##### Table of Contents

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**
 
**

**FORM 10-K**

 

**
 
**

 

**For the fiscal year ended December 31, 2010**

**or**

 

**For the transition period from                     to                     **

**Commission File No. 000-53200**

 

**
 
**

**CB RICHARD ELLIS REALTYTRUST**

**(Exact name of registrant as specified in its charter)**

 

**
 
**

 

**47 Hulfish Street, Suite 210, Princeton, New Jersey08542**

**(Address of principal executive offices—zip code)**

**(609) 683-4900**

**(Registrant’s telephone number, including area code)**

**SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:**

 

**SECURITIES REGISTEREDPURSUANT TO SECTION 12(g) OF THE ACT:**

**Common Shares of Beneficial Interest, Par Value $0.01 Per Share**

 

**
 
**

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct.    Yes   ̈     No  x . 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ̈     No  x . 

Indicate by checkmark 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 filesuch reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405) is notcontained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 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  x

Since there was no established market for the voting and non-voting commonshares as of June 30, 2010, there was no market value for the common shares held by non-affiliates of the registrant as of such date. 

The number of shares outstanding of the registrant’s common shares, $0.01 par value, was 172,025,430 as of March 17, 2011. 

**DOCUMENTS INCORPORATED BY REFERENCE**

Portions of the registrant’s Proxy Statement for its2011 Annual Shareholders’ Meeting expected to be filed on or prior to April 30, 2011 are incorporated by reference into Part III of this Annual Report on Form 10-K. 

 

 

 

 

Table of Contents
**CB RICHARD ELLIS REALTY TRUST**

**FORM 10-K**

**TABLE OF CONTENTS**

 

**10-K PART AND ITEM NO.**
  
**PART I**
  
1.
 Business   1  
1A.
 Risk Factors   15  
1B.
 Unresolved Staff Comments   34  
2.
 Properties   35  
3.
 Legal Proceedings    56  
4.
 Removed and Reserved   56  
**PART II**
  
5.
 Market for Registrant’s Common Equity, Related Shareholders Matters and Issuer Purchases of Equity Securities   57  
6.
 Selected Financial Data   66  
7.
 Management’s Discussion and Analysis of Financial Condition and Results of Operations   68  
7A.
 Quantitative and Qualitative Disclosures about Market Risk   100  
8.
 Financial Statements and Supplementary Data   100  
9.
 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   100  
9A.
 Controls and Procedures   100  
9B.
 Other Information   101  
**PART III**
  
10.
 Trustees, Executive Officers of the Registrant and Corporate Governance   102  
11.
 Executive Compensation   104  
12.
 Security Ownership of Certain Beneficial Owners and Management and Related Matters   105  
13.
 Certain Relationships, Related Transactions and Trustee Independence   106  
14.
 Principal Accounting Fees and Services   112  
**PART IV**
  
15.
 Exhibits, Financial Statement Schedules    113  
SIGNATURES 
  
Table of Contents
**PART I**

 
**ITEM 1.****BUSINESS**
**Overview**

CB Richard Ellis Realty Trust is a Maryland real estate investment trust that invests in real estate, focusing on office, industrial (primarilywarehouse/distribution), retail and potentially multi-family residential properties. As of December 31, 2010, we owned, on a consolidated basis, 73 office, industrial (primarily warehouse/distribution) and retail properties located in 15 states(Arizona, California, Florida, Georgia, Illinois, Massachusetts, Minnesota, New Jersey, North Carolina, Ohio, South Carolina, Texas, Utah and Virginia) and in the United Kingdom encompassing approximately 12,800,000 rentable square feet in theaggregate. In addition, we have ownership interests in five unconsolidated entities that, as of December 31, 2010, owned interests in 38 properties. Excluding those properties owned through our investment in CB Richard Ellis Strategic PartnersAsia II, L.P. (“CBRE Strategic Partners Asia”), we owned, on an unconsolidated basis, 30 industrial, office and retail properties located in eight states (Arizona, Florida, Indiana, Missouri, North Carolina, Ohio, Tennessee and Texas) andin the United Kingdom and Europe encompassing approximately 9,901,000 rentable square feet in the aggregate. 

We commenced operations inJuly 2004, following an initial private placement of our common shares of beneficial interest. We raised aggregate net proceeds (after commissions and expenses) of approximately $55,500,000 from July 2004 to October 2004 in private placements of ourcommon shares. On October 24, 2006, we commenced an initial public offering of up to $2,000,000,000 in our common shares. In connection with that offering, as of January 30, 2009, we had accepted subscriptions from 13,270 investors, issued60,808,967 common shares including 1,487,943 common shares issued pursuant to our dividend reinvestment plan, and received $607,345,702 in gross proceeds. Our initial public offering was terminated effective as of the close of business onJanuary 29, 2009. We withdrew from registration a total of 140,243,665 common shares that were registered but not sold in connection with the initial public offering. 

