**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington, D.C.
      20549**


________________




**Form 10-Q**





**(Mark
                One)**R
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                OF 1934****For
                the quarterly period ended September 30, 2007****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: 000-50805**


________________




**Hines
      Real Estate Investment Trust, Inc.**


*(Exact
      Name of Registrant as Specified in its Charter)*





**Maryland**
            **20-0138854***(State
                or Other Jurisdiction of*
            *(I.R.S.
                Employer**Incorporation
                or Organization)*
            *Identification
                No.)***2800
                Post Oak Boulevard****Suite 5000****Houston,
                Texas**
            **77056-6118***(Address
                of principal executive offices)*
            *(Zip
                code)*





**Registrant’s
      telephone number, including area code:**


**(888) 220-6121**





*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 R     No £





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





Large
      accelerated filer £    Accelerated
      filer £     Non-accelerated
      filer R





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





As
      of
      November 9, 2007, 155.6 million shares of the registrant’s common stock were
      outstanding.








**TABLE
      OF CONTENTS**





**PART I –
                FINANCIAL INFORMATION**Item 1.
            Consolidated
                Financial Statements
                (Unaudited)Condensed
                Consolidated Balance
                SheetsCondensed
                Consolidated Statements of
                OperationsCondensed
                Consolidated Statement of
                Shareholders’
                EquityCondensed
                Consolidated Statements of Cash
                FlowsNotes
                to the Condensed Consolidated Financial
                StatementsItem 2.
            Management’s
                Discussion and Analysis of
                Financial Condition and Results of OperationsItem 3.
            Quantitative
                and Qualitative Disclosures About Market
                RiskItem 4T.
            Controls
                and
                Procedures**PART II –
                OTHER INFORMATION**Item 2.
            Unregistered
                Sales of Equity Securities and
                Use of
                ProceedsItem
                4.
            Submission
                of Matters to a Vote of Security
                HoldersItem 6.
            ExhibitsSIGNATURESCertification
                of CEO pursuant to Section
                302Certification
                of CFO pursuant to Section
                302Certification
                of CEO & CFO pursuant to Section
                906


1
 Table
          of Contents


**PART I**





**FINANCIAL
      INFORMATION**





**Item 1.*Consolidated
      Financial Statements.***





**HINES
      REAL ESTATE INVESTMENT TRUST, INC.**


**CONDENSED
      CONSOLIDATED BALANCE
      SHEETS**


**(UNAUDITED)**





**September
                30,****2007**
            
            
            **December 31,****2006****(In
                thousands, except per share amounts)****ASSETS**Investment
                property, net
            
            $
            1,760,984
            
            
            $
            798,329Investments
                in unconsolidated entities
            
            
            369,249
            
            
            
            307,553Cash
                and cash equivalents
            
            
            45,705
            
            
            
            23,022Restricted
                cash
            
            
            6,267
            
            
            
            2,483Distributions
                receivable
            
            
            7,481
            
            
            
            5,858Interest
                rate swap contracts
            
            
            1,681
            
            
            
            1,511Tenant
                and other receivables
            
            
            20,574
            
            
            
            5,172Out-of-market
                lease assets, net
            
            
            45,477
            
            
            
            36,414Deferred
                leasing costs, net
            
            
            29,950
            
            
            
            17,189Deferred
                financing costs, net
            
            
            6,820
            
            
            
            5,412Other
                assets
            
            
            7,002
            
            
            
            10,719**TOTAL
                ASSETS**
            
            $
            2,301,190
            
            
            $
            1,213,662**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**Liabilities:Accounts
                payable and accrued expenses
            
            $
            53,982
            
            
            $
            28,899Due
                to affiliates
            
            
            7,399
            
            
            
            8,954Out-of-market
                lease liabilities, net
            
            
            62,742
            
            
            
            15,814Other
                liabilities
            
            
            10,687
            
            
            
            6,488Interest
                rate swap contracts
            
            
            11,737
            
            
            
            5,955Participation
                interest liability
            
            
            22,808
            
            
            
            11,801Distributions
                payable
            
            
            23,059
            
            
            
            11,281Notes
                payable
            
            
            912,375
            
            
            
            481,233Total
                liabilities
            
            
            1,104,789
            
            
            
            570,425Minority
                interest
            
            
            —
            
            
            
            652Commitments
                and Contingencies (Note 9)Shareholders’
                equity:Preferred
                shares, $.001 par value; 500,000 preferred shares authorized, none
                issued or outstanding as of September 30, 2007 and December 31,
                2006
            
            
            —
            
            
            
            —Common
                shares, $.001 par value; 1,500,000 common shares authorized as of
                September 30, 2007 and December 31, 2006; 149,186 and 80,217 common
                shares issued and outstanding as of September 30, 2007 and
                December 31, 2006, respectively
            
            
            149
            
            
            
            80Additional
                paid-in capital
            
            
            1,286,130
            
            
            
            692,780Retained
                deficit
            
            
            (100,520
            )
            
            
            (50,275
            )Accumulated
                other comprehensive income
            
            
            10,642
            
            
            
            —Total
                shareholders’ equity
            
            
            1,196,401
            
            
            
            642,585**TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY**
            
            $
            2,301,190
            
            
            $
            1,213,662





See
      notes
      to the condensed consolidated financial statements.


2
 Table
          of Contents


**HINES
      REAL ESTATE INVESTMENT TRUST, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF
      OPERATIONS**


**(UNAUDITED)**





**Three
                Months Ended September 30,**
            
            
            **Nine
                Months Ended September 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****(In
                thousands, except per share amounts)****Revenues:**Rental
                revenue
            
            $
            45,536
            
            
            $
            17,957
            
            
            $
            110,142
            
            
            $
            41,953Other
                revenue
            
            
            4,151
            
            
            
            710
            
            
            
            7,498
            
            
            
            1,601Total
                revenues
            
            
            49,687
            
            
            
            18,667
            
            
            
            117,640
            
            
            
            43,554**Expenses**:Property
                operating expenses
            
            
            13,906
            
            
            
            4,949
            
            
            
            30,739
            
            
            
            12,096Real
                property taxes
            
            
            7,430
            
            
            
            3,234
            
            
            
            18,149
            
            
            
            6,918Property
                management fees
            
            
            1,135
            
            
            
            472
            
            
            
            2,797
            
            
            
            1,072Depreciation
                and amortization
            
            
            20,187
            
            
            
            6,511
            
            
            
            44,828
            
            
            
            15,336Asset
                management and acquisition fees
            
            
            10,883
            
            
            
            2,886
            
            
            
            22,014
            
            
            
            10,445Organizational
                and offering expenses
            
            
            1,614
            
            
            
            1,463
            
            
            
            5,115
            
            
            
            3,123General
                and administrative expenses
            
            
            839
            
            
            
            514
            
            
            
            2,989
            
            
            
            2,040Total
                expenses
            
            
            55,994
            
            
            
            20,029
            
            
            
            126,631
            
            
            
            51,030**Loss
                before other income (expenses), income tax expense and (income) loss
                allocated to minority interests**
            
            
            (6,307
            )
            
            
            (1,362
            )
            
            
            (8,991
            )
            
            
            (7,476
            )**Other
                income (expenses):**Equity
                in losses of unconsolidated entities
            
            
            (5,029
            )
            
            
            (926
            )
            
            
            (6,922
            )
            
            
            (1,839
            )Loss
                on derivative instruments, net
            
            
            (21,252
            )
            
            
            (7,795
            )
            
            
            (5,405
            )
            
            
            (6,440
            )Gain
                on foreign currency transactions
            
            
            —
            
            
            
            —
            
            
            
            134
            
            
            
            —Interest
                expense
            
            
            (12,146
            )
            
            
            (4,935
            )
            
            
            (31,979
            )
            
            
            (12,708
            )Interest
                income
            
            
            1,317
            
            
            
            351
            
            
            
            4,178
            
            
            
            585**Loss
                before income tax expense and (income) loss allocated to minority
                interests**
            
            
            (43,417
            )
            
            
            (14,667
            )
            
            
            (48,985
            )
            
            
            (27,878
            )Provision
                for income taxes
            
            
            (247
            )
            
            
            —
            
            
            
            (580
            )
            
            
            —(Income)
                loss allocated to minority interests
            
            
            (286
            )
            
            
            155
            
            
            
            (680
            )
            
            
            409**Net
                loss**
            
            $
            (43,950
            )
            
            $
            (14,512
            )
            
            $
            (50,245
            )
            
            $
            (27,469
            )**Basic
                and diluted loss per common share:**Loss
                per common share
            
            $
            (0.31
            )
            
            $
            (0.26
            )
            
            $
            (0.43
            )
            
            $
            (0.66
            )Weighted
                average number of common shares outstanding
            
            
            143,386
            
            
            
            55,657
            
            
            
            116,037
            
            
            
            41,333





See
      notes
      to the condensed consolidated financial statements.  3
 Table
            of Contents


**HINES
      REAL ESTATE INVESTMENT TRUST, INC.**





**CONDENSED
      CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY**


**For
      the Nine Months Ended September 30, 2007**


**(UNAUDITED)**





**Common****Shares**
            
            
            **Amount**
            
            
            **Additional**
              **Paid-In****Capital**
            
            
            **Retained****Deficit**
            
            
            **Accumulated****Other**
              **Comprehensive**
              **Income**
            
            
            **Shareholders’****Equity****(In
                thousands)****BALANCE,****January
                1, 2007**
            
            
            80,217
            
            
            $
            80
            
            
            $
            692,780
            
            
            $
            (50,275
            )
            
            $
            —
            
            
            $
            642,585Issuance
                of common shares
            
            
            69,452
            
            
            
            69
            
            
            
            720,941
            
            
            
            —
            
            
            
            —
            
            
            
            721,010Redemption
                of common shares
            
            
            (483
            )
            
            
            —
            
            
            
            (4,569
            )
            
            
            —
            
            
            
            —
            
            
            
            (4,569
            )Distributions
                declared
            
            
            —
            
            
            
            —
            
            
            
            (54,156
            )
            
            
            —
            
            
            
            —
            
            
            
            (54,156
            )Selling
                commissions and dealer manager fees
            
            
            —
            
            
            
            —
            
            
            
            (61,977
            )
            
            
            —
            
            
            
            —
            
            
            
            (61,977
            )Other
                offering costs, net
            
            
            —
            
            
            
            —
            
            
            
            (6,889
            )
            
            
            —
            
            
            
            —
            
            
            
            (6,889
            )Comprehensive
                loss:Net
                loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (50,245
            )
            
            
            —Other
                comprehensive income — Foreign currency translation
                adjustment
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            10,642Total
                comprehensive loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (39,603
            )**BALANCE,****September
                30, 2007**
            
            
            149,186
            
            
            $
            149
            
            
            $
            1,286,130
            
            
            $
            (100,520
            )
            
            $
            10,642
            
            
            $
            1,196,401





See
      notes
      to the condensed consolidated financial statements.


4
 Table
          of Contents


**HINES
      REAL ESTATE INVESTMENT TRUST, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**(UNAUDITED)**





**Nine
                Months Ended September 30,****2007**
            
            
            **2006****CASH
                FLOWS FROM OPERATING ACTIVITIES:**
            
            ***(In
                thousands)***Net
                loss
            
            $
            (50,245
            )
            
            $
            (27,469
            )Adjustments
                to reconcile net loss to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            46,139
            
            
            
            17,105Non-cash
                compensation expense
            
            
            19
            
            
            
            23Equity
                in losses of unconsolidated entities
            
            
            6,922
            
            
            
            1,839Income
                (loss) allocated to minority interests
            
            
            680
            
            
            
            (409
            )Accrual
                of organizational and offering expenses
            
            
            5,115
            
            
            
            3,123Gain
                on foreign currency transactions
            
            
            (134
            )
            
            
            —Loss
                on derivative instruments, net
            
            
            5,405
            
            
            
            6,440Net
                change in operating accounts
            
            
            1,877
            
            
            
            3,510Net
                cash provided by operating activities
            
            
            15,778
            
            
            
            4,162**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Investment
                in unconsolidated entities
            
            
            (86,851
            )
            
            
            (102,360
            )Distributions
                received from Hines-Sumisei U.S. Core Office Fund, L.P. in excess of
                equity in earnings
            
            
            17,880
            
            
            
            9,965Investments
                in property
            
            
            (946,190
            )
            
            
            (300,363
            )Investments
                in master leases
            
            
            (6,968
            )
            
            
            —Master
                lease rent receipts
            
            
            3,919
            
            
            
            —Settlement
                of foreign currency hedge
            
            
            939
            
            
            
            —Increase
                in restricted cash
            
            
            (3,535
            )
            
            
            (4,337
            )Increase
                (decrease) in acquired out-of-market lease assets, net
            
            
            36,926
            
            
            
            (10,335
            )Net
                cash used in investing activities
            
            
            (983,880
            )
            
            
            (407,430
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Decrease
                in unaccepted subscriptions for common shares
            
            
            (1,551
            )
            
            
            (530
            )Proceeds
                from issuance of common stock
            
            
            696,143
            
            
            
            358,908Redemption
                of common shares
            
            
            (4,569
            )
            
            
            (1,477
            )Payments
                of selling commissions and dealer manager fees
            
            
            (62,077
            )
            
            
            (28,384
            )Payments
                of organizational and offering expenses
            
            
            (15,366
            )
            
            
            (11,262
            )Proceeds
                from advances from affiliate
            
            
            —
            
            
            
            1,670Payments
                on advances from affiliate
            
            
            —
            
            
            
            (1,275
            )Distributions
                paid to shareholders and minority interests
            
            
            (18,862
            )
            
            
            (5,802
            )Proceeds
                from notes payable
            
            
            792,415
            
            
            
            630,220Payments
                on notes payable
            
            
            (389,664
            )
            
            
            (475,120
            )Decrease
                in security deposit liability, net
            
            
            (184
            )
            
            
            (24
            )Additions
                to deferred financing costs
            
            
            (5,440
            )
            
            
            (5,374
            )Payments
                related to interest rate swap contracts
            
            
            (731
            )
            
            
            (552
            )Net
                cash provided by financing activities
            
            
            990,114
            
            
            
            460,998Effect
                of exchange rate changes on cash
            
            
            671
            
            
            
            —**Net
                change in cash and cash equivalents**
            
            
            22,683
            
            
            
            57,
                730**Cash
                and cash equivalents, beginning of period**
            
            
            23,022
            
            
            
            6,156**Cash
                and cash equivalents, end of period**
            
            $
            45,705
            
            
            $
            63,886





See
      notes
      to the condensed consolidated financial statements


5
 Table
          of Contents


**HINES
      REAL ESTATE INVESTMENT TRUST, INC.**





**NOTES TO
      CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**


**For
      the Three and Nine Months Ended September 30, 2007 and
      2006**


**(UNAUDITED)**





**1.  Organization**





*The
      accompanying interim unaudited condensed consolidated financial information
      has
      been**prepared according to the rules and regulations of the Securities
      and Exchange Commission**. Certain information and footnote disclosures
      normally included in financial**statements prepared in accordance with
      accounting principles generally accepted**in the United States of
      America (“GAAP”) have been condensed or omitted according**to such rules
      and regulations. For further information, refer to the financial**statements and footnotes for the year ended December 31, 2006 included
      in**Hines Real Estate Investment Trust, Inc.’s Annual Report on
      Form 10-K.**In the opinion of management, all adjustments and
      eliminations, consisting only of**normal recurring adjustments,
      necessary to present fairly and in conformity with GAAP the**financial
      position of Hines Real Estate Investment Trust, Inc. as of September**30, 2007 and December 31, 2006, and the results of operations and cash
      flows**for the three and nine months ended September 30, 2007 and 2006
      have been included. The results**of operations for such interim periods
      are not necessarily indicative of the results**for the full
      year.*





Hines
      Real Estate Investment Trust, Inc., a Maryland corporation (“Hines REIT” and,
      together with its consolidated subsidiaries, the “Company”), was formed on
      August 5, 2003 under the General Corporation Law of the state of Maryland
      for the purpose of engaging in the business of investing in and owning interests
      in real estate. The Company operates and intends to continue to operate in
      a
      manner to qualify as a real estate investment trust (“REIT”) for federal income
      tax purposes. The Company is structured as an umbrella partnership REIT under
      which substantially all of the Company’s current and future business is and will
      be conducted through a majority-owned subsidiary, Hines REIT Properties, L.P.
      (the “Operating Partnership”). Hines REIT is the sole general partner of the
      Operating Partnership. Subject to certain restrictions and limitations, the
      business of the Company is managed by Hines Advisors Limited Partnership (the
      “Advisor”), an affiliate of Hines Interests Limited Partnership (“Hines”),
      pursuant to the advisory agreement the Company entered into with the Advisor
      (the “Advisory Agreement”).





*Public
      Offerings*





On
      June 18, 2004, Hines REIT commenced its initial public offering, pursuant
      to which it offered a maximum of 220 million common shares for sale to the
      public (the “Initial Offering”). The Initial Offering expired on
      June 18, 2006. On June 19, 2006, the Company commenced its
      current public offering (the “Current Offering”), pursuant to which it is
      offering a maximum of $2.2 billion in common shares.





The
      following table summarizes the activity from Hines REIT’s offerings for the
      years ended December 31, 2006, 2005 and 2004 and the nine months ended
      September 30, 2007 (in millions):





****
            
            **Initial
                Public Offering**
            
            
            **Current
                Public Offering**
            
            
            **All
                Offerings****Period**
            
            **#
                of Shares**
            
            
            **Proceeds**
            
            
            **#
                of Shares**
            
            
            **Proceeds**
            
            
            **#
                of Shares**
            
            
            **Proceeds**Year
                Ended December 31, 2004
            
            
            2.1
            
            
            $
            20.6
            
            
            
            —
            
            
            $
            —
            
            
            
            2.1
            
            
            $
            20.6Year
                Ended December 31, 2005
            
            
            21.0
            (a)
            
            
            207.7
            (a)
            
            
            —
            
            
            
            —
            
            
            
            21.0
            
            
            
            207.7Year
                Ended December 31, 2006
            
            
            30.1
            (b)
            
            
            299.2
            (b)
            
            
            27.3
            (b)
            
            
            282.7
            (b)
            
            
            57.4
            
            
            
            581.9Nine
                Months Ended September 30, 2007
            
            
            —
            
            
            
            —
            
            
            
            69.4
            (c)
            
            
            720.9
            (c)
            
            
            69.4
            
            
            
            720.9**Total**
            
            
            53.2
            
            
            $
            527.5
            
            
            
            96.7
            
            
            $
            1,003.6
            
            
            
            149.9
            
            
            $
            1,531.1


__________





(a)
            Amounts
                include $2.1 million of gross proceeds relating to approximately
                223,000 shares issued under the Company’s dividend reinvestment
                plan.(b)
            Amounts
                include $13.5 million of gross proceeds relating to approximately
                1.4 million shares issued under the Company’s dividend reinvestment
                plan.(c)
            Amounts
                include $24.8 million of gross proceeds relating to approximately 2.5
                million shares issued under the Company’s dividend reinvestment
                plan.





