10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________

(Mark One)

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

For the quarterly period ended June 30, 2020

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

______________________________________________________

PACIFIC OAK 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.)
11766 Wilshire Blvd., Suite 1670
Los Angeles,	California	90025
(Address of Principal Executive Offices)		(Zip Code)

(424) 208-8100

(Registrant’s Telephone Number, Including Area Code)

______________________________________________________________________ 

Securities registered pursuant to Section 12(b) for the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

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  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  ☒ No  ☐

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

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐  No  ☒

As of August 10, 2020, there were 17,838,351 and 12,222,529 outstanding shares of Class A and Class T common stock, respectively, of Pacific Oak Strategic Opportunity REIT II, Inc.

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

FORM 10-Q

June 30, 2020

INDEX 

PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019	2
		Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2020 and 2019	3
		Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Six Months Ended June 30, 2020 and 2019	4
		Consolidated Statements of Equity (unaudited) for the Three and Six Months Ended June 30, 2020 and 2019	5
		Consolidated Statement of Cash Flows (unaudited) for the Six Months Ended June 30, 2020 and 2019	7
		Condensed Notes to Consolidated Financial Statements as of June 30, 2020 (unaudited)	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
	Item 4.	Controls and Procedures	43
PART II.	OTHER INFORMATION		44
	Item 1.	Legal Proceedings	44
	Item 1A.	Risk Factors	44
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
	Item 3.	Defaults upon Senior Securities	45
	Item 4.	Mine Safety Disclosures	45
	Item 5.	Other Information	46
	Item 6.	Exhibits	47
SIGNATURES			49

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	June 30, 2020		December 31, 2019
	(unaudited)
Assets
Real estate, net	$	489,380	$	493,683
Real estate equity securities	8,607		9,934
Total real estate and real estate-related investments, net	497,987		503,617
Cash and cash equivalents	9,458		17,500
Restricted cash	2,785		5,976
Investment in unconsolidated entities	3,199		3,468
Rents and other receivables	5,876		4,648
Above-market leases, net	38		44
Prepaid expenses and other assets	8,425		8,230
Total assets	$	527,768	$	543,483
Liabilities and equity
Notes payable, net	$	328,186	$	325,995
Accounts payable and accrued liabilities	7,073		6,684
Due to affiliates	1,034		649
Distributions payable	—		242
Below-market leases, net	3,663		4,677
Other liabilities	15,054		12,776
Redeemable common stock payable	621		2,218
Total liabilities	355,631		353,241
Commitments and contingencies (Note 10)
Equity
Pacific Oak Strategic Opportunity REIT II, Inc. stockholders’ equity
Preferred stock, $.01 par value per share; 10,000,000 shares authorized, no shares issued and outstanding	—		—
Class A common stock, $.01 par value per share; 500,000,000 shares authorized, 17,841,219 and 17,949,194 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively	178		179
Class T common stock, $.01 par value per share; 500,000,000 shares authorized, 12,222,529 and 12,272,927 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively	123		123
Additional paid-in capital	266,298		266,310
Cumulative distributions and net losses	(101,150)		(84,339)
Total Pacific Oak Strategic Opportunity REIT II, Inc. stockholders’ equity	165,449		182,273
Noncontrolling interests	6,688		7,969
Total equity	172,137		190,242
Total liabilities and equity	$	527,768	$	543,483

See accompanying condensed notes to consolidated financial statements.

2

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenues:
Office revenues	$	6,935	$	7,194	$	14,031	$	14,311
Hotel revenues	2,608		10,067		6,687		16,047
Apartment revenues	2,016		1,970		4,073		3,965
Dividend income from real estate equity securities	151		105		290		209
Total revenues	11,710		19,336		25,081		34,532
Expenses:
Office expenses	3,237		3,427		6,611		6,824
Hotel expenses	2,728		6,136		7,386		11,311
Apartment expenses	774		883		1,584		1,780
Asset management fees to affiliate	1,053		1,062		2,096		2,111
General and administrative expenses	1,434		768		3,079		1,475
Depreciation and amortization	4,909		5,107		9,805		10,181
Interest expense	3,738		5,027		7,864		9,988
Total expenses	17,873		22,410		38,425		43,670
Other (loss) income:
Other interest income	1		48		34		112
Equity in income of unconsolidated entity	—		—		—		2,800
Other income	26		—		26		—
(Loss) gain on real estate equity securities	(728)		221		(4,618)		1,335
Total other (loss) income	(701)		269		(4,558)		4,247
Net loss	(6,864)		(2,805)		(17,902)		(4,891)
Net loss attributable to noncontrolling interests	523		220		1,091		771
Net loss attributable to common stockholders	$	(6,341)	$	(2,585)	$	(16,811)	$	(4,120)
Class A Common Stock:
Net loss attributable to common stockholders	$	(3,763)	$	(1,537)	$	(9,978)	$	(2,451)
Net loss per common share, basic and diluted	$	(0.21)	$	(0.09)	$	(0.56)	$	(0.14)
Weighted-average number of common shares outstanding, basic and diluted	17,842,289		17,930,156		17,860,958		17,955,331
Class T Common Stock:
Net loss attributable to common stockholders	$	(2,578)	$	(1,048)	$	(6,833)	$	(1,669)
Net loss per common share, basic and diluted	$	(0.21)	$	(0.09)	$	(0.56)	$	(0.14)
Weighted-average number of common shares outstanding, basic and diluted	12,222,534		12,230,499		12,231,843		12,221,952

See accompanying condensed notes to consolidated financial statements.

3

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net loss	$	(6,864)	$	(2,805)	$	(17,902)	$	(4,891)
Other comprehensive loss:
Foreign currency translation gain (loss)	—		27		—		(25)
Reclassification adjustment for amounts recognized in net loss	—		(64)		—		(64)
Total other comprehensive loss	—		(37)		—		(89)
Total comprehensive loss	(6,864)		(2,842)		(17,902)		(4,980)
Total comprehensive loss attributable to noncontrolling interests	523		220		1,091		771
Total comprehensive loss attributable to common stockholders	$	(6,341)	$	(2,622)	$	(16,811)	$	(4,209)

See accompanying condensed notes to consolidated financial statements.

4

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Three Months Ended June 30, 2020 and 2019

(unaudited)

(dollars in thousands)

	Common Stock						Additional Paid-in Capital		Cumulative Distributions and Net Losses		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Class A			Class T
	Shares	Amounts		Shares	Amounts
Balance, March 31, 2020	17,842,301	$	178	12,222,534	$	123	$	266,312	$	(94,809)	$	—	$	171,804	$	7,411	$	179,215
Net loss	—	—		—	—		—		(6,341)		—		(6,341)		(523)		(6,864)
Redemptions of common stock	(1,082)	—		(5)	—		(10)		—		—		(10)		—		(10)
Transfers from redeemable common stock	—	—		—	—		11		—		—		11		—		11
Other offering costs	—	—		—	—		(15)		—		—		(15)		—		(15)
Distribution to noncontrolling interest	—	—		—	—		—		—		—		—		(200)		(200)
Balance, June 30, 2020	17,841,219	$	178	12,222,529	$	123	$	266,298	$	(101,150)	$	—	$	165,449	$	6,688	$	172,137
	Common Stock						Additional Paid-in Capital		Cumulative Distributions and Net Losses		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Class A			Class T
	Shares	Amounts		Shares	Amounts
Balance, March 31, 2019	17,926,128	$	179	12,216,244	$	122	$	266,320	$	(76,202)	$	37	$	190,456	$	10,727	$	201,183
Net loss	—	—		—	—		—		(2,585)		—		(2,585)		(220)		(2,805)
Other comprehensive loss	—	—		—	—		—		—		(37)		(37)		—		(37)
Issuance of common stock	24,324	1		21,846	1		446		—		—		448		—		448
Redemptions of common stock	(24,678)	(1)		—	—		(238)		—		—		(239)		—		(239)
Transfers to redeemable common stock	—	—		—	—		(208)		—		—		(208)		—		(208)
Distributions declared	—	—		—	—		—		(724)		—		(724)				(724)
Noncontrolling interests contributions	—	—		—	—		—		—		—		—		100		100
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(100)		(100)
Balance, June 30, 2019	17,925,774	$	179	12,238,090	$	123	$	266,320	$	(79,511)	$	—	$	187,111	$	10,507	$	197,618

5

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Six Months Ended June 30, 2020 and 2019

(unaudited)

(dollars in thousands)

	Common Stock						Additional Paid-in Capital		Cumulative Distributions and Net Losses		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Class A			Class T
	Shares	Amounts		Shares	Amounts
Balance, December 31, 2019	17,949,194	$	179	12,272,927	$	123	$	266,310	$	(84,339)	$	—	$	182,273	$	7,969	$	190,242
Net loss	—	—		—	—		—		(16,811)		—		(16,811)		(1,091)		(17,902)
Issuance of common stock	6,552	—		6,290	—		135		—		—		135		—		135
Redemptions of common stock	(114,527)	(1)		(56,688)	—		(1,729)		—		—		(1,730)		—		(1,730)
Transfers from redeemable common stock	—	—		—	—		1,597		—		—		1,597		—		1,597
Other offering costs	—	—		—	—		(15)		—		—		(15)		—		(15)
Noncontrolling interest contributions	—	—		—	—		—		—		—		—		10		10
Distribution to noncontrolling interest	—	—		—	—		—		—		—		—		(200)		(200)
Balance, June 30, 2020	17,841,219	$	178	12,222,529	$	123	$	266,298	$	(101,150)	$	—	$	165,449	$	6,688	$	172,137
	Common Stock						Additional Paid-in Capital		Cumulative Distributions and Net Losses		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Class A			Class T
	Shares	Amounts		Shares	Amounts
Balance, December 31, 2018	18,103,437	$	181	12,208,242	$	122	$	266,339	$	(73,461)	$	89	$	193,270	$	11,168	$	204,438
Net loss	—	—		—	—		—		(4,120)		—		(4,120)		(771)		(4,891)
Other comprehensive loss	—	—		—	—		—		—		(89)		(89)		—		(89)
Issuance of common stock	73,549	1		65,825	1		1,345		—		—		1,347		—		1,347
Redemptions of common stock	(251,212)	(3)		(35,977)	—		(2,730)		—		—		(2,733)		—		(2,733)
Transfers from redeemable common stock	—	—		—	—		1,366		—		—		1,366		—		1,366
Distributions declared	—	—		—	—		—		(1,930)		—		(1,930)		—		(1,930)
Noncontrolling interest contributions	—	—		—	—		—		—		—		—		210		210
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(100)		(100)
Balance, June 30, 2019	17,925,774	$	179	12,238,090	$	123	$	266,320	$	(79,511)	$	—	$	187,111	$	10,507	$	197,618

See accompanying condensed notes to consolidated financial statements.

6

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	For the Six Months Ended June 30,
	2020		2019
Cash Flows from Operating Activities:
Net loss	$	(17,902)	$	(4,891)
Adjustment to reconcile net loss to net cash used in operating activities
Equity in income of unconsolidated entity	—		(2,800)
Depreciation and amortization	9,805		10,181
Loss (gain) on real estate equity securities	4,618		(1,335)
Deferred rents	(357)		(233)
Amortization of above- and below-market leases, net	(1,008)		(1,373)
Amortization of deferred financing costs	1,020		807
Foreign currency translation gain	—		(64)
Unrealized gain on derivative instruments	(9)		(71)
Changes in operating assets and liabilities:
Rents and other receivables	(205)		(217)
Prepaid expenses and other assets	(674)		(647)
Accounts payable and accrued liabilities	307		(222)
Due to affiliates	414		15
Other liabilities	152		638
Net cash used in operating activities	(3,839)		(212)
Cash Flows from Investing Activities:
Improvements to real estate	(4,931)		(6,578)
Investment in real estate securities	(4,049)		(4)
Investment in unconsolidated entities	(143)		—
Proceeds from the sale of real estate equity securities	758		—
Distribution of capital from unconsolidated entities	383		5,104
Proceeds from termination of derivative instruments	—		145
Net cash used in investing activities	(7,982)		(1,333)
Cash Flows from Financing Activities:
Proceeds from notes payable	1,560		3,779
Principal payments on notes payable	(348)		(4,690)
Payments of deferred financing costs	(41)		(249)
Other financing proceeds	1,710		—
Principal payments on finance lease obligations	(251)		(196)
Payments to redeem common stock	(1,730)		(2,733)
Distributions paid	(107)		(826)
Payments of other offering costs	(15)		—
Noncontrolling interest contributions	10		210
Distributions to noncontrolling interest	(200)		(100)
Net cash provided by (used in) financing activities	588		(4,805)
Net decrease in cash, cash equivalents and restricted cash	(11,233)		(6,350)
Cash, cash equivalents and restricted cash, beginning of period	23,476		26,858
Cash, cash equivalents and restricted cash, end of period	$	12,243	$	20,508
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $68 and $0 for the six months ended June 30, 2020 and 2019, respectively	$	6,785	$	9,029
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$	135	$	1,347
Foreign currency translation loss on investment in unconsolidated entity	$	—	$	(25)
Redemption payable	$	621	$	1,662
Accrued improvements to real estate	$	1,240	$	2,272
Distributions payable	$	—	$	241
Construction cost payable	$	—	$	14

See accompanying condensed notes to consolidated financial statements.

7

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(unaudited)

1.ORGANIZATION

Pacific Oak 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 Pacific Oak 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. Pacific Oak 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 was externally managed by KBS Capital Advisors LLC (“KBS Capital Advisors”), an affiliate of the Company, since July 2013 pursuant to an advisory agreement the Company renewed with KBS Capital Advisors on September 26, 2019. KBS Capital Advisors conducted the Company’s operations and managed its portfolio of real estate loans, opportunistic real estate and other real estate-related investments. On October 31, 2019, KBS Capital Advisors ceased to serve as the Company's advisor or have any advisory responsibility to the Company immediately following the filing of the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2019 (filed November 8, 2019) with the Securities and Exchange Commission (the “SEC”). On November 1, 2019, the Company entered into an advisory agreement (the “Advisory Agreement”) with Pacific Oak Capital Advisors, LLC (the “Advisor”). The Advisory Agreement is effective as of November 1, 2019 through November 1, 2020; however the Company may terminate the Advisory Agreement without cause or penalty upon providing 30 days’ written notice and the Advisor may terminate the Advisory Agreement without cause or penalty upon providing 90 days’ written notice. The terms of the Advisory Agreement are consistent with those of the advisory agreement that was previously in effect with KBS Capital Advisors. KBS Capital Advisors previously entered into a sub-advisory agreement with STAM Europe (“STAM”), a real estate operating company based in Paris, France, to provide real estate acquisition and portfolio management services to KBS Capital Advisors in connection with any investments the Company may make in value-added real estate, distressed debt, and real estate-related investments in Europe. Effective April 17, 2019, STAM terminated the sub-advisory agreement with KBS Capital Advisors.

The Company has invested in and manages a portfolio of opportunistic real estate, real estate equity securities and other real estate-related investments located in the United States and Europe. As of June 30, 2020, the Company had invested in two hotel properties, three office properties, one apartment building, two investments in unconsolidated entities and two investments in real estate equity securities. Additionally, as of June 30, 2020, the Company had entered into a consolidated joint venture to develop one office/retail property.

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.

8

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

On November 14, 2013, the Company filed a registration statement on Form S-11 with 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 offered 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 common stock for sale to the public on February 17, 2016. KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Company’s former advisor, served 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 was responsible for marketing the Company’s shares. The Company ceased offering shares of common stock in the primary portion of the Public Offering on July 31, 2018 and terminated the primary portion of the Public Offering on September 28, 2018. The Company continues to offer shares of common stock under its dividend reinvestment plan. In some states, the Company will need to renew the registration statement annually or file a new registration statement to continue its dividend reinvestment plan offering. The Company may terminate its dividend reinvestment plan offering at any time.

The Company sold 11,977,758 and 11,537,701 shares of Class A and Class T common stock, respectively, in the Public Offering for aggregate gross offering proceeds of $228.6 million. As of June 30, 2020, the Company had sold 730,193 and 340,127 shares of Class A and Class T common stock, respectively, under its dividend reinvestment plan for aggregate gross offering proceeds of $10.0 million. Also, as of June 30, 2020, the Company had redeemed 833,490 and 164,618 shares of Class A and Class T common stock, respectively, for $9.2 million.

In addition, the Company raised $4.2 million in separate private transactions exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act.

On July 3, 2013, the Company issued 21,739 shares of its Class A common stock to KBS Capital Advisors at a purchase price of $9.20 per share. 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. On July 14, 2017 and February 13, 2018, the Company issued 214,175 shares and 10,935 shares, respectively, of Class A common stock to a business associate of Keith D. Hall and Peter McMillan III for approximately $2.0 million and $0.1 million, respectively. 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.

On February 19, 2020, the Company, Pacific Oak Strategic Opportunity REIT, Inc. (“POSOR I”), and Pacific Oak SOR II, LLC, an indirect subsidiary of POSOR I (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, the Company will merge with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger (the “Surviving Entity”), such that following the Merger, the Surviving Entity will continue as an indirect subsidiary of POSOR I. In accordance with the applicable provisions of the Maryland General Corporation Law, the separate existence of the Company shall cease. At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of the Company's common stock will be converted into the right to receive 0.9643 shares of POSOR I common stock. The combined company after the Merger will retain the name “Pacific Oak Strategic Opportunity REIT, Inc.”

9

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2019. 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, 2019 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 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 three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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 and VIEs in which the Company has a primary beneficiary. 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.

Restricted Cash

Restricted cash is comprised of lender impound reserve accounts on the Company’s borrowings for security deposits, property taxes, insurance, debt service obligations and capital improvements and replacements.

Redeemable Common Stock

The Company limits the dollar value of shares that may be redeemed under the share redemption program. During the six months ended June 30, 2020, the Company had redeemed $1.7 million of common stock under the share redemption program. The Company processed all redemption requests received in good order and eligible for redemption through the June 2020 redemption date, except for 1,037,033 shares totaling $10.5 million due to the limitations under the share redemption program. The Company recorded $0.6 million and $2.2 million of redeemable common stock payable on the Company’s balance sheet as of June 30, 2020 and December 31, 2019, respectively, related to unfulfilled redemption requests received in good order under the share redemption program. Based on the fourth amended and restated share redemption program, the Company has $0.5 million available for redemptions in the remainder of 2020, including shares that are redeemed in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence,” subject to the limitations under the share redemption program. Effective beginning with the month of February 2020, the Company suspended redemptions requested under the share redemption program not in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”, until the Company and POSOR I file with the SEC a registration statement on Form S-4 containing a Joint Proxy Statement/Prospectus for the proposed merger, and (b) all other redemptions under the share redemption program until after the Merger closes. The Form S-4 was filed on June 15, 2020 with the SEC.

10

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

Segments

The Company has invested in opportunistic real estate investments, real estate equity securities, other real estate-related assets and originated a loan secured by a non-stabilized real estate asset, which was repaid on January 12, 2018. In general, the Company intends to hold its investments in opportunistic real estate, real estate equity securities 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. In addition, the Company has invested in a participating loan facility secured by a portfolio of light industrial properties located in Europe, which was terminated on April 17, 2019.

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 0 potentially dilutive securities outstanding during the three and six months ended June 30, 2020 and 2019. 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. 

Cash distributions declared per share of Class A and Class T common stock were $0.02397501 and $0.0639334 for the three and six months ended June 30, 2019. Distributions declared per common share assumes each share was issued and outstanding each day that was a record date for distributions and were based on a monthly record date for each month during the periods commencing January 2019 through June 2019. There were no distributions declared for the three and six months ended June 30, 2020.

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)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

The Company’s calculated earnings per share for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands, except share and per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net loss attributable to common stockholders	$	(6,341)	$	(2,585)	$	(16,811)	$	(4,120)
Less: Class A Common Stock cash distributions declared	—		430		—		1,148
Less: Class T Common Stock cash distributions declared	—		294		—		782
Undistributed net loss attributable to common stockholders	$	(6,341)	$	(3,309)	$	(16,811)	$	(6,050)
Class A Common Stock:
Undistributed net loss attributable to common stockholders	$	(3,763)	$	(1,967)	$	(9,978)	$	(3,599)
Class A Common Stock cash distributions declared	—		430		—		1,148
Net loss attributable to Class A common stockholders	$	(3,763)	$	(1,537)	$	(9,978)	$	(2,451)
Net loss per common share, basic and diluted	$	(0.21)	$	(0.09)	$	(0.56)	$	(0.14)
Weighted-average number of common shares outstanding, basic and diluted	17,842,289		17,930,156		17,860,958		17,955,331
Class T Common Stock:
Undistributed net loss attributable to common stockholders	$	(2,578)	$	(1,342)	$	(6,833)	$	(2,451)
Class T Common Stock cash distributions declared	—		294		—		782
Net loss attributable to Class T common stockholders	$	(2,578)	$	(1,048)	$	(6,833)	$	(1,669)
Net loss per common share, basic and diluted	$	(0.21)	$	(0.09)	$	(0.56)	$	(0.14)
Weighted-average number of common shares outstanding, basic and diluted	12,222,534		12,230,499		12,231,843		12,221,952

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.

12

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

Recently Issued Accounting Standards Updates

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“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 debt 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 debt 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. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarified that receivables from operating leases are not within the scope of Topic 326 and instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842. 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 March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). ASU No. 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU No. 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the three months ended March 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. For the period from January 1, 2020 (the earliest date the Company may elect to apply ASU No. 2020-04) through March 31, 2020, the Company did not have any contract modifications that meet the criteria described above, specifically contract modifications that have been modified from LIBOR to an alternative reference rate. The Company’s loan agreements, derivative instruments, and certain lease agreements use LIBOR as the current reference rate. For eligible contract modifications, the Company expects to adopt the temporary optional expedients described in ASU No. 2020-04. The optional expedients for hedging relationships described in ASU No. 2020-04 are not expected to have an impact to the Company, as the Company has elected to not designate its derivative instruments as a hedge.

In April 2020, the FASB issued a FASB Staff Q&A related to Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic (the “Topic 842 Q&A”) which focused on the application of lease guidance for concessions related to the effects of the COVID-19 pandemic. In this Q&A document, the FASB staff will allow entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842, Leases (“Topic 842”) as though enforceable rights and obligations for those qualifying concessions existed. The Company did not have any material lease concessions related to the effects of the COVID-19 pandemic that had a material impact to the Company’s consolidated balance sheet as of June 30, 2020 or consolidated statement of operations for the six months ended June 30, 2020.

13

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

3. REAL ESTATE

As of June 30, 2020, the Company’s real estate portfolio was composed of two hotel properties, three office properties and one apartment building. In addition, as of June 30, 2020, the Company has entered into a consolidated joint venture to develop one office/retail property. The following table summarizes the Company’s real estate as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Land	$	102,288	$	102,288
Buildings and improvements	432,796		427,696
Tenant origination and absorption costs	13,425		15,422
Total real estate, cost and net of impairment charges	548,509		545,406
Accumulated depreciation and amortization	(59,129)		(51,723)
Total real estate, net	$	489,380	$	493,683

The following table provides summary information regarding the Company’s real estate as of June 30, 2020 (in thousands):

Property	Date Acquired	City	State	Property Type	Land		Building and Improvements (1)		Tenant Origination and Absorption		Total Real Estate, at Cost and Net of Impairment Charges		Accumulated Depreciation and Amortization		Total Real Estate, Net		Ownership %
Springmaid Beach Resort	12/30/2014	Myrtle Beach	SC	Hotel	$	27,438	$	40,458	$	—	$	67,896	$	(11,804)	$	56,092	90.0%
Q&C Hotel	12/17/2015	New Orleans	LA	Hotel	1,232		53,323		—		54,555		(9,446)		45,109		90.0%
Lincoln Court	05/20/2016	Campbell	CA	Office	14,706		36,067		1,069		51,842		(5,493)		46,349		100.0%
Lofts at NoHo Commons	11/16/2016	North Hollywood	CA	Apartment	26,222		82,057		—		108,279		(7,950)		100,329		90.0%
210 West 31st Street (2)	12/01/2016	New York	NY	Office/Retail	—		55,269		—		55,269		—		55,269		80.0%
Oakland City Center	08/18/2017	Oakland	CA	Office	22,150		143,462		9,556		175,168		(20,118)		155,050		100.0%
Madison Square (3)	10/03/2017	Phoenix	AZ	Office	10,540		22,160		2,800		35,500		(4,318)		31,182		90.0%
					$	102,288	$	432,796	$	13,425	$	548,509	$	(59,129)	$	489,380

_____________________

⁽¹⁾ Building and improvements includes construction costs for the Company’s project that was under development.