The registration statement relating to our follow-on public offering was declared effective by the Securities and Exchange Commission (the “SEC”) on January 30, 2009. CNL Securities Corp. is thedealer manager of our offering (the “Dealer Manager”). The registration statement covers up to $3,000,000,000 in common shares of beneficial interest, 90% of which will be offered at a price of $10.00 per share, and 10% of which will beoffered pursuant to our dividend reinvestment plan at a purchase price equal to the higher of $9.50 per share or 95% of the fair market value of a common share on the reinvestment date, as determined by the Investment Advisor, or another firm wechoose for that purpose. We reserve the right to reallocate the shares between the primary offering and our dividend reinvestment plan. From January 30, 2009 (effective date) through December 31, 2010, we had accepted subscriptions from26,244 investors and we had received gross offering proceeds of approximately $1,010,076,294 from the sale of 101,245,478 common shares including 4,756,981 common shares issued pursuant to our dividend reinvestment plan. 

From October 24, 2006 through December 31, 2010, we had accepted subscriptions from 39,514 investors, issued 162,054,446 common shares,including 6,244,924 common shares issued pursuant to our dividend reinvestment plan, and received $1,617,421,996 in gross proceeds. As of December 31, 2010, 164,511,252 common shares were issued and outstanding. 

We are an externally managed REIT, and have retained CBRE Advisors LLC as our investment advisor (the “Investment Advisor”). TheInvestment Advisor is responsible for managing our affairs on a day-to-day basis and for identifying and making acquisitions on our behalf. The Investment Advisor receives advisory services relating to real estate acquisitions, property managementand communications with existing investors and, in addition, receives marketing and other operational services from CNL Fund Management Company, an affiliate of CNL Securities Corp pursuant to a sub-advisory agreement. We hold all of our real estateinvestments directly or indirectly through our operating partnership, CBRE Operating Partnership, L.P. (“CBRE OP”). 

Webenefit from the investment expertise and experience of the Investment Advisor, which is an affiliate of our sponsor CB Richard Ellis Investors, L.L.C. (“CBRE Investors”). CBRE Investors is a real estate investment management company and aregistered investment advisor with the SEC. CBRE Investors is a wholly-owned subsidiary of CB Richard Ellis Group, Inc. (NYSE: CBG), or CB Richard Ellis. We have elected to be taxed as a real estate investment trust, or REIT, for U.S. federal incometax purposes. As a REIT, we generally will not be subject to U.S. federal income tax on that portion of our income that we distribute to our shareholders if, in general, at least 90% of our net taxable income (excluding net capital gain) isdistributed to our shareholders. 

Unless the context otherwise requires or indicates, references to “CBRE REIT,”“we,” “our” and “us” refer to the activities of and the assets and liabilities of the business and operations of CB Richard Ellis Realty Trust and its subsidiaries. 

 
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**Investment Objectives and Acquisition Policies**

When we invest in real estate properties, focusing on office, industrial (primarily warehouse/distribution), retail and potentially multi-familyresidential properties and other investment assets, we compete with a variety of institutional investors, including other REITs, insurance companies, mutual funds, pension funds, investment banking firms, banks and other financial institutions thatinvest in the same types of assets. Many of these investors have greater financial resources and access to lower costs of capital than we do. The existence of these competitive entities, as well as the possibility of additional entities forming inthe future, may increase the competition for the acquisition of the types of properties we are seeking to acquire, resulting in higher prices and lower yields on assets. The consideration we agree to pay for real property shall ordinarily be basedon the fair market value of the property as determined by a majority of our trustees. 

We invest in real estate properties, focusing onoffice, retail, industrial (primarily warehouse/distribution), and multi-family residential properties, as well as certain other real estate-related assets. Our investment objectives are: 

 
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to maximize cash dividends paid to you; 

 
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to preserve and protect your capital contributions; 

 
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to realize growth in the value of our assets upon our ultimate sale of such assets; and 

 
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to provide you with the potential for future liquidity by (i) listing our shares on a national securities exchange, the Nasdaq Global Select Market orthe Nasdaq Global Market or (ii) if a listing has not occurred on or before December 31, 2011 our Board of Trustees must consider (but is not required to commence) an orderly liquidation of our assets. 

In 2010, our Board of Trustees established a Special Committee of the Board (the “Special Committee”) consisting of all of theBoard’s independent trustees, Messrs. Black (Chairman) Reid and Orphanides, to explore and review our strategic alternatives and liquidity events in accordance with our investment objectives. There can be no assurance that the exploration ofstrategic alternatives will result in any particular outcome. We do not anticipate any further public comment on this matter unless and until the Special Committee deems it necessary. 

We cannot assure you that we will attain these objectives or that our capital will not decrease. We may not change our investment objectives,except upon approval of shareholders holding a majority of our outstanding shares; however, our Board of Trustees may change any of our investment policies without prior notice to you or a vote of our shareholders. 

We employ an enhanced income investment strategy designed to maximize risk-adjusted returns. To do so, we purchase, actively and passively manageand sell properties located in the business districts and suburban markets of major metropolitan areas. Our primary focus is on office, industrial (primarily warehouse/distribution), retail and potentially multi-family residential properties. Thenumber and aggregate purchase price of properties we acquire in each asset class will depend upon real estate and market conditions and other circumstances existing at the time we acquire assets. 