6
 Table
          of Contents


As
      of
      September 30, 2007, approximately $1,030.6 million in common shares
      remained available for sale pursuant to the Current Offering, exclusive of
      approximately $165.8 million in common shares available under the Company’s
      dividend reinvestment plan.





Hines
      REIT contributes all net proceeds from its public offerings to the Operating
      Partnership in exchange for partnership units in the Operating Partnership.
      As
      of September 30, 2007 and December 31, 2006, Hines REIT owned a 97.8% and
      97.4%, respectively, general partner interest in the Operating
      Partnership.





From
      October 1 through November 9, 2007, Hines REIT received gross offering proceeds
      of approximately $59.6 million from the sale of 5.7 million common shares,
      including approximately $12.6 million relating to 1.3 million shares
      sold under Hines REIT’s dividend reinvestment plan. As of November 9, 2007,
      $983.5 million in common shares remained available for sale to the public
      pursuant to the Current Offering, exclusive of $153.2 million in common
      shares available under the dividend reinvestment plan.





*Minority
      Interests*





Hines
      2005 VS I LP, an affiliate of Hines, owned a 0.7% and 1.3% interest in the
      Operating Partnership as of September 30, 2007 and December 31, 2006,
      respectively. As a result of HALP Associates Limited Partnership’s (“HALP”)
      ownership of the Participation Interest (see Note 6), HALP’s percentage
      ownership in the Operating Partnership was 1.5% and 1.3% as of September 30,
      2007 and December 31, 2006, respectively.





*Investment
      Property*





As
      of
      September 30, 2007, the Company held direct and indirect investments in 37
      office properties located throughout the United States, one mixed-use office
      and
      retail property in Toronto, Ontario, and a 50% interest in one industrial
      property in Rio de Janeiro, Brazil. The Company’s interests in 23 of these
      properties are owned indirectly through the Company’s investment in
      Hines-Sumisei U.S. Core Office Fund, L.P. (the “Core Fund”). As of
      September 30, 2007 and December 31, 2006, the Company owned an approximate
      32.0% and 34.0% non-managing general partner interest in the Core Fund,
      respectively.  See Note 3 for further discussion.





***2.  Summary
      of Significant Accounting Policies***





*Use
      of Estimates*





The
      preparation of the consolidated financial statements requires the Company to
      make estimates and judgments that affect the reported amounts of assets,
      liabilities and contingencies as of the date of the financial statements and
      the
      reported amounts of revenues and expenses during the reporting
      periods.  The Company evaluates its assumptions and estimates on an
      ongoing basis.  The Company bases its estimates on historical
      experience and on various other assumptions that the Company believes to be
      reasonable under the circumstances.  Additionally, application of the
      Company’s accounting policies involves exercising judgments regarding
      assumptions as to future uncertainties.  Actual results may differ
      from these estimates under different assumptions or conditions.





*Basis
      of Presentation*





The
      consolidated financial statements of the Company included in this quarterly
      report include the accounts of Hines REIT, the Operating Partnership (over
      which
      Hines REIT exercises financial and operating control) and the Operating
      Partnership’s wholly-owned subsidiaries (see Note 3), as well as the
      related amounts of minority interest. All intercompany balances and transactions
      have been eliminated in consolidation.





The
      Company evaluates the need to consolidate joint ventures based on standards
      set
      forth in Financial Accounting Standards Board (“FASB”) Interpretation
      No. 46R, *Consolidation of Variable Interest Entities*
      (“FIN 46R”) and American Institute of Certified Public Accountants’
Statement of Position 78-9, *Accounting for Investments in Real Estate
      Ventures (“SOP 78-9”)*, as amended by Emerging Issues Task Force Issue
      No. 04-5, *Investor’s Accounting for an**Investment in a Limited
      Partnership When the Investor Is the Sole General Partner and**the
      Limited Partners Have Certain Rights.*  In accordance with this
      accounting literature, the Company will consolidate joint ventures that are
      determined to be variable interest entities for which it is the primary
      beneficiary. The Company will also consolidate joint ventures that are not
      determined to be variable interest entities, but for which it exercises control
      over major




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 operating
        decisions through substantive participation rights, such as approval of budgets,
        selection of property managers, asset management, investment activity and
        changes in financing.





On
      June
      28, 2007, the Company invested $28.9 million into HCB River II, LLC, a joint
      venture it created with HCB Interests II LP (“HCB”). HCB is an investment
      vehicle organized by Hines and the California Public Employees’ Retirement
      System. The joint venture is in the form of a Delaware limited liability company
      governed by an Amended and Restated Limited Liability Company Agreement. The
      Company and HCB each own a 50% interest in the joint venture. HCB is responsible
      for managing the day-to-day operations of the joint venture, however, the
      Company has various approval rights and must approve certain major decisions
      related to the joint venture. On July 2, 2007, the joint venture acquired
      Cargo Center Dutra II, an industrial property located in Rio de Janeiro,
      Brazil for $103.7 million Brazilian real ($53.7 million USD as of July 2, 2007).
      The Company owns a 50% interest in Cargo Center Dutra II as a result of its
      investment in the joint venture.





The
      Company concluded that the joint venture does not meet the definition of a
      variable interest entity under FIN 46R. Further, as neither the Company nor
      HCB
      has a controlling interest in the joint venture or any special or
      disproportionate voting or participation rights, consolidation is not required
      under SOP 78-9. Therefore, the Company accounts for its interest in the joint
      venture as an equity method investment. See Note 3 for additional details
      regarding the joint venture.





*Reportable
      Segments*





Statement
      of Financial Accounting Standards (“SFAS”) No. 131, *Disclosures about
      Segments of an Enterprise and Related Information*, establishes standards
      for reporting financial and descriptive information about an enterprise’s
      reportable segments. As described above, the Company owned interests in 38
      office properties and one industrial property as of September 30, 2007. The
      Company’s investments in real estate are geographically diversified and
      management evaluates operating performance on an individual property level.
      The
      Company has determined it has two reportable segments: one with activities
      related to investing in office properties and one with activities related to
      investing in industrial properties. The Company’s office properties have similar
      economic characteristics, tenants, and products and services. As such, all
      of
      the Company’s 38 office properties have been aggregated into one reportable
      segment.





The
      Company also owns an indirect investment in one industrial property, which
      is
      accounted for using the equity method of accounting for investments. As such,
      the activities of the industrial property are reflected in investments in
      unconsolidated entities in the condensed consolidated balance sheet and equity
      in losses of unconsolidated entities in the condensed consolidated statement
      of
      operations. See “Investments in Unconsolidated Entities” in Note 3 for
      additional discussion.





The
      Company’s investments in office properties generate rental revenue and other
      income through the leasing of office properties, which constituted 100% of
      the
      Company’s total consolidated revenues for the nine months ended September 30,
      2007.





*Comprehensive
      Loss*





The
      Company reports comprehensive loss in its condensed consolidated statements
      of
      shareholders’ equity. Comprehensive loss was approximately $39.6 million for the
      nine months ended September 30, 2007 resulting from the Company’s net loss of
      $50.2 million offset by its foreign currency translation adjustment of
      $10.6 million. See “International Operations” below for additional
      information.





*International
      Operations*





The
      Canadian dollar is the functional currency for the Company’s subsidiaries
      operating in Toronto, Ontario and the Brazilian real is the functional currency
      for the Company’s subsidiary operating in Rio de Janeiro, Brazil. The Company’s
      foreign subsidiaries have translated their financial statements into
      U.S. dollars for reporting purposes. Assets and liabilities are translated
      at the exchange rate in effect as of the balance sheet date. The Company
      translates income statement accounts using the average exchange rate for the
      period and significant nonrecurring transactions using the rate on the
      transaction date. As described above, these translation gains or losses are
      included in accumulated other comprehensive income as a separate component
      of
      shareholders’ equity.





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The
      Company’s international subsidiaries may have transactions denominated in
      currencies other than their functional currency. In these instances, assets
      and
      liabilities are remeasured into the functional currency at the exchange rate
      in
      effect at the end of the period, and income statement accounts are remeasured
      at
      the average exchange rate for the period. These gains or losses are included
      in
      the Company’s results of operations.





The
      Company’s subsidiaries also record gains or losses in the income statement when
      a transaction with a third party, denominated in a currency other than the
      entity’s functional currency, is settled and the functional currency cash flows
      realized are more or less than expected based upon the exchange rate in effect
      when the transaction was initiated.





*Investment Property*





Real
      estate assets the Company owns directly are stated at cost less accumulated
      depreciation. Depreciation is computed using the straight-line method. The
      estimated useful lives for computing depreciation are generally 10 years
      for furniture and fixtures, 15-20 years for electrical and mechanical
      installations and 40 years for buildings. Major replacements that extend
      the useful life of the assets are capitalized. Maintenance and repair costs
      are
      expensed as incurred.





Real
      estate assets are reviewed for impairment if events or changes in circumstances
      indicate that the carrying amount of the individual property may not be
      recoverable. In such an event, a comparison will be made of the current and
      projected operating cash flows of each property on an undiscounted basis to
      the
      carrying amount of such property. Such carrying amount would be adjusted, if
      necessary, to estimated fair values to reflect impairment in the value of the
      asset. At September 30, 2007, management believes no such impairment has
      occurred.





Acquisitions
      of properties are accounted for utilizing the purchase method and, accordingly,
      the results of operations of acquired properties are included in the Company’s
      results of operations from their respective dates of acquisition. Estimates
      of
      future cash flows and other valuation techniques that the Company believes
      are
      similar to those used by independent appraisers are used to allocate the
      purchase price of acquired property between land, buildings and improvements,
      equipment and identifiable intangible assets and liabilities such as amounts
      related to in-place leases, acquired above- and below-market leases, tenant
      relationships, asset retirement obligations and mortgage notes payable. Initial
      valuations are subject to change until such information is finalized, no later
      than 12 months from the acquisition date.





The
      estimated fair value of acquired in-place leases are the costs the Company
      would
      have incurred to lease the properties to the occupancy level of the properties
      at the date of acquisition. Such estimates include the fair value of leasing
      commissions, legal costs and other direct costs that would be incurred to lease
      the properties to such occupancy levels. Additionally, the Company evaluates
      the
      time period over which such occupancy levels would be achieved and includes
      an
      estimate of the net market-based rental revenues and net operating costs
      (primarily consisting of real estate taxes, insurance and utilities) that would
      be incurred during the lease-up period. Acquired in-place leases as of the
      date
      of acquisition are amortized over the remaining lease terms.





Acquired
      above-and below-market lease values are recorded based on the present value
      (using an interest rate that reflects the risks associated with the lease
      acquired) of the difference between the contractual amounts to be paid pursuant
      to the in-place leases and management’s estimate of fair market value lease
      rates for the corresponding in-place leases. The capitalized above- and
      below-market lease values are amortized as adjustments to rental revenue over
      the remaining non-cancelable terms of the respective leases. Should a tenant
      terminate its lease, the unamortized portion of the in-place lease value is
      charged to amortization expense and the unamortized portion of out-of-market
      lease value is charged to rental revenue.





Acquired
        above- and below-market ground lease values are recorded based on the difference
        between the present value (using an interest rate that reflects the risks
        associated with the lease acquired) of the contractual amounts to be paid
        pursuant to the ground leases and management’s estimate of fair market value of
        land under the ground leases. The capitalized above- and below-market lease
        values are amortized as adjustments to ground lease expense over the lease
        term.





Management
      estimates the fair value of assumed mortgage notes payable based upon
      indications of current market pricing for similar types of debt with similar
      maturities. Assumed mortgage notes payable are initially recorded at their
      estimated fair value as of the assumption date, and the difference between
      such
      estimated fair value and the note’s outstanding principal balance is amortized
      over the life of the mortgage note payable.





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*Cash
      and Cash Equivalents*





The
      Company considers all short-term, highly liquid investments that are readily
      convertible to cash with an original maturity of three months or less at the
      time of purchase to be cash equivalents.





*Restricted
      Cash*





As
      of
      September 30, 2007 and December 31, 2006, the Company had restricted cash
      of approximately $6.3 million and $2.5 million, respectively, related
      to escrow accounts required by certain of the Company’s mortgage and purchase
      and sale agreements.





*Deferred
      Leasing Costs*





Direct
      leasing costs, primarily consisting of third-party leasing commissions and
      tenant inducements, are capitalized and amortized over the life of the related
      lease. Tenant inducement amortization is recorded as an offset to rental revenue
      and the amortization of other direct leasing costs is recorded in amortization
      expense.





The
      Company considers a number of different factors to evaluate whether it or the
      lessee is the owner of the tenant improvements for accounting purposes. These
      factors include: 1) whether the lease stipulates how and on what a tenant
      improvement allowance may be spent; 2) whether the tenant or landlord
      retains legal title to the improvements; 3) the uniqueness of the
      improvements; 4) the expected economic life of the tenant improvements
      relative to the term of the lease; and 5) who constructs or directs the
      construction of the improvements.





The
      determination of who owns the tenant improvements for accounting purposes is
      subject to significant judgment. In making that determination, the Company
      considers all of the above factors. No one factor is determinative.





Tenant
      inducement amortization was approximately $1.4 million and $429,000 for the
      nine
      months ended September 30, 2007 and 2006, respectively, and was recorded as
      an
      offset to rental revenue. In addition, the Company recorded approximately
      $468,000 and $60,000 as amortization expense related to other direct leasing
      costs for the nine months ended September 30, 2007 and 2006,
      respectively.





Tenant
      inducement amortization was approximately $493,000 and $155,000 for the three
      months ended September 30, 2007 and 2006, respectively, and was recorded as
      an
      offset to rental revenue. In addition, the Company recorded approximately
      $188,000 and $33,000 as amortization expense related to other direct leasing
      costs for the three months ended September 30, 2007 and 2006,
      respectively.





*Derivative
      Instruments*





The
      loss
      on derivative instruments recorded in the Company’s condensed consolidated
      statements of operations for the three and nine months ended September 30,
      2007
      is the result of the following (additional details provided below):





•
            the
                decrease in the fair value of the interest rate swaps during the
                period
                resulted in losses of $21.3 million and $5.6 million for the three
                and
                nine months ended September 30, 2007,
                respectively;





•
            transaction
                fees incurred upon entering into the swaps of approximately $0 and
                $731,000 for the three and nine months ended September 30, 2007,
                respectively; and





•
            a
                gain of approximately $939,000 for the nine months ended September
                30,
                2007 resulting from the settlement of a foreign currency contract
                in
                February 2007. There were no similar transactions during the three
                months
                ended September 30, 2007.





The
      Company recorded a loss of $7.8 million and $6.4 million on an interest rate
      swap for the three and nine months ended September 30, 2006, respectively.
      This
      loss resulted from the decrease in the fair value of an interest rate swap
      and
      included fees of approximately $552,000 incurred upon entering into the swap
      transaction.





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To
      date,
      the Company has entered into five forward interest rate swap transactions with
      HSH Nordbank AG, New York Branch (“HSH Nordbank”). All of these swap
      transactions were entered into as economic hedges against the variability of
      future interest rates on the Company’s variable interest rate borrowings with
      HSH Nordbank.





The
      Company has not designated any of these contracts as cash flow hedges for
      accounting purposes. The interest rate swaps have been recorded at their
      estimated fair value in the accompanying condensed consolidated balance sheets
      as of September 30, 2007 and December 31, 2006. The Company will continue
      to mark the interest rate swap contracts to their estimated fair value as of
      each balance sheet date and the changes in fair value will be reflected in
      the
      condensed consolidated statements of operations.





In
      addition, on February 8, 2007, the Company entered into a foreign currency
      contract related to the acquisition of Atrium on Bay, an office property located
      in Toronto, Ontario. The contract was entered into as an economic hedge against
      the variability of the foreign currency exchange rate related to the Company’s
      equity investment and was settled at the close of this acquisition on
      February 26, 2007, as described above.





*Deferred
      Financing Costs*





Deferred
      financing costs as of September 30, 2007 and December 31, 2006 consist of
      direct costs incurred in obtaining debt financing (see Note 4). These costs
      are being amortized into interest expense on a straight-line basis, which
      approximates the effective interest method, over the terms of the obligations.
      For the nine months ended September 30, 2007 and 2006, approximately $874,000
      and $718,000, respectively, was amortized and recorded in interest expense
      in
      the accompanying condensed consolidated statements of operations. For the three
      months ended September 30, 2007 and 2006, approximately $311,000 and $286,000,
      respectively, was amortized and recorded in interest expense in the accompanying
      condensed consolidated statements of operations.





*Other
      Assets*





Other
      assets includes the following (in thousands):





**September
                30,**
              **2007**
            
            
            **December 31,**
              **2006**Property
                acquisition deposit
            
            $
            —
            
            
            $
            8,858Prepaid
                insurance
            
            
            1,726
            
            
            
            353Prepaid
                contribution
            
            
            —
            
            
            
            —Mortgage
                loan deposits
            
            
            4,120
            
            
            
            924Other
            
            
            1,156
            
            
            
            584Total
            
            $
            7,002
            
            
            $
            10,719





*Due
      to Affiliates*





Due
      to
      affiliates includes the following (in thousands):





**September
                30,**
              **2007**
            
            
            **December 31,**
              **2006**Organizational
                and offering costs related to the Current Offering
            
            $
            1,670
            
            
            $
            4,992Dealer
                manager fees and selling commissions
            
            
            784
            
            
            
            885Asset
                management, acquisition fees and property-level fees and
                reimbursements
            
            
            4,698
            
            
            
            3,077Other
            
            
            247
            
            
            
            —Total
            
            $
            7,399
            
            
            $
            8,954





*Organizational
      and Offering Costs*





*Initial
      Offering*





Certain
      organizational and offering costs associated with the Initial Offering were
      paid
      by the Advisor on behalf of the Company. Pursuant to the Advisory Agreement
      among Hines REIT, the Operating Partnership and the Advisor during the Initial
      Offering, the Company was obligated to reimburse the Advisor in an amount equal
      to the lesser of actual organizational and offering costs incurred related
      to
      the Initial Offering or 3.0% of the gross proceeds raised from the Initial
      Offering.





