A and Class T stock dividends issued, the Company used the current Class A and Class T primary offering price in the Public Offering.

Cash distributions declared per share of Class A common stock were $0.098 and $0.154 for the three and nine months ended September 30, 2016, respectively. Cash distributions declared per share of Class T common stock were $0.074 and $0.098 for the three and nine months ended September 30, 2016, respectively. Cash distributions for Class T Shares are reduced by the applicable daily stockholder servicing fees. Distributions declared per share of Class A common stock assumes each share was issued and outstanding each day during the three and nine months ended September 30, 2016, respectively. Distributions declared per share of Class T common stock assumes each share was issued and outstanding each day during the three months ended September 30, 2016 and from March 2, 2016 through September 30, 2016, respectively. Each day during the period from March 1, 2016 through March 31, 2016 was a record date for distributions. Distributions for this period were calculated based on stockholders of record each day during this period at a rate of (i) $0.00026202 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the  number of shares of common stock of such class outstanding as of the close of business on each respective record date. Each day during the period from April 1, 2016 through September 30, 2016 was a record date for distributions. Distributions for this period were calculated based on stockholders of record each day during this period at a rate of (i) $0.00052404 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the  number of shares of common stock of such class outstanding as of the close of business on each respective record date. On September 27, 2016, the Company’s board of directors declared a one-time cash distribution in the amount of $0.05 per share on the outstanding shares of all classes of common stock to stockholders of record as of the close of business on September 27, 2016. The Company did not declare cash distributions during the three and nine months ended September 30, 2015.

In accordance with FASB ASC Topic 260-10-45, Earnings Per Share, the Company uses the two-class method to calculate earnings per share. Basic earnings per share is calculated based on dividends declared (“distributed earnings”) and the rights of common shares and participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends declared during the period. The undistributed earnings are allocated to all outstanding common shares based on the relative percentage of each class of shares to the total number of outstanding shares. The Company does not have any participating securities outstanding other than Class A Common Stock and Class T Common stock during the periods presented.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016			2015
Net income (loss) attributable to common stockholders	$	601		$	2,170	$	(2,302	)	$	1,759
Less: Class A Common Stock cash distributions declared	1,264			—		1,921			—
Less: Class T Common Stock cash distributions declared	249			—		255			—
Undistributed Net (loss) income attributable to common stockholders	$	(912	)	$	2,170	$	(4,478	)	$	1,759
Class A Common Stock:
Undistributed Net (loss) income attributable to common stockholders	$	(771	)	$	2,145	$	(4,156	)	$	1,736
Class A Common Stock cash distributions declared	1,264			—		1,921			—
Net income (loss) attributable to Class A common stockholders	$	493		$	2,145	$	(2,235	)	$	1,736
Net income (loss) per common share, basic and diluted	$	0.04		$	0.30	$	(0.19	)	$	0.28
Weighted-average number of common shares outstanding, basic and diluted	12,915,552			7,165,984		12,053,850			6,241,190
Class T Common Stock:
Undistributed Net (loss) income attributable to common stockholders	$	(141	)	$	25	$	(322	)	$	23
Class T Common Stock cash distributions declared	249			—		255			—
Net income (loss) attributable to Class T common stockholders	$	108		$	25	$	(67	)	$	23
Net income (loss) per common share, basic and diluted	$	0.05		$	0.30	$	(0.07	)	$	0.28
Weighted-average number of common shares outstanding, basic and diluted	2,363,520			82,126		934,651			82,126

Square Footage, Occupancy and Other Measures

 Any references to square footage, occupancy or annualized base rent are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.

Recently Issued Accounting Standards Update

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification.  ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU No. 2015-14”), which defers the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU No. 2015-02”), which amended the existing accounting standards for consolidation under both the variable interest model and the voting model. ASU No. 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU No. 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments in ASU No. 2015-02 using: (a) a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption; or (b) by applying the amendments retrospectively. On January 1, 2016, the Company adopted ASU No. 2015-02 and re-evaluated its consolidation analysis of its joint ventures, concluding that such adoption did not result in (a) the classification of any entities as VIEs, (b) a consolidation of entities not previously consolidated (c) a deconsolidation of entities previously consolidated.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”).  The amendments in ASU No. 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments.  ASU No. 2016-01 primarily affects accounting for equity investments and financial liabilities where the fair value option has been elected.  ASU No. 2016-01 also requires entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the balance sheet or in the accompanying notes to the financial statements.  ASU No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years.  Early application is permitted for financial statements that have not been previously issued.  The Company does not expect the adoption of ASU No. 2016-01 to have a significant impact on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 changes the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 as of its issuance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU No. 2016-13”).  ASU No. 2016-13 affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.  The amendments in ASU No. 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.  ASU No. 2016-13 also amends the impairment model for available-for-sale securities.  An entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as is currently required.   ASU No. 2016-13 also requires new disclosures.  For financial assets measured at amortized cost, an entity will be required to disclose information about how it developed its allowance for credit losses, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes.  For financing receivables and net investments in leases measured at amortized cost, an entity will be required to further disaggregate the information it currently discloses about the credit quality of these assets by year of the asset’s origination for as many as five annual periods. For available for sale securities, an entity will be required to provide a roll-forward of the allowance for credit losses and an aging analysis for securities that are past due.  ASU No. 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is still evaluating the impact of adopting ASU No. 2016-13 on its financial statements, but does not expect the adoption of ASU No. 2016-13 to have a material impact on its financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”).  ASU No. 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows.  The amendments in ASU No. 2016-15 provide guidance on eight specific cash flow issues, including the following that are or may be relevant to the Company: (a) Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities; (b) Cash payments relating to contingent consideration made soon after an acquisition’s consummation date (i.e., approximately three months or less) should be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities; (c) Cash payments received from the settlement of insurance claims should be classified on the basis of the nature of the loss (or each component loss, if an entity receives a lump-sum settlement);  (d) Relating to distributions received from equity method investments, ASU No. 2016-15 provides an accounting policy election for classifying distributions received from equity method investments. Such amounts can be classified using a (1) cumulative earnings approach, or (2) nature of distribution approach. Under the cumulative earnings approach, an investor would compare the distributions received to its cumulative equity method earnings since inception.  Any distributions received up to the amount of cumulative equity earnings would be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities. Alternatively, an investor can choose to classify the distributions based on the nature of activities of the investee that generated the distribution. If the necessary information is subsequently not available for an investee to determine the nature of the activities, the entity should use the cumulative earnings approach for that investee and report a change in accounting principle on a retrospective basis;  (e) In the absence of specific guidance, an entity should classify each separately identifiable cash source and use on the basis of the nature of the underlying cash flows. For cash flows with aspects of more than one class that cannot be separated, the classification should be based on the activity that is likely to be the predominant source or use of cash flow.  ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  The Company is still evaluating the impact of ASU No. 2016-15 on its financial statements, but does not expect the adoption of ASU No. 2016-15 to have a material impact on its financial statements.

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RECENT ACQUISITIONS OF REAL ESTATE

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

RECENT ACQUISITIONS OF REAL ESTATE

RECENT ACQUISITION OF REAL ESTATE

During the nine months ended September 30, 2016, the Company acquired the following property (in thousands):

								Intangibles
Property Name	City	State	Acquisition Date	Land		Building and Improvements		Tenant Origination  and Absorption Costs		Above-Market Lease Assets		Below-Market Lease Liabilities			Total  Purchase Price
Lincoln Court	Campbell	CA	05/20/2016	$	14,706	$	33,356	$	4,724	$	—	$	(1,445	)	$	51,341

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

	Tenant Origination and Absorption Costs	Above-Market Lease Assets	Below-Market Lease Liabilities
Lincoln Court	3.7	—	2.1

The Company recorded the real estate acquisition as a business combination and expensed $1.5 million of acquisition costs. For the nine months ended September 30, 2016, the Company recognized $2.3 million of total revenues and $0.9 million of operating expenses from this property.

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REAL ESTATE

9 Months Ended

Sep. 30, 2016

Real Estate [Abstract]

REAL ESTATE

REAL ESTATE

As of September 30, 2016, the Company’s real estate portfolio was composed of two hotel properties and two office properties. The following table summarizes the Company’s real estate as of September 30, 2016 and December 31, 2015 (in thousands):

	September 30, 2016			December 31, 2015
Land	$	45,226		$	30,493
Buildings and improvements	125,676			79,081
Tenant origination and absorption costs	5,243			748
Other intangibles	244			244
Total real estate, cost	176,389			110,566
Accumulated depreciation and amortization	(5,090		)	(593		)
Total real estate, net	$	171,299		$	109,973

The following table provides summary information regarding the Company’s real estate as of September 30, 2016 (in thousands):

Property	Date Acquired	City	State	Property Type	Land		Building and Improvements		Tenant Origination and Absorption		Other Intangibles		Total Real Estate, at Cost		Accumulated Depreciation and Amortization			Total Real Estate, Net		Ownership %
Springmaid Beach Resort	12/30/2014	Myrtle Beach	SC	Hotel	$	27,438	$	30,762	$	—	$	—	$	58,200	$	(1,567	)	$	56,633	90.0	%
Q&C Hotel	12/17/2015	New Orleans	LA	Hotel	1,232		50,713		—		244		52,189		(1,889		)	50,300		90.0	%
2200 Paseo Verde	12/23/2015	Henderson	NV	Office	1,850		10,742		704		—		13,296		(454		)	12,842		100.0	%
Lincoln Court	05/20/2016	Campbell	CA	Office	14,706		33,459		4,539		—		52,704		(1,180		)	51,524		100.0	%
					$	45,226	$	125,676	$	5,243	$	244	$	176,389	$	(5,090	)	$	171,299

Hotel Properties

The following table provides detailed information regarding Q&C Hotel and Springmaid Beach Resort’s hotel revenue and expense for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Hotel revenues:
Room	$	6,499	$	5,219	$	15,180	$	9,807
Food, beverage and convention services	883		903		2,436		1,909
Campground	275		259		806		763
Other	942		841		2,141		1,640
Hotel revenues	$	8,599	$	7,222	$	20,563	$	14,119
Hotel expenses:
Room	$	1,500	$	983	$	3,787	$	2,226
Food, beverage and convention services	842		611		2,188		1,416
General and administrative	590		399		1,696		1,088
Sales and marketing	453		212		1,236		684
Repairs and maintenance	485		416		1,345		1,109
Utilities	324		254		767		701
Property taxes and insurance	348		306		1,050		738
Other	615		508		1,397		1,143
Hotel expenses	$	5,157	$	3,689	$	13,466	$	9,105

Office Properties

As of September 30, 2016, the Company owned two office properties encompassing in the aggregate 183,347 rentable square feet which were 88% occupied. The following table provides detailed information regarding the Company’s office revenues and expenses for the three and nine months ended September 30, 2016 (in thousands):

	For the Three Months ended September 30, 2016		For the Nine Months ended September 30, 2016
Office revenues:
Rental income	$	1,817	$	3,165
Tenant reimbursements and other income	75		124
Office revenues	$	1,892	$	3,289
Office expenses:
Operating, maintenance, and management	$	328	$	552
Real estate taxes and insurance	193		308
Office expenses	$	521	$	860

Operating Leases

The Company’s office properties are leased to tenants under operating leases for which the terms and expirations vary. As of September 30, 2016, the leases had remaining terms, excluding options to extend, of up to 8.6 years with a weighted-average remaining term of 2.4 years. Some of the leases may have provisions to extend the term of the lease, options for early termination for all or a part of the leased premises after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to office tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $0.7 million and $0.1 million as of September 30, 2016 and December 31, 2015, respectively.

As of September 30, 2016, the future minimum rental income from the Company’s office properties under its non-cancelable operating leases was as follows (in thousands):

October 1, 2016 through December 31, 2016	$	1,476
2017	5,388
2018	4,144
2019	2,781
2020	1,392
Thereafter	1,970
	$	17,151

Probable Real Estate Investment

Lofts at NoHo Commons

On September 29, 2016, the Company, through a joint venture (the “Lofts at NoHo Commons Joint Venture”) between the Company’s indirect wholly owned subsidiary and Noho Commons Pacific Investors LLC (the “JV Partner”), entered into a purchase and sale agreement with Redrock Noho Residential, LLC to acquire a 292-unit apartment building in North Hollywood, California (the “Lofts at NoHo Commons”). Neither the JV Partner nor the seller is affiliated with the Company or the Advisor.  The contractual purchase price of the Lofts at NoHo Commons is $102.5 million plus closing costs.

The Company owns a 90% equity interest in the Lofts at NoHo Commons Joint Venture. Income, losses and distributions are generally allocated based on the members’ respective equity interests, subject to adjustments based on certain performance thresholds set forth in the joint venture agreement. Additionally, in certain circumstances described in the joint venture agreement, the Company and the JV Partner may be required to make additional capital contributions to the joint venture, in proportion to the members’ respective equity interests.

Pursuant to the purchase and sale agreement, the Lofts at NoHo Commons Joint Venture would be obligated to purchase the property only after satisfaction of agreed-upon closing conditions. There can be no assurance that the Lofts at NoHo Commons Joint Venture will complete the acquisition. In some circumstances, if the Lofts at NoHo Commons Joint Venture fails to complete the acquisition after the expiration of the due diligence period, it may forfeit up to $3.0 million.

The Lofts at NoHo Commons is located in North Hollywood, California and consists of 292 apartment units, encompassing 224,755 rentable square feet. The Lofts at NoHo Commons was constructed in 2007, and as of September 29, 2016, was 94% occupied. As of the date of this filing, the Lofts at NoHo Commons Joint Venture has not completed the acquisition of the property.