Our office portfolio may include properties such as multi-tenant, single-tenant and sale leasebacks, office parks and portfolios, newlyconstructed, corporate/user activity, medical office, technology/telecommunication, redevelopments and stabilized operations. Our retail portfolio may encompass regional malls, power centers, community centers, grocery-anchored strips, freestandingstores, urban properties, single assets and multiple property portfolios. Our industrial portfolio will consist primarily of warehouse/distribution properties, but may also include office/showroom, research and development facilities, manufacturing,single-tenant and sale leasebacks and corporate/user activity properties. Our multi-family residential portfolio may include garden complexes, townhouse developments, mid/high-rise towers, newly constructed and redevelopment properties, singleassets and multi-property portfolios. 

Our investment strategy is centered on CBRE Investors’ research-driven approach. We focus onthe property types and markets identified as most compelling by CBRE Investors’ research. As a result, we believe that our opportunities will evolve over time as market conditions change. 

We hold all of our real estate investments directly or indirectly through our operating partnership, CBRE OP. We are the sole general partner ofCBRE OP. Our ownership of properties in CBRE OP is referred to as an Umbrella Partnership REIT, or “UPREIT.” We believe the UPREIT structure is a competitive advantage for us when seeking to acquire assets, because it allows potentialsellers of properties to defer gain recognition for U.S. federal income tax purposes by contributing properties to CBRE OP in return for an interest therein. Although we are not limited as to the form our investments may take, our investments inreal estate generally take the form of holding fee title or a long-term leasehold estate in the properties we acquire. We acquire such interests either directly in CBRE OP or indirectly by acquiring membership interests in, or acquisitions ofproperty through, limited liability companies or through investments in joint ventures, partnerships, co-tenancies or other co-ownership arrangements with developers of properties, affiliates of the Investment Advisor or other persons. In addition,we may purchase properties and lease them back to the sellers of such properties. 

 
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We may, from time to time, invest in or make mortgage or other real estate-related loans, which mayinclude first or second mortgages, mezzanine loans or other real estate-related investments that do not conflict with the maintenance of our REIT qualification. Although we do not have a formal policy, our criteria for investing in mortgage loanswill be substantially the same as those involved in our investment in properties and will be subject to the investment limitations contained in our declaration of trust. 

We are not limited as to the geographic area where we may conduct our operations. We intend to invest primarily in properties located in geographically-diverse major metropolitan areas in the United States. Inaddition, we currently intend to invest up to 30% of our total assets in properties outside of the United States. Our international investments may be in markets in which CBRE Investors has existing operations or previous investment experience, ormay be in partnership with other entities that have significant local-market expertise. We expect that our international investments will focus on properties typically located in significant business districts and suburban markets. 

We may purchase existing assets with an operating history, newly constructed properties or assets under construction. We will not invest more than20% of our total assets in any single investment. Except for this limitation on our ability to invest in excess of 20% of our total assets in any single investment, after the initial startup activities, we are not specifically limited in the numberor size of investments we may acquire or on the percentage of net proceeds of our offerings that we may invest in a single investment. It is our intent over time to build a diversified portfolio of assets. However, the number and mix of assets weacquire will depend upon real estate and market conditions and other circumstances existing at the time we acquire assets and the amount of proceeds we raise in our current public offering. In making investment decisions for us, the InvestmentAdvisor considers relevant risks and financial factors, including the creditworthiness of major tenants, the expected levels of rental and occupancy rates, current and projected cash flow of the property, the location, condition and use of theproperty, suitability for any development contemplated or in progress, income-producing capacity, the prospects for long-range appreciation, liquidity and income tax considerations. In addition to these factors, the Investment Advisor, whenevaluating prospective mortgage loan investments, will consider the ratio of the amount of the investment to the value of the property by which it is selected and the quality, experience and creditworthiness of the borrower. The Investment Advisoralso utilizes the resources and professionals of CBRE Investors and consults with its investment committee when evaluating potential investments. In this regard, the Investment Advisor has substantial discretion with respect to the selection ofspecific investments. 

Our obligation to close the purchase of any property is generally conditioned upon the delivery and verificationof certain documents from the seller or developer, including, where appropriate: 

 
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plans and specifications; 

 
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leases; 

 
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environmental reports; 

 
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surveys; 

 
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evidence of marketable title subject to such liens and encumbrances as are acceptable to the Investment Advisor; 

 
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title and liability insurance policies; and 

 
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audited financial statements covering recent operations of properties having operating histories, unless such statements would not be required to be filedwith the SEC, so long as we are a public company. 

We will not close the purchase of any property unless and until weobtain an environmental assessment for each property purchased and are generally satisfied with the environmental status of the property. A Phase I environmental site assessment basically consists of a visual survey of the building and the propertyin an attempt to identify areas of potential environmental concern, visually observing neighboring properties to assess surface conditions or activities that may have an adverse environmental impact on the property, and contacting local governmentalagency personnel and performing a regulatory agency file search in an attempt to determine any known environmental concerns in the immediate vicinity of the property. A Phase I environmental site assessment does not generally include any sampling ortesting of soil, groundwater or building materials from the property. We may pursue additional assessments or reviews if the Phase I site assessment indicates that further environmental investigation is warranted. 