⁽²⁾ The Company acquired the rights to a leasehold interest with respect to this property, which was accounted for as a finance lease. The Company applied a 6.1% discount rate to the finance lease and the lease expires on January 31, 2114. As of June 30, 2020, the finance lease right-of-use asset had a carrying value of $6.8 million included in building and improvements. No depreciation or amortization was recorded to this property as of June 30, 2020.

⁽³⁾ The Company acquired the rights to a leasehold interest with respect to the land at this property, which was accounted for as a finance lease. The Company applied a 5.4% discount rate to the finance lease and as of June 30, 2020, the finance lease had a weighted average remaining lease term of 2.3 years. As of June 30, 2020, the finance lease right-of-use asset had a carrying value of $1.9 million included in land.

14

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

Office Properties

As of June 30, 2020, the Company owned three office properties encompassing in the aggregate 806,960 rentable square feet which were 69% occupied. The following table provides detailed information regarding the Company’s office revenues and expenses for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Office revenues:
Rental income	$	6,734	$	7,007	$	13,604	$	13,919
Other income	201		187		427		392
Office revenues	$	6,935	$	7,194	$	14,031	$	14,311
Office expenses:
Operating, maintenance, and management	$	2,144	$	2,338	$	4,418	$	4,663
Real estate taxes and insurance	1,093		1,089		2,193		2,161
Office expenses	$	3,237	$	3,427	$	6,611	$	6,824

Operating Leases

The Company’s office properties are leased to tenants under operating leases for which the terms and expirations vary. As of June 30, 2020, the leases had remaining terms, excluding options to extend, of up to 10.3 years with a weighted-average remaining term of 3.3 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 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 $1.0 million and $1.1 million as of June 30, 2020 and December 31, 2019, respectively.

During the three and six months ended June 30, 2020, the Company recognized deferred rent from tenants of $0.1 million and $0.3 million, respectively, net of lease incentive amortization. During the three and six months ended June 30, 2019, the Company recognized deferred rent from tenants of $0.1 million and $0.2 million, respectively, net of lease incentive amortization. As of June 30, 2020 and December 31, 2019, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $3.9 million and $2.9 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $0.1 million and $0.2 million of unamortized lease incentives as of June 30, 2020 and December 31, 2019, respectively.

15

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

As of June 30, 2020, the future minimum rental income from the Company’s office properties under its non-cancelable operating leases was as follows (in thousands):

July 1, 2020 through December 31, 2020	$	11,061
2021	20,153
2022	16,403
2023	13,304
2024	10,827
Thereafter	33,323
	$	105,071

As of June 30, 2020, the Company’s commercial real estate properties were leased to approximately 80 tenants over a diverse range of industries and geographic areas. As of June 30, 2020, the highest tenant industry concentrations (greater than 10% of annualized base rent) in the Company’s portfolio were as follows:

Industry	Number of Tenants	Annualized Base Rent (1) (in thousands)		Percentage of Annualized Base Rent
Legal Services	13	$	4,547	21.2	%
Public Administration	6	3,219		15.0	%
Professional, Scientific, and Technical Services	11	2,961		13.8	%
		$	10,727	50.0	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2020, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

No other tenant industries accounted for more than 10% of annualized base rent. No tenant accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time. During six months ended June 30, 2020, the Company recorded a $45,000 adjustment to office revenues for lease payments deemed not probable of collection. There were no adjustments during the three months ended June 30, 2020. During the three and six months ended June 30, 2019, the Company recorded bad debt recovery of $31,000 and $0.1 million, respectively, which were included in office expenses in the accompanying consolidated statements of operations.

16

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

Hotel Properties

As of June 30, 2020, the Company owned two hotel properties. The following table provides detailed information regarding the Company’s hotel revenues and expenses for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Hotel revenues:
Room	$	1,908	$	7,590	$	4,862	12,055
Food, beverage and convention services	233		1,679		834		2,552
Campground	256		280		511		551
Other	211		518		480		889
Hotel revenues	$	2,608	$	10,067	$	6,687	$	16,047
Hotel expenses:
Room	$	608	$	1,680	$	1,698	3,004
Food, beverage and convention services	262		1,164		887		1,940
General and administrative	337		708		1,142		1,494
Sales and marketing	291		912		830		1,606
Repairs and maintenance	335		526		797		1,092
Utilities	214		224		508		485
Property taxes and insurance	519		435		1,108		873
Other	162		487		416		817
Hotel expenses	$	2,728	$	6,136	$	7,386	$	11,311

On March 31, 2020, both hotels were temporarily closed due to COVID-19 (Coronavirus) and the Springmaid Beach Resort reopened on May 1, 2020. The Company is unable to predict when the Q&C Hotel will resume operations. The extent of the effects of the COVID-19 pandemic on the Company’s business and the hotel industry at large is highly uncertain and will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, governmental response, the length of time it takes for demand and pricing to return and normal economic and operating conditions to resume.

Contract liabilities

The following table summarizes the Company’s contract liabilities, which are comprised of advanced deposits and are included in other liabilities in the accompanying consolidated balance sheets, as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Contract liability	$	459	$	500
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period	$	267	$	281

17

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

Apartment Property

As of June 30, 2020, the Company owned one apartment property with 292 units which was 88% occupied. The following table provides detailed information regarding the Company’s apartment revenues and expenses for the three months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Apartment revenues:
Rental income	$	1,807	$	1,829	$	3,635	$	3,659
Other income	209		141		438		306
Apartment revenues	$	2,016	$	1,970	$	4,073	$	3,965
Apartment expenses:
Operating, maintenance, and management	$	431	$	544	$	875	$	1,080
Real estate taxes and insurance	343		339		709		700
Apartment expenses	$	774	$	883	$	1,584	$	1,780

Geographic Concentration Risk

As of June 30, 2020, the Company’s real estate investments in California represented 57.2% of the Company’s total assets. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California real estate market. Any adverse economic or real estate developments in this market, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.

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

As of June 30, 2020 and December 31, 2019, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):

	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Cost	$	13,425	$	15,422	$	72	$	72	$	(8,962)	$	(10,802)
Accumulated Amortization	(7,349)		(7,954)		(34)		(28)		5,299		6,125
Net Amount	$	6,076	$	7,468	$	38	$	44	$	(3,663)	$	(4,677)

18

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):

	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	For the Three Months Ended June 30,				For the Three Months Ended June 30,				For the Three Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Amortization	$	(673)	$	(888)	$	(3)	$	(4)	$	472	$	679

	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	For the Six Months Ended June 30,				For the Six Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Amortization	$	(1,393)	$	(1,831)	$	(6)	$	(9)	$	1,014	$	1,382

As of June 30, 2020 and December 31, 2019, the Company had recorded a housing subsidy intangible asset, net of amortization, which is included in prepaid expenses and other assets in the accompanying balance sheets, of $2.2 million. As of June 30, 2020, the housing subsidy intangible asset has a remaining amortization period of 28.1 years. During each of the three months ended June 30, 2020 and 2019, the Company recorded amortization expense of $20,000 related to the housing subsidy intangible asset. During each of the six months ended June 30, 2020 and 2019, the Company recorded amortization expense of $40,000 related to the housing subsidy intangible asset.

Additionally, as of June 30, 2020 and December 31, 2019, the Company had recorded property tax abatement intangible assets, net of amortization, which are included in prepaid expenses and other assets in the accompanying balance sheets, of $1.7 million and $1.8 million, respectively. As of June 30, 2020, the property tax abatement intangible assets have a weighted-average remaining amortization period of 3.3 years. During each of the three months ended June 30, 2020 and 2019, the Company recorded amortization expense of $0.1 million related to the property tax abatement intangible assets. During each of the six months ended June 30, 2020 and 2019, the Company recorded amortization expense $0.2 million related to the property tax abatement intangible assets.

19

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

5. REAL ESTATE EQUITY SECURITIES

The Company’s real estate equity securities are carried at their estimated fair value based on quoted market prices for the security. Transaction costs that are directly attributable to the acquisition of real estate equity securities are capitalized to its cost basis. Unrealized gains and losses on real estate equity securities are recognized in earnings. The following table sets forth the number of shares owned by the Company and the related carrying value of the shares as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30, 2020			December 31, 2019
Real Estate Equity Securities	Number of Shares Owned	Total Carrying Value		Number of Shares Owned	Total Carrying Value
Franklin Street Properties Corp.	1,580,713	$	8,046	1,160,591	$	9,934
Plymouth Industrial REIT, Inc.	43,829	561		—	—
	1,624,542	$	8,607	1,160,591	$	9,934

During the six months ended June 30, 2020, the Company purchased 92,931 shares of common stock of Plymouth Industrial REIT, Inc. (NYSE Ticker: PLYM) for an aggregate purchase price of $1.3 million and also purchased 420,122 shares of Franklin Street Properties Corp. (NYSE Ticker: FSP) for an aggregate purchase price of $2.8 million. During the six months ended June 30, 2020, the Company sold 49,102 shares of PLYM for an aggregate sales price of $0.8 million.

The following summarizes the portion of gain and loss for the period related to real estate equity securities held during the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net (loss) gain recognized during the period on real estate equity securities	$	(728)	$	221	$	(4,618)	$	1,335
Less net gain recognized during the period on real estate equity securities sold during the period	(67)		—		(67)		—
Unrealized (loss) gain recognized during the reporting period on real estate equity securities held at the end of the period	$	(795)	$	221	$	(4,685)	$	1,335

During the three and six months ended June 30, 2020, the Company recognized $0.2 million and $0.3 million of dividend income from real estate equity securities, respectively. During the three and six months ended June 30, 2019, the Company recognized $0.1 million and $0.2 million of dividend income from real estate equity securities, respectively.

6. INVESTMENT IN UNCONSOLIDATED ENTITIES

On June 28, 2016, the Company originated a participating loan facility (“STAM investment”) in an amount up to €2.6 million ($2.9 million at closing) with STAM, a real estate operating company that provides real estate acquisition and portfolio management services to make in value-added real estate, distressed debt, and real estate-related investments in Europe. The Company funded approximately €2.1 million ($2.3 million at closing). The proceeds were used by STAM 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.

20

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

During the year ended December 31, 2019, STAM completed the liquidation of the portfolio and the Company recognized $2.8 million of equity in income of unconsolidated entity with respect to this investment. During the six months ended June 30, 2020, the Company received a distribution of €0.4 million or $0.4 million and as of June 30, 2020, the Company’s investment in the STAM investment was $0.1 million.

On December 31, 2019, the Company acquired 13 Class A Units for $2.9 million in Pacific Oak Opportunity Zone Fund I, LLC (“Pacific Oak Opportunity Zone Fund I”). As of June 30, 2020, Pacific Oak Opportunity Zone Fund I consolidated two joint ventures with real estate under development. As of June 30, 2020, the Company has concluded that Pacific Oak Opportunity Zone Fund I qualifies as a Variable Interest Entity (“VIE”) because there is insufficient equity at risk to finance the entity’s activities and the entity is structured with non-substantive voting rights. The Company concluded it is not the primary beneficiary of this VIE since it does not have the power to direct the activities that most significantly impact the entity’s economic performance and will account for its investment under the equity method of accounting.

The Company’s maximum exposure to loss as a result of its involvement with this VIE is limited to the carrying value of the investment in Pacific Oak Opportunity Zone Fund I which totaled $3.0 million as of June 30, 2020.

7. NOTES PAYABLE

As of June 30, 2020 and December 31, 2019, the Company’s notes payable consisted of the following (in thousands):

	Book Value as of June 30, 2020		Book Value as of December 31, 2019		Contractual Interest Rate (1)	Effective Interest Rate (1)	Payment Type	Maturity Date
Springmaid Beach Resort Mortgage Loan (2)	$	56,461	$	56,536	One-month LIBOR + 2.25% (2)	5.75%	Principal & Interest	08/10/2022
Q&C Hotel Mortgage Loan	25,000		25,000		One-month LIBOR + 2.50% (3)	4.50%	Principal & Interest (3)	12/23/2022
Lincoln Court Mortgage Loan	34,615		34,615		One-month LIBOR + 1.75%	1.91%	Interest Only	12/01/2020
Lofts at NoHo Commons Mortgage Loan (4)	73,862		73,862		One-month LIBOR + 2.18% (4)	3.93%	Interest Only	09/09/2021
210 West 31st Street Mortgage Loan	20,000		20,000		One-month LIBOR + 3.00%	3.16%	Interest Only	12/16/2020
Oakland City Center Mortgage Loan (5)	97,112		95,989		One-month LIBOR + 1.75%	1.91%	Interest Only	09/01/2022
Madison Square Mortgage Loan (6)	23,757		23,593		One-month LIBOR + 4.05% (6)	5.05%	Interest Only	10/09/2020
Total notes payable principal outstanding	330,807		329,595
Deferred financing costs, net	(2,621)		(3,600)
Total notes payable, net	$	328,186	$	325,995

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2020. Effective interest rate is calculated as the actual interest rate in effect as of June 30, 2020 (consisting of the contractual interest rate, contractual floor rates and the effects of interest rate caps, if applicable), using interest rate indices at June 30, 2020, where applicable.

⁽²⁾ As of June 30, 2020, $57.3 million had been disbursed to the Company and up to $9.7 million was available for future disbursements, subject to certain terms and conditions contained in the loan documents. The interest rate is variable at the higher of one-month LIBOR + 2.25% or 5.75%.

⁽³⁾ The interest rate is variable at the higher of one-month LIBOR + 2.5% or 4.5%. Principal payments will commence on January 1, 2022.

⁽⁴⁾ As of June 30, 2020, $73.9 million had been disbursed to the Company and up to $2.1 million is available for future disbursements to be used for tenant improvements and leasing commissions, subject to certain terms and conditions contained in the loan documents. The LIBOR rate is variable at the higher of one-month LIBOR or 1.75%.

⁽⁵⁾ As of June 30, 2020, $97.1 million had been disbursed to the Company and up to $6.3 million is available for future disbursements to be used for tenant improvements and leasing commissions, subject to certain terms and conditions contained in the loan documents. Beginning October 1, 2020, monthly payments will include principal and interest with principal payments of $110,000 or, in the event the Company repays any principal of the loan amount, with principal payments calculated using an amortization schedule of 30 years and an annual interest rate of 6.0%, subject to certain terms and conditions contained in the loan documents.

21

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

⁽⁶⁾ As of June 30, 2020, $23.8 million had been disbursed to the Company and up to $10.3 million is available for future disbursements to be used for tenant improvements and leasing expenses, subject to certain terms and conditions contained in the loan documents. The Madison Square Mortgage Loan bears interest at a floating rate of 405 basis points over one-month LIBOR, but at no point shall the interest rate be less than 5.05%.

The Company plans to refinance or utilize available extension options for notes payable with maturities through the second quarter of 2021. There can be no assurance that the Company will be able to refinance or utilize extension options.

During the three and six months ended June 30, 2020, the Company incurred $3.7 million and $7.9 million, respectively, of interest expense. Included in interest expense was: (i) the amortization of deferred financing costs of $0.5 million and $1.0 million for the three and six months ended June 30, 2020, respectively, (ii) an unrealized loss of $4,000 and an unrealized gain of $9,000 interest rate cap agreements for the three and six months ended June 30, 2020, respectively, and (iii) $0.2 million and $0.3 million of interest on finance leases for the three and six months ended June 30, 2020, respectively. Additionally, during the three and six months ended June 30, 2020, the Company capitalized $32,000 and $68,000, respectively, of interest related to an investment in unconsolidated entity. During the three and six months ended June 30, 2019, the Company incurred $5.0 million and $10.0 million, respectively, of interest expense. Included in interest expense was: (i) the amortization of deferred financing costs of $0.4 million and $0.8 million for the three and six months ended June 30, 2019, respectively, (ii) an unrealized loss of $6,000 on interest rate cap agreements for the six months ended June 30, 2019 and (iii) $0.2 million and $0.3 million of interest on finance leases for the three and six months ended June 30, 2019, respectively. As of June 30, 2020 and December 31, 2019, the Company’s interest payable was $0.9 million and $0.8 million, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of June 30, 2020 (in thousands):

July 1, 2020 through December 31, 2020	$	78,702
2021	76,226
2022	175,879
	$	330,807

The Company’s notes payable contain financial and non-financial debt covenants. As of June 30, 2020, the Company was in compliance with all debt covenants, except that the borrower under the Madison Square Mortgage Loan was out of debt yield compliance. Such non-compliance does not constitute an event of default under the loan agreement. As a result of such non-compliance, the Company is required to maintain an interest shortfall reserve.

On May 8, 2020, the Company was granted a loan payment deferral on the Springmaid Beach Resort mortgage loan. The Company may defer one-half of the monthly interest due and the deferred interest will be compounded during the deferral period of April 2020 through October 2020. In addition, the deferral includes deferring the monthly principal payments of the loan until March 2021, at which time all deferred interest and principal will be due. On May 15, 2020, the Company was granted a loan payment deferral on the Q&C Hotel mortgage loan. The Company may defer monthly principal and interest payments for up to 90 days, beginning on May 1, 2020. The deferred interest will be compounded during the deferral period and will be due on the loan maturity date. All other loan requirements remain the same.

8. FAIR VALUE DISCLOSURES

The following were the face value, carrying amount and fair value of the Company’s financial instruments as of June 30, 2020 and December 31, 2019, which carrying amounts do not approximate the fair values (in thousands):

	June 30, 2020						December 31, 2019
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial liability (Level 3):
Notes payable	$	330,807	$	328,186	$	327,350	$	329,595	$	325,995	$	330,687

22

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

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 June 30, 2020, the Company measured the following assets at fair value on a recurring basis (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:
Real estate equity securities	$	8,607	$	8,607	$	—	$	—
Asset derivatives - interest rate caps	$	10	$	—	$	10	$	—

As of December 31, 2019, the Company measured the following assets at fair value on a recurring basis (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:
Real estate equity securities	$	9,934	$	9,934	$	—	$	—

9. RELATED PARTY TRANSACTIONS

As described further below, the Company has entered into agreements with certain affiliates pursuant to which they provide services to the Company. Keith D. Hall and Peter McMillan III control and indirectly own Pacific Oak Holding Group, LLC (“Pacific Oak Holding”), the Company’s sponsor since November 1, 2019. Pacific Oak Holding is the sole owner of Pacific Oak Capital Advisors, LLC, the Company’s advisor since November 1, 2019. Messrs. Hall and McMillan are also two of the Company’s executive officers and directors.

In addition, along with Charles J. Schreiber, Jr., Keith D. Hall and Peter McMillan III control and indirectly own KBS Holdings LLC (“KBS Holdings”), the Company’s sponsor prior to November 1, 2019. KBS Holdings is the sole owner of KBS Capital Advisors, the Company’s advisor prior to November 1, 2019, and KBS Capital Markets Group LLC, the entity that acted as the dealer manager of the Company’s now-terminated primary initial public offering.

From the Company’s inception through October 31, 2019, KBS Capital Advisors provided day-to-day management of the Company’s business. The advisory agreement with KBS Capital Advisors terminated on October 31, 2019, and the Company hired the Advisor under substantially the same terms on November 1, 2019. The advisory agreement with the Advisor has a one year term subject to an unlimited number of successive one year renewals upon the mutual consent of the parties.

23

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and six months ended June 30, 2020 and 2019, respectively, and any related amounts payable as of June 30, 2020 and December 31, 2019 (in thousands):

	Incurred								Payable as of
	Three Months Ended June 30,				Six Months Ended June 30,				June 30, 2020		December 31, 2019
	2020		2019		2020		2019
Expensed
Asset management fees	$	1,053	$	1,062	$	2,096	$	2,111	$	1,034	$	620
Reimbursable operating expenses (1)	—		92		72		194		—		—
Capitalized
Acquisition fees on real estate equity securities	—		—		71		—		—		—
Acquisition fee on investment in unconsolidated entities	46		—		46		—		—		29
	$	1,099	$	1,154	$	2,285	$	2,305	$	1,034	$	649

_____________________

⁽¹⁾ Reimbursable operating expenses primarily consists of internal audit personnel costs, accounting software and cyber-security related expenses incurred by the applicable advisor under the applicable advisory agreement. The Company has reimbursed the applicable 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 $0.1 million and $0.2 million for the three and six months ended June 30, 2019, respectively and were the only employee costs reimbursed under the applicable advisory agreement over the shown periods. There were no employee cost reimbursements during 2020. In the future, the Advisor may seek reimbursement for certain other employee costs under the Advisory Agreement. 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 reimbursed the applicable advisor for certain of the Company’s direct costs incurred from third parties that were initially paid by the applicable advisor on behalf of the Company.

Insurance.

On January 6, 2014, the Company, together with KBS Real Estate Investment Trust, Inc. ("KBS REIT I"), KBS Real Estate Investment Trust II, Inc. ("KBS REIT II"), KBS Real Estate Investment Trust, Inc. ("KBS REIT III"), KBS Legacy Partners Apartment REIT, Inc. ("KBS Legacy Partners Apartment REIT"), POSOR I, the Dealer Manager, KBS Capital Advisors and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage are shared. The cost of these lower tiers was allocated by KBS Capital Advisors and its insurance broker among each of the various entities covered by the program, and was billed directly to each entity. In June 2015, KBS Growth & Income REIT, Inc. ("KBS Growth & Income REIT") was added to the insurance program at terms similar to those described above. At renewal in June 2018, the Company, along with POSOR I and KBS Legacy Partners Apartment REIT elected to cease participation in the program and obtain separate insurance coverage. The Company, together with POSOR I, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage are shared. The cost of these lower tiers is or was allocated by the Company’s applicable advisor and its insurance broker among each REIT covered by the program, and is billed directly to each REIT. The program is effective through June 30, 2021.

24

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

Pacific Oak Opportunity Zone Fund I.

On December 31, 2019, the Company made a $2.9 million investment in the Pacific Oak Opportunity Zone Fund I. Pacific Oak Opportunity Zone Fund I is sponsored by Pacific Oak Holding. Pacific Oak Capital Advisors is entitled to certain fees in connection with the fund. The fund will pay an acquisition fee equal to 1.5% of the purchase price of each asset (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) with a purchase price less than or equal to $25.0 million plus 1.0% of the purchase price in excess of $25.0 million; a quarterly asset management fee equal to 0.25% of the total purchase price of all assets (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) as of the end of the applicable quarter; and a financing fee equal to 0.5% of the original principal amount of any indebtedness they incur (reduced by any financing fee previously paid with respect to indebtedness being refinanced). In the case of investments made through joint ventures, the fees above will be determined based on our proportionate share of the investment. Pacific Oak Holding is also entitled to certain distributions paid by the Pacific Oak Opportunity Zone Fund I after the Class A Members have received their preferred return. These fees and distributions have been waived for the Company’s $2.9 million investment. In addition, a side letter agreement between the Advisor and Pacific Oak Opportunity Zone Fund I was executed on February 2, 2020 and stipulates that any asset management fees allocable to the Company and waived by the Advisor for Pacific Oak Opportunity Zone Fund I shall be distributed to the Company. During the six months ended June 30, 2020, the Company received $26,000 related to this agreement.

10. 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”).

The management agreement expires on December 31 of the 20th full year following the Brand Commencement Date. Upon mutual agreement, the parties may extend the term of the agreement for two successive periods of five years each. If an event of default occurs and continues beyond any applicable notice and cure periods set forth in the management agreement, the non-defaulting party generally has, among other remedies, the option of terminating the management agreement upon written notice to the defaulting party with no termination fee payable to Doubletree. In addition, the Company has the right to terminate the management agreement without the payment of a termination fee if Doubletree fails to achieve certain criteria relating to the performance of the hotel for any two consecutive years following the Brand Commencement Date. Under certain circumstances following a casualty or condemnation event, either party may terminate the management agreement provided Doubletree receives a termination fee an amount equal to two years of the base fee.  The Company is permitted to terminate the management agreement upon a sale, lease or other transfer of the Springmaid Beach Resort any time so long as the buyer is approved for, and enters into a DoubleTree by Hilton franchise agreement for the balance of the agreement’s term. Finally, the Company is restricted in its ability to assign the management agreement upon a sale, lease or other transfer the Springmaid Beach Resort unless the transferee is approved by Doubletree to assume the management agreement.