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REAL ESTATE LOAN RECEIVABLE

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

REAL ESTATE LOAN RECEIVABLE

REAL ESTATE LOAN RECEIVABLE

As of September 30, 2016, the Company had originated one real estate loan receivable as follows (dollars in thousands):

Loan Name Location of Related Property or  Collateral

Date Originated

Property Type

Loan Type

Outstanding Principal Balance as of September 30, 2016

Book Value as of September 30, 2016(1)

Book Value as of December 31, 2015(1)

Contractual Interest Rate (2)

Annualized Effective Interest Rate (2)

Maturity Date

655 Summer Street First Mortgage

Boston, Massachusetts

09/04/2014

Office

Mortgage

$

3,500

$

3,424

$

3,372

9.25%

11.68%

10/01/2017

_____________________

⁽¹⁾ Book value of the real estate loan receivable represents outstanding principal balance adjusted for unamortized origination fees and direct origination and acquisition costs.

⁽²⁾ Contractual interest rate is the stated interest rate on the face of the loan. Annualized effective interest rate is calculated as the actual interest income recognized in 2016, using the interest method annualized (if applicable) and divided by the average amortized cost basis of the investment. The annualized effective interest rate and contractual interest rate presented are as of September 30, 2016.

The following summarizes the activity related to the real estate loan receivable for the nine months ended September 30, 2016 (in thousands):

Real estate loan receivable - December 31, 2015	$	3,372
Amortization of closing costs and origination fees on real estate loan receivable	52
Real estate loan receivable - September 30, 2016	$	3,424

For the three and nine months ended September 30, 2016 and 2015, interest income from the real estate loan receivable consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Contractual interest income	$	83	$	83	$	246	$	245
Amortization of closing costs and origination fees, net	18		16		52		46
Interest income from real estate loan receivable	$	101	$	99	$	298	$	291

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NOTE PAYABLE

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

NOTE PAYABLE

NOTES PAYABLE

As of September 30, 2016 and December 31, 2015, the Company’s notes payable consisted of the following (in thousands):

	Book Value as of September 30, 2016			Book Value as of December 31, 2015			Contractual Interest Rate (1)	Effective Interest Rate (1)	Payment Type	Maturity Date
Springmaid Beach Resort Mortgage Loan	$	38,000		$	26,000		One-month LIBOR + 3.00%	3.52%	Interest Only	12/30/2017
Q&C Hotel Mortgage Loan	28,330			28,330			One-month LIBOR + 3.25%	3.77%	Interest Only (2)	12/17/2018
2200 Paseo Verde Mortgage Loan	7,430			7,430			One-month LIBOR + 2.25%	2.77%	Interest Only	01/01/2017
Lincoln Court Mortgage Loan (3)	33,500			—			One-month LIBOR + 1.75%	2.28%	Interest Only	06/01/2020
Total notes payable principal outstanding	107,260			61,760
Deferred financing costs, net	(1,022		)	(924		)
Total notes payable, net	$	106,238		$	60,836

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of September 30, 2016. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2016 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at September 30, 2016, where applicable.

⁽²⁾ Beginning February 1, 2018, monthly payments also include principal amortization payments of $55,000 per month, unless certain conditions described in the loan documents are satisfied.

⁽³⁾ See “—Recent Financing Transaction — Lincoln Mortgage Loan.”

As of September 30, 2016 and December 31, 2015, the Company’s deferred financing costs were $1.0 million and $0.9 million, respectively, net of amortization, and are included in notes payable, net on the accompanying consolidated balance sheets.

During the three and nine months ended September 30, 2016, the Company incurred $0.9 million and $2.4 million of interest expense, respectively. During the three and nine months ended September 30, 2015, the Company incurred $0.3 million and $0.9 million of interest expense, respectively. As of September 30, 2016 and December 31, 2015, $0.3 million and $0.1 million was payable, respectively. Included in interest expense for the three and nine months ended September 30, 2016 was $0.1 million and $0.4 million of amortization of deferred financing costs, respectively. Also included in interest expense for the three and nine months ended September 30, 2016 was $1,000 and $43,000 of interest expense incurred as a result of the Company’s interest rate cap agreements, respectively. Additionally, during the three and nine months ended September 30, 2016, the Company capitalized $54,000 and $126,000 of interest related to its redevelopment project at Springmaid Beach Resort, respectively. Included in interest expense for the three and nine months ended September 30, 2015 was $0.1 million and $0.2 million of amortization of deferred financing costs, respectively. Also included in interest expense for the three and nine months ended September 30, 2015 was $14,000 and $68,000 of interest expense incurred as a result of the Company’s interest rate cap agreements, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes and bond payable outstanding as of September 30, 2016 (in thousands):

October 1, 2016 through December 31, 2016	$	—
2017	45,430
2018	28,330
2019	—
2020	33,500
	$	107,260

The Company’s notes payable contain financial and non-financial debt covenants. As of September 30, 2016, the Company was in compliance with all debt covenants.

The Company’s note payable with respect to the Springmaid Beach Resort Mortgage Loan requires the Company to maintain a minimum working capital reserve in an amount sufficient to fund the working capital requirements of the Springmaid Beach Resort through the off-peak season, which amount shall be reduced by any amounts for working capital reserved by the third-party hotel operator. In addition, until certain renovations are complete, the loan documents impose a “cash trap” which restricts the use of accumulated cash from the Springmaid Beach Resort to the payment of working capital shortfalls, renovation expenditures and distributions required to satisfy the Company’s REIT requirements. The working capital reserve was included in restricted cash on the accompanying consolidated balance sheets.

Recent Financing Transaction

Lincoln Court Mortgage Loan

On May 20, 2016, in connection with the Company’s acquisition of Lincoln Court, the Company, through an indirect wholly owned subsidiary (the “Lincoln Court Owner”), entered into a four-year mortgage loan with an unaffiliated lender (the “Lender”) for borrowings of up to $36.2 million secured by Lincoln Court (the “Lincoln Court Mortgage Loan”). At closing, $33.5 million of the loan was funded and the remaining $2.7 million was available for future disbursements to be used for tenant improvement and leasing commission costs, subject to certain terms and conditions contained in the loan documents.

The Lincoln Court Mortgage Loan matures on June 1, 2020, with a one-year extension option, subject to certain terms and conditions contained in the loan documents, including the payment of an extension fee, equal to 0.125% of the amount committed under the loan. The Lincoln Court Mortgage Loan bears interest at a floating rate of 175 basis points over one-month LIBOR. The Lincoln Court Owner has the right to repay the loan in whole at any time, or in part from time to time. Prepayments made before June 1, 2017 are subject to an exit fee equal to 0.5% of any principal amount prepaid.

KBS SOR US Properties II LLC (“SOR US Properties II”), the Company’s indirect wholly owned subsidiary, is providing a guaranty of an amount not greater than 25% of the outstanding balance of the Lincoln Court Mortgage Loan with respect to certain potential fees, costs, expenses, losses or damages incurred or suffered by the lender as a result of certain intentional actions committed by the Lincoln Court Owner in violation of the loan documents. SOR US Properties II is also providing a guaranty of the principal balance and any interest or other sums outstanding under the Lincoln Court Mortgage Loan in the event of certain bankruptcy or insolvency proceedings involving the Lincoln Court Owner, certain direct or indirect transfers or financings of Lincoln Court in violation of the loan documents and the violation of certain other terms of the loan documents by the Lincoln Court Owner.

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DERIVATIVE INSTRUMENTS

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

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

The Company enters into interest rate caps to mitigate its exposure to rising interest rates on its variable rate notes payable. The values of interest rate caps are primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of interest rate caps. As the remaining life of an interest rate cap decreases, the value of the instrument will generally decrease towards zero.

As of September 30, 2016 and December 31, 2015, the Company had two interest rate caps outstanding, which were not designated as hedging instruments. The following table summarizes the notional amount and other information related to the Company’s derivative instruments as of September 30, 2016 and December 31, 2015. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):

						Fair Value of Asset
Derivative Instruments	Effective Date	Maturity Date	Notional Value		Reference Rate	September 30, 2016		December 31, 2015		Balance Sheet Location
Interest Rate Cap	12/29/2014	01/01/2018	$	26,000	One-month LIBOR at 3.00%	$	—	$	5	Prepaid expenses and other assets
Interest Rate Cap	12/16/2015	12/23/2018	$	28,330	One-month LIBOR at 3.00%	2		40		Prepaid expenses and other assets
Total derivative instruments not designated as hedging instruments						$	2	$	45

During the three and nine months ended September 30, 2016, the Company recorded an unrealized loss of $1,000 and $43,000 on its derivative instruments, respectively, which was included in interest expense on the accompanying consolidated statements of operations. During the three and nine months ended September 30, 2015, the Company recorded an unrealized loss of $14,000 and $68,000 on its derivative instrument, respectively, which was included in interest expense on the accompanying consolidated statements of operations.

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FAIR VALUE DISCLOSURES

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

FAIR VALUE DISCLOSURES

FAIR VALUE DISCLOSURES

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

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

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

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

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

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

Real estate loan receivable: The Company’s real estate loan receivable is presented in the accompanying consolidated balance sheets at its amortized cost net of recorded loan loss reserves (if any) and not at fair value. The fair value of real estate loan receivable was estimated using an internal valuation model that considered the expected cash flows for the loan, underlying collateral value (for collateral-dependent loans) and estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements. The Company classifies these inputs as Level 3 inputs.

Derivative instruments:The Company’s derivative instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments are determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair value of interest rate caps (floors) are determined using the market standard methodology of discounting the future expected cash payments (receipts) which would occur if variable interest rates rise above (below) the strike rate of the caps (floors). The variable interest rates used in the calculation of projected payments (receipts) on the cap (floor) are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities.

Notes payable: The fair value of the Company’s notes payable are estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.

The following were the face value, carrying amount and fair value of the Company’s financial instruments as of September 30, 2016 and December 31, 2015, which carrying amounts do not approximate the fair values (in thousands):

	September 30, 2016						December 31, 2015
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial asset:
Real estate loan receivable	$	3,500	$	3,424	$	3,379	$	3,500	$	3,372	$	3,311
Financial liability:
Notes payable	$	107,260	$	106,238	$	106,990	$	61,760	$	60,836	$	61,880

Disclosure of the fair value of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. This has made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of value at a future date could be materially different.

As of September 30, 2016, the Company measured the following assets at fair value (in thousands):

			Fair Value Measurements Using
	Total		Quoted Prices in Active Markets  for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:
Asset derivatives - interest rate caps	$	2	$	—	$	2	$	—

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RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2016

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

The Company has entered into the Advisory Agreement with the Advisor and dealer manager agreements with the Dealer Manager with respect to the Private Offering and the Public Offering. These agreements entitle the Advisor and the Dealer Manager to specified fees upon the provision of certain offering-related services and the investment of funds in real estate-related investments, among other services, as well as reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company and certain costs incurred by the Advisor in providing services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as described in the Advisory Agreement. The Advisor also serves as the advisor for KBS Real Estate Investment Trust, Inc. (“KBS REIT I”), KBS Real Estate Investment Trust II, Inc. (“KBS REIT II”), KBS Real Estate Investment Trust III, Inc. (“KBS REIT III”), KBS Legacy Partners Apartment REIT, Inc. (“KBS Legacy Partners Apartment REIT”), KBS Strategic Opportunity REIT, Inc. (“KBS Strategic Opportunity REIT”) and KBS Growth & Income REIT, Inc. (“KBS Growth & Income REIT”). The Dealer Manager also serves as the dealer manager for the public offering of KBS Growth & Income REIT and for the dividend reinvestment plan offerings for KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT and KBS REIT III.

Under the Amended Dealer Manager Agreement, the Dealer Manager receives an annual stockholder servicing fee of 1.0% of the purchase price per share (ignoring any discounts that may be available to certain categories of purchasers) of Class T common stock sold in the primary portion of the Public Offering. Such fee is payable solely to the extent there is a third party broker dealer of record with respect to such Class T share that has entered into a currently effective selected dealer agreement or servicing agreement that provides for the payment to such broker dealer of the stockholder servicing fee with respect to such Class T share, and such broker dealer of record is in compliance with the applicable terms of such selected dealer agreement or servicing agreement related to such payment. To the extent payable, the stockholder servicing fee will accrue daily and be paid monthly in arrears, and the Dealer Manager will reallow 100% of the stockholder servicing fee to such broker dealer of record for services provided to Class T stockholders after the initial sale of the Class T share.  In addition, no stockholder servicing fee will be paid with respect to Class T shares purchased through the dividend reinvestment plan or issued pursuant to a stock dividend.

On January 6, 2014, the Company, together with KBS REIT I, KBS REIT II, KBS REIT III, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT, the Dealer Manager, the Advisor and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each of the various entities covered by the plan, and is billed directly to each entity. The allocation of these shared coverage costs is proportionate to the pricing by the insurance marketplace for the first tiers of directors and officers liability coverage purchased individually by each REIT. The Advisor’s and the Dealer Manager’s portion of the shared lower tiers’ cost is proportionate to the respective entities’ prior cost for the errors and omissions insurance. In June 2015, KBS Growth & Income REIT was added to the insurance program at terms similar to those described above. The insurance program was renewed and is effective through June 30, 2017.

During the three and nine months ended September 30, 2016 and 2015, no other business transactions occurred between the Company and these other KBS-sponsored programs.

The Advisory Agreement has a one-year term that expires August 12, 2017. The Company may terminate the Advisory Agreement on 60 days’ written notice. The Advisor in its sole discretion may defer any fee payable to it under the Advisory Agreement. All or any portion of such fee not taken may be deferred without interest and paid when the Advisor determines.

