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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

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

For the quarterly period ended March 31, 2011

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 000-52606





KBS REAL ESTATE INVESTMENT TRUST, INC.

(Exact Name of Registrant as Specified in Its Charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 20-2985918                          
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|620 Newport Center Drive, Suite 1300
Newport Beach, California |  | 92660                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          

(949) 417-6500

(Registrants Telephone Number, Including Area Code)





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

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

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈                                                |  | Accelerated Filer         |  |  ̈
|                        |  |                                                  | 
|Non-Accelerated Filer   |  | x  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

As of
May 9, 2011, there were 187,193,790 outstanding shares of common stock of KBS Real Estate Investment Trust, Inc.









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KBS REAL ESTATE INVESTMENT TRUST, INC.

FORM 10-Q

March 31, 2011

INDEX



|           |  |                       |  |                                                                                                                               |    |  |    | 
|---------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|           |  |                      
|PART I.    |  | FINANCIAL INFORMATION |  |                                                                                                                               | 2  | 
|           |  |                       | 
|           |  | Item 1.               |  | Financial Statements                                                                                                          |    |  | 2  | 
|           |  |                       | 
|           |  |                       |  | Consolidated Balance Sheets as of March 31, 2011 (unaudited) and
December 31, 2010                                            |    |  | 2  | 
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 
2011 and 2010                         |    |  | 3  | 
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Equity for the Year Ended December 31, 
2010 and the Three Months Ended March 31, 2011 (unaudited) |    |  | 4  | 
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 
2011 and 2010                         |    |  | 5  | 
|           |  |                       | 
|           |  |                       |  | Condensed Notes to Consolidated Financial Statements as of March 31, 2011
(unaudited)                                         |    |  | 6  | 
|           |  |                       | 
|           |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                                         |    |  | 50 | 
|           |  |                       | 
|           |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                                                    |    |  | 68 | 
|           |  |                       | 
|           |  | Item 4.               |  | Controls and Procedures                                                                                                       |    |  | 69 | 
|           |  |                      
|PART II.   |  | OTHER INFORMATION     |  |                                                                                                                               | 70 | 
|           |  |                       | 
|           |  | Item 1.               |  | Legal Proceedings                                                                                                             |    |  | 70 | 
|           |  |                       | 
|           |  | Item 1A.              |  | Risk Factors                                                                                                                  |    |  | 70 | 
|           |  |                       | 
|           |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                   |    |  | 70 | 
|           |  |                       | 
|           |  | Item 3.               |  | Defaults upon Senior Securities                                                                                               |    |  | 71 | 
|           |  |                       | 
|           |  | Item 4.               |  | (Removed and Reserved)                                                                                                        |    |  | 71 | 
|           |  |                       | 
|           |  | Item 5.               |  | Other Information                                                                                                             |    |  | 71 | 
|           |  |                       | 
|           |  | Item 6.               |  | Exhibits                                                                                                                      |    |  | 72 | 
|           |  |                      
|SIGNATURES |  |                       |  |                                                                                                                               | 74 | 



1



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)



|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                |  | March 31,2011 |           |   | December 31,2010 |  
|                                                                                                                                                                                |  | (unaudited)   |           |   |                  |  
|Assets                                                                                                                                                                          |  |               |           |   |                  |   |           |  
|Real estate held for investment:                                                                                                                                                |  |               |           |   |                  |   |           |  
|Land (including from VIE of $50,598 and $50,598, respectively)                                                                                                                  |  | $             | 249,824   |   |                  | $ | 249,824   |  
|Buildings and improvements (including from VIE of $268,748 and $265,585, respectively)                                                                                          |  |               | 1,445,551 |   |                  |   | 1,437,974 |  
|Tenant origination and absorption costs (including from VIE of $3,558 and$3,602, respectively)                                                                                  |  |               | 78,505    |   |                  |   | 80,834    |  
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total real estate held for investment, at cost and net of impairment charges                                                                                                    |  |               | 1,773,880 |   |                  |   | 1,768,632 |  
|Less accumulated depreciation and amortization (including from VIEof $12,765 and $10,497, respectively)                                                                         |  |               | (190,312  | ) |                  |   | (178,055  | )
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total real estate held for investment, net                                                                                                                                      |  |               | 1,583,568 |   |                  |   | 1,590,577 |  
|Foreclosed real estate held for sale                                                                                                                                            |  |               | 40,786    |   |                  |   | 49,110    |  
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total real estate, net                                                                                                                                                          |  |               | 1,624,354 |   |                  |   | 1,639,687 |  
|Real estate loans receivable, net                                                                                                                                               |  |               | 547,208   |   |                  |   | 546,236   |  
|Real estate securities                                                                                                                                                          |  |               | 19,094    |   |                  |   | 18,275    |  
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total real estate and real estate-related investments, net                                                                                                                      |  |               | 2,190,656 |   |                  |   | 2,204,198 |  
|Cash and cash equivalents (including from VIE of $1,909 and $3,909, respectively)                                                                                               |  |               | 111,119   |   |                  |   | 151,908   |  
|Restricted cash (including from VIE of $4,754 and $5,855, respectively)                                                                                                         |  |               | 5,889     |   |                  |   | 7,082     |  
|Rents and other receivables, net (including from VIE of $4,917 and $3,387, respectively)                                                                                        |  |               | 35,702    |   |                  |   | 30,636    |  
|Above-market leases, net (including from VIE of $453 and $536, respectively)                                                                                                    |  |               | 5,743     |   |                  |   | 6,379     |  
|Deferred financing costs, prepaid expenses and other assets (including from VIEof $10,373 and $10,599,
respectively)                                                            |  |               | 37,237    |   |                  |   | 33,187    |  
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total assets                                                                                                                                                                    |  | $             | 2,386,346 |   |                  | $ | 2,433,390 |  
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Liabilities and equity                                                                                                                                                          |  |               |           |   |                  |   |           |  
|Notes payable and repurchase agreements:                                                                                                                                        |  |               |           |   |                  |   |           |  
|Notes payable (including from VIE of $440,193 and $439,493, respectively)                                                                                                       |  | $             | 1,177,875 |   |                  | $ | 1,201,401 |  
|Repurchase agreements                                                                                                                                                           |  |               | 268,246   |   |                  |   | 277,614   |  
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total notes payable and repurchase agreements                                                                                                                                   |  |               | 1,446,121 |   |                  |   | 1,479,015 |  
|Accounts payable and accrued liabilities (including from VIE of $5,285 and$2,502, respectively)                                                                                 |  |               | 25,070    |   |                  |   | 19,164    |  
|Due to affiliates                                                                                                                                                               |  |               | 6,997     |   |                  |   | 6,995     |  
|Distributions payable                                                                                                                                                           |  |               | 8,318     |   |                  |   | 8,254     |  
|Below-market leases, net (including from VIE of $444 and $554, respectively)                                                                                                    |  |               | 16,310    |   |                  |   | 17,728    |  
|Other liabilities (including from VIE of $912 and $2,705, respectively)                                                                                                         |  |               | 10,268    |   |                  |   | 17,350    |  
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                               |  |               | 1,513,084 |   |                  |   | 1,548,506 |  
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Commitments and contingencies (Note 16)                                                                                                                                         |  |               |           |   |                  |   |           |  
|Redeemable common stock                                                                                                                                                         |  |               | 55,404    |   |                  |   | 45,382    |  
|Equity                                                                                                                                                                          |  |               |           |   |                  |   |           |  
|KBS Real Estate Investment Trust, Inc. stockholders equity:                                                                                                                    |  |               |           |   |                  |   |           |  
|Preferred stock, $.01 par value; 10,000,000 shares authorized,no shares issued and outstanding                                                                                  |  |               |          |   |                  |   |          |  
|Common stock, $.01 par value; 1,000,000,000 shares authorized,186,689,219 and 185,320,095 shares issued and outstandingas
of March 31, 2011 and December 31, 2010, respectively |  |               | 1,867     |   |                  |   | 1,853     |  
|Additional paid-in capital                                                                                                                                                      |  |               | 1,600,540 |   |                  |   | 1,600,848 |  
|Cumulative distributions and net losses                                                                                                                                         |  |               | (755,067  | ) |                  |   | (731,918  | )
|Accumulated other comprehensive loss                                                                                                                                            |  |               | (6,624    | ) |                  |   | (8,945    | )
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total KBS Real Estate Investment Trust, Inc. stockholders equity                                                                                                               |  |               | 840,716   |   |                  |   | 861,838   |  
|Noncontrolling interest                                                                                                                                                         |  |               | (22,858   | ) |                  |   | (22,336   | )
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total equity                                                                                                                                                                    |  |               | 817,858   |   |                  |   | 839,502   |  
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total liabilities and equity                                                                                                                                                    |  | $             | 2,386,346 |   |                  | $ | 2,433,390 |  
|                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|                                                                                                                                                                                |  |              
|The abbreviation VIE above means variable interest entity.                                                                                                                      |  |               |           |   |                  |   |           |  

See accompanying condensed notes to consolidated financial statements.



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------



KBS REAL ESTATE INVESTMENT TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)



|                                                                       |  |                              |             |   |      |   |             |  
|---------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                       |  | Three Months Ended March 31, |            
|                                                                       |  | 2011                         |             |   | 2010 |  
|Revenues:                                                              |  |                              |             |   |      |   |             |  
|Rental income                                                          |  | $                            | 39,767      |   |      | $ | 43,558      |  
|Tenant reimbursements                                                  |  |                              | 8,084       |   |      |   | 8,289       |  
|Interest income from real estate loans receivable                      |  |                              | 8,476       |   |      |   | 11,118      |  
|Interest income from real estate securities                            |  |                              | 752         |   |      |   | 780         |  
|Parking revenues and other operating income                            |  |                              | 586         |   |      |   | 880         |  
|                                                                       |  |                              |             |   |      |   |             |  
|Total revenues                                                         |  |                              | 57,665      |   |      |   | 64,625      |  
|                                                                       |  |                              |             |   |      |   |             |  
|Expenses:                                                              |  |                              |             |   |      |   |             |  
|Operating, maintenance, and management                                 |  |                              | 11,816      |   |      |   | 11,978      |  
|Real estate taxes, property-related taxes, and insurance               |  |                              | 7,431       |   |      |   | 7,420       |  
|Asset management fees to affiliate                                     |  |                              | 4,508       |   |      |   | 5,150       |  
|General and administrative expenses                                    |  |                              | 2,540       |   |      |   | 1,653       |  
|Depreciation and amortization                                          |  |                              | 18,241      |   |      |   | 21,258      |  
|Interest expense                                                       |  |                              | 14,237      |   |      |   | 14,263      |  
|Provision for loan losses                                              |  |                              | (155        | ) |      |   | (48         | )
|                                                                       |  |                              |             |   |      |   |             |  
|Total expenses                                                         |  |                              | 58,618      |   |      |   | 61,674      |  
|                                                                       |  |                              |             |   |      |   |             |  
|Other income                                                           |  |                              |             |   |      |   |             |  
|Gain on sale of foreclosed real estate held for sale                   |  |                              | 51          |   |      |   |            |  
|Income from unconsolidated joint venture                               |  |                              | 1,866       |   |      |   | 1,901       |  
|Other interest income                                                  |  |                              | 79          |   |      |   | 28          |  
|                                                                       |  |                              |             |   |      |   |             |  
|Total other income                                                     |  |                              | 1,996       |   |      |   | 1,929       |  
|                                                                       |  |                              |             |   |      |   |             |  
|Income from continuing operations                                      |  |                              | 1,043       |   |      |   | 4,880       |  
|Discontinued operations:                                               |  |                              |             |   |      |   |             |  
|Loss from discontinued operations                                      |  |                              |            |   |      |   | (335        | )
|                                                                       |  |                              |             |   |      |   |             |  
|Net income                                                             |  |                              | 1,043       |   |      |   | 4,545       |  
|Net income attributable to noncontrolling interest                     |  |                              | (102        | ) |      |   | (127        | )
|                                                                       |  |                              |             |   |      |   |             |  
|Net income attributable to common stockholders                         |  | $                            | 941         |   |      | $ | 4,418       |  
|                                                                       |  |                              |             |   |      |   |             |  
|Basic and diluted earnings per common share:                           |  |                              |             |   |      |   |             |  
|Continuing operations                                                  |  |                              | 0.01        |   |      |   | 0.03        |  
|Discontinued operations                                                |  |                              |            |   |      |   | (0.01       | )
|                                                                       |  |                              |             |   |      |   |             |  
|Net income per common share                                            |  | $                            | 0.01        |   |      | $ | 0.02        |  
|                                                                       |  |                              |             |   |      |   |             |  
|Weighted-average number of common shares outstanding,basic and diluted |  |                              | 186,076,242 |   |      |   | 180,310,833 |  
|                                                                       |  |                              |             |   |      |   |             |  
|Distributions declared per common share                                |  | $                            | 0.129       |   |      | $ | 0.129       |  
|                                                                       |  |                              |             |   |      |   |             |  

See accompanying condensed notes to consolidated financial statements.



3



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------



KBS REAL ESTATE INVESTMENT TRUST, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Year Ended December 31, 2010 and the Three Months Ended March 31, 2011 (unaudited)

(dollars in thousands)



|                                                           |  |              |             |   |         |   |       |                   |  |   |                                       |   |  |                               |          |   |                    |   |         |                |  |   |         |   |  |   |         |   |  |   |          |  
|---------------------------------------------------------- |  | ------------ | ----------- | - | ------- | - | ----- | ----------------- |  | - | ------------------------------------- | - |  | ----------------------------- | -------- | - | ------------------ | - | ------- | -------------- |  | - | ------- | - |  | - | ------- | - |  | - | -------- | -
|                                                           |  |              |             |   |         |   |       | AdditionalPaid-in |  |   | CumulativeDistributionsand
Net Income |   |  | AccumulatedOtherComprehensive |          |   | TotalStockholders |   |         | Noncontrolling |  |   | Total   |  
|                                                           |  | Common Stock |             |   |         |   |       |                   | 
|                                                           |  | Shares       |             |   | Amounts |   |       | Capital           |  |   | (Losses)                              |   |  | Income (Loss)                 |          |   | Equity             |   |         | Interest       |  |   | Equity  |  
|Balance, December 31, 2009                                 |  |              | 179,431,593 |   |         | $ | 1,794 |                   |  | $ | 1,548,512                             |   |  | $                             | (545,805 | ) |                    | $ | (16,668 | )              |  | $ | 987,833 |   |  | $ | 4,787   |   |  | $ | 992,620  |  
|Comprehensive loss:                                        |  |              |             |   |         |   |       |                   |  |   |                                       |   |  |                               |          |   |                    |   |         |                |  |   |         |   |  |   |         |   |  |   |          |  
|Net loss                                                   |  |              |            |   |         |   |      |                   |  |   |                                      |   |  |                               | (90,352  | ) |                    |   |        |                |  |   | (90,352 | ) |  |   | (24,027 | ) |  |   | (114,379 | )
|Unrealized change in market valueon real estate securities |  |              |            |   |         |   |      |                   |  |   |                                      |   |  |                               |         |   |                    |   | 6,145   |                |  |   | 6,145   |   |  |   |        |   |  |   | 6,145    |  
|Unrealized gains (losses) onderivative instruments         |  |              |            |   |         |   |      |                   |  |   |                                      |   |  |                               |         |   |                    |   | 1,578   |                |  |   | 1,578   |   |  |   | (29     | ) |  |   | 1,549    |  
|                                                           |  |              |             |   |         |   |       |                   |  |   |                                       |   |  |                               |          |   |                    |   |         |                |  |   |         |   |  |   |         |   |  |   |          |  
|Total comprehensive loss                                   |  |              |             |   |         |   |       |                   |  |   |                                       |   |  |                               |          |   |                    |   |         |                |  |   | (82,629 | ) |  |   | (24,056 | ) |  |   | (106,685 | )
|Noncontrolling interest contribution                       |  |              |            |   |         |   |      |                   |  |   |                                      |   |  |                               |         |   |                    |   |        |                |  |   |        |   |  |   | 158     |   |  |   | 158      |  
|Distributions to noncontrolling interest                   |  |              |            |   |         |   |      |                   |  |   |                                      |   |  |                               |         |   |                    |   |        |                |  |   |        |   |  |   | (3,225  | ) |  |   | (3,225   | )
|Issuance of common stock                                   |  |              | 6,480,377   |   |         |   | 65    |                   |  |   | 46,475                                |   |  |                               |         |   |                    |   |        |                |  |   | 46,540  |   |  |   |        |   |  |   | 46,540   |  
|Redemptions of common stock                                |  |              | (591,875    | ) |         |   | (6    | )                 |  |   | (4,241                                | ) |  |                               |         |   |                    |   |        |                |  |   | (4,247  | ) |  |   |        |   |  |   | (4,247   | )
|Transfers to redeemable common stock                       |  |              |            |   |         |   |      |                   |  |   | 11,359                                |   |  |                               |         |   |                    |   |        |                |  |   | 11,359  |   |  |   |        |   |  |   | 11,359   |  
|Distributions declared                                     |  |              |            |   |         |   |      |                   |  |   |                                      |   |  |                               | (95,761  | ) |                    |   |        |                |  |   | (95,761 | ) |  |   |        |   |  |   | (95,761  | )
|Commissions on stock issuances to affiliate                |  |              |            |   |         |   |      |                   |  |   | (1,160                                | ) |  |                               |         |   |                    |   |        |                |  |   | (1,160  | ) |  |   |        |   |  |   | (1,160   | )
|Other offering costs                                       |  |              |            |   |         |   |      |                   |  |   | (97                                   | ) |  |                               |         |   |                    |   |        |                |  |   | (97     | ) |  |   |        |   |  |   | (97      | )
|                                                           |  |              |             |   |         |   |       |                   |  |   |                                       |   |  |                               |          |   |                    |   |         |                |  |   |         |   |  |   |         |   |  |   |          |  
|Balance, December 31, 2010                                 |  |              | 185,320,095 |   |         | $ | 1,853 |                   |  | $ | 1,600,848                             |   |  | $                             | (731,918 | ) |                    | $ | (8,945  | )              |  | $ | 861,838 |   |  | $ | (22,336 | ) |  | $ | 839,502  |  
|Comprehensive loss:                                        |  |              |             |   |         |   |       |                   |  |   |                                       |   |  |                               |          |   |                    |   |         |                |  |   |         |   |  |   |         |   |  |   |          |  
|Net income                                                 |  |              |            |   |         |   |      |                   |  |   |                                      |   |  |                               | 941      |   |                    |   |        |                |  |   | 941     |   |  |   | 102     |   |  |   | 1,043    |  
|Unrealized change in market valueon real estate securities |  |              |            |   |         |   |      |                   |  |   |                                      |   |  |                               |         |   |                    |   | 1,040   |                |  |   | 1,040   |   |  |   |        |   |  |   | 1,040    |  
|Unrealized gains on derivativeinstruments                  |  |              |            |   |         |   |      |                   |  |   |                                      |   |  |                               |         |   |                    |   | 1,281   |                |  |   | 1,281   |   |  |   | 21      |   |  |   | 1,302    |  
|                                                           |  |              |             |   |         |   |       |                   |  |   |                                       |   |  |                               |          |   |                    |   |         |                |  |   |         |   |  |   |         |   |  |   |          |  
|Total comprehensive income                                 |  |              |             |   |         |   |       |                   |  |   |                                       |   |  |                               |          |   |                    |   |         |                |  |   | 3,262   |   |  |   | 123     |   |  |   | 3,385    |  
|Distributions to noncontrolling interest                   |  |              |            |   |         |   |      |                   |  |   |                                      |   |  |                               |         |   |                    |   |        |                |  |   |        |   |  |   | (645    | ) |  |   | (645     | )
|Issuance of common stock                                   |  |              | 1,575,549   |   |         |   | 16    |                   |  |   | 11,517                                |   |  |                               |         |   |                    |   |        |                |  |   | 11,533  |   |  |   |        |   |  |   | 11,533   |  
|Redemptions of common stock                                |  |              | (206,425    | ) |         |   | (2    | )                 |  |   | (1,509                                | ) |  |                               |         |   |                    |   |        |                |  |   | (1,511  | ) |  |   |        |   |  |   | (1,511   | )
|Transfers to redeemable common stock                       |  |              |            |   |         |   |      |                   |  |   | (10,022                               | ) |  |                               |         |   |                    |   |        |                |  |   | (10,022 | ) |  |   |        |   |  |   | (10,022  | )
|Distributions declared                                     |  |              |            |   |         |   |      |                   |  |   |                                      |   |  |                               | (24,090  | ) |                    |   |        |                |  |   | (24,090 | ) |  |   |        |   |  |   | (24,090  | )
|Commissions on stock issuances to affiliate                |  |              |            |   |         |   |      |                   |  |   | (281                                  | ) |  |                               |         |   |                    |   |        |                |  |   | (281    | ) |  |   |        |   |  |   | (281     | )
|Other offering costs                                       |  |              |            |   |         |   |      |                   |  |   | (13                                   | ) |  |                               |         |   |                    |   |        |                |  |   | (13     | ) |  |   |        |   |  |   | (13      | )
|                                                           |  |              |             |   |         |   |       |                   |  |   |                                       |   |  |                               |          |   |                    |   |         |                |  |   |         |   |  |   |         |   |  |   |          |  
|Balance, March 31, 2011                                    |  |              | 186,689,219 |   |         | $ | 1,867 |                   |  | $ | 1,600,540                             |   |  | $                             | (755,067 | ) |                    | $ | (6,624  | )              |  | $ | 840,716 |   |  | $ | (22,858 | ) |  | $ | 817,858  |  
|                                                           |  |              |             |   |         |   |       |                   |  |   |                                       |   |  |                               |          |   |                    |   |         |                |  |   |         |   |  |   |         |   |  |   |          |  

See accompanying condensed notes to consolidated financial statements.