In connection with our assessment and selection of investment partners, property managers, development managers and other service providers, wewill consider their experience and reputation in the areas of environmental sustainability, including experience in the development and operation of buildings certified under the LEED (Leadership in Energy and Environmental Design) Green BuildingRating System promulgated by the US Green Building Counsel. The Investment Advisor will evaluate the sustainability of a prospective investment property by assessing its Energy Star score, its preliminary LEED score, and sustainability measures thathave been or can be implemented, such as recycling, water conservation and green cleaning methods. We will consider operational, maintenance and capital improvement practices for existing properties designed to increase energy efficiency, reducewaste and otherwise lessen environmental impacts while remaining conscious of economic performance. We will engage in dialog with our property managers and tenants to determine and implement sustainability initiatives appropriate for particularproperties. We will also consider utilizing and recommending to our tenants the environmental sustainability consulting services of CB Richard Ellis or unaffiliated parties. 

 
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We may also enter into arrangements with the seller or developer of a property whereby the seller ordeveloper agrees that if during a stated period the property does not generate a specified cash flow, the seller or developer will pay in cash to us a sum necessary to reach the specified cash flow level, subject in some cases to negotiated dollarlimitations. 

In determining whether to purchase a particular property, we may, in accordance with customary practices, obtain an optionon such property. The amount paid for an option, if any, is normally surrendered if the property is not purchased and is normally credited against the purchase price if the property is purchased. 

**Development and Construction of Properties**

We have invested in, and may in the future invest in properties on which improvements are to be constructed or completed. We are not restricted inour ability to invest in such properties. To help ensure performance by the builders of properties that are under construction, completion of properties under construction may be guaranteed at the price contracted either by an adequate completionbond or performance bond. We may rely, however, upon the substantial net worth of the contractor or developer or a personal guarantee accompanied by financial statements showing a substantial net worth provided by an affiliate of the person enteringinto the construction or development contract as an alternative to a completion bond or performance bond. Development of real estate properties is subject to risks relating to a builder’s ability to control construction costs or to build inconformity with plans, specifications and timetables. 

We may make periodic progress payments or other cash advances to developers andbuilders of our properties prior to completion of construction only upon receipt of an architect’s certification as to the percentage of the project then-completed and as to the dollar amount of the construction then-completed. We intend to usesuch additional controls on disbursements to builders and developers as we deem necessary or prudent. 

We may directly employ one ormore project managers to plan, supervise and implement the development of any unimproved properties that we may acquire. In such event, such persons would be compensated directly by us. There currently is no affiliate of the Investment Advisor thatperforms development activities on our behalf and neither we nor the Investment Advisor currently intend to form an entity for such purpose. 

**JointVenture Investments**

We have entered into, and may in the future enter into, joint ventures, partnerships, co-tenancies and otherco-ownership arrangements or participations with real estate developers, owners and other affiliated third-parties, including other programs sponsored by CBRE Investors, for the purpose of developing, owning and operating real properties. Indetermining whether to invest in a particular joint venture, the Investment Advisor will evaluate the real property that such joint venture owns or is being formed to own under the same criteria employed for the selection of our real estate propertyinvestments. 

In the event that the co-venturer were to elect to sell property held in any such joint venture, however, we may not havesufficient funds to exercise our right of first refusal to buy the other co-venturer’s interest in the property held by the joint venture. In the event that any joint venture with an affiliated entity holds interests in more than one property,the interest in each such property may be specially allocated based upon the respective proportion of funds invested by each co-venturer in each such property. Our entering into joint ventures with other affiliates, including other programssponsored by CBRE Investors, will result in certain conflicts of interest. 

**Borrowing Policies**

While we strive for diversification, the number of different assets we can acquire will be affected by the amount of funds available to us.

Our ability to increase our diversification through borrowing could be adversely impacted by banks and other lending institutionsreducing the amount of funds available for loans secured by real estate. When interest rates on mortgage loans are high or financing is otherwise unavailable on a timely basis, we may purchase certain properties for cash with the intention ofobtaining a mortgage loan for a portion of the purchase price at a later time. 

Although we have adopted a policy to limit our aggregateborrowing to no more than 65% of the cost of our assets before non-cash reserves and depreciation, subject to the 300% of net assets borrowing restriction described below, this policy may be altered at any time or suspended by our Board of Trusteesif necessary to pursue attractive investment opportunities. Our organizational documents contain a limitation on the amount of indebtedness that we may incur, so that until our shares are listed on a national securities exchange, our aggregateborrowing may not exceed 300% of our net assets unless any excess borrowing is approved by a majority of our independent trustees and is disclosed to shareholders in our next quarterly report. Our Board of Trustees must review our aggregateborrowing from time to time, but at least quarterly. 

 
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By operating on a leveraged basis, we will have more funds available for investment in assets. Thiswill allow us to make more investments than would otherwise be possible, resulting in a more diversified portfolio. Although our liability for the repayment of indebtedness is expected to be limited to the value of the asset securing the liabilityand the rents or profits derived therefrom, our use of leveraging may increase the risk of default on the mortgage payments and a resulting foreclosure of a particular property. To the extent that we do not obtain mortgage loans on our properties,our ability to acquire additional assets will be restricted. The Investment Advisor will use its best efforts to obtain financing on our behalf on the most favorable terms available. Lenders may have recourse to assets not securing the repayment ofthe indebtedness. 