Pursuant to the management agreement, the Operator receives 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

25

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

•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 six months ended June 30, 2020, the Company incurred $72,000 and $0.1 million, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations. During the three and six months ended June 30, 2019, the Company incurred $0.2 million and $0.3 million, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations. On March 31, 2020, the Springmaid Beach Resort temporarily closed due to COVID-19 (Coronavirus) and reopened on May 1, 2020.

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 six months ended June 30, 2020, the Company incurred $0.1 million of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations. During the three and six months ended June 30, 2019, the Company incurred $0.1 million and $0.2 million, 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 three and six months ended June 30, 2020, the Company incurred $0.1 million and $0.2 million, respectively, of fees related to the Marriott franchise agreement. During the three and six months ended June 30, 2019, the Company incurred $0.2 million and $0.4 million, respectively, of fees related to the Marriott franchise agreement. On March 31, 2020, the Q&C Hotel temporarily closed due to COVID-19 (Coronavirus). The Company is unable to predict when Q&C Hotel will resume their operations.

In addition, in connection with the execution of the franchise agreement, Pacific Oak SOR US Properties II, an indirect wholly owned subsidiary of the Company, 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.

26

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

Lease Obligations

As of June 30, 2020, the Company had leasehold interests expiring on various expiration dates between 2023 and 2114. Future minimum lease payments owed by the Company under the finance leases as of June 30, 2020 are as follows (in thousands):

July 1, 2020 through December 31, 2020	$	240
2021	735
2022	935
2023	525
2024	360
Thereafter	52,956
Total expected minimum lease liabilities	55,751
Less: Amount representing interest (1)	(47,765)
Present value of net minimum lease payments (2)	$	7,986

_____________________

⁽¹⁾ Interest includes the amount necessary to reduce the total expected minimum lease obligations to present value calculated at the Company’s incremental borrowing rate at acquisition.

⁽²⁾ The present value of net minimum lease payments are presented in other liabilities in the accompanying consolidated balance sheets.

Paycheck Protection Program

On April 27, 2020 and May 6, 2020, the Company, through wholly owned subsidiaries of joint ventures, entered into Paycheck Protection Program Promissory Notes for the Springmaid Beach Resort and Q&C Hotel (the “PPP Notes”) and received funding of $1.3 million and $0.4 million, respectively. In accordance with the original requirements of the CARES Act, at least 75% of the proceeds used to date have been used to pay eligible payroll costs. Under the original requirements of the CARES Act, the loan may be fully forgiven if (i) proceeds are used to pay eligible payroll costs, rent, mortgage interest and utilities and (ii) full-time employee headcount and salaries are either maintained during the applicable eight-week period or restored by June 30, 2020. Any forgiveness of the loan will be subject to approval by the U.S. Small Business Administration (the “SBA”) and will require the Company to apply for such treatment in the future. On June 5, 2020, the Paycheck Protection Program Flexibility Act (the “PPP Flexibility Act”) was signed into law, extending the loan forgiveness period from 8 weeks to 24 weeks after loan origination, reducing the required amount of payroll expenditures from 75% to 60%, removing the prior ban on borrowers taking advantage of payroll tax deferral after loan forgiveness and allowing for the amendment of the maturity date on existing loans from two years to five years. While the Company may apply for forgiveness of the PPP Notes in accordance with the requirements and limitations under the CARES Act and the SBA regulations and requirements, no assurance can be given that any portion of the PPP Notes will be forgiven. As of June 30, 2020, the PPP Notes balance was $1.7 million and recorded in other liabilities in the accompanying consolidated balance sheet.

Economic Dependency

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

27

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2020

(unaudited)

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 June 30, 2020. 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.

COVID-19

While the Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, the situation is rapidly evolving and the Company cannot predict how long the COVID-19 pandemic will last or what the long term impact will be on the Company’s operations. As a result, the Company has experienced and continues to experience a significant negative impact on its liquidity, and could experience additional material impacts including, but not limited to, asset impairment charges. The Company anticipates this will have a material impact on its business, results of operations and cash flows in 2020.

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.

28

PART I. FINANCIAL INFORMATION (CONTINUED)

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

The following discussion and analysis should be read in conjunction with the accompanying financial statements of Pacific Oak Strategic Opportunity REIT II, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Pacific Oak Strategic Opportunity REIT II, Inc., a Maryland corporation, and, as required by context, Pacific Oak 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 Pacific Oak 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 depend on our advisor to conduct our operations and eventually dispose of our investments.

•Because our new advisor, Pacific Oak Capital Advisors, was recently formed, it could face challenges with employee hiring and retention, information technology, vendor relationships, and funding; if Pacific Oak Capital Advisors faces challenges in performing its obligations to us, it could negatively impact our ability to achieve our investment objectives.

•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 and other Pacific Oak-affiliated entities. As a result, they face conflicts of interest, including significant conflicts created by our advisor’s compensation arrangements with us and other Pacific Oak-advised programs and investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in unanticipated actions.

•We face potential further business disruptions due to the recent global outbreak of COVID-19 (Coronavirus). The virus has significantly disrupted economic markets and impacted commercial activity worldwide, including the US, and the prolonged economic impact is uncertain. In addition to on-going or worsening impact on our hotel operations, tenants and potential tenants of the other properties we own could be adversely affected by the disruption to business caused by the virus.

•We raised substantially less than the maximum offering amount in our initial public offering. Therefore, our portfolio of properties may not be as diverse as it otherwise would, which will cause the value of our stockholders’ investment to vary more widely with the performance of specific assets.

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

•Our distribution policy is generally not to use offering proceeds to pay 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 and the overall return to our stockholders may be reduced.

29

PART I. FINANCIAL INFORMATION (CONTINUED)

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

•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. 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.

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

•Our estimated net asset value per share does not currently represent our enterprise value and may not accurately reflect the actual prices at which our assets could be liquidated on any given day, the value a third party would pay for all or substantially all of our shares, or the price that our shares would trade at on a national stock exchange.

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

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, 2019 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the three months ended March 31, 2020, each 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. We have no employees and KBS Capital Advisors LLC (“KBS Capital Advisors”) had served as our external advisor since commencement of the private offering. On October 31, 2019, KBS Capital Advisors ceased to serve as our advisor or have any advisory responsibility to us immediately following the filing of our Quarterly Report on Form 10-Q for the period ending September 30, 2019 (filed November 8, 2019) with the SEC. On November 1, 2019, we entered into a new advisory agreement with Pacific Oak Capital Advisors, LLC (“Pacific Oak Capital Advisors”). The new advisory agreement is effective as of November 1, 2019 through November 1, 2020; however we may terminate the advisory agreement without cause or penalty upon providing 30 days’ written notice and Pacific Oak Capital Advisors may terminate the advisory agreement without cause or penalty upon providing 90 days’ written notice. The terms of the advisory agreement are consistent with those of the advisory agreement that was previously in effect with KBS Capital Advisor. As our advisor, Pacific Oak Capital Advisors manages our day-to-day operations and managed our portfolio of real estate properties and real estate-related investments. Pacific Oak Capital Advisors also provides asset-management, marketing, investor-relations and other administrative services on our behalf.

KBS Capital Advisors entered a sub-advisory agreement with STAM Europe (“STAM”), a real estate operating company based in Paris, France, pursuant to which STAM would provide real estate acquisition and portfolio management services to our advisor in connection with investments in Europe. Effective April 17, 2019, STAM terminated the sub-advisory agreement with KBS Capital Advisors.

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.

30

PART I. FINANCIAL INFORMATION (CONTINUED)

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

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 were 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 could 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 was responsible for marketing our shares in the initial public offering. We ceased offering shares of common stock in our initial public primary offering on July 31, 2018 and terminated our initial public primary offering on September 28, 2018. We continue to offer shares of common stock under our dividend reinvestment plan. In some states, we will need to renew the registration statement annually or file a new registration statement to continue our dividend reinvestment plan offering. We may terminate our dividend reinvestment plan offering at any time.

We have used substantially all of the net proceeds from our offerings to invest in and manage a portfolio of opportunistic real estate, real estate-related loans, real estate equity securities and other real estate-related investments located in the United States and Europe. As of June 30, 2020, we had invested in two hotel properties, three office properties, one apartment building, two investments in unconsolidated entities and two investments in real estate equity securities. Additionally, as of June 30, 2020, we had entered into a consolidated joint venture to develop one office/retail property.

We sold 11,977,758 and 11,537,701 shares of Class A and Class T common stock, respectively, for aggregate gross offering proceeds of $228.6 million in our initial public primary offering. As of June 30, 2020, we had sold 730,193 and 340,127 shares of Class A and Class T common stock, respectively, under our dividend reinvestment plan for aggregate gross offering proceeds of $10.0 million. Also as of June 30, 2020, we had redeemed 833,490 and 164,618 shares of Class A and Class T common stock, respectively, for $9.2 million.

We sold 3,619,851 shares of Class A common stock for gross offering proceeds of $32.2 million in our private offering. Additionally, on each of April 2, 2014 and July 31, 2014, we issued 120,106 shares of Class A common stock to an entity affiliated with two of our officers and affiliated directors for $1.0 million in separate private transactions exempt from the registration requirements of the Securities Act. On July 14, 2017 and February 13, 2018, we issued 214,175 shares and 10,935 shares, respectively, of Class A common stock to a business associate of two of our officers and affiliated directors for $2.0 million and $0.1 million, respectively, in a separate private transaction exempt from the registration requirements of the Securities Act.

On February 19, 2020, we, Pacific Oak Strategic Opportunity REIT, Inc. (“POSOR I”), and Pacific Oak SOR II, LLC, an indirect subsidiary of POSOR I (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, we will merge with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger (the “Surviving Entity”), such that following the Merger, the Surviving Entity will continue as an indirect subsidiary of POSOR I. In accordance with the applicable provisions of the Maryland General Corporation Law, the separate existence of our company shall cease. At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of our common stock will be converted into the right to receive 0.9643 shares of POSOR I common stock. The combined company after the Merger will retain the name “Pacific Oak Strategic Opportunity REIT, Inc.” The Merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended.

31

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Market Outlook - Real Estate and Real Estate Finance Markets

Volatility in global financial markets and changing political environments can cause fluctuations in the performance of the U.S. commercial real estate markets. Possible future declines in rental rates, slower or potentially negative net absorption of leased space and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from investment properties. To the extent there are increases in the cost of financing due to higher interest rates, this may cause difficulty in refinancing debt obligations at terms as favorable as the terms of existing indebtedness. Further, increases in interest rates would increase the amount of our debt payments on our variable rate debt to the extent the interest rates on such debt are not limited by interest rate caps. Market conditions can change quickly, potentially negatively impacting the value of real estate investments. Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure.

During the first and second quarter of 2020 and subsequent periods, efforts to slow the spread of the COVID-19 virus have had a significant impact on the U.S. economy. While our current analyses did not result in any material adjustments to amounts as of and during the six months ended June 30, 2020, circumstances related to the COVID-19 pandemic may result in recording impairments, lease modifications and changes to collectability assessments in future periods. The extent to which COVID-19 impacts our business, operations and financial results will depend on numerous evolving factors, many of which are not within management’s control, and that we are unable to predict at this time, including but not limited to: the duration and scope of the pandemic; the pandemic’s impact on current and future economic activity; and the actions of governments, businesses and individuals in response to the COVID-19 pandemic.

Liquidity and Capital Resources

Our principal demand for funds during the short and long-term is and will be for the payment of operating expenses, capital expenditures and general and administrative expenses; payments under debt obligations; redemptions of common stock; capital commitments and development expenses under our joint venture agreements; and payments of distributions to stockholders. While we expect to have sufficient liquidity to meet our obligations for the foreseeable future, the COVID-19 outbreak and associated responses we have experienced and continue to experience a negative impact on our liquidity that will impact our future cash flows and financial condition.

To date, we have had five primary sources of capital for meeting our cash requirements:

•Proceeds from the primary portion of our initial public offering;

•Proceeds from our dividend reinvestment plan;

•Proceeds from the sale of real estate and the repayment of a real estate loan receivable;

•Debt financings; and

•Cash flow generated by our real estate investments.

We had sold 11,977,758 and 11,537,701 shares of Class A and Class T common stock, respectively, for aggregate gross offering proceeds of $228.6 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. We ceased offering shares of common stock in our initial public primary offering on July 31, 2018 and terminated our initial public primary offering on September 28, 2018.

To date, we have invested a significant amount of the proceeds from the primary public offering in real estate and do not anticipate making additional real estate acquisitions due to the termination of the primary portion of our initial public offering on July 31, 2018. We intend to use our cash on hand, cash flow generated by our real estate operations and proceeds from our dividend reinvestment plan as our primary sources of immediate and long-term liquidity.

32

PART I. FINANCIAL INFORMATION (CONTINUED)

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

On April 27, 2020 and May 6, 2020, we, through wholly owned subsidiaries of joint ventures, entered into Paycheck Protection Program Promissory Notes for the Springmaid Beach Resort and Q&C Hotel (the “PPP Notes”) and received funding of $1.3 million and $0.4 million, respectively. In accordance with the original requirements of the CARES Act, at least 75% of the proceeds used to date have been used to pay eligible payroll costs. Under the original requirements of the CARES Act, the loan may be fully forgiven if (i) proceeds are used to pay eligible payroll costs, rent, mortgage interest and utilities and (ii) full-time employee headcount and salaries are either maintained during the applicable eight-week period or restored by June 30, 2020. Any forgiveness of the loan will be subject to approval by the U.S. Small Business Administration (the “SBA”) and will require us to apply for such treatment in the future. On June 5, 2020, the Paycheck Protection Program Flexibility Act (the “PPP Flexibility Act”) was signed into law, extending the loan forgiveness period from 8 weeks to 24 weeks after loan origination, reducing the required amount of payroll expenditures from 75% to 60%, removing the prior ban on borrowers taking advantage of payroll tax deferral after loan forgiveness and allowing for the amendment of the maturity date on existing loans from two years to five years. While we may apply for forgiveness of the PPP Notes in accordance with the requirements and limitations under the CARES Act and the SBA regulations and requirements, no assurance can be given that any portion of the PPP Notes will be forgiven.

As of June 30, 2020, we had invested in two hotel properties, three office properties, one apartment building, two investments in unconsolidated entities and two investments in real estate equity securities. Additionally, as of June 30, 2020, we had entered into a consolidated joint venture to develop one office/retail property.

Our office and apartment properties generate cash flow in the form of rental revenues, 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 and apartment 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 June 30, 2020, we owned three office properties that were 69% occupied and one apartment property that was 88% occupied. As of July 2020, we collected 99.1% of total charged rent for the month of June.

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 for the six months ended June 30, 2020 and 2019:

Property (1)	Number of Rooms	Percentage Occupied for the Six Months Ended June 30,		Average Daily Rate for the Six Months Ended June 30,		Average Revenue per Available Room for the Six Months Ended June 30,
		2020	2019	2020	2019	2020	2019
Springmaid Beach Resort	453	35.2%	63.2%	$124.90	$137.19	$43.95	$86.69
Q&C Hotel	196	58.8%	79.3%	$174.72	$175.32	$105.16	$139.46

_____________________

⁽¹⁾ On March 31, 2020, both hotels were temporarily closed due to COVID-19. As such, the hotels experienced lower than normal occupancy rates during the months prior to the lockdown. In addition, the rooms that were unavailable during the closure were excluded from percentage occupied and average revenue per available room calculations. The Springmaid Beach Resort subsequently reopened on May 1, 2020. We are unable to predict when the Q&C Hotel will resume operations.

Investments in real estate equity securities generate cash flow in the form of dividend income, which is reduced by asset management fees. As of June 30, 2020, we had an investment in real estate equity securities outstanding with a total book value of $8.6 million.

As of June 30, 2020, we had mortgage debt obligations in the aggregate principal amount of $330.8 million, with a weighted-average remaining term of 1.5 years. As of June 30, 2020, an aggregate amount of $45.6 million was available under our mortgage loans for future disbursements to be used for capital improvement costs, tenant improvement costs, leasing commissions and expenses and operating/interest shortfall, subject to certain terms and conditions contained in the loan documents. As of June 30, 2020, we had a total of $79.9 million of debt obligations scheduled to mature within 12 months of that date. We plan to exercise our extension options available under our loan agreements or pay down or refinance the related notes payable prior to their maturity dates.

33

PART I. FINANCIAL INFORMATION (CONTINUED)

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

We expect to use our capital resources to make certain payments to our advisor in connection with the management of our assets and costs incurred by our advisor in providing services to us. Our currently effective advisory agreement expires November 1, 2020 and may be renewed for an unlimited number of successive one-year periods upon the mutual consent of our advisor and our conflicts committee.

Among the fees payable to our advisor is an asset management fee. We 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 is 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 is 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 is determined based on our proportionate share of the underlying investment.

We elected to be taxed and to operate as a REIT beginning with our taxable year ended December 31, 2014. 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 June 30, 2020 did not exceed the charter imposed limitation.

Cash Flows from Operating Activities

We commenced operations on September 4, 2014 in connection with our first investment. As of June 30, 2020, we had invested in two hotel properties, three office properties, one apartment building, two investments in unconsolidated entities and two investments in real estate equity securities. Additionally, as of June 30, 2020, we had entered into a consolidated joint venture to develop one office/retail property. During the six months ended June 30, 2020, net cash used in operating activities was $3.8 million. We expect that our cash flows from operating activities will generally increase in future periods as a result of leasing additional space that is currently unoccupied and temporarily decrease due to the temporary closure of the Q&C Hotel.

Cash Flows from Investing Activities

Net cash used in investing activities was $8.0 million for the six months ended June 30, 2020 and primarily consisted of the following:

•$4.9 million of improvements to real estate;

•$4.0 million of investment in real estate securities;

•$0.8 million of proceeds from sale of equity securities; and

•$0.4 million of distribution of capital from unconsolidated entities.

Cash Flows from Financing Activities

Net cash provided by financing activities was $0.6 million for the six months ended June 30, 2020 and primarily consisted of the following:

•$1.7 million of cash used for redemptions of common stock;

•$1.7 million of cash from other financing proceeds;

•$1.3 million of net cash provided by debt and other financings as a result of proceeds from notes payable of $1.6 million and partially offset by principal payments on notes payable of $0.3 million and payment of deferred financing costs of $41,000;

34

PART I. FINANCIAL INFORMATION (CONTINUED)

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

•$0.3 million of payments on finance lease obligations;

•$0.2 million of distribution to noncontrolling interest; and

•$0.1 million of net cash distributions, after giving effect to distributions reinvested by stockholders of $0.1 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. 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 June 30, 2020, our borrowings and other liabilities were approximately 60% of the cost (before depreciation and other noncash reserves) and book value (before depreciation) of our tangible assets.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of June 30, 2020 (in thousands):

			Payments Due During the Years Ending December 31,
Contractual Obligations	Total		Remainder of 2020		2021-2022		2023-2024		Thereafter
Outstanding debt obligations (1)	$	330,807	$	78,702	$	252,105	$	—	$	—
Interest payments on outstanding debt obligations (2)	18,813		5,674		13,139		—		—
Finance lease liabilities	55,751		240		1,670		885		52,956

_____________________

⁽¹⁾ Amounts include principal payments only and do not include funds received from the Paycheck Protection Program of $1.7 million.

⁽²⁾ Projected interest payments are based on the outstanding principal amounts and interest rates in effect at June 30, 2020. We incurred interest expense of $6.9 million, excluding amortization of deferred financing costs of $1.0 million for the six months ended June 30, 2020.

Results of Operations

Overview

As of June 30, 2019, we had invested in two hotel properties, four office properties, one apartment building, an investment in an unconsolidated entity and an investment in real estate equity securities.  As of June 30, 2020, we had invested in two hotel properties, three office properties, one apartment building, two investments in unconsolidated entities and two investment in real estate equity securities. Additionally, as of June 30, 2019 and 2020, we had entered into a consolidated joint venture to develop one office/retail property. We funded the acquisitions of these investments with proceeds from our terminated offerings and debt financing. Our results of operations for the three and six months ended June 30, 2020 are not indicative of those in future periods as we expect that our revenue and expenses related to our portfolio will increase in future periods as the occupancies at our properties stabilize as discussed below. Our investment objectives include acquiring properties with significant possibilities for short-term capital appreciation, such as non-stabilized properties, properties with moderate vacancies or near-term lease rollovers, poorly managed and positioned properties, properties owned by distressed sellers and built-to-suit properties.  As of June 30, 2020, the occupancy in our properties has not been stabilized. However, due to the amount of near-term lease expirations, we do not put significant emphasis on quarterly changes in occupancy (positive or negative) in the short run. Our underwriting and valuations are generally more sensitive to “terminal values” that may be realized upon the disposition of the assets in the portfolio and less sensitive to ongoing cash flows generated by the portfolio in the years leading up to an eventual sale. There are no guarantees that occupancies of our assets will increase, or that we will recognize a gain on the sale of our assets. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of leasing additional space and improving our properties but decrease due to disposition activity.

35

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Comparison of the three months ended June 30, 2020 versus the three months ended June 30, 2019

The following table provides summary information about our results of operations for the three months ended June 30, 2020 and 2019 (dollar amounts in thousands):

	Three Months Ended June 30,				Increase (Decrease)		Percentage Change		$ Change Due to Acquisitions/Dispositions (1)		$ Change Due to  Investments Held Throughout Both Periods (2)
	2020		2019
Office revenues	$	6,935	$	7,194	$	(259)	(4)	%	$	(384)	$	125
Hotel revenues	2,608		10,067		(7,459)		(74)	%	—		(7,459)
Apartment revenues	2,016		1,970		46		2	%	—		46
Dividend income from real estate equity securities	151		105		46		44	%	46		—
Office expenses	3,237		3,427		(190)		(6)	%	(124)		(66)
Hotel expenses	2,728		6,136		(3,408)		(56)	%	—		(3,408)
Apartment expenses	774		883		(109)		(12)	%	—		(109)
Asset management fees to affiliate	1,053		1,062		(9)		(1)	%	(31)		22
General and administrative expenses	1,434		768		666		87	%	n/a		n/a
Depreciation and amortization	4,909		5,107		(198)		(4)	%	(165)		(33)
Interest expense	3,738		5,027		(1,289)		(26)	%	(109)		(1,180)
Other interest income	1		48		(47)		(98)	%	n/a		n/a
Other income	26		—		26		100	%	n/a		n/a
(Loss) gain on real estate equity securities	(728)		221		(949)		(429)	%	n/a		n/a

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 related to real estate-related investments acquired or disposed on or after April 1, 2019.

⁽²⁾ Represents the dollar amount increase (decrease) for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 with respect to real estate and real estate-related investments owned by us during the entire periods presented.

Office revenues decreased from $7.2 million for the three months ended June 30, 2019 to $6.9 million for the three months ended June 30, 2020, primarily due to the disposition of 2200 Paseo Verde on November 4, 2019. The occupancy rate of our office properties, collectively, held throughout both periods remained consistent at 69% and 70% as of June 30, 2020 and 2019, respectively. We expect office revenues to vary in future periods based on occupancy and rental rates of our office properties.

Hotel revenues decreased from $10.1 million for the three months ended June 30, 2019 to $2.6 million for the three months ended June 30, 2020, primarily due to the COVID-19 pandemic and the temporary closure of both hotels on March 31, 2020, with only the Springmaid Beach Resort being reopened on May 1, 2020. The occupancy rate for the Springmaid Beach Resort decreased from 83.8% for the three months ended June 30, 2019 to 43.2% for the three months ended June 30, 2020. The occupancy rate for the Q&C Hotel decreased from 75.7% for the three months ended June 30, 2019 to zero for the three months ended June 30, 2020 due to the closure of the hotel. We expect hotel revenues to vary in future periods based on occupancy and room rates.

Apartment revenues remained consistent at $2.0 million for both of the three months ended June 30, 2020 and 2019. We expect apartment revenues to vary in future periods depending on occupancy and rental rates.

Dividend income from real estate equity securities increased from $0.1 million for the three months ended June 30, 2019 to $0.2 million for the three months ended June 30, 2020 due to the acquisition of real estate equity securities. We expect dividend income from real estate equity securities to vary in future periods as a result of declaration of dividends and to the extent we buy or sell any securities.

Office expenses decreased from $3.4 million for the three months ended June 30, 2019 to $3.2 million for the three months ended June 30, 2020, primarily due to the disposition of 2200 Paseo Verde.