4



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------



KBS REAL ESTATE INVESTMENT TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                  |  |                              |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Three Months Ended March 31, |        
|                                                                                  |  | 2011                         |         |   | 2010 |  
|Cash Flows from Operating Activities:                                             |  |                              |         |   |      |   |         |  
|Net income                                                                        |  | $                            | 1,043   |   |      | $ | 4,545   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                              |         |   |      |   |         |  
|Continuing operations                                                             |  |                              | 18,241  |   |      |   | 21,258  |  
|Discontinued operations                                                           |  |                              |        |   |      |   | 847     |  
|Income from unconsolidated joint venture                                          |  |                              | (1,866  | ) |      |   | (1,901  | )
|Distribution of earnings from unconsolidated joint venture                        |  |                              | 1,866   |   |      |   | 1,901   |  
|Amortization of investment in master lease                                        |  |                              | 109     |   |      |   | 214     |  
|Noncash interest income on real estate-related investments                        |  |                              | (739    | ) |      |   | (455    | )
|Change in provision for loan losses                                               |  |                              | (11     | ) |      |   | (48     | )
|Deferred rent                                                                     |  |                              | (1,966  | ) |      |   | (2,388  | )
|Bad debt expense                                                                  |  |                              | 100     |   |      |   | 719     |  
|Amortization of deferred financing costs                                          |  |                              | 587     |   |      |   | 622     |  
|Amortization of above- and below-market leases, net                               |  |                              | (782    | ) |      |   | 23      |  
|Amortization of cost of derivative instruments                                    |  |                              | 128     |   |      |   | (1      | )
|Gain on sale of foreclosed real estate held for sale                              |  |                              | (51     | ) |      |   |        |  
|Other amortization                                                                |  |                              |        |   |      |   | 128     |  
|Changes in operating assets and liabilities:                                      |  |                              |         |   |      |   |         |  
|Restricted cash for operational expenditures                                      |  |                              | (192    | ) |      |   | 2,083   |  
|Rents and other receivables                                                       |  |                              | (3,761  | ) |      |   | (4,269  | )
|Prepaid expenses and other assets                                                 |  |                              | (4,736  | ) |      |   | (5,285  | )
|Accounts payable and accrued liabilities                                          |  |                              | (417    | ) |      |   | (4,859  | )
|Due to affiliates                                                                 |  |                              | 2       |   |      |   | 506     |  
|Other liabilities                                                                 |  |                              | (5,888  | ) |      |   | (6,895  | )
|                                                                                  |  |                              |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                              | 1,667   |   |      |   | 6,745   |  
|                                                                                  |  |                              |         |   |      |   |         |  
|Cash Flows from Investing Activities:                                             |  |                              |         |   |      |   |         |  
|Additions to real estate                                                          |  |                              | (3,413  | ) |      |   | (3,867  | )
|Proceeds from sale of foreclosed real estate held for sale                        |  |                              | 8,375   |   |      |   |        |  
|Principal repayments on real estate loans receivable                              |  |                              |        |   |      |   | 12,800  |  
|Extension fees related to real estate loans receivable                            |  |                              |        |   |      |   | 3,462   |  
|Advances on real estate loans receivable                                          |  |                              |        |   |      |   | (208    | )
|Net change in restricted cash for capital expenditures                            |  |                              | 1,385   |   |      |   | (2,246  | )
|                                                                                  |  |                              |         |   |      |   |         |  
|Net cash provided by investing activities                                         |  |                              | 6,347   |   |      |   | 9,941   |  
|                                                                                  |  |                              |         |   |      |   |         |  
|Cash Flows from Financing Activities:                                             |  |                              |         |   |      |   |         |  
|Proceeds from notes payable                                                       |  |                              | 700     |   |      |   | 628     |  
|Principal payments on notes payable                                               |  |                              | (24,226 | ) |      |   |        |  
|Principal payments on repurchase agreements                                       |  |                              | (9,368  | ) |      |   | (7,894  | )
|Payments of deferred financing costs                                              |  |                              | (966    | ) |      |   | (436    | )
|Payments to redeem common stock                                                   |  |                              | (1,511  | ) |      |   | (933    | )
|Payments of commissions on stock issuances                                        |  |                              | (281    | ) |      |   | (282    | )
|Payments of other offering costs                                                  |  |                              | (13     | ) |      |   | (10     | )
|Distributions paid to common stockholders                                         |  |                              | (12,493 | ) |      |   | (11,896 | )
|Distributions paid to noncontrolling interest                                     |  |                              | (645    | ) |      |   | (1,222  | )
|                                                                                  |  |                              |         |   |      |   |         |  
|Net cash used in financing activities                                             |  |                              | (48,803 | ) |      |   | (22,045 | )
|                                                                                  |  |                              |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                         |  |                              | (40,789 | ) |      |   | (5,359  | )
|Cash and cash equivalents, beginning of period                                    |  |                              | 151,908 |   |      |   | 55,429  |  
|                                                                                  |  |                              |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                            | 111,119 |   |      | $ | 50,070  |  
|                                                                                  |  |                              |         |   |      |   |         |  

See accompanying condensed notes to consolidated financial statements.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------



KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(unaudited)

1. ORGANIZATION

KBS
Real Estate Investment Trust, Inc. (the Company) was formed on June 13, 2005 as a Maryland corporation and has elected to be taxed as a real estate investment trust (REIT). Substantially all of the Companys
assets are held by, and the Company conducts substantially all of its operations through, KBS Limited Partnership, a Delaware limited partnership (the Operating Partnership), and its subsidiaries. The Company is the sole general partner
of and directly owns a 99% partnership interest in the Operating Partnership. The Companys wholly owned subsidiary, KBS REIT Holdings LLC, a Delaware limited liability company (KBS REIT Holdings), owns the remaining 1% partnership
interest in the Operating Partnership and is its sole limited partner.

The Company owns a diverse portfolio of real estate
and real estate-related investments. As of March 31, 2011, the Company owned 63 real estate properties, one master lease, 11 real estate loans receivable, two investments in securities directly or indirectly backed by commercial
mortgage loans, and a preferred membership interest in a real estate joint venture. Also, as of March 31, 2011, the Company owned a 10-story condominium building with 62 units acquired through foreclosure, of which
eight condominium units, two retail spaces and parking spaces were held for sale.

Subject to certain restrictions and
limitations, the business of the Company is managed by KBS Capital Advisors LLC (the Advisor), an affiliate of the Company, pursuant to an advisory agreement with the Company (as amended, the Advisory Agreement) in
effect through November 8, 2011. The Advisory Agreement may be renewed for an unlimited number of one-year periods upon the mutual consent of the Advisor and the Company. Either party may terminate the Advisory Agreement upon 60 days
written notice. The Advisor owns 20,000 shares of the Companys common stock.

Upon commencing its initial public
offering (the Offering), the Company retained KBS Capital Markets Group LLC (the Dealer Manager), an affiliate of the Advisor, to serve as the dealer manager of the Offering pursuant to a dealer manager agreement dated
January 27, 2006 (the Dealer Manager Agreement). The Company ceased offering shares of common stock in its primary offering on May 30, 2008 and continues to issue shares of common stock under its dividend reinvestment
plan.

The Company sold 171,109,494 shares of common stock in its primary offering for gross offering proceeds of
$1.7 billion. As of March 31, 2011, the Company had sold 21,816,201 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $187.6 million. Also as of March 31, 2011, the Company
had redeemed 6,256,476 of the shares sold in the Offering for $57.1 million.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, KBS REIT Holdings, the Operating Partnership, their direct and indirect wholly owned subsidiaries, and joint ventures the Company
controls or for which it is the primary beneficiary, as well as the related amounts of noncontrolling interests. All significant intercompany balances and transactions are eliminated in consolidation.

The Company evaluates the need to consolidate joint ventures and consolidates joint ventures that it determines to be variable interest
entities for which it is the primary beneficiary. The Company also consolidates joint ventures that are not determined to be variable interest entities, but for which it exercises control over major operating decisions through substantive
participation rights, such as approval of budgets, selection of property managers, asset management, investment activity and changes in financing.



6



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The accompanying unaudited consolidated financial statements and condensed notes thereto
have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information as contained within the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) and the rules and regulations of the Securities and Exchange Commission (the SEC), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited
consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all
adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2011. For further information, refer to the Companys consolidated financial statements and notes thereto for the year ended December 31, 2010 included in the
Companys Annual Report on Form 10-K filed with the SEC. Any reference to the number of properties and square footage is unaudited and outside the scope of the Companys independent registered public accounting firms review of the
financial statements in accordance with the Standards of United States Public Company Accounting Oversight Board.

As of
March 31, 2011, the Company had $261.6 million of repurchase agreements maturing on April 15, 2011. On April 28, 2011, the Company entered into agreements with the repurchase agreement lenders to amend and restate
each repurchase agreement. For more information, see Note 9, Notes Payable and Repurchase Agreements and Note 16, Commitments and Contingencies  Concentrations of Credit Risks. In addition, as of
March 31, 2011, the Company had $440.2 million of notes payable maturing on August 9, 2011. The Company has been in negotiations to either restructure or extend these debts and it believes that it will meet the requirements
to extend or otherwise be permitted to extend these loans; however, there is no guarantee that the lenders will extend or refinance the outstanding balances due under these debts.

Use of Estimates

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

Reclassifications

Certain amounts in the Companys prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the
results of operations of prior periods. In addition, the Company disposed of two properties during the year ended December 31, 2010. As a result, certain adjustments were made to the consolidated balance sheets, statements of operations
and footnote disclosures for all periods presented.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Revenue Recognition

Real Estate

The Company recognizes minimum rent, including rental
abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectibility is reasonably assured and records amounts expected to be received in
later years as deferred rent receivable. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the
tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant
improvements, any tenant improvement allowance that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited
to:



| |  |  | whether the lease stipulates how a tenant improvement allowance may be spent;
| | - |  | -----------------------------------------------------------------------------



| |  |  | whether the amount of a tenant improvement allowance is in excess of market rates;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | whether the tenant or landlord retains legal title to the improvements at the end of the lease term;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | whether the tenant improvements are unique to the tenant or general-purpose in nature; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | whether the tenant improvements are expected to have any residual value at the end of the lease.
| | - |  | ------------------------------------------------------------------------------------------------

During the three months ended March 31, 2011 and 2010, the Company recognized deferred rent from tenants of $2.0 million
and $2.3 million, respectively. These excess amounts for the three months ended March 31, 2011 and 2010 were net of $0.2 million and $0.1 million of lease incentive amortization, respectively. As of March 31, 2011
and December 31, 2010, the cumulative deferred rent balance was $27.7 million and $25.6 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent
balance included $6.3 million and $6.3 million of unamortized lease incentives as of March 31, 2011 and December 31, 2010, respectively. The Company records property operating expense reimbursements due from tenants for
common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.

The
Company makes estimates of the collectibility of its tenant receivables related to base rents, including deferred rent receivable, expense reimbursements and other revenue or income. Management specifically analyzes accounts receivable, deferred
rent receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy,
management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a
tenant is in bankruptcy, the Company will record a bad debt reserve for the tenants receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the
ability to make rental payments. During the three months ended March 31, 2011 and 2010, the Company recorded bad debt expense related to its tenant receivables of $0.1 million and $0.7 million, respectively.



8



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Real Estate Loans Receivable

Interest income on the Companys real estate loans receivable is recognized on an accrual basis over the life of the investment using
the interest method. Direct loan origination fees and origination or acquisition costs, as well as acquisition premiums or discounts, are amortized over the term of the loan as an adjustment to interest income. The Company places loans on nonaccrual
status when any portion of principal or interest is 90 days past due, or earlier when concern exists as to the ultimate collection of principal or interest. When a loan is placed on nonaccrual status, the Company reverses the accrual for unpaid
interest and generally does not recognize subsequent interest income until cash is received, or the loan returns to accrual status. The Company will resume the accrual of interest if it determines the collection of interest according to the
contractual terms of the loan is probable.

The Company generally recognizes income on impaired loans on either a cash basis,
where interest income is only recorded when received in cash, or on a cost-recovery basis, where all cash receipts are applied against the carrying value of the loan. The Company considers the collectibility of the loans principal balance in
determining whether to recognize income on impaired loans on a cash basis or a cost-recovery basis. During the three months ended March 31, 2011, the Company recognized $0.1 million of interest income related to impaired loans with
asset specific reserves. Additionally, as of March 31, 2011, the Company has interest income receivable of $0.1 million related to one of the impaired loans with assets specific reserves.

In addition, as of March 31, 2011, the Companys investment in the GKK Mezzanine Loan was also deemed to be impaired as the
borrower failed to meet its contractual interest payment obligation beginning April 2011. During the three months ended March 31, 2011, the Company recognized $6.9 million of interest income related to this loan. Additionally, as of
March 31, 2011, the Company had recorded interest income receivable of $1.1 million, all of which was received in April 2011, related to the GKK Mezzanine Loan. As of March 31, 2011, the Company determined that the carrying value of the GKK
Mezzanine Loan was fully secured by the collateral, and as a result, the Company had not recorded an impairment charge related to its investment in the GKK Mezzanine Loan as of March 31, 2011.

Real Estate Securities

The Company recognizes interest income on real estate securities that are beneficial interests in securitized financial assets and are rated AA and above on an accrual basis according to the
contractual terms of the securities. Discounts or premiums are amortized to interest income over the life of the investment using the interest method.

The Company recognizes interest income on real estate securities that are beneficial interests in securitized financial assets that are rated below AA using the effective yield method, which
requires the Company to periodically project estimated cash flows related to these securities and recognize interest income at an interest rate equivalent to the estimated yield on the security, as calculated using the securitys estimated cash
flows and amortized cost basis, or reference amount. Changes in the estimated cash flows are recognized through an adjustment to the yield on the security on a prospective basis. Projecting cash flows for these types of securities requires
significant judgment, which may have a significant impact on the timing of revenue recognized on these investments.

Cash and Cash
Equivalents

The Company recognizes interest income on its cash and cash equivalents as it is earned and classifies
such amounts as other interest income.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Real Estate

Impairment of Real Estate and Related Intangible Assets and Liabilities

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets and liabilities may not be recoverable
or realized. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses the recoverability by estimating whether the Company will
recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, the Company does not believe that it will be able to
recover the carrying value of the real estate and related intangible assets and liabilities, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible
assets and liabilities. The Company did not record any impairment loss on its real estate and related intangible assets and liabilities during the three months ended March 31, 2011 and 2010.

Real Estate Held for Sale and Discontinued Operations

The Company generally considers non-foreclosed real estate to be held for sale when the following criteria are met: (i) management commits to a plan to sell the property, (ii) the
property is available for sale immediately, (iii) the property is actively being marketed for sale at a price that is reasonable in relation to its current fair value, (iv) the sale of the property within one year is considered probable
and (v) significant changes to the plan to sell are not expected. Real estate that is held for sale and its related assets are classified as real estate held for sale and assets related to real estate held for sale,
respectively, for all periods presented in the accompanying consolidated financial statements. Notes payable and other liabilities related to real estate held for sale are classified as notes payable related to real estate held for sale
and liabilities related to real estate held for sale, respectively, for all periods presented in the accompanying consolidated financial statements. Real estate classified as held for sale is no longer depreciated and is reported at the
lower of its carrying value or its estimated fair value less costs to sell. Additionally, the Company records the operating results related to real estate that has either been disposed of or is deemed to be held for sale as discontinued operations
for all periods presented if the operations have been or are expected to be eliminated and the Company will not have any significant continuing involvement in the operations of the property following the sale.

Foreclosed Real Estate Held for Sale

Foreclosed real estate held for sale consists of properties acquired through foreclosure or by deed-in-lieu of foreclosure in full or partial satisfaction of non-performing loans that the Company intends
to market for sale in the near term. Foreclosed real estate held for sale is recorded at the estimated fair value of the real estate less costs to sell, or the fair value of the loan satisfied if more clearly evident. The excess of the carrying
value of the loan over the fair value of the property less estimated costs to sell, if any, is charged-off against the reserve for loan losses when title to the property is obtained. Costs of holding the property are expensed as incurred in the
Companys consolidated statements of operations. The gain or loss on final disposition of foreclosed real estate held for sale is recorded as other income and is considered income (loss) from continuing operations as it represents the final
stage of the Companys loan collection process.

Real Estate Loans Receivable

The Companys real estate loans receivable are recorded at amortized cost, net of loan loss reserves, and evaluated for impairment at
each balance sheet date. The amortized cost of a real estate loan receivable is the outstanding unpaid principal balance, net of unamortized acquisition premiums or discounts and unamortized costs and fees directly associated with the origination or
acquisition of the loan.



10



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The reserve for loan losses is a valuation allowance that reflects managements
estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The reserve is adjusted through Provision for loan losses on the Companys consolidated statements of operations and is decreased by charge-offs to
specific loans when losses are confirmed. The reserve for loan losses includes a portfolio-based component and an asset-specific component.

The asset-specific reserve component relates to reserves for losses on loans considered impaired. The Company considers a loan to be impaired when, based upon current information and events, it believes
that it is probable that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. The Company also considers a loan to be impaired if it grants the borrower a concession through a modification of the
loan terms or if it expects to receive assets (including equity interests in the borrower) with fair values that are less than the carrying value of the loan in satisfaction of the loan. A reserve is established when the present value of payments
expected to be received, observable market prices, the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) or amounts expected to be received in satisfaction of a loan are lower than the carrying
value of that loan.

The portfolio-based reserve component covers the pool of loans that do not have asset-specific reserves.
A provision for loan losses is recorded when available information as of each balance sheet date indicates that it is probable that a loss occurred in the pool of loans and the amount of the loss can be reasonably estimated, but the Company does not
know which specific loans within the pool will ultimately result in losses. Required reserve balances for this pool of loans are derived from estimated probabilities of default and estimated loss severities assuming a default occurs. On a quarterly
basis, the Companys management assigns estimated probabilities of default and loss severities to each loan in the portfolio based on factors such as the debt service coverage of the underlying collateral, the estimated fair value of the
collateral, the significance of the borrowers investment in the collateral, the financial condition of the borrower and/or its sponsors, the likelihood that the borrower and/or its sponsors would allow the loan to default, the Companys
willingness and ability to step in as owner in the event of default, and other pertinent factors. As of March 31, 2011, the Companys portfolio-based reserve is not intended to cover a significant loss on its investment in the GKK
Mezzanine Loan as only a specifically identified reserve would be appropriate for a loan of its size and the Company does not believe one is warranted at this time.

During the three months ended March 31, 2011 and 2010, the Company reduced its loan loss reserve by $0.2 million and $48,000, respectively. For the three months ended
March 31, 2011, the change in loan loss reserve was comprised of a $0.2 million reduction to the asset-specific reserve, partially offset by an increase of $15,000 to the portfolio-based reserve. For the three months ended
March 31, 2010, the change in loan loss reserve was comprised of a $48,000 reduction to the asset-specific reserve. There was no change to the portfolio-based reserve for the three months ended March 31, 2010.

Failure to recognize impairments would result in the overstatement of earnings and the carrying value of the Companys real estate
loans held for investment. Actual losses, if any, could differ significantly from estimated amounts.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Investment in Unconsolidated Joint Venture

On July 8, 2009, the Company released the borrowers under two investments in mezzanine loans from liability and received
preferred membership interests in a joint venture that indirectly owns the properties that had served as collateral for the loans. The interests were initially recorded by the Company at a fair value of $0 based on the estimated fair value of the
collateral at the time of receipt of the preferred membership interests. The Company accounts for its preferred membership interests in the real estate joint venture under the equity method of accounting since the Company is not the primary
beneficiary of the joint venture, but does have more than a minor interest. Since the Company will most likely only receive preferred distributions equivalent to the interest income it would have earned on its mezzanine loan investments, the
Companys application of the equity method of accounting to these preferred interests results in the Company recording all distributions received as income. The Company does not record its share of the changes in the book value of the joint
venture as it is not required to absorb losses and does not expect increases in the book value of the joint venture to have any material impact on the cash flows it will receive over the course of the investment. During the three months ended
March 31, 2011 and 2010, the Company recognized $1.9 million and $1.9 million, respectively, of preferred distributions as income from unconsolidated joint venture.

Real Estate Securities

The Company classifies its investments in real
estate securities as available-for-sale, since the Company may sell them prior to their maturity but does not hold them principally for the purpose of making frequent investments and sales with the objective of generating profits on short-term
differences in price. These investments are carried at estimated fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss). Estimated fair values are generally based on quoted market prices, when
available, or on estimates provided by independent pricing sources or dealers who make markets in such securities. In certain circumstances, such as when the market for the securities becomes inactive, the Company may determine it is appropriate to
perform an internal valuation of the securities. Upon the sale of a security, the previously recognized unrealized gain (loss) would be reversed and the actual realized gain (loss) recognized.

On a quarterly basis, the Company evaluates its real estate securities for impairment. The Company reviews the projected future cash
flows from these securities for changes in assumptions due to prepayments, credit loss experience and other factors. If, based on the Companys quarterly estimate of cash flows, there has been an adverse change in the estimated cash flows from
the cash flows previously estimated, the present value of the revised cash flows is less than the present value previously estimated, and the fair value of the securities is less than its amortized cost basis, an other-than-temporary impairment is
deemed to have occurred.

The Company is required to distinguish between other-than-temporary impairments related to credit
and other-than-temporary impairments related to other factors (e.g., market fluctuations) on its real estate securities that it does not intend to sell and where it is not likely that the Company will be required to sell the security prior to
the anticipated recovery of its amortized cost basis. The Company calculates the credit component of the other-than-temporary impairment as the difference between the amortized cost basis of the security and the present value of its estimated cash
flows discounted at the yield used to recognize interest income. The credit component will be charged to earnings and the component related to other factors is recorded to other comprehensive income (loss).

The Company did not recognize any other-than temporary impairments on its real estate securities during the three months ended
March 31, 2011 and 2010. It is difficult to predict the timing or magnitude of these other-than-temporary impairments and significant judgments are required in determining impairments, including, but not limited to, assumptions regarding
estimated prepayments, loss assumptions, and assumptions with respect to changes in interest rates. As a result, actual realized losses could materially differ from these estimates.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Derivative Instruments

The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates on its variable rate real estate loans
receivable and notes payable. The Company records these derivative instruments at fair value on the accompanying consolidated balance sheets. Derivative instruments designated and qualifying as a hedge of the exposure to variability in expected
future cash flows or other types of forecasted transactions are considered cash flow hedges. The change in fair value of the effective portion of a derivative instrument that is designated as a cash flow hedge is recorded as other comprehensive
income (loss) in the accompanying consolidated statements of equity. The changes in fair value for derivative instruments that are not designated as a hedge or that do not meet the hedge accounting criteria are recorded as gain or loss on derivative
instruments in the accompanying consolidated statements of operations.

In addition to recording any changes in fair value for
interest rate caps and floors, the purchase price of an interest rate cap or floor is amortized over the contractual life of the instrument. Interest rate caps (floors) are viewed as a series of call (put) options or caplets (floorlets) and as the
caplets (floorlets) expire, the related cost of the expiring caplet (floorlet) is amortized to interest expense and the remaining caplets and floorlets are carried at fair value.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objectives
and strategy for undertaking various hedge transactions. This process includes designating all derivative instruments that are part of a hedging relationship to specific forecasted transactions or recognized obligations on the consolidated balance
sheets. The Company also assesses and documents, both at the hedging instruments inception and on a quarterly basis thereafter, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting changes
in cash flows associated with the respective hedged items. When it is determined that a derivative instrument ceases to be highly effective as a hedge, or that it is probable the underlying forecasted transaction will not occur, the Company
discontinues hedge accounting prospectively and reclassifies amounts recorded to accumulated other comprehensive income (loss) to earnings.

For further information regarding the Companys derivative instruments, see Note 10, Derivative Instruments.

Deferred Financing Costs

Deferred financing costs represent commitment
fees, loan fees, legal fees and other third-party costs associated with obtaining financing. These costs are amortized over the terms of the respective financing agreements using the interest method. Unamortized deferred financing costs are
generally expensed when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. Costs incurred in seeking financing transactions that do not
close are expensed in the period in which it is determined that the financing will not close. As of March 31, 2011 and December 31, 2010, the Companys deferred financing costs were $3.4 million and $3.1 million,
respectively, net of amortization.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Fair Value Measurements

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



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



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



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

When available, the Company utilizes quoted market prices from independent
third-party sources to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price,
observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on
models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not
appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources. Additionally, when
determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of
the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or
the market approach.

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair
values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

The Company considers the following factors to be indicators of an inactive market: (i) there are few recent transactions,
(ii) price quotations are not based on current information, (iii) price quotations vary substantially either over time or among market makers (for example, some brokered markets), (iv) indexes that previously were highly correlated
with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability, (v) there is a significant increase in implied liquidity risk premiums, yields, or performance
indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with the Companys estimate of expected cash flows, considering all available market data about credit and other nonperformance
risk for the asset or liability, (vi) there is a wide bid-ask spread or significant increase in the bid-ask spread, (vii) there is a significant decline or absence of a market for new issuances (that is, a primary market) for the asset or
liability or similar assets or liabilities, and (viii) little information is released publicly (for example, a principal-to-principal market).



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The Company considers the following factors to be indicators of non-orderly
transactions: (i) there was not adequate exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities under current market
conditions, (ii) there was a usual and customary marketing period, but the seller marketed the asset or liability to a single market participant, (iii) the seller is in or near bankruptcy or receivership (that is, distressed), or the
seller was required to sell to meet regulatory or legal requirements (that is, forced), and (iv) the transaction price is an outlier when compared with other recent transactions for the same or similar assets or liabilities.

Redeemable Common Stock

The Company has adopted a share redemption program that may enable stockholders to sell their shares to the Company in limited
circumstances.