We may refinance properties during the term of a loan only in limited circumstances, such as when a decline ininterest rates makes it beneficial to prepay an existing mortgage, when an existing mortgage matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment. The benefits of therefinancing may include an increased cash flow resulting from reduced debt service requirements, an increase in dividend distributions from proceeds of the refinancing, if any, and/or an increase in property ownership if some refinancing proceedsare reinvested in real estate. 

We may not borrow money from any of our trustees or from the Investment Advisor and its affiliatesunless approved by a majority of our trustees, including a majority of any independent trustees not otherwise interested in the transaction, as fair, competitive and commercially reasonable and no less favorable to us than comparable loans betweenunaffiliated parties. 

**Disposition Policies**

We intend to hold each asset we acquire for an extended period. However, circumstances might arise which could result in the early sale of some assets. We may sell a property before the end of the expected holdingperiod if, among other reasons: 

 
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in our judgment, the sale of the asset is in the best interests of our shareholders; 

 
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we can reinvest the proceeds in a higher-yielding investment; 

 
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we can increase cash flow through the disposition of the asset; or 

 
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in the judgment of the Investment Advisor, the value of an asset might decline substantially. 

The determination of whether a particular asset should be sold or otherwise disposed of will be made after consideration of relevant factors,including prevailing economic conditions, with a view to achieving maximum long-term capital appreciation. We cannot assure you that this objective will be realized. 

If our shares are not listed for trading on a national securities exchange, the Nasdaq Global Select Market or the Nasdaq Global Market by December 31, 2011, our declaration of trust requires our Board ofTrustees to consider (but is not required to commence) an orderly liquidation of our assets, which liquidation would require the approval of shareholders. In making the decision to apply for listing of our shares, our trustees will try to determinewhether listing our shares or liquidating our assets will result in greater long-term value for our shareholders. We cannot determine at this time the circumstances, if any, under which our trustees will determine to list our shares. Even if noshares are listed, we are under no obligation to actually sell our portfolio within this time period since the precise timing will depend on real estate and financial markets, economic conditions of the areas in which the properties are located andU.S. federal income tax effects on shareholders which may be applicable in the future. Furthermore, we cannot assure you that we will be able to liquidate our assets. In addition, we may consider other business strategies such as reorganizations ormergers with other entities if our Board of Trustees determines such strategies would be in the best interests of our shareholders. Any change in the investment objectives set forth in our declaration of trust would require the vote of shareholdersholding a majority of our outstanding shares. 

**Investment Limitations**

Our declaration of trust places numerous limitations on us with respect to the manner in which we may invest our funds, most of which are required by various provisions of the North American SecuritiesAdministrators Association Guidelines, or NASAA Guidelines. Our declaration of trust provides that until our shares are listed on a national securities exchange or included on the Nasdaq Global Select Market or the Nasdaq Global Market, we may not:

 
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invest in equity securities unless a majority of our trustees, including a majority of any independent trustees not otherwise interested in the transaction,approve such investment as being fair, competitive and commercially reasonable; 

 
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make investments in unimproved property or indebtedness secured by a deed of trust or mortgage loans on unimproved property in excess of 10% of our totalassets; 

 
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invest in commodities or commodity futures contracts, except for futures contracts when used solely for the purpose of hedging in connection with our ordinarybusiness of investing in real estate assets and mortgages; 

 
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make or invest in mortgage loans unless an appraisal is obtained concerning the underlying property, except for those mortgage loans insured or guaranteed bya government or government agency. In cases where a majority of our independent trustees determine, and in all cases in which the transaction is with any of our trustees or the Investment Advisor or its affiliates, such appraisal shall be obtainedfrom an independent appraiser. We will maintain such appraisal in our records for at least five years and it will be available for your inspection and duplication. We will also obtain a mortgagee’s or owner’s title insurance policy as tothe priority of the mortgage; 

 
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invest in real estate contracts of sale, otherwise known as land sale contracts, unless the contract is in recordable form and is appropriately recorded inthe chain of title; 

 
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make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans on such property wouldexceed an amount equal to 85% of the appraised value of such property as determined by appraisal unless substantial justification exists for exceeding such limit because of the presence of other underwriting criteria; 

 
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make or invest in mortgage loans that are subordinate to any mortgage or equity interest of any of our trustees, the Investment Advisor or its affiliates;

 
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issue “redeemable securities,” as defined in Section 2(a)(32) of the Investment Company Act of 1940, as amended, or the Investment Company Act;

 
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issue debt securities unless the historical debt service coverage (in the most recently completed fiscal year) as adjusted for known changes is sufficient toproperly service that higher level of debt; 

 
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grant warrants or options to purchase shares to the Investment Advisor or its affiliates or to officers or trustees affiliated with the Investment Advisorexcept on the same terms as such warrants or options are sold to the general public and in an amount not to exceed 10% of the outstanding shares on the date of grant of the warrants and options; 

 
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issue equity securities on a deferred payment basis or other similar arrangement; or 

 
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lend money to our trustees or to the Investment Advisor or its affiliates. 