36

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Hotel expenses decreased from $6.1 million for the three months ended June 30, 2019 to $2.7 million for the three months ended June 30, 2020, primarily due to the COVID-19 pandemic and the temporary closure of both hotels on March 31, 2020, with only the Springmaid Beach Resort being reopened on May 1, 2020. As a result, we, in conjunction with our third-party managers, materially reduced operating expenses to preserve liquidity by implementing stringent operational cost containment measures, including significantly reduced staffing levels, limited food and beverage offerings, elimination of non-essential hotel services and the temporary closure of unoccupied floors. We expect total expenses to vary in future periods based on occupancy rates.

Apartment expenses decreased from $0.9 million for the three months ended June 30, 2019 to $0.8 million for the three months ended June 30, 2020.

Asset management fees to affiliate remained consistent at $1.0 million for each of the three months ended June 30, 2020 and 2019. We expect asset management fees to increase in future periods as a result of any additional improvements we make to our properties. Approximately $1.0 million of asset management fees incurred were payable as of June 30, 2020.

General and administrative expenses increased from $0.8 million for the three months ended June 30, 2019 to $1.4 million for the three months ended June 30, 2020, primarily due to increase legal fees related to the Merger. We expect general and administrative expenses to fluctuate based on our legal expenses and investment and disposition activity.

Depreciation and amortization expenses decrease from $5.1 million for the three months ended June 30, 2019 to $4.9 million for the three months ended June 30, 2020, primarily due to the disposition of 2200 Paseo Verde. We expect depreciation and amortization expenses to vary in future periods as a result of a decrease in amortization related to fully amortized tenant origination and absorption costs, real estate dispositions and increase as a result of improvements to real estate and real estate acquisitions.

Interest expense decreased from $5.0 million for the three months ended June 30, 2019 to $3.7 million for the three months ended June 30, 2020, primarily due to decrease in one-month LIBOR rates, pay-off of the 2200 Paseo Verde loan and partially offset by the increase in total borrowing.

Gain on real estate equity securities was $0.2 million during the three months ended June 30, 2019. Loss on real estate equity securities was $0.7 million during the three months ended June 30, 2020. We expect gains and losses on real estate equity securities to fluctuate in future periods as a result of changes in the share price of our investment in real estate equity securities.

37

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Comparison of the six months ended June 30, 2020 versus the six months ended June 30, 2019

The following table provides summary information about our results of operations for the six months ended June 30, 2020 and 2019 (dollar amounts in thousands):

	Six Months Ended June 30,				Increase (Decrease)		Percentage Change		$ Change Due to Acquisitions/Dispositions (1)		$ Change Due to  Investments Held Throughout Both Periods (2)
	2020		2019
Office revenues	$	14,031	$	14,311	$	(280)	(2)	%	$	(779)	$	499
Hotel revenues	6,687		16,047		(9,360)		(58)	%	—		(9,360)
Apartment revenues	4,073		3,965		108		3	%	—		108
Dividend income from real estate equity securities	290		209		81		39	%	81		—
Office expenses	6,611		6,824		(213)		(3)	%	(232)		19
Hotel expenses	7,386		11,311		(3,925)		(35)	%	—		(3,925)
Apartment expenses	1,584		1,780		(196)		(11)	%	—		(196)
Asset management fees to affiliate	2,096		2,111		(15)		(1)	%	(65)		50
General and administrative expenses	3,079		1,475		1,604		109	%	n/a		n/a
Depreciation and amortization	9,805		10,181		(376)		(4)	%	(333)		(43)
Interest expense	7,864		9,988		(2,124)		(21)	%	(210)		(1,914)
Other interest income	34		112		(78)		(70)	%	n/a		n/a
Equity in income of unconsolidated entity	—		2,800		(2,800)		(100)	%	—		(2,800)
Other income	26		—		26		100	%	n/a		n/a
(Loss) gain on real estate equity securities	(4,618)		1,335		(5,953)		(446)	%	n/a		n/a

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 related to real estate-related investments acquired or disposed on or after January 1, 2019.

⁽²⁾ Represents the dollar amount increase (decrease) for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 with respect to real estate and real estate-related investments owned by us during the entire periods presented.

Office revenues decreased from $14.3 million for the six months ended June 30, 2019 to $14.0 million for the six months ended June 30, 2020, primarily due to the disposition of 2200 Paseo Verde and partially offset by increased rental rates. The occupancy of our office properties, collectively, held throughout both periods remained consistent at 69% as of June 30, 2020 and 2019. We expect office revenues to vary in future periods based on occupancy and rental rates of our office properties.

Hotel revenues decreased from $16.0 million for the six months ended June 30, 2019 to $6.7 million for the six months ended June 30, 2020, primarily due to the COVID-19 pandemic and its effect on decreasing occupancy during the months leading to the temporary closure of both hotels on March 31, 2020, with only the Springmaid Beach Resort being reopened on May 1, 2020. The occupancy rate for the Springmaid Beach Resort decreased from 63.2% for the six months ended June 30, 2019 to 35.2% for the six months ended June 30, 2020. The occupancy rate for the Q&C Hotel decreased from 79.3% and for the six months ended June 30, 2019 to 58.8% for the six months ended June 30, 2020. We expect hotel revenues to vary in future periods based on occupancy and room rates.

Apartment revenues slightly increased from $4.0 million for the six months ended June 30, 2019 to $4.1 million for the six months ended June 30, 2020. We expect apartment revenues to vary in future periods depending on occupancy and rental rates.

Dividend income from real estate equity securities increased from $0.2 million for the six months ended June 30, 2019 to $0.3 million for the six months ended June 30, 2020 due to the acquisition of real estate equity securities. We expect dividend income from real estate equity securities to vary in future periods as a result of declaration of dividends and to the extent we buy or sell any securities.

Office expenses remained consistent with $6.8 million for the three months ended June 30, 2019 and $6.6 million for the three months ended June 30, 2020.

38

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Hotel expenses decreased from $11.3 million for the six months ended June 30, 2019 to $7.4 million for the six months ended June 30, 2020, primarily due to the COVID-19 pandemic and its effect on decreasing occupancy during the months leading to the temporary closure of both hotels on March 31, 2020, with only the Springmaid Beach Resort being reopened on May 1, 2020. As a result, we, in conjunction with our third-party managers, materially reduced operating expenses to preserve liquidity by implementing stringent operational cost containment measures, including significantly reduced staffing levels, limited food and beverage offerings, elimination of non-essential hotel services and the temporary closure of unoccupied floors. We expect total expenses to vary in future periods based on occupancy rates.

Apartment expenses decreased from $1.8 million for the three months ended June 30, 2019 to $1.6 million for the three months ended June 30, 2020.

Asset management fees to affiliate remained consistent at $2.1 million for each of the six months ended June 30, 2020 and 2019. We expect asset management fees to increase in future periods as a result of any additional improvements we make to our properties.

General and administrative expenses increased from $1.5 million for the six months ended June 30, 2019 to $3.1 million for the six months ended June 30, 2020, primarily due legal expenses related to the Merger. We expect general and administrative expenses to fluctuate based on our legal expenses and investment and disposition activity.

Depreciation and amortization expenses decrease from $10.2 million for the six months ended June 30, 2019 to $9.8 million for the six months ended June 30, 2020, primarily due to the disposition of 2200 Paseo Verde. We expect depreciation and amortization expenses to vary in future periods as a result of a decrease in amortization related to fully amortized tenant origination and absorption costs, real estate dispositions and increase as a result of improvements to real estate and real estate acquisitions.

Interest expense decreased from $10.0 million for the six months ended June 30, 2019 to $7.9 million for the six months ended June 30, 2020, primarily due to the decrease in one-month LIBOR rates, pay-off of the 2200 Paseo Verde loan and partially offset by the increase in total borrowing.

During the six months ended June 30, 2019, we recognized $2.8 million of equity income from an unconsolidated entity. We did not recognize any equity income from unconsolidated entity during the six months ended June 30, 2020 as a result of the liquidation of the underlying portfolio related to our STAM investment. 

Gain on real estate equity securities was $1.3 million during the six months ended June 30, 2019. Loss on real estate equity securities was $4.6 million during the six months ended June 30, 2020. We expect gains and losses on real estate equity securities to fluctuate in future periods as a result of changes in the share price of our investment in real estate equity securities.

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. In addition, we elected the option to exclude mark-to-market changes in value recognized on equity securities in the calculation of FFO. 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. 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 (to the extent that such fees and expenses have been recorded as operating 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 Institute for Portfolio Alternatives (“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 (to the extent that such costs have been recorded as operating expenses) 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.

Although MFFO includes other adjustments, the exclusion of straight-line rent, the amortization of above- and below-market leases, mark-to-market adjustments included in net income and loss on extinguishment of debt, are the most significant adjustments for the periods presented. We have excluded these items based on the following economic considerations:

•Adjustments for straight-line rent.  These are adjustments to rental revenue as required by GAAP to recognize contractual lease payments on a straight-line basis over the life of the respective lease.  We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the current economic impact of our in-place leases, 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

•Mark to Market adjustments included in net income. These are fair value adjustments to derivative instruments. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect core operating performance.

40

PART I. FINANCIAL INFORMATION (CONTINUED)

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

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 months ended June 30, 2020 and 2019 (in thousands). No conclusions or comparisons should be made from the presentation of these periods.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
Net loss attributable to common stockholders	$	(6,341)	$	(2,585)	$	(16,811)	$	(4,120)
Depreciation of real estate assets	3,738		3,639		7,396		7,166
Amortization of lease-related costs	1,171		1,468		2,409		3,015
Loss (gain) on real estate equity securities	728		(221)		4,618		(1,335)
Adjustments for noncontrolling interests (1)	(261)		(247)		(516)		(490)
Adjustments for investment in unconsolidated entities (2)	—		—		—		(2,800)
FFO attributable to common stockholders	(965)		2,054		(2,904)		1,436
Straight-line rent and amortization of above- and below-market leases	(572)		(812)		(1,365)		(1,606)
Unrealized loss (gain) on derivative instruments	4		—		(9)		(71)
Adjustments for noncontrolling interests (1)	(3)		(4)		(5)		(10)
MFFO attributable to common stockholders	(1,536)		1,238		(4,283)		(251)
Other capitalized operating expenses (3)	(32)		—		(68)		—
Adjusted MFFO attributable to common stockholders	$	(1,568)	$	1,238	$	(4,351)	$	(251)

_____________________

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

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

⁽³⁾ Reflects financing costs that are capitalized with respect to our investment in the opportunity zone fund. Certain financing costs are capitalized in accordance with GAAP and not reflected in our net loss, FFO and MFFO.

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 increase as a result of stabilizing occupancies at our properties.

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.

41

PART I. FINANCIAL INFORMATION (CONTINUED)

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

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) used in operations were as follows for the two quarters of 2020 (in thousands, except per share amounts):

	Distribution Declared		Distributions Declared Per Share		Distributions Paid						Cash Flows Used In Operations
Period					Cash		Reinvested		Total
First Quarter 2020	$	—	$	—	$	107	$	135	$	242	$	(2,578)
Second Quarter 2020	—		—		—		—		—		(759)
	$	—	$	—	$	107	$	135	$	242	$	(3,337)

For the six months ended June 30, 2020, we paid aggregate distributions of $0.2 million including $0.1 million distributions paid in cash and $0.1 million of distributions reinvested through our dividend reinvestment plan. Our net loss attributable to common stockholders for the six months ended June 30, 2020 was $16.8 million and cash flow used in operations was $3.3 million. We funded our total distributions paid for the six months ended June 30, 2020, which includes net cash distributions and distributions reinvested by stockholders with prior period cash flow from operating activities. For purposes of determining the source of distributions paid, we assume first that we use cash flow from operating activities from the relevant or prior periods to fund distribution payments. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have less funds available, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.

Cash distributions will be determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant. Our board of directors has not pre-established a percentage rate of return for cash distributions to stockholders. We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders.

We expect that we will fund these cash distributions from rental and other income on our real property investments and dividend income from real estate equity securities. 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 net 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.

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 and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. 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, 2019 filed with the SEC. There have been no significant changes to our policies during 2020.

42

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the financing of our real estate investment portfolio and operations. 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.

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 June 30, 2020, we were exposed to market risks related to fluctuations in interest rates on $330.8 million of variable rate debt outstanding. As of June 30, 2020, we have also entered into four interest rate cap agreements with an aggregate notional value of $177.1 million, which effectively cap one-month LIBOR. The weighted-average remaining term of the interest rate caps is 1.0 year. Based on interest rates as of June 30, 2020, if interest rates were 100 basis points higher or lower during the 12 months ending June 30, 2021, interest expense on our variable rate debt would increase by $1.6 million or decrease by $0.2 million.

The weighted-average interest rate of our variable rate debt as of June 30, 2020 was 3.5%.  The weighted-average interest rate represents the actual interest rate in effect as of June 30, 2020 (consisting of the contractual interest rate and the effect of interest rate caps, if applicable), using interest rate indices as of June 30, 2020 where applicable.

We are exposed to financial market risk with respect to our real estate equity securities. Financial market risk is the risk that we will incur economic losses due to adverse changes in our real estate equity security prices. Our exposure to changes in real estate equity security prices is a result of our investment in these types of securities. Market prices are subject to fluctuation and, therefore, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market prices of a real estate equity security may result from any number of factors, including perceived changes in the underlying fundamental characteristics of the issuer, the relative price of alternative investments, interest rates, default rates and general market conditions. In addition, amounts realized in the sale of a particular security may be affected by the relative quantity of the real estate equity security being sold. We do not currently engage in derivative or other hedging transactions to manage our real estate equity security price risk. As of June 30, 2020, we owned real estate equity securities with a book value of $8.6 million. Based solely on the prices of real estate equity securities as of June 30, 2020, if prices were to increase or decrease by 10%, our net income would increase or decrease, respectively, by approximately $8.6 million.

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” herein, and Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

Internal Control Over Financial Reporting

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

43

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A of our Quarterly Report on Form 10-Q for the three months ended March 31, 2020, each as filed with the SEC.

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

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

b).Not applicable

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

Pursuant to the share redemption program 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 provided that the last $0.5 million of net proceeds from the dividend reinvestment plan during the prior year is reserved exclusively for shares redeemed in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence” with any excess funds being available to redeem shares not requested in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence” during the December redemption date in the current 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 our share redemption program, redemptions made in connection with a stockholder’s death, qualifying disability, or determination of incompetence are made at a price per share equal to the most recent NAV per share as of the applicable redemption date. The price at which we redeem all other shares eligible for redemption 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.

44

PART II. OTHER INFORMATION (CONTINUED)

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

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.

On December 17, 2019, our board of directors approved an estimated NAV per share of our common stock of $10.25 based on the estimated value of the our assets less the estimated value of our liabilities, or NAV, divided by the number of shares outstanding, all as of September 30, 2019, with the exception of the following adjustments: (i) our consolidated investments in real estate properties were valued as of October 31, 2019; (ii) an adjustment to reduce cash for the amount of capital expenditures incurred in October 2019; (iii) an adjustment for disposition costs and fees incurred in connection with the disposition of 2200 Paseo Verde. Other than the adjustments, there were no material changes between September 30, 2019 and December 17, 2019 that impacted the overall estimated NAV per share. We expect to update our estimated NAV per share annually.

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 10 business days’ notice to stockholders. We also may increase or decrease the funding available for the redemption of shares pursuant to the share redemption program upon 10 business days’ notice to stockholders.

Effective beginning with the month of February 2020, we have suspended (a) redemptions requested under the share redemption program in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”, until we and POSOR I file with the SEC a registration statement on Form S-4 containing a Joint Proxy Statement/Prospectus for the proposed Merger, and (b) all other redemptions under the share redemption program until after the Merger closes. The Form S-4 was filed on June 15, 2020 with the SEC.

During the six months ended June 30, 2020, 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 2020	170,128	$	10.10	(2)
February 2020	—	$	—	(2)
March 2020	—	$	—	(2)
April 2020	—	$	—	(2)
May 2020	—	$	—	(2)
June 2020	1,081	$	10.25	(2)
Total	171,209

_____________________

⁽¹⁾ Pursuant to the program, as amended, we redeem shares at the purchase prices described above.

⁽²⁾ We limit the dollar value of shares that may be redeemed under the program as described above. During the six months ended June 30, 2020, we redeemed $1.7 million of common stock. In January 2020, we exhausted all funds available for redemption of shares in 2020 in connection with redemption requests not made upon a stockholder’s death, “qualifying disability”, or determination of incompetence. As of June 30, 2020, we had $10.5 million outstanding and unfulfilled redemption requests representing 1,037,033 shares due to the limitations described above. As of June 30, 2020, we have $0.5 million available for redemptions made upon a stockholder’s death, “qualifying disability” or “determination of incompetence” during the remainder of 2020.  Based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2020, we have $0.1 million available for redemptions during 2021, subject to the limitations described above.

Item 3. Defaults upon Senior Securities

None.

45

Table of Contents

PART II. OTHER INFORMATION (CONTINUED)

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

46

PART II. OTHER INFORMATION (CONTINUED)

Item 6. Exhibits

Ex.	Description
2.1	Agreement and Plan of Merger, dated as of February 19, 2020, by and among Pacific Oak Strategic Opportunity REIT, Inc., Pacific Oak SOR II, LLC and Pacific Oak Strategic Opportunity REIT II, Inc., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed February 20, 2020
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	Articles of Amendment adopted on November 1, 2019, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed November 1, 2019
3.3	Third Amended and Restated Bylaws adopted November 1, 2019, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed November 1, 2019
3.4	Articles Supplementary for the Class T Shares of common stock dated February 16, 2016, 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, filed February 16, 2016
3.5	Articles Supplementary for the Class A Shares of common stock dated February 16, 2016, 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, filed February 16, 2016
3.6	Articles of Amendment dated February 16, 2016, 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, filed February 16, 2016
4.1	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014, filed September 19, 2014
4.2	Fourth Amended and Restated Dividend Reinvestment Plan adopted May 18, 2017, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed May 24, 2017
4.3	Amended and Restated Multiple Class Plan, effective as of May 18, 2017, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed May 24, 2017
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	Fourth Amended and Restated Share Redemption Program adopted December 6, 2018, incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K, filed December 11, 2018

47

PART II. OTHER INFORMATION (CONTINUED)

Item 6. Exhibits (continued)

Ex.	Description
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

48

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.

		PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
Date:	August 12, 2020	By:	/S/ KEITH D. HALL
			Keith D. Hall
			Chief Executive Officer and Director
			(principal executive officer)
Date:	August 12, 2020	By:	/S/ MICHAEL A. BENDER
			Michael A. Bender
			Chief Financial Officer
			(principal financial officer)

49

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 Pacific Oak 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:	August 12, 2020	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, Michael A. Bender, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Pacific Oak 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:	August 12, 2020	By:	/S/ MICHAEL A. BENDER
			Michael A. Bender
			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 Pacific Oak Strategic Opportunity REIT II, Inc. (the “Registrant”) for the quarter ended June 30, 2020, 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:	August 12, 2020	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 Pacific Oak Strategic Opportunity REIT II, Inc. (the “Registrant”) for the quarter ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Michael A. Bender, the Chief Financial Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:	August 12, 2020	By:	/S/ MICHAEL A. BENDER
			Michael A. Bender
			Chief Financial Officer
			(principal financial officer)

XML

Cover Page - shares	6 Months Ended
	Jun. 30, 2020	Aug. 10, 2020
Entity Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2020
Document Transition Report	false
Entity File Number	000-55424
Entity Registrant Name	PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	46-2822978
Entity Address, Address Line One	11766 Wilshire Blvd., Suite 1670
Entity Address, City or Town	Los Angeles,
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	90025
City Area Code	424
Local Phone Number	208-8100
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Central Index Key	0001580673
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	false
Class A
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		17,838,351
Class T
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		12,222,529

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Assets
Real estate, net	$ 489,380	$ 493,683
Real estate equity securities	8,607	9,934
Total real estate and real estate-related investments, net	497,987	503,617
Cash and cash equivalents	9,458	17,500
Restricted cash	2,785	5,976
Investment in unconsolidated entities	3,199	3,468
Rents and other receivables	5,876	4,648
Above-market leases, net	38	44
Prepaid expenses and other assets	8,425	8,230
Total assets	527,768	543,483
Liabilities and equity
Notes payable, net	328,186	325,995
Accounts payable and accrued liabilities	7,073	6,684
Due to affiliates	1,034	649
Distributions payable	0	242
Below-market leases, net	3,663	4,677
Other liabilities	15,054	12,776
Redeemable common stock payable	621	2,218
Total liabilities	355,631	353,241
Commitments and contingencies (Note 10)
Pacific Oak Strategic Opportunity REIT II, Inc. stockholders’ equity
Preferred stock, $.01 par value per share; 10,000,000 shares authorized, no shares issued and outstanding	0	0
Additional paid-in capital	266,298	266,310
Cumulative distributions and net losses	(101,150)	(84,339)
Total Pacific Oak Strategic Opportunity REIT II, Inc. stockholders’ equity	165,449	182,273
Noncontrolling interests	6,688	7,969
Total equity	172,137	190,242
Total liabilities and equity	527,768	543,483
Class A
Pacific Oak Strategic Opportunity REIT II, Inc. stockholders’ equity
Common stock	178	179
Class T
Pacific Oak Strategic Opportunity REIT II, Inc. stockholders’ equity
Common stock	$ 123	$ 123

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2020	Dec. 31, 2019
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Class A
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	500,000,000	500,000,000
Common stock, shares issued (in shares)	17,841,219	17,949,194
Common stock, shares outstanding (in shares)	17,841,219	17,949,194
Class T
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	500,000,000	500,000,000
Common stock, shares issued (in shares)	12,222,529	12,272,927
Common stock, shares outstanding (in shares)	12,222,529	12,272,927

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenues:
Office revenues	$ 6,935	$ 7,194	$ 14,031	$ 14,311
Dividend income from real estate equity securities	151	105	290	209
Total revenues	11,710	19,336	25,081	34,532
Expenses:
Office expenses	3,237	3,427	6,611	6,824
Asset management fees to affiliate	1,053	1,062	2,096	2,111
General and administrative expenses	1,434	768	3,079	1,475
Depreciation and amortization	4,909	5,107	9,805	10,181
Interest expense	3,738	5,027	7,864	9,988
Total expenses	17,873	22,410	38,425	43,670
Other (loss) income:
Other interest income	1	48	34	112
Equity in income of unconsolidated entity	0	0	0	2,800
Other income	26	0	26	0
(Loss) gain on real estate equity securities	(728)	221	(4,618)	1,335
Total other (loss) income	(701)	269	(4,558)	4,247
Net loss	(6,864)	(2,805)	(17,902)	(4,891)
Net loss attributable to noncontrolling interests	523	220	1,091	771
Net loss attributable to common stockholders	(6,341)	(2,585)	(16,811)	(4,120)
Class A
Other (loss) income:
Net loss attributable to common stockholders	$ (3,763)	$ (1,537)	$ (9,978)	$ (2,451)
Net loss per common share, basic and diluted (in dollars per share)	$ (0.21)	$ (0.09)	$ (0.56)	$ (0.14)
Weighted-average number of common shares outstanding, basic and diluted (in shares)	17,842,289	17,930,156	17,860,958	17,955,331
Class T
Other (loss) income:
Net loss attributable to common stockholders	$ (2,578)	$ (1,048)	$ (6,833)	$ (1,669)
Net loss per common share, basic and diluted (in dollars per share)	$ (0.21)	$ (0.09)	$ (0.56)	$ (0.14)
Weighted-average number of common shares outstanding, basic and diluted (in shares)	12,222,534	12,230,499	12,231,843	12,221,952
Hotel
Revenues:
Revenue	$ 2,608	$ 10,067	$ 6,687	$ 16,047
Expenses:
Expenses	2,728	6,136	7,386	11,311
Apartment
Revenues:
Revenue	2,016	1,970	4,073	3,965
Expenses:
Expenses	$ 774	$ 883	$ 1,584	$ 1,780