There are several limitations on the Companys ability to redeem shares under the share redemption
program:



| |  |  | Unless the shares are being redeemed in connection with a stockholders death, qualifying disability or determination of
incompetence (each as defined under the share redemption program), the Company may not redeem shares until the stockholder has held the shares for one year.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During each calendar year, redemptions are limited to the amount of net proceeds from the issuance of shares under the dividend reinvestment plan
during the prior calendar year less amounts the Company deems necessary from such proceeds to fund current and future: capital expenditures, tenant improvement costs and leasing costs related to the Companys investments in real estate
properties; reserves required by financings of the Companys investments in real estate properties; and funding obligations under the Companys real estate loans receivable, as each may be adjusted from time to time by management, provided
that if the shares are submitted for redemption in connection with the stockholders death, qualifying disability or determination of incompetence, the Company will honor such redemptions to the extent that all
redemptions for the calendar year are less than the amount of the net proceeds from the issuance of shares under the dividend reinvestment plan during the prior calendar year.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | The Company has no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits
distributions that would cause a corporation to fail to meet statutory tests of solvency.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant to the
terms of the share redemption program, once the Company establishes an estimated value per share, the redemption price per share for all stockholders is equal to the estimated value per share, as determined by the Companys Advisor or another
firm chosen for that purpose. On November 20, 2009, the Companys board of directors approved an estimated value per share of the Companys common stock of $7.17 based on the estimated value of the Companys assets less the
estimated value of the Companys liabilities divided by the number of shares outstanding, all as of September 30, 2009. In accordance with the share redemption program, the redemption price for all stockholders whose shares were
eligible for redemption was $7.17 per share for redemption dates from January 2010 through November 2010.

On
December 2, 2010, the Companys board of directors approved an estimated value per share of the Companys common stock of $7.32 based on the estimated value of the Companys assets less the estimated value of the
Companys liabilities divided by the number of shares outstanding, all as of September 30, 2010. Effective for the December 2010 redemption date and until the estimated value per share is updated, the redemption price for all
stockholders whose shares are eligible for redemption is $7.32 per share. In addition, shares issued under the dividend reinvestment plan subsequent to December 2, 2010, were issued at a price of $7.32 per share.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The estimated value per share was based upon the recommendation and valuation of the
Advisor and is unaudited. The Financial Industry Regulatory Authority rules, which prompted the valuation, provide no guidance on the methodology an issuer must use to determine its estimated value per share. As with any valuation methodology, the
Advisors methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share, and these differences
could be significant. The estimated value per share is not audited and does not represent the fair value of the Companys assets, liabilities or equity computed in accordance with GAAP.

The estimated value per share is based on the estimated value of the Companys assets less the estimated value of the Companys
liabilities divided by the number of shares outstanding, all as of September 30, 2010. The value of the Companys shares will fluctuate over time in response to developments related to individual assets in the portfolio and the
management of those assets and in response to the real estate and finance markets. The Company expects to engage the Advisor and/or an independent valuation firm to update the estimated value per share on an annual basis, though the Company may wait
up to 18 months to update the estimated value per share.

The Companys board of directors may amend, suspend or
terminate the share redemption program with 30 days notice to its stockholders. The Company may provide this notice by including such information in a Current Report on Form 8-K or in the Companys annual or quarterly reports,
all publicly filed with the SEC, or by a separate mailing to its stockholders.

The Company records amounts that are
redeemable under the share redemption program as redeemable common stock in the accompanying consolidated balance sheets because the shares are mandatorily redeemable at the option of the holder upon the stockholders death, qualifying
disability or determination of incompetence and therefore their redemption is outside the control of the Company. The maximum amount redeemable under the Companys share redemption program under these special circumstances is
limited to the number of shares the Company could redeem with the amount of the net proceeds from the sale of shares under the dividend reinvestment plan during the prior calendar year. However, because the amounts that can be redeemed in future
periods are determinable and only contingent on an event that is likely to occur (e.g., the passage of time), the Company presents the net proceeds from the current year dividend reinvestment plan as redeemable common stock in the accompanying
consolidated balance sheets.

The Company classifies financial instruments that represent a mandatory obligation of the
Company to redeem shares as liabilities. The Companys redeemable common shares are contingently redeemable at the option of the holder upon the stockholders death, qualifying disability or determination of
incompetence. When the Company determines it has a mandatory obligation to redeem shares under the share redemption program, it classifies such obligations from temporary equity to a liability based upon their respective settlement values. On
March 25, 2009, the Company adopted an amended and restated share redemption program (which became effective on April 26, 2009) that changed the Companys mandatory obligation to redeem shares under the program. Prior to the
effectiveness of the amended and restated share redemption program, a stockholder could redeem a share at his or her own option to the extent of the amount of net proceeds from the issuance of shares under the dividend reinvestment plan during the
prior calendar year. Upon effectiveness of the amended and restated share redemption program, and except with respect to redemptions sought upon a stockholders death, qualifying disability or determination of
incompetence, the Companys obligation to redeem shares is limited to the amount of net proceeds from the issuance of shares under the dividend reinvestment plan during the prior calendar year in excess of amounts the Company determines
are necessary to fund current and future funding obligations of the Company, as defined by the amended and restated share redemption program. When shares are tendered for redemption and the Company determines that it has a redemption obligation
under the amended and restated share redemption program, it will reclassify such obligations from temporary equity to a liability based upon their respective settlement values.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The Company limits the dollar value of shares that may be redeemed under the program as
described above. On December 10, 2010, the Company announced that, based on 2011 budgeted expenditures, and except with respect to redemptions sought upon a stockholders death, qualifying disability or determination
of incompetence, the Company does not expect to have funds available for the redemption program in 2011. On April 28, 2011, in connection with the amendment and restatement of two of the Companys repurchase agreements, the
Company agreed to continue to limit redemptions under the share redemption program to those sought upon a stockholders death, qualifying disability or determination of incompetence during the term of the repurchase
agreements. The repurchase agreements will terminate on the earliest to occur of (i) April 28, 2013 (ii) the date that the repurchase agreements convert into a mezzanine loan (which would likely contain substantially similar
terms as the repurchase agreements, including with respect to the share redemption program restrictions); (iii) the date that all obligations under the repurchase agreements are fully paid or (iv) upon an event causing the repurchase
agreements to otherwise terminate.

During the three months ended March 31, 2011, the Company redeemed
$1.5 million of common stock. The only redemptions the Company made under the share redemption program during the three months ended March 31, 2011 were those that qualified as, and met the requirements for, special redemptions under
the share redemption program, i.e., all redemptions under the plan were made in connection with a stockholders death, qualifying disability or determination of incompetence. During the three months ended
March 31, 2011, the Company fulfilled all redemption requests that qualified as special redemptions under the Companys share redemption program.

Related Party Transactions

Pursuant to the Advisory Agreement, the Company
is obligated to pay the Advisor specified fees upon the provision of certain services, including the investment of funds in real estate and real estate-related investments, management of the Companys investments and other services (including,
but not limited to, the disposition of investments). The Company also reimburses the Advisor for offering costs related to the dividend reinvestment plan, acquisition and origination expenses, and certain operating expenses incurred by the Advisor
on behalf of the Company or incurred in connection with providing services to the Company. As detailed in the Advisory Agreement, the Advisor is also entitled to certain other fees, including an incentive fee, upon achieving certain performance
goals, and the Advisor and its affiliates may receive compensation in the form of stock-based awards.

Also, under the Dealer
Manager Agreement, and to the extent permitted under state securities laws, if the Company paid selling commissions in connection with the issuance of shares to an investor in the primary offering, the Company may pay the Dealer Manager selling
commissions of up to 3.0% of gross offering proceeds from the issuance of shares to that investor under the dividend reinvestment plan. The Dealer Manager reallows all such selling commissions to the broker-dealer associated with such account. The
Company also reimburses the Dealer Manager for certain expenses related to the dividend reinvestment plan offering.

The
Company records all related party fees as incurred, subject to any limitations described in the Advisory Agreement. The Company has granted no stock-based compensation awards to the Advisor or its affiliates and it has not incurred any subordinated
participation in net cash flows or subordinated incentive listing fees during the three months ended March 31, 2011 or any previous periods.

Asset Management Fee

With respect to investments in real estate,
the Company pays the Advisor a monthly asset management fee equal to one-twelfth of 0.75% of the amount paid or allocated to acquire the investment. This amount includes any portion of the investment that was debt financed and is inclusive of
acquisition fees and expenses related thereto. In the case of investments made through joint ventures, the asset management fee will be determined based on the Companys proportionate share of the underlying investment.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



With respect to investments in loans and any investments other than real estate, the
Company pays the Advisor a monthly fee calculated, each month, as one-twelfth of 0.75% of the lesser of (i) the amount paid or allocated to acquire or fund the loan or other investment (which amount includes any portion of the investment that
was debt financed and is inclusive of acquisition or origination fees and expenses related thereto) and (ii) the outstanding principal amount of such loan or other investment, plus the acquisition or origination fees and expenses related to the
acquisition or funding of such investment, as of the time of calculation.

With respect to an investment that has suffered an
impairment in value, reduction in cash flow or other negative circumstances, such investment shall either be excluded from the calculation of the asset management fee described above or included in such calculation at a reduced value that is
recommended by the Advisor and the Companys management and then approved by a majority of the Companys independent directors, and this change in the fee shall be applicable to an investment upon the earlier to occur of the date on which
(i) such investment is sold, (ii) such investment is surrendered to a person other than the Company, its direct or indirect wholly owned subsidiary or a joint venture or partnership in which the Company has an interest, (iii) the
Advisor determines that it will no longer pursue collection or other remedies related to such investment, or (iv) the Advisor recommends a revised fee arrangement with respect to such investment. As of March 31, 2011, the Company
excluded four non-performing real estate loans receivable from the calculation of asset management fees. The Company also reduced the asset management fee calculation for its investment in Tribeca to reflect sales of condominium units and will
continue to adjust the asset management fee calculation for future sales.

Notwithstanding the above, with respect to the
Companys investment in a consolidated joint venture (the National Industrial Portfolio) with New Leaf Industrial Partners Fund, L.P. (New Leaf), the asset management fee is calculated as a monthly fee equal to
one-twelfth of 0.27% of the cost of the joint venture investment (inclusive of acquisition fees and expenses related thereto and the amount of debt associated with the Companys investment), as defined in the Advisory Agreement. The Advisor may
also earn a performance fee related to the Companys investment in this joint venture that would in effect make the Advisors cumulative asset management fees related to the investment equal to 0.75% of the cost of the joint venture
investment (inclusive of acquisition fees and expenses related thereto and the amount of debt associated with the Companys investment), as defined, on an annualized basis from the date of the Companys investment in the joint venture
through the date of calculation. This fee is conditioned upon the Company achieving certain performance thresholds and may only be paid after the repayment of advances from the Advisor. The Companys operations from the date of the
Companys investment through March 31, 2010 were sufficient to meet the performance threshold in the Advisory Agreement; beginning April 2010, the Companys operations did not meet the performance threshold in the Advisory
Agreement.

Asset management fees to affiliate totaled $4.5 million and $5.3 million for the three months ended
March 31, 2011 and 2010, respectively. Amounts include asset management fees from discontinued operations.

Disposition Fees

For substantial assistance in connection with the sale of properties or other investments, the Company pays the
Advisor or its affiliates a disposition fee of 1% of the contract sales price of the properties or other investments sold. However, in no event may the real estate commissions paid to the Advisor, its affiliates and unaffiliated third parties exceed
6% of the contract sales price of the properties or other investments sold. The Company did not dispose of any properties or other investments during the three months ended March 31, 2011 and 2010.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet certain organizational and operational requirements,
including a requirement to distribute at least 90% of the Companys annual REIT taxable income to stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income
as calculated in accordance with GAAP). As a REIT, the Company generally is not subject to federal income tax on income that it distributes as dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be
subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during
which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially and adversely affect the Companys net income and net cash available for
distribution to stockholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT.

Per Share Data

Basic net income (loss) per share of common stock is
calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net
income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three months ended March 31, 2011 and 2010, respectively.

Distributions declared per common share assumes each share was issued and outstanding each day during the three months ended
March 31, 2011 and 2010. For the three months ended March 31, 2011 and 2010, distributions were based on daily record dates and calculated at a rate of $0.00143836 per share per day. Each day during the periods from
January 1, 2011 through March 31, 2011 and January 1, 2010 through March 31, 2010 was a record date for distributions.

Industry Segments

The Companys segments are based on the
Companys method of internal reporting which classifies its operations by investment type: real estate and real estate-related. For financial data by segment, see Note 15, Segment Information.

Recently Issued Accounting Standards Updates

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring(ASU
No. 2011-02). ASU No. 2011-02 updated accounting guidance to clarify certain determining factors, such as when a concession has been granted and when a debtor is experiencing financial difficulties, in evaluating whether or not a
debt restructuring is deemed to be a Troubled Debt Restructuring. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and are applied retrospectively to the
beginning of the annual period of adoption. The Company is currently assessing the impact the adoption of ASU No. 2011-02 will have on its consolidated financial statements. The adoption of ASU No. 2011-02 could result in an increase of
future debt restructurings, if any, recorded as Troubled Debt Restructurings, which could have a material impact to the Companys consolidated financial statements.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310):
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses(ASU No. 2010-20). ASU No. 2010-20 requires the Company to provide a greater level of disaggregated information
about the credit quality of its financing receivables and its allowance for credit losses. This ASU also requires the Company to disclose additional information related to credit quality indicators, past due information, information related to loans
modified in a troubled debt restructuring and significant purchases and sales of financing receivables disaggregated by portfolio segment. ASU No. 2010-20 was initially effective for interim and annual periods ending on or after
December 15, 2010. As this ASU amends only the disclosure requirements for loans and the allowance for credit losses, the adoption of ASU No. 2010-20 is not expected to have a significant impact on the Companys financial
statements. In January 2011, the FASB issued ASU No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20(ASU No. 2011-01). ASU No. 2011-01 announced that it was deferring the effective date of new disclosure requirements for troubled debt restructurings prescribed by ASU No. 2010-20. The effective date for
those disclosures will be concurrent with the effective date for proposed ASU No. 2010-20. The proposed guidance in ASU No. 2010-20 is effective for interim and annual periods beginning after June 15, 2011, in conjunction
with the effective date of ASU No. 2011-02. The adoption of ASU No. 2010-20 may require additional disclosures, but the Company does not expect the adoption to have a material impact to its consolidated financial statements.

3. REAL ESTATE HELD FOR INVESTMENT

As of March 31, 2011, the Companys portfolio of real estate held for investment (including properties held through a consolidated joint venture) was composed of approximately
20.4 million rentable square feet and was 79% occupied. The properties are located in 23 states and include office and industrial properties. The following table summarizes the Companys investments in real estate as of
March 31, 2011 and December 31, 2010 (in thousands):



|                                                         |  |      |         |  |                           |   |           |                                       |  |   |                                      |   |  |   |           |  
|-------------------------------------------------------- |  | ---- | ------- |  | ------------------------- | - | --------- | ------------------------------------- |  | - | ------------------------------------ | - |  | - | --------- | -
|Property                                                 |  | Land |         |  | Buildings
andImprovements |   |           | Tenant Originationand AbsorptionCosts |  |   | Total Real EstateHeld for Investment |  
|As of March 31, 2011:                                    |  |      |         |  |                           |   |           |                                       |  |   |                                      |   |  |   |           |  
|Office                                                   |  | $    | 145,955 |  |                           | $ | 891,941   |                                       |  | $ | 54,001                               |   |  | $ | 1,091,897 |  
|Industrial (wholly owned)                                |  |      | 53,271  |  |                           |   | 284,862   |                                       |  |   | 20,946                               |   |  |   | 359,079   |  
|Industrial (held through consolidated joint venture VIE) |  |      | 50,598  |  |                           |   | 268,748   |                                       |  |   | 3,558                                |   |  |   | 322,904   |  
|                                                         |  |      |         |  |                           |   |           |                                       |  |   |                                      |   |  |   |           |  
|Cost and net of impairment charges(1)                    |  | $    | 249,824 |  |                           | $ | 1,445,551 |                                       |  | $ | 78,505                               |   |  | $ | 1,773,880 |  
|Accumulated depreciation/amortization                    |  |      |        |  |                           |   | (145,665  | )                                     |  |   | (44,647                              | ) |  |   | (190,312  | )
|                                                         |  |      |         |  |                           |   |           |                                       |  |   |                                      |   |  |   |           |  
|Net Amount                                               |  | $    | 249,824 |  |                           | $ | 1,299,886 |                                       |  | $ | 33,858                               |   |  | $ | 1,583,568 |  
|                                                         |  |      |         |  |                           |   |           |                                       |  |   |                                      |   |  |   |           |  
|                                                         |  |      |         | 
|As of December 31, 2010:                                 |  |      |         |  |                           |   |           |                                       |  |   |                                      |   |  |   |           |  
|Office                                                   |  | $    | 145,955 |  |                           | $ | 888,664   |                                       |  | $ | 56,286                               |   |  | $ | 1,090,905 |  
|Industrial (wholly owned)                                |  |      | 53,271  |  |                           |   | 283,725   |                                       |  |   | 20,946                               |   |  |   | 357,942   |  
|Industrial (held through consolidated joint venture VIE) |  |      | 50,598  |  |                           |   | 265,585   |                                       |  |   | 3,602                                |   |  |   | 319,785   |  
|                                                         |  |      |         |  |                           |   |           |                                       |  |   |                                      |   |  |   |           |  
|Cost and net of impairment charges(1)                    |  | $    | 249,824 |  |                           | $ | 1,437,974 |                                       |  | $ | 80,834                               |   |  | $ | 1,768,632 |  
|Accumulated depreciation/amortization                    |  |      |        |  |                           |   | (134,902  | )                                     |  |   | (43,153                              | ) |  |   | (178,055  | )
|                                                         |  |      |         |  |                           |   |           |                                       |  |   |                                      |   |  |   |           |  
|Net Amount                                               |  | $    | 249,824 |  |                           | $ | 1,303,072 |                                       |  | $ | 37,681                               |   |  | $ | 1,590,577 |  
|                                                         |  |      |         |  |                           |   |           |                                       |  |   |                                      |   |  |   |           |  



(1)See
Impairment of Real Estate.



20



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Operating Leases

The Companys real estate assets are leased to tenants under operating leases for which the terms and expirations vary. As of March 31, 2011, the leases have remaining terms of up to 14.8
years with a weighted-average remaining term of 3.7 years. The leases may have provisions to extend the lease agreements, options for early termination after paying a specified penalty, rights of first refusal to purchase the property at
competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company
requires security deposits from tenants in the form of a cash deposit and/or a letter of credit. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are
not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other
liabilities in the accompanying consolidated balance sheets and totaled $3.2 million and $3.1 million as of March 31, 2011 and December 31, 2010, respectively.

The future minimum rental income from the Companys properties under non-cancelable operating leases as of March 31, 2011
for the years ending December 31 is as follows (in thousands):



|                                        |  |   |         | 
|--------------------------------------- |  | - | ------- | 
|April 1, 2011 through December 31, 2011 |  | $ | 104,797 | 
|2012                                    |  |   | 127,585 | 
|2013                                    |  |   | 111,666 | 
|2014                                    |  |   | 93,724  | 
|2015                                    |  |   | 75,488  | 
|Thereafter                              |  |   | 200,071 | 
|                                        |  |   |         | 
|                                        |  | $ | 713,331 | 
|                                        |  |   |         | 

As of March 31, 2011, the Companys highest tenant industry concentration (greater than
10% of annualized base rent) is as follows:



|                       |  |                  |    |  |                                       |   |        |                                  |  |  |     | 
|---------------------- |  | ---------------- | -- |  | ------------------------------------- | - | ------ | -------------------------------- |  |  | --- | 
|Industry               |  | Number ofTenants |    |  | AnnualizedBase Rent
(1)(in thousands) |   |        | Percentage ofAnnualizedBase Rent | 
|Computer System Design |  |                  | 33 |  |                                       | $ | 16,046 |                                  |  |  | 11% | 



(1)Annualized base rent represents annualized contractual base rental income as of March 31, 2011, adjusted to straight-line any contractual tenant concessions, rent increases and
rent decreases from the leases inception through the balance of the lease term.

No other tenant industries accounted
for more than 10% of annualized base rent. For the three months ended March 31, 2011, no tenant represented over 5% of the Companys rental income. The Company currently has approximately 400 tenants over a diverse range of industries
and geographical regions. As of March 31, 2011, the Company had a bad debt reserve of $0.5 million, which represents less than 1% of annualized base rent. As of March 31, 2011, the Company has seven tenants with rent
balances outstanding for over 90 days, all of which are included in this reserve.



21



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Impairment of Real Estate

As of December 31, 2010, the Company had recorded an impairment charge of $123.5 million with respect to 17 properties
within the National Industrial Portfolio to reduce the carrying value of these properties to their estimated fair values. The requirement for an impairment charge resulted from a change in the estimated holding period of this investment and a change
in the estimated cash flows during the holding period. Due to a decline in the operating performance of the portfolio resulting from increased vacancies, lower rental rates and tenant bankruptcies, in addition to declines in market value across all
real estate types in the period following the Companys initial investment in the National Industrial Portfolio, it is unlikely that the Company will be able to refinance or extend the mortgage and mezzanine loans secured by the National
Industrial Portfolio upon their fully-extended maturities in August 2012 and the Company may not meet the requirement to exercise the final loan extensions in August 2011. As a result, the Company may be forced to relinquish the assets to the
lenders at some point prior to or concurrent with the final maturities in August 2012. In the event the Company relinquishes the assets to the lenders, it would record a gain on extinguishment of the debt equal to the difference between the
carrying amount of the debt at that time (currently $440.2 million, which includes amounts for noncontrolling interest of $88.0 million) and the carrying value of the collateral at that time (currently $321.4 million, which includes
amounts for noncontrolling interest of $64.3 million). During the three months ended March 31, 2011, the Company did not record any impairment loss on its real estate and related intangible assets and liabilities.