The Investment Advisor continually reviews our investment activity to ensure that we do not come within the application of the Investment CompanyAct. Among other things, the Investment Advisor monitors the proportion of our portfolio that is placed in various investments so that we do not come within the definition of an “investment company” under the Investment Company Act. If atany time the character of our investments could cause us to be deemed an “investment company” for purposes of the Investment Company Act, we will take the necessary actions to attempt to ensure that we are not deemed to be an“investment company.” 

**Change in Investment Objectives and Limitations**

Until our shares are listed on a national securities exchange, our declaration of trust requires that the independent trustees review our investmentpolicies at least annually to determine that the policies we are following are in the best interests of our shareholders. Each determination, and the basis therefore, is required to be set forth in our minutes. The methods of implementing ourinvestment policies also may vary as new investment techniques are developed. The methods of implementing our investment objectives and policies, except as otherwise provided in the organizational documents, may be altered by a majority of ourtrustees, including a majority of the independent trustees, without the approval of the shareholders. Our investment objectives themselves, however, may only be amended by a vote of the shareholders holding a majority of our outstanding shares.

**Restrictions on Roll-up Transactions**

Until our shares are listed on a national securities exchange, our declaration of trust requires that we follow the policy set forth below with respect to any “Roll-up Transaction.” In connection with anyproposed transaction considered a “Roll-up Transaction” involving us and the issuance of securities of an entity, or a Roll-up Entity, that would be created or would survive after the successful completion of the Roll-up Transaction, anappraisal of all properties must be obtained from a competent independent appraiser. The properties must be appraised on a consistent basis, and the appraisal shall be based on the evaluation of all relevant information and shall indicate the valueof the properties as of the date immediately prior to the announcement of the proposed Roll-up Transaction. The appraisal shall assume an orderly liquidation of properties over a 12-month period. The terms of the engagement of the independentappraiser must clearly state that the engagement is for our benefit and our shareholders’ benefit. A summary of the appraisal, indicating all material assumptions underlying the appraisal, shall be included in a report to our shareholders inconnection with any proposed Roll-up Transaction. If the appraisal will be included in a document used to offer the securities of a Roll-up Entity, the appraisal shall be filed with the SEC and the states as an exhibit to the registration statementfor the offering. 

 
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A “Roll-up Transaction” is a transaction involving the acquisition, merger, conversion orconsolidation, directly or indirectly, of us and the issuance of securities of a Roll-up Entity. This term does not include: 

 
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a transaction involving our securities that have been listed on a national securities exchange for at least 12 months; or 

 
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a transaction involving our conversion into corporate or association form if, as a consequence of the transaction, there will be no significant adverse changein any of the following: our shareholder voting rights; the term of our existence; compensation to the Investment Advisor or its affiliates; or our investment objectives. 

In connection with a proposed Roll-up Transaction, the person sponsoring the Roll-up Transaction must offer to our shareholders who vote“no” on the proposal a choice of: 

 
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accepting the securities of the Roll-up Entity offered in the proposed Roll-up Transaction; or 

 
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one of the following: 

 
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remaining as shareholders and preserving their interests on the same terms and conditions as existed previously; or 

 
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receiving cash in an amount equal to the shareholders’ *pro rata* share of the appraised value of our net assets. 

We are prohibited from participating in any proposed Roll-up Transaction: 

 
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that would result in our shareholders having voting rights in a Roll-up Entity that are less than those provided in our bylaws and described elsewhere in thisdocument including rights with respect to the election and removal of trustees, annual reports, annual and special meetings, amendment of our declaration of trust and our dissolution; 

 
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that includes provisions that would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-upEntity, except to the minimum extent necessary to preserve the tax status of the Roll-up Entity, or which would limit the ability of an investor to exercise voting rights of its securities of the Roll-up Entity on the basis of the number of sharesheld by that investor; 

 
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in which investors’ right to access of records of the Roll-up Entity will be less than those provided in the section of our prospectus entitled“Description of Shares”; or 

 
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in which any of the costs of the Roll-up Transaction would be borne by us if the Roll-up Transaction is not approved by our shareholders.

**Policies With Respect to Certain Other Activities**

If our Board of Trustees determines that additional funding is required, we may raise such funds through additional equity offerings or the retention of cash flow (subject to the REIT provisions of the InternalRevenue Code of 1986, as amended (the “Internal Revenue Code”) concerning distribution requirements and taxability of undistributed net taxable income) or a combination of these methods. 

In the event that our Board of Trustees determines to raise additional equity capital, it has the authority, without shareholder approval, to issueadditional common or preferred shares in any manner and on such terms and for such consideration it deems appropriate, at any time. 

Wehave authority to repurchase or otherwise reacquire our shares and may engage in such activities in the future. We may invest in the securities of other issuers for the purpose of exercising control. We currently have no intention to underwritesecurities of other issuers. 

Our Board of Trustees may change any of these policies without prior notice to you or a vote of ourshareholders. 

**The Advisory Agreement**

We entered into an advisory agreement with the Investment Advisor in July 2004, which was amended and restated in October 2006, January 2009 and December 2010. Pursuant to this agreement, which was unanimouslyapproved by our Board of Trustees, including our independent trustees, we appointed the Investment Advisor to manage, operate, direct and supervise our operations. The Investment Advisor performs its duties as a fiduciary of us and our shareholders.Many of the services to be performed by the Investment Advisor in managing our day-to-day activities are summarized below. 