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As
      of
      December 31, 2006, the Advisor had incurred on behalf of the Company
      organizational and offering costs related to the Initial Offering of
      approximately $43.3 million (of which approximately $23.0 million
      relates to the Advisor or its affiliates). This amount includes approximately
      $24.2 million of organizational and internal offering costs, and
      approximately $19.1 million of third-party offering costs, such as legal
      and accounting fees and printing costs. No such amounts were incurred subsequent
      to December 31, 2006.





As
      described above, the Company’s obligation to reimburse the Advisor for
      organizational and offering costs related to the Initial Offering was limited
      by
      the amount of gross proceeds raised from the sale of the Company’s common shares
      in the Initial Offering. Amounts of organizational and offering costs recorded
      in the Company’s financial statements in periods prior to the quarter ended
      June 30, 2006 were based on estimates of gross proceeds to be raised
      through the end of the Initial Offering period. Such estimates were based on
      highly subjective factors including the number of retail broker-dealers signing
      selling agreements with the Company’s Dealer Manager, Hines Real Estate
      Securities, Inc. (“HRES” or the “Dealer Manager”), anticipated market share
      penetration in the retail broker-dealer network and the Dealer Manager’s best
      estimate of the growth rate in sales.





Based
      on
      actual gross proceeds raised in the Initial Offering, the total amount of
      organizational and offering costs for which the Company was obligated to
      reimburse the Advisor related to the Initial Offering was $16.0 million. As
      a result of amounts recorded in prior periods, during the six months ended
      June 30, 2006, organizational and internal offering costs related to the
      Initial Offering totaling $1.0 million incurred by the Advisor were
      expensed and included in the accompanying condensed consolidated statement
      of
      operations and third-party offering costs related to the Initial Offering of
      $2.0 million were offset against additional paid-in capital. During the six
      months ended June 30, 2006, organizational and internal offering costs
      related to the Initial Offering totaling $1.9 million and third-party
      offering costs related to the Initial Offering of $1.5 million were
      incurred by the Advisor but were not recorded in the consolidated condensed
      financial statements because the Company was not obligated to reimburse the
      Advisor for these costs.





*Current
      Offering*





The
      Company commenced the Current Offering on June 19, 2006. Certain
      organizational and offering costs associated with the Current Offering have
      been
      paid by the Advisor on the Company’s behalf. Pursuant to the terms of the
      Advisory Agreement, the Company is obligated to reimburse the Advisor in an
      amount equal to the amount of actual organizational and offering costs incurred,
      so long as such costs, together with selling commissions and dealer-manager
      fees, do not exceed 15% of gross proceeds from the Current Offering. As of
      September 30, 2007 and December 31, 2006, the Advisor had incurred on the
      Company’s behalf organizational and offering costs in connection with the
      Current Offering of $24.6 million and $12.6 million, respectively (of
      which $9.6 million and $4.7 million, respectively, relates to the
      Advisor or its affiliates).





The
      Advisor incurred $5.1 million and $2.1 million of internal offering costs,
      which have been expensed in the accompanying condensed consolidated statements
      of operations for the nine months ended September 30, 2007 and 2006,
      respectively. In addition, $6.9 million and $5.0 million of third-party offering
      costs have been offset against net proceeds of the Current Offering within
      additional paid-in capital for the nine months ended September 30, 2007 and
      2006, respectively.





The
      Advisor incurred approximately $1.6 million and $1.5 million of internal
      offering costs, which have been expensed in the accompanying condensed
      consolidated statements of operations for the three months ended September
      30,
      2007 and 2006, respectively. In addition, $2.3 million and $2.0 million of
      third-party offering costs have been offset against net proceeds of the Current
      Offering within additional paid-in capital for the three months ended September
      30, 2007 and 2006, respectively.





*Revenue
      Recognition*





The
      Company recognizes rental revenue on a straight-line basis over the life of
      the
      lease including rent holidays, if any. Straight-line rent receivable in the
      amount of $9.2 million and $3.4 million as of September 30, 2007 and
      December 31, 2006, respectively, consisted of the difference between the
      tenants’ rents calculated on a straight-line basis from the date of acquisition
      or lease commencement over the remaining terms of the related leases and the
      tenants’ actual rents due under the lease agreements and is included in tenant
      and other receivables in the accompanying condensed consolidated balance sheets.
      Revenues associated with tenant reimbursements are recognized in the period
      in
      which the expenses are incurred based upon the tenant lease provision. Revenues
      relating to lease termination fees are recognized at the time that a tenant’s
      right to occupy the space is terminated and when the Company has satisfied
      all
      obligations under the agreement.


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The
      Company commences revenue recognition on its leases based on a number of
      factors. In most cases, revenue recognition under a lease begins when the lessee
      takes possession of or controls the physical use of the leased asset. The
      determination of who is the owner of the tenant improvements for accounting
      purposes determines the nature of the leased asset and when revenue recognition
      under a lease begins. If the Company is the owner of the tenant improvements
      for
      accounting purposes, then the leased asset is the finished space and revenue
      recognition begins when the lessee takes possession of the finished space,
      typically when the improvements are substantially complete. If the Company
      concludes the lessee is the owner of the tenant improvements for accounting
      purposes, then the leased asset is the unimproved space and any tenant
      improvement allowances funded under the lease are treated as lease incentives
      which reduce revenue recognized over the term of the lease. In these
      circumstances, the Company begins revenue recognition when the lessee takes
      possession of the unimproved space to construct their own
      improvements.





*Stock-based
      Compensation*





Under
      the
      terms of the Employee and Director Incentive Share Plan, the Company grants
      each
      independent member of its board of directors 1,000 restricted shares of common
      stock annually. The restricted shares granted each year fully vest upon
      completion of each director’s annual term. In accordance with the provisions of
      SFAS No. 123(R), *Share-Based Payment*, the Company recognizes the
      expense related to these shares over the vesting period. The Company granted
      1,000 restricted common shares to each of its independent board members in
      November 2004, June 2005, June 2006 and July 2007. For the nine months ended
      September 30, 2007 and 2006, the Company amortized approximately $19,000 and
      $23,000, respectively, of related compensation expense. For the three months
      ended September 30, 2007 and 2006, the Company amortized approximately $8,000
      of
      related compensation expense. Such amounts are included in general and
      administrative expenses in the accompanying condensed consolidated statements
      of
      operations.





*Income
      Taxes*





Hines
      REIT made an election to be taxed as a REIT under Sections 856 through 860
      of the Internal Revenue Code of 1986, as amended (the “Code”), beginning with
      its taxable year ended December 31, 2004. In addition, as of September 30,
      2007 and 2006 the Company owned an investment in the Core Fund, which has
      invested in properties through other entities that have elected to be taxed
      as
      REITs. Hines REIT’s management believes that the Company and the applicable
      entities in the Core Fund are organized and operate in such a manner as to
      qualify for treatment as REITs and intend to operate in the foreseeable future
      in such a manner so that they will remain qualified as REITs for federal income
      tax purposes. Accordingly, no provision has been made for U.S. federal
      income taxes for the nine months ended September 30, 2007 and 2006 in the
      accompanying condensed consolidated financial statements.





During
      2006, the State of Texas enacted new tax legislation that restructures the
      state
      business tax in Texas by replacing the taxable capital and earned surplus
      components of the then-current franchise tax with a new “margin tax,” which for
      financial reporting purposes is considered an income tax under SFAS No.
      109, *Accounting for**Income Taxes.*  This legislation
      had an immaterial impact on the Company’s financial statements.





Due
      to
      the acquisition of Atrium on Bay, an office property located in Toronto,
      Ontario, the Company has recorded a provision for Canadian income taxes of
      approximately $236,000 and $552,000 for the three and nine months ended
      September 30, 2007, respectively, in accordance with Canadian tax laws and
      regulations.





In
      June
      2006, the FASB issued FIN 48, *Accounting for Uncertainty in Income**Taxes — an Interpretation of FASB Statement No. 109*,
      which clarifies the accounting for uncertainty in tax positions. FIN 48
      requires companies to recognize uncertain tax positions in the financial
      statements if management believes it is more likely than not that the position
      will be sustained on examination by the taxing authorities, based on the
      technical merits of the positions. The Company reviewed its current tax
      positions and believes its positions will be sustained on examination. The
      adoption of the provisions of FIN 48 on January 1, 2007 did not have a
      material impact on the Company’s financial statements.





As
      of
      September 30, 2007, the Company had no significant temporary differences, tax
      credits, or net operating loss carry-forwards.





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*Per
      Share Data*





Loss
      per
      common share is calculated by dividing the net loss for each period by the
      weighted average number of common shares outstanding during such period. Loss
      per common share on a basic and diluted basis is the same because the Company
      has no potentially dilutive common shares outstanding.








***3.  Real
      Estate Investments***





Investment
      property consisted of the following as of September 30, 2007 and December 31,
      2006 (in thousands):





**September
                30, 2007**
            
            
            **December
                31, 2006**Buildings
                and improvements, net
            
            $
            1,200,231
            
            
            $
            511,961In-place
                leases, net
            
            
            220,379
            
            
            
            120,765Land
            
            
            340,374
            
            
            
            165,603Investment
                property, net
            
            $
            1,760,984
            
            
            $
            798,329





*Direct
      Investments*





Properties
      that are wholly owned by the Operating Partnership are referred to as “direct
      investments.” As of December 31, 2006, the Company owned direct investments
      in eight office properties through its interest in the Operating Partnership
      and
      acquired the following office properties during the nine months ended September
      30, 2007:





**City**
            **Property**
            **Date
                Acquired**
            
            **Acquisition**
              **Cost****(in
                millions)**Redmond,
                Washington
            The
                Laguna Buildings
            January
                2007
            
            $
            118.0Toronto,
                Ontario
            Atrium
                on Bay
            February
                2007
            
            $
            215.6
            (1)Seattle,
                Washington
            Seattle
                Design Center
            June
                2007
            
            $
            56.8Seattle,
                Washington
            5th
                and
                Bell
            June
                2007
            
            $
            72.2Melville,
                New York
            3
                Huntington Quadrangle
            July
                2007
            
            $
            87.0Los
                Angeles, California
            One
                Wilshire
            August
                2007
            
            $
            287.0Minneapolis,
                Minnesota
            Minneapolis
                Portfolio
            September
                2007
            
            $
            87.0





(1)
      This
      amount was translated from the $250.0 million Canadian dollars (“CAD”)
      acquisition cost as of the date of this acquisition.





As
      of
      September 30, 2007, accumulated depreciation and amortization related to direct
      investments in real estate assets and related lease intangibles were as follows
      (in thousands):





**Buildings
                and**
              **Improvements**
            
            
            **In-Place
                Leases**
            
            
            **Out-of-Market**
              **Lease
                Assets**
            
            
            **Out-of-Market**
              **Lease
                Liabilities**Cost
            
            $
            1,224,118
            
            
            $
            258,837
            
            
            $
            53,011
            
            
            $
            71,331Less:
                accumulated depreciation and amortization
            
            
            (23,887
            )
            
            
            (38,458
            )
            
            
            (7,534
            )
            
            
            (8,589
            )Net
            
            $
            1,200,231
            
            
            $
            220,379
            
            
            $
            45,477
            
            
            $
            62,742




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 Table
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As
      of
      December 31, 2006, accumulated depreciation and amortization related to
      direct investments in real estate assets and related lease intangibles were
      as
      follows (in thousands):





**Buildings
                and**
              **Improvements**
            
            
            **In-Place****Leases**
            
            
            **Out-of-Market**
              **Lease
                Assets**
            
            
            **Out-of-Market**
              **Lease
                Liabilities**Cost
            
            $
            519,843
            
            
            $
            137,344
            
            
            $
            40,267
            
            
            $
            19,046Less:
                accumulated depreciation and amortization
            
            
            (7,882
            )
            
            
            (16,579
            )
            
            
            (3,853
            )
            
            
            (3,232
            )Net
            
            $
            511,961
            
            
            $
            120,765
            
            
            $
            36,414
            
            
            $
            15,814





Amortization
      expense was $23.0 million and $10.4 million for in-place leases for the
      nine months ended September 30, 2007 and 2006, respectively, and amortization
      of
      out-of-market leases, net, was an increase to rental revenue of approximately
      $1.6 million and $86,000, respectively. Amortization expense was
      $8.2 million and $4.4 million for in-place leases for the three months
      ended September 30, 2007 and 2006, respectively. Amortization of out-of-market
      leases, net, was an increase to rental revenue of approximately $925,000 for
      the
      three months ended September 30, 2007 and a decrease to rental revenue of
      approximately $104,000 for the three months ended September 30,
      2006.








Anticipated
      amortization of in-place and out-of-market leases, net, for the period from
      October 1 through December 31, 2007 and for each of the following four
      years ended December 31 is as follows (in thousands):


**In-place****Leases**
            
            
            **Out-of-Market**
              **Leases,
                net**October 1
                through December 31, 2007
            
            $
            13,179
            
            
            $
            (1,737
            )2008
            
            
            47,311
            
            
            
            (5,965
            )2009
            
            
            40,731
            
            
            
            (4,439
            )2010
            
            
            32,509
            
            
            
            (3,754
            )2011
            
            
            26,351
            
            
            
            (2,825
            )





In
      connection with its direct investments, the Company has entered into
      non-cancelable lease agreements with tenants for office and retail space. As
      of
      September 30, 2007, the approximate fixed future minimum rentals for the period
      from October 1 through December 31, 2007, and each of the years ending
      December 31, 2008 through 2011 and thereafter are as follows
      (in thousands):





**Fixed
                Future**
              **Minimum**
              **Rentals**October 1
                through December 31, 2007
            
            $
            36,4842008
            
            
            138,9582009
            
            
            130,5112010
            
            
            112,0522011
            
            
            98,530Thereafter
            
            
            318,875Total
            
            $
            835,410





One
      of
      the Company’s properties is subject to a ground lease, which expires on
      March 31, 2032. Although the lease provides for increases in payments over
      the term of the lease, ground rent expense accrues on a straight-line
      basis.  The fixed future minimum rentals to be paid under the ground lease
      for the period from October 1, 2007 through December 31, 2007 are approximately
      $100,000. In addition, the fixed future minimum rentals for each of the years
      ended December 31, 2008 through December 31, 2011 and for the period thereafter
      are approximately $405,000, $412,000, $420,000, $428,000 and $10.8 million,
      respectively.





Pursuant
      to the lease agreements with certain tenants in one of its buildings, the
      Company receives fees for the provision of various telecommunication-related
      services. The fixed future minimum rentals received for such services for the
      period from October 1, 2007 through December 31, 2007 are approximately
      $672,000. In addition, the fixed future minimum rentals expected to be received
      for such services for each of the years ended December 31, 2008 through December
      31, 2011 and for the period thereafter are approximately $2.5 million, $1.9
      million, $1.7 million, $1.3 million and $1.3 million, respectively. The Company
      has outsourced the provision of these services to a tenant in the same building,
      to whom it pays fees for the provision of such services. The fixed future
      minimum payments for such services for the period from October 1, 2007 through
      December 31, 2007 are approximately $271,000.




15
 Table
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 In
        addition, the fixed future minimum payments for each of the years ended December
        31, 2008 through December 31, 2011 and for the period thereafter are
        approximately $1.1 million, $900,000, $727,000, $515,000 and $567,000,
        respectively.





Of
      the
      total rental revenue earned by the Company for the nine months ended September
      30, 2006, approximately 11% was earned from a state government agency, whose
      leases represent approximately 10% of the rentable space in the company's
      protfolio, expires in October 2012 and whose remaining lease expires in April
      2013. No other tenant provided more than 10% of the Company’s total rental
      revenues for the nine months ended September 30, 2006. No tenant provided more
      than 10% of the Company’s total rental revenues for the nine months ended
      September 30, 2007.





***Investments
      in Unconsolidated Entities***





The
      Company owns indirect interests in real estate through its investments in
      Hines-Sumisei U.S. Core Office Fund, L.P. and HCB II River LLC. The
      carrying values of its investments in these entities as of September 30, 2007
      and December 31, 2006 are as follows (in thousands):





**September
                30, 2007**
            
            
            **December
                31, 2006**Investment
                in Hines-Sumisei U.S. Core Office Fund, L.P.
            
            $
            339,141
            
            
            $
            307,553Investment
                in HCB II River LLC
            
            
            30,108
            
            
            
            -Total
                investments in unconsolidated entities
            
            $
            369,249
            
            
            $
            307,553





The
      equity in losses of the Company’s unconsolidated entities for the three and nine
      months ended September 30, 2007, was as follows (in thousands):





**Three
                Months Ended September 30, 2007**
            
            
            **Nine
                Months Ended September 30, 2007**Equity
                in losses of Hines-Sumisei U.S. Core Office Fund,
                L.P.
            
            $
            4,971
            
            
            $
            6,864Equity
                in losses of HCB II River LLC
            
            
            58
            
            
            
            58Total
                equity in losses of unconsolidated entities
            
            $
            5,029
            
            
            $
            6,922





*Investment
      in Hines-Sumisei U.S. Core Office Fund, L.P.*





The
      Core
      Fund is a partnership organized in August 2003 by Hines to invest in existing
      office properties in the United States that Hines believes are desirable
      long-term holdings. The Core Fund owns interests in real estate assets through
      certain limited liability companies and limited partnerships which have mortgage
      financing in place.





As
      of
      December 31, 2006, the Company owned a 34.0% non-managing general partnership
      interest in the Core Fund, which held ownership interests in 15 properties
      across the United States. As of June 30, 2007, the Company owned a 29.8%
      non-managing general partnership interest in the Core Fund, which held ownership
      interests in 22 properties across the United States.





On
      July
      2, 2007, an indirect subsidiary of the Core Fund acquired the
      Carillon Building, a 24-story office building located at 227 West Trade
      Street in downtown Charlotte, North Carolina and a one-half acre parcel of
      land
      adjacent to the building. The contract purchase price for the
      Carillon Building was approximately $140.0 million, exclusive of
      transaction costs, financing fees and working capital reserves. The
      Carillon Building was constructed in 1991 and contains 469,226 square feet
      of rentable area that is approximately 99% leased.





On July
      2, 2007 the Company acquired additional interests in the Core Fund totaling
      $58.0 million. As of September 30, 2007, the Company owned a 32.0% non-managing
      general partnership interest in the Core Fund, which held ownership interests
      in
      23 properties across the United States.