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

As of March 31, 2011 and December 31, 2010, the Companys tenant origination and absorption costs, above-market
lease assets, and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):



|                         |  |                                        |         |   |                          |   |         |                               |  |   |                  |   |  |               |        |   |                  |   |         |   |  |   |         |  
|------------------------ |  | -------------------------------------- | ------- | - | ------------------------ | - | ------- | ----------------------------- |  | - | ---------------- | - |  | ------------- | ------ | - | ---------------- | - | ------- | - |  | - | ------- | -
|                         |  | Tenant Origination andAbsorption
Costs |         |   | Above-MarketLease
Assets |   |         | Below-MarketLease
Liabilities | 
|                         |  | March 31,2011                          |         |   | December 31,2010         |   |         | March 31,2011                 |  |   | December 31,2010 |   |  | March 31,2011 |        |   | December 31,2010 |  
|Cost, net of impairments |  | $                                      | 78,505  |   |                          | $ | 80,834  |                               |  | $ | 14,755           |   |  | $             | 14,781 |   |                  | $ | (33,164 | ) |  | $ | (35,537 | )
|Accumulated Amortization |  |                                        | (44,647 | ) |                          |   | (43,153 | )                             |  |   | (9,012           | ) |  |               | (8,402 | ) |                  |   | 16,854  |   |  |   | 17,809  |  
|                         |  |                                        |         |   |                          |   |         |                               |  |   |                  |   |  |               |        |   |                  |   |         |   |  |   |         |  
|Net Amount               |  | $                                      | 33,858  |   |                          | $ | 37,681  |                               |  | $ | 5,743            |   |  | $             | 6,379  |   |                  | $ | (16,310 | ) |  | $ | (17,728 | )
|                         |  |                                        |         |   |                          |   |         |                               |  |   |                  |   |  |               |        |   |                  |   |         |   |  |   |         |  

Increases (decreases) in net income as a result of amortization of the Companys tenant origination and
absorption costs, above-market lease assets and below-market lease liabilities for the three months ended March 31, 2011 and 2010 were as follows (in thousands):



|             |  |                                         |        |   |                                     |   |        |                                     |  |   |      |   |  |      |        |   |      |   |       |  |  |   |       | 
|------------ |  | --------------------------------------- | ------ | - | ----------------------------------- | - | ------ | ----------------------------------- |  | - | ---- | - |  | ---- | ------ | - | ---- | - | ----- |  |  | - | ----- | 
|             |  | Tenant Origination 
andAbsorption Costs |        |   | Above-MarketLease
Assets            |   |        | Below-MarketLease
Liabilities       | 
|             |  | For the Three Months EndedMarch 31,     |        |   | For the Three Months EndedMarch 31, |   |        | For the Three Months EndedMarch 31, | 
|             |  | 2011                                    |        |   | 2010                                |   |        | 2011                                |  |   | 2010 |   |  | 2011 |        |   | 2010 |  
|Amortization |  | $                                       | (3,823 | ) |                                     | $ | (6,936 | )                                   |  | $ | (636 | ) |  | $    | (2,087 | ) |      | $ | 1,418 |  |  | $ | 2,162 | 
|             |  |                                         |        |   |                                     |   |        |                                     |  |   |      |   |  |      |        |   |      |   |       |  |  |   |       | 



22



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



5. REAL ESTATE LOANS RECEIVABLE

As of March 31, 2011 and December 31, 2010, the Company, through wholly owned subsidiaries, had invested in real
estate loans receivable as follows (dollars in thousands):



|                                                                    |  |                         |  |              |                         |  |          |  |              |                                                      |  |   |                                   |  |  |                                      |         |   |                            |   |                                     |   |  |                        |  |  |       |   |  |  |            | 
|------------------------------------------------------------------- |  | ----------------------- |  | ------------ | ----------------------- |  | -------- |  | ------------ | ---------------------------------------------------- |  | - | --------------------------------- |  |  | ------------------------------------ | ------- | - | -------------------------- | - | ----------------------------------- | - |  | ---------------------- |  |  | ----- | - |  |  | ---------- | 
|Loan
Name           Location of Related Property or Collateral      |  | DateAcquired/Originated |  | PropertyType |                         |  | LoanType |  |              | OutstandingPrincipalBalance as ofMarch 31, 2011 
(1) |  |   | Book Valueas ofMarch 31, 2011 (2) |  |  | Book Valueas ofDecember 31, 2010 (2) |         |   | ContractualInterestRate(3) |   | AnnualizedEffectiveInterestRate (3) |   |  | MaturityDate (3)       | 
|Sandmar Mezzanine LoanSoutheast U.S.
(4)                            |  | 01/09/2007              |  |              | Retail                  |  |          |  | Mezzanine    |                                                      |  | $ | 5,000                             |  |  | $                                    | 5,045   |   |                            | $ | 5,046                               |   |  | 5.40%                  |  |  | 5.29  | % |  |  | 01/01/2017 | 
|Park Central MezzanineLoan New York, New York                       |  | 03/23/2007              |  |              | Hotel                   |  |          |  | Mezzanine    |                                                      |  |   | 15,000                            |  |  |                                      | 14,986  |   |                            |   | 14,981                              |   |  | One-month LIBOR+ 4.48% |  |  | 4.96  | % |  |  | 11/09/2011 | 
|Lawrence Village Plaza Loan OriginationNew Castle, Pennsylvania (5) |  | 08/06/2007              |  |              | Retail                  |  |          |  | Mortgage     |                                                      |  |   | 6,920                             |  |  |                                      | 6,893   |   |                            |   | 6,878                               |   |  | 8.00%                  |  |  | 9.05  | % |  |  | 09/01/2011 | 
|11 South LaSalle Loan OriginationChicago, Illinois (6)              |  | 08/08/2007              |  |              | Office                  |  |          |  | Mortgage     |                                                      |  |   | 38,794                            |  |  |                                      | 38,794  |   |                            |   | 38,794                              |   |  | 8.00%                  |  |  | (6    | ) |  |  | 09/01/2010 | 
|San Diego Office Portfolio B-NoteSan Diego, California              |  | 10/26/2007              |  |              | Office                  |  |          |  | B-Note       |                                                      |  |   | 20,000                            |  |  |                                      | 15,051  |   |                            |   | 14,926                              |   |  | 5.78%                  |  |  | 11.18 | % |  |  | 10/11/2017 | 
|Petra Subordinated Debt Tranche A (4)                               |  | 10/26/2007              |  |              | Unsecured               |  |          |  | Subordinated |                                                      |  |   | 25,000                            |  |  |                                      | 25,000  |   |                            |   | 25,000                              |   |  | 11.50%                 |  |  | (4    | ) |  |  | 04/27/2009 | 
|Petra Subordinated Debt Tranche B (4)                               |  | 10/26/2007              |  |              | Unsecured               |  |          |  | Subordinated |                                                      |  |   | 25,000                            |  |  |                                      | 25,000  |   |                            |   | 25,000                              |   |  | 11.50%                 |  |  | (4    | ) |  |  | 10/26/2009 | 
|4929 Wilshire B-NoteLos Angeles, California                         |  | 11/19/2007              |  |              | Office                  |  |          |  | B-Note       |                                                      |  |   | 4,000                             |  |  |                                      | 2,915   |   |                            |   | 2,887                               |   |  | 6.05%                  |  |  | 12.33 | % |  |  | 07/11/2017 | 
|Artisan Multifamily Portfolio Mezzanine LoanLas Vegas, Nevada (7)   |  | 12/11/2007              |  |              | Multi FamilyResidential |  |          |  | Mezzanine    |                                                      |  |   |                                  |  |  |                                      |        |   |                            |   | 18,351                              |   |  | One-month LIBOR+ 2.50% |  |  | (7    | ) |  |  | 08/09/2010 | 
|San Antonio Business Park Mortgage LoanSan Antonio, Texas           |  | 03/28/2008              |  |              | Office                  |  |          |  | Mortgage     |                                                      |  |   | 30,600                            |  |  |                                      | 25,462  |   |                            |   | 25,329                              |   |  | 6.94%                  |  |  | 10.87 | % |  |  | 11/11/2017 | 
|2600 Michelson Mezzanine LoanIrvine, California
(4)                 |  | 06/02/2008              |  |              | Office                  |  |          |  | Mezzanine    |                                                      |  |   | 15,000                            |  |  |                                      | 8,895   |   |                            |   | 8,895                               |   |  | 8.00%                  |  |  | (4    | ) |  |  | 05/11/2017 | 
|GKK Mezzanine LoanNational Portfolio
(8)                            |  | 08/22/2008              |  |              | Office/ BankBranch      |  |          |  | Mezzanine    |                                                      |  |   | 458,605                           |  |  |                                      | 458,605 |   |                            |   | 457,949                             |   |  | One-month LIBOR+ 9.20% |  |  | 6.09  | % |  |  | 04/15/2011 | 
|                                                                    |  |                         |  |              |                         |  |          |  |              |                                                      |  |   |                                   |  |  |                                      |         |   |                            |   |                                     |   |  |                        |  |  |       |   |  |  |            | 
|                                                                    |  |                         |  |              |                         |  |          |  |              |                                                      |  | $ | 643,919                           |  |  | $                                    | 626,646 |   |                            | $ | 644,036                             |   |  |                        |  |  |       |   |  |  |            | 
|Reserve for Loan Losses (9)                                         |  |                         |  |              |                         |  |          |  |              |                                                      |  |   |                                  |  |  |                                      | (79,438 | ) |                            |   | (97,800                             | ) |  |                        |  |  |       |   |  |  |            | 
|                                                                    |  |                         |  |              |                         |  |          |  |              |                                                      |  |   |                                   |  |  |                                      |         |   |                            |   |                                     |   |  |                        |  |  |       |   |  |  |            | 
|                                                                    |  |                         |  |              |                         |  |          |  |              |                                                      |  | $ | 643,919                           |  |  | $                                    | 547,208 |   |                            | $ | 546,236                             |   |  |                        |  |  |       |   |  |  |            | 
|                                                                    |  |                         |  |              |                         |  |          |  |              |                                                      |  |   |                                   |  |  |                                      |         |   |                            |   |                                     |   |  |                        |  |  |       |   |  |  |            | 



(1) Outstanding principal balance as of March 31, 2011 represents original principal balance outstanding under the
loan, increased for any subsequent fundings and reduced for any principal repayments.

(2) Book value of real estate loans receivable represents outstanding principal balance adjusted for unamortized acquisition discounts, origination fees, and direct origination
and acquisition costs. Loan balances are presented gross of any asset-specific reserves.

(3) Contractual interest rates are the stated interest rates on the face of the loans. Annualized effective interest rates are calculated as the actual interest income recognized
in 2011, using the interest method, divided by the average amortized cost basis of the investment during 2011. The annualized effective interest rates and contractual interest rates presented are for the three months ended March 31, 2011.
Maturity dates are as of March 31, 2011.

(4) The Company had recorded an asset-specific loan loss
reserve against these investments as of March 31, 2011. See Reserve for Loan Losses with respect to the 2600 Michelson Mezzanine Loan, the Sandmar Mezzanine Loan and the subordinated debt investment in Petra Fund
REIT Corp.

(5) The borrower under this loan has
two one-year extension options, subject to certain terms and conditions.

(6) This loan matured on September 1, 2010 and the Company is currently negotiating an extension with the borrower.

(7) The Company wrote-off its investment in the Artisan
Multifamily Portfolio Mezzanine Loan during the three months ended March 31, 2011. See Recent Transaction  Artisan Multifamily Portfolio Mezzanine Loan.

(8) Commencing on March 11, 2011, the Company entered
into a series of extension agreements to extend the maturity date of the GKK Mezzanine Loan to May 6, 2011. The GKK Mezzanine Loan matured on May 6, 2011 without repayment from the borrower. See Note 16, Commitments
and Contingencies  Concentrations of Credit Risks.

(9) See Reserve for Loan Losses.



23



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



As of March 31, 2011, the Company has outstanding funding commitments of
$5.9 million on its loans receivable, subject to satisfaction of certain conditions by the borrowers.

As of
March 31, 2011 and December 31, 2010, interest receivable from real estate loans receivable was $2.3 million and $2.3 million, respectively, and is included in rents and other receivables.

The following is a schedule of maturities for all real estate loans receivable outstanding as of March 31, 2011
(in thousands):



|                                        |  |                    |         |  |                                         |   |         |                            |  |   |                                        |  |  |   |         | 
|--------------------------------------- |  | ------------------ | ------- |  | --------------------------------------- | - | ------- | -------------------------- |  | - | -------------------------------------- |  |  | - | ------- | 
|                                        |  | Current Maturity   |         |  | Fully Extended 
Maturity(1)             |  
|                                        |  | Face Value(Funded) |         |  | Book Value 
beforeReserve for Loan Loss |   |         | Face Value        (Funded) |  |   | Book Value beforeReserve for Loan Loss | 
|April 1, 2011 through December 31, 2011 |  | $                  | 569,319 |  |                                         | $ | 569,278 |                            |  | $ | 562,399                                |  |  | $ | 562,385 | 
|2012                                    |  |                    |        |  |                                         |   |        |                            |  |   |                                       |  |  |   |        | 
|2013                                    |  |                    |        |  |                                         |   |        |                            |  |   | 6,920                                  |  |  |   | 6,893   | 
|2014                                    |  |                    |        |  |                                         |   |        |                            |  |   |                                       |  |  |   |        | 
|2015                                    |  |                    |        |  |                                         |   |        |                            |  |   |                                       |  |  |   |        | 
|Thereafter                              |  |                    | 74,600  |  |                                         |   | 57,368  |                            |  |   | 74,600                                 |  |  |   | 57,368  | 
|                                        |  |                    |         |  |                                         |   |         |                            |  |   |                                        |  |  |   |         | 
|                                        |  | $                  | 643,919 |  |                                         | $ | 626,646 |                            |  | $ | 643,919                                |  |  | $ | 626,646 | 
|                                        |  |                    |         |  |                                         |   |         |                            |  |   |                                        |  |  |   |         | 



(1)Represents the maturities of all real estate loans receivable outstanding as of March 31, 2011 assuming the borrowers exercise all available extension options.

The following summarizes the activity related to real estate loans receivable for the three months ended March 31, 2011 (in thousands):



|                                                                                                   |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | - | ------- | -
|Real estate loans receivable, net - December 31, 2010                                              |  | $ | 546,236 |  
|Accretion of discounts on purchased real estate loans receivable                                   |  |   | 296     |  
|Amortization of origination fees and costs on purchased andoriginated real estate loans receivable |  |   | 665     |  
|Change in loan loss reserve                                                                        |  |   | 18,362  |  
|Foreclosure by Mortgage Lender of Artisan Multifamily Portfolio Mezzanine Loan                     |  |   | (18,351 | )
|                                                                                                   |  |   |         |  
|Real estate loans receivable, net - March 31, 2011                                                 |  | $ | 547,208 |  
|                                                                                                   |  |   |         |  

For the three months ended March 31, 2011 and 2010, interest income from real estate loans
receivable consisted of the following (in thousands):



|                                                                 |  |                              |       |  |      |   |        |  
|---------------------------------------------------------------- |  | ---------------------------- | ----- |  | ---- | - | ------ | -
|                                                                 |  | Three Months Ended March 31, |      
|                                                                 |  | 2011                         |       |  | 2010 |  
|Contractual interest income                                      |  | $                            | 7,515 |  |      | $ | 10,467 |  
|Accretion of purchase discounts                                  |  |                              | 296   |  |      |   | 922    |  
|Amortization of origination fees and costs and acquisition costs |  |                              | 665   |  |      |   | (271   | )
|                                                                 |  |                              |       |  |      |   |        |  
|Interest income from real estate loans receivable                |  | $                            | 8,476 |  |      | $ | 11,118 |  
|                                                                 |  |                              |       |  |      |   |        |  



24



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Recent Transaction

Artisan Multifamily Portfolio Mezzanine Loan

On
December 11, 2007, the Company, through an indirect wholly owned subsidiary, made an investment in a mezzanine loan to fund the acquisition of two garden-style multifamily apartment complexes in Las Vegas, Nevada (the Artisan
Multifamily Portfolio Mezzanine Loan). As of December 31, 2010, the outstanding principal balance on the loan was $20.0 million and the carrying value of the loan was $18.4 million before asset-specific impairments recorded
as of December 31, 2010 that reduced its estimated fair value to $0. The Artisan Multifamily Portfolio Mezzanine Loan was subordinate to a first mortgage loan. The loans initial maturity was August 9, 2009 with three
one-year extension options. The borrower exercised the first extension option, but due to the deterioration of the Las Vegas economy and real estate market, the borrower did not meet certain debt service coverage ratios and loan-to-value ratios to
exercise the second and third extension options. In addition, the borrower failed to make its monthly debt service payments starting on August 9, 2010. The Company began discussions during the third quarter of 2010 with both the mortgage
lender and the borrower, in an effort to restructure the terms of the loan encumbering the properties. However, these negotiations were not finalized, and on January 21, 2011, the first mortgage lender foreclosed on the properties secured
by the loan. Consequently, the Company will not receive further interest income or principal repayments on this investment. The Company wrote-off its investment in the Artisan Multifamily Portfolio Mezzanine Loan during the three months ended
March 31, 2011.

Reserve for Loan Losses

Changes in the Companys reserve for loan losses for the three months ended March 31, 2011 were as follows (in thousands):



|                                           |  |   |         |  
|------------------------------------------ |  | - | ------- | -
|Reserve for loan losses, December 31, 2010 |  | $ | 97,800  |  
|Provision for loan losses                  |  |   | (11     | )
|Charge-offs to reserve for loan losses     |  |   | (18,351 | )
|                                           |  |   |         |  
|Reserve for loan losses, March 31, 2011    |  | $ | 79,438  |  
|                                           |  |   |         |  



25



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



As of March 31, 2011, the total reserve for loan losses of $79.4 million
consisted of $61.3 million of asset-specific reserves on impaired real estate loans receivable with an amortized cost basis of $63.9 million and $18.1 million of portfolio-based reserves on non-impaired real estate loans receivable
with an amortized cost basis of $562.7 million. In addition, as of March 31, 2011, the Companys investment in the GKK Mezzanine Loan with an amortized cost basis of $458.6 million was deemed to be impaired as the borrower failed to meet
its contractual interest payment obligation beginning April 2011. As of March 31, 2011, real estate loans receivable with an amortized cost basis of $97.7 million are on nonaccrual status. Also as of March 31, 2011, three of
the ten borrowers under the real estate loans receivable were delinquent. The asset-specific reserves relate to following impaired loans: the 2600 Michelson Mezzanine Loan, the Sandmar Mezzanine Loan and the subordinated debt investment in Petra
Fund REIT Corp. The Company reduced its provision for loan loss reserve by $0.2 million and $48,000 during the three months ended March 31, 2011 and 2010, respectively. The portfolio-based loan loss reserve provides for probable
losses estimated to have occurred on the pool of loans that do not have asset-specific reserves. Although the Company does not know which specific loans within the pool will ultimately result in losses, the Company believes it is probable that a
loss has occurred within the pool. For the three months ended March 31, 2011, the provision for loan losses was comprised of a decrease of $0.2 million to the asset-specific loan loss reserves, offset by an increase of $15,000
calculated on a portfolio-basis. During the three months ended March 31, 2011, the Company also recovered $0.1 million of reserves for loan losses related to the foreclosure of the 200 Professional Drive Loan Origination. For the
three months ended March 31, 2010, the change in loan loss reserves was comprised of a $48,000 reduction related to the Sandmar Mezzanine Loan, calculated on an asset-specific basis. There was no change to the portfolio-based reserve.
During the three months ended March 31, 2010, the Company also charged-off $19.0 million of reserves for loan losses related to the Tribeca Loans in conjunction with the Companys foreclosure on the underlying project.

Concentrations of Credit Risks

The Companys investment in the GKK Mezzanine Loan, totaling $458.6 million as of March 31, 2011, represents a significant investment to the Company that as of
March 31, 2011, comprised 19% of the Companys total assets and 84% of the Companys total investments in loans receivable, after loan loss reserves. During the three months ended March 31, 2011, the GKK Mezzanine Loan
provided 12% of the Companys revenues and 81% of the Companys interest income from loans receivable. The GKK Mezzanine Loan was to mature on March 11, 2011. Commencing on March 11, 2011, the Company entered into a
series of extension agreements to extend the maturity date of the GKK Mezzanine Loan to May 6, 2011. The GKK Mezzanine Loan matured on May 6, 2011 without repayment from the GKK Borrower (defined below). The GKK Mezzanine Loan is the
primary security for two repurchase agreements totaling $261.6 million as of March 31, 2011. See Note 9, Notes Payable and Repurchase Agreements and Note 16, Commitments and Contingencies 
Concentrations of Credit Risks.



26



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The GKK Mezzanine Loan was used to finance a portion of Gramercy Capital Corp.s
(Gramercy) acquisition of American Financial Realty Trust (AFR) that closed on April 1, 2008. The borrowers under the GKK Mezzanine Loan are (i) the wholly owned subsidiary of Gramercy formed to own 100% of the
equity interests in AFR (AFR Owner), (ii) AFR and (iii) certain subsidiaries of AFR that directly or indirectly own equity interests in the entities that own the AFR portfolio of properties (collectively, AFR Owner,
AFR and these subsidiaries are the GKK Borrower). As of September 30, 2010, the most recent date that data is available, AFR and its subsidiaries owned 952 (898 consolidated (wholly owned) and 54 joint venture
(partially owned)) office and bank branch properties located in 36 states and Washington, D.C., including partial ownership interests in 54 bank branch properties (a 99% interest in 52 properties and a 1% interest in
2 properties) occupied primarily by Citizens Bank. The GKK Mezzanine Loan is subordinate to secured senior loans (senior loans) in the aggregate principal amount of approximately $1.7 billion at September 30, 2010.
Prior to March 12, 2011, the GKK Mezzanine Loan bore interest at a variable rate of one-month LIBOR plus 520 basis points. As of March 12, 2011, and through May 6, 2011, interest accrued on the GKK Mezzanine Loan at a
rate equal to the greater of the Prime Rate plus 1% or one-month LIBOR plus 9.2%. Prior to maturity, the GKK Borrower was required to make interest-only payments to the Company (although certain cash flow relating to a portfolio of
15 properties comprised of 3.7 million square feet primarily leased to Bank of America is required to be applied to pay down the GKK Mezzanine Loan), with the outstanding principal balance being due at maturity. The GKK Borrower was also
permitted to sell certain properties subject to meeting specified conditions, including the payment of a release price to the Company. Beginning April 2011, the GKK Borrower failed to meet its debt payment obligation. As of March 31, 2011, the
Company recorded interest income receivable, based on cash received in April 2011, of $1.1 million related to the GKK Mezzanine Loan and the Company does not expect to receive any future contractual interest payments from the GKK Borrower.

Below is summary financial information of the collateral securing the GKK Mezzanine Loan. For periods prior to
Gramercys acquisition of AFR on April 1, 2008, AFRs historical summary financial information is presented. For the periods subsequent to Gramercys acquisition of AFR, the summary consolidated financial information of the
GKK Borrower is presented. The Company is providing the consolidated financial information of the GKK Borrower of the GKK Mezzanine Loan for the periods after April 1, 2008 because the only assets of the GKK Borrower are ownership
interests in AFR and subsidiaries of AFR and the GKK Mezzanine Loan is secured by pledges of 100% of the equity interests in AFR and 100% or less of the equity interests in certain subsidiaries of AFR. The consolidated financial information of the
GKK Borrower is not directly comparable to historical financial information of AFR due to closing adjustments associated with Gramercys acquisition of AFR. Gramercy filed a Current Report on Form 8-K and a Form 12b-25, Notification of Late
Filing, informing its shareholders that Gramercy is unable to file its 2010 Form 10-K within the prescribed time period due to continuing uncertainties relating to the results of its negotiations relating to the maturity of certain of its debt
(including the GKK Mezzanine Loan, which is payable to the Company), which matured on May 6, 2011. Accordingly, as of the date of this filing, the GKK Borrowers results for the year ended December 31, 2010 and the three months
ended March 31, 2011 are not available, and therefore, the Company is presenting the most recent data available, which is as of and for the periods ended September 30, 2010.