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and nine months ended September 30, 2016 and 2015, respectively, and any related amounts payable as of September 30, 2016 and December 31, 2015 (in thousands):

	Incurred								Payable as of
	Three Months Ended September 30,				Nine Months Ended September 30,				September 30,		December 31,
	2016		2015		2016		2015		2016		2015
Expensed
Asset management fees	$	359	$	89	$	908	$	257	$	—	$	—
Reimbursable operating expenses (1)	75		46		337		147		29		26
Real estate acquisition fee (2)	—		—		1,341		—		95		108
Capitalized
Acquisition fees (2)	25		—		228		—		166		—
Additional Paid-in Capital
Sales commissions	1,074		605		2,808		1,323		—		—
Dealer manager fees	678		303		1,460		786		—		—
Stockholder servicing fees (3)	1,509		—		1,509		—		1,474		—
Reimbursable other offering costs	157		603		177		1,891		157		2,222
	$	3,877	$	1,646	$	8,768	$	4,404	$	1,921	$	2,356

_____________________

⁽¹⁾Reimbursable operating expenses primarily consists of internal audit personnel costs, accounting software and cyber-security related expenses incurred by the Advisor under the Advisory Agreement. The Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits, and overhead of internal audit department personnel providing services to the Company. These amounts totaled $75,000 and $333,000 for the three and nine months ended September 30, 2016, and $46,000 and $120,000 for the three and nine months ended September 30, 2015, respectively, and were the only employee costs reimbursed under the Advisory Agreement for the nine months ended September 30, 2016 and 2015.  The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition or origination fees or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition to the amounts above, the Company reimburses the Advisor for certain of the Company's direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company.

⁽²⁾Acquisition fees are expensed at the time of acquisition on real estate investments. Acquisition fees on investment in unconsolidated entities are capitalized into the cost basis of the investment. Acquisition fees on significant capital expenditures related to the development, construction or improvement of the investment budgeted as of the date of acquisition are capitalized.

⁽³⁾ See Note 2, “Summary of Significant Accounting Policies – Selling Commissions, Dealer Manager Fees and Stockholder Servicing Fee.”

During the nine months ended September 30, 2016, the Advisor reimbursed the Company $87,000 for legal and professional fees and property insurance rebates. 

Offering Costs

Organization and offering costs (other than selling commissions, dealer manager fees and the stockholder servicing fee) of the Company may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company or may be paid directly by the Company. These offering costs include all expenses incurred by the Company in connection with the Private Offering and the Public Offering. Organization costs include all expenses incurred by the Company in connection with the formation of the Company, including but not limited to legal fees and other costs to incorporate the Company. The Company reimbursed the Dealer Manager for underwriting compensation in connection with the Private Offering. The Company also paid directly or reimbursed the Dealer Manager for due diligence expenses of broker dealers in connection with the Private Offering.

During the Private Offering, there was no limit on the amount of organization and offering costs the Company could incur. As of September 30, 2016, the Company had recorded $1.0 million of offering costs (other than selling commissions and dealer manager fees) related to the Private Offering, all of which was initially paid by the Advisor or its affiliates on behalf of the Company and subsequently reimbursed by the Company. In addition, the Company paid $1.9 million in selling commissions and dealer manager fees related to the Private Offering.

During the Public Offering, pursuant to the Advisory Agreement and the Dealer Manager Agreement, the Company is obligated to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for organization and other offering costs paid by them on behalf of the Company, provided that no reimbursements made by the Company to the Advisor or the Dealer Manager may cause total organization and offering expenses incurred by the Company (including selling commissions, dealer manager fees, the stockholder servicing fee to exceed 15% of the aggregate gross proceeds from the Public Offering as of the date of reimbursement. In addition, at the termination of the primary portion of the Public Offering, the Advisor and its affiliates will reimburse the Company to the extent that the organization and other offering expenses (which exclude selling commissions, dealer manager fees and stockholder servicing fees) paid directly or reimbursed by the Company in connection with the primary portion of the Public Offering, regardless of when incurred, exceed 1.0% of gross offering proceeds from the primary portion of the Public Offering. The Advisor and its affiliates will be responsible for any organization and other offering expenses related to the primary portion of the Public Offering to the extent they exceed 1.0% of gross proceeds from the primary portion of the Public Offering as of the termination of the primary portion of the Public Offering.

Through September 30, 2016, the Advisor and its affiliates had incurred organization and other offering costs (which exclude selling commissions, dealer manager fees and stockholder servicing fees) on the Company’s behalf in connection with the Public Offering of approximately $7.7 million. As of September 30, 2016, the Company had paid $8.3 million in selling commissions and dealer manager fees and accrued $1.5 million of stockholder servicing fees. As of December 31, 2015, the Company had paid or accrued $3.3 million of other organization and offering expenses. After December 31, 2015, the Company reversed $2.2 million of accrued organization and offering expenses due to affiliates as a result of an amendment to the advisory agreement, which limits organization and other offering costs to 1.0% of gross proceeds from the primary portion of the Public Offering, as described above. As of September 30, 2016, the Company had recorded $1.2 million of other organization and offering expenses, which amounts represent the Company’s maximum liability for organization and other offering costs as of September 30, 2016 based on the 1.0% limitation described above.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

9 Months Ended

Sep. 30, 2016

Business Acquisition, Pro Forma Information [Abstract]

UNAUDITED PRO FORMA FINANCIAL INFORMATION

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The Company acquired one office property during the nine months ended September 30, 2016, which was accounted for as a business combination. The following unaudited pro forma information for the three and nine months ended September 30, 2016 and 2015 has been prepared to give effect to the acquisition of Lincoln Court as if this acquisition occurred on January 1, 2015. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had the acquisition occurred on this date, nor does it purport to predict the results of operations for future periods (in thousands).

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016			2015
Revenues	$	10,592	$	8,566	$	26,284		$	18,146
Depreciation and amortization	$	2,314	$	672	$	6,120		$	2,011
Net income (loss)	$	749	$	2,491	$	(418	)	$	2,164

The unaudited pro forma information for the nine months ended September 30, 2016 was adjusted to exclude $1.5 million of acquisition costs related to Lincoln Court incurred by the Company in 2016.

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INVESTMENT IN UNCONSOLIDATED ENTITY

9 Months Ended

Sep. 30, 2016

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN UNCONSOLIDATED ENTITY

INVESTMENT IN UNCONSOLIDATED ENTITY

On June 28, 2016, the Company originated a participating loan facility in an amount up to €2.6 million ($2.9 million at closing). The Company funded approximately €2.1 million ($2.3 million at closing). The proceeds were used by the borrower to fund a 5% general partner interest in a joint venture acquiring a portfolio of light industrial properties located throughout France. The total acquisition cost of the portfolio was approximately €95.5 million ($105.6 million at closing). Under the terms of the participating loan facility, the Company participates in the expected residual profits of the portfolio and the terms are structured in a manner such that the risks and rewards of the arrangement are similar to those associated with an investment in a real estate joint venture. Accordingly, the participating loan facility is accounted for under the equity method of accounting. In addition to the amount funded at closing, the Company also capitalized an additional $0.2 million of acquisition costs and fees. During the three and nine months ended September 30, 2016, the Company recognized $0.1 million of income with respect to this investment.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Management Agreement

Springmaid Beach Resort

The consolidated joint venture entity through which the Company leases the operations for Springmaid Beach Resort has entered into a management agreement with Doubletree Management LLC, an independent third-party hotel operator (the “Operator”) pursuant to which the Operator will manage and operate the Springmaid Beach Resort. The hotel was branded a DoubleTree by Hilton in September 2016 (the “Brand Commencement Date”).

Pursuant to the management agreement the Operator will receive the following fees:

• a base fee, which is a percentage of total operating revenue that starts at 2.5% and increases to 2.75% in the second year following the Brand Commencement Date and further increases in the third year following the Brand Commencement Date and thereafter to 3.0%;

• a campground area management fee, which is 2% of any campground revenue;

• an incentive fee, which is 15% of operating cash flow (after deduction for capital renewals reserve and the joint venture owner’s priority, which is 12% of the joint venture owner’s total investment);

• an additional services fee in the amount reasonably determined by the Operator from time to time; and

• a brand services fee in the amount of 4% of total rooms revenue, and an other brand services fee in an amount determined by the Operator from time to time.

The management agreement contains specific standards for the operation and maintenance of the hotel, which allows the Operator to maintain uniformity in the system created by the Operator’s franchise. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage and protection of trademarks. Compliance with the management agreement will require the Company to make significant expenditures for capital improvements.     

During the three and nine months ended September 30, 2016, the Company incurred $179,000 and $369,000 of fees related to the management agreement, respectively, which are included in hotel expenses on the accompanying consolidated statements of operations. During the three and nine months ended September 30, 2015, the Company incurred $180,000 and $350,000 of fees related to the management agreement, respectively, which are included in hotel expenses on the accompanying consolidated statements of operations.

Q&C Hotel

A wholly owned subsidiary of the joint venture through which the Company leases the operations of the Q&C Hotel (“Q&C Hotel Operations”) has entered into a management agreement with Encore Hospitality, LLC (“Encore Hospitality”), an affiliate of the joint venture partner, pursuant to which Encore Hospitality will manage and operate the Q&C Hotel. The management agreement expires on December 17, 2035. Subject to certain conditions, Encore Hospitality may extend the term of the agreement for a period of five years. Pursuant to the management agreement Encore Hospitality will receive a base fee, which is 4.0% of gross revenue (as defined in the management agreement). During the three and nine months ended September 30, 2016, the Company incurred $57,000 and $227,000, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations.

Q&C Hotel Operations has also entered into a franchise agreement with Marriott International (“Marriott”) pursuant to which Marriott has granted Q&C Hotel Operations a limited, non-exclusive license to establish and operate the Q&C Hotel using certain of Marriott’s proprietary marks and systems and the hotel was branded as a Marriott Autograph Collection hotel on May 25, 2016. The franchise agreement will expire on May 25, 2041. Pursuant to the franchise agreement, Q&C Hotel Operations pays Marriott a monthly franchise fee equal to a percent of gross room sales on a sliding scale that is initially 2% and increases to 5% on May 25, 2019 and a monthly marketing fund contribution fee equal to 1.5% of the Q&C Hotel’s gross room sales. In addition, the franchise agreement requires the maintenance of a reserve account to fund all renovations at the hotel based on a percentage of gross revenues which starts at 2% of gross revenues and increases to 5% of gross revenues on May 25, 2019. Q&C Hotel Operations is also responsible for the payment of certain other fees, charges and costs as set forth in the agreement. During the the three and nine months ended September 30, 2016, the Company incurred $115,000 and $157,000 of fees related to the Marriott franchise agreement, respectively, which are included in hotel expenses on the accompanying consolidated statements of operations.

In addition, in connection with the execution of the franchise agreement, SOR US Properties II is providing an unconditional guarantee that all Q&C Hotel Operations’ obligations under the franchise agreement will be punctually paid and performed. Finally, certain transfers of the Q&C Hotel or an ownership interest therein are subject to a notice and consent requirement, and the franchise agreement further provides Marriott with a right of first refusal with respect to a sale of the hotel to a competitor of Marriott.

Economic Dependency

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

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations as of September 30, 2016. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities.

Legal Matters

From time to time, the Company is a party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations or financial condition, which would require accrual or disclosure of the contingency and the possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

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

Status of the Offering

The Company commenced the Public Offering on August 12, 2014 and broke escrow on January 7, 2015. As of November 8, 2016, the Company had sold 8,644,798 and 4,755,756 shares of Class A and Class T common stock in the Public Offering, respectively, for aggregate gross offering proceeds of $130.8 million. Included in these amounts were 195,574 and 22,876 shares of Class A and Class T common stock sold under our dividend reinvestment plan, respectively, for aggregate gross offering proceeds of $1.9 million.

Cash Distributions Paid

On October 3, 2016, the Company paid distributions of $0.2 million related to cash distributions on the outstanding shares of the common stock based on daily record dates for the period from September 1, 2016 through September 30, 2016. On November 1, 2016, the Company paid distributions of $0.3 million related to cash distributions on the outstanding shares of the common stock based on daily record dates for the period from October 1, 2016 through October 31, 2016. Distributions for these periods were calculated based on stockholders of record each day during these periods at a rate of (i) $0.00052404 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date.

On October 5, 2016, the Company paid distributions of $0.8 million related to a one-time cash distribution in the amount of $0.05 per share on the outstanding shares of all classes of common stock to stockholders of record as of the close of business on September 27, 2016.

Stock Dividends Issued

On August 11, 2016, the Company’s board of directors authorized stock dividends for the month of September 2016, in the amount of 0.001667 shares of each class of the Company’s common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on September 30, 2016. The Company issued the September 2016 stock dividend, consisting of 28,420 shares, on October 4, 2016.

Also, on August 11, 2016, the Company’s board of directors authorized stock dividends for the month of October 2016, in the amount of 0.001667 shares of each class of the Company’s common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on October 31, 2016. The Company issued the October 2016 stock dividend, consisting of 30,341 shares, on November 2, 2016.

On September 27, 2016, the Company’s board of directors authorized a one-time stock dividend in the amount of 0.015 shares of common stock to all common stockholders of record as of the close of business on September 27, 2016. The Company issued the one-time stock dividend, consisting of 254,287 shares, on October 6, 2016.