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 Table
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Condensed
      consolidated financial information of the Core Fund as of September 30, 2007
      and
      December 31, 2006 and for the three and nine months ended September 30,
      2007 and 2006 is summarized below (in thousands):





**ASSETS**





**September
                30,**
              **2007**
            
            
            **December 31,**
              **2006**Cash
            
            $
            88,853
            
            
            $
            67,557Property,
                net
            
            
            3,237,352
            
            
            
            2,520,278Other
                assets
            
            
            328,420
            
            
            
            305,027Total
                Assets
            
            $
            3,654,625
            
            
            $
            2,892,862





**LIABILITIES
      AND PARTNERS’ CAPITAL**





Debt
            
            $
            2,030,120
            
            
            $
            1,571,290Other
                liabilities
            
            
            218,497
            
            
            
            157,248Minority
                interest
            
            
            437,908
            
            
            
            341,667Partners’
                capital
            
            
            968,100
            
            
            
            822,657Total
                Liabilities and Partners’ Capital
            
            $
            3,654,625
            
            
            $
            2,892,862




**OPERATIONS**
  **Three
                  Months Ended September 30,****2007**
              
              
              **Three
                  Months Ended September 30,****2006**
              
              
              **Nine
                  Months Ended September 30,****2007**
              
              
              **Nine
                  Months Ended September 30,****2006**Revenues
                  and other income
              
              $
              109,870
              
              
              $
              72,744
              
              
              $
              312,566
              
              
              $
              194,045Operating
                  expenses
              
              
              (45,445
              )
              
              
              (33,013
              )
              
              
              (132,222
              )
              
              
              (89,268
              )Interest
                  expense
              
              
              (28,596
              )
              
              
              (17,691
              )
              
              
              (75,779
              )
              
              
              (46,004
              )Depreciation
                  and amortization
              
              
              (63,608
              )
              
              
              (23,091
              )
              
              
              (131,770
              )
              
              
              (59,282
              )Minority
                  interest
              
              
              12,382
              
              
              
              (1,838
              )
              
              
              6,231
              
              
              
              (5,346
              )Net
                  Loss
              
              $
              (15,397
              )
              
              $
              (2,889
              )
              
              $
              (20,974
              )
              
              $
              (5,855
              )




Of
      the
      total rental revenue of the Core Fund for the nine months ended September 30,
      2007, approximately 30% was earned from 14 tenants in the legal services
      industry, whose leases expire at various times during the years 2007 through
      2027. No other tenant provided more than 10% of the Core Fund’s total rental
      revenues for the nine months ended September 30, 2007.





Of
      the
      total rental revenue of the Core Fund for the nine months ended September 30,
      2006, approximately 12% was earned from two affiliated tenants in the oil and
      gas industry, whose leases expire on December 31, 2015. In addition, 36%
      was earned from 13 tenants in the legal services industry, whose leases expire
      at various times during the years 2007 through 2027. No other tenant provided
      more than 10% of the Core Fund’s total rental revenues for the nine months ended
      September 30, 2006.





*Investment
      in HCB River II LLC*





As
      described in Note 2, the Company invested $28.9 million into HCB River II LLC,
      a
      joint venture it created with HCB on June 28, 2007. On July 2, 2007, the joint
      venture acquired Cargo Center Dutra II (“CCDII”), an industrial property located
      in Rio de Janeiro, Brazil. The Property consists of four industrial buildings
      that were constructed in 2001-2007. The buildings contain 693,116 square feet
      of
      rentable area that is 97% leased. The Company owns a 50% indirect interest
      in
      CCDII through its investment in the joint venture.




HCB
        is
        the managing member responsible for day-to-day operations of the joint venture.
        However, the Company has various approval rights and must approve certain
        major
        decisions of the joint venture including, but not limited to: the direct
        or
        indirect sale of any interest in CCDII; any financing or other indebtedness
        incurred by the joint venture and the creation of any lien or encumbrance
        on
        CCDII; annual plans and budgets for the joint venture and
        CCDII; and any new leases at CCDII. Condensed
        financial information is not presented for HCB River II LLC as it does not
        meet the quantitative thresholds for a significant equity method investee
        described in Rule 3-09 of Regulation S-X set forth by the United States
        Securities and Exchange Commission.




17
 Table
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**4.  Debt
      Financing**





The
      following table includes all of the Company’s outstanding notes payable as of
      September 30, 2007 and December 31, 2006 (in thousands, except interest
      rates):





**Description**
            **Origination Date**
            **Maturity
                Date**
            
            **Interest
                Rate**
            
            
            **Principal
                Outstanding at**
              **September
                30,****2007**
            
            
            **Principal
                Outstanding at December 31,****2006**Key
                Bank National Association — Revolving Credit Facility
            9/9/2005
            10/31/2009
            
            Variable
                (1)
            
            
            $
            66,000
            
            
            $
            162,000**SECURED
                MORTGAGE DEBT**Wells
                Fargo Bank, N.A. — Airport Corporate Center
            1/31/2006
            3/11/2009
            
            
            4.775
            %
            
            
            89,836
            (6)
            
            
            89,233Metropolitan
                Life Insurance Company — 1515 S. Street
            4/18/2006
            5/1/2011
            
            
            5.680
            %
            
            
            45,000
            
            
            
            45,000Capmark
                Finance, Inc. — Atrium on Bay
            2/26/2007
            2/26/2017
            
            
            5.330
            %
            
            
            191,539
            (4)
            
            
            —**HSH
                POOLED MORTGAGE FACILITY**HSH
                Nordbank — Citymark, 321 North Clark, 1900 and 2000
                Alameda
            8/1/2006
            8/1/2016
            
            
            5.8575
            %(2)
            
            
            185,000
            
            
            
            185,000HSH
                Nordbank — 3400 Data Drive, Watergate Tower IV
            1/23/2007
            1/12/2017
            
            
            5.2505
            %(3)
            
            
            98,000
            
            
            
            —HSH
                Nordbank — Daytona and Laguna Buildings
            5/2/2007
            5/2/2017
            
            
            5.3550
            %(5)
            
            
            119,000
            
            
            
            —HSH
                Nordbank — 3 Huntington Quadrangle
            7/19/2007
            7/19/2017
            
            
            5.9800
            %(7)
            
            
            48,000
            
            
            
            —HSH
                Nordbank — Seattle Design Center / 5th
                and
                Bell
            8/14/2007
            8/14/2017
            
            
            6.0300
            %(8)
            
            
            70,000
            
            
            
            —$
            912,375
            
            
            $
            481,233


__________





(1)
            The
                revolving credit facility with KeyBank National Association (“KeyBank”)
                provides a maximum aggregate borrowing capacity of $250.0 million,
                which may be increased to $350.0 million upon the Company’s election.
                Borrowings under the revolving credit facility are at variable interest
                rates based on LIBOR plus 125 to 200 basis points based on prescribed
                leverage ratios. The weighted average interest rate on outstanding
                borrowings under this facility was 6.32% and 6.73% as of September
                30,
                2007 and December 31, 2006, respectively.(2)
            Borrowings
                under the HSH Credit Facility that closed prior to August 1, 2007
                have
                variable interest rates equal to one-month LIBOR plus 0.40%. However,
                the
                Company entered into an interest rate swap agreement which effectively
                fixed the interest rate of this borrowing at 5.8575%.(3)
            Borrowings
                under the HSH Credit Facility that closed prior to August 1, 2007
                have
                variable interest rates equal to one-month LIBOR plus 0.40%. However,
                the
                Company entered into an interest rate swap agreement which effectively
                fixed the interest rate of this borrowing at 5.2505%.(4)
            This
                amount was translated to U.S. dollars at a rate of $1.0081 as of
                September 30, 2007. The mortgage agreement provided for a principal
                amount
                of $190.0 million CAD as of September 30, 2007.(5)
            Borrowings
                under the HSH Credit Facility that closed prior to August 1, 2007
                have
                variable interest rates equal to one-month LIBOR plus 0.40%. However,
                the
                Company entered into an interest rate swap agreement which effectively
                fixed the interest rate of this borrowing at 5.355%.(6)
            This
                mortgage is an interest-only loan in the principal amount of $91.0
                million, which the Company assumed in connection with its acquisition
                of
                Airport Corporate Center. At the time of acquisition, the fair value
                of
                this mortgage was estimated to be $88.5 million, resulting in a premium
                of
                $2.5 million. The premium is being amortized over the term of the
                mortgage.(7)
            Borrowings
                under the HSH Credit Facility that closed prior to August 1, 2007
                have
                variable interest rates equal to one-month LIBOR plus 0.40%. However,
                the
                Company entered into an interest rate swap agreement which effectively
                fixed the interest rate of this borrowing at 5.98%.(8)
            Borrowings
                under the HSH Credit Facility that closed after August 1, 2007 have
                variable interest rates equal to one-month LIBOR plus 0.45%. However,
                the
                Company entered into an interest rate swap agreement which effectively
                fixed the interest rate of this borrowing at
                6.03%.





As
      of
      September 30, 2007, the Company has complied with all covenants stipulated
      by
      the debt financings referenced above.




18
 Table
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***5.  Distributions***





The Company began declaring distributions (as authorized by its board of
      directors) in November 2004, after the Company commenced business operations.
      The Company has declared distributions monthly and aggregated and paid such
      distributions quarterly. The Company intends to continue this distribution
      policy for so long as its board of directors decides this policy is in the
      best
      interests of its shareholders. The Company has declared and paid the following
      quarterly distributions to its shareholders and minority interests for the
      year
      ended December 31, 2006 and the nine months ended September 30, 2007 (in
      thousands):





**Distribution
                for the Quarter Ended**
            **Date
                Paid**
            
            **Total****Distribution**September
                30, 2007
            October
                15, 2007
            
            $
            23,059June
                30, 2007
            July
                20, 2007
            
            $
            18,418March
                31, 2007
            April 16,
                2007
            
            $
            14,012December 31,
                2006
            January 16,
                2007
            
            $
            11,281September 30,
                2006
            October 13,
                2006
            
            $
            9,056June 30,
                2006
            July 14,
                2006
            
            $
            6,405March
                31, 2006
            April 13,
                2006
            
            $
            4,212





***6.  Related
      Party Transactions***





*Advisory
      Agreement*





Pursuant
      to the Advisory Agreement, the Company is required to pay the following fees
      and
      expense reimbursements:





*Acquisition
      Fees* — The Company pays an acquisition fee to the Advisor for services
      related to the due diligence, selection and acquisition of direct or indirect
      real estate investments. The acquisition fee is payable following the closing
      of
      each acquisition in an amount equal to 0.50% of (i) the purchase price of
      real estate investments acquired directly by the Company, including any debt
      attributable to such investments, or (ii) when the Company makes an
      investment indirectly through another entity, such investment’s pro rata share
      of the gross asset value of the real estate investments held by that entity.
      The
      Advisor earned cash acquisition fees totaling $5.3 million and
      $3.1 million for the nine months ended September 30, 2007 and 2006,
      respectively, which have been recorded as an expense in the accompanying
      condensed consolidated statements of operations. The Advisor earned cash
      acquisition fees totaling $3.1 million and $561,000 for the three months ended
      September 30, 2007 and 2006, respectively, which have been recorded as an
      expense in the accompanying condensed consolidated statements of operations.
      See
      discussion of the Participation Interest below for additional information
      concerning acquisition fees.





*Asset
      Management Fees* — The Company pays asset management fees to the
      Advisor for services related to managing, operating, directing and supervising
      the operations and administration of the Company and its assets. The asset
      management fee is earned by the Advisor monthly in an amount equal to 0.0625%
      multiplied by the net equity capital the Company has invested in real estate
      investments as of the end of the applicable month. The Advisor earned cash
      asset
      management fees totaling approximately $5.7 million and $2.1 million during
      the
      nine months ended September 30, 2007 and 2006, respectively, which have been
      recorded as an expense in the accompanying condensed consolidated statements
      of
      operations. The Advisor earned cash asset management fees totaling approximately
      $2.4 million and $882,000 during the three months ended September 30, 2007
      and 2006, respectively, which have been recorded as an expense in the
      accompanying condensed consolidated statements of operations. See discussion
      of
      the Participation Interest below for additional information concerning
      acquisition fees.





*Expense
      Reimbursements* — In addition to reimbursement of organizational and
      offering costs (see Note 2), the Company reimburses the Advisor and its
      affiliates for certain other expenses incurred in connection with the Company’s
      administration and ongoing operations. For the year ended December 31,
      2006, the Advisor had advanced to or made payments on the Company’s behalf
      totaling $1.6 million and the Company made repayments totaling
      $2.7 million. No advances were received after June 30, 2006 and no
      amounts were owed to the Advisor as of September 30, 2007 or December 31,
      2006 related to any advances.





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 Table
          of Contents


*Dealer
      Manager Agreement*





The
      Company has retained HRES, an affiliate of the Advisor, to serve as dealer
      manager for the Initial Offering and the Current Offering. The dealer manager
      agreement related to the Initial Offering provided that HRES would earn selling
      commissions equal to 6.0% of the gross proceeds from sales of common stock
      sold
      in the Company’s primary offering and 4.0% of gross proceeds from the sale of
      shares issued pursuant the Company’s dividend reinvestment plan, all of which
      was reallowed to participating broker dealers. On May 30, 2006, the Company
      executed a separate dealer manager agreement for the Current Offering providing
      that HRES earns selling commissions equal to 7.0% of the gross proceeds from
      sales of common stock, all of which is reallowed to participating broker
      dealers, and earns no selling commissions related to shares issued pursuant
      to
      the dividend reinvestment plan. Both agreements also provide that HRES earns
      a
      dealer manager fee equal to 2.2% of gross proceeds from the sales of common
      stock other than issuances pursuant to the dividend reinvestment plan, a portion
      of which may be reallowed to participating broker dealers. HRES earned selling
      commissions of $46.7 million and $20.5 million and earned dealer manager
      fees of $15.3 million and $7.9 million for the nine months ended September
      30, 2007 and 2006, respectively, which have been offset against additional
      paid-in capital in the accompanying condensed consolidated statements of
      shareholders’ equity.





*Property
      Management and Leasing Agreements*





The
      Company has entered into property management and leasing agreements with Hines
      to manage the leasing and operations of properties in which it directly invests.
      As compensation for its services, Hines receives the following:





•
            A
                property management fee equal to the lesser of 2.5% of the annual
                gross
                revenues received from the properties or the amount of property management
                fees recoverable from tenants of the property under the leases. The
                Company incurred property management fees of approximately $2.6 million
                and $1.1 million for the nine months ended September 30, 2007 and
                2006,
                respectively, and approximately $1.1 million and $472,000 for the
                three
                months ended September 30, 2007 and 2006, respectively. As of September
                30, 2007 and December 31, 2006, the Company had liabilities for
                incurred and unpaid property management fees of approximately $392,000
                and
                $233,000, respectively, which have been included in the accompanying
                condensed consolidated balance
                sheets.





•
            A
                leasing fee of 1.5% of gross revenues payable over the term of each
                executed lease, including any lease renewal, extension, expansion
                or
                similar event and certain construction management and re-development
                construction management fees, in the event Hines renders such services.
                The Company incurred leasing, construction management or redevelopment
                fees of approximately $1.1 million and $28,000 during the nine months
                ended September 30, 2007 and 2006, respectively, and approximately
                $462,000 and $6,100 during the three months ended September 30, 2007
                and
                2006, respectively. As of September 30, 2007 the Company had a related
                liability of approximately $952,000, which is included in due to
                affiliates in the accompanying condensed consolidated balance sheet.
                No
                related liability existed as of December 31,
                2006.





•
            The
                Company generally will be required to reimburse Hines for certain
                operating costs incurred in providing property management and leasing
                services pursuant to the property management and leasing agreements.
                Included in this reimbursement of operating costs are the cost of
                personnel and overhead expenses related to such personnel who are
                located
                at the property as well as off-site personnel located in Hines’
                headquarters and regional offices, to the extent the same relate
                to or
                support the performance of Hines’ duties under the agreement. However, the
                reimbursable cost of these off-site personnel and overhead expenses
                are
                limited to the lesser of the amount that is recovered from the tenants
                under their leases and/or a limit calculated based on the rentable
                square
                feet covered by the agreement. The Company incurred reimbursable
                expenses
                of approximately $5.8 million and $2.5 million for the nine months
                ended September 30, 2007 and 2006, respectively, and approximately
                $2.5 million and $734,000 for the three months ended September 30,
                2007 and 2006, respectively. As of September 30, 2007 and
                December 31, 2006, the Company had related liabilities of
                approximately $2.0 million and $498,000, respectively, which were
                included
                in due to affiliates in the accompanying condensed consolidated balance
                sheets.





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 Table
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*The
      Participation Interest*





Pursuant
      to the Amended and Restated Agreement of Limited Partnership of the Operating
      Partnership, HALP owns a profits interest in the Operating Partnership (the
      “Participation Interest”). The percentage interest in the Operating Partnership
      attributable to the Participation Interest was 1.5% and 1.3% as of September
      30,
      2007 and December 31, 2006, respectively. The Participation Interest
      entitles HALP to receive distributions from the Operating Partnership based
      upon
      its percentage interest in the Operating Partnership at the time of
      distribution.





As
      the
      percentage interest of the Participation Interest is adjusted, the value
      attributable to such adjustment related to acquisition fees and asset management
      fees is charged against earnings and recorded as a liability until such time
      as
      the Participation Interest is repurchased for cash or converted into common
      shares of Hines REIT. This liability totaled $22.8 million and
      $11.8 million as of September 30, 2007 and December 31, 2006,
      respectively, and is included in the participation interest liability in the
      accompanying condensed consolidated balance sheets. The related expense for
      asset management and acquisition fees of $11.0 million and $5.2 million for
      the nine months ended September 30, 2007 and 2006, respectively, is included
      in
      asset management and acquisition fees in the accompanying condensed consolidated
      statements of operations. The Company expensed asset management and acquisition
      fees of $5.4 million and $1.4 million for the three months ended September
      30,
      2007 and 2006, respectively.