 
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This summary is provided to illustrate the material functions that the Investment Advisor performs forus as the Investment Advisor, and it is not intended to include all of the services that may be provided to us by the Investment Advisor or by third parties. The Investment Advisor may subcontract with third parties for the performance of certainduties on our behalf. The Investment Advisor will only subcontract with third parties that are believed to have the requisite experience to perform their duties. The Investment Advisor will supervise the activities of any such third partiesconsistent with its fiduciary duty to us. Under the terms of the advisory agreement, the Investment Advisor undertakes to use its best efforts to present to us investment opportunities consistent with our investment policies and objectives asadopted by our Board of Trustees. In its performance of this undertaking, the Investment Advisor shall, subject to the authority of the board: 

 
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find, present and recommend to us real estate investment opportunities consistent with our investment policies and objectives; 

 
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structure the terms and conditions of transactions pursuant to which acquisitions of properties will be made; 

 
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acquire assets on our behalf in compliance with our investment objectives and policies; 

 
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arrange for financing and refinancing of properties; and 

 
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enter into leases and service contracts for the properties acquired. 

The initial term of the advisory agreement was for one year and the term may be renewed at the end of each year of the agreement for an additionalone-year period. The current term of the advisory agreement expires on April 30, 2011. Prior to any renewal, our trustees will evaluate the performance of the Investment Advisor and the criteria used in such evaluation will be reflected in theminutes of such meeting. Additionally, the advisory agreement may be terminated: 

 
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immediately by us (i) in the event the Investment Advisor commits fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciaryduty by the Investment Advisor, (ii) upon the bankruptcy or insolvency of the Investment Advisor, CBRE Investors or CB Richard Ellis or (iii) upon material breach of the Advisory Agreement by the Investment Advisor, which remains uncuredafter 30 days’ written notice or (iv) if there is a dissolution of any of the Investment Advisor, CBRE Investors or CB Richard Ellis; 

 
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without cause or penalty by a majority of our independent trustees or by the Investment Advisor upon 60 days’ written notice; or

 
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immediately by the Investment Advisor upon our bankruptcy or any material breach of the advisory agreement by us, which remains uncured after10 days’ written notice. 

Affiliates of the Investment Advisor may engage in other business ventures and, asa result, their resources may not be dedicated exclusively to our business. However, pursuant to the advisory agreement, the Investment Advisor must devote sufficient resources to the administration of our company to discharge our obligations. TheInvestment Advisor does not currently intend to advise REITs other than us. The Investment Advisor may assign the advisory agreement to an affiliate upon approval of a majority of the trustees, including the independent trustees. Until our sharesare listed on a national securities exchange, the Nasdaq Global Select Market or the Nasdaq Global Market, the trustees shall determine that any successor advisor possesses sufficient qualifications to (i) perform the advisory function for usand (ii) justify the compensation provided for in its contract with us. We may assign or transfer the advisory agreement to a successor entity of ours. 

The Investment Advisor may not complete an acquisition or disposition of property or financing of such acquisition on our behalf without the prior approval of a majority of our Board of Trustees. The InvestmentAdvisor also utilizes the resources and professionals of CBRE Investors and consults with its investment committee when evaluating potential investments. However, the actual terms and conditions of transactions involving investments in propertiesshall be determined in the sole discretion of the Investment Advisor, subject at all times to such board approval. 

We reimburse theInvestment Advisor for all of the costs it incurs in connection with the services it provides to us, including, but not limited to: 

 
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cumulative organization and offering expenses estimated to be 0.8%, but in no event shall such organizational and offering expenses exceed 15.0% of ouraggregate gross offering proceeds from the sale of shares in the primary offering, which include actual legal, accounting, printing and other expenses attributable to conducting our offering or other offerings, any organizational documents,qualification of the shares for sale in the states and filing fees incurred by the Investment Advisor, as well as reimbursements for marketing, direct expenses of its employees while engaged in registering and marketing the shares and othermarketing and organization costs; 

 
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the annual cost of goods and materials used by us, including brokerage fees paid in connection with the purchase and sale of securities;

 
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administrative services including personnel costs; 

 
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acquisition expenses, which are defined to include expenses related to the selection and acquisition of properties; 

 
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disposition expenses; 

 
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financing expenses; and 

 
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operating expenses, subject to certain limitations set forth in the advisory agreement, which includes all expenses paid or incurred by the Investment Advisoror its affiliates as determined by generally accepted accounting principles, such as real estate operating costs, net of reimbursements, management and leasing fees, general and administrative expenses, and legal and accounting expenses.

The Investment Advisor and its affiliates are paid fees in connection with services provided to us. In the event theadvisory agreement is terminated, the Investment Advisor will be paid all accrued and unpaid fees and expense reimbursements. In addition, an affiliate of the Investment Advisor has received one class B limited partnership interest in CBRE OP(representing 100% of the class B interest outstanding) in exchange for the services provided to us relating to our formation and future services. The class B limited partnership interest is subject to redemption by CBRE OP in the event oftermination of the advisory agreement. 