Distributions Declared

On October 11, 2016, the Company’s board of directors declared cash distributions on the outstanding shares of all classes of common stock based on daily record dates for the period from November 1, 2016 through November 30, 2016, which the Company expects to pay in December 2016. On November 10, 2016, the Company’s board of directors declared cash distributions on the outstanding shares of all classes of common stock based on daily record dates for the period from December 1, 2016 through December 31, 2016 and January 1, 2017 through January 31, 2017, which the Company expects to pay in January and February 2017, respectively. Distributions for the period from November 1, 2016 through December 31, 2016 will be calculated based on stockholders of record each day during these periods at a rate of (i) $0.00052404 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date. Distributions for the period from January 1, 2017 through January 31, 2017 will be calculated based on stockholders of record each day during these periods at a rate of (i) $0.00052548 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date.

Also on October 11, 2016, the Company’s board of directors authorized monthly stock dividends for the month of November 2016, in the amount of 0.001667 shares of each class of the Company’s common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on November 30, 2016, which the Company expects to issue in December 2016. Also on November 10, 2016, the Company’s board of directors authorized monthly stock dividends for the months of December 2016 and January 2017, each in the amount of 0.001667 shares of each class of the Company’s common stock on each outstanding share of common stock issuable to all common stockholders of record as of the close of business on December 31, 2016 and January 31, 2017, respectively, which the Company expects to issue in January 2017 and February 2017, respectively. Stock dividends are issued in the same class of shares as the shares for which such stockholder received the stock dividend.

Springmaid Beach Resort

In October 2016, Springmaid Beach Resort Hotel, which is located in Myrtle Beach, South Carolina, sustained significant damage from Hurricane Matthew. The Company is in the process of assessing the extent of the property damage at Springmaid Beach Resort Hotel and quantify the financial impact to the Company’s financial statements.

Probable Real Estate Investment

210 West 31^st Street

On October 28, 2016, the Company, through a indirect wholly owned subsidiary, entered into a joint venture (the “210 West 31^st Street Joint Venture”) with Onyx 31^st Street LLC (the “210 West 31^st Street JV Partner”). A wholly owned subsidiary of the 210 West 31^st Street Joint Venture then entered into a purchase and sale agreement with the 210 West 31^st Street JV Partner whereby the 210 West 31^st Street JV Partner would assign 80% of its interest in a ground lease in 210 West 31^st Street, New York, New York (“210 West 31^st Street”) to the wholly owned subsidiary of the 210 West 31^st Street Joint Venture. The 210 West 31^st Street JV Partner would retain a 20% interest in the ground lease in 210 West 31^st Street and contribute this interest in exchange for a 20% interest in the 210 West 31^st Street Joint Venture. The 210 West 31^st Street JV Partner is not affiliated with the Company or the Advisor.  The contractual purchase price of the 80% interest in the ground lease is $38.4 million plus closing costs and the remaining 20% interest has an attributable value of $9.6 million.

The Company owns an 80% equity interest in the 210 West 31^st Street Joint Venture and is responsible for funding the purchase of the 80% interest in the ground lease. Income, losses and distributions are generally allocated based on the members’ respective equity interests, subject to adjustments based on certain performance thresholds set forth in the joint venture agreement. Additionally, in certain circumstances described in the joint venture agreement, the Company and the 210 West 31^st Street JV Partner may be required to make additional capital contributions to the joint venture, in proportion to the members’ respective equity interests.

The 210 West 31^st Street Joint Venture intends to fund the acquisition of 210 West 31^st Street with capital contributions from its members and with proceeds from a mortgage loan. The 210 West 31^st Street Joint Venture is currently negotiating the terms of the mortgage loan.

Pursuant to the purchase and sale agreement, the 210 West 31^st Street Joint Venture would be obligated to purchase the property only after satisfaction of agreed-upon closing conditions. There can be no assurance that the 210 West 31^st Street Joint Venture will complete the acquisition. In some circumstances, if the 210 West 31^st Street Joint Venture fails to complete the acquisition it may forfeit up to $3.0 million.

210 West 31^st Street is located in New York, New York and consists of an 8,637 square foot development site located directly across the street from Madison Square Garden and Penn Station. 210 West 31^st Street is currently a 23,110 square foot, 2-story building with basement. The Company intends to make significant renovations or improvements to 210 West 31^st Street, including demolishing the existing structure and redeveloping the property into a 2-story retail building with a lower level and a rooftop deck and currently estimates these renovation and improvements to cost approximately $14.2 million.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership and their direct and indirect wholly owned subsidiaries and joint ventures in which the Company has a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

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

Selling Commissions, Dealer Manager Fees and Stockholder Servicing Fee

Prior to February 17, 2016, the Company paid the Dealer Manager up to 6.5% of the price per share of Class A common stock sold in the Private Offering and the Public Offering as a selling commission. The Dealer Manager reallowed 100% of commissions earned to participating broker-dealers. No sales commissions were paid on shares sold through the dividend reinvestment plan.  The Company paid the Dealer Manager up to 3.0% of the price per share of Class A common stock sold in the Private Offering and the Public Offering as a dealer manager fee. No dealer manager fee was payable on shares sold under the dividend reinvestment plan. From its dealer manager fee, the Dealer Manager reallowed to any participating broker-dealer up to 1.0% of the price per share of Class A common stock sold in the Private Offering and the Public Offering attributable to that participating broker-dealer as a marketing fee and in special cases the dealer manager could increase the reallowance. A reduced dealer manager fee was payable with respect to certain volume discount sales.

On February 17, 2016, the Company and the Dealer Manager entered into an Amended and Restated Dealer Manager Agreement (the “Amended Dealer Manager Agreement”) to provide the terms pursuant to which the Dealer Manager will offer and sell the Company’s Class A and Class T shares of common stock in the Public Offering. Under the Amended Dealer Manager Agreement, the Company pays selling commissions to the Dealer Manager in amounts up to 6.5% of the price per share of Class A common stock sold and up to 3.0% of the price per share of Class T common stock sold. Additionally, the Company pays dealer manager fees to the Dealer Manager in an amount up to 2.0% of the price per share of Class A and Class T common stock sold. The Dealer Manager reallows all selling commissions to participating broker dealers and may generally reallow (from its dealer manager fee) to any participating broker dealer up to 1.0% of the gross proceeds from the primary portion of the Public Offering attributable to that participating broker dealer as a marketing fee; in select cases up to 1.5% of the gross proceeds from the primary portion of the Public Offering may be reallowed. No selling commissions or dealer manager fees are payable on shares of common stock sold under the dividend reinvestment plan.

Also, under the Amended Dealer Manager Agreement, the Dealer Manager receives an annual stockholder servicing fee of 1.0% of the purchase price per share (ignoring any discounts that may be available to certain categories of purchasers) of Class T common stock sold in the primary portion of the Public Offering solely to the extent there is a broker dealer of record with respect to such Class T share that has entered a currently effective selected dealer agreement or servicing agreement that provides for the payment to such broker dealer of the stockholder servicing fee with respect to such Class T share, and such broker dealer of record is in compliance with the applicable terms of such selected dealer agreement or servicing agreement related to such payment. To the extent payable, the stockholder servicing fee accrues daily and is paid monthly in arrears, and the Dealer Manager reallows 100% of the stockholder servicing fee to such broker dealer of record for services provided to Class T stockholders after the initial sale of the Class T share.  In addition, no stockholder servicing fee is paid with respect to Class T shares purchased through the dividend reinvestment plan or issued pursuant to a stock dividend.

The Company records the stockholder servicing fee as a reduction to additional paid-in capital and the related liability in an amount equal to the maximum stockholder servicing fee payable in relation to the Class T share on the date the share is issued. For each share of Class T common stock in the Primary Offering, the maximum stockholder servicing fee equals 4% of the purchase price per share (ignoring any discounts in purchase price that may be available to certain categories of purchasers). The liability will be reduced over time, as the fees are paid to the Dealer Manager, or it will be adjusted if the fees are no longer payable as a result of the occurrence of any of the following events: (i) the date at which aggregate underwriting compensation from all sources equals 10% of the gross proceeds from the Primary Offering in which the Class T share was sold, as calculated by the Company with the assistance of the Dealer Manager after the termination of the Primary Offering in which the Class T share was sold, (ii) a listing of the Company’s common stock on a national securities exchange, (iii) a merger or other extraordinary transaction, and (iv) the date the Class T share associated with the stockholder servicing fee is no longer outstanding such as upon its redemption or the Company’s dissolution.

Foreign Currency Translation

The Company has a participating loan facility funded in Euros which is accounted for under the equity method of accounting and recorded as an investment in unconsolidated entity in the accompanying balance sheet.  The Company’s reporting currency is the U.S. dollar, however the functional currency of the unconsolidated entity is the Euro.  At the end of each reporting period, before determining the Company’s share of its equity investment, the results of operations of the unconsolidated entity is translated into U.S. dollars using the average currency rates of exchange in effect during the period, and the assets and the liabilities of the unconsolidated entity are translated using the currency exchange rate in effect at the end of the period.  The resulting foreign currency translation adjustment is recorded as other comprehensive income (loss) on the accompanying consolidated statements of comprehensive income (loss) and consolidated statements of stockholders’ equity.

Segments

The Company has invested in opportunistic real estate investments and originated a loan secured by a non-stabilized real estate asset. In general, the Company intends to hold its investments in opportunistic real estate and other real estate-related assets for capital appreciation. Traditional performance metrics of opportunistic real estate and other real estate-related assets may not be meaningful as these investments are generally non-stabilized and do not provide a consistent stream of interest income or rental revenue. These investments exhibit similar long-term financial performance and have similar economic characteristics. These investments typically involve a higher degree of risk and do not provide a constant stream of ongoing cash flows. As a result, the Company’s management views opportunistic real estate and other real estate-related assets as similar investments. Substantially all of its revenue and net income (loss) is from opportunistic real estate and other real estate-related assets, and therefore, the Company currently aggregates its operating segments into one reportable business segment.

Per Share Data

For the purpose of calculating the dollar amount of the Class A and Class T stock dividends issued, the Company used the current Class A and Class T primary offering price in the Public Offering.

Cash distributions declared per share of Class A common stock were $0.098 and $0.154 for the three and nine months ended September 30, 2016, respectively. Cash distributions declared per share of Class T common stock were $0.074 and $0.098 for the three and nine months ended September 30, 2016, respectively. Cash distributions for Class T Shares are reduced by the applicable daily stockholder servicing fees. Distributions declared per share of Class A common stock assumes each share was issued and outstanding each day during the three and nine months ended September 30, 2016, respectively. Distributions declared per share of Class T common stock assumes each share was issued and outstanding each day during the three months ended September 30, 2016 and from March 2, 2016 through September 30, 2016, respectively. Each day during the period from March 1, 2016 through March 31, 2016 was a record date for distributions. Distributions for this period were calculated based on stockholders of record each day during this period at a rate of (i) $0.00026202 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the  number of shares of common stock of such class outstanding as of the close of business on each respective record date. Each day during the period from April 1, 2016 through September 30, 2016 was a record date for distributions. Distributions for this period were calculated based on stockholders of record each day during this period at a rate of (i) $0.00052404 per share per day less (ii) the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the  number of shares of common stock of such class outstanding as of the close of business on each respective record date. On September 27, 2016, the Company’s board of directors declared a one-time cash distribution in the amount of $0.05 per share on the outstanding shares of all classes of common stock to stockholders of record as of the close of business on September 27, 2016. The Company did not declare cash distributions during the three and nine months ended September 30, 2015.

In accordance with FASB ASC Topic 260-10-45, Earnings Per Share, the Company uses the two-class method to calculate earnings per share. Basic earnings per share is calculated based on dividends declared (“distributed earnings”) and the rights of common shares and participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends declared during the period. The undistributed earnings are allocated to all outstanding common shares based on the relative percentage of each class of shares to the total number of outstanding shares. The Company does not have any participating securities outstanding other than Class A Common Stock and Class T Common stock during the periods presented.

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock issued and outstanding for each class of share outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and nine months ended September 30, 2016 and 2015. For the purpose of determining the weighted average number of shares outstanding, stock dividends issued are adjusted retroactively and treated as if they were issued and outstanding for all periods presented.

Square Footage, Occupancy and Other Measures

Any references to square footage, occupancy or annualized base rent are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.