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Statement of Comprehensive Income [Abstract]
Net loss	$ (6,864)	$ (2,805)	$ (17,902)	$ (4,891)
Other comprehensive loss:
Foreign currency translation gain (loss)	0	27	0	(25)
Reclassification adjustment for amounts recognized in net loss	0	(64)	0	(64)
Total other comprehensive loss	0	(37)	0	(89)
Total comprehensive loss	(6,864)	(2,842)	(17,902)	(4,980)
Total comprehensive loss attributable to noncontrolling interests	523	220	1,091	771
Total comprehensive loss attributable to common stockholders	$ (6,341)	$ (2,622)	$ (16,811)	$ (4,209)

XML

CONSOLIDATED STATEMENTS OF EQUITY - USD ($) $ in Thousands	Total	Class A	Class T	Total Stockholders’ Equity	Common Stock	Common Stock Class A	Common Stock Class T	Additional Paid-in Capital	Cumulative Distributions and Net Losses	Accumulated Other Comprehensive Income (Loss)	Noncontrolling Interests
Balance (in shares) at Dec. 31, 2018						18,103,437	12,208,242
Balance at Dec. 31, 2018	$ 204,438			$ 193,270		$ 181	$ 122	$ 266,339	$ (73,461)	$ 89	$ 11,168
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(4,891)			(4,120)					(4,120)		(771)
Other comprehensive loss	(89)			(89)						(89)
Issuance of common stock (in shares)						73,549	65,825
Issuance of common stock	1,347			1,347		$ 1	$ 1	1,345
Redemptions of common stock (in shares)						(251,212)	(35,977)
Redemptions of common stock	(2,733)			(2,733)		$ (3)		(2,730)
Transfers from redeemable common stock	1,366			1,366				1,366
Distributions declared	(1,930)			(1,930)					(1,930)
Noncontrolling interests contributions	210			0							210
Distributions to noncontrolling interests	(100)			0							(100)
Balance (in shares) at Jun. 30, 2019						17,925,774	12,238,090
Balance at Jun. 30, 2019	197,618			187,111		$ 179	$ 123	266,320	(79,511)	0	10,507
Balance (in shares) at Mar. 31, 2019						17,926,128	12,216,244
Balance at Mar. 31, 2019	201,183			190,456		$ 179	$ 122	266,320	(76,202)	37	10,727
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(2,805)			(2,585)					(2,585)		(220)
Other comprehensive loss	(37)			(37)						(37)
Issuance of common stock (in shares)						24,324	21,846
Issuance of common stock	448			448		$ 1	$ 1	446
Redemptions of common stock (in shares)						(24,678)
Redemptions of common stock	(239)			(239)		$ (1)		(238)
Transfers to redeemable common stock	(208)			(208)				(208)
Distributions declared	(724)			(724)					(724)
Noncontrolling interests contributions	100			0							100
Distributions to noncontrolling interests	(100)			0							(100)
Balance (in shares) at Jun. 30, 2019						17,925,774	12,238,090
Balance at Jun. 30, 2019	197,618			187,111		$ 179	$ 123	266,320	(79,511)	0	10,507
Balance (in shares) at Dec. 31, 2019		17,949,194	12,272,927			17,949,194	12,272,927
Balance at Dec. 31, 2019	190,242			182,273		$ 179	$ 123	266,310	(84,339)	0	7,969
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(17,902)			(16,811)					(16,811)		(1,091)
Other comprehensive loss	0
Issuance of common stock (in shares)						6,552	6,290
Issuance of common stock	135			135				135
Redemptions of common stock (in shares)						(114,527)	(56,688)
Redemptions of common stock	(1,730)			(1,730)	$ (1,700)	$ (1)		(1,729)
Transfers from redeemable common stock	1,597			1,597				1,597
Other offering costs	(15)			(15)				(15)
Noncontrolling interests contributions	10			0							10
Distributions to noncontrolling interests	(200)			0							(200)
Balance (in shares) at Jun. 30, 2020		17,841,219	12,222,529			17,841,219	12,222,529
Balance at Jun. 30, 2020	172,137			165,449		$ 178	$ 123	266,298	(101,150)	0	6,688
Balance (in shares) at Mar. 31, 2020						17,842,301	12,222,534
Balance at Mar. 31, 2020	179,215			171,804		$ 178	$ 123	266,312	(94,809)	0	7,411
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(6,864)			(6,341)					(6,341)		(523)
Other comprehensive loss	0
Redemptions of common stock (in shares)						(1,082)	(5)
Redemptions of common stock	(10)			(10)				(10)
Transfers from redeemable common stock	11			11				11
Other offering costs	(15)			(15)				(15)
Distributions to noncontrolling interests	(200)			0							(200)
Balance (in shares) at Jun. 30, 2020		17,841,219	12,222,529			17,841,219	12,222,529
Balance at Jun. 30, 2020	$ 172,137			$ 165,449		$ 178	$ 123	$ 266,298	$ (101,150)	$ 0	$ 6,688

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Cash Flows from Operating Activities:
Net loss	$ (6,864)	$ (2,805)	$ (17,902)	$ (4,891)
Adjustment to reconcile net loss to net cash used in operating activities
Equity in income of unconsolidated entity	0	0	0	(2,800)
Depreciation and amortization	4,909	5,107	9,805	10,181
Loss (gain) on real estate equity securities	728	(221)	4,618	(1,335)
Deferred rents			(357)	(233)
Amortization of above- and below-market leases, net			(1,008)	(1,373)
Amortization of deferred financing costs			1,020	807
Foreign currency translation gain			0	(64)
Unrealized gain on derivative instruments			(9)	(71)
Changes in operating assets and liabilities:
Rents and other receivables			(205)	(217)
Prepaid expenses and other assets			(674)	(647)
Accounts payable and accrued liabilities			307	(222)
Due to affiliates			414	15
Other liabilities			152	638
Net cash used in operating activities			(3,839)	(212)
Cash Flows from Investing Activities:
Improvements to real estate			(4,931)	(6,578)
Investment in real estate securities			(4,049)	(4)
Investment in unconsolidated entities			(143)	0
Proceeds from the sale of real estate equity securities			758	0
Distribution of capital from unconsolidated entities			383	5,104
Proceeds from termination of derivative instruments			0	145
Net cash used in investing activities			(7,982)	(1,333)
Cash Flows from Financing Activities:
Proceeds from notes payable			1,560	3,779
Principal payments on notes payable			(348)	(4,690)
Payments of deferred financing costs			(41)	(249)
Other financing proceeds			1,710	0
Principal payments on finance lease obligations			(251)	(196)
Payments to redeem common stock			(1,730)	(2,733)
Distributions paid			(107)	(826)
Payments of other offering costs			(15)	0
Noncontrolling interest contributions			10	210
Distributions to noncontrolling interest			(200)	(100)
Net cash provided by (used in) financing activities			588	(4,805)
Net decrease in cash, cash equivalents and restricted cash			(11,233)	(6,350)
Cash, cash equivalents and restricted cash, beginning of period			23,476	26,858	$ 26,858
Cash, cash equivalents and restricted cash, end of period	$ 12,243	$ 20,508	12,243	20,508	$ 23,476
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $68 and $0 for the six months ended June 30, 2020 and 2019, respectively			6,785	9,029
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan			135	1,347
Foreign currency translation loss on investment in unconsolidated entity			0	(25)
Redemption payable			621	1,662
Accrued improvements to real estate			1,240	2,272
Distributions payable			0	241
Construction cost payable			$ 0	$ 14

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020	Jun. 30, 2019
Income Statement [Abstract]
Interest capitalized	$ 32	$ 68	$ 0

XML

ORGANIZATION

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION

ORGANIZATION

Pacific Oak 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 Pacific Oak 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. Pacific Oak 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 was externally managed by KBS Capital Advisors LLC (“KBS Capital Advisors”), an affiliate of the Company, since July 2013 pursuant to an advisory agreement the Company renewed with KBS Capital Advisors on September 26, 2019. KBS Capital Advisors conducted the Company’s operations and managed its portfolio of real estate loans, opportunistic real estate and other real estate-related investments. On October 31, 2019, KBS Capital Advisors ceased to serve as the Company's advisor or have any advisory responsibility to the Company immediately following the filing of the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2019 (filed November 8, 2019) with the Securities and Exchange Commission (the “SEC”). On November 1, 2019, the Company entered into an advisory agreement (the “Advisory Agreement”) with Pacific Oak Capital Advisors, LLC (the “Advisor”). The Advisory Agreement is effective as of November 1, 2019 through November 1, 2020; however the Company may terminate the Advisory Agreement without cause or penalty upon providing 30 days’ written notice and the Advisor may terminate the Advisory Agreement without cause or penalty upon providing 90 days’ written notice. The terms of the Advisory Agreement are consistent with those of the advisory agreement that was previously in effect with KBS Capital Advisors. KBS Capital Advisors previously entered into a sub-advisory agreement with STAM Europe (“STAM”), a real estate operating company based in Paris, France, to provide real estate acquisition and portfolio management services to KBS Capital Advisors in connection with any investments the Company may make in value-added real estate, distressed debt, and real estate-related investments in Europe. Effective April 17, 2019, STAM terminated the sub-advisory agreement with KBS Capital Advisors.

The Company has invested in and manages a portfolio of opportunistic real estate, real estate equity securities and other real estate-related investments located in the United States and Europe. As of June 30, 2020, the Company had invested in two hotel properties, three office properties, one apartment building, two investments in unconsolidated entities and two investments in real estate equity securities. Additionally, as of June 30, 2020, the Company had entered into a consolidated joint venture to develop one office/retail property.

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 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 offered 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 common stock for sale to the public on February 17, 2016. KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Company’s former advisor, served 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 was responsible for marketing the Company’s shares. The Company ceased offering shares of common stock in the primary portion of the Public Offering on July 31, 2018 and terminated the primary portion of the Public Offering on September 28, 2018. The Company continues to offer shares of common stock under its dividend reinvestment plan. In some states, the Company will need to renew the registration statement annually or file a new registration statement to continue its dividend reinvestment plan offering. The Company may terminate its dividend reinvestment plan offering at any time.

The Company sold 11,977,758 and 11,537,701 shares of Class A and Class T common stock, respectively, in the Public Offering for aggregate gross offering proceeds of $228.6 million. As of June 30, 2020, the Company had sold 730,193 and 340,127 shares of Class A and Class T common stock, respectively, under its dividend reinvestment plan for aggregate gross offering proceeds of $10.0 million. Also, as of June 30, 2020, the Company had redeemed 833,490 and 164,618 shares of Class A and Class T common stock, respectively, for $9.2 million.

In addition, the Company raised $4.2 million in separate private transactions exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act.

On July 3, 2013, the Company issued 21,739 shares of its Class A common stock to KBS Capital Advisors at a purchase price of $9.20 per share. 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. On July 14, 2017 and February 13, 2018, the Company issued 214,175 shares and 10,935 shares, respectively, of Class A common stock to a business associate of Keith D. Hall and Peter McMillan III for approximately $2.0 million and $0.1 million, respectively. 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.

On February 19, 2020, the Company, Pacific Oak Strategic Opportunity REIT, Inc. (“POSOR I”), and Pacific Oak SOR II, LLC, an indirect subsidiary of POSOR I (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, the Company will merge with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger (the “Surviving Entity”), such that following the Merger, the Surviving Entity will continue as an indirect subsidiary of POSOR I. In accordance with the applicable provisions of the Maryland General Corporation Law, the separate existence of the Company shall cease. At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of the Company's common stock will be converted into the right to receive 0.9643 shares of POSOR I common stock. The combined company after the Merger will retain the name “Pacific Oak Strategic Opportunity REIT, Inc.”

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2020

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, 2019. 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, 2019 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 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 three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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 and VIEs in which the Company has a primary beneficiary. 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.

Restricted Cash

Restricted cash is comprised of lender impound reserve accounts on the Company’s borrowings for security deposits, property taxes, insurance, debt service obligations and capital improvements and replacements.

Redeemable Common Stock

The Company limits the dollar value of shares that may be redeemed under the share redemption program. During the six months ended June 30, 2020, the Company had redeemed $1.7 million of common stock under the share redemption program. The Company processed all redemption requests received in good order and eligible for redemption through the June 2020 redemption date, except for 1,037,033 shares totaling $10.5 million due to the limitations under the share redemption program. The Company recorded $0.6 million and $2.2 million of redeemable common stock payable on the Company’s balance sheet as of June 30, 2020 and December 31, 2019, respectively, related to unfulfilled redemption requests received in good order under the share redemption program. Based on the fourth amended and restated share redemption program, the Company has $0.5 million available for redemptions in the remainder of 2020, including shares that are redeemed in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence,” subject to the limitations under the share redemption program. Effective beginning with the month of February 2020, the Company suspended redemptions requested under the share redemption program not in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”, until the Company and POSOR I file with the SEC a registration statement on Form S-4 containing a Joint Proxy Statement/Prospectus for the proposed merger, and (b) all other redemptions under the share redemption program until after the Merger closes. The Form S-4 was filed on June 15, 2020 with the SEC.

Segments

The Company has invested in opportunistic real estate investments, real estate equity securities, other real estate-related assets and originated a loan secured by a non-stabilized real estate asset, which was repaid on January 12, 2018. In general, the Company intends to hold its investments in opportunistic real estate, real estate equity securities 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. In addition, the Company has invested in a participating loan facility secured by a portfolio of light industrial properties located in Europe, which was terminated on April 17, 2019.

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 0 potentially dilutive securities outstanding during the three and six months ended June 30, 2020 and 2019. 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. 

Cash distributions declared per share of Class A and Class T common stock were $0.02397501 and $0.0639334 for the three and six months ended June 30, 2019. Distributions declared per common share assumes each share was issued and outstanding each day that was a record date for distributions and were based on a monthly record date for each month during the periods commencing January 2019 through June 2019. There were no distributions declared for the three and six months ended June 30, 2020.

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.

The Company’s calculated earnings per share for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands, except share and per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net loss attributable to common stockholders	$	(6,341)	$	(2,585)	$	(16,811)	$	(4,120)
Less: Class A Common Stock cash distributions declared	—		430		—		1,148
Less: Class T Common Stock cash distributions declared	—		294		—		782
Undistributed net loss attributable to common stockholders	$	(6,341)	$	(3,309)	$	(16,811)	$	(6,050)
Class A Common Stock:
Undistributed net loss attributable to common stockholders	$	(3,763)	$	(1,967)	$	(9,978)	$	(3,599)
Class A Common Stock cash distributions declared	—		430		—		1,148
Net loss attributable to Class A common stockholders	$	(3,763)	$	(1,537)	$	(9,978)	$	(2,451)
Net loss per common share, basic and diluted	$	(0.21)	$	(0.09)	$	(0.56)	$	(0.14)
Weighted-average number of common shares outstanding, basic and diluted	17,842,289		17,930,156		17,860,958		17,955,331
Class T Common Stock:
Undistributed net loss attributable to common stockholders	$	(2,578)	$	(1,342)	$	(6,833)	$	(2,451)
Class T Common Stock cash distributions declared	—		294		—		782
Net loss attributable to Class T common stockholders	$	(2,578)	$	(1,048)	$	(6,833)	$	(1,669)
Net loss per common share, basic and diluted	$	(0.21)	$	(0.09)	$	(0.56)	$	(0.14)
Weighted-average number of common shares outstanding, basic and diluted	12,222,534		12,230,499		12,231,843		12,221,952

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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“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 debt 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 debt 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. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarified that receivables from operating leases are not within the scope of Topic 326 and instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842. 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 March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). ASU No. 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU No. 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the three months ended March 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. For the period from January 1, 2020 (the earliest date the Company may elect to apply ASU No. 2020-04) through March 31, 2020, the Company did not have any contract modifications that meet the criteria described above, specifically contract modifications that have been modified from LIBOR to an alternative reference rate. The Company’s loan agreements, derivative instruments, and certain lease agreements use LIBOR as the current reference rate. For eligible contract modifications, the Company expects to adopt the temporary optional expedients described in ASU No. 2020-04. The optional expedients for hedging relationships described in ASU No. 2020-04 are not expected to have an impact to the Company, as the Company has elected to not designate its derivative instruments as a hedge.

In April 2020, the FASB issued a FASB Staff Q&A related to Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic (the “Topic 842 Q&A”) which focused on the application of lease guidance for concessions related to the effects of the COVID-19 pandemic. In this Q&A document, the FASB staff will allow entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842, Leases (“Topic 842”) as though enforceable rights and obligations for those qualifying concessions existed. The Company did not have any material lease concessions related to the effects of the COVID-19 pandemic that had a material impact to the Company’s consolidated balance sheet as of June 30, 2020 or consolidated statement of operations for the six months ended June 30, 2020.

XML

REAL ESTATE

6 Months Ended

Jun. 30, 2020

Real Estate [Abstract]

REAL ESTATE

REAL ESTATE

As of June 30, 2020, the Company’s real estate portfolio was composed of two hotel properties, three office properties and one apartment building. In addition, as of June 30, 2020, the Company has entered into a consolidated joint venture to develop one office/retail property. The following table summarizes the Company’s real estate as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Land	$	102,288	$	102,288
Buildings and improvements	432,796		427,696
Tenant origination and absorption costs	13,425		15,422
Total real estate, cost and net of impairment charges	548,509		545,406
Accumulated depreciation and amortization	(59,129)		(51,723)
Total real estate, net	$	489,380	$	493,683

The following table provides summary information regarding the Company’s real estate as of June 30, 2020 (in thousands):

Property	Date Acquired	City	State	Property Type	Land		Building and Improvements (1)		Tenant Origination and Absorption		Total Real Estate, at Cost and Net of Impairment Charges		Accumulated Depreciation and Amortization		Total Real Estate, Net		Ownership %
Springmaid Beach Resort	12/30/2014	Myrtle Beach	SC	Hotel	$	27,438	$	40,458	$	—	$	67,896	$	(11,804)	$	56,092	90.0%
Q&C Hotel	12/17/2015	New Orleans	LA	Hotel	1,232		53,323		—		54,555		(9,446)		45,109		90.0%
Lincoln Court	05/20/2016	Campbell	CA	Office	14,706		36,067		1,069		51,842		(5,493)		46,349		100.0%
Lofts at NoHo Commons	11/16/2016	North Hollywood	CA	Apartment	26,222		82,057		—		108,279		(7,950)		100,329		90.0%
210 West 31st Street (2)	12/01/2016	New York	NY	Office/Retail	—		55,269		—		55,269		—		55,269		80.0%
Oakland City Center	08/18/2017	Oakland	CA	Office	22,150		143,462		9,556		175,168		(20,118)		155,050		100.0%
Madison Square (3)	10/03/2017	Phoenix	AZ	Office	10,540		22,160		2,800		35,500		(4,318)		31,182		90.0%
					$	102,288	$	432,796	$	13,425	$	548,509	$	(59,129)	$	489,380

_____________________

⁽¹⁾ Building and improvements includes construction costs for the Company’s project that was under development.

⁽²⁾ The Company acquired the rights to a leasehold interest with respect to this property, which was accounted for as a finance lease. The Company applied a 6.1% discount rate to the finance lease and the lease expires on January 31, 2114. As of June 30, 2020, the finance lease right-of-use asset had a carrying value of $6.8 million included in building and improvements. No depreciation or amortization was recorded to this property as of June 30, 2020.

⁽³⁾ The Company acquired the rights to a leasehold interest with respect to the land at this property, which was accounted for as a finance lease. The Company applied a 5.4% discount rate to the finance lease and as of June 30, 2020, the finance lease had a weighted average remaining lease term of 2.3 years. As of June 30, 2020, the finance lease right-of-use asset had a carrying value of $1.9 million included in land.

Office Properties

As of June 30, 2020, the Company owned three office properties encompassing in the aggregate 806,960 rentable square feet which were 69% occupied. The following table provides detailed information regarding the Company’s office revenues and expenses for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Office revenues:
Rental income	$	6,734	$	7,007	$	13,604	$	13,919
Other income	201		187		427		392
Office revenues	$	6,935	$	7,194	$	14,031	$	14,311
Office expenses:
Operating, maintenance, and management	$	2,144	$	2,338	$	4,418	$	4,663
Real estate taxes and insurance	1,093		1,089		2,193		2,161
Office expenses	$	3,237	$	3,427	$	6,611	$	6,824

Operating Leases

The Company’s office properties are leased to tenants under operating leases for which the terms and expirations vary. As of June 30, 2020, the leases had remaining terms, excluding options to extend, of up to 10.3 years with a weighted-average remaining term of 3.3 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 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 $1.0 million and $1.1 million as of June 30, 2020 and December 31, 2019, respectively.

During the three and six months ended June 30, 2020, the Company recognized deferred rent from tenants of $0.1 million and $0.3 million, respectively, net of lease incentive amortization. During the three and six months ended June 30, 2019, the Company recognized deferred rent from tenants of $0.1 million and $0.2 million, respectively, net of lease incentive amortization. As of June 30, 2020 and December 31, 2019, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $3.9 million and $2.9 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $0.1 million and $0.2 million of unamortized lease incentives as of June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020, the future minimum rental income from the Company’s office properties under its non-cancelable operating leases was as follows (in thousands):

July 1, 2020 through December 31, 2020	$	11,061
2021	20,153
2022	16,403
2023	13,304
2024	10,827
Thereafter	33,323
	$	105,071

As of June 30, 2020, the Company’s commercial real estate properties were leased to approximately 80 tenants over a diverse range of industries and geographic areas. As of June 30, 2020, the highest tenant industry concentrations (greater than 10% of annualized base rent) in the Company’s portfolio were as follows:

Industry	Number of Tenants	Annualized Base Rent (1) (in thousands)		Percentage of Annualized Base Rent
Legal Services	13	$	4,547	21.2	%
Public Administration	6	3,219		15.0	%
Professional, Scientific, and Technical Services	11	2,961		13.8	%
		$	10,727	50.0	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2020, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

No other tenant industries accounted for more than 10% of annualized base rent. No tenant accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time. During six months ended June 30, 2020, the Company recorded a $45,000 adjustment to office revenues for lease payments deemed not probable of collection. There were no adjustments during the three months ended June 30, 2020. During the three and six months ended June 30, 2019, the Company recorded bad debt recovery of $31,000 and $0.1 million, respectively, which were included in office expenses in the accompanying consolidated statements of operations.

Hotel Properties

As of June 30, 2020, the Company owned two hotel properties. The following table provides detailed information regarding the Company’s hotel revenues and expenses for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Hotel revenues:
Room	$	1,908	$	7,590	$	4,862	12,055
Food, beverage and convention services	233		1,679		834		2,552
Campground	256		280		511		551
Other	211		518		480		889
Hotel revenues	$	2,608	$	10,067	$	6,687	$	16,047
Hotel expenses:
Room	$	608	$	1,680	$	1,698	3,004
Food, beverage and convention services	262		1,164		887		1,940
General and administrative	337		708		1,142		1,494
Sales and marketing	291		912		830		1,606
Repairs and maintenance	335		526		797		1,092
Utilities	214		224		508		485
Property taxes and insurance	519		435		1,108		873
Other	162		487		416		817
Hotel expenses	$	2,728	$	6,136	$	7,386	$	11,311

On March 31, 2020, both hotels were temporarily closed due to COVID-19 (Coronavirus) and the Springmaid Beach Resort reopened on May 1, 2020. The Company is unable to predict when the Q&C Hotel will resume operations. The extent of the effects of the COVID-19 pandemic on the Company’s business and the hotel industry at large is highly uncertain and will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, governmental response, the length of time it takes for demand and pricing to return and normal economic and operating conditions to resume.

Contract liabilities

The following table summarizes the Company’s contract liabilities, which are comprised of advanced deposits and are included in other liabilities in the accompanying consolidated balance sheets, as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Contract liability	$	459	$	500
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period	$	267	$	281

Apartment Property

As of June 30, 2020, the Company owned one apartment property with 292 units which was 88% occupied. The following table provides detailed information regarding the Company’s apartment revenues and expenses for the three months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Apartment revenues:
Rental income	$	1,807	$	1,829	$	3,635	$	3,659
Other income	209		141		438		306
Apartment revenues	$	2,016	$	1,970	$	4,073	$	3,965
Apartment expenses:
Operating, maintenance, and management	$	431	$	544	$	875	$	1,080
Real estate taxes and insurance	343		339		709		700
Apartment expenses	$	774	$	883	$	1,584	$	1,780

Geographic Concentration Risk

As of June 30, 2020, the Company’s real estate investments in California represented 57.2% of the Company’s total assets. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California real estate market. Any adverse economic or real estate developments in this market, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.