***7.  Changes
      in Assets and Liabilities***





The
      effect of changes in asset and liability accounts on cash flows from operating
      activities for the nine months ended September 30, 2007 and 2006 is as follows
      (in thousands):





**2007**
            
            
            **2006**Changes
                in assets and liabilities:Increase
                in other assets
            
            $
            (940
            )
            
            $
            (197
            )Increase
                in tenant and other receivables
            
            
            (11,556
            )
            
            
            (2,927
            )Additions
                to deferred leasing costs
            
            
            (6,300
            )
            
            
            (1,039
            )Increase
                in accounts payable and accrued expenses
            
            
            6,043
            
            
            
            1,994Increase
                in participation interest liability
            
            
            11,007
            
            
            
            5,222Increase
                (decrease) in other liabilities
            
            
            1,876
            
            
            
            (55
            )Increase
                in due to affiliates
            
            
            1,747
            
            
            
            512Changes
                in assets and liabilities
            
            $
            1,877
            
            
            $
            3,510





***8.  Supplemental
      Cash Flow Disclosures***





Supplemental
      cash flow disclosures for the nine months ended September 30, 2007 and 2006
      are
      as follows (in thousands):





**2007**
            
            
            **2006**Cash
                paid for interest
            
            $
            31,722
            
            
            $
            9,878*Supplemental
                Schedule of Non-Cash Activities*Unpaid
                selling commissions and dealer manager fees
            
            $
            784
            
            
            $
            1,131Deferred
                offering costs offset against additional paid-in-capital
            
            $
            6,889
            
            
            $
            7,096Distributions
                declared and unpaid
            
            $
            23,059
            
            
            $
            9,056Distributions
                receivable
            
            $
            7,481
            
            
            $
            4,844Distributions
                reinvested
            
            $
            24,849
            
            
            $
            8,023Non-cash
                net liabilities acquired upon acquisition of property
            
            $
            11,831
            
            
            $
            9,253Accrual
                of deferred financing costs
            
            $
            132
            
            
            $
            221Assumption
                of mortgage upon acquisition of property
            
            $
            —
            
            
            $
            88,495Accrued
                additions to deferred leasing costs
            
            $
            12,038
            
            
            $
            —Accrued
                additions to investment property
            
            $
            1,360
            
            
            $
            —





***9.  Commitments
      and Contingencies***





On
      December 8, 2006, Norwegian Cruise Line (NCL) signed a lease renewal for
      its space in Airport Corporate Center, an office property located in Miami,
      Florida. In connection with this renewal, the Company committed to funding
      approximately $10.4 million of construction costs related to NCL’s
      expansion and refurbishment of its space, which will be paid in future periods.
      This amount has been recorded in deferred leasing costs and accounts payable
      and
      accrued expenses in the accompanying condensed consolidated balance sheets
      as of
      December 31, 2006 and September 30, 2007.


21
 Table
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***10.  Subsequent
      Events***





*Pending
      Property Acquisition*





On
      October 15, 2007, the Company entered into a contract to acquire
      Chase Tower, a 55-story office building located in the uptown submarket of
      Dallas, Texas. The building consists of 1,296,407 square feet of rentable area
      and is 92% leased. The maximum contract purchase price for Chase Tower is
      expected to be $289.6 million, exclusive of transaction costs, financing
      fees and working capital reserves. This acquisition is expected to close in
      November 2007. The Company has funded $7.5 million in earnest money that could
      be forfeited if this acquisition does not close.





*Pending
      Property Sale*





On
      October 26, 2007, the Company entered into a contract to sell Citymark, an
      office property in Dallas, Texas for $39.0 million, exclusive of closing costs.
      The sale is expected to be consummated on or about December 5,
      2007.  As of September 30, 2007, the carrying value of Citymark’s
      investment property was approximately $17.8 million. FASB Statement No. 144,
      *Accounting for the Impairment or Disposal of Long-Lived Assets* (“SFAS
      144”) prescribes the accounting treatment for assets that are to be disposed of
      by sale. In accordance with SFAS 144, management believes Citymark should not
      be
      classified as an asset “held for sale” as of September 30, 2007 based on its
      evaluation of the facts and circumstances of this transaction.





*One
      Wilshire Mortgage Loan*





On
      October 25, 2007, a subsidiary of the Operating Partnership borrowed $159.5
      million from The Prudential Insurance Company of America pursuant to a Deed
      of
      Trust and Security Agreement dated October 25, 2007 and a Promissory Note dated
      October 25, 2007. The Loan is secured by a mortgage and related security
      interests in One Wilshire, an office property located in Los Angeles, California
      that the Company acquired on August 1, 2007. The subsidiary of the Operating
      Partnership that directly owns One Wilshire is the borrower under the Loan
      Documents. The Loan matures on November 1, 2012 and bears interest at a fixed
      annual rate of 5.98%. Interest payments are due monthly, beginning on December
      1, 2007 through maturity.





*KeyBank
      Activity*





From
        October 1, 2007 to November 9, 2007, the Company repaid all amounts
        outstanding under its revolving credit facility with KeyBank. No new borrowings
        were made under the KeyBank facility during that period.





*Shareholder
        Redemption*





In
      October 2007, in accordance with the Company’s share redemption plan,
      the Company redeemed approximately 636,000 common shares and made
      corresponding payments totaling $6.2 million to shareholders who had
      requested these redemptions. The shares redeemed were cancelled and will have
      the status of authorized, but unissued shares.


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 Table
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**Item 2.*****Management’s
      Discussion and Analysisof
      Financial Condition and Results******of
      Operations.***





*The
      following discussion and analysis of our financial condition and results of
      operations**should be read in conjunction with our unaudited condensed
      consolidated financial**statements, the notes thereto, and the other
      unaudited financial data included**elsewhere in this Form 10-Q. The
      following discussion should also be**read in conjunction with our
      audited consolidated financial statements, and the notes**thereto, and
“Management’s Discussion and Analysis of Financial Condition and
      Results**of Operations” included in our Annual Report on Form 10-K
      for the year**ended December 31, 2006.*





***Cautionary
      Note Regarding Forward-Looking Statements***





This
      Form 10-Q includes forward-looking statements within the meaning of
      Section 27A of the Securities Act of 1933, as amended, and Section 21E
      of the Securities Exchange Act of 1934, as amended. Such statements include
      statements concerning future financial performance and distributions, future
      debt and financing levels, acquisitions and investment objectives, payments
      to
      our advisor, Hines Advisors Limited Partnership (the “Advisor”), and its
      affiliates and other plans and objectives of management for future operations
      or
      economic performance, or assumptions or forecasts related thereto as well as
      all
      other statements that are not historical statements. These statements are only
      predictions. We caution that forward-looking statements are not guarantees.
      Actual events or our investments and results of operations could differ
      materially from those expressed or implied in forward-looking statements.
      Forward-looking statements are typically identified by the use of terms such
      as
“may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,”
“believe,” “continue,” “predict,” “potential” or the negative of such terms and
      other comparable terminology.





The
      forward-looking statements included in this Form 10-Q are based on our
      current expectations, plans, estimates, assumptions and beliefs that involve
      numerous risks and uncertainties. Assumptions relating to the foregoing involve
      judgments with respect to, among other things, future economic, competitive
      and
      market conditions and future business decisions, all of which are difficult
      or
      impossible to predict accurately and many of which are beyond our control.
      Any
      of the assumptions underlying forward-looking statements could be inaccurate.
      To
      the extent that our assumptions differ from actual results, our ability to
      meet
      such forward-looking statements, including our ability to generate positive
      cash
      flow from operations, pay distributions to our shareholders and maintain the
      value of the real estate properties in which we hold an interest, may be
      significantly hindered.





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





•
            Our
                ability to invest offering and dividend reinvestment plan proceeds
                to
                acquire properties or other investments in a timely manner and at
                appropriate amounts that provide acceptable
                returns;





•
            The
                potential need to fund tenant improvements, lease-up costs or other
                capital expenditures, as well as increases in property operating
                expenses
                and costs of compliance with environmental matters or discovery of
                previously undetected environmentally hazardous or other undetected
                adverse conditions at our
                properties;





•
            Risks
                associated with debt;





•
            Competition
                for tenants and real estate investment opportunities, including
                competition with affiliates of Hines Interests Limited Partnership
                (“Hines”);





•
            Risks
                associated with adverse changes in general economic or local market
                conditions, including terrorist attacks and other acts of violence,
                may
                affect the markets in which we and our tenants
                operate;





•
            Catastrophic
                events, such as hurricanes, earthquakes and terrorist attacks; and
                our
                ability to secure adequate insurance at reasonable and appropriate
                rates;


•
              Risks
                  associated with the exchange rate related to our international
                  investments;


•
            Changes
                in governmental, tax, real estate and zoning laws and regulations
                and the
                related costs of compliance and increases in our administrative operating
                expenses, including expenses associated with operating as a public
                company;




•
            Risks
                relating to our investment in Hines-Sumisei U.S. Core Office Fund,
                L.P. (the “Core Fund”), such as its reliance on Hines for its operations
                and investments, and our potential liability for Core Fund
                obligations;





23
 Table
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•
            The
                lack of liquidity associated with our
                assets;





•
            Our
                reliance on our Advisor, Hines and affiliates of Hines for our day-to-day
                operations and the selection of real estate investments, and our
                Advisor’s
                ability to attract and retain high-quality personnel who can provide
                service at a level acceptable to
                us;





•
            Risks
                associated with conflicts of interests that result from our relationship
                with our Advisor and Hines, as well as conflicts of interests certain
                of
                our officers and directors face relating to the positions they hold
                with
                other entities; and





•
            Our
                ability to continue to qualify as a real estate investment trust
                (“REIT”)
                for federal income tax purposes.





These
      risks are more fully discussed in, and all forward-looking statements should
      be
      read in light of, all of the factors discussed in Part I, “Item 1A.
      Risk Factors” in our Annual Report on Form 10-K for the year ended
      December 31, 2006.





You
      are
      cautioned not to place undue reliance on any forward-looking statements included
      in this Form 10-Q. All forward-looking statements are made as of the date
      of this Form 10-Q and the risk that actual results will differ materially
      from the expectations expressed in this Form 10-Q may increase with the
      passage of time. In light of the significant uncertainties inherent in the
      forward-looking statements included in this Form 10-Q, the inclusion of
      such forward-looking statements should not be regarded as a representation
      by us
      or any other person that the objectives and plans set forth in this
      Form 10-Q will be achieved. All subsequent written and oral forward-looking
      statements attributable to us or persons acting on our behalf are expressly
      qualified in their entirety by reference to these risks and uncertainties.
      Each
      forward-looking statement speaks only as of the date of the particular
      statement, and we do not undertake to update any forward-looking
      statement.





***Executive
      Summary***





Hines
      Real Estate Investment Trust, Inc. (“Hines REIT” and, together with its
      consolidated subsidiaries, “we”, “us” or the “Company”) and its subsidiary,
      Hines REIT Properties, L.P. (the “Operating Partnership”) were formed in August
      2003 for the purpose of investing in and owning interests in real estate. We
      have invested and continue to invest in real estate to satisfy our primary
      investment objectives, including preserving invested capital, paying regular
      cash distributions and achieving modest capital appreciation of our assets
      over
      the long term. We make investments directly through entities wholly owned by
      the
      Operating Partnership, or indirectly through other entities, such as through
      our
      investment in the Core Fund. As of September 30, 2007, we had direct and
      indirect interests in 37 office properties located throughout the United States,
      one mixed-use office and retail property in Toronto, Ontario, and one industrial
      property in Rio de Janeiro, Brazil. In addition, we have and may make other
      real
      estate investments including, but not limited to, properties outside of the
      United States, non-office properties, mortgage loans and ground leases. Our
      principal targeted assets are office properties that have quality construction,
      desirable locations and quality tenants. We intend to invest in properties
      which
      will be diversified by location, lease expirations and tenant
      industries.





In
      order
      to provide capital for these investments, we sold shares to the public through
      our initial public offering (the “Initial Offering”), which commenced on
      June 18, 2004 and terminated on June 18, 2006, and we continue to sell
      common shares through our follow-on public offering of a maximum of
      $2.2 billion in common shares (the “Current Offering”). We commenced
      the Current Offering on June 19, 2006, and we intend to continue raising
      significant amounts of capital through our Current Offering and potential
      follow-on offerings, as well as through debt financings.




24
 Table
          of Contents


The following table provides summary information regarding the properties in
      which we owned interests as of September 30, 2007:





**Direct
                Investments****Property**
            **City**
            
            **Leasable**
              **Square
                Feet**
            
            
            **Percent**
              **Leased**
            
            
            **Our
                Effective**
              **Ownership(1)**321
                North Clark
            Chicago,
                Illinois
            
            
            885,664
            
            
            
            99
            %
            
            
            100
            %Citymark
            Dallas,
                Texas
            
            
            220,079
            
            
            
            100
            %
            
            
            100
            %Watergate
                Tower IV
            Emeryville,
                California
            
            
            344,433
            
            
            
            100
            %
            
            
            100
            %One
                Wilshire
            Los
                Angeles, California
            
            
            664,248
            
            
            
            99
            %
            
            
            100
            %3
                Huntington Quadrangle
            Melville,
                New York
            
            
            407,731
            
            
            
            88
            %
            
            
            100
            %Airport
                Corporate Center
            Miami,
                Florida
            
            
            1,018,793
            
            
            
            89
            %
            
            
            100
            %Minneapolis
                Office/Flex Portfolio
            Minneapolis,
                Minnesota
            
            
            766,240
            
            
            
            86
            %
            
            
            100
            %3400
                Data Drive
            Rancho
                Cordova, California
            
            
            149,703
            
            
            
            100
            %
            
            
            100
            %Daytona
                Buildings
            Redmond,
                Washington
            
            
            250,515
            
            
            
            99
            %
            
            
            100
            %Laguna
                Buildings
            Redmond,
                Washington
            
            
            464,701
            
            
            
            100
            %
            
            
            100
            %1515
                S Street
            Sacramento,
                California
            
            
            348,881
            
            
            
            100
            %
            
            
            100
            %1900
                and 2000 Alameda
            San Mateo,
                California
            
            
            253,377
            
            
            
            94
            %
            
            
            100
            %Seattle
                Design Center
            Seattle,
                Washington
            
            
            390,684
            
            
            
            88
            %
            
            
            100
            %5th
                and
                Bell
            Seattle,
                Washington
            
            
            197,135
            
            
            
            98
            %
            
            
            100
            %Atrium
                on Bay
            Toronto,
                Ontario
            
            
            1,078,040
            
            
            
            85
            %
            
            
            100
            %Total
                for Directly-Owned Properties
            
            
            7,440,224
            
            
            
            93
            %**Indirect
                Investments****Joint
                Venture**Cargo
                Center Dutra II
            Rio
                de Janeiro, Brazil
            
            
            693,115
            
            
            
            88
            %
            
            
            50
            %**Core
                Fund Investments**One
                Atlantic Center
            Atlanta,
                Georgia
            
            
            1,100,312
            
            
            
            82
            %
            
            
            27.47
            %The
                Carillon Building
            Charlotte,
                North Carolina
            
            
            470,726
            
            
            
            100
            %
            
            
            27.47
            %Charlotte
                Plaza
            Charlotte,
                North Carolina
            
            
            625,026
            
            
            
            98
            %
            
            
            27.47
            %Three
                First National Plaza
            Chicago,
                Illinois
            
            
            1,419,978
            
            
            
            93
            %
            
            
            21.97
            %333 West
                Wacker
            Chicago,
                Illinois
            
            
            845,206
            
            
            
            85
            %
            
            
            21.92
            %One
                Shell Plaza
            Houston,
                Texas
            
            
            1,228,160
            
            
            
            99
            %
            
            
            13.73
            %Two
                Shell Plaza
            Houston,
                Texas
            
            
            566,960
            
            
            
            95
            %
            
            
            13.73
            %425
                Lexington Avenue
            New
                York, New York
            
            
            700,034
            
            
            
            100
            %
            
            
            12.98
            %499
                Park Avenue
            New
                York, New York
            
            
            288,722
            
            
            
            100
            %
            
            
            12.98
            %600
                Lexington Avenue
            New
                York, New York
            
            
            282,409
            
            
            
            100
            %
            
            
            12.98
            %Riverfront
                Plaza
            Richmond,
                Virginia
            
            
            950,025
            
            
            
            100
            %
            
            
            27.47
            %Johnson
                Ranch Corporate Center
            Roseville,
                California
            
            
            179,990
            
            
            
            72
            %
            
            
            21.92
            %Roseville
                Corporate Center
            Roseville,
                California
            
            
            111,418
            
            
            
            96
            %
            
            
            21.92
            %Summit
                at Douglas Ridge
            Roseville,
                California
            
            
            185,128
            
            
            
            82
            %
            
            
            21.92
            %Olympus
                Corporate Center
            Roseville,
                California
            
            
            191,494
            
            
            
            86
            %
            
            
            21.92
            %Douglas
                Corporate Center
            Roseville,
                California
            
            
            214,606
            
            
            
            86
            %
            
            
            21.92
            %Wells
                Fargo Center
            Sacramento,
                California
            
            
            502,365
            
            
            
            93
            %
            
            
            21.92
            %525
                B Street
            San Diego,
                California
            
            
            447,159
            
            
            
            92
            %
            
            
            27.47
            %The
                KPMG Building
            San Francisco,
                California
            
            
            379,328
            
            
            
            100
            %
            
            
            27.47
            %101
                Second Street
            San Francisco,
                California
            
            
            388,370
            
            
            
            100
            %
            
            
            27.47
            %720
                Olive Way
            Seattle,
                Washington
            
            
            300,710
            
            
            
            93
            %
            
            
            21.92
            %1200
                19th Street
            Washington, D.C.
            
            
            235,404
            
            
            
            11
            %
            
            
            12.98
            %Warner
                Center
            Woodland
                Hills, California
            
            
            808,274
            
            
            
            97
            %
            
            
            21.92
            %Total
                for Core Fund Properties
            
            
            12,421,804
            
            
            
            92
            %Total
                for All Properties
            
            
            
            20,555,143
            
            
            
            92
            %


__________


25
 Table
          of Contents




(1)
            This
                percentage shows the effective ownership of the Operating Partnership
                in
                the properties listed. On September 30, 2007, Hines REIT owned a
                97.8%
                interest in the Operating Partnership as its sole general partner.
                Affiliates of Hines owned the remaining 2.2% interest in the Operating
                Partnership. As of September 30, 2007, we owned interests in the
                23 Core
                Fund investments through our interest in the Core Fund, in which
                we owned
                an approximate 32.0% non-managing general partner interest as of
                September
                30, 2007. The Core Fund does not own 100% of these buildings; its
                ownership interest in its buildings ranges from 12.98% to 27.47%.
                In
                addition, we owned a 50% interest in Cargo Center Dutra II through
                a joint
                venture with an affiliate of Hines.





As
      of
      September 30, 2007, we had primarily invested in institutional-quality office
      properties in the United States. These types of properties continue to attract
      significant capital, and competition to acquire such assets remains intense.
      However, we intend to continue to pursue institutional-quality office properties
      as well as other real estate investments that we believe will satisfy our
      long-term primary objectives of preserving invested capital and achieving modest
      capital appreciation over the long term, in addition to providing regular cash
      distributions to our shareholders.





We
      expect
      to continue to focus primarily on investments in institutional-quality office
      properties located in the United States (whether as direct investments or as
      indirect investments through the Core Fund or otherwise). However, we have
      expanded our focus to include other real estate investments such as our
      investment in Toronto, Ontario and our recent international joint venture
      investment in Rio de Janeiro, Brazil. In the future, our investments may include
      additional investments outside of the United States, investments in non-office
      properties, non-core or development investments, mortgage loans, ground leases
      and investments in joint ventures.