Recently Issued Accounting Standards Updates

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification.  ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU No. 2015-14”), which defers the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU No. 2015-02”), which amended the existing accounting standards for consolidation under both the variable interest model and the voting model. ASU No. 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU No. 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments in ASU No. 2015-02 using: (a) a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption; or (b) by applying the amendments retrospectively. On January 1, 2016, the Company adopted ASU No. 2015-02 and re-evaluated its consolidation analysis of its joint ventures, concluding that such adoption did not result in (a) the classification of any entities as VIEs, (b) a consolidation of entities not previously consolidated (c) a deconsolidation of entities previously consolidated.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”).  The amendments in ASU No. 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments.  ASU No. 2016-01 primarily affects accounting for equity investments and financial liabilities where the fair value option has been elected.  ASU No. 2016-01 also requires entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the balance sheet or in the accompanying notes to the financial statements.  ASU No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years.  Early application is permitted for financial statements that have not been previously issued.  The Company does not expect the adoption of ASU No. 2016-01 to have a significant impact on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 changes the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 as of its issuance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU No. 2016-13”).  ASU No. 2016-13 affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.  The amendments in ASU No. 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.  ASU No. 2016-13 also amends the impairment model for available-for-sale securities.  An entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as is currently required.   ASU No. 2016-13 also requires new disclosures.  For financial assets measured at amortized cost, an entity will be required to disclose information about how it developed its allowance for credit losses, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes.  For financing receivables and net investments in leases measured at amortized cost, an entity will be required to further disaggregate the information it currently discloses about the credit quality of these assets by year of the asset’s origination for as many as five annual periods. For available for sale securities, an entity will be required to provide a roll-forward of the allowance for credit losses and an aging analysis for securities that are past due.  ASU No. 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is still evaluating the impact of adopting ASU No. 2016-13 on its financial statements, but does not expect the adoption of ASU No. 2016-13 to have a material impact on its financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”).  ASU No. 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows.  The amendments in ASU No. 2016-15 provide guidance on eight specific cash flow issues, including the following that are or may be relevant to the Company: (a) Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities; (b) Cash payments relating to contingent consideration made soon after an acquisition’s consummation date (i.e., approximately three months or less) should be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities; (c) Cash payments received from the settlement of insurance claims should be classified on the basis of the nature of the loss (or each component loss, if an entity receives a lump-sum settlement);  (d) Relating to distributions received from equity method investments, ASU No. 2016-15 provides an accounting policy election for classifying distributions received from equity method investments. Such amounts can be classified using a (1) cumulative earnings approach, or (2) nature of distribution approach. Under the cumulative earnings approach, an investor would compare the distributions received to its cumulative equity method earnings since inception.  Any distributions received up to the amount of cumulative equity earnings would be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities. Alternatively, an investor can choose to classify the distributions based on the nature of activities of the investee that generated the distribution. If the necessary information is subsequently not available for an investee to determine the nature of the activities, the entity should use the cumulative earnings approach for that investee and report a change in accounting principle on a retrospective basis;  (e) In the absence of specific guidance, an entity should classify each separately identifiable cash source and use on the basis of the nature of the underlying cash flows. For cash flows with aspects of more than one class that cannot be separated, the classification should be based on the activity that is likely to be the predominant source or use of cash flow.  ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  The Company is still evaluating the impact of ASU No. 2016-15 on its financial statements, but does not expect the adoption of ASU No. 2016-15 to have a material impact on its financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Schedule of Dividends Declared and Shares Issued

The Company’s board of directors has declared and issued the following stock dividends on shares of the Company’s common stock through the filing date of this report:

Declaration Date	Record Date	Issue Date	Amount Declared per Share Outstanding	Total Shares Issued
March 24, 2015	March 25, 2015	March 27, 2015	0.01 shares	44,538
April 7, 2015	June 24, 2015	June 29, 2015	0.01 shares	56,219
August 6, 2015	September 22, 2015	September 29, 2015	0.01 shares	65,710
November 10, 2015	December 16, 2015	December 22, 2015	0.01 shares	85,591
December 10, 2015	December 16, 2015	December 21, 2015	0.06 shares	513,546
March 21, 2016	March 31, 2016	April 1, 2016	0.005 shares	57,172
March 21, 2016	April 30, 2016	May 3, 2016	0.001667 shares	19,781
March 21, 2016	May 31, 2016	June 1, 2016	0.001667 shares	20,257
May 10, 2016	June 30, 2016	July 1, 2016	0.001667 shares	21,900
May 10, 2016	July 31, 2016	August 2, 2016	0.001667 shares	23,719
July 6, 2016	August 31, 2016	September 1, 2016	0.001667 shares	26,037
August 11, 2016	September 30, 2016	October 4, 2016	0.001667 shares	28,420
August 11, 2016	October 31, 2016	November 2, 2016	0.001667 shares	30,341
September 27, 2016	September 27, 2016	October 6, 2016	0.015 shares	254,287

Schedule of Earnings Per Share, Basic, by Common Class, Including Two Class Method

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016			2015
Net income (loss) attributable to common stockholders	$	601		$	2,170	$	(2,302	)	$	1,759
Less: Class A Common Stock cash distributions declared	1,264			—		1,921			—
Less: Class T Common Stock cash distributions declared	249			—		255			—
Undistributed Net (loss) income attributable to common stockholders	$	(912	)	$	2,170	$	(4,478	)	$	1,759
Class A Common Stock:
Undistributed Net (loss) income attributable to common stockholders	$	(771	)	$	2,145	$	(4,156	)	$	1,736
Class A Common Stock cash distributions declared	1,264			—		1,921			—
Net income (loss) attributable to Class A common stockholders	$	493		$	2,145	$	(2,235	)	$	1,736
Net income (loss) per common share, basic and diluted	$	0.04		$	0.30	$	(0.19	)	$	0.28
Weighted-average number of common shares outstanding, basic and diluted	12,915,552			7,165,984		12,053,850			6,241,190
Class T Common Stock:
Undistributed Net (loss) income attributable to common stockholders	$	(141	)	$	25	$	(322	)	$	23
Class T Common Stock cash distributions declared	249			—		255			—
Net income (loss) attributable to Class T common stockholders	$	108		$	25	$	(67	)	$	23
Net income (loss) per common share, basic and diluted	$	0.05		$	0.30	$	(0.07	)	$	0.28
Weighted-average number of common shares outstanding, basic and diluted	2,363,520			82,126		934,651			82,126

Schedule of Earnings Per Share, Diluted, by Common Class, Including Two Class Method

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016			2015
Net income (loss) attributable to common stockholders	$	601		$	2,170	$	(2,302	)	$	1,759
Less: Class A Common Stock cash distributions declared	1,264			—		1,921			—
Less: Class T Common Stock cash distributions declared	249			—		255			—
Undistributed Net (loss) income attributable to common stockholders	$	(912	)	$	2,170	$	(4,478	)	$	1,759
Class A Common Stock:
Undistributed Net (loss) income attributable to common stockholders	$	(771	)	$	2,145	$	(4,156	)	$	1,736
Class A Common Stock cash distributions declared	1,264			—		1,921			—
Net income (loss) attributable to Class A common stockholders	$	493		$	2,145	$	(2,235	)	$	1,736
Net income (loss) per common share, basic and diluted	$	0.04		$	0.30	$	(0.19	)	$	0.28
Weighted-average number of common shares outstanding, basic and diluted	12,915,552			7,165,984		12,053,850			6,241,190
Class T Common Stock:
Undistributed Net (loss) income attributable to common stockholders	$	(141	)	$	25	$	(322	)	$	23
Class T Common Stock cash distributions declared	249			—		255			—
Net income (loss) attributable to Class T common stockholders	$	108		$	25	$	(67	)	$	23
Net income (loss) per common share, basic and diluted	$	0.05		$	0.30	$	(0.07	)	$	0.28
Weighted-average number of common shares outstanding, basic and diluted	2,363,520			82,126		934,651			82,126

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RECENT ACQUISITIONS OF REAL ESTATE (Tables)

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Schedule of Business Acquisitions, Properties Acquired

During the nine months ended September 30, 2016, the Company acquired the following property (in thousands):

								Intangibles
Property Name	City	State	Acquisition Date	Land		Building and Improvements		Tenant Origination  and Absorption Costs		Above-Market Lease Assets		Below-Market Lease Liabilities			Total  Purchase Price
Lincoln Court	Campbell	CA	05/20/2016	$	14,706	$	33,356	$	4,724	$	—	$	(1,445	)	$	51,341

Schedule of Finite-Lived Intangible Assets and Liabilities Acquired, Weighted-Average Amortization Periods

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

	Tenant Origination and Absorption Costs	Above-Market Lease Assets	Below-Market Lease Liabilities
Lincoln Court	3.7	—	2.1

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REAL ESTATE (Tables)

9 Months Ended

Sep. 30, 2016

Real Estate [Abstract]

Schedule of Real Estate

The following table summarizes the Company’s real estate as of September 30, 2016 and December 31, 2015 (in thousands):

	September 30, 2016			December 31, 2015
Land	$	45,226		$	30,493
Buildings and improvements	125,676			79,081
Tenant origination and absorption costs	5,243			748
Other intangibles	244			244
Total real estate, cost	176,389			110,566
Accumulated depreciation and amortization	(5,090		)	(593		)
Total real estate, net	$	171,299		$	109,973

The following table provides summary information regarding the Company’s real estate as of September 30, 2016 (in thousands):

Property	Date Acquired	City	State	Property Type	Land		Building and Improvements		Tenant Origination and Absorption		Other Intangibles		Total Real Estate, at Cost		Accumulated Depreciation and Amortization			Total Real Estate, Net		Ownership %
Springmaid Beach Resort	12/30/2014	Myrtle Beach	SC	Hotel	$	27,438	$	30,762	$	—	$	—	$	58,200	$	(1,567	)	$	56,633	90.0	%
Q&C Hotel	12/17/2015	New Orleans	LA	Hotel	1,232		50,713		—		244		52,189		(1,889		)	50,300		90.0	%
2200 Paseo Verde	12/23/2015	Henderson	NV	Office	1,850		10,742		704		—		13,296		(454		)	12,842		100.0	%
Lincoln Court	05/20/2016	Campbell	CA	Office	14,706		33,459		4,539		—		52,704		(1,180		)	51,524		100.0	%
					$	45,226	$	125,676	$	5,243	$	244	$	176,389	$	(5,090	)	$	171,299

Schedule of Hotel Revenue and Expense

The following table provides detailed information regarding Q&C Hotel and Springmaid Beach Resort’s hotel revenue and expense for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Hotel revenues:
Room	$	6,499	$	5,219	$	15,180	$	9,807
Food, beverage and convention services	883		903		2,436		1,909
Campground	275		259		806		763
Other	942		841		2,141		1,640
Hotel revenues	$	8,599	$	7,222	$	20,563	$	14,119
Hotel expenses:
Room	$	1,500	$	983	$	3,787	$	2,226
Food, beverage and convention services	842		611		2,188		1,416
General and administrative	590		399		1,696		1,088
Sales and marketing	453		212		1,236		684
Repairs and maintenance	485		416		1,345		1,109
Utilities	324		254		767		701
Property taxes and insurance	348		306		1,050		738
Other	615		508		1,397		1,143
Hotel expenses	$	5,157	$	3,689	$	13,466	$	9,105

Schedule of Office Property Revenue and Expense

The following table provides detailed information regarding the Company’s office revenues and expenses for the three and nine months ended September 30, 2016 (in thousands):

	For the Three Months ended September 30, 2016		For the Nine Months ended September 30, 2016
Office revenues:
Rental income	$	1,817	$	3,165
Tenant reimbursements and other income	75		124
Office revenues	$	1,892	$	3,289
Office expenses:
Operating, maintenance, and management	$	328	$	552
Real estate taxes and insurance	193		308
Office expenses	$	521	$	860

Schedule of Future Minimum Rental Income for Company's Properties

As of September 30, 2016, the future minimum rental income from the Company’s office properties under its non-cancelable operating leases was as follows (in thousands):

October 1, 2016 through December 31, 2016	$	1,476
2017	5,388
2018	4,144
2019	2,781
2020	1,392
Thereafter	1,970
	$	17,151

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REAL ESTATE LOAN RECEIVABLE (Tables)

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

Schedule of Real Estate Loan Receivable

As of September 30, 2016, the Company had originated one real estate loan receivable as follows (dollars in thousands):

Loan Name Location of Related Property or  Collateral

Date Originated

Property Type

Loan Type

Outstanding Principal Balance as of September 30, 2016

Book Value as of September 30, 2016(1)

Book Value as of December 31, 2015(1)

Contractual Interest Rate (2)

Annualized Effective Interest Rate (2)

Maturity Date

655 Summer Street First Mortgage

Boston, Massachusetts

09/04/2014

Office

Mortgage

$

3,500

$

3,424

$

3,372

9.25%

11.68%

10/01/2017

_____________________

⁽¹⁾ Book value of the real estate loan receivable represents outstanding principal balance adjusted for unamortized origination fees and direct origination and acquisition costs.

⁽²⁾ Contractual interest rate is the stated interest rate on the face of the loan. Annualized effective interest rate is calculated as the actual interest income recognized in 2016, using the interest method annualized (if applicable) and divided by the average amortized cost basis of the investment. The annualized effective interest rate and contractual interest rate presented are as of September 30, 2016.

Schedule of Activity Related to Real Estate Loan Receivable

The following summarizes the activity related to the real estate loan receivable for the nine months ended September 30, 2016 (in thousands):

Real estate loan receivable - December 31, 2015	$	3,372
Amortization of closing costs and origination fees on real estate loan receivable	52
Real estate loan receivable - September 30, 2016	$	3,424

Schedule of Interest and Other Income

For the three and nine months ended September 30, 2016 and 2015, interest income from the real estate loan receivable consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Contractual interest income	$	83	$	83	$	246	$	245
Amortization of closing costs and origination fees, net	18		16		52		46
Interest income from real estate loan receivable	$	101	$	99	$	298	$	291

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NOTE PAYABLE (Tables)

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments

As of September 30, 2016 and December 31, 2015, the Company’s notes payable consisted of the following (in thousands):

	Book Value as of September 30, 2016			Book Value as of December 31, 2015			Contractual Interest Rate (1)	Effective Interest Rate (1)	Payment Type	Maturity Date
Springmaid Beach Resort Mortgage Loan	$	38,000		$	26,000		One-month LIBOR + 3.00%	3.52%	Interest Only	12/30/2017
Q&C Hotel Mortgage Loan	28,330			28,330			One-month LIBOR + 3.25%	3.77%	Interest Only (2)	12/17/2018
2200 Paseo Verde Mortgage Loan	7,430			7,430			One-month LIBOR + 2.25%	2.77%	Interest Only	01/01/2017
Lincoln Court Mortgage Loan (3)	33,500			—			One-month LIBOR + 1.75%	2.28%	Interest Only	06/01/2020
Total notes payable principal outstanding	107,260			61,760
Deferred financing costs, net	(1,022		)	(924		)
Total notes payable, net	$	106,238		$	60,836

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of September 30, 2016. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2016 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at September 30, 2016, where applicable.