XML

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

6 Months Ended

Jun. 30, 2020

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

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

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

As of June 30, 2020 and December 31, 2019, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):

	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Cost	$	13,425	$	15,422	$	72	$	72	$	(8,962)	$	(10,802)
Accumulated Amortization	(7,349)		(7,954)		(34)		(28)		5,299		6,125
Net Amount	$	6,076	$	7,468	$	38	$	44	$	(3,663)	$	(4,677)

Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):

	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	For the Three Months Ended June 30,				For the Three Months Ended June 30,				For the Three Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Amortization	$	(673)	$	(888)	$	(3)	$	(4)	$	472	$	679

	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	For the Six Months Ended June 30,				For the Six Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Amortization	$	(1,393)	$	(1,831)	$	(6)	$	(9)	$	1,014	$	1,382

As of June 30, 2020 and December 31, 2019, the Company had recorded a housing subsidy intangible asset, net of amortization, which is included in prepaid expenses and other assets in the accompanying balance sheets, of $2.2 million. As of June 30, 2020, the housing subsidy intangible asset has a remaining amortization period of 28.1 years. During each of the three months ended June 30, 2020 and 2019, the Company recorded amortization expense of $20,000 related to the housing subsidy intangible asset. During each of the six months ended June 30, 2020 and 2019, the Company recorded amortization expense of $40,000 related to the housing subsidy intangible asset.

Additionally, as of June 30, 2020 and December 31, 2019, the Company had recorded property tax abatement intangible assets, net of amortization, which are included in prepaid expenses and other assets in the accompanying balance sheets, of $1.7 million and $1.8 million, respectively. As of June 30, 2020, the property tax abatement intangible assets have a weighted-average remaining amortization period of 3.3 years. During each of the three months ended June 30, 2020 and 2019, the Company recorded amortization expense of $0.1 million related to the property tax abatement intangible assets. During each of the six months ended June 30, 2020 and 2019, the Company recorded amortization expense $0.2 million related to the property tax abatement intangible assets.

XML

REAL ESTATE EQUITY SECURITIES

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

REAL ESTATE EQUITY SECURITIES

REAL ESTATE EQUITY SECURITIES

The Company’s real estate equity securities are carried at their estimated fair value based on quoted market prices for the security. Transaction costs that are directly attributable to the acquisition of real estate equity securities are capitalized to its cost basis. Unrealized gains and losses on real estate equity securities are recognized in earnings. The following table sets forth the number of shares owned by the Company and the related carrying value of the shares as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30, 2020			December 31, 2019
Real Estate Equity Securities	Number of Shares Owned	Total Carrying Value		Number of Shares Owned	Total Carrying Value
Franklin Street Properties Corp.	1,580,713	$	8,046	1,160,591	$	9,934
Plymouth Industrial REIT, Inc.	43,829	561		—	—
	1,624,542	$	8,607	1,160,591	$	9,934

During the six months ended June 30, 2020, the Company purchased 92,931 shares of common stock of Plymouth Industrial REIT, Inc. (NYSE Ticker: PLYM) for an aggregate purchase price of $1.3 million and also purchased 420,122 shares of Franklin Street Properties Corp. (NYSE Ticker: FSP) for an aggregate purchase price of $2.8 million. During the six months ended June 30, 2020, the Company sold 49,102 shares of PLYM for an aggregate sales price of $0.8 million.

The following summarizes the portion of gain and loss for the period related to real estate equity securities held during the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net (loss) gain recognized during the period on real estate equity securities	$	(728)	$	221	$	(4,618)	$	1,335
Less net gain recognized during the period on real estate equity securities sold during the period	(67)		—		(67)		—
Unrealized (loss) gain recognized during the reporting period on real estate equity securities held at the end of the period	$	(795)	$	221	$	(4,685)	$	1,335

During the three and six months ended June 30, 2020, the Company recognized $0.2 million and $0.3 million of dividend income from real estate equity securities, respectively. During the three and six months ended June 30, 2019, the Company recognized $0.1 million and $0.2 million of dividend income from real estate equity securities, respectively.

XML

INVESTMENT IN UNCONSOLIDATED ENTITIES

6 Months Ended

Jun. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN UNCONSOLIDATED ENTITIES

INVESTMENT IN UNCONSOLIDATED ENTITIESOn June 28, 2016, the Company originated a participating loan facility (“STAM investment”) in an amount up to €2.6 million ($2.9 million at closing) with STAM, a real estate operating company that provides real estate acquisition and portfolio management services to make in value-added real estate, distressed debt, and real estate-related investments in Europe. The Company funded approximately €2.1 million ($2.3 million at closing). The proceeds were used by STAM 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 year ended December 31, 2019, STAM completed the liquidation of the portfolio and the Company recognized $2.8 million of equity in income of unconsolidated entity with respect to this investment. During the six months ended June 30, 2020, the Company received a distribution of €0.4 million or $0.4 million and as of June 30, 2020, the Company’s investment in the STAM investment was $0.1 million.

On December 31, 2019, the Company acquired 13 Class A Units for $2.9 million in Pacific Oak Opportunity Zone Fund I, LLC (“Pacific Oak Opportunity Zone Fund I”). As of June 30, 2020, Pacific Oak Opportunity Zone Fund I consolidated two joint ventures with real estate under development. As of June 30, 2020, the Company has concluded that Pacific Oak Opportunity Zone Fund I qualifies as a Variable Interest Entity (“VIE”) because there is insufficient equity at risk to finance the entity’s activities and the entity is structured with non-substantive voting rights. The Company concluded it is not the primary beneficiary of this VIE since it does not have the power to direct the activities that most significantly impact the entity’s economic performance and will account for its investment under the equity method of accounting.

The Company’s maximum exposure to loss as a result of its involvement with this VIE is limited to the carrying value of the investment in Pacific Oak Opportunity Zone Fund I which totaled $3.0 million as of June 30, 2020.

XML

NOTES PAYABLE

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

NOTES PAYABLE

NOTES PAYABLE

As of June 30, 2020 and December 31, 2019, the Company’s notes payable consisted of the following (in thousands):

	Book Value as of June 30, 2020		Book Value as of December 31, 2019		Contractual Interest Rate (1)	Effective Interest Rate (1)	Payment Type	Maturity Date
Springmaid Beach Resort Mortgage Loan (2)	$	56,461	$	56,536	One-month LIBOR + 2.25% (2)	5.75%	Principal & Interest	08/10/2022
Q&C Hotel Mortgage Loan	25,000		25,000		One-month LIBOR + 2.50% (3)	4.50%	Principal & Interest (3)	12/23/2022
Lincoln Court Mortgage Loan	34,615		34,615		One-month LIBOR + 1.75%	1.91%	Interest Only	12/01/2020
Lofts at NoHo Commons Mortgage Loan (4)	73,862		73,862		One-month LIBOR + 2.18% (4)	3.93%	Interest Only	09/09/2021
210 West 31st Street Mortgage Loan	20,000		20,000		One-month LIBOR + 3.00%	3.16%	Interest Only	12/16/2020
Oakland City Center Mortgage Loan (5)	97,112		95,989		One-month LIBOR + 1.75%	1.91%	Interest Only	09/01/2022
Madison Square Mortgage Loan (6)	23,757		23,593		One-month LIBOR + 4.05% (6)	5.05%	Interest Only	10/09/2020
Total notes payable principal outstanding	330,807		329,595
Deferred financing costs, net	(2,621)		(3,600)
Total notes payable, net	$	328,186	$	325,995

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2020. Effective interest rate is calculated as the actual interest rate in effect as of June 30, 2020 (consisting of the contractual interest rate, contractual floor rates and the effects of interest rate caps, if applicable), using interest rate indices at June 30, 2020, where applicable.

⁽²⁾ As of June 30, 2020, $57.3 million had been disbursed to the Company and up to $9.7 million was available for future disbursements, subject to certain terms and conditions contained in the loan documents. The interest rate is variable at the higher of one-month LIBOR + 2.25% or 5.75%.

⁽³⁾ The interest rate is variable at the higher of one-month LIBOR + 2.5% or 4.5%. Principal payments will commence on January 1, 2022.

⁽⁴⁾ As of June 30, 2020, $73.9 million had been disbursed to the Company and up to $2.1 million is available for future disbursements to be used for tenant improvements and leasing commissions, subject to certain terms and conditions contained in the loan documents. The LIBOR rate is variable at the higher of one-month LIBOR or 1.75%.

⁽⁵⁾ As of June 30, 2020, $97.1 million had been disbursed to the Company and up to $6.3 million is available for future disbursements to be used for tenant improvements and leasing commissions, subject to certain terms and conditions contained in the loan documents. Beginning October 1, 2020, monthly payments will include principal and interest with principal payments of $110,000 or, in the event the Company repays any principal of the loan amount, with principal payments calculated using an amortization schedule of 30 years and an annual interest rate of 6.0%, subject to certain terms and conditions contained in the loan documents.

⁽⁶⁾ As of June 30, 2020, $23.8 million had been disbursed to the Company and up to $10.3 million is available for future disbursements to be used for tenant improvements and leasing expenses, subject to certain terms and conditions contained in the loan documents. The Madison Square Mortgage Loan bears interest at a floating rate of 405 basis points over one-month LIBOR, but at no point shall the interest rate be less than 5.05%.

The Company plans to refinance or utilize available extension options for notes payable with maturities through the second quarter of 2021. There can be no assurance that the Company will be able to refinance or utilize extension options.

During the three and six months ended June 30, 2020, the Company incurred $3.7 million and $7.9 million, respectively, of interest expense. Included in interest expense was: (i) the amortization of deferred financing costs of $0.5 million and $1.0 million for the three and six months ended June 30, 2020, respectively, (ii) an unrealized loss of $4,000 and an unrealized gain of $9,000 interest rate cap agreements for the three and six months ended June 30, 2020, respectively, and (iii) $0.2 million and $0.3 million of interest on finance leases for the three and six months ended June 30, 2020, respectively. Additionally, during the three and six months ended June 30, 2020, the Company capitalized $32,000 and $68,000, respectively, of interest related to an investment in unconsolidated entity. During the three and six months ended June 30, 2019, the Company incurred $5.0 million and $10.0 million, respectively, of interest expense. Included in interest expense was: (i) the amortization of deferred financing costs of $0.4 million and $0.8 million for the three and six months ended June 30, 2019, respectively, (ii) an unrealized loss of $6,000 on interest rate cap agreements for the six months ended June 30, 2019 and (iii) $0.2 million and $0.3 million of interest on finance leases for the three and six months ended June 30, 2019, respectively. As of June 30, 2020 and December 31, 2019, the Company’s interest payable was $0.9 million and $0.8 million, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of June 30, 2020 (in thousands):

July 1, 2020 through December 31, 2020	$	78,702
2021	76,226
2022	175,879
	$	330,807

The Company’s notes payable contain financial and non-financial debt covenants. As of June 30, 2020, the Company was in compliance with all debt covenants, except that the borrower under the Madison Square Mortgage Loan was out of debt yield compliance. Such non-compliance does not constitute an event of default under the loan agreement. As a result of such non-compliance, the Company is required to maintain an interest shortfall reserve.

On May 8, 2020, the Company was granted a loan payment deferral on the Springmaid Beach Resort mortgage loan. The Company may defer one-half of the monthly interest due and the deferred interest will be compounded during the deferral period of April 2020 through October 2020. In addition, the deferral includes deferring the monthly principal payments of the loan until March 2021, at which time all deferred interest and principal will be due. On May 15, 2020, the Company was granted a loan payment deferral on the Q&C Hotel mortgage loan. The Company may defer monthly principal and interest payments for up to 90 days, beginning on May 1, 2020. The deferred interest will be compounded during the deferral period and will be due on the loan maturity date. All other loan requirements remain the same.

XML

FAIR VALUE DISCLOSURES

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

FAIR VALUE DISCLOSURES

FAIR VALUE DISCLOSURES

The following were the face value, carrying amount and fair value of the Company’s financial instruments as of June 30, 2020 and December 31, 2019, which carrying amounts do not approximate the fair values (in thousands):

	June 30, 2020						December 31, 2019
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial liability (Level 3):
Notes payable	$	330,807	$	328,186	$	327,350	$	329,595	$	325,995	$	330,687

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 June 30, 2020, the Company measured the following assets at fair value on a recurring basis (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:
Real estate equity securities	$	8,607	$	8,607	$	—	$	—
Asset derivatives - interest rate caps	$	10	$	—	$	10	$	—

As of December 31, 2019, the Company measured the following assets at fair value on a recurring basis (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:
Real estate equity securities	$	9,934	$	9,934	$	—	$	—

XML

RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2020

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

As described further below, the Company has entered into agreements with certain affiliates pursuant to which they provide services to the Company. Keith D. Hall and Peter McMillan III control and indirectly own Pacific Oak Holding Group, LLC (“Pacific Oak Holding”), the Company’s sponsor since November 1, 2019. Pacific Oak Holding is the sole owner of Pacific Oak Capital Advisors, LLC, the Company’s advisor since November 1, 2019. Messrs. Hall and McMillan are also two of the Company’s executive officers and directors.

In addition, along with Charles J. Schreiber, Jr., Keith D. Hall and Peter McMillan III control and indirectly own KBS Holdings LLC (“KBS Holdings”), the Company’s sponsor prior to November 1, 2019. KBS Holdings is the sole owner of KBS Capital Advisors, the Company’s advisor prior to November 1, 2019, and KBS Capital Markets Group LLC, the entity that acted as the dealer manager of the Company’s now-terminated primary initial public offering.

From the Company’s inception through October 31, 2019, KBS Capital Advisors provided day-to-day management of the Company’s business. The advisory agreement with KBS Capital Advisors terminated on October 31, 2019, and the Company hired the Advisor under substantially the same terms on November 1, 2019. The advisory agreement with the Advisor has a one year term subject to an unlimited number of successive one year renewals upon the mutual consent of the parties.

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and six months ended June 30, 2020 and 2019, respectively, and any related amounts payable as of June 30, 2020 and December 31, 2019 (in thousands):

	Incurred								Payable as of
	Three Months Ended June 30,				Six Months Ended June 30,				June 30, 2020		December 31, 2019
	2020		2019		2020		2019
Expensed
Asset management fees	$	1,053	$	1,062	$	2,096	$	2,111	$	1,034	$	620
Reimbursable operating expenses (1)	—		92		72		194		—		—
Capitalized
Acquisition fees on real estate equity securities	—		—		71		—		—		—
Acquisition fee on investment in unconsolidated entities	46		—		46		—		—		29
	$	1,099	$	1,154	$	2,285	$	2,305	$	1,034	$	649

_____________________

⁽¹⁾ Reimbursable operating expenses primarily consists of internal audit personnel costs, accounting software and cyber-security related expenses incurred by the applicable advisor under the applicable advisory agreement. The Company has reimbursed the applicable 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 $0.1 million and $0.2 million for the three and six months ended June 30, 2019, respectively and were the only employee costs reimbursed under the applicable advisory agreement over the shown periods. There were no employee cost reimbursements during 2020. In the future, the Advisor may seek reimbursement for certain other employee costs under the Advisory Agreement. 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 reimbursed the applicable advisor for certain of the Company’s direct costs incurred from third parties that were initially paid by the applicable advisor on behalf of the Company.

Insurance.

On January 6, 2014, the Company, together with KBS Real Estate Investment Trust, Inc. ("KBS REIT I"), KBS Real Estate Investment Trust II, Inc. ("KBS REIT II"), KBS Real Estate Investment Trust, Inc. ("KBS REIT III"), KBS Legacy Partners Apartment REIT, Inc. ("KBS Legacy Partners Apartment REIT"), POSOR I, the Dealer Manager, KBS Capital Advisors and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage are shared. The cost of these lower tiers was allocated by KBS Capital Advisors and its insurance broker among each of the various entities covered by the program, and was billed directly to each entity. In June 2015, KBS Growth & Income REIT, Inc. ("KBS Growth & Income REIT") was added to the insurance program at terms similar to those described above. At renewal in June 2018, the Company, along with POSOR I and KBS Legacy Partners Apartment REIT elected to cease participation in the program and obtain separate insurance coverage. The Company, together with POSOR I, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage are shared. The cost of these lower tiers is or was allocated by the Company’s applicable advisor and its insurance broker among each REIT covered by the program, and is billed directly to each REIT. The program is effective through June 30, 2021.

Pacific Oak Opportunity Zone Fund I.

On December 31, 2019, the Company made a $2.9 million investment in the Pacific Oak Opportunity Zone Fund I. Pacific Oak Opportunity Zone Fund I is sponsored by Pacific Oak Holding. Pacific Oak Capital Advisors is entitled to certain fees in connection with the fund. The fund will pay an acquisition fee equal to 1.5% of the purchase price of each asset (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) with a purchase price less than or equal to $25.0 million plus 1.0% of the purchase price in excess of $25.0 million; a quarterly asset management fee equal to 0.25% of the total purchase price of all assets (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) as of the end of the applicable quarter; and a financing fee equal to 0.5% of the original principal amount of any indebtedness they incur (reduced by any financing fee previously paid with respect to indebtedness being refinanced). In the case of investments made through joint ventures, the fees above will be determined based on our proportionate share of the investment. Pacific Oak Holding is also entitled to certain distributions paid by the Pacific Oak Opportunity Zone Fund I after the Class A Members have received their preferred return. These fees and distributions have been waived for the Company’s $2.9 million investment. In addition, a side letter agreement between the Advisor and Pacific Oak Opportunity Zone Fund I was executed on February 2, 2020 and stipulates that any asset management fees allocable to the Company and waived by the Advisor for Pacific Oak Opportunity Zone Fund I shall be distributed to the Company. During the six months ended June 30, 2020, the Company received $26,000 related to this agreement.

XML

COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2020

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”).

The management agreement expires on December 31 of the 20th full year following the Brand Commencement Date. Upon mutual agreement, the parties may extend the term of the agreement for two successive periods of five years each. If an event of default occurs and continues beyond any applicable notice and cure periods set forth in the management agreement, the non-defaulting party generally has, among other remedies, the option of terminating the management agreement upon written notice to the defaulting party with no termination fee payable to Doubletree. In addition, the Company has the right to terminate the management agreement without the payment of a termination fee if Doubletree fails to achieve certain criteria relating to the performance of the hotel for any two consecutive years following the Brand Commencement Date. Under certain circumstances following a casualty or condemnation event, either party may terminate the management agreement provided Doubletree receives a termination fee an amount equal to two years of the base fee.  The Company is permitted to terminate the management agreement upon a sale, lease or other transfer of the Springmaid Beach Resort any time so long as the buyer is approved for, and enters into a DoubleTree by Hilton franchise agreement for the balance of the agreement’s term. Finally, the Company is restricted in its ability to assign the management agreement upon a sale, lease or other transfer the Springmaid Beach Resort unless the transferee is approved by Doubletree to assume the management agreement.

Pursuant to the management agreement, the Operator receives 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 six months ended June 30, 2020, the Company incurred $72,000 and $0.1 million, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations. During the three and six months ended June 30, 2019, the Company incurred $0.2 million and $0.3 million, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations. On March 31, 2020, the Springmaid Beach Resort temporarily closed due to COVID-19 (Coronavirus) and reopened on May 1, 2020.

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 six months ended June 30, 2020, the Company incurred $0.1 million of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations. During the three and six months ended June 30, 2019, the Company incurred $0.1 million and $0.2 million, 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 three and six months ended June 30, 2020, the Company incurred $0.1 million and $0.2 million, respectively, of fees related to the Marriott franchise agreement. During the three and six months ended June 30, 2019, the Company incurred $0.2 million and $0.4 million, respectively, of fees related to the Marriott franchise agreement. On March 31, 2020, the Q&C Hotel temporarily closed due to COVID-19 (Coronavirus). The Company is unable to predict when Q&C Hotel will resume their operations.

In addition, in connection with the execution of the franchise agreement, Pacific Oak SOR US Properties II, an indirect wholly owned subsidiary of the Company, 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.

Lease Obligations

As of June 30, 2020, the Company had leasehold interests expiring on various expiration dates between 2023 and 2114. Future minimum lease payments owed by the Company under the finance leases as of June 30, 2020 are as follows (in thousands):

July 1, 2020 through December 31, 2020	$	240
2021	735
2022	935
2023	525
2024	360
Thereafter	52,956
Total expected minimum lease liabilities	55,751
Less: Amount representing interest (1)	(47,765)
Present value of net minimum lease payments (2)	$	7,986

_____________________

⁽¹⁾ Interest includes the amount necessary to reduce the total expected minimum lease obligations to present value calculated at the Company’s incremental borrowing rate at acquisition.

⁽²⁾ The present value of net minimum lease payments are presented in other liabilities in the accompanying consolidated balance sheets.

Paycheck Protection Program

On April 27, 2020 and May 6, 2020, the Company, through wholly owned subsidiaries of joint ventures, entered into Paycheck Protection Program Promissory Notes for the Springmaid Beach Resort and Q&C Hotel (the “PPP Notes”) and received funding of $1.3 million and $0.4 million, respectively. In accordance with the original requirements of the CARES Act, at least 75% of the proceeds used to date have been used to pay eligible payroll costs. Under the original requirements of the CARES Act, the loan may be fully forgiven if (i) proceeds are used to pay eligible payroll costs, rent, mortgage interest and utilities and (ii) full-time employee headcount and salaries are either maintained during the applicable eight-week period or restored by June 30, 2020. Any forgiveness of the loan will be subject to approval by the U.S. Small Business Administration (the “SBA”) and will require the Company to apply for such treatment in the future. On June 5, 2020, the Paycheck Protection Program Flexibility Act (the “PPP Flexibility Act”) was signed into law, extending the loan forgiveness period from 8 weeks to 24 weeks after loan origination, reducing the required amount of payroll expenditures from 75% to 60%, removing the prior ban on borrowers taking advantage of payroll tax deferral after loan forgiveness and allowing for the amendment of the maturity date on existing loans from two years to five years. While the Company may apply for forgiveness of the PPP Notes in accordance with the requirements and limitations under the CARES Act and the SBA regulations and requirements, no assurance can be given that any portion of the PPP Notes will be forgiven. As of June 30, 2020, the PPP Notes balance was $1.7 million and recorded in other liabilities in the accompanying consolidated balance sheet.

Economic Dependency

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

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. 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 June 30, 2020. 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.

COVID-19

While the Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, the situation is rapidly evolving and the Company cannot predict how long the COVID-19 pandemic will last or what the long term impact will be on the Company’s operations. As a result, the Company has experienced and continues to experience a significant negative impact on its liquidity, and could experience additional material impacts including, but not limited to, asset impairment charges. The Company anticipates this will have a material impact on its business, results of operations and cash flows in 2020.

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.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2020

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 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 three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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 and VIEs in which the Company has a primary beneficiary. 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.

Restricted Cash

Restricted cash is comprised of lender impound reserve accounts on the Company’s borrowings for security deposits, property taxes, insurance, debt service obligations and capital improvements and replacements.

Redeemable Common Stock

The Company limits the dollar value of shares that may be redeemed under the share redemption program. During the six months ended June 30, 2020, the Company had redeemed $1.7 million of common stock under the share redemption program. The Company processed all redemption requests received in good order and eligible for redemption through the June 2020 redemption date, except for 1,037,033 shares totaling $10.5 million due to the limitations under the share redemption program. The Company recorded $0.6 million and $2.2 million of redeemable common stock payable on the Company’s balance sheet as of June 30, 2020 and December 31, 2019, respectively, related to unfulfilled redemption requests received in good order under the share redemption program. Based on the fourth amended and restated share redemption program, the Company has $0.5 million available for redemptions in the remainder of 2020, including shares that are redeemed in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence,” subject to the limitations under the share redemption program. Effective beginning with the month of February 2020, the Company suspended redemptions requested under the share redemption program not in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”, until the Company and POSOR I file with the SEC a registration statement on Form S-4 containing a Joint Proxy Statement/Prospectus for the proposed merger, and (b) all other redemptions under the share redemption program until after the Merger closes. The Form S-4 was filed on June 15, 2020 with the SEC.

Segments

The Company has invested in opportunistic real estate investments, real estate equity securities, other real estate-related assets and originated a loan secured by a non-stabilized real estate asset, which was repaid on January 12, 2018. In general, the Company intends to hold its investments in opportunistic real estate, real estate equity securities 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. In addition, the Company has invested in a participating loan facility secured by a portfolio of light industrial properties located in Europe, which was terminated on April 17, 2019.