27



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The summarized unaudited financial information derived from Gramercys real estate
segment, as disclosed in its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as filed with the SEC, and adjusted for discontinued operations and certain general and administrative expenses, is as follows (in thousands):



|                                                                    |  |  |  |                                                 |           |   |  |  |                                                  |   |           |                                                 |  |   |                                                |   |  |   |           |  
|------------------------------------------------------------------- |  |  |  | ----------------------------------------------- | --------- | - |  |  | ------------------------------------------------ | - | --------- | ----------------------------------------------- |  | - | ---------------------------------------------- | - |  | - | --------- | -
|                                                                    |  |  |  | AFRPre-Acquisition (1)                          |           |   |  |  | GKK Borrower
Post-Acquisition (2)                |  
|Balance Sheet                                                       |  |  |  | As
ofDecember 31, 2007 (unaudited)              |           |   |  |  | As ofDecember 31, 2008(unaudited)                |   |           | As
of December 31, 2009(unaudited)              |  |   | As ofSeptember 30, 2010(unaudited)             |  
|Real estate investments, net                                        |  |  |  | $                                               | 2,108,532 |   |  |  |                                                  | $ | 3,178,527 |                                                 |  | $ | 3,147,249                                      |   |  | $ | 3,086,880 |  
|Cash and cash equivalents                                           |  |  |  |                                                 | 124,848   |   |  |  |                                                  |   | 91,240    |                                                 |  |   | 33,544                                         |   |  |   | 32,428    |  
|Other assets                                                        |  |  |  |                                                 | 997,998   |   |  |  |                                                  |   | 893,419   |                                                 |  |   | 702,486                                        |   |  |   | 672,214   |  
|                                                                    |  |  |  |                                                 |           |  
|Total assets                                                        |  |  |  | $                                               | 3,231,378 |   |  |  |                                                  | $ | 4,163,186 |                                                 |  | $ | 3,883,279                                      |   |  | $ | 3,791,522 |  
|                                                                    |  |  |  |                                                 |           |  
|Mortgage notes payable                                              |  |  |  | $                                               | 1,436,248 |   |  |  |                                                  | $ | 2,469,993 |                                                 |  | $ | 2,337,758                                      |   |  | $ | 2,296,511 |  
|Other liabilities                                                   |  |  |  |                                                 | 1,181,333 |   |  |  |                                                  |   | 1,052,138 |                                                 |  |   | 1,012,294                                      |   |  |   | 957,710   |  
|                                                                    |  |  |  |                                                 |           |  
|Total liabilities                                                   |  |  |  |                                                 | 2,617,581 |   |  |  |                                                  |   | 3,522,131 |                                                 |  |   | 3,350,052                                      |   |  |   | 3,254,221 |  
|Total AFR or the Borrowers stockholders equity                    |  |  |  |                                                 | 606,417   |   |  |  |                                                  |   | 638,343   |                                                 |  |   | 532,032                                        |   |  |   | 535,922   |  
|Noncontrolling interest                                             |  |  |  |                                                 | 7,380     |   |  |  |                                                  |   | 2,712     |                                                 |  |   | 1,195                                          |   |  |   | 1,379     |  
|                                                                    |  |  |  |                                                 |           |  
|Total equity                                                        |  |  |  |                                                 | 613,797   |   |  |  |                                                  |   | 641,055   |                                                 |  |   | 533,227                                        |   |  |   | 537,301   |  
|                                                                    |  |  |  |                                                 |           |  
|Total liabilities and equity                                        |  |  |  | $                                               | 3,231,378 |   |  |  |                                                  | $ | 4,163,186 |                                                 |  | $ | 3,883,279                                      |   |  | $ | 3,791,522 |  
|                                                                    |  |  |  |                                                 |           |  
|                                                                    |  |  |  |                                                 |           |   |  |  |                                                  |   |           |                                                 |  |   |                                                |   |  |   |           |  
|                                                                    |  |  |  | AFR Pre-Acquisition (1)                         |           |   |  |  | GKK BorrowerPost-Acquisition (2)                 |   |           | Combined
GKK Borrower and AFR (3)               |  |   | GKK Borrower
Post-Acquisition (2)              |  
|Income Statement                                                    |  |  |  | Three Months Ended March 31, 2008 (unaudited)   |           |   |  |  | Nine Months Ended December 31, 2008 (unaudited)  |   |           | Year
Ended December 31, 2008(unaudited)         |  |   | Year
Ended December 31, 2009(unaudited)        |  
|Total revenues                                                      |  |  |  | $                                               | 94,399    |   |  |  |                                                  | $ | 325,364   |                                                 |  | $ | 419,763                                        |   |  | $ | 437,395   |  
|Total operating expenses                                            |  |  |  |                                                 | (56,311   | ) |  |  |                                                  |   | (141,595  | )                                               |  |   | (197,906                                       | ) |  |   | (213,555  | )
|Interest and other income                                           |  |  |  |                                                 | 2,272     |   |  |  |                                                  |   | 3,250     |                                                 |  |   | 5,522                                          |   |  |   | 3,522     |  
|Depreciation and amortization                                       |  |  |  |                                                 | (30,189   | ) |  |  |                                                  |   | (69,062   | )                                               |  |   | (99,251                                        | ) |  |   | (110,177  | )
|Interest expense                                                    |  |  |  |                                                 | (30,353   | ) |  |  |                                                  |   | (119,954  | )                                               |  |   | (150,307                                       | ) |  |   | (126,678  | )
|Gain on sale of properties                                          |  |  |  |                                                 |          |   |  |  |                                                  |   |          |                                                 |  |   |                                               |   |  |   | 4,096     |  
|Equity in loss from joint venture                                   |  |  |  |                                                 | (542      | ) |  |  |                                                  |   | (2,092    | )                                               |  |   | (2,634                                         | ) |  |   | (2,637    | )
|Discontinued operations                                             |  |  |  |                                                 | 10,024    |   |  |  |                                                  |   | (73       | )                                               |  |   | 9,951                                          |   |  |   | (7,129    | )
|                                                                    |  |  |  |                                                 |           |  
|Net loss                                                            |  |  |  |                                                 | (10,700   | ) |  |  |                                                  |   | (4,162    | )                                               |  |   | (14,862                                        | ) |  |   | (15,163   | )
|Less: Net loss (income) attributable to the noncontrolling interest |  |  |  |                                                 | 1,220     |   |  |  |                                                  |   | (382      | )                                               |  |   | 838                                            |   |  |   | (349      | )
|                                                                    |  |  |  |                                                 |           |  
|Net (loss) income attributable to AFR or the Borrower               |  |  |  | $                                               | (9,480    | ) |  |  |                                                  | $ | (4,544    | )                                               |  | $ | (14,024                                        | ) |  | $ | (15,512   | )
|                                                                    |  |  |  |                                                 |           |  
|                                                                    |  | 
|                                                                    |  |  |  | GKK Borrower
Post-Acquisition (2)               |          
|Income Statement                                                    |  |  |  | Three Months EndedSeptember 30, 2009(unaudited) |           |   |  |  | Three Months EndedSeptember 30, 2010 (unaudited) |   |           | Nine Months Ended September 30, 2009(unaudited) |  |   | Nine Months EndedSeptember 30, 2010(unaudited) |  
|Total revenues                                                      |  |  |  | $                                               | 108,344   |   |  |  |                                                  | $ | 107,630   |                                                 |  | $ | 327,108                                        |   |  | $ | 319,858   |  
|Total operating expenses                                            |  |  |  |                                                 | (49,264   | ) |  |  |                                                  |   | (47,653   | )                                               |  |   | (148,559                                       | ) |  |   | (140,619  | )
|Interest and other income                                           |  |  |  |                                                 | 804       |   |  |  |                                                  |   | 806       |                                                 |  |   | 2,760                                          |   |  |   | 3,129     |  
|Depreciation and amortization                                       |  |  |  |                                                 | (26,659   | ) |  |  |                                                  |   | (26,484   | )                                               |  |   | (82,845                                        | ) |  |   | (80,238   | )
|Interest expense                                                    |  |  |  |                                                 | (31,497   | ) |  |  |                                                  |   | (29,972   | )                                               |  |   | (95,802                                        | ) |  |   | (89,366   | )
|Gain on sale of properties                                          |  |  |  |                                                 | 1,934     |   |  |  |                                                  |   | 1,127     |                                                 |  |   | 3,913                                          |   |  |   | 2,439     |  
|Equity in net loss from unconsolidated joint ventures               |  |  |  |                                                 | (659      | ) |  |  |                                                  |   | (757      | )                                               |  |   | (1,975                                         | ) |  |   | (2,099    | )
|Discontinued operations                                             |  |  |  |                                                 | 586       |   |  |  |                                                  |   | (274      | )                                               |  |   | (20                                            | ) |  |   | (1,225    | )
|                                                                    |  |  |  |                                                 |           |  
|Net income                                                          |  |  |  |                                                 | 3,589     |   |  |  |                                                  |   | 4,423     |                                                 |  |   | 4,580                                          |   |  |   | 11,879    |  
|Less: Net income attributable to the noncontrolling interest        |  |  |  |                                                 | (38       | ) |  |  |                                                  |   | (61       | )                                               |  |   | (175                                           | ) |  |   | (184      | )
|                                                                    |  |  |  |                                                 |           |  
|Net income attributable to the Borrower                             |  |  |  | $                                               | 3,551     |   |  |  |                                                  | $ | 4,362     |                                                 |  | $ | 4,405                                          |   |  | $ | 11,695    |  
|                                                                    |  |  |  |                                                 |           |  



(1) Represents the historical summary financial information of AFR.

(2) Represents the summarized consolidated financial
information of the GKK Borrower.

(3) Represents
the combined summarized financial information of AFR and the GKK Borrower and is presented for informational purposes only. The combined summarized financial information is not directly comparable to financial information of the GKK Borrower as the
AFR financial information does not include closing adjustments associated with Gramercys acquisition of AFR. The combined summarized financial information is not necessarily indicative of the actual results that would have been achieved had
Gramercy acquired AFR prior to January 1, 2008.



28



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



As previously discussed, commencing on March 11, 2011, the GKK Borrower and the
Company entered into a series of extension agreements to extend the maturity date of the GKK Mezzanine Loan to May 6, 2011. The extension agreements were entered into in anticipation of negotiations among the Company, the GKK Borrower,
Gramercy and certain other mortgage and mezzanine lenders to the Gramercy realty portfolio regarding an agreement for an orderly transition of all or substantially all of the assets securing the Gramercy realty mortgage and mezzanine indebtedness to
the lenders. The GKK Mezzanine Loan matured on May 6, 2011 without repayment from the GKK Borrower.

Due to the
uncertainty of the outcome of the negotiations of the GKK Mezzanine Loan, the Company performed an impairment analysis of the GKK Mezzanine Loan to determine whether the loan was collectible as of December 31, 2010 and March 31, 2011.
This impairment analysis used various assumptions to estimate the fair value of the underlying real estate assets. The key assumptions used in the Companys analysis to determine the fair value of the underlying real estate included projected
cash flows, real estate capitalization rates and real estate values per square foot. To estimate the fair value of leased properties (the majority of the portfolio), the Company generally used the 2011 projected cash flows and applied a portfolio
market capitalization rate to such cash flows to determine the real estate value. The 2011 projected cash flows for the underlying real estate assets were obtained from the GKK Borrower, and while they appear reasonable based on historical cash
flows, the Company can give no assurance to the accuracy of such information.

The underlying real estate assets related to
the GKK Mezzanine Loan include a mixture of different property types, including office buildings, bank branches, call centers, land and parking structures. The Companys calculated values of the underlying properties exceeded the combined
outstanding mortgage loan balance encumbering the properties and the carrying value of the GKK Mezzanine Loan. Based on the Companys analysis, which is limited by the information obtained to date, the Company determined that the carrying value
of the GKK Mezzanine Loan was fully secured by the collateral, and as a result, the Company has not recorded an impairment charge related to its investment in the GKK Mezzanine Loan as of March 31, 2011. However, as of March 31, 2011, the
Companys investment in the GKK Mezzanine Loan was deemed to be impaired as the GKK Borrower failed to meet its contractual interest payment obligation beginning April 2011.

6. REAL ESTATE SECURITIES

At March 31, 2011, the Company held
two investments in real estate securities classified as available-for-sale: commercial mortgage-backed securities (CMBS) that accrued interest at a coupon rate of one-month LIBOR plus 2.30% with a contractual maturity of
November 2011 and an original purchase price of $17.7 million (Floating Rate CMBS) and securities backed by CMBS that accrue interest at a coupon rate of 4.5% with a contractual maturity of December 2017 and an original
purchase price of $44.2 million (Fixed Rate Securities). The Companys investments in real estate securities are held at fair value and reviewed for impairment on a quarterly basis. See Note 2, Summary of Significant
Accounting Policies.

As of March 31, 2011, the Company determined the fair value of the Fixed Rate Securities
to be $19.1 million, resulting in unrealized gains of $1.0 million for the three months ended March 31, 2011. The cumulative unrealized loss of $2.6 million on the Fixed Rate Securities as of March 31, 2011 was not
determined to be other-than-temporary because the Company did not experience an adverse change to its cash flow estimates for the securities and the Company believes it has the intent and ability to hold the securities for a period of time
sufficient to allow for recovery of the amortized cost basis. As of March 31, 2011, the Companys Floating Rate CMBS had a fair value of $0. The fair value of the Floating Rate CMBS is consistent with its December 31, 2010
value, resulting in no unrealized gain or loss for the three months ended March 31, 2011.



29



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



During the three months ended March 31, 2011, the Company did not recognize
any other-than-temporary impairments on its real estate securities. It is difficult to predict the timing or magnitude of these other-than-temporary impairments and significant judgments are required in determining impairments, including, but not
limited to, assumptions regarding estimated prepayments, losses and changes in interest rates. As a result, actual realized losses could materially differ from these estimates.

The following summarizes the activity related to real estate securities for the three months ended March 31, 2011
(in thousands):



|                                             |  |                         |        |   |                |   |        |       |  |   |        |  
|-------------------------------------------- |  | ----------------------- | ------ | - | -------------- | - | ------ | ----- |  | - | ------ | -
|                                             |  | Amortized    Cost Basis |        |   | UnrealizedLoss |   |        | Total | 
|Real estate securities - December 31, 2010   |  | $                       | 21,937 |   |                | $ | (3,662 | )     |  | $ | 18,275 |  
|Unrealized gain                              |  |                         |       |   |                |   | 1,040  |       |  |   | 1,040  |  
|Interest accretion on real estate securities |  |                         | (221   | ) |                |   |       |       |  |   | (221   | )
|                                             |  |                         |        |   |                |   |        |       |  |   |        |  
|Real estate securities - March 31, 2011      |  | $                       | 21,716 |   |                | $ | (2,622 | )     |  | $ | 19,094 |  
|                                             |  |                         |        |   |                |   |        |       |  |   |        |  

The following table presents the fair value and unrealized gains (losses) of the Companys investments
in real estate securities at March 31, 2011:



|                      |  |                                                                                                      |   |  |                           |   |   |                   |  |   |                    |  |  |                   |        |   |                    |   |        |  |  |   |        |  
|--------------------- |  | ---------------------------------------------------------------------------------------------------- | - |  | ------------------------- | - | - | ----------------- |  | - | ------------------ |  |  | ----------------- | ------ | - | ------------------ | - | ------ |  |  | - | ------ | -
|                      |  | Holding Period of Unrealized Gains (Losses) of Investments in 
Real Estate Securities (in thousands) |  
|                      |  | Less than 12 Months                                                                                  |   |  | 12 Months or More         |   |   | Total             | 
|Investment            |  | Fair        Value                                                                                    |   |  | UnrealizedGains 
(Losses) |   |   | Fair        Value |  |   | Unrealized(Losses) |  |  | Fair        Value |        |   | Unrealized(Losses) |  
|Floating Rate CMBS    |  | $                                                                                                    |  |  |                           | $ |  |                   |  | $ |                   |  |  | $                 |       |   |                    | $ |       |  |  | $ |       |  
|Fixed Rate Securities |  |                                                                                                      |  |  |                           |   |  |                   |  |   | 19,094             |  |  |                   | (2,622 | ) |                    |   | 19,094 |  |  |   | (2,622 | )
|                      |  |                                                                                                      |   |  |                           |   |   |                   |  |   |                    |  |  |                   |        |   |                    |   |        |  |  |   |        |  
|                      |  | $                                                                                                    |  |  |                           | $ |  |                   |  | $ | 19,094             |  |  | $                 | (2,622 | ) |                    | $ | 19,094 |  |  | $ | (2,622 | )
|                      |  |                                                                                                      |   |  |                           |   |   |                   |  |   |                    |  |  |                   |        |   |                    |   |        |  |  |   |        |  



30



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



7. REAL ESTATE HELD FOR SALE AND DISCONTINUED OPERATIONS

The operations of properties held for sale or to be disposed of and the aggregate net gains recognized upon their disposition are
presented as discontinued operations in the accompanying consolidated statements of operations for all periods presented. During the year ended December 31, 2010, the Company disposed of one office property and one industrial property. No
other property has been identified as held for sale or to be disposed of during the three months ended March 31, 2011. The following table summarizes operating income from discontinued operations for the three months ended
March 31, 2011 and 2010 (dollars in thousands):



|                                  |  |                              |   |  |      |   |       |  
|--------------------------------- |  | ---------------------------- | - |  | ---- | - | ----- | -
|                                  |  | Three Months Ended March 31, |  
|                                  |  | 2011                         |   |  | 2010 |  
|Total revenues                    |  | $                            |  |  |      | $ | 1,608 |  
|Total expenses                    |  |                              |  |  |      |   | 1,945 |  
|Other interest income             |  |                              |  |  |      |   | 2     |  
|                                  |  |                              |   |  |      |   |       |  
|Loss from discontinued operations |  | $                            |  |  |      | $ | (335  | )
|                                  |  |                              |   |  |      |   |       |  

8. FORECLOSED REAL ESTATE HELD FOR SALE

On February 19, 2010, the borrowers under the Tribeca Loans defaulted and the Company foreclosed on the Tribeca Building by exercising its rights to accept 100% of the ownership interest of
the borrower under the Second Tribeca Mezzanine Loan. The Company acquired the remaining unsold units of the Tribeca Building and assumed the project liabilities. The Company recorded the Tribeca Building at fair value using a discounted cash flow
valuation model based on net realizable value (expected sales price less estimated costs to sell the unsold units) of the real estate.

As of March 31, 2011, the Companys investment in the Tribeca Building consisted of condominium units, retail space and parking spaces with a carrying value of $40.8 million and is
presented as foreclosed real estate held for sale on the consolidated balance sheet. In addition, the Company had $0.5 million of other liabilities outstanding at March 31, 2011. During the three months ended March 31, 2011,
the Company sold three condominium units of the Tribeca Building and recognized a gain on sale of $51,000. As of March 31, 2011, eight condominium units, two retail spaces and parking spaces were held for sale. During the three months
ended March 31, 2011, the Company recorded expenses of $0.6 million related to foreclosed real estate held for sale. As of March 31, 2011, the Company had repaid in full all mortgage debt on the Tribeca Building.



31



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



9. NOTES PAYABLE AND REPURCHASE AGREEMENTS

As of March 31, 2011 and December 31, 2010, the Companys notes payable consisted of the following (dollars in
thousands):



|                                              |  |                               |           |  |                                  |   |           |                                                  |  |  |                                                       |  |  |                                            |      |  |  |  |     | 
|--------------------------------------------- |  | ----------------------------- | --------- |  | -------------------------------- | - | --------- | ------------------------------------------------ |  |  | ----------------------------------------------------- |  |  | ------------------------------------------ | ---- |  |  |  | --- | 
|Loan Type                                     |  | Principal as ofMarch 31, 2011 |           |  | Principal as ofDecember 31, 2010 |   |           | ContractualInterest Rate as ofMarch 31, 2011 (1) |  |  | Weighted-AverageInterest Rate as ofMarch 31, 2011 (1) |  |  | Weighted-AverageRemaining Termin Years (2) |     
|Fixed Rate                                    |  |                               |           |  |                                  |   |           |                                                  |  |  |                                                       |  |  |                                            |      |  |  |  |     | 
|Mortgage loans                                |  | $                             | 533,266   |  |                                  | $ | 557,492   |                                                  |  |  | 4.1% - 6.4%                                           |  |  |                                            | 5.6% |  |  |  | 2.4 | 
|                                              |  |                               |           |  |                                  |   |           |                                                  |  |  |                                                       |  |  |                                            |      |  |  |  |     | 
|                                              |  |                               | 533,266   |  |                                  |   | 557,492   |                                                  |  |  |                                                       |  |  |                                            |      |  |  |  |     | 
|                                              |  |                               |           |  |                                  |   |           |                                                  |  |  |                                                       |  |  |                                            |      |  |  |  |     | 
|Variable Rate                                 |  |                               |           |  |                                  |   |           |                                                  |  |  |                                                       |  |  |                                            |      |  |  |  |     | 
|Mortgage loans (3)(4)                         |  |                               | 504,417   |  |                                  |   | 504,417   |                                                  |  |  | (5)                                                   |  |  |                                            | 2.7% |  |  |  | 0.7 | 
|Mezzanine loans (3)(4)                        |  |                               | 140,192   |  |                                  |   | 139,492   |                                                  |  |  | (5)                                                   |  |  |                                            | 2.4% |  |  |  | 0.3 | 
|Repurchase agreements (6)                     |  |                               | 268,246   |  |                                  |   | 277,614   |                                                  |  |  | (7)                                                   |  |  |                                            | 4.5% |  |  |  | 0.1 | 
|                                              |  |                               |           |  |                                  |   |           |                                                  |  |  |                                                       |  |  |                                            |      |  |  |  |     | 
|                                              |  |                               | 912,855   |  |                                  |   | 921,523   |                                                  |  |  |                                                       |  |  |                                            |      |  |  |  |     | 
|                                              |  |                               |           |  |                                  |   |           |                                                  |  |  |                                                       |  |  |                                            |      |  |  |  |     | 
|Total Notes Payable and Repurchase Agreements |  | $                             | 1,446,121 |  |                                  | $ | 1,479,015 |                                                  |  |  |                                                       |  |  |                                            |      |  |  |  |     | 
|                                              |  |                               |           |  |                                  |   |           |                                                  |  |  |                                                       |  |  |                                            |      |  |  |  |     | 



(1)Contractual interest rate as of March 31, 2011 represents the range of interest rates in effect under these loans
as of March 31, 2011. Weighted-average interest rate as of March 31, 2011 is calculated as the actual interest rate in effect at March 31, 2011 (consisting of the contractual interest rate and the effect of contractual
floor rates and interest rate caps, floors and swaps), using interest rate indices at March 31, 2011, where applicable.

(2) Weighted-average remaining term in years represents the initial maturity dates or the maturity dates as extended as of
March 31, 2011; subject to certain conditions, the maturity dates of certain loans may be further extended.

(3) The Company has entered into separate interest rate cap or swap agreements related to certain of these loans. See Note 10, Derivative Instruments.

(4) As of March 31, 2011, the Company had a
$300.0 million mortgage loan and $140.2 million of mezzanine loans held through a consolidated joint venture, all of which are non-recourse to the Company. In the aggregate, the weighted-average interest rate of the mortgage and mezzanine
loans is 125 basis points over one-month LIBOR. These loans mature on August 9, 2011. The terms of the loan agreements provide for the right to extend the loans for one additional one-year period upon satisfaction of certain terms and
conditions, including minimum debt service coverage requirements. Although the Company believes that it will meet the terms for extension of these loans, the Company can give no assurance in this regard. Under the mortgage loan agreement, all of the
properties in the National Industrial Portfolio create a single collateral pool. The individual deeds of trust and mortgages on the properties securing the loan are cross-defaulted and this in effect creates a cross-collateralization of the
properties.

(5) The contractual interest rate
of these loans will vary based on one-month LIBOR plus a fixed spread. The spread on the mortgage and mezzanine loans range from 0.8% to 2.8% and 1.3% to 3.0%, respectively.

(6) See Repurchase Agreements.

(7) The contractual interest rate of these
repurchase agreements will vary based on the federal fund rates plus a fixed spread and one-week LIBOR plus a fixed spread. The spread on the repurchase agreements ranges from 1.0% to 4.5%.

As of March 31, 2011, with the exception of one mortgage loan, all of the Companys notes payable are interest-only loans
during the terms of the loans with principal payable upon maturity. The Company has one mortgage loan with an outstanding principal balance of $40.8 million that requires monthly principal and interest payments, with principal payments
calculated using an amortization schedule of 30 years during the term of the loan. Subsequent to March 31, 2011, the Company entered into the amended and restated repurchase agreements related to the GKK Mezzanine Loan. For information
regarding the amortization schedule of the repurchase agreements, see Note 16, Commitments and Contingencies  Concentrations of Credit Risks.

During the three months ended March 31, 2011 and 2010, the Company incurred interest expense of $14.2 million and $14.3 million, respectively. Included in interest expense was the
amortization of deferred financing costs of $0.6 million and $0.6 million for the three months ended March 31, 2011 and 2010, respectively, and interest expense incurred as a result of the Companys interest rate swap
agreements of $1.4 million and $1.5 million for the three months ended March 31, 2011 and 2010, respectively. As of March 31, 2011 and December 31, 2010, $4.1 million and $3.9 million were payable,
respectively.



32



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The following is a schedule of maturities for all notes payable and repurchase
agreements outstanding as of March 31, 2011 (in thousands):



|                                            |  |                  |           |  |                             |   |         |       |  |   |               |  |  |                       |           |  |       |   |         |  |  |   |           | 
|------------------------------------------- |  | ---------------- | --------- |  | --------------------------- | - | ------- | ----- |  | - | ------------- |  |  | --------------------- | --------- |  | ----- | - | ------- |  |  | - | --------- | 
|                                            |  | Current Maturity |           |  | Fully Extended Maturity
(1) |  
|                                            |  | Notes Payable    |           |  | Repurchase Agreements       |   |         | Total |  |   | Notes Payable |  |  | Repurchase Agreements |           |  | Total |  
|April 1, 2011 through December 31, 2011
(2) |  | $                | 558,359   |  |                             | $ | 261,555 |       |  | $ | 819,914       |  |  | $                     | 15,667    |  |       | $ | 261,555 |  |  | $ | 277,222   | 
|2012                                        |  |                  | 267,408   |  |                             |   |        |       |  |   | 267,408       |  |  |                       | 764,400   |  |       |   |        |  |  |   | 764,400   | 
|2013                                        |  |                  | 103,142   |  |                             |   | 6,691   |       |  |   | 109,833       |  |  |                       | 148,842   |  |       |   |        |  |  |   | 148,842   | 
|2014                                        |  |                  | 186,766   |  |                             |   |        |       |  |   | 186,766       |  |  |                       | 146,001   |  |       |   | 6,691   |  |  |   | 152,692   | 
|2015                                        |  |                  |          |  |                             |   |        |       |  |   |              |  |  |                       | 40,765    |  |       |   |        |  |  |   | 40,765    | 
|Thereafter                                  |  |                  | 62,200    |  |                             |   |        |       |  |   | 62,200        |  |  |                       | 62,200    |  |       |   |        |  |  |   | 62,200    | 
|                                            |  |                  |           |  |                             |   |         |       |  |   |               |  |  |                       |           |  |       |   |         |  |  |   |           | 
|                                            |  | $                | 1,177,875 |  |                             | $ | 268,246 |       |  | $ | 1,446,121     |  |  | $                     | 1,177,875 |  |       | $ | 268,246 |  |  | $ | 1,446,121 | 
|                                            |  |                  |           |  |                             |   |         |       |  |   |               |  |  |                       |           |  |       |   |         |  |  |   |           | 



(1) Represents the maturities of all notes payable outstanding as of March 31, 2011 assuming the Company exercises all
extension options available per the terms of the loan agreements. The Company can give no assurance that it will be able to satisfy the conditions to extend the terms of the loan agreements.