***Critical
      Accounting Policies***





Each
      of
      our critical accounting policies involves the use of estimates that require
      management to make assumptions that are subjective in nature. In addition to
      the
      policies set forth below, please see “Note 2 — Summary of Significant
      Accounting Policies” in our unaudited condensed consolidated financial
      statements included elsewhere in this Form 10-Q for a description of some
      of these policies. Management relies on its experience, collects historical
      and
      current market data, and analyzes these assumptions in order to arrive at what
      it believes to be reasonable estimates. Under different conditions or
      assumptions, materially different amounts could be reported related to the
      accounting policies described below. In addition, application of these
      accounting policies involves the exercise of judgments regarding assumptions
      as
      to future uncertainties. Actual results could materially differ from these
      estimates.





*Organizational
      and Offering Costs*





Certain
      organizational and offering costs related to our public offerings have been
      paid
      by our Advisor on our behalf. Organizational and offering costs incurred by
      our
      Advisor have been analyzed and segregated between those which are organizational
      in nature, those which are offering-related salaries and other general and
      administrative expenses of the Advisor and its affiliates, and those which
      qualify as offering expenses in accordance with Staff Accounting Bulletin
      (“SAB”) Topic 5.A, *Miscellaneous Accounting — Expenses of
      Offering*. Organizational costs are expensed as incurred in accordance with
      Statement of Position 98-5, *Reporting On**the Costs of Start-up
      Activities*. Offering-related salaries and other general and administrative
      expenses of the Advisor and its affiliates are expensed as incurred, and
      third-party offering expenses are taken as a reduction against the net proceeds
      of the offerings within additional paid-in capital in accordance with
      SAB Topic 5.A. In addition to the offering costs to be paid to the Advisor,
      selling commissions and dealer manager fees are paid to Hines Real Estate
      Securities, Inc. (“HRES” or the “Dealer Manager”). Such costs are netted against
      the net offering proceeds within additional paid-in capital as
      well.





Pursuant
      to an advisory agreement we entered into with the Advisor during the Initial
      Offering, we were obligated to reimburse the Advisor in an amount equal to
      the
      lesser of actual organizational and offering costs incurred or 3.0% of the
      gross
      proceeds raised from the Initial Offering. This agreement expired on
      June 18, 2006. Organizational and offering costs recorded in our financial
      statements in periods prior to the quarter ended June 30, 2006 were based
      on estimates of gross proceeds to be raised through the end of the Initial
      Offering. Such estimates were based on highly subjective factors, including
      the
      number of retail broker-dealers signing selling agreements with our Dealer
      Manager, anticipated market share penetration in the retail broker-dealer
      network and the Dealer Manager’s best estimate of the growth rate in sales. At
      each balance sheet date, management reviewed the actual gross offering proceeds
      raised to date and management’s estimate of future sales of our common shares
      through the end of the Initial Offering to determine how much of these costs
      were expected to be reimbursed to the Advisor, then adjusted the accruals of
      such costs accordingly.




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 Based
        on
        the actual proceeds raised in the Initial Offering, the total amount of
        organizational and offering costs we were obligated to reimburse the Advisor
        related to the Initial Offering was settled in the 2nd quarter of
        2006.





We
      commenced the Current Offering on June 19, 2006, and on June 26, 2006,
      we entered into a new advisory agreement with the Advisor (the “Advisory
      Agreement”). The Advisory Agreement was renewed in June 2007 for an additional
      one-year term. Certain organizational and offering costs associated with the
      Current Offering have been paid by the Advisor on our behalf. Pursuant to the
      terms of our current Advisory Agreement, we are obligated to reimburse the
      Advisor for the actual organizational and offering costs incurred, so long
      as
      such costs, together with selling commissions and dealer-manger fees, do not
      exceed 15% of gross proceeds from the Current Offering.





*Revenue
      Recognition and Valuation of Receivables*





We
      recognize minimum rent revenues on a straight-line basis over the terms of
      tenant leases, including rent holidays, if any. Revenues associated with tenant
      reimbursements are recognized in the period in which the expenses are incurred
      based upon the tenant’s lease provision. Revenues relating to lease termination
      fees are recognized at the time that the tenant’s right to occupy the space is
      terminated and when we have satisfied all obligations under the lease. To the
      extent our leases provide for rental increases at specified intervals, we will
      record a receivable for rent not yet due under the lease terms. Accordingly,
      our
      management must determine, in its judgment, to what extent the unbilled rent
      receivable applicable to each specific tenant is collectible. We review unbilled
      rent receivables on a quarterly basis and take into consideration the tenant’s
      payment history, the financial condition of the tenant, business conditions
      in
      the industry in which the tenant operates and economic conditions in the area
      in
      which the property is located. In the event that the collectability of unbilled
      rent with respect to any given tenant is in doubt, we would be required to
      record an increase in our allowance for doubtful accounts or record a direct
      write-off of the specific rent receivable, which would have an adverse effect
      on
      our net income for the year in which the reserve is increased or the direct
      writeoff is recorded and would decrease our total assets and shareholders’
equity.





*Derivative
      Instruments*





We
      have
      entered into interest rate swap transactions as economic hedges against the
      variability of future interest rates on certain variable interest rate debt.
      To
      date, we have not designated any such contracts as cash flow hedges for
      accounting purposes. The interest rate swaps have been recorded at their
      estimated fair value in the accompanying condensed consolidated balance sheets
      as of September 30, 2007 and December 31, 2006. Any changes in the fair
      value of the interest rate swaps have been recorded in the accompanying
      condensed consolidated statement of operations for the three and nine months
      ended September 30, 2007.





We
      will
      mark the interest rate swaps to their estimated fair value as of each balance
      sheet date, and the changes in fair value will be reflected in our condensed
      consolidated statements of operations.





On
      February 8, 2007, we entered into a foreign currency contract related to
      the acquisition of Atrium on Bay, an office property located in Toronto,
      Ontario. The contract was entered into as an economic hedge against the
      variability of the foreign currency exchange rate related to our equity
      investment and was settled at the close of this acquisition on February 26,
      2007. The gain that resulted upon settlement was recorded in loss on derivative
      instruments, net, in the accompanying condensed consolidated statement of
      operations for the nine months ended September 30, 2007.





*Treatment
      of Management Compensation, Expense Reimbursements and Operating
      Partnership**Participation Interest*





We
      outsource management of our operations to the Advisor and certain other
      affiliates of Hines. Fees related to these services are accounted for based
      on
      the nature of the service and the relevant accounting literature. Fees for
      services performed that represent period costs of the Company are expensed
      as
      incurred. Such fees include acquisition fees and asset management fees paid
      to
      the Advisor and property management fees paid to Hines. In addition to cash
      payments for acquisition fees and asset management fees paid to the Advisor,
      an
      affiliate of the Advisor has received a participation interest, which represents
      a profits interest in the Operating Partnership related to these services.
      As
      the percentage interest of the participation interest is adjusted, the value
      attributable to such adjustment is charged against earnings, and the
      participation interest will be recorded as a liability until it is repurchased
      for cash or converted into common shares of the Company. The conversion and
      redemption features of the participation interest are accounted for in
      accordance with the guidance in Emerging Issues Task Force (“EITF”) publication
      95-7, *Implementation Issues Related to the Treatment of Minority**Interests in Certain Real Estate Investment Trusts*.




27
 Table
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 Redemptions
        for cash will be accounted for as a reduction to the liability discussed
        above
        to the extent of such liability, with any additional amounts recorded as
        a
        reduction to equity. Conversions into common shares of the Company will be
        recorded as an increase to the outstanding common shares and additional paid-in
        capital accounts and a corresponding reduction in the liability discussed
        above.
        Redemptions and conversions of the participation interest will result in
        a
        corresponding reduction in the percentage attributable to the participation
        interest and will have no impact on the calculation of subsequent increases
        in
        the participation interest.





Hines
      may
      perform construction management services for us for both re-development
      activities and tenant construction. These fees are considered incremental to
      the
      construction effort and will be capitalized as incurred in accordance with
      Statement of Financial Accounting Standards (“SFAS”) No. 67, *Accounting
      for Costs and Initial**Rental Operations of Real Estate
      Projects.*  These costs will be capitalized to the associated real
      estate project as incurred. Costs related to tenant construction will be
      depreciated over the estimated useful life. Costs related to redevelopment
      activities will be depreciated over the estimated useful life of the associated
      project. Leasing activities are generally performed by Hines on our behalf.
      Leasing fees are capitalized and amortized over the life of the related lease
      in
      accordance with the provisions of SFAS No. 91, *Accounting for
      Nonrefundable**Fees and Costs Associated with Originating or Acquiring
      Loans and Initial**Direct Costs of Leases.*





*Income
      Taxes*





We
      elected to be taxed as a REIT under Sections 856 through 860 of the
      Internal Revenue Code beginning with our taxable year ended December 31, 2004.
      In addition, we hold an investment in the Core Fund, which has invested in
      properties through a structure that includes entities that have elected to
      be
      taxed as REITs. In order to qualify as a REIT, an entity must meet certain
      organizational and operational requirements, including a requirement to
      distribute at least 90% of its annual ordinary taxable income to shareholders.
      REITs are generally not subject to federal income tax on taxable income that
      they distribute to their shareholders. It is our intention to adhere to these
      requirements and maintain our REIT status, as well as to ensure that the
      applicable entities in the Core Fund structure also maintain their REIT status.
      As such, no provision for U.S. federal income taxes has been included in
      the accompanying consolidated financial statements. As a REIT and indirectly
      through our investment in the Core Fund, we still may be subject to certain
      state, local and foreign taxes on our income and property and to federal income
      and excise taxes on our undistributed taxable income. In addition, we are and
      will indirectly be required to pay federal and state income tax on the net
      taxable income, if any, from the activities conducted through the taxable REIT
      subsidiary of the Core Fund.





During
      2006, the State of Texas enacted new tax legislation that restructures the
      state
      business tax in Texas by replacing the taxable capital and earned surplus
      components of the then-current franchise tax with a new “margin tax,” which for
      financial reporting purposes is considered an income tax under SFAS 109,
*Accounting for Income**Taxes.*  This legislation had
      an immaterial impact on our financial statements.





Due
      to
      the acquisition of Atrium on Bay, an office property located in Toronto,
      Ontario, we have recorded a provision for Canadian income taxes of approximately
      $236,000 and $552,000, respectively, for the three and nine months ended
      September 30, 2007 in accordance with Canadian tax laws and
      regulations.





In
      June
      2006, the FASB issued FIN 48, *Accounting for Uncertainty in Income
      Taxes**— an Interpretation of FASB Statement No. 109*,
      which clarifies the accounting for uncertainty in tax positions. FIN 48
      requires companies to recognize uncertain tax positions in the financial
      statements if management believes it is more likely than not that the position
      will be sustained on examination by the taxing authorities, based on the
      technical merits of the position. We have reviewed our current tax positions
      and
      believe our positions will be sustained on examination. The adoption of the
      provisions of FIN 48 on January 1, 2007 did not have a material impact
      on our financial statements.





As
      of
      September 30, 2007, we had no significant temporary differences, tax credits,
      or
      net operating loss carry-forwards.





*Comprehensive
      Loss*





We
      report
      comprehensive loss in our condensed consolidated statements of shareholders’
equity. Comprehensive loss was approximately $39.6 million for the nine months
      ended September 30, 2007 resulting from our net loss and our foreign currency
      translation adjustment. See “International Operations” below for additional
      information.





28
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          of Contents


*International
      Operations*





The
      Canadian dollar is the functional currency for our subsidiaries operating in
      Toronto, Ontario and the Brazilian real is the functional currency for our
      subsidiary operating in Rio de Janeiro, Brazil. Our foreign subsidiaries have
      translated their financial statements into U.S. dollars for reporting
      purposes. Assets and liabilities are translated at the exchange rate in effect
      as of the balance sheet date. We translate income statement accounts using
      the
      average exchange rate for the period and significant nonrecurring transactions
      using the rate on the transaction date. These gains or losses are included
      in
      accumulated other comprehensive income as a separate component of shareholders’
equity.





Our
      international subsidiaries may have transactions denominated in currencies
      other
      than their functional currency. In these instances, assets and liabilities
      are
      remeasured into the functional currency at the exchange rate in effect at the
      end of the period, and income statement accounts are remeasured at the average
      exchange rate for the period. These gains or losses are included in our results
      of operations.





Our
      subsidiaries also record gains or losses in the income statement when a
      transaction with a third party, denominated in a currency other than the
      entity’s functional currency, is settled and the functional currency cash flows
      realized are more or less than expected based upon the exchange rate in effect
      when the transaction was initiated.




***Financial
      Condition, Liquidity and Capital Resources***





*General*





Our
      principal cash requirements are for property acquisitions, property-level
      operating expenses, capital improvements, debt service, organizational and
      offering expenses, corporate-level general and administrative expenses and
      distributions. We have three primary sources of capital for meeting our cash
      requirements:





•
            proceeds
                from our public offerings, including our dividend reinvestment
                plan;





•
            debt
                financings, including secured or unsecured
                facilities; and





•
            cash
                flow generated by our real estate investments and
                operations.





For
      the
      nine months ended September 30, 2007, our cash needs for acquisitions have
      been
      met primarily by proceeds from our public equity offerings and debt financing
      while our operating cash needs have been met through cash flow generated by
      our
      properties and investments. We believe that our current capital resources and
      cash flow from operations are sufficient to meet our liquidity needs for the
      foreseeable future.





We
      raised
      significant funds from our Current Offering during the first nine months of
      2007
      (see discussion below), and we expect to continue to raise significant funds
      from our Current Offering and other potential follow-on offerings. We intend
      to
      continue making real estate investments with these funds and funds available
      to
      us under our credit facilities and other permanent debt. We also intend to
      continue to pay distributions to our shareholders on a quarterly basis. As
      noted
      above, we are currently looking for investment opportunities in an intensely
      competitive environment, and acquisitions in such an environment may put
      downward pressure on our distribution payments as a result of potentially lower
      yields on new investments. Additionally, we have experienced, and expect to
      continue to experience, delays between raising capital and acquiring real estate
      investments. We temporarily invest unused proceeds from our public offering
      in
      investments that typically yield lower returns when compared to our real estate
      investments. We may need to use short-term borrowings or advances from
      affiliates in order to maintain our current per-share distribution levels in
      future periods. However, we will continue to make investment and financing
      decisions, and decisions regarding distribution payments, with a long-term
      view.
      We will also continually monitor our cash flow and market conditions when making
      such decisions. In this environment, we may decide to lower our per-share
      distribution amount rather than take actions we believe may compromise our
      long-term objectives.





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 Table
          of Contents


*Cash
      Flows from Operating Activities*





Our
      direct investments in real estate assets generate cash flow in the form of
      rental revenues, which are reduced by debt service, direct leasing costs and
      property-level operating expenses. Property-level operating expenses consist
      primarily of salaries and wages of property management personnel, utilities,
      cleaning, insurance, security and building maintenance costs, property
      management and leasing fees, and property taxes. Additionally, we have incurred
      corporate-level debt service, general and administrative expenses, asset
      management and acquisition fees. Results of operations are not directly
      comparable for the three and nine months ended September 30, 2007 and 2006
      as a
      result of our acquisition activity.





Net cash flow provided by operating activities was $15.8 million and $4.2
      million for the nine months ended September 30, 2007 and 2006, respectively.
      Our
      operating net cash flows are primarily the result of the net loss for the period
      offset by non-cash components of our net loss such as depreciation and
      amortization, equity in losses of the Core Fund, accrued costs of our Current
      Offering, loss on derivative instruments, and changes in other asset and
      liability accounts.





*Cash
      Flows from Investing Activities*





During
      the nine months ended September 30, 2007, we made payments of $909.3 million
      related to our acquisition of seven properties
      and $86.9 million related to our additional investment in the Core Fund and
      our
      unconsolidated joint venture in Brazil. During the nine months ended September
      30, 2006, we made payments of $310.7 million related to our acquisitions of
      two
      properties and $102.4 million related to our additional investments in the
      Core
      Fund.





During
      the nine months ended September 30, 2007 and 2006, we received distributions
      related to our interest in the Core Fund of approximately $17.9 million and
      $10.0 million, respectively. The increase in distributions is attributable
      to our interest in the Core fund following additional capital contributions
      we
      made to the Core Fund since September 30, 2006, as well as the increased cash
      flow of the Core Fund resulting from the additional properties it has acquired
      since September 30, 2006. The Core Fund owned interests in 23 properties as
      of
      September 30, 2007, up from 13 properties as of September 30, 2006.




During
      the nine months ended September 30, 2007 and 2006, we had increases in
      restricted cash of approximately $3.5 million and $4.3 million,
      respectively, related to certain escrows required by our mortgage
      agreements.





During
      the nine months ended September 30, 2007, we had cash outflows of
      $3.0 million, net of receipts, for master leases entered into in connection
      with our acquisitions.





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 Table
          of Contents


*Cash
      Flows from Financing Activities*





***Equity
      Offerings***





We
      offer
      shares of our common stock for sale to the public, which provides us with the
      ability to raise capital on a continual basis. The Initial Offering commenced
      on
      June 18, 2004 and terminated on June 18, 2006. On
      June 19, 2006, we commenced our Current Offering, pursuant to which we
      are offering a maximum of $2.2 billion in common shares.





The
      following table summarizes the activity from our offerings for the years ended
      December 31, 2006, 2005 and 2004 and the nine months ended September 30,
      2007 (in millions):





**Initial
                Public Offering**
            
            
            **Current
                Public Offering**
            
            
            **All
                Offerings****Period**
            
            **#
                of Shares**
            
            
            **Proceeds**
            
            
            **#
                of Shares**
            
            
            **Proceeds**
            
            
            **#
                of Shares**
            
            
            **Proceeds**Year
                Ended December 31, 2004
            
            
            2.1
            
            
            $
            20.6
            
            
            
            —
            
            
            $
            —
            
            
            
            2.1
            
            
            $
            20.6Year
                Ended December 31, 2005
            
            
            21.0
            (a)
            
            
            207.7
            (a)
            
            
            —
            
            
            
            —
            
            
            
            21.0
            
            
            
            207.7Year
                Ended December 31, 2006
            
            
            30.1
            (b)
            
            
            299.2
            (b)
            
            
            27.3
            (b)
            
            
            282.7
            (b)
            
            
            57.4
            
            
            
            581.9Nine
                Months Ended September 30, 2007
            
            
            —
            
            
            
            —
            
            
            
            69.4
            (c)
            
            
            720.9
            (c)
            
            
            69.4
            
            
            
            720.9**Total**
            
            
            53.2
            
            
            $
            527.5
            
            
            
            96.7
            
            
            $
            1,003.6
            
            
            
            149.9
            
            
            $
            1,531.1


__________





(a)
            Amounts
                include $2.1 million of gross proceeds relating to approximately
                223,000 shares issued under our dividend reinvestment
                plan.(b)
            Amounts
                include $13.5 million of gross proceeds relating to approximately
                1.4 million shares issued under our dividend reinvestment
                plan.(c)
            Amounts
                include $24.8 million of gross proceeds relating to approximately 2.5
                million shares issued under the Company’s dividend reinvestment
                plan.