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 0 potentially dilutive securities outstanding during the three and six months ended June 30, 2020 and 2019. 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. 

Cash distributions declared per share of Class A and Class T common stock were $0.02397501 and $0.0639334 for the three and six months ended June 30, 2019. Distributions declared per common share assumes each share was issued and outstanding each day that was a record date for distributions and were based on a monthly record date for each month during the periods commencing January 2019 through June 2019. There were no distributions declared for the three and six months ended June 30, 2020.

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.

Square Footage, Occupancy and Other Measures Policy

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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“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 debt 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 debt 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. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which clarified that receivables from operating leases are not within the scope of Topic 326 and instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842. 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 March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848). ASU No. 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU No. 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the three months ended March 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. For the period from January 1, 2020 (the earliest date the Company may elect to apply ASU No. 2020-04) through March 31, 2020, the Company did not have any contract modifications that meet the criteria described above, specifically contract modifications that have been modified from LIBOR to an alternative reference rate. The Company’s loan agreements, derivative instruments, and certain lease agreements use LIBOR as the current reference rate. For eligible contract modifications, the Company expects to adopt the temporary optional expedients described in ASU No. 2020-04. The optional expedients for hedging relationships described in ASU No. 2020-04 are not expected to have an impact to the Company, as the Company has elected to not designate its derivative instruments as a hedge.

In April 2020, the FASB issued a FASB Staff Q&A related to Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic (the “Topic 842 Q&A”) which focused on the application of lease guidance for concessions related to the effects of the COVID-19 pandemic. In this Q&A document, the FASB staff will allow entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842, Leases (“Topic 842”) as though enforceable rights and obligations for those qualifying concessions existed. The Company did not have any material lease concessions related to the effects of the COVID-19 pandemic that had a material impact to the Company’s consolidated balance sheet as of June 30, 2020 or consolidated statement of operations for the six months ended June 30, 2020.

Fair Value Measurements

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.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Schedule of Earnings Per Share, Basic, by Common Class, Including Two Class Method

The Company’s calculated earnings per share for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands, except share and per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net loss attributable to common stockholders	$	(6,341)	$	(2,585)	$	(16,811)	$	(4,120)
Less: Class A Common Stock cash distributions declared	—		430		—		1,148
Less: Class T Common Stock cash distributions declared	—		294		—		782
Undistributed net loss attributable to common stockholders	$	(6,341)	$	(3,309)	$	(16,811)	$	(6,050)
Class A Common Stock:
Undistributed net loss attributable to common stockholders	$	(3,763)	$	(1,967)	$	(9,978)	$	(3,599)
Class A Common Stock cash distributions declared	—		430		—		1,148
Net loss attributable to Class A common stockholders	$	(3,763)	$	(1,537)	$	(9,978)	$	(2,451)
Net loss per common share, basic and diluted	$	(0.21)	$	(0.09)	$	(0.56)	$	(0.14)
Weighted-average number of common shares outstanding, basic and diluted	17,842,289		17,930,156		17,860,958		17,955,331
Class T Common Stock:
Undistributed net loss attributable to common stockholders	$	(2,578)	$	(1,342)	$	(6,833)	$	(2,451)
Class T Common Stock cash distributions declared	—		294		—		782
Net loss attributable to Class T common stockholders	$	(2,578)	$	(1,048)	$	(6,833)	$	(1,669)
Net loss per common share, basic and diluted	$	(0.21)	$	(0.09)	$	(0.56)	$	(0.14)
Weighted-average number of common shares outstanding, basic and diluted	12,222,534		12,230,499		12,231,843		12,221,952

XML

REAL ESTATE (Tables)

6 Months Ended

Jun. 30, 2020

Real Estate [Abstract]

Schedule of Real Estate

The following table summarizes the Company’s real estate as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Land	$	102,288	$	102,288
Buildings and improvements	432,796		427,696
Tenant origination and absorption costs	13,425		15,422
Total real estate, cost and net of impairment charges	548,509		545,406
Accumulated depreciation and amortization	(59,129)		(51,723)
Total real estate, net	$	489,380	$	493,683

The following table provides summary information regarding the Company’s real estate as of June 30, 2020 (in thousands):

Property	Date Acquired	City	State	Property Type	Land		Building and Improvements (1)		Tenant Origination and Absorption		Total Real Estate, at Cost and Net of Impairment Charges		Accumulated Depreciation and Amortization		Total Real Estate, Net		Ownership %
Springmaid Beach Resort	12/30/2014	Myrtle Beach	SC	Hotel	$	27,438	$	40,458	$	—	$	67,896	$	(11,804)	$	56,092	90.0%
Q&C Hotel	12/17/2015	New Orleans	LA	Hotel	1,232		53,323		—		54,555		(9,446)		45,109		90.0%
Lincoln Court	05/20/2016	Campbell	CA	Office	14,706		36,067		1,069		51,842		(5,493)		46,349		100.0%
Lofts at NoHo Commons	11/16/2016	North Hollywood	CA	Apartment	26,222		82,057		—		108,279		(7,950)		100,329		90.0%
210 West 31st Street (2)	12/01/2016	New York	NY	Office/Retail	—		55,269		—		55,269		—		55,269		80.0%
Oakland City Center	08/18/2017	Oakland	CA	Office	22,150		143,462		9,556		175,168		(20,118)		155,050		100.0%
Madison Square (3)	10/03/2017	Phoenix	AZ	Office	10,540		22,160		2,800		35,500		(4,318)		31,182		90.0%
					$	102,288	$	432,796	$	13,425	$	548,509	$	(59,129)	$	489,380

_____________________

⁽¹⁾ Building and improvements includes construction costs for the Company’s project that was under development.

⁽²⁾ The Company acquired the rights to a leasehold interest with respect to this property, which was accounted for as a finance lease. The Company applied a 6.1% discount rate to the finance lease and the lease expires on January 31, 2114. As of June 30, 2020, the finance lease right-of-use asset had a carrying value of $6.8 million included in building and improvements. No depreciation or amortization was recorded to this property as of June 30, 2020.

(3) The Company acquired the rights to a leasehold interest with respect to the land at this property, which was accounted for as a finance lease. The Company applied a 5.4% discount rate to the finance lease and as of June 30, 2020, the finance lease had a weighted average remaining lease term of 2.3 years. As of June 30, 2020, the finance lease right-of-use asset had a carrying value of $1.9 million included in land.

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 six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Office revenues:
Rental income	$	6,734	$	7,007	$	13,604	$	13,919
Other income	201		187		427		392
Office revenues	$	6,935	$	7,194	$	14,031	$	14,311
Office expenses:
Operating, maintenance, and management	$	2,144	$	2,338	$	4,418	$	4,663
Real estate taxes and insurance	1,093		1,089		2,193		2,161
Office expenses	$	3,237	$	3,427	$	6,611	$	6,824

Schedule of Future Minimum Rental Income for Company's Properties

As of June 30, 2020, the future minimum rental income from the Company’s office properties under its non-cancelable operating leases was as follows (in thousands):

July 1, 2020 through December 31, 2020	$	11,061
2021	20,153
2022	16,403
2023	13,304
2024	10,827
Thereafter	33,323
	$	105,071

Schedule of Concentration of Risk, by Risk

As of June 30, 2020, the highest tenant industry concentrations (greater than 10% of annualized base rent) in the Company’s portfolio were as follows:

Industry	Number of Tenants	Annualized Base Rent (1) (in thousands)		Percentage of Annualized Base Rent
Legal Services	13	$	4,547	21.2	%
Public Administration	6	3,219		15.0	%
Professional, Scientific, and Technical Services	11	2,961		13.8	%
		$	10,727	50.0	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of June 30, 2020, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

Schedule of Hotel Revenue and Expense

As of June 30, 2020, the Company owned two hotel properties. The following table provides detailed information regarding the Company’s hotel revenues and expenses for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Hotel revenues:
Room	$	1,908	$	7,590	$	4,862	12,055
Food, beverage and convention services	233		1,679		834		2,552
Campground	256		280		511		551
Other	211		518		480		889
Hotel revenues	$	2,608	$	10,067	$	6,687	$	16,047
Hotel expenses:
Room	$	608	$	1,680	$	1,698	3,004
Food, beverage and convention services	262		1,164		887		1,940
General and administrative	337		708		1,142		1,494
Sales and marketing	291		912		830		1,606
Repairs and maintenance	335		526		797		1,092
Utilities	214		224		508		485
Property taxes and insurance	519		435		1,108		873
Other	162		487		416		817
Hotel expenses	$	2,728	$	6,136	$	7,386	$	11,311

Schedule of Contract with Customer, Asset and Liability

The following table summarizes the Company’s contract liabilities, which are comprised of advanced deposits and are included in other liabilities in the accompanying consolidated balance sheets, as of June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Contract liability	$	459	$	500
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period	$	267	$	281

Schedule of Apartment Property Revenue and Expense

The following table provides detailed information regarding the Company’s apartment revenues and expenses for the three months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Apartment revenues:
Rental income	$	1,807	$	1,829	$	3,635	$	3,659
Other income	209		141		438		306
Apartment revenues	$	2,016	$	1,970	$	4,073	$	3,965
Apartment expenses:
Operating, maintenance, and management	$	431	$	544	$	875	$	1,080
Real estate taxes and insurance	343		339		709		700
Apartment expenses	$	774	$	883	$	1,584	$	1,780

XML

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

6 Months Ended

Jun. 30, 2020

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

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

As of June 30, 2020 and December 31, 2019, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):

	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Cost	$	13,425	$	15,422	$	72	$	72	$	(8,962)	$	(10,802)
Accumulated Amortization	(7,349)		(7,954)		(34)		(28)		5,299		6,125
Net Amount	$	6,076	$	7,468	$	38	$	44	$	(3,663)	$	(4,677)

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

Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):

	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	For the Three Months Ended June 30,				For the Three Months Ended June 30,				For the Three Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Amortization	$	(673)	$	(888)	$	(3)	$	(4)	$	472	$	679

	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	For the Six Months Ended June 30,				For the Six Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Amortization	$	(1,393)	$	(1,831)	$	(6)	$	(9)	$	1,014	$	1,382

XML

REAL ESTATE EQUITY SECURITIES (Tables)

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Schedule of Securities

The following table sets forth the number of shares owned by the Company and the related carrying value of the shares as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30, 2020			December 31, 2019
Real Estate Equity Securities	Number of Shares Owned	Total Carrying Value		Number of Shares Owned	Total Carrying Value
Franklin Street Properties Corp.	1,580,713	$	8,046	1,160,591	$	9,934
Plymouth Industrial REIT, Inc.	43,829	561		—	—
	1,624,542	$	8,607	1,160,591	$	9,934

Schedule of Gain (Loss) on Securities

The following summarizes the portion of gain and loss for the period related to real estate equity securities held during the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net (loss) gain recognized during the period on real estate equity securities	$	(728)	$	221	$	(4,618)	$	1,335
Less net gain recognized during the period on real estate equity securities sold during the period	(67)		—		(67)		—
Unrealized (loss) gain recognized during the reporting period on real estate equity securities held at the end of the period	$	(795)	$	221	$	(4,685)	$	1,335

XML

NOTES PAYABLE (Tables)

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments

As of June 30, 2020 and December 31, 2019, the Company’s notes payable consisted of the following (in thousands):

	Book Value as of June 30, 2020		Book Value as of December 31, 2019		Contractual Interest Rate (1)	Effective Interest Rate (1)	Payment Type	Maturity Date
Springmaid Beach Resort Mortgage Loan (2)	$	56,461	$	56,536	One-month LIBOR + 2.25% (2)	5.75%	Principal & Interest	08/10/2022
Q&C Hotel Mortgage Loan	25,000		25,000		One-month LIBOR + 2.50% (3)	4.50%	Principal & Interest (3)	12/23/2022
Lincoln Court Mortgage Loan	34,615		34,615		One-month LIBOR + 1.75%	1.91%	Interest Only	12/01/2020
Lofts at NoHo Commons Mortgage Loan (4)	73,862		73,862		One-month LIBOR + 2.18% (4)	3.93%	Interest Only	09/09/2021
210 West 31st Street Mortgage Loan	20,000		20,000		One-month LIBOR + 3.00%	3.16%	Interest Only	12/16/2020
Oakland City Center Mortgage Loan (5)	97,112		95,989		One-month LIBOR + 1.75%	1.91%	Interest Only	09/01/2022
Madison Square Mortgage Loan (6)	23,757		23,593		One-month LIBOR + 4.05% (6)	5.05%	Interest Only	10/09/2020
Total notes payable principal outstanding	330,807		329,595
Deferred financing costs, net	(2,621)		(3,600)
Total notes payable, net	$	328,186	$	325,995

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2020. Effective interest rate is calculated as the actual interest rate in effect as of June 30, 2020 (consisting of the contractual interest rate, contractual floor rates and the effects of interest rate caps, if applicable), using interest rate indices at June 30, 2020, where applicable.

⁽²⁾ As of June 30, 2020, $57.3 million had been disbursed to the Company and up to $9.7 million was available for future disbursements, subject to certain terms and conditions contained in the loan documents. The interest rate is variable at the higher of one-month LIBOR + 2.25% or 5.75%.

⁽³⁾ The interest rate is variable at the higher of one-month LIBOR + 2.5% or 4.5%. Principal payments will commence on January 1, 2022.

⁽⁴⁾ As of June 30, 2020, $73.9 million had been disbursed to the Company and up to $2.1 million is available for future disbursements to be used for tenant improvements and leasing commissions, subject to certain terms and conditions contained in the loan documents. The LIBOR rate is variable at the higher of one-month LIBOR or 1.75%.

⁽⁵⁾ As of June 30, 2020, $97.1 million had been disbursed to the Company and up to $6.3 million is available for future disbursements to be used for tenant improvements and leasing commissions, subject to certain terms and conditions contained in the loan documents. Beginning October 1, 2020, monthly payments will include principal and interest with principal payments of $110,000 or, in the event the Company repays any principal of the loan amount, with principal payments calculated using an amortization schedule of 30 years and an annual interest rate of 6.0%, subject to certain terms and conditions contained in the loan documents.

⁽⁶⁾ As of June 30, 2020, $23.8 million had been disbursed to the Company and up to $10.3 million is available for future disbursements to be used for tenant improvements and leasing expenses, subject to certain terms and conditions contained in the loan documents. The Madison Square Mortgage Loan bears interest at a floating rate of 405 basis points over one-month LIBOR, but at no point shall the interest rate be less than 5.05%.

Schedule of Maturities of Long-term Debt

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of June 30, 2020 (in thousands):

July 1, 2020 through December 31, 2020	$	78,702
2021	76,226
2022	175,879
	$	330,807

XML

FAIR VALUE DISCLOSURES (Tables)

6 Months Ended

Jun. 30, 2020

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 June 30, 2020 and December 31, 2019, which carrying amounts do not approximate the fair values (in thousands):

	June 30, 2020						December 31, 2019
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial liability (Level 3):
Notes payable	$	330,807	$	328,186	$	327,350	$	329,595	$	325,995	$	330,687

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

As of June 30, 2020, the Company measured the following assets at fair value on a recurring basis (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:
Real estate equity securities	$	8,607	$	8,607	$	—	$	—
Asset derivatives - interest rate caps	$	10	$	—	$	10	$	—

As of December 31, 2019, the Company measured the following assets at fair value on a recurring basis (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:
Real estate equity securities	$	9,934	$	9,934	$	—	$	—

XML

RELATED PARTY TRANSACTIONS (Tables)

6 Months Ended

Jun. 30, 2020

Related Party Transactions [Abstract]

Schedule of Related Party Costs

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and six months ended June 30, 2020 and 2019, respectively, and any related amounts payable as of June 30, 2020 and December 31, 2019 (in thousands):

	Incurred								Payable as of
	Three Months Ended June 30,				Six Months Ended June 30,				June 30, 2020		December 31, 2019
	2020		2019		2020		2019
Expensed
Asset management fees	$	1,053	$	1,062	$	2,096	$	2,111	$	1,034	$	620
Reimbursable operating expenses (1)	—		92		72		194		—		—
Capitalized
Acquisition fees on real estate equity securities	—		—		71		—		—		—
Acquisition fee on investment in unconsolidated entities	46		—		46		—		—		29
	$	1,099	$	1,154	$	2,285	$	2,305	$	1,034	$	649

_____________________

⁽¹⁾ Reimbursable operating expenses primarily consists of internal audit personnel costs, accounting software and cyber-security related expenses incurred by the applicable advisor under the applicable advisory agreement. The Company has reimbursed the applicable 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 $0.1 million and $0.2 million for the three and six months ended June 30, 2019, respectively and were the only employee costs reimbursed under the applicable advisory agreement over the shown periods. There were no employee cost reimbursements during 2020. In the future, the Advisor may seek reimbursement for certain other employee costs under the Advisory Agreement. 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 reimbursed the applicable advisor for certain of the Company’s direct costs incurred from third parties that were initially paid by the applicable advisor on behalf of the Company.

XML

COMMITMENTS AND CONTINGENCIES (Tables)

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Contractual Obligation, Fiscal Year Maturity Schedule

As of June 30, 2020, the Company had leasehold interests expiring on various expiration dates between 2023 and 2114. Future minimum lease payments owed by the Company under the finance leases as of June 30, 2020 are as follows (in thousands):

July 1, 2020 through December 31, 2020	$	240
2021	735
2022	935
2023	525
2024	360
Thereafter	52,956
Total expected minimum lease liabilities	55,751
Less: Amount representing interest (1)	(47,765)
Present value of net minimum lease payments (2)	$	7,986

_____________________

⁽¹⁾ Interest includes the amount necessary to reduce the total expected minimum lease obligations to present value calculated at the Company’s incremental borrowing rate at acquisition.

⁽²⁾ The present value of net minimum lease payments are presented in other liabilities in the accompanying consolidated balance sheets.

XML

ORGANIZATION (Details) $ / shares in Units, $ in Thousands							3 Months Ended	6 Months Ended		13 Months Ended	66 Months Ended
	Nov. 01, 2019	Feb. 13, 2018 USD ($) shares	Jul. 14, 2017 USD ($) shares	Jul. 31, 2014 shares	Apr. 02, 2014 shares	Jul. 03, 2013 USD ($) $ / shares shares	Jun. 30, 2019 USD ($) shares	Jun. 30, 2020 USD ($) investment property subsidiary shares	Jun. 30, 2019 USD ($) shares	Aug. 11, 2014 USD ($) shares	Jun. 30, 2020 USD ($) investment property subsidiary shares	Feb. 19, 2020	Nov. 14, 2013 shares
Organizational Structure [Line Items]
Number of wholly owned subsidiaries | subsidiary								3			3
Period of termination of advisory agreement without cause or penalty	30 days
Number of investments in an unconsolidated entity | investment								2			2
Number of investments in equity securities | investment								2			2
Proceeds from issuance of common stock, dividend reinvestment plan | $											$ 10,000
Issuance of common stock | $							$ 448	$ 135	$ 1,347		9,200
Private Placement
Organizational Structure [Line Items]
Proceeds from issuance of common stock | $										$ 32,200
IPO
Organizational Structure [Line Items]
Proceeds from issuance of common stock | $											$ 228,600
Separate Private Transactions
Organizational Structure [Line Items]
Issuance of common stock | $								$ 4,200
Common Stock
Organizational Structure [Line Items]
Issuance of common stock (in shares)						21,739
Shares issued (in dollars per share) | $ / shares						$ 9.20
Common Stock | Class A
Organizational Structure [Line Items]
Issuance of common stock (in shares)							24,324	6,552	73,549		833,490
Shares, dividend reinvestment plan (in shares)											730,193
Issuance of common stock | $							$ 1		$ 1
Common Stock | Class T
Organizational Structure [Line Items]
Issuance of common stock (in shares)							21,846	6,290	65,825		164,618
Shares, dividend reinvestment plan (in shares)											340,127
Issuance of common stock | $							$ 1		$ 1
Common Stock | Private Placement
Organizational Structure [Line Items]
Issuance of common stock (in shares)										3,619,851
Common Stock | Private Placement | Class A | Willowbrook Capital Group LLC
Organizational Structure [Line Items]
Issuance of common stock (in shares)		10,935	214,175	120,106	120,106
Issuance of common stock | $		$ 100	$ 2,000			$ 1,000
Common Stock | IPO
Organizational Structure [Line Items]
Shares registered in primary offering (in shares)													100,000,000
Shares registered for sale under dividend reinvestment plan (in shares)													80,000,000
Common Stock | IPO | Class A
Organizational Structure [Line Items]
Issuance of common stock (in shares)											11,977,758
Common Stock | IPO | Class T
Organizational Structure [Line Items]
Issuance of common stock (in shares)											11,537,701
Common Stock | IPO | Maximum
Organizational Structure [Line Items]
Stock offering, shares authorized for issuance (in shares)													180,000,000
Hotel
Organizational Structure [Line Items]
Number of real estate properties | property								2			2
Office Building
Organizational Structure [Line Items]
Number of real estate properties | property								3			3
Apartment Building
Organizational Structure [Line Items]
Number of real estate properties | property								1			1
Pacific Oak Capital Advisors, LLC
Organizational Structure [Line Items]
Period of termination of renewal of advisory agreement without cause or penalty	90 days
POSOR I
Organizational Structure [Line Items]
Merger, common stock conversion ratio												96.43%
KBS Strategic Opportunity Limited Partnership II
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%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Details) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020 USD ($) $ / shares shares	Jun. 30, 2019 USD ($) $ / shares shares	Jun. 30, 2020 USD ($) segment $ / shares shares	Jun. 30, 2019 USD ($) $ / shares shares	Dec. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Accounting Policies [Abstract]
Redeemable common stock payable	$ 621		$ 621			$ 2,218
Number of reportable segments | segment			1
Potentially dilutive securities | shares	0	0	0	0
Summary of Significant Accounting Policies [Line Items]
Stock redeemed during period	$ 10	$ 239	$ 1,730	$ 2,733
Class A
Summary of Significant Accounting Policies [Line Items]
Distributions declared per common share (in dollars per share) | $ / shares	$ 0	$ 0.02397501	$ 0	$ 0.0639334
Class T
Summary of Significant Accounting Policies [Line Items]
Distributions declared per common share (in dollars per share) | $ / shares	$ 0	$ 0.02397501	$ 0	$ 0.0639334
Forecast
Summary of Significant Accounting Policies [Line Items]
Remaining authorized repurchase amount					$ 500
Common Stock
Summary of Significant Accounting Policies [Line Items]
Stock redeemed during period			$ 1,700
Number of shares non-redeemable do to limitation (in shares) | shares			1,037,033
Number of shares non-redeemable do to limitation			$ 10,500
Common Stock | Class A
Summary of Significant Accounting Policies [Line Items]
Stock redeemed during period		$ 1	$ 1	$ 3

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - EPS Two-class Method (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Net loss attributable to common stockholders	$ (6,341)	$ (2,585)	$ (16,811)	$ (4,120)
Undistributed net loss attributable to common stockholders	(6,341)	(3,309)	(16,811)	(6,050)
Class A
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Net loss attributable to common stockholders	(3,763)	(1,537)	(9,978)	(2,451)
Less: Common Stock cash distributions declared	0	430	0	1,148
Undistributed net loss attributable to common stockholders	$ (3,763)	$ (1,967)	$ (9,978)	$ (3,599)
Net loss per common share, basic and diluted (in dollars per share)	$ (0.21)	$ (0.09)	$ (0.56)	$ (0.14)
Weighted-average number of common shares outstanding, basic and diluted (in shares)	17,842,289	17,930,156	17,860,958	17,955,331
Class T
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Net loss attributable to common stockholders	$ (2,578)	$ (1,048)	$ (6,833)	$ (1,669)
Less: Common Stock cash distributions declared	0	294	0	782
Undistributed net loss attributable to common stockholders	$ (2,578)	$ (1,342)	$ (6,833)	$ (2,451)
Net loss per common share, basic and diluted (in dollars per share)	$ (0.21)	$ (0.09)	$ (0.56)	$ (0.14)
Weighted-average number of common shares outstanding, basic and diluted (in shares)	12,222,534	12,230,499	12,231,843	12,221,952

XML

REAL ESTATE - Additional Information (Details)	Jun. 30, 2020 property
Hotel
Real Estate Properties [Line Items]
Number of real estate properties	2
Office Building
Real Estate Properties [Line Items]
Number of real estate properties	3
Apartment Building
Real Estate Properties [Line Items]
Number of real estate properties	1
Office/ Retail Property
Real Estate Properties [Line Items]
Number of real estate properties	1