(2) See Repurchase Agreements.

Certain of our notes payable contain financial and non-financial debt covenants. As of March 31, 2011, the Company was in
compliance with all debt covenants.

Repurchase Agreements

The carrying values of repurchase agreements, the book values of the underlying collateral and the repurchase agreement counterparties as of March 31, 2011 are as follows (dollars in thousands):



|                           |  |                                           |  |                                       |         |  |                                    |   |         |                            |  |  |                                    |  |  |                                   
|-------------------------- |  | ----------------------------------------- |  | ------------------------------------- | ------- |  | ---------------------------------- | - | ------- | -------------------------- |  |  | ---------------------------------- |  |  | ----------------------------------
|Collateral                 |  | Balance Sheet Classificationof
Collateral |  | Carrying Value ofRepurchase Agreement |         |  | Book Value ofUnderlying Collateral |   |         | Maturity Dateof Collateral |  |  | Repurchase AgreementCounterparties
|GKK I - Mezzanine Loan (1) |  | Real estate loans receivable, net         |  | $                                     | 147,125 |  |                                    | $ | 257,965 |                            |  |  | 04/15/2011 (2)                     |  |  | Goldman Sachs Mortgage Company    
|GKK II -Mezzanine Loan (1) |  | Real estate loans receivable, net         |  |                                       | 114,430 |  |                                    |   | 200,640 |                            |  |  | 04/15/2011 (2)                     |  |  | Citigroup Financial Products, Inc.
|Fixed Rate Securities      |  | Real estate securities                    |  |                                       | 6,691   |  |                                    |   | 19,094  |                            |  |  | 12/31/2017                         |  |  | Deutsche Bank Securities, Inc.    
|                           |  |                                           |  |                                       |         |  |                                    |   |         |                            |  |  |                                    |  |  |                                   
|                           |  |                                           |  | $                                     | 268,246 |  |                                    | $ | 477,699 |                            |  |  |                                    |  |  |                                   
|                           |  |                                           |  |                                       |         |  |                                    |   |         |                            |  |  |                                    |  |  |                                   



(1) The Company is a guarantor of these repurchase agreements. See Note 5, Real Estate Loans Receivable 
Concentrations of Credit Risks and Note 16, Commitments and Contingencies  Concentrations of Credit Risks for more information on the Companys investment in the GKK Mezzanine Loan and the amendment and restatement
of the repurchase agreements.

(2) The Company
has entered into agreements to extend the maturity dates of the collateral through May 6, 2011. The GKK Mezzanine Loan matured on May 6, 2011 without repayment from the GKK Borrower. See Note 16, Commitments and Contingencies
 Concentrations of Credit Risks.

Recent Financing Transactions

Pay-off of the Midland Industrial Buildings Mortgage Loan

On
December 22, 2006, in connection with the acquisition of Midland Industrial Buildings, the Company, through an indirect wholly owned subsidiary, entered into a five-year mortgage loan with Greenwich Capital Financial Products, Inc. for
$24.1 million secured by the Midland Industrial Buildings (the Midland Industrial Buildings Mortgage Loan). The Midland Industrial Buildings Mortgage Loan bore interest at a fixed rated of 5.775% per annum for the first
two years and 5.855% thereafter. On January 6, 2011, the maturity date of the loan, the Company paid off the entire principal balance outstanding and accrued interest in the amount of $24.2 million.



33



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



10. DERIVATIVE INSTRUMENTS

The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by
changing interest rates on its variable rate real estate loans receivable and notes payable. The primary goal of the Companys risk management practices related to interest rate risk is to prevent changes in interest rates from adversely
impacting the Companys ability to achieve its investment return objectives. When the Company purchases or originates a variable rate debt instrument for investment, or obtains variable rate financing, it considers several factors in
determining whether or not to use a derivative instrument to hedge the related interest rate risk. These factors include the Companys return objectives, the expected life of the investment, the expected life of the financing instrument,
interest rates, costs to purchase hedging instruments, the terms of the debt investment, the terms of the financing instrument, the overall interest rate risk exposure of the Company, and other factors.

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

The Company enters into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate
notes payable. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in
interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards
zero. All of the Companys interest rate swaps and caps are designated as cash flow hedges.

The following table
summarizes the notional and fair value of the Companys derivative financial instruments as of March 31, 2011 and December 31, 2010. The notional value is an indication of the extent of the Companys involvement in each
instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):



|                                                   |  |                   |            |  |                  |  |            |                   |  |   |               |     |  |                                 |                                |  |                  |   |        |   |  |   |        |  
|-------------------------------------------------- |  | ----------------- | ---------- |  | ---------------- |  | ---------- | ----------------- |  | - | ------------- | --- |  | ------------------------------- | ------------------------------ |  | ---------------- | - | ------ | - |  | - | ------ | -
|                                                   |  |                   |            |  |                  |  |            |                   |  |   |               |     |  | Fair Value of Asset (Liability) |                               
|Derivative Instruments                             |  | Effective    Date |            |  | Maturity    Date |  |            | Notional    Value |  |   | ReferenceRate |     |  | March 31,    2011               |                                |  | December 31,2010 |  
|Interest Rate Swap                                 |  |                   | 07/11/2008 |  |                  |  | 07/11/2012 |                   |  | $ | 119,037       | (1) |  |                                 | One-month LIBOR/Fixed at
3.82% |  |                  | $ | (2,619 | ) |  | $ | (3,608 | )
|Interest Rate Swap                                 |  |                   | 02/05/2009 |  |                  |  | 03/01/2013 |                   |  |   | 45,700        |     |  |                                 | One-month LIBOR/Fixed at
2.26% |  |                  |   | (1,109 | ) |  |   | (1,313 | )
|Interest Rate Cap                                  |  |                   | 08/15/2009 |  |                  |  | 08/15/2011 |                   |  |   | 46,000        |     |  |                                 | One-month LIBOR at 2.50%       |  |                  |   |       |   |  |   |       |  
|Interest Rate Cap                                  |  |                   | 08/15/2010 |  |                  |  | 08/15/2011 |                   |  |   | 405,000       |     |  |                                 | One-month LIBOR at 1.00%       |  |                  |   | 1      |   |  |   | 20     |  
|                                                   |  |                   |            |  |                  |  |            |                   |  |   |               |     |  |                                 |                                |  |                  |   |        |   |  |   |        |  
|Total derivatives designatedas hedging instruments |  |                   |            |  |                  |  |            |                   |  | $ | 615,737       |     |  |                                 |                                |  |                  | $ | (3,727 | ) |  | $ | (4,901 | )
|                                                   |  |                   |            |  |                  |  |            |                   |  |   |               |     |  |                                 |                                |  |                  |   |        |   |  |   |        |  



(1) The notional value of this interest rate swap will be reduced to $39.7 million beginning August 1, 2011.



34



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Asset derivatives are recorded as deferred financing costs, prepaid expenses and other
assets on the accompanying consolidated balance sheets, and liability derivatives are recorded as other liabilities on the accompanying consolidated balance sheets. The change in fair value of the effective portion of a derivative instrument that is
designated as a cash flow hedge is recorded as other comprehensive income (loss) in the accompanying consolidated statements of equity. The Company recorded unrealized gains of $1.3 million and unrealized losses of $0.3 million on
derivative instruments designated as cash flow hedges in accumulated other comprehensive income (loss) during the three months ended March 31, 2011 and 2010, respectively. Amounts in other comprehensive income (loss) will be
reclassified into earnings in the periods in which earnings are affected by the hedged cash flow. As a result of utilizing derivative instruments designated as cash flow hedges to hedge variable rate notes payable and repurchase agreements, the
Company recognized an additional $1.3 million and $1.5 million of interest expense related to the effective portion of cash flow hedges during the three months ended March 31, 2011 and 2010, respectively. The ineffective
portion, reported as a component of interest expense, did not have a material impact on earnings and the Company does not anticipate that it will have a material impact in the future. During the next twelve months, the Company expects to recognize
additional interest expense related to derivative instruments designated as cash flow hedges. The present value of this additional interest expense totals $3.5 million as of March 31, 2011 and is included in accumulated other
comprehensive loss.

11. FAIR VALUE DISCLOSURES

The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and valuation techniques that involve significant management judgment. The price
transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Companys financial instruments. Financial instruments for which actively quoted prices or pricing parameters are
available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors
when determining if a market is inactive or when market transactions are not orderly. See Note 2, Summary of Significant Accounting Policies. The following is a summary of the methods and assumptions used by management in estimating
the fair value of each class of assets and liabilities for which it is practicable to estimate the fair value:

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

Real estate loans receivable: These instruments are presented in the accompanying consolidated balance sheets at their amortized
cost net of recorded loan loss reserves and not at fair value. The fair values of real estate loans receivable were estimated using an internal valuation model that considered the expected cash flows for the loans, underlying collateral values (for
collateral-dependent loans) and estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements.

Investment in unconsolidated joint venture:This investment is presented in the accompanying consolidated balance sheets at
acquisition-date fair value and not at current fair value. The fair value of the investment in the unconsolidated joint venture was estimated using an internal valuation model that considered the Companys expected cash flows from the joint
venture and estimated yield requirements of institutional investors for equity investments in real estate joint ventures with similar characteristics, including the capitalization of the joint venture, the operating performance of the joint
ventures real estate and the liquidation priority of the Companys investment.



35



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Real estate securities:These investments are classified as available-for-sale
and are presented at fair value. As of March 31, 2011, the Company based its fair value measurements for the Fixed Rate Securities on quotes provided by the dealer of these securities. Since the market for these securities was determined
to be inactive, the Company deemed the use of the dealer quotes as its point estimate of fair value to be appropriate by establishing a range of estimated fair values using various internal valuation techniques and concluding that the dealer quotes
were within a reasonable range of fair values. The dealer utilizes a proprietary valuation model that contains unobservable inputs. The Company based its fair value measurements of the Floating Rate CMBS on an internal valuation model that
considered expected cash flows from the underlying loans and yields required by market participants. As such, the Company classifies these inputs as Level 3 inputs.

Derivative instruments:These instruments are presented at fair value in the accompanying consolidated balance sheets. The valuation of these instruments is determined by a third-party expert using
a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable
market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps, caps and floors are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected
variable cash payments (receipts). The variable cash payments (receipts) are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider
the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk. The fair value of interest rate caps (floors) are determined using the market standard methodology of
discounting the future expected cash payments (receipts) which would occur if variable interest rates rise above (below) the strike rate of the caps (floors). The variable interest rates used in the calculation of projected payments (receipts) on
the cap (floor) are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities.

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

The following are the carrying amounts and fair values of the Companys financial instruments as of
March 31, 2011 and December 31, 2010, which carrying amounts do not approximate the fair values:



|                                           |  |                                      |           |  |                                         |   |           |            |  |   |            |  |  |                      |           |  |            |   |           |  |  |   |           | 
|------------------------------------------ |  | ------------------------------------ | --------- |  | --------------------------------------- | - | --------- | ---------- |  | - | ---------- |  |  | -------------------- | --------- |  | ---------- | - | --------- |  |  | - | --------- | 
|                                           |  | March 31, 2011(amounts in
thousands) |           |  | December 31, 2010(amounts
in thousands) |  
|                                           |  | Face Value                           |           |  | Carrying      Amount                    |   |           | Fair Value |  |   | Face Value |  |  | Carrying      Amount |           |  | Fair Value |  
|Financial assets:                          |  |                                      |           |  |                                         |   |           |            |  |   |            |  |  |                      |           |  |            |   |           |  |  |   |           | 
|Real estate loans receivable (1)           |  | $                                    | 643,919   |  |                                         | $ | 547,208   |            |  | $ | 564,899    |  |  | $                    | 663,919   |  |            | $ | 546,236   |  |  | $ | 499,584   | 
|Investment in unconsolidated joint venture |  |                                      |          |  |                                         |   |          |            |  |   | 10,775     |  |  |                      |          |  |            |   |          |  |  |   | 11,779    | 
|Financial liabilities:                     |  |                                      |           |  |                                         |   |           |            |  |   |            |  |  |                      |           |  |            |   |           |  |  |   |           | 
|Notes payable and repurchase agreements    |  | $                                    | 1,446,121 |  |                                         | $ | 1,446,121 |            |  | $ | 1,229,222  |  |  | $                    | 1,479,015 |  |            | $ | 1,479,015 |  |  | $ | 1,206,780 | 



(1) Face value of real estate loans receivable is net of
unfunded commitments. Carrying amount of real estate loans receivable includes loan loss reserves.



36



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Disclosure of the fair value of financial instruments is based on pertinent information
available to the Company at March 31, 2011 and requires a significant amount of judgment. The actual results could be materially different from the Companys estimate of value.

Assets and Liabilities Recorded at Fair Value

During the three months
ended March 31, 2011, the Company measured the following assets and liabilities at fair value on a recurring basis (in thousands):



|                       |  |       |        |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |        | 
|---------------------- |  | ----- | ------ | - | ----------------------------------------------------------- | - | - | ------------------------------------------- |  | - | --------------------------------------- | - |  | - | ------ | 
|                       |  |       |        |   | Fair Value Measurements Using                               |  
|                       |  | Total |        |   | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   |   | Significant OtherObservable Inputs(Level 2) |  |   | SignificantUnobservableInputs(Level
 3) |  
|Recurring Basis:       |  |       |        |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |        | 
|Real estate securities |  | $     | 19,094 |   |                                                             | $ |  |                                             |  | $ |                                        |   |  | $ | 19,094 | 
|Asset derivatives      |  |       | 1      |   |                                                             |   |  |                                             |  |   | 1                                       |   |  |   |       | 
|                       |  |       |        |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |        | 
|Total Assets           |  | $     | 19,095 |   |                                                             | $ |  |                                             |  | $ | 1                                       |   |  | $ | 19,094 | 
|                       |  |       |        |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |        | 
|Liability derivatives  |  | $     | (3,728 | ) |                                                             | $ |  |                                             |  | $ | (3,728                                  | ) |  | $ |       | 
|                       |  |       |        |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |        | 
|Total Liabilities      |  | $     | (3,728 | ) |                                                             | $ |  |                                             |  | $ | (3,728                                  | ) |  | $ |       | 
|                       |  |       |        |   |                                                             |   |   |                                             |  |   |                                         |   |  |   |        | 

When the Company has a collateral-dependent loan that is identified as being impaired, it is evaluated for
impairment by comparing the estimated fair value of the underlying collateral, less costs to sell, to the carrying value of the loan. Due to the nature of the properties collateralizing the Companys impaired collateral-dependent loans, the
Company estimated the fair value of the collateral by using an internally developed valuation model that utilizes the income approach to valuing real estate. This approach requires the Company to make significant judgments with respect to
capitalization rates, market rental rates, occupancy rates, and operating expenses that are considered Level 3 inputs.

When the Company has a loan that is identified as being impaired in connection with a troubled debt restructuring resulting from a
concession granted by the Company to the borrower through a modification of the loan terms, the loan is evaluated for impairment by comparing the carrying value of the loan to the present value of the modified cash flow stream discounted at the rate
used to recognize interest income. This rate may not be indicative of a market rate and, therefore, the resulting present value may not be considered to be a fair value. Thus, such financial assets involved in a troubled debt restructuring are not
considered to be carried at fair value.

The Company performed an impairment analysis related to its loans receivable as of
March 31, 2011, including the outstanding GKK Mezzanine Loan. Although as of March 31, 2011, the Companys investment in the GKK Mezzanine Loan was deemed to be impaired as the GKK Borrower failed to meet its contractual interest
payment obligation beginning April 2011, the Company determined that there was no impairment charge related to its loans receivable during the three months ended March 31, 2011, based upon the estimated future cash flows of the loans or
the value of the underlying collateral. See Note 5, Real Estate Loans Receivable  Reserve for Loan Losses and Real Estate Loans Receivable  Concentrations of Credit Risks for further discussion.

The Company estimated the fair value of impaired real estate by using a 10-year discounted cash flow analysis. The cash flow analysis
utilized internally prepared cash flow estimates, terminal capitalization rates within historical average ranges and discount rates that fall within ranges the Company believes are used by market participants. The capitalization rate ranges and
discount rate ranges were obtained from third-party service providers and the capitalization rate ranges were gathered for specific metro areas and applied on a property-by-property basis.



37



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The table below presents a reconciliation of the beginning and ending balances of
financial instruments of the Company having recurring fair value measurements based on significant unobservable inputs (Level 3) for the three months ended March 31, 2011 (in thousands):



|                                                              |  |   |        |  
|------------------------------------------------------------- |  | - | ------ | -
|Balance, December 31, 2010                                    |  | $ | 18,275 |  
|Unrealized losses on real estate securities                   |  |   | 1,040  |  
|Interest accretion real estate securities                     |  |   | (221   | )
|                                                              |  |   |        |  
|Balance, March 31, 2011                                       |  | $ | 19,094 |  
|                                                              |  |   |        |  
|Unrealized loss included in other comprehensive income (loss) |  | $ | 1,040  |  
|                                                              |  |   |        |  

12. RELATED PARTY TRANSACTIONS

The Company has entered into an Advisory Agreement with the Advisor that is in effect through November 8, 2011 and a Dealer Manager Agreement with the Dealer Manager. These agreements entitle
the Advisor and/or the Dealer Manager to specified fees upon the provision of certain services with regard to the Offering, the investment of funds in real estate and real estate-related investments, the management of those investments and the
disposition of investments, among other services, as well as reimbursement of organization and offering costs incurred by the Advisor, the Dealer Manager, and their affiliates on behalf of the Company (as discussed in Note 2, Summary
of Significant Accounting Policies) and certain costs incurred by the Advisor in providing services to the Company. The Advisor and Dealer Manager also serve as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust
II, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc. and KBS Legacy Partners Apartment REIT, Inc. During the three months ended March 31, 2011 and 2010, no transactions occurred between the Company and
these other KBS-sponsored programs.

Pursuant to the terms of the Advisory Agreement and Dealer Management Agreement,
summarized below are the related-party costs incurred by the Company for the three months ended March 31, 2011 and 2010, respectively, and any related amounts payable as of March 31, 2011 and December 31, 2010
(in thousands):



|                                       |  |                              |       |  |                |   |       |                   |  |   |       |  |  |   |       | 
|-------------------------------------- |  | ---------------------------- | ----- |  | -------------- | - | ----- | ----------------- |  | - | ----- |  |  | - | ----- | 
|                                       |  | Incurred                     |       |  | Payable        |  
|                                       |  | Three Months Ended March 31, |       |  | March 
31,2011 |   |       | December 
31,2010 | 
|                                       |  | 2011                         |       |  | 2010           |   |       |                  
|Expensed                               |  |                              |       |  |                |   |       |                   |  |   |       |  |  |   |       | 
|Asset management fees(1) (2)           |  | $                            | 4,508 |  |                | $ | 5,320 |                   |  | $ | 5,386 |  |  | $ | 5,386 | 
|Reimbursement of operating expenses(3) |  |                              | 11    |  |                |   |      |                   |  |   | 11    |  |  |   | 9     | 
|                                       |  |                              |       | 
|Additional Paid-in Capital             |  |                              |       |  |                |   |       |                   |  |   |       |  |  |   |       | 
|Selling commissions                    |  |                              | 281   |  |                |   | 282   |                   |  |   |      |  |  |   |      | 
|                                       |  |                              |       | 
|Capitalized                            |  |                              |       |  |                |   |       |                   |  |   |       |  |  |   |       | 
|Advances from Advisor                  |  |                              |      |  |                |   |      |                   |  |   | 1,600 |  |  |   | 1,600 | 
|                                       |  |                              |       |  |                |   |       |                   |  |   |       |  |  |   |       | 
|                                       |  | $                            | 4,800 |  |                | $ | 5,602 |                   |  | $ | 6,997 |  |  | $ | 6,995 | 
|                                       |  |                              |       |  |                |   |       |                   |  |   |       |  |  |   |       | 



(1)See Note
2, Summary of Significant Accounting Policies  Related Party Transactions  Asset Management Fee.

(2)Amounts include asset management fees from discontinued operations.

(3)The
Advisor may seek reimbursement for certain employee costs under the Advisory Agreement. Commencing July 1, 2010, the Company has reimbursed the Advisor for the Companys allocable portion of the salaries, benefits and overhead of
internal audit department personnel providing services to the Company. These amounts were the only employee costs reimbursed under the Advisory Agreement through March 31, 2011. The Company will not reimburse for employee costs in
connection with services for which KBS Capital Advisors earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to
the Companys executive officers.



38



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Advances from Advisor and Joint Venture Performance Fees

Pursuant to the Advisory Agreement, the Advisor agreed to advance funds to the Company equal to the amount by which the cumulative amount
of distributions declared by the Company from January 1, 2006 through the period ending August 31, 2010 exceeds the amount of the Companys Funds from Operations (as defined below) from January 1, 2006 through
August 31, 2010. The Advisor agreed that the Company will only be obligated to reimburse the Advisor for these advances if and to the extent that the Companys cumulative Funds from Operations for the period commencing
January 1, 2006 through the date of any such reimbursement exceed the lesser of (i) the cumulative amount of any distributions declared and payable to the Companys stockholders as of the date of such reimbursement or
(ii) an amount that is equal to a 7.0% cumulative, non-compounded, annual return on invested capital for the Companys stockholders for the period from July 18, 2006 through the date of such reimbursement. No interest accrues on
the advance made by the Advisor. No amounts were advanced since January 2007. The Advisory Agreement defines Funds from Operations as funds from operations as defined by the National Association of Real Estate Investment Trusts plus
(i) any acquisition expenses and acquisition fees expensed by the Company and that are related to any property, loan or other investment acquired or expected to be acquired by the Company and (ii) any non-operating noncash charges incurred
by the Company, such as impairments of property or loans, any other than temporary impairments of real estate securities, or other similar charges. The Company and the Advisor have agreed that the Advisor will not extend the agreement to advance
funds for distribution record dates after August 31, 2010.

Pursuant to the Advisory Agreement, the Advisor may also
earn a performance fee related to the Companys investment in the National Industrial Portfolio that would in effect make the Advisors cumulative fees related to the investment equal to 0.75% of the cost of the joint venture investment on
an annualized basis from the date of the Companys investment in the joint venture through the date of calculation. This fee is conditioned upon the amount of the Companys Funds from Operations (as defined in the Advisory Agreement).
The Companys operations from the date of the Companys investment through March 31, 2010 were sufficient to meet the Funds from Operations condition per the Advisory Agreement; beginning in April 2010, the Companys
operations did not meet the Funds from Operations condition per the Advisory Agreement. As a result, as of March 31, 2011, the Company had accrued for incurred but unpaid performance fees of $5.4 million from inception through
March 31, 2010. Although these performance fees have been incurred as of March 31, 2011, the Advisory Agreement further provides that the payment of these fees shall only be made after the repayment of advances from the Advisor.
As of March 31, 2011, $1.6 million of advances from the Advisor remain unpaid.