As
      of
      September 30, 2007, $1,030.6 million in common shares remained available
      for sale pursuant to our Current Offering, exclusive of $165.8 million in
      common shares available under our dividend reinvestment plan. From
      October 1 through November 9, 2007, we received gross offering proceeds of
      approximately $59.6 million from the sale of 5.7 million common
      shares, including approximately $12.6 million relating to 1.3
      million shares sold under our dividend reinvestment plan. As of November 9,
      2007, $983.5 million in common shares remained available for sale to the
      public pursuant to the Current Offering, exclusive of $153.2 million in
      common shares available under our dividend reinvestment plan.





***Payment
      of Offering and Other Costs and Expenses***





In
      addition to making investments in accordance with our investment objectives,
      we
      use our capital resources to pay our Dealer Manager and our Advisor for services
      they provide to us during the various phases of our organization and operations.
      During the offering stage, we pay the Dealer Manager selling commissions and
      dealer manager fees, and we reimburse the Advisor for organizational and
      offering costs.





For
      the
      nine months ended September 30, 2007 and 2006, we paid the Dealer Manager
      selling commissions of $46.8 million and $20.2 million, respectively, and
      we paid dealer manager fees of $15.3 million and $8.2 million,
      respectively. All such selling commissions and a portion of such dealer manager
      fees were reallowed by HRES to participating broker dealers for their services
      in selling our shares.





During
      the nine months ended September 30, 2006, the Advisor incurred organizational
      and internal offering costs related to the Initial Offering totaling
      $3.0 million and third-party offering costs of $3.6 million. During the
      nine months ended September 30, 2006, we made payments totaling
      $10.0 million to our Advisor for the reimbursement of previously incurred
      Initial Offering organizational and offering costs. No such costs were incurred
      or paid during the nine months ended September 30, 2007 because the Initial
      Offering had concluded.


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 Table
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During
      the nine months ended September 30, 2007 and 2006, the Advisor incurred
      organizational and internal offering costs related to the Current Offering
      totaling approximately $5.1 million and $2.1 million, respectively, and
      third-party offering costs of approximately $6.9 million and $3.9 million,
      respectively. During the nine months ended September 30, 2007 we made payments
      totaling $15.4 million for reimbursement of Current Offering organizational
      and offering costs, of which $15.1 million were made to our Advisor. During
      the
      nine months ended September 30, 2006, we made payments of $1.3 million to our
      Advisor for reimbursement of Current Offering organizational and offering
      costs.





See
      “Critical Accounting Policies — Organizational and Offering Costs” above
      for additional information.





***Debt
      Financings***





We
      use
      debt financing from time to time for acquisitions and investments as well as
      for
      property improvements, tenant improvements, leasing commissions and other
      working capital needs. We may obtain financing at the time an asset is acquired
      or an investment is made or at such later time as determined to be appropriate,
      depending on market conditions and other factors.





Subject
      to market conditions and other factors we may consider, we expect that our
      debt
      financing will generally be in the range of approximately 40 – 60% of
      management’s estimate of the aggregate value of our real estate investments. The
      amount of debt we place on an individual property, or the amount of debt
      incurred by an individual entity in which we invest, however, may be less than
      40% or more than 60% of the value of such property or the value of the assets
      owed by such entity, depending on market conditions and other factors. In
      addition, depending on market conditions and other factors, we may choose not
      to
      use debt financing for our operations or to acquire properties. Our articles
      of
      incorporation limit our borrowing to 300% of our net assets (equivalent to
      75%
      of the cost of our assets) unless any excess borrowing is approved by a majority
      of our independent directors and is disclosed to our shareholders in our next
      quarterly report. As of September 30, 2007 and December 31, 2006, our debt
      financing was approximately 47% and 53%, respectively, of the aggregate value
      of
      our real estate investments (including our pro rata share of the Core Fund’s
      real estate assets and related debt).





32
 Table
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The
      following table includes all of our outstanding notes payable as of September
      30, 2007 and December 31, 2006 (in thousands, except interest
      rates):




**Description**
            **Date**
              **Originated**
            **Maturity
                Date**
            
            **Interest
                Rate**
            
            
            **Principal**
              **Outstanding
                at**
              **September
                30,****2007**
            
            
            **Principal**
              **Outstanding
                at**
              **December 31,****2006**Key
                Bank National Association — Revolving Credit Facility
            9/9/2005
            10/31/2009
            
            Variable
                (1)
            
            
            $
            66,000
            
            
            $
            162,000**SECURED
                MORTGAGE DEBT**Wells
                Fargo Bank, N.A. — Airport Corporate Center
            1/31/2006
            3/11/2009
            
            
            4.775
            %
            
            
            89,836
            (6)
            
            
            89,233Metropolitan
                Life Insurance Company — 1515 S. Street
            4/18/2006
            5/1/2011
            
            
            5.680
            %
            
            
            45,000
            
            
            
            45,000Capmark
                Finance, Inc. — Atrium on Bay
            2/26/2007
            2/26/2017
            
            
            5.330
            %
            
            
            191,539
            (4)
            
            
            —**HSH
                POOLED MORTGAGE FACILITY**HSH
                Nordbank — Citymark, 321 North Clark, 1900 and 2000
                Alameda
            8/1/2006
            8/1/2016
            
            
            5.8575
            %(2)
            
            
            185,000
            
            
            
            185,000HSH
                Nordbank — 3400 Data Drive, Watergate Tower IV
            1/23/2007
            1/12/2017
            
            
            5.2505
            %(3)
            
            
            98,000
            
            
            
            —HSH
                Nordbank — Daytona and Laguna Buildings
            5/2/2007
            5/2/2017
            
            
            5.3550
            %(5)
            
            
            119,000
            
            
            
            —HSH
                Nordbank — 3 Huntington Quadrangle
            7/19/2007
            7/19/2017
            
            
            5.9800
            %(7)
            
            
            48,000
            
            
            
            —HSH
                Nordbank — Seattle Design Center / 5th
                and
                Bell
            8/14/2007
            8/14/2017
            
            
            6.0300
            %(8)
            
            
            70,000
            
            
            
            —$
            912,375
            
            
            $
            481,233


­_________





(1)
            The
                revolving credit facility with KeyBank National Association (“KeyBank”)
                provides a maximum aggregate borrowing capacity of $250.0 million,
                which may be increased to $350.0 million upon our election.
                Borrowings under the revolving credit facility are at variable interest
                rates based on LIBOR plus 125 to 200 basis points based on prescribed
                leverage ratios. The weighted average interest rate on outstanding
                borrowings under this facility was 6.32% and 6.73% as of September
                30,
                2007 and December 31, 2006, respectively.(2)
            Borrowings
                under the pooled mortgage facility with HSH Nordbank (“HSH Credit
                Facility”) that closed prior to August 1, 2007 have variable interest
                rates equal to one-month LIBOR plus 0.40%. However, we entered into
                an
                interest rate swap agreement which effectively fixed the interest
                rate of
                this borrowing at 5.8575%.(3)
            Borrowings
                under the HSH Credit Facility that closed prior to August 1, 2007
                have
                variable interest rates equal to one-month LIBOR plus 0.40%. However,
                we
                entered into an interest rate swap agreement which effectively fixed
                the
                interest rate of this borrowing at 5.2505%.(4)
            This
                amount was translated to U.S. dollars at a rate of $1.0081 as of
                September 30, 2007. The mortgage agreement provided for a principal
                amount
                of $190.0 million Canadian dollars (“CAD”).(5)
            Borrowings
                under the HSH Credit Facility that closed prior to August 1, 2007
                have
                variable interest rates equal to one-month LIBOR plus 0.40%. However,
                we
                entered into an interest rate swap agreement which effectively fixed
                the
                interest rate of this borrowing at 5.355%.(6)
            This
                mortgage is an interest-only loan in the principal amount of $91.0
                million, which we assumed in connection with our acquisition of Airport
                Corporate Center. At the time of acquisition, the fair value of this
                mortgage was estimated to be $88.5 million, resulting in a premium
                of $2.5
                million. The premium is being amortized over the term of the
                mortgage.(7)
            Borrowings
                under the HSH Credit Facility that closed prior to August 1, 2007
                have
                variable interest rates equal to one-month LIBOR plus 0.40%. However,
                the
                Company entered into an interest rate swap agreement which effectively
                fixed the interest rate of this borrowing at 5.98%.(8)
            Borrowings
                under the HSH Credit Facility that closed after August 1, 2007 have
                variable interest rates equal to one-month LIBOR plus 0.45%. However,
                the
                Company entered into an interest rate swap agreement which effectively
                fixed the interest rate of this borrowing at
                6.03%.





As
      of
      September 30, 2007, we have complied with all covenants stipulated by the debt
      financings referenced above.





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***Advances
      from affiliates***





Certain
      costs and expenses associated with our organization and public offerings have
      been paid by our Advisor on our behalf. See “Financial Condition, Liquidity and
      Capital Resources — Payment of Offering Costs and Other Expenses” above for
      a discussion of these advances and our repayment of the same.





During
      the nine months ended September 30, 2006, our Advisor had advanced to us or
      made
      payments on our behalf totaling approximately $1.7 million for certain expenses
      incurred in connection with the Company’s administration and ongoing operations.
      We did not receive any advances from our Advisor after June 30, 2006, and
      as of December 31, 2006, we had repaid our Advisor all amounts related to
      these advances.





To
      the
      extent that our operating expenses in any four consecutive fiscal quarters
      exceed the greater of 2% of average invested assets or 25% of Net Income (as
      defined in our Articles of Incorporation), our Advisor is required to reimburse
      us the amount by which the total operating expenses paid or incurred exceed
      the
      greater of the 2% or 25% threshold, unless our independent directors determine
      that such excess was justified. For the four quarters ended September 30, 2007,
      we did not exceed this limitation.





***Distributions***





In
      order
      to meet the requirements for being treated as a REIT under the Internal Revenue
      Code of 1986 and to pay regular cash distributions to our shareholders, which
      is
      one of our investment objectives, we have and intend to continue to declare
      distributions to shareholders (as authorized by our board of directors) as
      of
      daily record dates and aggregate and pay such distributions
      quarterly.





From
      January 1, 2006 through June 30, 2006, we declared distributions (as
      authorized by our board of directors) equal to $0.00164384 per share, per
      day. From July 1, 2006 through September 30, 2007, we declared
      distributions equal to $0.00170959 per share, per day. Additionally, we
      have declared distributions equal to $0.00170959 per share, per day through
      November 30, 2007. The distributions declared were authorized and set by our
      board of directors at a level the board believed to be appropriate based upon
      the board’s evaluation of our assets, historical and projected levels of cash
      flow and results of operations, additional capital and debt anticipated to
      be
      raised or incurred and invested in the future, the historical and projected
      timing between receiving offering proceeds and investing such proceeds in real
      estate investments, and general market conditions and trends.





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Aggregate
      distributions declared to our shareholders and minority interests related to
      the
      nine months ended September 30, 2007 were $55.5 million. Our two primary
      sources of funding for our distributions are cash flows from operating
      activities and distributions from the Core Fund. When analyzing the amount
      of
      cash flow available to pay distributions, we also consider the impact of certain
      other factors, including our practice of financing acquisition fees and other
      acquisition-related cash flows, which reduce cash flows from operating
      activities in our statements of cash flows. The following table summarizes
      the
      primary sources and other factors we considered in our analysis of cash flows
      available to fund distributions to shareholders and minority interests (amounts
      are in thousands for the nine months ended September 30, 2007 and are
      approximate):





Cash
                flow from operating activities
            
            $
            15,778Distributions
                from the Core Fund(1)
            
            $
            19,503Cash
                acquisition fees(2)
            
            $
            6,705Acquisition-related
                items(3)
            
            $
            7,277Master
                lease rent receipts(4)
            
            $
            3,919


__________





(1)
            Cash
                distributions earned during the nine months ended September 30, 2007
                related to our investment in the Core Fund.(2)
            In
                accordance with GAAP, acquisition fees paid to our Advisor reduce
                cash
                flows from operating activities in our condensed consolidated statements
                of cash flows. However, we fund such payments with offering proceeds
                and
                related acquisition indebtedness as such payments are transaction
                costs
                associated with our acquisitions of real estate investments. As a
                result,
                we considered the payment of acquisition fees in our analysis of
                cash flow
                available to pay distributions.(3)
            Acquisition-related
                items include cash payments to settle net liabilities assumed upon
                acquisition of properties. In accordance with GAAP, these payments
                reduce
                cash flows from operating activities in our condensed consolidated
                statements of cash flows. However, these payments are related to
                the
                acquisition, as opposed to the operations, of these properties, and
                we
                fund such payments with offering proceeds and acquisition-related
                indebtedness. As a result, we considered the payment of these items
                in our
                analysis of cash flow available to pay distributions. For the nine
                months
                ended September 30, 2007, these amounts consisted primarily of the
                settlement of liabilities assumed upon the acquisition of our
                properties.(4)
            Master
                lease rent receipts include rent payments received related to master
                leases entered into in conjunction with previous asset acquisitions.
                In
                accordance with GAAP, these payments are recorded in cash flows from
                investing activities in our condensed consolidated statement of cash
                flows. However, we consider these cash receipts in our analysis of
                cash
                flow available to pay
                distributions.





Additionally,
      we typically use cash flows from financing activities such as offering proceeds
      or borrowings, rather than operating cash flows, to pay for deferred leasing
      costs, such as tenant incentive payments, leasing commissions and tenant
      improvements as we consider these costs to be additional capital investments
      in
      our properties. For the nine months ended September 30, 2007, we paid
      $6.3 million for deferred leasing costs, which were reflected as a
      reduction of cash flows from operating activities in our condensed consolidated
      financial statements included elsewhere in this Form 10-Q.





As
      noted
      above in “— General”, we are currently making real estate investments in a
      competitive environment. Significant U.S. and foreign investment capital
      continues to flow into real estate capital markets, creating competition for
      acquisitions, including high-quality office properties. This competition may
      cause downward pressure on rates of return from our future real estate
      investments, and consequently, could cause downward pressure on the future
      distributions payable to our shareholders.





To
      the
      extent our distributions exceed our tax-basis earnings and profits, a portion
      of
      these distributions will constitute a return of capital for federal income
      tax
      purposes. Approximately 23% of our distributions declared during the year ended
      December 31, 2006 were taxable to shareholders as ordinary taxable income
      and the remaining portion was treated as return of capital. We expect that
      a
      portion of distributions paid in future years will also constitute a return
      of
      capital for federal income tax purposes, primarily as a result of non-cash
      depreciation deductions.





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***Results
      of Operations***





We
      owned
      15 office properties directly, 23 office properties indirectly through our
      investment in the Core Fund, and one industrial property in Rio de Janeiro,
      Brazil indirectly through our investment in the joint venture  as of
      September 30, 2007. By comparison, we owned five office properties directly
      and
      13 office properties indirectly through our investment in the Core Fund as
      of
      September 30, 2006. As a result of the significant new investments made between
      September 30, 2006 and September 30, 2007, as well as the number of our direct
      properties owned for the three and nine month periods then ended, our results
      of
      operations for the three months ended September 30, 2007 and 2006 are not
      directly comparable.





Our
      results of operations are also not indicative of what we expect our results
      of
      operations will be in future periods as we expect that our operating revenues
      and expenses will continue to increase as a result of (i) owning the real
      estate investments we recently acquired for an entire period, and (ii) our
      future real estate investments, which we expect to be substantial.





*Direct
      Investments*





Total
      revenues for the nine months ended September 30, 2007 and 2006 were
      $117.6 million and $43.6 million, respectively. Property-level
      expenses, property taxes and property management fees for the nine months ended
      September 30, 2007 and 2006 were $51.7 million and $20.1 million,
      respectively. Depreciation and amortization expense for the nine months ended
      September 30, 2007 and 2006 was $44.8 million and $15.3 million,
      respectively.





Total
      revenues for the three months ended September 30, 2007 and 2006 were $49.7
      million and $18.7 million, respectively. Property-level expenses, property
      taxes and property management fees for the three months ended September 30,
      2007
      and 2006 were $22.5 million and $8.7 million, respectively. Depreciation
      and amortization expense for the three months ended September 30, 2007 and
      2006
      was $20.2 million and $6.5 million, respectively.





*Our
      Interest in the Core Fund*





As
      of
      September 30, 2007, we had invested a total of approximately $395.5 million
      and owned a 32.0% non-managing general partner interest in the Core Fund,
      compared to $230.6 million invested as of September 30, 2006, representing
      a 31.5% interest.





Our
      equity in losses related to our investment in the Core Fund for the nine months
      ended September 30, 2007 and 2006 was approximately $6.9 million and $1.8
      million, respectively. For the nine months ended September 30, 2007 and 2006,
      the Core Fund had net losses of approximately $21.0 million and $5.9 million,
      respectively, on revenues of $310.2 million and $192.8 million,
      respectively. The Core Fund’s net losses for the nine months ended September
      30, 2007 and 2006 included $131.8 million and $59.3 million,
      respectively, of non-cash depreciation and amortization expenses.





Our
      equity in losses related to our investment in the Core Fund for the three months
      ended September 30, 2007 and 2006 was approximately $5.0 million and $926,000,
      respectively. For the three months ended September 30, 2007 and 2006, the Core
      Fund had net losses of approximately $15.4 million and $2.9 million,
      respectively, on revenues of $109.0 million and $72.2 million,
      respectively. The Core Fund’s net losses for the three months ended September
      30, 2007 and 2006 included $63.6 million and $23.1 million,
      respectively, of non-cash depreciation and amortization expenses.





*Asset
      Management and Acquisition Fees*





Asset
      management fees earned by our advisor for the nine months ended September 30,
      2007 and 2006 were approximately $11.3 million and $4.2 million, respectively.
      The increase in asset management fees reflects the fact that we have a larger
      portfolio of assets under management. Acquisition fees for the nine months
      ended
      September 30, 2007 and 2006 were $10.7 million and $6.3 million,
      respectively.