⁽²⁾ Beginning February 1, 2018, monthly payments also include principal amortization payments of $55,000 per month, unless certain conditions described in the loan documents are satisfied.

⁽³⁾ See “—Recent Financing Transaction — Lincoln Mortgage Loan.”

Schedule of Maturities of Long-term Debt

The following is a schedule of maturities, including principal amortization payments, for all notes and bond payable outstanding as of September 30, 2016 (in thousands):

October 1, 2016 through December 31, 2016	$	—
2017	45,430
2018	28,330
2019	—
2020	33,500
	$	107,260

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DERIVATIVE INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position

The following table summarizes the notional amount and other information related to the Company’s derivative instruments as of September 30, 2016 and December 31, 2015. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):

						Fair Value of Asset
Derivative Instruments	Effective Date	Maturity Date	Notional Value		Reference Rate	September 30, 2016		December 31, 2015		Balance Sheet Location
Interest Rate Cap	12/29/2014	01/01/2018	$	26,000	One-month LIBOR at 3.00%	$	—	$	5	Prepaid expenses and other assets
Interest Rate Cap	12/16/2015	12/23/2018	$	28,330	One-month LIBOR at 3.00%	2		40		Prepaid expenses and other assets
Total derivative instruments not designated as hedging instruments						$	2	$	45

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FAIR VALUE DISCLOSURES (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Schedule of Face Value, Carrying Amounts and Fair Value

The following were the face value, carrying amount and fair value of the Company’s financial instruments as of September 30, 2016 and December 31, 2015, which carrying amounts do not approximate the fair values (in thousands):

	September 30, 2016						December 31, 2015
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial asset:
Real estate loan receivable	$	3,500	$	3,424	$	3,379	$	3,500	$	3,372	$	3,311
Financial liability:
Notes payable	$	107,260	$	106,238	$	106,990	$	61,760	$	60,836	$	61,880

Schedule of Fair Value, Assets Measured on Recurring Basis

As of September 30, 2016, the Company measured the following assets at fair value (in thousands):

			Fair Value Measurements Using
	Total		Quoted Prices in Active Markets  for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:
Asset derivatives - interest rate caps	$	2	$	—	$	2	$	—

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RELATED PARTY TRANSACTIONS (Tables)

9 Months Ended

Sep. 30, 2016

Related Party Transactions [Abstract]

Schedule of Related Party Costs

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and nine months ended September 30, 2016 and 2015, respectively, and any related amounts payable as of September 30, 2016 and December 31, 2015 (in thousands):

	Incurred								Payable as of
	Three Months Ended September 30,				Nine Months Ended September 30,				September 30,		December 31,
	2016		2015		2016		2015		2016		2015
Expensed
Asset management fees	$	359	$	89	$	908	$	257	$	—	$	—
Reimbursable operating expenses (1)	75		46		337		147		29		26
Real estate acquisition fee (2)	—		—		1,341		—		95		108
Capitalized
Acquisition fees (2)	25		—		228		—		166		—
Additional Paid-in Capital
Sales commissions	1,074		605		2,808		1,323		—		—
Dealer manager fees	678		303		1,460		786		—		—
Stockholder servicing fees (3)	1,509		—		1,509		—		1,474		—
Reimbursable other offering costs	157		603		177		1,891		157		2,222
	$	3,877	$	1,646	$	8,768	$	4,404	$	1,921	$	2,356

_____________________

⁽¹⁾Reimbursable operating expenses primarily consists of internal audit personnel costs, accounting software and cyber-security related expenses incurred by the Advisor under the Advisory Agreement. The Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits, and overhead of internal audit department personnel providing services to the Company. These amounts totaled $75,000 and $333,000 for the three and nine months ended September 30, 2016, and $46,000 and $120,000 for the three and nine months ended September 30, 2015, respectively, and were the only employee costs reimbursed under the Advisory Agreement for the nine months ended September 30, 2016 and 2015.  The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition or origination fees or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition to the amounts above, the Company reimburses the Advisor for certain of the Company's direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company.

⁽²⁾Acquisition fees are expensed at the time of acquisition on real estate investments. Acquisition fees on investment in unconsolidated entities are capitalized into the cost basis of the investment. Acquisition fees on significant capital expenditures related to the development, construction or improvement of the investment budgeted as of the date of acquisition are capitalized.

⁽³⁾ See Note 2, “Summary of Significant Accounting Policies – Selling Commissions, Dealer Manager Fees and Stockholder Servicing Fee.”

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UNAUDITED PRO FORMA FINANCIAL INFORMATION (Tables)

9 Months Ended

Sep. 30, 2016

Business Acquisition, Pro Forma Information [Abstract]

Business Acquisition, Pro Forma Information

The following unaudited pro forma information for the three and nine months ended September 30, 2016 and 2015 has been prepared to give effect to the acquisition of Lincoln Court as if this acquisition occurred on January 1, 2015. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had the acquisition occurred on this date, nor does it purport to predict the results of operations for future periods (in thousands).

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016			2015
Revenues	$	10,592	$	8,566	$	26,284		$	18,146
Depreciation and amortization	$	2,314	$	672	$	6,120		$	2,011
Net income (loss)	$	749	$	2,491	$	(418	)	$	2,164

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ORGANIZATION (Details)			9 Months Ended		12 Months Ended	13 Months Ended	21 Months Ended
	Jul. 31, 2014 USD ($) shares	Apr. 02, 2014 USD ($) shares	Sep. 30, 2016 USD ($) loan property subsidiary shares	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($) shares	Aug. 11, 2014 USD ($) shares	Sep. 30, 2016 USD ($) property subsidiary shares	Nov. 14, 2013 shares	Jul. 03, 2013 $ / shares shares
Organizational Structure [Line Items]
Partnership interest in Operating Partnership			0.10%
Partnership interest in the Operating Partnership and is its sole limited partner			99.90%
Number of Wholly Owned Subsidiaries | subsidiary			3				3
Number of Wholly Owned Subsidiaries that Lease Parent Properties | subsidiary			2				2
Proceeds from issuance of common stock | $			$ 69,735,000	$ 26,681,000
Proceeds from issuance of common stock, dividend reinvestment plan | $							$ 40,000
Issuance of common stock, value | $			$ 70,399,000		$ 48,973,000
Class A [Member]
Organizational Structure [Line Items]
Common stock, shares issued			13,102,528		9,619,143		13,102,528
Class T [Member]
Organizational Structure [Line Items]
Common stock, shares issued			3,941,104		0		3,941,104
Common Stock [Member]
Organizational Structure [Line Items]
Shares, dividend reinvestment plan							4,374
Common Stock [Member] | Class A [Member]
Organizational Structure [Line Items]
Issuance of common stock, shares			3,328,739		4,959,727
Issuance of common stock, value | $			$ 33,000		$ 49,000
Common Stock [Member] | Class T [Member]
Organizational Structure [Line Items]
Issuance of common stock, shares			3,931,258
Issuance of common stock, value | $			$ 39,000
Private Placement [Member]
Organizational Structure [Line Items]
Proceeds from issuance of common stock | $						$ 32,200,000
Private Placement [Member] | Common Stock [Member]
Organizational Structure [Line Items]
Issuance of common stock, shares						3,619,851
IPO [Member]
Organizational Structure [Line Items]
Proceeds from issuance of common stock | $							$ 119,400,000
Proceeds from issuance of common stock, dividend reinvestment plan | $							$ 1,300,000
IPO [Member] | Common Stock [Member]
Organizational Structure [Line Items]
Shares registered in primary offering								100,000,000
Shares registered for sale under dividend reinvestment plan								80,000,000
IPO [Member] | Common Stock [Member] | Class A [Member]
Organizational Structure [Line Items]
Issuance of common stock, shares							8,288,466
Shares, dividend reinvestment plan							129,281
IPO [Member] | Common Stock [Member] | Class T [Member]
Organizational Structure [Line Items]
Issuance of common stock, shares							3,931,258
Shares, dividend reinvestment plan							3,058
IPO [Member] | Common Stock [Member] | Maximum [Member]
Organizational Structure [Line Items]
Stock offering, shares authorized for issuance								180,000,000
First Mortgage [Member]
Organizational Structure [Line Items]
Mortgage loans on real estate, number of loans | loan			1
Hotel [Member]
Organizational Structure [Line Items]
Number of real estate properties | property			2				2
Office Building [Member]
Organizational Structure [Line Items]
Number of real estate properties | property			2				2
KBS Capital Advisors LLC [Member]
Organizational Structure [Line Items]
Common stock, shares issued									21,739
Common stock, purchase price per share | $ / shares									$ 9.20
Willowbrook Capital Group LLC [Member] | Private Placement [Member] | Common Stock [Member] | Class A [Member]
Organizational Structure [Line Items]
Issuance of common stock, shares	1,000,000	120,106
Issuance of common stock, value | $	$ 120,106	$ 1,000,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Selling Commissions and Dealer Manager Fees) (Details)	Feb. 17, 2016	Feb. 16, 2016
Summary of Significant Accounting Policies [Line Items]
Percent of dealer manager reallows of sales commissions earned to participating broker-dealer	100.00%	100.00%
Annual stockholder servicing fee as percent of purchase price per share paid to dealer manager	1.00%
Stockholder servicing fee, percent of total purchase price	4.00%
Primary offering gross proceeds, percent of underwriting compensation	10.00%
Maximum [Member]
Summary of Significant Accounting Policies [Line Items]
Selling commissions fees paid, percent of gross offering proceeds	6.50%	6.50%
Dealer managers fees paid, percent of gross offering proceeds	3.00%	3.00%
Sales commissions, broker dealer, percentage		1.00%
Dealer manager fees to be paid to dealer manager as percent from price per share	2.00%
Fees to participating broker dealer as percent of gross proceeds from primary portion of public offering	1.00%
Percent of gross proceeds from primary portion of public offering may be reallowed	1.50%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Stock Dividends) (Details)	Nov. 02, 2016 shares	Oct. 06, 2016 shares	Oct. 04, 2016 shares	Sep. 01, 2016 shares	Aug. 02, 2016 shares	Jul. 01, 2016 shares	Jun. 01, 2016 shares	May 03, 2016 shares	Apr. 01, 2016 shares	Dec. 22, 2015 shares	Dec. 21, 2015 shares	Sep. 29, 2015 shares	Jun. 29, 2015 shares	Mar. 27, 2015 shares
Subsequent Event [Line Items]
Amount Declared per Share Outstanding				0.001667	0.001667	0.001667	0.001667	0.001667	0.005	0.01	0.06	0.01	0.01	0.01
Total Shares Issued				26,037	23,719	21,900	20,257	19,781	57,172	85,591	513,546	65,710	56,219	44,538
Subsequent Event [Member]
Subsequent Event [Line Items]
Amount Declared per Share Outstanding	0.001667	0.015	0.001667
Total Shares Issued	30,341	254,287	28,420

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details)	1 Months Ended	3 Months Ended	9 Months Ended
	Mar. 31, 2016 $ / shares	Sep. 30, 2016 $ / shares	Sep. 30, 2016 segment $ / shares	Sep. 27, 2016 $ / shares
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Number of reportable segments | segment			1
Distribution rate per share per day, declared (in dollars per share)	$ 0.00026202	$ 0.00052404
Special dividends, per share, declared				$ 0.05
Class A [Member]
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Distributions declared per common share (in dollars per share)		0.098	$ 0.154
Class T [Member]
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Distributions declared per common share (in dollars per share)		$ 0.074	$ 0.098

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Two Class Method) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Net income (loss) attributable to common stockholders	$ 601	$ 2,170	$ (2,302)	$ 1,759
Undistributed Net (loss) income attributable to common stockholders	(912)	2,170	(4,478)	1,759
Class A [Member]
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Net income (loss) attributable to common stockholders	493	2,145	(2,235)	1,736
Common Stock cash distributions declared	1,264	0	1,921	0
Undistributed Net (loss) income attributable to common stockholders	$ (771)	$ 2,145	$ (4,156)	$ 1,736
Net income (loss) per common share, basic and diluted (in dollars per share)	$ 0.04	$ 0.30	$ (0.19)	$ 0.28
Weighted-average number of common shares outstanding, basic and diluted (in shares)	12,915,552	7,165,984	12,053,850	6,241,190
Class T [Member]
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Net income (loss) attributable to common stockholders	$ 108	$ 25	$ (67)	$ 23
Common Stock cash distributions declared	249	0	255	0
Undistributed Net (loss) income attributable to common stockholders	$ (141)	$ 25	$ (322)	$ 23
Net income (loss) per common share, basic and diluted (in dollars per share)	$ 0.05	$ 0.30	$ (0.07)	$ 0.28
Weighted-average number of common shares outstanding, basic and diluted (in shares)	2,363,520	82,126	934,651	82,126

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RECENT ACQUISITIONS OF REAL ESTATE (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Business Acquisition [Line Items]
Business combination and acquisition cost expensed	$ 0	$ 0	$ 123	$ 0
Office revenues	10,592	7,321	24,150	14,410
Office expenses	$ 9,976	$ 4,869	26,482	$ 12,341
Lincoln Court [Member]
Business Acquisition [Line Items]
Business combination and acquisition cost expensed			1,500
Office revenues			2,300
Office expenses			$ 900