13. CONSOLIDATED JOINT VENTURE AND
NONCONTROLLING INTEREST

The Company holds an 80% membership interest in a joint venture with New Leaf. The joint venture,
referred to as the National Industrial Portfolio, owns 23 industrial properties and holds a master lease with a remaining term of 12.0 years with respect to another industrial property. Although the Company holds an 80% membership interest
and income, losses and distributions are generally allocated based on the members respective membership interests, the Company and New Leaf have equal voting rights with regard to certain major decisions. Based on these facts, the Company
determined its investment in the National Industrial Portfolio joint venture to be a variable interest, and therefore, the National Industrial Portfolio joint venture to be a variable interest entity.



39



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



New Leaf is the manager of the joint venture; however, its authority is limited. It may
not cause the joint venture to undertake activities or incur expenses with respect to the National Industrial Portfolio properties not authorized by the operating agreement, the approved budget or the approved business plan, except certain limited
expenditures. New Leaf also may not cause the joint venture to make certain decisions without the Companys consent, including any action that would reasonably be expected to have a substantial or material effect upon the joint venture, any of
its subsidiaries or the National Industrial Portfolio properties. Under the terms of the operating agreement for the joint venture, the Company and New Leaf may be required to make additional capital contributions to the joint venture to fund
operating reserves or expenses approved in the budget or business plan.

Due to provisions within the joint venture agreement
that would allow the Company to exercise control over the liquidation of the joint venture, the Company concluded that it is the primary beneficiary of this variable interest entity. Therefore, the Company consolidates the joint venture in its
financial statements and records the portion of the joint venture not owned by the Company as noncontrolling interest. During the three months ended March 31, 2011, the National Industrial Portfolio joint venture recognized net income
of $0.5 million, of which $0.1 million was allocated to the noncontrolling interest.

14. SUPPLEMENTAL CASH FLOW AND SIGNIFICANT
NONCASH TRANSACTION DISCLOSURES

Supplemental cash flow and significant noncash transaction disclosures were as follows (in
thousands):



|                                                                                                                    |  |                                      |        |  |      |   |        | 
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------ |  | ---- | - | ------ | 
|                                                                                                                    |  | For the Three Months Ended March 31, |       
|                                                                                                                    |  | 2011                                 |        |  | 2010 |  
|Supplemental Disclosure of Cash Flow Information:                                                                   |  |                                      |        |  |      |   |        | 
|Interest paid                                                                                                       |  | $                                    | 13,400 |  |      | $ | 13,410 | 
|                                                                                                                    |  |                                      |        |  |      |   |        | 
|Supplemental Disclosure of Significant Noncash Transactions:                                                        |  |                                      |        |  |      |   |        | 
|Investment in real estate acquired through foreclosure                                                              |  | $                                    |       |  |      | $ | 90,606 | 
|                                                                                                                    |  |                                      |        |  |      |   |        | 
|Liabilities assumed through foreclosure of real estate                                                              |  | $                                    |       |  |      |   | 52,483 | 
|                                                                                                                    |  |                                      |        |  |      |   |        | 
|Increase in distributions payable                                                                                   |  | $                                    | 64     |  |      | $ | 66     | 
|                                                                                                                    |  |                                      |        |  |      |   |        | 
|Increase in capital expenses payable                                                                                |  | $                                    | 6,884  |  |      | $ | 1,222  | 
|                                                                                                                    |  |                                      |        |  |      |   |        | 
|Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment
plan |  | $                                    | 11,533 |  |      | $ | 11,362 | 
|                                                                                                                    |  |                                      |        |  |      |   |        | 



40



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



15. SEGMENT INFORMATION

The Company presently operates in two business segments based on its investment types: real estate and real estate-related. Under the real estate segment, the Company has invested primarily in office and
industrial properties located throughout the United States. Under the real estate-related segment, the Company has invested in and originated mortgage loans, mezzanine loans and other real estate-related assets, including mortgage-backed securities
and preferred membership interest investments. All revenues earned from the Companys two operating segments were from external customers and there were no intersegment sales or transfers. The Company does not allocate corporate-level accounts
to its operating segments. Corporate-level accounts include corporate general and administrative expenses, non-operating interest income and other corporate-level expenses. The accounting policies of the segments are consistent with those described
in Note 2, Summary of Significant Accounting Policies.

The Company evaluates the performance of its
segments based upon net operating income from continuing operations (NOI), which is a non-GAAP supplemental financial measure. The Company defines NOI for its real estate segment as operating revenues (rental income, tenant
reimbursements and other operating income) less property and related expenses (property operating expenses, real estate taxes, insurance, asset management fees and provision for bad debt) less interest expense. The Company defines NOI for its real
estate-related segment as interest income and income from its unconsolidated joint venture investment less loan servicing costs, asset management fees and interest expense. NOI excludes certain items that are not considered to be controllable in
connection with the management of an asset such as non-property income and expenses, depreciation and amortization, and corporate general and administrative expenses. The Company uses NOI to evaluate the operating performance of the Companys
real estate and real estate-related investments and to make decisions about resource allocations. The Company believes that net income is the GAAP measure that is most directly comparable to NOI; however, NOI should not be considered as an
alternative to net income as the primary indicator of operating performance as it excludes the items described above. Additionally, NOI as defined above may not be comparable to other REITs or companies as their definitions of NOI may differ from
the Companys definition.



41



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The following tables summarize total revenues and NOI for each reportable segment for
the three months ended March 31, 2011 and 2010, and total assets and total liabilities for each reportable segment as of March 31, 2011 and December 31, 2010 (in thousands):



|                                    |  |                                      |           |  |                    |   |           | 
|----------------------------------- |  | ------------------------------------ | --------- |  | ------------------ | - | --------- | 
|                                    |  | For the Three Months Ended March 31, |          
|                                    |  | 2011                                 |           |  | 2010               |  
|Revenues:                           |  |                                      |           |  |                    |   |           | 
|Real estate segment                 |  | $                                    | 48,437    |  |                    | $ | 52,727    | 
|Real estate-related segment         |  |                                      | 9,228     |  |                    |   | 11,898    | 
|                                    |  |                                      |           |  |                    |   |           | 
|Total revenues                      |  | $                                    | 57,665    |  |                    | $ | 64,625    | 
|                                    |  |                                      |           |  |                    |   |           | 
|                                    |  |                                     
|Interest Expense:                   |  |                                      |           |  |                    |   |           | 
|Real estate segment                 |  | $                                    | 12,517    |  |                    | $ | 13,009    | 
|Real estate-related segment         |  |                                      | 1,720     |  |                    |   | 1,254     | 
|                                    |  |                                      |           |  |                    |   |           | 
|Total interest expense              |  | $                                    | 14,237    |  |                    | $ | 14,263    | 
|                                    |  |                                      |           |  |                    |   |           | 
|                                    |  |                                     
|NOI:                                |  |                                      |           |  |                    |   |           | 
|Real estate segment                 |  | $                                    | 13,559    |  |                    | $ | 16,827    | 
|Real estate-related segment         |  |                                      | 7,980     |  |                    |   | 10,888    | 
|                                    |  |                                      |           |  |                    |   |           | 
|Total NOI                           |  | $                                    | 21,539    |  |                    | $ | 27,715    | 
|                                    |  |                                      |           |  |                    |   |           | 
|                                    |  |                                     
|                                    |  | As of March 31,                      |           |  | As of December 31, |  
|                                    |  | 2011                                 |           |  | 2010               |  
|Assets:                             |  |                                      |           |  |                    |   |           | 
|Real estate segment                 |  | $                                    | 1,671,547 |  |                    | $ | 1,679,276 | 
|Real estate-related segment         |  |                                      | 570,624   |  |                    |   | 568,149   | 
|                                    |  |                                      |           |  |                    |   |           | 
|Total segment assets                |  |                                      | 2,242,171 |  |                    |   | 2,247,425 | 
|Forclosed real estate held for sale |  |                                      | 40,786    |  |                    |   | 49,110    | 
|Corporate-level(1)                  |  |                                      | 103,389   |  |                    |   | 136,855   | 
|                                    |  |                                      |           |  |                    |   |           | 
|Total assets                        |  | $                                    | 2,386,346 |  |                    | $ | 2,433,390 | 
|                                    |  |                                      |           |  |                    |   |           | 
|                                    |  |                                     
|Liabilities:                        |  |                                      |           |  |                    |   |           | 
|Real estate segment                 |  | $                                    | 1,233,209 |  |                    | $ | 1,259,647 | 
|Real estate-related segment         |  |                                      | 269,212   |  |                    |   | 278,211   | 
|                                    |  |                                      |           |  |                    |   |           | 
|Total segment liabilities           |  |                                      | 1,502,421 |  |                    |   | 1,537,858 | 
|Corporate-level(2)                  |  |                                      | 10,663    |  |                    |   | 10,648    | 
|                                    |  |                                      |           |  |                    |   |           | 
|Total liabilities                   |  | $                                    | 1,513,084 |  |                    | $ | 1,548,506 | 
|                                    |  |                                      |           |  |                    |   |           | 



(1)Total
corporate-level assets consisted primarily of cash and cash equivalents of approximately $102.9 million and $136.7 million as of March 31, 2011 and December 31, 2010, respectively.

(2)As of March 31, 2011 and December 31, 2010, corporate-level liabilities consisted primarily of amounts due to affiliates, accruals for legal and accounting fees and
distributions payable.



42



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The following table reconciles the Companys net income to its NOI for the three
months ended March 31, 2011 and 2010 (amounts in thousands):



|                                                     |  |                                      |        |   |      |   |        |  
|---------------------------------------------------- |  | ------------------------------------ | ------ | - | ---- | - | ------ | -
|                                                     |  | For the Three Months Ended March 31, |       
|                                                     |  | 2011                                 |        |   | 2010 |  
|Net income                                           |  | $                                    | 1,043  |   |      | $ | 4,545  |  
|Gain on sale of foreclosed real estate held for sale |  |                                      | (51    | ) |      |   |       |  
|Other interest income                                |  |                                      | (79    | ) |      |   | (28    | )
|General and administrative expenses                  |  |                                      | 2,540  |   |      |   | 1,653  |  
|Depreciation and amortization                        |  |                                      | 18,241 |   |      |   | 21,258 |  
|Provision for loan losses                            |  |                                      | (155   | ) |      |   | (48    | )
|Total loss from discontinued operations              |  |                                      |       |   |      |   | 335    |  
|                                                     |  |                                      |        |   |      |   |        |  
|NOI                                                  |  | $                                    | 21,539 |   |      | $ | 27,715 |  
|                                                     |  |                                      |        |   |      |   |        |  

16. COMMITMENTS AND CONTINGENCIES

Economic Dependency

The Company is dependent on the Advisor for certain
services that are essential to the Company, including the management of the Companys real estate and real estate-related investment portfolio; the disposition of real estate and real estate-related investments; and other general and
administrative responsibilities. In the event that the Advisor is unable to provide these services, the Company will be required to obtain such services from other sources.

Concentrations of Credit Risks

The Company owns a significant number of
mezzanine loans that as of March 31, 2011 comprised 20% of the Companys total assets and 78% of the Companys total investments in loans receivable, before loan loss reserves. During the three months ended
March 31, 2011, the Companys investments in mezzanine loans provided 12% of the Companys revenues and 84% of the Companys interest income from loans receivable.



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PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Mezzanine loans are secured by a pledge of the ownership interests of an entity that
directly or indirectly owns real property and involve a higher degree of risk, including refinance risk and maturity risk, than a senior mortgage loan with a first priority lien. In general, if the Company has a first priority lien on the collateral
securing a loan and the borrower fails to make all required payments or is unable to repay its loans at maturity, the Company may agree to extend the loan at similar terms, modify the terms of the loan, or foreclose on the collateral. If the Company
forecloses on the collateral, it may either operate the property, resulting in the Company receiving any cash flows generated by the property or the Company paying any cash shortfalls related to the property, or sell the property for whatever amount
it can obtain, which may or may not be equal to the loan balance prior to foreclosure. In general, if the Company owns a mezzanine loan and the borrower fails to make all required payments or is unable to repay its loan at maturity, the Company may
have more restrictions and fewer options regarding the resolution of its investment. In certain circumstances, the senior lenders, in conjunction with the Company, may be willing to grant the borrower extensions or may grant extensions in exchange
for more favorable terms (such as higher interest rates, a partial payoff, the entitlement to a portion of a junior lenders interest income, etc.). In the event of a default, the Company, as the mezzanine lender, may foreclose on the ownership
interests of the borrower and take legal title to the property subject to the existing senior loans. The Company could then operate the property on its own behalf. In the event that the senior loans have matured or have gone into default
concurrently with the Companys foreclosure, the Company could attempt to negotiate an extension or modification with the senior lenders as the new borrower; however, if the senior lenders were not willing to extend or modify the loans and the
Company was not able to repay the senior loans, or if the property did not and was not expected to have sufficient cash flow to cover the debt service on the senior loans, the Company would most likely relinquish its interests or rights in the
investment to the holders of the senior loans. In addition, losses realized by mezzanine lenders may be greater than losses realized by senior lenders as the rights of mezzanine lenders are subordinate to those of senior lenders. For example, if a
property was liquidated by a group of lenders consisting of a senior lender and a mezzanine lender, the proceeds of the liquidation would be applied to the senior lenders loan balance first with any remaining proceeds going to the mezzanine
lender.

The GKK Mezzanine Loan represents a significant investment to the Company that as of March 31, 2011
comprised 19% of the Companys total assets and 84% of the Companys total investments in loans receivable, after loan loss reserves. During the three months ended March 31, 2011, the GKK Mezzanine Loan provided 12% of the
Companys revenues and 81% of the Companys interest income from loans receivable. Although as of March 31, 2011, the Companys investment in the GKK Mezzanine Loan was deemed to be impaired as the GKK Borrower failed to meet its
contractual interest payment obligation beginning April 2011, the Company has not recorded an impairment charge related to its investment in the GKK Mezzanine Loan. Based on an analysis of the value of the assets securing the GKK Mezzanine Loan, the
Company concluded that the GKK Mezzanine Loan was fully secured by the collateral and no impairment was necessary as of March 31, 2011. The Company will continue to monitor the performance of the Gramercy realty portfolio. There is no
assurance that the Company will not realize an impairment charge related to this investment in the future and it is reasonably possible that as a result of receiving additional information related to the assets securing the GKK Mezzanine Loan or a
change in other facts and circumstances that an impairment may be realized. As of March 31, 2011, the cash flows provided by the properties securing the GKK Mezzanine Loan were insufficient to cover the GKK Borrowers debt service
obligations.



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PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



As of March 31, 2011, the outstanding principal balance of the GKK Mezzanine
Loan was $458.6 million. The GKK Mezzanine Loan is security for two repurchase agreements totaling $261.6 million as of March 31, 2011. Prior to the extensions discussed below, the maturity date of the GKK Mezzanine Loan was
March 11, 2011 and the maturity dates of the repurchase agreements were March 9, 2011.

Commencing on
March 11, 2011, the Company, through indirect wholly owned subsidiaries, and the GKK Borrower entered into a series of agreements to extend the maturity date of the GKK Mezzanine Loan through May 6, 2011 in anticipation of
negotiations among the Company, the GKK Borrower, Gramercy and certain other mortgage and mezzanine lenders to the Gramercy realty portfolio regarding an agreement for an orderly transition of all or substantially all of the assets securing the
Gramercy realty mortgage and mezzanine indebtedness to the lenders. The Company can give no assurance as to the outcome of any of these negotiations. If the lenders and Gramercy are unable to consummate a transition agreement, the Company
anticipates that it will thereafter attempt to pursue available remedies to enforce the loans, which will likely include foreclosing on all or substantially all of the collateral securing the loans. The extension agreements related to the GKK
Mezzanine Loan also extended the maturity dates of the mortgage loan (the Mortgage Loan) and the junior mezzanine loan (the Junior Mezzanine Loan) related to Gramercys realty portfolio to May 6, 2011. As part of
the GKK extension agreements, Gramercy agreed to pay $3.5 million in the aggregate on March 14, 2011 for amounts due and payable by it under the GKK Mezzanine Loan, the Mortgage Loan and the Junior Mezzanine Loan and for costs and
expenses the GKK Borrower or the borrowers under the Mortgage Loan or Junior Mezzanine Loan are otherwise responsible to pay. The extension agreements provided that as of March 12, 2011 and through May 6, 2011, interest would accrue on the
mezzanine loan at a rate equal to the greater of the Prime Rate plus 1% or one-month LIBOR plus 9.2%. Beginning April 2011, the GKK Borrower failed to meet its debt payment obligation. As of March 31, 2011, the Company had recorded interest
income receivable, based on cash received in April 2011, of $1.1 million related to the GKK Mezzanine Loan. The Company does not expect to receive any future contractual interest payments from the GKK Borrower. In addition, the GKK Mezzanine Loan
matured on May 6, 2011 without repayment from the GKK Borrower. The Company anticipates commencing foreclosure proceedings on the underlying collateral or alternately, as to all or portions of the underlying collateral, obtain such underlying
collateral from the GKK Borrower on mutually agreeable terms.

Commencing on March 9, 2011, the Companys
subsidiaries that are the borrowers under the repurchase agreements (individually and collectively, KBS GKK) entered into a series of extension agreements with the repurchase agreement lenders to extend the maturity dates of each
repurchase agreement through April 28, 2011. As part of the extensions of the repurchase agreements, the Company paid $5.0 million in the aggregate to the repurchase agreement lenders on March 10, 2011 and paid an additional
$5.0 million in the aggregate to the repurchase agreement lenders on March 22, 2011. Of the initial $5.0 million paid to the lenders, $4.1 million was used for the reduction of the principal balance under the repurchase
agreements. The additional $5.0 million paid on March 22, 2011 was entirely applied to the reduction of the principal balance. Pursuant to the extension agreements, from and after March 9, 2011, certain amounts owed by KBS
GKK to the lenders under the repurchase agreements accrued interest at an annual rate equal to the Federal Funds Rate plus 450 basis points (4.6% at March 31, 2011), from LIBOR plus 150 basis points prior to the extension. Also pursuant to
the extension agreements, KBS GKK agreed to pay to the lenders all amounts received by KBS GKK under the GKK Mezzanine Loan in excess of interest payments.

On April 28, 2011, KBS GKK entered into an Amended and Restated Master Repurchase Agreement, which agreement was amended on May 10, 2011, with Goldman Sachs Mortgage Company
(Goldman) and an Amended and Restated Master Repurchase Agreement, which agreement was amended on May 10, 2011, with Citigroup Financial Products Inc. (Citigroup and, together with Goldman, the GKK Lenders)
(collectively and as amended, the Amended Repurchase Agreements). The purposes of the Amended Repurchase Agreements were, among others, to (i) extend the maturity dates of the existing Master Repurchase Agreements between KBS GKK,
and Goldman and Citigroup, respectively, dated August 22, 2008, as amended, (ii) provide for additional security for the GKK Lenders under the Amended Repurchase Agreements, and (iii) set certain conditions that, on the date met (the
Conversion Date), would automatically convert the Amended Repurchase Agreements into a mezzanine loan (the Replacement Mezzanine Loan).



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PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The Amended Repurchase Agreements will terminate on the earliest to occur of
(i) April 28, 2013, (ii) the Conversion Date, (iii) the full payment of all obligations under the Amended Repurchase Agreements, or (iv) upon an event causing the Amended Repurchase Agreements to otherwise terminate.

As part of the closing of the Amended Repurchase Agreements, the Company paid $120 million in the aggregate to the GKK
Lenders, of which approximately $115 million was used for the reduction of the principal balance under the repurchase agreements (the Principal Payment), with the remaining $5 million used for accrued interest, and costs and
expenses incurred by the GKK Lenders in connection with the closing of the Amended Repurchase Agreements. As of April 28, 2011 and after the application of the Principal Payment, the Amended Repurchase Agreements had an aggregate
outstanding principal balance of $146.6 million. On May 10, 2011, the GKK Lenders advanced an additional $34.4 million under the Amended Repurchase Agreements to fund the Companys acquisition, through KBS GKK, of a subordinated
portion of the Mortgage Loan (the KBS Tranche). Additionally, in connection with the acquisition of the KBS Tranche, the Company, through KBS GKK, acquired a subordinated portion of the Junior Mezzanine Loan (the KBS Junior Mezz
Tranche).

The Amended Repurchase Agreements are secured by participation interests in the GKK Mezzanine Loan, with an
outstanding principal balance of $458.4 million as of April 28, 2011, the KBS Tranche and the KBS Junior Mezz Tranche.

The Amended Repurchase Agreements bear interest at an annual rate of 350 basis points over one-month LIBOR. In addition to monthly interest payments under the terms of the Amended Repurchase Agreements,
KBS GKK is required to make certain mandatory payments as follows:



| | (i) | by October 28, 2011, an amortization payment of $35 million;
| | --- | ------------------------------------------------------------



| | (ii) | every three months thereafter through April 2013, amortization payments of approximately $24.3 million, which payment amounts were increased from $18.6
million because, on May 10, 2011, the GKK Lenders made an advance to provide funding for the acquisition by the Company, through KBS GKK, of the KBS Tranche, and which may be decreased by KBS GKK making any prepayments of principal, including
any mandatory or voluntary prepayments of principal;
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | by October 28, 2011, payments relating to the acquisition of the KBS Tranche and the KBS Junior Mezz Tranche in the amount of $1.6 million, and every three months
thereafter through April 2013, such payments in the amount of $1.1 million;
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | all proceeds received by KBS GKK related to the GKK Mezzanine Loan; and
| | ---- | -----------------------------------------------------------------------



| | (v) | 75% to 100% of excess cash flows or net cash proceeds from: (a) the foreclosure or sale of certain properties in the Gramercy realty portfolio which indirectly
secure the GKK Mezzanine Loan (the GKK Collateral); (b) the sale of certain real estate-related debt investments owned by the Company; (c) the sale of substantially all other properties owned by the Company, in excess of
$75 million in the aggregate in any calendar year; and (d) certain indebtedness incurred or equity issued (excluding proceeds from the Companys dividend reinvestment plan), by the Company.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

KBS GKK may voluntarily prepay amounts outstanding under the Amended Repurchase Agreements without prepayment penalties.

In the event of: (i) a default under the Amended Repurchase Agreements; or (ii) bankruptcy or an act of insolvency with respect
to the borrowers under the Mortgage Loan, the GKK Borrower or the borrowers under the Junior Mezzanine Loan, provided that such borrowers are then affiliates of the Company, the GKK Lenders shall have all voting and consent rights with respect to
the GKK Mezzanine Loan.



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PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



The Amended Repurchase Agreements require KBS GKK and its subsidiaries, the Company and
certain of its subsidiaries that indirectly own most of the Companys assets (collectively, the Guarantors) to meet certain financial and other covenants, which include among other covenants the requirement (i) for the
Guarantors to maintain minimum liquidity of $9.0 million for the four month period beginning in May 2011, and $19.0 million thereafter and (ii) for KBS GKK to use its best efforts to comply with certain foreclosure procedures in connection with
the exercise of remedies under the GKK Mezzanine Loan. The Company also agreed that, unless permitted by or pursuant to the terms of the Amended Repurchase Agreements, during the term of the Amended Repurchase Agreements it would not create or incur
additional liens or indebtedness on its assets, make additional investments, or make certain dispositions except pursuant to the mandatory payment provisions discussed above. During the term of the Amended Repurchase Agreements, the Company also
agreed (i) except for distributions to stockholders necessary to maintain the Companys REIT status, to limit distributions to stockholders to an amount not to exceed $6.0 million per month, excluding any distributions to stockholders
reinvested in the Company pursuant to the dividend reinvestment plan (currently, distributions are less than $5.0 million per month, excluding distributions reinvested pursuant to the dividend reinvestment plan), and (ii) to continue to limit
redemptions under the share redemption program to those redemptions sought upon a stockholders death, qualifying disability or determination of incompetence (each as defined in the share redemption program).

The Guarantors have guaranteed, and other subsidiaries of the Company as may be added in the future will guarantee, all amounts owed by
KBS GKK to the GKK Lenders under the Amended Repurchase Agreements.