Asset
      management fees earned by our advisor for the three months ended September
      30,
      2007 and 2006 were approximately $4.8 million and $1.8 million,
      respectively. The increase in asset management fees reflects the fact that
      we
      have a larger portfolio of assets under management. Acquisition fees for the
      three months ended September 30, 2007 and 2006 were $6.1 million and
      $1.1 million, respectively.


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These
      amounts include both the cash portion of the fees payable to our Advisor as
      well
      as the corresponding increase in the Participation Interest. See
“Note 6 — Related Party Transactions” in our unaudited condensed
      consolidated financial statements included elsewhere in this Form 10-Q for
      a description of the Participation Interest.





*General
      and Administrative Expenses*





General
      and administrative expenses were approximately $3.0 million and $2.0 million,
      respectively, for the nine months ended September 30, 2007 and 2006 and
      approximately $839,000 and $514,000, respectively, for the three months ended
      September 30, 2007 and 2006. These costs include legal and accounting fees,
      insurance costs, costs and expenses associated with our board of directors
      and
      other administrative expenses. Certain of these costs are variable and may
      increase in the future as we continue to raise capital and make additional
      real
      estate investments. The increases in general and administrative expenses during
      the periods are primarily due to increased costs of shareholder communications
      and audit fees as the Company’s activities and shareholder base continue to
      grow.





*Loss
      on Derivative Instruments*





We
      entered into interest rate swap contracts with HSH Nordbank in June 2006,
      December 2006, February 2007 and June 2007.





The
      loss
      on derivative instruments recorded in our condensed consolidated statements
      of
      operations for the three and nine months ended September 30, 2007 is the result
      of the following (additional details provided below):





•
            the
                decrease in the fair value of the interest rate swaps during the
                period
                resulted in losses of $21.3 million and $5.6 million for the three
                and
                nine months ended September 30, 2007,
                respectively;





•
            transaction
                fees incurred upon entering into the swaps of approximately $0 and
                $731,000 for the three and nine months ended September 30, 2007,
                respectively; and





•
            a
                gain of approximately $939,000 for the nine months ended September
                30,
                2007 resulting from the settlement of a foreign currency contract
                in
                February 2007. There were no similar transactions during the three
                months
                ended September 30, 2007.





We
      recorded a loss of $7.8 million and $6.4 million, respectively, on an interest
      rate swap for the three and nine months ended September 30, 2006. This loss
      resulted from the decrease in the fair value of an interest rate swap and was
      net of fees of approximately $552,000 incurred upon entering into the swap
      transaction.





We
      have
      not designated our foreign currency contract or any of our interest rate swap
      contracts as cash flow hedges for accounting purposes. The interest rate
      swap contracts have been recorded at their estimated fair value in the condensed
      consolidated balance sheets as of September 30, 2007 and December 31,
      2006.





*Gain
      on Foreign Currency Transactions*





During
      the nine months ended September 30, 2007, certain of our subsidiaries which
      own
      Atrium on Bay, our property located in Toronto, Ontario, had transactions
      denominated in currencies other than their functional currency (CAD). In these
      instances, non-monetary assets and liabilities are reflected at the historical
      exchange rate, monetary assets and liabilities are remeasured into the
      functional currency at the exchange rate in effect at the end of the period,
      and
      income statement accounts are remeasured at the average exchange rate for the
      period. We recorded a gain of approximately $134,000 in the accompanying
      condensed consolidated statement of operations for the nine months ended
      September 30, 2007 as a result of such foreign currency
      transactions.





*Interest
      Expense*





Interest
      expense was $32.0 million and $12.7 million, respectively, for the
      nine months ended September 30, 2007 and 2006 and $12.1 million and
      $4.9 million, respectively, for the three months ended September 30, 2007
      and 2006. The increases in interest expense during the periods are primarily
      due
      to increased borrowings used to fund our acquisitions of directly-owned
      properties.


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*Interest
      Income*





Interest
      income was $4.2 million and $585,000, respectively, for the nine months ended
      September 30, 2007 and 2006 and $1.3 million and $351,000, respectively, for
      the
      three months ended September 30, 2007 and 2006. The increases in interest income
      are primarily due to increased cash we held in short-term investments during
      delays between raising capital and acquiring real estate
      investments.





*Income
      / Loss Allocated to Minority Interests*





As
      of
      September 30, 2007 and 2006, Hines REIT owned a 97.8% and a 96.8% interest,
      respectively, in the Operating Partnership, and affiliates of Hines owned the
      remaining 2.2% and 3.2% interests, respectively. We allocated income of
      approximately $680,000 to minority interests for the nine months ended September
      30, 2007 and losses of $409,000 to minority interests for the nine months ended
      September 30, 2006. In addition, we allocated income of approximately $286,000
      to minority interests for the three months ended September 30, 2007 and losses
      of $155,000 to minority interests for the three months ended September 30,
      2006.




***Related-Party
      Transactions and Agreements***





We
      have
      entered into agreements with the Advisor, Dealer Manager and Hines or its
      affiliates, whereby we pay certain fees and reimbursements to these entities,
      including acquisition fees, selling commissions, dealer-manager fees, asset
      and
      property management fees, construction management fees, reimbursement of
      organizational and offering costs, and reimbursement of certain operating costs.
      See “Note 6 — Related Party Transactions” in our unaudited condensed
      consolidated financial statements included elsewhere in this Form 10-Q for
      a discussion of the various related-party transactions, agreements and
      fees.





***Off-Balance
      Sheet Arrangements***





As
      of
      September 30, 2007 and December 31, 2006, we had no off-balance sheet
      arrangements that have or are reasonably likely to have a current or future
      effect on our financial condition, changes in financial condition, revenues
      or
      expenses, results of operations, liquidity, capital expenditures or capital
      resources.





***Subsequent
      Events***





*Pending
      Property Acquisition*





On
      October 15, 2007, we entered into a contract to acquire Chase Tower, a
      55-story office building located in the uptown submarket of Dallas, Texas.
      The
      building consists of 1,296,407 square feet of rentable area and is 92% leased.
      The maximum contract purchase price for Chase Tower is expected to be
      $290.0 million, exclusive of transaction costs, financing fees and working
      capital reserves. This acquisition is expected to close in November
      2007. We have funded $7.5 million in earnest money that could be forfeited
      if this acquisition does not close.





*Pending
      Property Sale*





On
      October 26, 2007, we entered into a contract to sell Citymark, an office
      property in Dallas, Texas for $39.0 million, exclusive of closing costs. The
      sale is expected to be consummated on or about December 5, 2007.  As
      of September 30, 2007, the carrying value of Citymark’s investment property was
      approximately $17.8 million. FASB Statement No. 144, *Accounting for the
      Impairment or Disposal of Long-Lived Assets* (“SFAS 144”) prescribes the
      accounting treatment for assets that are to be disposed of by sale. In
      accordance with SFAS 144, management believes Citymark should not be classified
      as an asset “held for sale” as of September 30, 2007 based on its evaluation of
      the facts and circumstances of this transaction.


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*One
      Wilshire Mortgage Loan*




On
      October 25, 2007, a subsidiary of the Operating Partnership borrowed $159.5
      million from The Prudential Insurance Company of America pursuant to a Deed
      of
      Trust and Security Agreement dated October 25, 2007 and a Promissory Note dated
      October 25, 2007. The Loan is secured by a mortgage and related security
      interests in One Wilshire, an office property located in Los Angeles, California
      that the Company acquired on August 1, 2007. The subsidiary of the Operating
      Partnership that directly owns One Wilshire is the borrower under the Loan
      Documents. The Loan matures on November 1, 2012 and bears interest at a fixed
      annual rate of 5.98%. Interest payments are due monthly, beginning on December
      1, 2007 through maturity.




*KeyBank
      Activity*





From
        October 1, 2007 to November 9, 2007, we repaid all amounts outstanding
        under our revolving credit facility with KeyBank. No new borrowings were
        made under the KeyBank facility during that period.





*Shareholder
        Redemption*





In
      October 2007, in accordance with our share redemption plan,
      we redeemed approximately 636,000 common shares and made corresponding
      payments totaling $6.2 million to shareholders who had requested these
      redemptions. The shares redeemed were cancelled and will have the status of
      authorized, but unissued shares.




**Item 3.*Quantitative
      and Qualitative Disclosures About Market
      Risk.***





Market
      risk includes risks relating to changes in interest rates, foreign currency
      exchange rates, commodity prices, equity prices and other market changes that
      affect market sensitive instruments. We are exposed to both interest rate risk
      and foreign currency exchange rate risk.





The
      commercial real estate debt markets are currently experiencing volatility as
      a
      result of certain factors including the tightening of underwriting standards
      by
      lenders and credit rating agencies and the significant inventory of unsold
      Collateralized Mortgage Backed Securities in the market.  This is
      resulting in lenders decreasing the availability of debt financing as well
      as
      increasing the cost of debt financing.  As our existing debt is either
      fixed rate debt or floating rate debt with a fixed spread over LIBOR, we do
      not
      believe that our current portfolio is materially impacted by the current debt
      market environment.  However, should the overall availability of debt
      decrease and/or the cost of borrowings increase, either by increases in the
      index rates or by increases in lender spreads, we will need to include such
      factors in the economics of future acquisitions.  This may result in
      future acquisitions generating lower overall economic returns and potentially
      reducing future cash flow available for distribution.





In
      addition, the state of the debt markets could have an impact on the overall
      amount of capital investing in real estate which may result in price or value
      decreases of real estate assets.  Although this may benefit us for
      future acquisitions, it could negatively impact the current value of our
      existing assets.





We
      are
      also exposed to the effects of interest rate changes primarily through
      variable-rate debt, which we use to maintain liquidity and fund expansion of
      our
      real estate investment portfolio and operations. Our interest rate risk
      management objectives are to monitor and manage the impact of interest rate
      changes on earnings and cash flows, and to use derivative financial instruments
      such as interest rate swaps and caps in order to mitigate our interest rate
      risk
      on variable rate debt. We do not enter into derivative or interest rate
      transactions for speculative purposes. Please see “Debt Financings” above for
      more information concerning the Company’s outstanding debt.





As
      of
      September 30, 2007, we had $520.0 million of debt outstanding under our HSH
      Credit Facility, which is a variable-rate pooled mortgage facility. However,
      as
      a result of the interest rate swap agreements entered into with HSH Nordbank,
      these borrowings effectively bear interest at fixed rates.





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Our
      total
      variable-rate debt outstanding as of September 30, 2007 consisted of
      $66.0 million in borrowings under our revolving credit facility with
      KeyBank. This debt is subject to a variable rate through its maturity date
      on
      October 31, 2009. An increase in the variable interest rate would increase
      our interest payable on debt outstanding under the Revolving Credit Facility
      and
      therefore decrease our cash flows available for distribution to shareholders.
      Based on our variable rate debt outstanding as of September 30, 2007, a 1%
      change in interest rates would result in a change in interest expense of
      approximately $660,000 per year.





We
      are
      exposed to foreign currency exchange rate variations resulting from the
      remeasurement and translation of the financial statements of our subsidiaries
      located in Toronto, Ontario. As of September 30, 2007 and for the nine months
      then ended, we recorded a gain on foreign currency transactions of approximately
      $134,000 in our condensed consolidated statement of operations and approximately
      $10.6 million of accumulated other comprehensive income included in our
      condensed consolidated statement of shareholders’ equity related to our Toronto
      subsidiaries. Based on the Company’s current operational strategies, management
      does not believe that variations in the foreign currency exchange rates pose
      a
      significant risk to our consolidated results of operations or financial
      position.





**Item 4T.*Controls
      and Procedures.***





In
      accordance with Rules 13a-15 and 15d-15 of the Securities Exchange Act of
      1934, as amended (the”Exchange Act”), we, under the supervision and with the
      participation of our Chief Executive Officer and Chief Financial Officer,
      carried out an evaluation of the effectiveness of our disclosure controls and
      procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of
      the end of the period covered by this report. Based on that evaluation, our
      Chief Executive Officer and Chief Financial Officer concluded that our
      disclosure controls and procedures were effective as of September 30, 2007,
      to
      provide reasonable assurance that information required to be disclosed in our
      reports filed or submitted under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the SEC’s rules and
      forms.





Other
      than those described below, no change occurred in our internal controls over
      financial reporting (as defined in Rule 13a-15(f) of the Exchange Act)
      during the three months ended September 30, 2007 that has materially affected,
      or is reasonably likely to materially affect, our internal controls over
      financial reporting.





During
      the three months ended September 30, 2007, we continued the implementation
      of an
      upgrade to our financial and accounting systems with the implementation of
      a new
      enterprise-wide accounting and lease management system for Hines. We anticipate
      this implementation will be completed by mid-2008. This new software affects
      many aspects of our accounting and financial systems and procedures and results
      in a significant change to our internal controls. We continue to review the
      controls affected by the implementation. Appropriate modifications have been
      or
      will be made to any affected internal controls during the implementation.
      Further, we will test all significant modified controls resulting from the
      implementation to ensure they are functioning effectively.





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**PART II – OTHER
      INFORMATION**





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





During
      the nine months ended September 30, 2007, we did not sell any equity securities
      that were not registered under the Securities Act of 1933.





The
      following table lists shares we redeemed under our share redemption plan during
      the period covered by this report.





**Period**
            
            **Total**
              **Number
                of**
              **Shares****Purchased**
            
            
            **Average
                Price**
              **Paid
                per Share**
            
            
            **Total
                Number of**
              **Shares
                Purchased as**
              **Part
                of Publicly**
              **Announced
                Plans or**
              **Programs**
            
            
            **Maximum
                Number (or**
              **Approximate
                Dollar**
              **Value)
                of
                Shares**
              **that
                May Yet
                be**
              **Purchased
                Under the****Plans
                or****Programs(1)**July
                1, 2007 to July 31, 2007
            
            
            252,984
            
            
            
            9.52
            
            
            
            252,984
            
            
            
            4,740,061August
                1, 2007 to August 31, 2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            4,740,061September 1,
                2007 to September 30, 2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            5,471,784**Total**
            
            
            252,984
            
            
            ****
            **9.52**
            
            
            
            252,984


__________





(1)
            We
                may redeem shares under the program so long as the total number of
                shares
                redeemed during the calendar year does not exceed, as of the date
                of the
                redemption, 10% of our shares outstanding on the same date during
                the
                prior year. Our share redemption plan has been in effect since June
                2004
                and has no definitive expiration date. However, the plan may be suspended
                or terminated at the discretion of the board of
                directors.





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**Item
      4.  *Submission
      of Matters to a Vote of
      Security Holders.***


Our annual meeting of shareholders was held on July 9, 2007.  Management
        proposals 1, 2 and 3 were approved.  The results are as
        follows:





**Proposal
      1**





The
      following directors were re-elected at the meeting to serve a one-year term
      as
      directors:




**For**
            **Against**
            **Authority
                Withheld or Abstained from Voting**Jeffrey
                C. Hines
            52,748,033
            —
            1,176,838C.
                Hastings Johnson
            52,755,792
            —
            1,169,079George
                A. Davis
            52,734,056
            —
            1,190,815Thomas
                A. Hassard
            52,735,019
            —
            1,189,852Stanley
                D. Levy
            52,751,448
            —
            1,173,423




**Proposal
      2A**





Approval
      of amendments to the indemnification provisions of our Amended and Restated
      Articles of Incorporation.




**For**
            **Against**
            **Authority
                Withheld or Abstained from Voting**50,930,850
            820,387
            2,173,634




**Proposal
      2B**




Approval
      of amendments to the share voting rights of our Advisor, directors and their
      respective affiliates in our Amended and Restated Articles of
      Incorporation.




**For**
            **Against**
            **Authority
                Withheld or Abstained from Voting**51,095,109
            724,737
            2,105,025





**Proposal
      2C**





Approval
      of amendments to the definitions in our Amended and Restated Articles of
      Incorporation.




**For**
            **Against**
            **Authority
                Withheld or Abstained from Voting**51,058,554
            721,926
            2,144,391





**Proposal
      3**





Ratification
      of the appointment of Deloitte & Touche as the Company’s independent
      registered public accounting firm for fiscal year 2007.




**For**
            **Against**
            **Authority
                Withheld or Abstained from Voting**51,822,993
            391,758
            1,710,119





**Item 6.*Exhibits.***





The
      exhibits required by this item are set forth on the Exhibit Index attached
      hereto.  42
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**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.





HINES
      REAL ESTATE INVESTMENT TRUST,
      INC.





November
      14,
      2007                                                                           By:          /s/ CHARLES
      M. BAUGHN


Charles
      M. Baughn


Chief
      Executive Officer








November
      14,
      2007                                                                           By:         /s/ SHERRIW. SCHUGART


Sherri
      W. Schugart


Chief
      Financial Officer








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**EXHIBIT INDEX**





**Exhibit
                No.**
            
            **Description**3.1
            —
            Second
                Amended and Restated Articles of Incorporation of Hines Real Estate
                Investment Trust, Inc. (filed as Exhibit 3.1 to the registrant’s
                Current Report on Form 8-K on July 13, 2007 and incorporated herein
                by
                reference).3.2
            —
            Second
                Amended and Restated Bylaws of Hines Real Estate Investment Trust,
                Inc.
                (filed as Exhibit 3.1 to the registrant’s Current Report on
                Form 8-K on August 3, 2006 and incorporated herein by
                reference).10.2
            —
            Purchase
                and Sale Agreement and Joint Escrow Instructions, dated as of July
                11,
                2007, by and between Carlyle One Wilshire II, L.P. and Hines REIT
                Properties, L.P. (filed as Exhibit 10.80 to Amendment No.5  to
                the registrant’s Registration Statement on Form S-11, File No. 333-130114
                (the “Second Registration Statement”), on July 16, 2007 and incorporated
                herein by reference).10.3
            —
            Agreement
                of Purchase and Sale, dated September 25, 2007 between Firstcal Industrial
                2 Acquisition, LLC and Hines REIT Minneapolis Industrial LLC (filed
                as
                Exhibit 10.1 to the Registrant’s Current Report on Form 8-K on October 1,
                2007, and incorporated by reference herein).10.4
            —
            First
                Amendment, dated September 27, 2007, to the Agreement of Purchase
                and
                Sale, dated September 25, 2007 between Firstcal Industrial 2 Acquisition,
                LLC and Hines REIT Minneapolis Industrial LLC (filed as Exhibit 10.2
                to
                the Registrant’s Current Report on Form 8-K on October 1, 2007, and
                incorporated by reference herein).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 and Chief Financial Officer Pursuant to
                18 U.S.C., Section 1350, as adopted pursuant to Section 906
                of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551
                this
                Exhibit is furnished to the SEC and shall not be deemed to be
                “filed.”


__________





*
            Filed
                herewith


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