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RECENT ACQUISITIONS OF REAL ESTATE (Schedule of Business Acquisitions, Properties Acquired) (Details) - Lincoln Court [Member] $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Business Acquisition [Line Items]
Acquisition Date	May 20, 2016
Land	$ 14,706
Building and Improvements	33,356
Tenant Origination and Absorption Costs	4,724
Above-Market Lease Assets	0
Below-Market Lease Liabilities	(1,445)
Total Purchase Price	$ 51,341

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RECENT ACQUISITIONS OF REAL ESTATE (Schedule of Finite-Lived Intangible Assets and Liabilities Acquired, Weighted-Average Amortization Periods) (Details) - Lincoln Court [Member]	9 Months Ended
	Sep. 30, 2016
Tenant Origination and Absorption Costs [Member]
Business Acquisition [Line Items]
Weighted-average amortization periods	3 years 8 months 12 days
Below-Market Lease Liabilities [Member]
Business Acquisition [Line Items]
Weighted-average amortization periods	2 years 1 month 21 days

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REAL ESTATE (Narrative) (Details)	Sep. 30, 2016 ft² property
Hotel [Member]
Real Estate Properties [Line Items]
Number of real estate properties	2
Office Building [Member]
Real Estate Properties [Line Items]
Number of real estate properties	2
Square feet in conference center | ft²	183,347

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REAL ESTATE (Hotel Information) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Real Estate Properties [Line Items]
Total real estate, cost	$ 176,389	$ 110,566
Accumulated depreciation and amortization	(5,090)	(593)
Total real estate, net	171,299	109,973
Land [Member]
Real Estate Properties [Line Items]
Total real estate, cost	45,226	30,493
Buildings and Improvements [Member]
Real Estate Properties [Line Items]
Total real estate, cost	125,676	79,081
Tenant Origination and Absorption Costs [Member]
Real Estate Properties [Line Items]
Total real estate, cost	5,243	748
Other Intangibles [Member]
Real Estate Properties [Line Items]
Total real estate, cost	$ 244	$ 244

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REAL ESTATE (Schedule of Real Estate Investments) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Real Estate Properties [Line Items]
Total real estate, cost	$ 176,389	$ 110,566
Accumulated depreciation and amortization	(5,090)	(593)
Total real estate, net	171,299	109,973
Land [Member]
Real Estate Properties [Line Items]
Total real estate, cost	45,226	30,493
Buildings and Improvements [Member]
Real Estate Properties [Line Items]
Total real estate, cost	125,676	79,081
Tenant Origination and Absorption Costs [Member]
Real Estate Properties [Line Items]
Total real estate, cost	5,243	748
Other Intangibles [Member]
Real Estate Properties [Line Items]
Total real estate, cost	$ 244	$ 244
Springmaid Beach Resort [Member]
Real Estate Properties [Line Items]
Date Originated	Dec. 30, 2014
Total real estate, cost	$ 58,200
Accumulated depreciation and amortization	(1,567)
Total real estate, net	$ 56,633
Ownership %	90.00%
Springmaid Beach Resort [Member] | Land [Member]
Real Estate Properties [Line Items]
Total real estate, cost	$ 27,438
Springmaid Beach Resort [Member] | Buildings and Improvements [Member]
Real Estate Properties [Line Items]
Total real estate, cost	30,762
Springmaid Beach Resort [Member] | Tenant Origination and Absorption Costs [Member]
Real Estate Properties [Line Items]
Total real estate, cost	0
Springmaid Beach Resort [Member] | Other Intangibles [Member]
Real Estate Properties [Line Items]
Total real estate, cost	$ 0
Q and C Hotel [Member]
Real Estate Properties [Line Items]
Date Originated	Dec. 17, 2015
Total real estate, cost	$ 52,189
Accumulated depreciation and amortization	(1,889)
Total real estate, net	$ 50,300
Ownership %	90.00%
Q and C Hotel [Member] | Land [Member]
Real Estate Properties [Line Items]
Total real estate, cost	$ 1,232
Q and C Hotel [Member] | Buildings and Improvements [Member]
Real Estate Properties [Line Items]
Total real estate, cost	50,713
Q and C Hotel [Member] | Tenant Origination and Absorption Costs [Member]
Real Estate Properties [Line Items]
Total real estate, cost	0
Q and C Hotel [Member] | Other Intangibles [Member]
Real Estate Properties [Line Items]
Total real estate, cost	$ 244
2200 Paseo Verde [Member]
Real Estate Properties [Line Items]
Date Originated	Dec. 23, 2015
Total real estate, cost	$ 13,296
Accumulated depreciation and amortization	(454)
Total real estate, net	$ 12,842
Ownership %	100.00%
2200 Paseo Verde [Member] | Land [Member]
Real Estate Properties [Line Items]
Total real estate, cost	$ 1,850
2200 Paseo Verde [Member] | Buildings and Improvements [Member]
Real Estate Properties [Line Items]
Total real estate, cost	10,742
2200 Paseo Verde [Member] | Tenant Origination and Absorption Costs [Member]
Real Estate Properties [Line Items]
Total real estate, cost	704
2200 Paseo Verde [Member] | Other Intangibles [Member]
Real Estate Properties [Line Items]
Total real estate, cost	$ 0
Lincoln Court [Member]
Real Estate Properties [Line Items]
Date Originated	May 20, 2016
Total real estate, cost	$ 52,704
Accumulated depreciation and amortization	(1,180)
Total real estate, net	$ 51,524
Ownership %	100.00%
Lincoln Court [Member] | Land [Member]
Real Estate Properties [Line Items]
Total real estate, cost	$ 14,706
Lincoln Court [Member] | Buildings and Improvements [Member]
Real Estate Properties [Line Items]
Total real estate, cost	33,459
Lincoln Court [Member] | Tenant Origination and Absorption Costs [Member]
Real Estate Properties [Line Items]
Total real estate, cost	4,539
Lincoln Court [Member] | Other Intangibles [Member]
Real Estate Properties [Line Items]
Total real estate, cost	$ 0

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REAL ESTATE (Hotel Revenue and Expenses) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Hotel revenues:
Hotel Revenues	$ 8,599	$ 7,222	$ 20,563	$ 14,119
Hotel expenses:
General and administrative	694	616	2,106	1,560
Hotel Expenses	5,157	3,689	13,466	9,105
Hotel [Member]
Hotel revenues:
Room	6,499	5,219	15,180	9,807
Food, beverage and convention services	883	903	2,436	1,909
Campground	275	259	806	763
Other	942	841	2,141	1,640
Hotel Revenues	8,599	7,222	20,563	14,119
Hotel expenses:
Room	1,500	983	3,787	2,226
Food, beverage and convention services	842	611	2,188	1,416
General and administrative	590	399	1,696	1,088
Sales and marketing	453	212	1,236	684
Repairs and maintenance	485	416	1,345	1,109
Utilities	324	254	767	701
Property taxes and insurance	348	306	1,050	738
Other	615	508	1,397	1,143
Hotel Expenses	$ 5,157	$ 3,689	$ 13,466	$ 9,105

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REAL ESTATE (Office Property) (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) ft² property	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) ft² property	Sep. 30, 2015 USD ($)
Real Estate Properties [Line Items]
Rental income	$ 1,817		$ 3,165
Tenant reimbursements and other income	75		124
Office revenues	1,892	$ 0	3,289	$ 0
Operating, maintenance, and management	328		552
Real estate taxes and insurance	193		308
Office expenses	$ 521	$ 0	$ 860	$ 0
Office Building [Member]
Real Estate Properties [Line Items]
Number of real estate properties | property	2		2
Square feet in conference center | ft²	183,347		183,347
Percentage of portfolio occupied	88.00%		88.00%

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REAL ESTATE (Operating Leases) (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Other Liabilities [Member]
Real Estate Properties [Line Items]
Security deposit liability	$ 0.7	$ 0.1
Maximum [Member]
Real Estate Properties [Line Items]
Operating lease, term	8 years 7 months 6 days
Weighted Average [Member]
Real Estate Properties [Line Items]
Operating lease, term	2 years 4 months 24 days

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REAL ESTATE (Future Minimum Rental Income) (Details) $ in Thousands	Sep. 30, 2016 USD ($)
Real Estate [Abstract]
October 1, 2016 through December 31, 2016	$ 1,476
2015	5,388
2016	4,144
2017	2,781
2018	1,392
Thereafter	1,970
Future minimum rental income	$ 17,151

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REAL ESTATE (Probable Real Estate Investment) (Details) - Scenario, Plan [Member] - Lofts at NoHo Commons [Member] - Lofts at NoHo Commons Joint Venture [Member]	Sep. 29, 2016 USD ($) ft² unit
Real Estate Properties [Line Items]
Number of real estate units | unit	292
Consideration transferred	$ 102.5
Equity interest in joint venture	90.00%
Amount that may be forfeited	$ 3,000,000
Net rentable area | ft²	224,755
Net rentable area occupied, percent	94.00%

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REAL ESTATE LOAN RECEIVABLE (Schedule of Real Estate Loans Receivable) (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)	Dec. 31, 2015 USD ($) loans-receivable
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of real estate loans receivable | loans-receivable		1
Book Value	$ 3,424	$ 3,372
Mortgages [Member] | 655 Summer Street Mortgage Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Date Originated	Sep. 04, 2014
Outstanding Principal Balance	$ 3,500
Book Value	$ 3,424	$ 3,372
Contractual Interest Rate	9.25%
Annualized Effective Interest Rate	11.68%
Maturity Date	Oct. 01, 2017

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REAL ESTATE LOAN RECEIVABLE (Schedule of Activity Related to Real Estate Loans Receivable) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Real Estate Loans Receivable [Roll Forward]
Real estate loan receivable - December 31, 2015			$ 3,372
Amortization of closing costs and origination fees on real estate loan receivable	$ 18	$ 16	52	$ 46
Real estate loan receivable - September 30, 2016	$ 3,424		$ 3,424

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REAL ESTATE LOAN RECEIVABLE (Schedule of Interest Income from Real Estate Loans Receivable) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Receivables [Abstract]
Contractual interest income	$ 83	$ 83	$ 246	$ 245
Amortization of origination fees and costs and acquisition costs, net	18	16	52	46
Interest income from real estate loan receivable	$ 101	$ 99	$ 298	$ 291

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NOTE PAYABLE (Schedule of Notes Payable) (Details) - USD ($) $ in Thousands		9 Months Ended
	May 20, 2016	Sep. 30, 2016	Dec. 31, 2015
Debt Instrument [Line Items]
Total notes payable principal outstanding		$ 107,260	$ 61,760
Deferred financing costs, net		(1,022)	(924)
Total notes payable, net		106,238	60,836
Mortgages [Member] | Springmaid Beach Resort [Member]
Debt Instrument [Line Items]
Total notes payable principal outstanding		$ 38,000	26,000
Effective Interest Rate		3.52%
Maturity Date		Dec. 30, 2017
Mortgages [Member] | Springmaid Beach Resort [Member] | One-month LIBOR [Member]
Debt Instrument [Line Items]
Contractual Interest Rate		3.00%
Mortgages [Member] | Q and C Hotel [Member]
Debt Instrument [Line Items]
Total notes payable principal outstanding		$ 28,330	28,330
Effective Interest Rate		3.77%
Maturity Date		Dec. 17, 2018
Mortgages [Member] | Q and C Hotel [Member] | Beginning February 1, 2018 [Member]
Debt Instrument [Line Items]
Periodic payment		$ 55
Mortgages [Member] | Q and C Hotel [Member] | One-month LIBOR [Member]
Debt Instrument [Line Items]
Contractual Interest Rate		3.25%
Mortgages [Member] | 2200 Paseo Verde Mortgage Loan [Member]
Debt Instrument [Line Items]
Total notes payable principal outstanding		$ 7,430	7,430
Effective Interest Rate		2.77%
Maturity Date		Jan. 01, 2017
Mortgages [Member] | 2200 Paseo Verde Mortgage Loan [Member] | One-month LIBOR [Member]
Debt Instrument [Line Items]
Contractual Interest Rate		2.25%
Mortgages [Member] | Lincoln Court Mortgage Loan [Member]
Debt Instrument [Line Items]
Total notes payable principal outstanding		$ 33,500	$ 0
Effective Interest Rate		2.28%
Maturity Date		Jun. 01, 2020
Mortgages [Member] | Lincoln Court Mortgage Loan [Member] | One-month LIBOR [Member]
Debt Instrument [Line Items]
Contractual Interest Rate	1.75%	1.75%

XML

NOTE PAYABLE (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Debt Instrument [Line Items]
Deferred finance costs	$ 1,000		$ 1,000		$ 900
Interest expense	931	$ 290	2,379	$ 869
Interest payable	300		300		$ 100
Amortization of deferred financing costs	100	100	384	173
Interest capitalized			126	0
Springmaid Beach Resort [Member]
Debt Instrument [Line Items]
Interest capitalized	54		126
Interest Rate Cap [Member]
Debt Instrument [Line Items]
Unrealized loss on derivative instruments	$ 1	$ 14	$ 43	$ 68

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NOTE PAYABLE (Schedule of Maturities) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Debt Disclosure [Abstract]
October 1, 2016 through December 31, 2016	$ 0
2017	45,430
2018	28,330
2019	0
2020	33,500
Total	$ 107,260	$ 61,760

XML

NOTE PAYABLE (Recent Financing) (Details) - Lincoln Court Mortgage Loan [Member] - Mortgages [Member] - USD ($) $ in Millions		9 Months Ended
	May 20, 2016	Sep. 30, 2016
Debt Instrument [Line Items]
Debt instrument, term	4 years
Current capacity	$ 36.2
Amount outstanding	33.5
Remaining borrowing capacity	$ 2.7
Extension period	1 year
Extension fee, percent of amount committed under loan	0.125%
Exit fee, percent of principal amount prepaid	0.50%
Percent of outstanding balance under guarantees	25.00%
One-month LIBOR [Member]
Debt Instrument [Line Items]
Basis spread on variable rate	1.75%	1.75%