A majority of the independent trustees, and a majority of trustees not otherwise interested inthe transaction, must approve all transactions with the Investment Advisor or any of its affiliates. Until our shares are listed on a national securities exchange, the Nasdaq Global Select Market or the Nasdaq Global Market, our independent trusteesmust determine from time to time, but at least annually, that our fees and expenses are reasonable in light of our performance, our net assets and net income and the fees and expenses of other comparable unaffiliated REITs. During this period, ourindependent trustees are also responsible for reviewing the performance of the Investment Advisor and determining that the compensation to be paid to the Investment Advisor is reasonable in relation to the nature and quality of services to beperformed and that the provisions of the advisory agreement are being carried out. Specifically, our independent trustees consider factors such as: 

 
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the amount of the fee paid to the Investment Advisor in relation to the size, composition and performance of our investments; 

 
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the success of the Investment Advisor in generating appropriate investment opportunities; 

 
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rates charged to other REITs and other investors by advisors performing similar services; 

 
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additional revenues realized by the Investment Advisor and any of its Affiliates through their relationship with us, whether we pay them or they are paid byothers with whom we do business; 

 
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the quality and extent of service and advice furnished by the Investment Advisor and the performance of our investment portfolio;

 
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the performance of our investments, including income generation, conservation or appreciation of capital, frequency of problem investments and competence indealing with distress situations; and 

 
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the quality of our portfolio relative to the investments generated by the Investment Advisor for its other clients. 

Until our shares are listed on a national securities exchange, the Nasdaq Global Select Market or the Nasdaq Global Market, neither our trustees,the Investment Advisor nor their affiliates may vote or consent to the voting of shares they now own or hereafter acquire on matters submitted to the shareholders regarding either (1) the removal of the Investment Advisor, any trustee or anyaffiliate, or (2) any transaction between us and the Investment Advisor, any trustee or any affiliate. 

**The Sub-Advisory Agreement**

The Investment Advisor has entered into a sub-advisory agreement with CNL Fund Management Company, or the Sub-Advisor. TheSub-Advisor, which is a wholly-owned subsidiary of CNL Financial Group, Inc., is an affiliate of the Dealer Manager, which is a wholly-owned subsidiary of CNL Capital Markets Corp. Pursuant to this agreement, the Sub-Advisor acts only as an advisorto the Investment Advisor, upon request, and may provide advisory services relating to real estate acquisitions, property management and communications with existing investors and, in addition, provides marketing and other operational services. Theterm of this agreement will continue so long as the Investment Advisor remains our advisor pursuant to the advisory agreement and it may automatically be extended concurrently with the advisory agreement. The sub-advisory agreement may be terminatedby (i) the Investment Advisor for “cause” on 60 days’ written notice or if the managing dealer agreement is terminated pursuant to its terms, or (ii) the Sub-Advisor for

 
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a material breach of the agreement which remains uncured after 15 days’ written notice or the bankruptcy of the Investment Advisor. For advisory services relating to real estateacquisitions, property management and communications with existing investors, the Investment Advisor compensates the Sub-Advisor through certain investment management and acquisition fees, which are in an amount equal to approximately 14% to 19%,respectively, of such fees the Investment Advisor receives from us. The Sub-Advisor may also provide certain marketing and operational services to the Investment Advisor, for which it is entitled to receive fees, and the Sub-Advisor is also entitledto reimbursement by the Investment Advisor for certain expenses it incurs. In the event the sub-advisory agreement is terminated, the Sub-Advisor will be paid all accrued and unpaid fees and expense reimbursements. The Investment Advisor retainsultimate responsibility for the performance of all of the matters entrusted to it under the advisory agreement. 

**Industry Segments**

We view our operations as having three reportable segments, two Domestic segments, consisting of Domestic Office Properties and Domestic IndustrialProperties and an International Office/Retail Properties segment, which participate in the acquisition, development, ownership and operation of high quality real estate assets in their respective regions. Information regarding our reportablesegments can be reviewed under Note 11, “Segment Disclosure,” in the accompanying consolidated financial statements. 

**Geographic Areas ofProperties**

We currently operate in two geographic areas, the United States and the United Kingdom. Information regarding thegeographic diversification of our consolidated properties as of December 31, 2010 can be reviewed under Note 10, “Concentrations—Geographic Concentrations,” in the accompanying consolidated financial statements. As ofDecember 31, 2010, we also have ownership interests in (i) CBRE Strategic Partners Asia, which, owned interests in properties in China and Japan, (ii) the UK JV, which owned interests in properties in the United Kingdom and(iii) the European JV, which owned interests in properties in Germany. Information relative to CBRE Strategic Partners Asia, the UK JV and the European JV can be reviewed under Note 5, “Investments in Unconsolidated Entities” in theaccompanying consolidated financial statements. 

**Competition**

As we purchase properties to build our portfolio, we are in competition with other potential buyers for the same properties, which may result in an increase in the amount we must pay to acquire a property or mayrequire us to locate another property that meets our investment criteria. Leasing of real estate is also highly competitive in the current market, and we will experience competition for tenants from owners and managers of competing projects. As aresult, we may have to provide rent concessions, incur charges for tenant improvements or offer other inducements to enable us to timely lease vacant space, all of which may have an adverse impact on our results of operations. At the time we electto dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers. 

 
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**Organizational Structure**

The following chart illustrates our general structure and ownership and the management relationship between the Investment Advisor and us.