XML

REAL ESTATE - Schedule of Real Estate Investments (Details) - USD ($)	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	$ 548,509,000	$ 545,406,000
Accumulated depreciation and amortization	(59,129,000)	(51,723,000)
Total real estate, net	489,380,000	493,683,000
Springmaid Beach Resort
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	67,896,000
Accumulated depreciation and amortization	(11,804,000)
Total real estate, net	$ 56,092,000
Ownership %	90.00%
Q&C Hotel
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	$ 54,555,000
Accumulated depreciation and amortization	(9,446,000)
Total real estate, net	$ 45,109,000
Ownership %	90.00%
Lincoln Court
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	$ 51,842,000
Accumulated depreciation and amortization	(5,493,000)
Total real estate, net	$ 46,349,000
Ownership %	100.00%
Lofts at NoHo Commons
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	$ 108,279,000
Accumulated depreciation and amortization	(7,950,000)
Total real estate, net	$ 100,329,000
Ownership %	90.00%
210 West 31st Street
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	$ 55,269,000
Accumulated depreciation and amortization	0
Total real estate, net	$ 55,269,000
Ownership %	80.00%
Weighted average discount rate, percent	6.10%
Right-of-use asset, amortization	$ 0
Oakland City Center
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	175,168,000
Accumulated depreciation and amortization	(20,118,000)
Total real estate, net	$ 155,050,000
Ownership %	100.00%
Madison Square
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	$ 35,500,000
Accumulated depreciation and amortization	(4,318,000)
Total real estate, net	$ 31,182,000
Ownership %	90.00%
Weighted average discount rate, percent	5.40%
Weighted average remaining lease term	2 years 3 months 18 days
Land
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	$ 102,288,000	102,288,000
Land | Springmaid Beach Resort
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	27,438,000
Land | Q&C Hotel
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	1,232,000
Land | Lincoln Court
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	14,706,000
Land | Lofts at NoHo Commons
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	26,222,000
Land | 210 West 31st Street
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	0
Land | Oakland City Center
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	22,150,000
Land | Madison Square
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	10,540,000
Finance lease, right-of-use asset	1,900,000
Buildings and improvements
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	432,796,000	427,696,000
Buildings and improvements | Springmaid Beach Resort
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	40,458,000
Buildings and improvements | Q&C Hotel
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	53,323,000
Buildings and improvements | Lincoln Court
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	36,067,000
Buildings and improvements | Lofts at NoHo Commons
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	82,057,000
Buildings and improvements | 210 West 31st Street
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	55,269,000
Finance lease, right-of-use asset	6,800,000
Buildings and improvements | Oakland City Center
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	143,462,000
Buildings and improvements | Madison Square
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	22,160,000
Tenant origination and absorption costs
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	13,425,000	$ 15,422,000
Tenant origination and absorption costs | Springmaid Beach Resort
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	0
Tenant origination and absorption costs | Q&C Hotel
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	0
Tenant origination and absorption costs | Lincoln Court
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	1,069,000
Tenant origination and absorption costs | Lofts at NoHo Commons
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	0
Tenant origination and absorption costs | 210 West 31st Street
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	0
Tenant origination and absorption costs | Oakland City Center
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	9,556,000
Tenant origination and absorption costs | Madison Square
Real Estate Properties [Line Items]
Total real estate, cost and net of impairment charges	$ 2,800,000

XML

REAL ESTATE - Office Property (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020 USD ($) ft² property	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($) ft² property	Jun. 30, 2019 USD ($)
Real Estate Properties [Line Items]
Other income	$ (701)	$ 269	$ (4,558)	$ 4,247
Total revenues	11,710	19,336	25,081	34,532
Total expenses	$ 17,873	22,410	$ 38,425	43,670
Office Building
Real Estate Properties [Line Items]
Number of real estate properties | property	3		3
Net rentable area | ft²	806,960		806,960
Percentage of portfolio occupied	69.00%		69.00%
Rental income	$ 6,734	7,007	$ 13,604	13,919
Other income	201	187	427	392
Total revenues	6,935	7,194	14,031	14,311
Operating, maintenance, and management	2,144	2,338	4,418	4,663
Real estate taxes and insurance	1,093	1,089	2,193	2,161
Total expenses	$ 3,237	$ 3,427	$ 6,611	$ 6,824

XML

REAL ESTATE - Operating Leases (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Real Estate Properties [Line Items]
Deferred rent recognized	$ 100,000	$ 100,000	$ 300,000	$ 200,000
Deferred rent receivables	3,900,000		3,900,000		$ 2,900,000
Incentive to lessee	100,000		100,000		200,000
Office Revenue
Real Estate Properties [Line Items]
Revenue adjustments	0		45,000
Operating Maintenance Expense
Real Estate Properties [Line Items]
Bad debt expense		$ 31,000		$ 100,000
Other Liabilities
Real Estate Properties [Line Items]
Security deposit liability	$ 1,000,000.0		$ 1,000,000.0		$ 1,100,000
Maximum
Real Estate Properties [Line Items]
Operating lease, term	10 years 3 months 18 days		10 years 3 months 18 days
Weighted Average
Real Estate Properties [Line Items]
Operating lease, term	3 years 3 months 18 days		3 years 3 months 18 days

XML

REAL ESTATE - Future Minimum Rental Income (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Real Estate [Abstract]
July 1, 2020 through December 31, 2020	$ 11,061
2021	20,153
2022	16,403
2023	13,304
2024	10,827
Thereafter	33,323
Future minimum rental income	$ 105,071

XML

REAL ESTATE - Highest Tenant Industry Concentrations, Greater than 10% of Annual Base Rent (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2020 USD ($) tenant
Concentration Risk [Line Items]
Number of Tenants | tenant	80
Annualized Base Rent | $	$ 10,727
Percentage of Annualized Base Rent	50.00%
Legal Services
Concentration Risk [Line Items]
Number of Tenants | tenant	13
Annualized Base Rent | $	$ 4,547
Percentage of Annualized Base Rent	21.20%
Public Administration
Concentration Risk [Line Items]
Number of Tenants | tenant	6
Annualized Base Rent | $	$ 3,219
Percentage of Annualized Base Rent	15.00%
Professional, Scientific and Technical Services
Concentration Risk [Line Items]
Number of Tenants | tenant	11
Annualized Base Rent | $	$ 2,961
Percentage of Annualized Base Rent	13.80%

XML

REAL ESTATE - Hotel Revenue and Expenses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Hotel expenses:
General and administrative	$ 1,434	$ 768	$ 3,079	$ 1,475
Hotel
Hotel revenues:
Revenue	2,608	10,067	6,687	16,047
Hotel expenses:
Expenses	2,728	6,136	7,386	11,311
General and administrative	337	708	1,142	1,494
Sales and marketing	291	912	830	1,606
Repairs and maintenance	335	526	797	1,092
Property taxes and insurance	519	435	1,108	873
Hotel | Room
Hotel revenues:
Revenue	1,908	7,590	4,862	12,055
Hotel expenses:
Expenses	608	1,680	1,698	3,004
Hotel | Food, beverage and convention services
Hotel revenues:
Revenue	233	1,679	834	2,552
Hotel expenses:
Expenses	262	1,164	887	1,940
Hotel | Campground
Hotel revenues:
Revenue	256	280	511	551
Hotel | Utilities
Hotel expenses:
Expenses	214	224	508	485
Hotel | Other
Hotel revenues:
Revenue	211	518	480	889
Hotel expenses:
Expenses	$ 162	$ 487	$ 416	$ 817

XML

REAL ESTATE - Contract Liabilities (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Product Liability Contingency [Line Items]
Amounts included in contract liability at the beginning of the period	$ 357	$ 233
Other Liabilities
Product Liability Contingency [Line Items]
Contract liability	459		$ 500
Amounts included in contract liability at the beginning of the period	$ 267		$ 281

XML

REAL ESTATE - Apartment Property (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020 USD ($) property unit	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($) property unit	Jun. 30, 2019 USD ($)
Real Estate Properties [Line Items]
Other income	$ (701)	$ 269	$ (4,558)	$ 4,247
Total revenues	11,710	19,336	25,081	34,532
Total expenses	$ 17,873	22,410	$ 38,425	43,670
Apartment Building
Real Estate Properties [Line Items]
Number of real estate properties | property	1		1
Number of units in real estate property | unit	292		292
Percentage of real estate portfolio occupied	88.00%		88.00%
Rental income	$ 1,807	1,829	$ 3,635	3,659
Other income	209	141	438	306
Total revenues	2,016	1,970	4,073	3,965
Operating, maintenance, and management	431	544	875	1,080
Real estate taxes and insurance	343	339	709	700
Total expenses	$ 774	$ 883	$ 1,584	$ 1,780

XML

REAL ESTATE - Geographic Concentration Risk (Details)	6 Months Ended
	Jun. 30, 2020
Real Estate Properties [Line Items]
Concentration risk, percentage	50.00%
Assets, Total | California
Real Estate Properties [Line Items]
Concentration risk, percentage	57.20%

XML

TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES - Net Amount and Amortization (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Abstract]
Tenant Origination And Absorption Costs, Cost	$ 13,425		$ 13,425		$ 15,422
Tenant Origination and Absorption Costs, Accumulated Amortization	(7,349)		(7,349)		(7,954)
Tenant Origination and Absorption Costs, Net Amount	6,076		6,076		7,468
Tenant Origination and Absorption Costs, Amortization expense	(673)	$ (888)	(1,393)	$ (1,831)
Above-Market Lease Assets, Cost	72		72		72
Above-Market Lease Assets, Accumulated Amortization	(34)		(34)		(28)
Above-Market Lease Assets, Net Amount	38		38		44
Above-Market Lease Assets, Amortization expense	(3)	(4)	(6)	(9)
Below-Market Lease Liabilities, Cost	(8,962)		(8,962)		(10,802)
Below-Market Lease Liabilities, Accumulated Amortization	5,299		5,299		6,125
Below-Market Lease Liabilities, Net Amount	(3,663)		(3,663)		$ (4,677)
Below-Market Lease Liabilities, Amortization expense	$ 472	$ 679	$ 1,014	$ 1,382

XML

TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Line Items]
Intangible assets	$ 2,200		$ 2,200		$ 2,200
Depreciation and amortization	4,909	$ 5,107	$ 9,805	$ 10,181
Housing Subsidy Intangible Asset
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Line Items]
Remaining amortization period			28 years 1 month 6 days
Depreciation and amortization	20	20	$ 40	40
Property Tax Abatement Intangible Asset
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Line Items]
Depreciation and amortization	100	$ 100	$ 200	$ 200
Property Tax Abatement Intangible Asset | Minimum
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Line Items]
Remaining amortization period			3 years 3 months 18 days
Prepaid Expenses and Other Assets
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Line Items]
Unamortized tax abatement intangible asset	$ 1,700		$ 1,700		$ 1,800

XML

REAL ESTATE EQUITY SECURITIES - Shares Owned (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Debt Securities, Available-for-sale [Line Items]
Total Carrying Value	$ 8,607	$ 9,934
Available-for-sale Securities
Debt Securities, Available-for-sale [Line Items]
Number of Shares Owned (in shares)	1,624,542	1,160,591
Plymouth Industrial REIT, Inc.
Debt Securities, Available-for-sale [Line Items]
Total Carrying Value	$ 8,046	$ 9,934
Plymouth Industrial REIT, Inc. | Available-for-sale Securities
Debt Securities, Available-for-sale [Line Items]
Number of Shares Owned (in shares)	1,580,713	1,160,591
Franklin Street Properties Corp.
Debt Securities, Available-for-sale [Line Items]
Total Carrying Value	$ 561	$ 0
Franklin Street Properties Corp. | Available-for-sale Securities
Debt Securities, Available-for-sale [Line Items]
Number of Shares Owned (in shares)	43,829	0

XML

REAL ESTATE EQUITY SECURITIES - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Debt Securities, Available-for-sale [Line Items]
Investment in real estate securities			$ 4,049	$ 4
Proceeds from sale of securities			758	0
Dividend income from real estate equity securities	$ 151	$ 105	290	$ 209
Plymouth Industrial REIT, Inc.
Debt Securities, Available-for-sale [Line Items]
Investment in real estate securities			$ 1,300
Plymouth Industrial REIT, Inc. | Available-for-sale Securities
Debt Securities, Available-for-sale [Line Items]
Stock purchased (in shares)			92,931
Number of securities sold (in shares)			49,102
Proceeds from sale of securities			$ 800
Franklin Street Properties Corp.
Debt Securities, Available-for-sale [Line Items]
Investment in real estate securities			$ 2,800
Franklin Street Properties Corp. | Available-for-sale Securities
Debt Securities, Available-for-sale [Line Items]
Stock purchased (in shares)			420,122

XML

REAL ESTATE EQUITY SECURITIES - Portion of Gain and Loss (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Investments, Debt and Equity Securities [Abstract]
Unrealized gain (loss) recognized during the reporting period on real estate equity securities held at the end of the period	$ (728)	$ 221	$ (4,618)	$ 1,335
Less net gain recognized during the period on real estate equity securities sold during the period	(67)	0	(67)	0
Net gain (loss) recognized during the period on real estate equity securities	$ (795)	$ 221	$ (4,685)	$ 1,335

XML

INVESTMENT IN UNCONSOLIDATED ENTITIES (Details) $ in Thousands, € in Millions		3 Months Ended		6 Months Ended			12 Months Ended
	Jun. 28, 2016 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2020 EUR (€)	Jun. 30, 2019 USD ($)	Dec. 31, 2019 USD ($) numberOfJointVentures shares	Jun. 28, 2016 EUR (€)
Schedule of Equity Method Investments [Line Items]
Equity in income of unconsolidated entity		$ 0	$ 0	$ 0		$ 2,800
Dividend income		151	$ 105	290		$ 209
Pacific Oak Opportunity Zone Fund I
Schedule of Equity Method Investments [Line Items]
Number of units acquired (in shares) | shares							13
Investments		3,000		3,000			$ 2,900
Number of joint ventures | numberOfJointVentures							2
Real Estate Joint Venture | Industrial
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	$ 100		100				€ 95.5
Amortization of acquisition costs	$ 200
Equity in income of unconsolidated entity							$ 2,800
Dividend income				$ 400	€ 0.4

XML

NOTES PAYABLE - Schedule of Notes Payable (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Total notes payable principal outstanding	$ 330,807	$ 329,595
Deferred financing costs, net	(2,621)	(3,600)
Total notes payable, net	328,186	325,995
Mortgage | Springmaid Beach Resort Mortgage Loan
Debt Instrument [Line Items]
Total notes payable principal outstanding	$ 56,461	56,536
Contractual Interest Rate	2.25%
Effective Interest Rate	5.75%
Mortgage | Springmaid Beach Resort Mortgage Loan | Secured Debt
Debt Instrument [Line Items]
Amount outstanding	$ 57,300
Unused borrowing capacity, amount	$ 9,700
Mortgage | Springmaid Beach Resort Mortgage Loan | One-month LIBOR
Debt Instrument [Line Items]
Contractual Interest Rate	2.25%
Mortgage | Q&C Hotel Mortgage Loan
Debt Instrument [Line Items]
Total notes payable principal outstanding	$ 25,000	25,000
Effective Interest Rate	4.50%
Mortgage | Q&C Hotel Mortgage Loan | One-month LIBOR
Debt Instrument [Line Items]
Contractual Interest Rate	2.50%
Mortgage | Lincoln Court Mortgage Loan
Debt Instrument [Line Items]
Total notes payable principal outstanding	$ 34,615	34,615
Effective Interest Rate	1.91%
Mortgage | Lincoln Court Mortgage Loan | One-month LIBOR
Debt Instrument [Line Items]
Contractual Interest Rate	1.75%
Mortgage | Lofts at NoHo Commons Mortgage Loan
Debt Instrument [Line Items]
Total notes payable principal outstanding	$ 73,862	73,862
Effective Interest Rate	3.93%
Mortgage | Lofts at NoHo Commons Mortgage Loan | One-month LIBOR
Debt Instrument [Line Items]
Contractual Interest Rate	2.18%
Mortgage | Lofts at NoHo Commons Mortgage Loan | One-month LIBOR | Minimum
Debt Instrument [Line Items]
Contractual Interest Rate	1.75%
Mortgage | 210 West 31st Street Mortgage Loan
Debt Instrument [Line Items]
Total notes payable principal outstanding	$ 20,000	20,000
Effective Interest Rate	3.16%
Mortgage | 210 West 31st Street Mortgage Loan | One-month LIBOR
Debt Instrument [Line Items]
Contractual Interest Rate	3.00%
Mortgage | Oakland City Center Mortgage Loan
Debt Instrument [Line Items]
Total notes payable principal outstanding	$ 97,112	95,989
Effective Interest Rate	1.91%
Periodic payment	$ 110
Amortization schedule of mortgage loans on real estate	30 years
Contractual interest rate, percent	6.00%
Mortgage | Oakland City Center Mortgage Loan | Secured Debt
Debt Instrument [Line Items]
Amount outstanding	$ 97,100
Unused borrowing capacity, amount	$ 6,300
Mortgage | Oakland City Center Mortgage Loan | One-month LIBOR
Debt Instrument [Line Items]
Contractual Interest Rate	1.75%
Mortgage | Madison Square Mortgage Loan
Debt Instrument [Line Items]
Total notes payable principal outstanding	$ 23,757	$ 23,593
Effective Interest Rate	5.05%
Mortgage | Madison Square Mortgage Loan | Secured Debt
Debt Instrument [Line Items]
Total notes payable principal outstanding	$ 23,800
Mortgage | Madison Square Mortgage Loan | One-month LIBOR
Debt Instrument [Line Items]
Contractual Interest Rate	4.05%
Mortgage | Grace Court Mortgage Loan | Maximum
Debt Instrument [Line Items]
Contractual interest rate, percent	5.05%
Mortgage | Grace Court Mortgage Loan | Secured Debt
Debt Instrument [Line Items]
Unused borrowing capacity, amount	$ 10,300
Mortgage | 2200 Paseo Verde Mortgage Loan | Secured Debt
Debt Instrument [Line Items]
Amount outstanding	73,900
Unused borrowing capacity, amount	$ 2,100

XML

NOTES PAYABLE - Additional Information (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	May 15, 2020	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Derivative [Line Items]
Interest expense		$ 3,738	$ 5,027	$ 7,864	$ 9,988
Amortization of deferred financing costs		500	400	1,000	800
Finance lease, interest		200	$ 200	300	300
Interest capitalized		32		68	0
Interest payable		900		900		$ 800
Mortgage | Q&C Hotel Mortgage Loan
Derivative [Line Items]
Period of defer monthly principal and interest payments	90 days
Interest Rate Cap
Derivative [Line Items]
Unrealized gain (loss) on derivative instruments		$ (4)		$ 9	$ (6)

XML

NOTES PAYABLE - Schedule of Maturities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Debt Disclosure [Abstract]
July 1, 2020 through December 31, 2020	$ 78,702
2021	76,226
2022	175,879
Total notes payable principal outstanding	$ 330,807	$ 329,595

XML

FAIR VALUE DISCLOSURES - Schedule of Face Value, Carrying Amounts and Fair Value (Details) - Level 3 - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Notes payable, Face Value	$ 330,807	$ 329,595
Carrying Amount
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Notes payable, Value		325,995
Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Notes payable, Value	$ 327,350	$ 330,687

XML

FAIR VALUE DISCLOSURES - Schedule of Assets at Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Real estate equity securities	$ 8,607	$ 9,934
Recurring Basis
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Real estate equity securities	8,607	9,934
Recurring Basis | Interest Rate Cap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset derivatives	10
Recurring Basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Real estate equity securities	8,607	9,934
Recurring Basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | Interest Rate Cap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset derivatives	0
Recurring Basis | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Real estate equity securities	0	0
Recurring Basis | Significant Other Observable Inputs (Level 2) | Interest Rate Cap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset derivatives	10
Recurring Basis | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Real estate equity securities	0	$ 0
Recurring Basis | Significant Unobservable Inputs (Level 3) | Interest Rate Cap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset derivatives	$ 0

XML

RELATED PARTY TRANSACTIONS - Additional Information (Details) - USD ($)		6 Months Ended
	Nov. 01, 2019	Jun. 30, 2020	Dec. 31, 2019
Pacific Oak Opportunity Zone Fund I, LLC
Related Party Transaction [Line Items]
Investments			$ 2,900,000
Incurred		$ 26,000
KBS Capital Advisors LLC
Related Party Transaction [Line Items]
Term of advisory agreement	1 year
Renewal period	1 year
Pacific Oak Capital Advisors, LLC
Related Party Transaction [Line Items]
Acquisition fee, percent			1.50%
Benchmark amount of contracted acquisition sales price			$ 25,000,000.0
Acquisition fee as percent of benchmark contract sales price			1.00%
Quarterly asset management fee, percent of acquisition purchase price			0.25%
Financing fee, percent of original principal amount of indebtedness incurred			0.50%

XML

RELATED PARTY TRANSACTIONS - Related-party Costs (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Related Party Transaction [Line Items]
Payable as of	$ 1,034,000		$ 1,034,000		$ 649,000
Payment for administrative fees	0	$ 100,000	0	$ 200,000
Advisor and Dealer Manager
Related Party Transaction [Line Items]
Incurred	1,099,000	1,154,000
Payable as of	1,034,000		1,034,000		649,000
Acquisition fees on real estate equity securities | Advisor and Dealer Manager
Related Party Transaction [Line Items]
Expenses	0	0	71,000	0
Payable as of	0		0		0
Acquisition fee on investment in unconsolidated entities | Advisor and Dealer Manager
Related Party Transaction [Line Items]
Expenses	46,000	0	46,000	0
Payable as of	0		0		29,000
Advisor and Dealer Manager
Related Party Transaction [Line Items]
Incurred			2,285,000	2,305,000
Advisor and Dealer Manager | Asset management fees
Related Party Transaction [Line Items]
Expenses	1,053,000	1,062,000	2,096,000	2,111,000
Payable as of	1,034,000		1,034,000		620,000
Advisor and Dealer Manager | Reimbursable operating expenses
Related Party Transaction [Line Items]
Expenses	0	$ 92,000	72,000	$ 194,000
Payable as of	$ 0		$ 0		$ 0

XML

COMMITMENTS AND CONTINGENCIES (Details) - USD ($)			3 Months Ended		6 Months Ended
	May 25, 2019	May 25, 2016	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	May 06, 2020	Apr. 27, 2020	Dec. 31, 2019
Lease Obligations
July 1, 2020 through December 31, 2020			$ 240,000		$ 240,000
2021			735,000		735,000
2022			935,000		935,000
2023			525,000		525,000
2024			360,000		360,000
Thereafter			52,956,000		52,956,000
Total expected minimum lease liabilities			55,751,000		55,751,000
Less: Amount representing interest			(47,765,000)		(47,765,000)
Present value of net minimum lease payments			7,986,000		7,986,000
Total notes payable principal outstanding			330,807,000		330,807,000				$ 329,595,000
Springmaid Beach Resort | Doubletree Management LLC
Loss Contingencies [Line Items]
Fees incurred to management agreement			72,000	$ 200,000	$ 100,000	$ 300,000
Springmaid Beach Resort | Doubletree Management LLC
Loss Contingencies [Line Items]
Performance period					2 years
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%
Management agreement, extension period					5 years
Q&C Hotel | Paycheck Protection Program, CARES Act
Lease Obligations
Notes payable							$ 400,000	$ 1,300,000
Total notes payable principal outstanding			1,700,000		$ 1,700,000
Q&C Hotel | Encore Hospitality, LLC | Direct Costs of Hotels
Loss Contingencies [Line Items]
Management agreement, fees accrued				100,000	$ 100,000	200,000
Q&C Hotel | Encore Hospitality, LLC
Loss Contingencies [Line Items]
Management agreement, extension period					5 years
Base fee as percentage of gross revenue					4.00%
Q&C Hotel | Marriott International
Loss Contingencies [Line Items]
Brand services fee as percent of total room revenue		2.00%			2.00%
Fees incurred to management agreement			$ 100,000	$ 200,000	$ 200,000	$ 400,000
Brand services fee as percent of total room revenue, after three years	5.00%				5.00%
Monthly marketing fund contribution fees as percent of gross room sales					1.50%