XML

DERIVATIVE INSTRUMENTS (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) instrument	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) instrument	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($) instrument
Derivative [Line Items]
Fair Value of Asset	$ 2		$ 2		$ 45
Interest Rate Cap [Member]
Derivative [Line Items]
Number of Instruments Held | instrument	2		2		2
Unrealized loss on derivative instruments	$ 1	$ 14	$ 43	$ 68
Interest Rate Cap [Member] | Prepaid Expenses and Other Current Assets [Member]
Derivative [Line Items]
Notional Value	26,000		26,000
Fair Value of Asset	$ 0		$ 0		$ 5
Interest Rate Cap [Member] | One-month LIBOR [Member]
Derivative [Line Items]
Reference Rate	3.00%		3.00%
Interest Rate Cap 1 [Member] | Prepaid Expenses and Other Current Assets [Member]
Derivative [Line Items]
Notional Value	$ 28,330		$ 28,330
Fair Value of Asset	$ 2		$ 2		$ 40
Interest Rate Cap 1 [Member] | One-month LIBOR [Member]
Derivative [Line Items]
Reference Rate	3.00%		3.00%

XML

FAIR VALUE DISCLOSURES (Schedule of Face Value, Carrying Amounts and Fair Value) (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Real estate loans receivable, Face Value	$ 3,500,000	$ 3,500,000
Notes payable, Face Value	107,260,000	61,760,000
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Real estate loans receivable, Value	3,424,000	3,372,000
Notes payable, Value	106,238,000	60,836,000
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Real estate loans receivable, Value	3,379,000	3,311,000
Notes payable, Value	$ 106,990,000	$ 61,880,000

XML

FAIR VALUE DISCLOSURES (Schedule of Assets and Liabilities at Fair Value) (Details) - Recurring Basis [Member] $ in Thousands	Sep. 30, 2016 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset derivatives - interest rate caps	$ 2
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset derivatives - interest rate caps	0
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset derivatives - interest rate caps	2
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset derivatives - interest rate caps	$ 0

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RELATED PARTY TRANSACTIONS (Narrative) (Details) - USD ($) $ in Thousands	9 Months Ended		39 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Feb. 17, 2016	Dec. 31, 2015
Related Party Transaction [Line Items]
Annual stockholder servicing fee as percent of purchase price				1.00%
Term of advisory agreement	1 year
Period of termination notice	60 days
Reversal of accrued organization and offering expenses due to affiliates	$ 2,222	$ 0
Private Placement [Member]
Related Party Transaction [Line Items]
Offering costs (other than selling commissions and dealer manager fees)	1,000		$ 1,000
Selling commissions and dealer manager fees	1,900
IPO [Member]
Related Party Transaction [Line Items]
Selling commissions and dealer manager fees			8,300
Organization and offering costs incurred by related party			7,700
Accrued stockholder servicing fees	1,500		1,500
Related party transactions, amount paid or accrued					$ 3,300
Reversal of accrued organization and offering expenses due to affiliates	2,200
Other organization and offering costs	$ 1,200		$ 1,200
IPO [Member] | KBS Capital Advisors LLC [Member] | Minimum [Member]
Related Party Transaction [Line Items]
Reimbursement to entity for organization and offering expenses, percent of aggregate gross proceeds	15.00%		15.00%
Reimbursable offering costs determination, gross offering costs, percentage	1.00%		1.00%
Legal and Professional Fees Reimbursement and Property Insurance Rebate [Member] | KBS Capital Advisors LLC [Member]
Related Party Transaction [Line Items]
Due from related parties	$ 87		$ 87
Class T [Member]
Related Party Transaction [Line Items]
Annual stockholder servicing fee as percent of purchase price	1.00%		1.00%

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RELATED PARTY TRANSACTIONS (Related-party Costs) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Related Party Transaction [Line Items]
Payable as of	$ 1,921		$ 1,921		$ 2,356
Payment for administrative fees	75	$ 46	333	$ 120
Advisor and Dealer Manager [Member]
Related Party Transaction [Line Items]
Incurred	3,877	1,646	8,768	4,404
Payable as of	1,921		1,921		2,356
Advisor and Dealer Manager [Member] | Asset Management Fees [Member]
Related Party Transaction [Line Items]
Expenses	359	89	908	257
Payable as of	0		0		0
Advisor and Dealer Manager [Member] | Reimbursable Operating Expenses [Member]
Related Party Transaction [Line Items]
Expenses	75	46	337	147
Payable as of	29		29		26
Advisor and Dealer Manager [Member] | Real Estate Acquisition Fee [Member]
Related Party Transaction [Line Items]
Expenses	0	0	1,341	0
Payable as of	95		95		108
Advisor and Dealer Manager [Member] | Acquisition Fee on Development Projects [Member]
Related Party Transaction [Line Items]
Incurred	25	0	228	0
Payable as of	166		166		0
Advisor and Dealer Manager [Member] | Sales Commissions [Member]
Related Party Transaction [Line Items]
Incurred	1,074	605	2,808	1,323
Payable as of	0		0		0
Advisor and Dealer Manager [Member] | Dealer Manager Fees [Member]
Related Party Transaction [Line Items]
Incurred	678	303	1,460	786
Payable as of	0		0		0
Advisor and Dealer Manager [Member] | Stockholder Servicing Fees [Member]
Related Party Transaction [Line Items]
Incurred	1,509	0	1,509	0
Payable as of	1,474		1,474		0
Advisor and Dealer Manager [Member] | Reimbursable Other Offering Costs [Member]
Related Party Transaction [Line Items]
Incurred	157	$ 603	177	$ 1,891
Payable as of	$ 157		$ 157		$ 2,222

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UNAUDITED PRO FORMA FINANCIAL INFORMATION (Narrative) (Details) - Lincoln Court [Member] $ in Millions	9 Months Ended
	Sep. 30, 2016 USD ($) property
Business Acquisition [Line Items]
Business combination and acquisition cost expensed | $	$ 1.5
Office Building [Member]
Business Acquisition [Line Items]
Number of real estate properties acquired | property	1

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UNAUDITED PRO FORMA FINANCIAL INFORMATION (Unaudited Pro Forma Basis) (Details) - Lincoln Court [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Business Acquisition [Line Items]
Revenues	$ 10,592	$ 8,566	$ 26,284	$ 18,146
Depreciation and amortization	2,314	672	6,120	2,011
Net income (loss)	$ 749	$ 2,491	$ (418)	$ 2,164

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INVESTMENT IN UNCONSOLIDATED ENTITY (Details) $ in Thousands, € in Millions		3 Months Ended		9 Months Ended
	Jun. 28, 2016 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Jun. 28, 2016 EUR (€)
Schedule of Equity Method Investments [Line Items]
Equity in income of unconsolidated entity		$ 58	$ 0	$ 58	$ 0
Real Estate Joint Venture [Member] | Industrial [Member]
Schedule of Equity Method Investments [Line Items]
Current capacity	$ 2,900					€ 2.6
Amount outstanding	$ 2,300					€ 2.1
Ownership interest	5.00%					5.00%
Investments in unconsolidated joint ventures	$ 105,600					€ 95.5
Amortization of acquisition costs	$ 200
Equity in income of unconsolidated entity		$ 58		$ 58

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Springmaid Beach Resort [Member] | Doubletree Management LLC [Member]
Loss Contingencies [Line Items]
Base fee as percentage of total operating revenue in year one			2.50%
Base fee as percentage of total operating revenue in year two			2.75%
Base fee as percentage of total operating revenue, thereafter			3.00%
Management fee as percent of any campground revenue			2.00%
Incentive fee as percent of operating cash flow			15.00%
Percent of total investments			12.00%
Brand services fee as percent of total room revenue			4.00%
Fees incurred to management agreement	$ 179	$ 180	$ 369	$ 350
Q and C Hotel [Member] | Encore Hospitality, LLC [Member]
Loss Contingencies [Line Items]
Base fee as percentage of gross revenue			4.00%
Q and C Hotel [Member] | Encore Hospitality, LLC [Member] | Direct Costs of Hotels [Member]
Loss Contingencies [Line Items]
Management agreement, fees accrued	57		$ 227
Q and C Hotel [Member] | Marriott International [Member]
Loss Contingencies [Line Items]
Brand services fee as percent of total room revenue			2.00%
Fees incurred to management agreement	$ 115		$ 157
Brand services fee as percent of total room revenue, after three years			5.00%
Monthly marketing fund contribution fees as percent of gross room sales			1.50%

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SUBSEQUENT EVENTS (Details) $ / shares in Units, $ in Thousands																			1 Months Ended		9 Months Ended		12 Months Ended	21 Months Ended
	Nov. 08, 2016 USD ($) shares	Nov. 02, 2016 shares	Nov. 01, 2016 USD ($) $ / shares	Oct. 06, 2016 $ / shares shares	Oct. 05, 2016 USD ($) $ / shares	Oct. 04, 2016 $ / shares shares	Oct. 03, 2016 USD ($)	Sep. 01, 2016 shares	Aug. 02, 2016 shares	Jul. 01, 2016 shares	Jun. 01, 2016 shares	May 03, 2016 shares	Apr. 01, 2016 shares	Dec. 22, 2015 shares	Dec. 21, 2015 shares	Sep. 29, 2015 shares	Jun. 29, 2015 shares	Mar. 27, 2015 shares	Oct. 31, 2016 $ / shares	Sep. 30, 2016 $ / shares	Sep. 30, 2016 USD ($) shares	Sep. 30, 2015 USD ($)	Dec. 31, 2015 shares	Sep. 30, 2016 USD ($) shares	Oct. 11, 2016
Subsequent Event [Line Items]
Proceeds from issuance of common stock | $																					$ 69,735	$ 26,681
Proceeds from issuance of common stock, dividend reinvestment plan | $																								$ 40
Stock dividends issued, shares								26,037	23,719	21,900	20,257	19,781	57,172	85,591	513,546	65,710	56,219	44,538
Amount declared per share outstanding								0.001667	0.001667	0.001667	0.001667	0.001667	0.005	0.01	0.06	0.01	0.01	0.01
Dividend Declared [Member]
Subsequent Event [Line Items]
Distribution rate per share per day on annual basis, declared | $ / shares																				$ 0.001667
Common Stock [Member]
Subsequent Event [Line Items]
Shares, dividend reinvestment plan																								4,374
Common Stock [Member] | Class A [Member]
Subsequent Event [Line Items]
Issuance of common stock, shares																					3,328,739		4,959,727
Stock dividends issued, shares																					159,020		765,604
Common Stock [Member] | Class T [Member]
Subsequent Event [Line Items]
Issuance of common stock, shares																					3,931,258
Stock dividends issued, shares																					9,846
Subsequent Event [Member]
Subsequent Event [Line Items]
Stock dividends issued, shares		30,341		254,287		28,420
Amount declared per share outstanding		0.001667		0.015		0.001667
Subsequent Event [Member] | Dividend Paid [Member]
Subsequent Event [Line Items]
Paid distributions | $			$ 300		$ 800		$ 200
Dividends, per share, sash paid | $ / shares					$ 0.05
Distribution rate per share per day on annual basis, declared | $ / shares			$ 0.00052404
Subsequent Event [Member] | Dividend Declared [Member]
Subsequent Event [Line Items]
Distribution rate per share per day on annual basis, declared | $ / shares				$ 0.00052548		$ 0.00052404													$ 0.001667
Stock dividends issued, shares		30,341				28,420
Amount declared per share outstanding																									0.001667
Subsequent Event [Member] | Common Stock [Member]
Subsequent Event [Line Items]
Proceeds from issuance of common stock | $	$ 130,800
Proceeds from issuance of common stock, dividend reinvestment plan | $	$ 1,900
Subsequent Event [Member] | Common Stock [Member] | Class A [Member]
Subsequent Event [Line Items]
Issuance of common stock, shares	8,644,798
Shares, dividend reinvestment plan	195,574
Subsequent Event [Member] | Common Stock [Member] | Class T [Member]
Subsequent Event [Line Items]
Issuance of common stock, shares	4,755,756
Shares, dividend reinvestment plan	22,876

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SUBSEQUENT EVENTS (Probable Real Estate Investment) (Details) $ in Thousands	Oct. 28, 2016 USD ($) ft²	Sep. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)
Subsequent Event [Line Items]
Equity method investments		$ 2,587	$ 0
Subsequent Event [Member] | Scenario, Plan [Member] | 210 West 31st Street [Member] | Corporate Joint Venture [Member]
Subsequent Event [Line Items]
Amount that may be forfeited	$ 3,000
Area of real estate property, development site | ft²	8,637
Rentable square feet | ft²	23,110
Investment improvements	$ 14,200
Subsequent Event [Member] | Scenario, Plan [Member] | 210 West 31st Street [Member] | Corporate Joint Venture [Member] | Onyx 31st Street LLC [Member]
Subsequent Event [Line Items]
Percent of interest assigned in a ground lease	20.00%
Ownership interest	20.00%
Equity method investments	$ 9,600
Subsequent Event [Member] | Scenario, Plan [Member] | 210 West 31st Street [Member] | Corporate Joint Venture [Member] | Affiliated Entity [Member]
Subsequent Event [Line Items]
Percent of interest assigned in a ground lease	80.00%
Ownership interest	80.00%
Equity method investments	$ 38,400