In connection with the execution of the Amended
Repurchase Agreements, the Company, through a wholly owned subsidiary, expects to commence foreclosure proceedings on, or otherwise take title to, the GKK Collateral. On the Conversion Date, the Amended Repurchase Agreements will automatically
convert into the Replacement Mezzanine Loan. The terms of the Replacement Mezzanine Loan are expected to be substantially similar to those of the Amended Repurchase Agreements, including the guarantees.

Environmental

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

Legal Matters

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



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PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



17. SUBSEQUENT EVENTS

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

Distributions Paid

On April 15, 2011, the Company paid
distributions of $8.3 million, which related to distributions declared for each day in the period from March 1, 2011 through March 31, 2011.

Distributions Declared

On March 28, 2011, the Companys
board of directors declared distributions based on daily record dates for the period from April 1, 2011 through April 30, 2011, which the Company expects to pay in May 2011. On April 19, 2011, the Companys
board of directors declared distributions based on daily record dates for the period from May 1, 2011 through May 31, 2011, which the Company expects to pay in June 2011. On May 4, 2011, the Companys board of
directors declared distributions based on daily record dates for the period from June 1, 2011 through June 30, 2011, which the Company expects to pay in July 2011, and distributions based on daily record dates for the period
from July 1, 2011 through July 31, 2011, which the Company expects to pay in August 2011. Investors may choose to receive cash distributions or purchase additional shares through the Companys dividend reinvestment plan.

Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of
$0.00143836 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 5.25% annualized rate based on a purchase price of $10.00 per share or a 7.17% annualized rate based on shares purchased
under the Companys dividend reinvestment plan at the current price per share of $7.32.

Financings Subsequent to March 31, 2011

Extension of GKK Repurchase Agreements

Subsequent to March 31, 2011, KBS GKK entered into a series of extension agreements to extend the maturity dates of the two repurchase agreements secured by the Companys investment in the
GKK Mezzanine Loan. See Note 16, Commitments and Contingencies  Concentrations of Credit Risks.

Wells
Bridge Loan

On April 28, 2011, the Company, through indirect wholly owned subsidiaries (collectively, the
Wells Bridge Loan Borrower), entered into a loan with Wells Fargo Bank, National Association (Wells) for an amount of up to $50.0 million (the Wells Bridge Loan). As of April 28, 2011, $10.0 million
had been disbursed to the Wells Bridge Loan Borrower with the remaining loan balance of $40.0 million available for future disbursements, subject to certain conditions set forth in the loan agreement. The maturity date of the Wells Bridge Loan
is January 26, 2012. The Wells Bridge Loan bears interest at a floating rate of 275 basis points over one-month LIBOR. Monthly payments on the Wells Bridge Loan are interest-only, with the entire principal amount, plus any outstanding
interest and fees, due at maturity, assuming no prior prepayment. Upon no less than three business days notice, the Wells Bridge Loan Borrower may pre-pay all or a portion of the Wells Bridge Loan, subject to prepayment fees in certain
circumstances. The Wells Bridge Loan is secured by real estate owned by the Wells Bridge Loan Borrower and shall be used for, among other purposes, the amortization payments required under the Amended Repurchase Agreements. The Company has
guaranteed all amounts owed by the Wells Bridge Loan Borrower to Wells under the Wells Bridge Loan.



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PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 1. | Financial Statements (continued)
|------- | --------------------------------

KBS REAL ESTATE INVESTMENT TRUST, INC.

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)

March 31, 2011

(unaudited)



Millennium I Building Revolving Loan

On February 12, 2010, the Company, through an indirect wholly owned subsidiary, completed the secured financing of the
Millennium I Building. The Company obtained a three-year revolving loan from a financial institution that allowed the Company to draw up to $29.5 million, subject to certain terms and restrictions, at a floating interest rate equal to 375 basis
points over one-month LIBOR (the Millennium I Building Revolving Loan). On April 21, 2011, the Company drew the entire $29.5 million available under the Millennium I Building Revolving Loan, which amount was used for the principal
payment and fees required under the Amended Repurchase Agreements.

Small Portfolio Mortgage Loan Facility

On February 5, 2009, certain of the Companys wholly owned subsidiaries (the Small Portfolio Mortgage Loan
Borrowers) entered into a three-year mortgage loan agreement with an unaffiliated lender related to the following properties that secure the loan: North Creek Parkway Center, City Gate Plaza, the University Park Buildings and Meridian Tower.
The principal amount of the facility is $54.0 million (the Small Portfolio Mortgage Loan Facility). The maturity date of the loan is March 1, 2012, with a one-year extension option subject to certain conditions. The Small
Portfolio Mortgage Loan Facility bears interest at a floating rate of 275 basis points over one-month LIBOR (or, at the Small Portfolio Mortgage Loan Borrowers election, over three-month LIBOR or six-month LIBOR). At closing, $45.7
million had been disbursed to the Company and up to $8.3 million was available for a one-time future disbursement, subject to certain conditions set forth in the loan agreement. On April 21, 2011, the Company drew the remaining $8.3 million
available under the Small Portfolio Mortgage Loan Facility, which amount was used for the principal payment and fees required under the Amended Repurchase Agreements.

Extension and Modification of the Woodfield Preserve Office Center and South Towne Corporate Center I and II

Mortgage Loans

On May 1, 2011, the Company, through indirect
wholly owned subsidiaries, entered into a loan extension and modification agreement to extend the maturity date of a $106.5 million mortgage loan secured by the Woodfield Preserve Office Center and South Towne Corporate Center I and II to
October 31, 2011. In connection with the extension, the Company paid $0.5 million of extension fees and waived the right to draw an additional $4.0 million previously available for future funding under the terms of the original
loan agreement. During the extension period, interest will be calculated at a fixed rate of 5.30% per annum. Monthly payments are interest-only, with the entire principal amount, plus any outstanding interest and fees, due at maturity, assuming
no prior payments.



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PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis should be read in conjunction with the accompanying financial statements of KBS Real Estate
Investment Trust, Inc. and the notes thereto. As used herein, the terms we, our and us refer to KBS Real Estate Investment Trust, Inc., a Maryland corporation, and, as required by context, KBS Limited
Partnership, a Delaware limited partnership, which we refer to as the Operating Partnership and to their subsidiaries.

Forward-Looking Statements

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

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



| |  |  | We have a limited operating history. This inexperience makes our future performance difficult to predict.
| | - |  | ---------------------------------------------------------------------------------------------------------



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



| |  |  | We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants. Revenues from
our properties could decrease due to a reduction in tenants (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental
rates, making it more difficult for us to meet our debt service obligations and limiting our ability to pay distributions to our stockholders.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ongoing credit market disruptions have caused the spreads on prospective debt financing to increase. This could cause the costs and terms of new
financings to be less attractive than the terms of our current indebtedness and increase the cost of our variable rate debt. In addition, we may not be able to refinance our existing indebtedness or to obtain additional debt financing on attractive
terms. If we are not able to refinance existing indebtedness on attractive terms at its maturity, we may be forced to dispose of some of our assets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our investments in real estate and mortgage, mezzanine, bridge and other loans as well as investments in real estate securities may be affected by
unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders. Revenues from our real property investments could decrease, making it more difficult
for us to meet our debt service obligations and limiting our ability to pay distributions to our stockholders. Revenues from the properties and other assets directly securing our loan investments and underlying our investments in real estate
securities could decrease, making it more difficult for the borrower to meet its payment obligations to us. In addition, decreases in revenues from the properties directly securing our loan investments and underlying our investments in real estate
securities could result in decreased valuations for those properties, which could make it difficult for our borrowers to repay or refinance their obligations to us. These factors could make it more difficult for us to meet our debt service
obligations and limit our ability to pay distributions to our stockholders.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continued disruptions in the financial markets and deteriorating economic conditions could adversely affect the value of our investments.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



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



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



| |  |  | Additionally certain of our loan receivable investments are also variable rate with interest rate and related payments that vary with the movement of
LIBOR. Decreases in these indexes could decrease the interest income payments received and limit our ability to pay distributions to our stockholders.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We cannot predict with any certainty how much, if any, of our dividend reinvestment plan proceeds will be available for general corporate purposes,
including, but not limited to, the redemption of shares under our share redemption program, the funding of capital expenditures on our real estate investments, the funding of outstanding loan commitments on our real estate loans receivable, or the
repayment of debt. If such funds are not available from the dividend reinvestment plan offering, then we may have to use a greater proportion of our cash flow from operations to meet these cash requirements, which would reduce cash available for
distributions, and we would continue to be limited in our ability to redeem any shares under our share redemption program.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the
Securities and Exchange Commission (the SEC).

Overview

We are a Maryland corporation that was formed on June 13, 2005 to invest in a diverse portfolio of real estate properties and
real estate-related investments. We have elected to be taxed as a real estate investment trust (REIT) beginning with the taxable year ended December 31, 2006 and we intend to operate in such a manner. We own substantially all
of our assets and conduct our operations through our Operating Partnership, of which we are the sole general partner. Subject to certain restrictions and limitations, our business is managed by KBS Capital Advisors LLC (KBS Capital
Advisors), our external advisor, pursuant to an advisory agreement. Our advisor owns 20,000 shares of our common stock. We have no paid employees.

On January 27, 2006, we launched our initial public offering of up to 200,000,000 shares of common stock in our primary offering and 80,000,000 shares of common stock under our
dividend reinvestment plan. We ceased offering shares of common stock in our primary offering on May 30, 2008. We continue to issue shares of common stock under our dividend reinvestment plan. We sold 171,109,494 shares in our primary
offering for gross offering proceeds of $1.7 billion and, as of March 31, 2011, we had sold 21,816,201 shares under our dividend reinvestment plan for gross offering proceeds of $187.6 million.

As of March 31, 2011, we owned 63 real estate properties, one master lease, 11 real estate loans receivable, two
investments in securities directly or indirectly backed by commercial mortgage loans, and a preferred membership interest in a real estate joint venture. Also, as of March 31, 2011, we owned a 10-story condominium building with
62 units acquired through foreclosure, of which eight condominium units, two retail spaces and parking spaces were held for sale.

Our focus in 2011 is to manage our existing portfolio. To the extent we receive proceeds from the repayment of real estate-related investments or the sale of a property in 2011, we expect to retain
these funds for liquidity purposes, but may use a portion of the funds to make additional investments, to pay down debt or to pay distributions to our stockholders.

Market Outlook  Real Estate and Real Estate Finance Markets

During
the past three years, significant and widespread concerns about credit risk and access to capital have been present in the U.S. and global financial markets. Economies throughout the world have experienced increased unemployment and sagging consumer
confidence due to a downturn in economic activity. Despite improved stock market performance and some positive economic indicators, a lack of job creation, low consumer confidence and a growing federal budget deficit temper the positive indicators.
Amid signs of recovery in the economic and financial markets, concerns remain regarding job growth, wage stagnation, credit restrictions and increased taxation.

Bank earnings and liquidity have rebounded, particularly among larger financial institutions. Smaller financial institutions have continued to work with borrowers to amend and extend existing loans;
however, as these loans reach maturity, there is the potential for future credit losses. The FDICs list of troubled financial institutions is still quite large and the threat of more bank closings will weigh heavily on the financial markets.

Over the past several months, the U.S. commercial real estate industry has experienced some improvement in fundamental
benchmarks, such as occupancy, rental rates and pricing. Continued improvement in these fundamentals remains contingent upon sustainable economic growth. In general, borrower defaults may rise, and occupancy and rental rate stabilization will vary
by market and by property type. Looking forward, it is widely assumed that mortgage delinquencies have not yet peaked.



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



Currently, benchmark interest rates, such as LIBOR, remain near historic lows. This has
allowed borrowers with floating rate debt to continue to make debt service payments even as the properties securing these loans experience decreased occupancy and lower rental rates. Low short-term rates have allowed these borrowers to meet their
debt obligations; however, they would not meet the current underwriting requirements needed to refinance this debt today. As these loans near maturity, borrowers may have to find new sources of funds in order to recapitalize their properties.

Throughout the financial crisis and economic downturn, commercial real estate transactions experienced a sharp decline in
volume. Recent trends indicate a modest rebound in transaction activity. High-quality assets in top-tier markets experienced the largest increase in transaction volume. One of the significant barriers to deal flow is the spread between buyer/seller
pricing expectations. It is expected that more commercial properties will come into the market as loans mature, marginally performing properties default and banks increase their foreclosure activity. From a financing perspective, new lending is
expected to remain subdued in the near term. The CMBS market, formerly a significant source of liquidity and debt capital, was inactive in 2008 and 2009, and left a void in the market for long-term, affordable, fixed rate debt. During that time, the
void was partially filled by portfolio lenders such as insurance companies, but at very different terms than were available in the past. These remaining lenders generally increased credit spreads, lowered the amount of available proceeds, required
recourse security and credit enhancements, and otherwise tightened underwriting standards, while simultaneously limiting lending to existing relationships with borrowers that invest in high quality assets in top-tier markets. In addition, lenders
have limited the amount of financing available to existing relationships in an effort to manage capital allocations and credit risk.

Recently, there have been signs that the credit markets have begun to thaw as the global economy has shown signs of recovery and growth. New CMBS issuances and the increased access to the capital markets
for publicly-traded REITs has led many to believe that commercial real estate lending will be revived as the markets appetite for risk returns. Similarly, many lending institutions have increased their lending on commercial real estate, which
coupled with historically low interest rates and slightly-relaxed underwriting standards, has helped increase commercial real estate transaction volume. It is important to remember that these trends have only recently begun and an improvement in one
aspect of the market does not provide an indication of a general market recovery or provide any indication of the duration of the existing downturn, or the speed of any expected recovery.

Despite improved access to capital for some companies, the aforementioned economic conditions have continued to impact the capital
markets. Global government interventions in the banking system and the persistence of a highly expansionary monetary policy by the U.S. Treasury have introduced additional complexity and uncertainty to the markets. The U.S. governments recent
introduction of additional regulation to the financial markets, including the banking, insurance and brokerage sectors, has resulted in general uncertainty as to the long-term impact on these markets and on the economy as a whole. Adding to this
uncertainty are increased disclosure requirements and changes to accounting principles involving the valuation of investments. These conditions are expected to continue, and combined with a challenging macro-economic environment, may interfere with
the implementation of our business strategy and/or force us to modify it.

Impact on Our Real Estate Investments

These market conditions have and will likely continue to have a significant impact on our real estate investments. In addition, these
market conditions have impacted our tenants businesses, which makes it more difficult for them to meet current lease obligations and places pressure on them to negotiate favorable lease terms upon renewal in order for their businesses to
remain viable. Increases in rental concessions given to retain tenants and maintain our occupancy level, which is vital to the continued success of our portfolio, has resulted in lower current cash flow. Projected future declines in rental rates,
slower or potentially negative net absorption of leased space and expectations of future rental concessions, including free rent to retain tenants who are up for renewal or to sign new tenants, are expected to result in additional decreases in cash
flows. Historically low interest rates have helped offset some of the impact of these decreases in operating cash flow for properties financed with variable rate mortgages; however, interest rates may not remain at these historically low levels for
the remaining life of many of our investments.



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



Impact on Our Real Estate-Related Investments

Nearly all of our real estate-related investments are either directly secured by commercial real estate (e.g., first trust deeds or
mortgages) or secured by ownership interests in entities that directly or indirectly own and operate real estate (e.g., mezzanine loans). As a result, our real estate-related investments in general have been impacted by the same factors
impacting our real estate investments. In particular, our investments in mezzanine loans and B-Notes have been impacted to a greater degree as current valuations for buildings directly or indirectly securing our investment positions have likely
decreased from the date of our acquisition or origination of these investments. In such instances, the borrowers may not be able to refinance their debt to us or sell the collateral at a price sufficient to repay our note balances in full when they
become due. In addition, current economic conditions have impacted the performance of collateral directly or indirectly securing our loan investments, and therefore, have impacted the ability of some borrowers under our loans to make contractual
interest payments to us. For the three months ended March 31, 2011, we recorded a reduction of loan loss reserve of $0.2 million, which was comprised of a $0.2 million reduction of loan loss reserve calculated on an
asset-specific basis, offset by an increase of $15,000 to our portfolio-based reserve.

Assuming our real estate-related loans
are fully extended under the terms of the respective loan agreements, and excluding our loan investments with asset-specific loan loss reserves and loans under which we have foreclosed or otherwise taken title to the property subsequent to
March 31, 2011, we have investments with book values totaling $562.4 million maturing within the next 12 months. For additional information, see the discussion of our $458.6 million investment in the GKK Mezzanine Loan below
under  Contractual Commitments and Contingencies. We have variable rate real estate-related investments with book values (excluding asset-specific loan loss reserves) of $473.6 million and fixed rate real estate-related
investments with book values (excluding asset-specific loan loss reserves) of $153.0 million.

Impact on Our Financing Activities

In light of the risks associated with declining operating cash flows from our real estate properties and the
properties underlying the collateral for our repurchase agreements, and the current underwriting environment for commercial real estate mortgages, we may have difficulty refinancing some of our mortgage notes and repurchase agreements at maturity or
may not be able to refinance our obligations at terms as favorable as the terms of our existing indebtedness. Although we believe we will meet or otherwise be permitted to extend the maturity of our current loan agreements, we can give no assurance
in this regard. Assuming our notes payable and repurchase agreements are fully extended under the terms of the respective loan agreements, we have $309.6 million of debt obligations maturing during the 12 months ending
March 31, 2012. As of March 31, 2011, we have a total of $533.3 million of fixed rate notes payable and $912.8 million of variable rate notes payable and repurchase agreements; of the $912.8 million of variable
rate notes payable and repurchase agreements, $164.7 million are effectively fixed through interest rate swaps and $440.2 million are subject to interest rate caps. For additional information, see the discussion of the amendment and
restatement of the repurchase agreements related to our GKK Mezzanine Loan investment below under  Contractual Commitments and Contingencies. After the amendment and restatement of these two repurchase agreements, and assuming
our notes payable and repurchase agreements are fully extended under the terms of the respective loan agreements, as of April 28, 2011, we had $48.0 million of debt maturing prior to March 31, 2012. Additionally, we are required to make a
minimum of $59.3 million in amortization payments of principal related to the two repurchase agreements prior to March 31, 2012 and to pay $2.7 million in fees relating to the amendment of these two repurchase agreements by March 31, 2012.

Liquidity and Capital Resources

Our principal demands for funds during the short- and long-term are for the payment of operating expenses, capital expenditures, general and administrative expenses, substantial pay down of debt
obligations in order to refinance loans with near term maturities and distributions to stockholders. To date, we have had six primary sources of capital for meeting our cash requirements:



| |  |  | Proceeds from our primary offering, which closed in 2008;
| | - |  | ---------------------------------------------------------



| |  |  | Proceeds from common stock issued under our dividend reinvestment plan;
| | - |  | -----------------------------------------------------------------------



| |  |  | Cash flow generated by our real estate operations and real estate-related investments;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | Proceeds from the sales of real estate;
| | - |  | ---------------------------------------



| |  |  | Principal repayments on our real estate loans receivable; and
| | - |  | -------------------------------------------------------------



| |  |  | Debt financings, including mortgage loans, repurchase agreements and credit facilities.
| | - |  | ---------------------------------------------------------------------------------------



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



We ceased offering shares of common stock in our primary offering on
May 30, 2008 and continue to issue shares under our dividend reinvestment plan. To date, we have invested the proceeds from our initial public offering and do not currently plan to acquire or originate more real estate or real
estate-related assets. We intend to use our cash on hand, cash flow generated by our real estate operations and real estate-related investments, funds available under our credit facility, proceeds from our dividend reinvestment plan, proceeds from
asset sales and principal repayments on our real estate loans receivable as our primary sources of immediate and long-term liquidity.

We expect to use our cash flows from operations to pay dividends. On April 28, 2011, in connection with the amendment and restatement of the repurchase agreements related to our investment in
the GKK Mezzanine Loan, we agreed that during the term of the repurchase agreements and except for distributions to stockholders necessary to maintain our REIT status, we would limit distributions to stockholders to an amount not to exceed $6
million per month, excluding any distributions to stockholders reinvested in our dividend reinvestment plan (currently, distributions are less than $5.0 million per month, excluding distributions reinvested pursuant to the dividend reinvestment
plan). See  Contractual Commitments and Contingencies below.

Our investments in real estate generate cash
flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures, debt service payments and corporate general and administrative expenses. Cash flows from operations from real estate investments is primarily
dependent upon the occupancy level of our portfolio, the net effective rental rates on our leases, the collectibility of rent and operating recoveries from our tenants and how well we manage our expenditures. As of March 31, 2011, our real
estate portfolio was 79% occupied and our bad debt reserve was less than 1% of annualized base rent. As of March 31, 2011, we had seven tenants with rent balances outstanding for over 90 days. Our real estate-related investments
generate cash flow in the form of interest income, which is reduced by loan servicing fees and debt service payments. Cash flows from operations from our real estate-related investments is primarily dependent on the operating performance of the
underlying collateral and the borrowers ability to make their debt service payments. As of March 31, 2011, three of the ten borrowers under our real estate loans receivable were delinquent. As a result of these factors, we may
experience declines in future cash flows from real estate and real estate-related investments and we expect an increased need for capital to cover leasing costs and capital improvements needed to maximize the performance of our assets.

We depend on the proceeds from our dividend reinvestment plan for general corporate purposes, including capital expenditures on our real
estate investments, tenant improvement costs and leasing costs related to our investments in real estate properties; reserves required by financings of our investments in real estate properties; funding obligations under our real estate loans
receivable; the repayment of debt; and the repurchase of shares under our share redemption program. During the second half of 2009 and throughout 2010, the participation in our dividend reinvestment plan decreased in comparison to 2008. Further
reductions in participation under the dividend reinvestment plan could adversely impact our ability to meet our capital needs. Based on our 2011 budgeted expenditures, and except with respect to redemptions sought upon a stockholders death,
qualifying disability or determination of incompetence, we have announced that we do not expect to have funds available for the share redemption program in 2011. On April 28, 2011, in connection with the amendment
and restatement of the repurchase agreements related to our investment in the GKK Mezzanine Loan, we agreed that during the term of the repurchase agreements we would continue to limit redemptions under the share redemption program to those sought
upon a stockholders death, qualifying disability or determination of incompetence. See  Contractual Commitments and Contingencies below.

For the three months ended March 31, 2011, we met our operating cash needs with cash flow generated by our real estate and real
estate-related investments, cash on hand, proceeds from the sale of real estate and proceeds from repayments of real estate loans receivable. We believe that our cash flow from operations, expected proceeds from our dividend reinvestment plan,
principal repayments on our real estate loans receivable, potential proceeds from the sale of assets and availability under our revolving credit facility will be sufficient to meet our liquidity needs for the upcoming year. For additional
information regarding our cash needs during 2011, see the discussion of our repurchase agreements secured by our investment in the GKK Mezzanine Loan and the mortgage and mezzanine loans secured by our consolidated investment in the National
Industrial Portfolio joint venture below under   Contractual Commitments and Contingencies.



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



Cash Flows from Operating Activities

As of March 31, 2011, we owned 63 real estate properties, one master lease, 11 real estate loans receivable,
two investments in securities directly or indirectly backed by commercial mortgage loans, and a preferred membership interest in a real estate joint venture. During the three months ended March 31, 2011, net cash provided by operating
activities was $1.7 million, compared to $6.7 million of net cash provided by operating activities during the three months ended March 31, 2010. Net cash from operations decreased in 2011 primarily as a result of a
$1.6 million decrease in contractual interest income from the payoff of a note receivable in September 2010 and a decrease of $4.0 million in rental income and tenant reimbursements, due to a combination of lower occupancy, increased lease
concessions, reduced rental rates and the sale of two real estate properties. The decrease in rental income and tenant reimbursements was partially offset by a decrease of $3.7 million in asset management fees to affiliates and by a decrease in
depreciation and amortization expenses.

Cash Flows from Investing Activities

Net cash provided by investing activities was $6.3 million for the three months ended March 31, 2011. The sources and uses
of cash from investing activities were as follows:



| |  |  | $3.4 million of cash used for additions to real estate;
| | - |  | -------------------------------------------------------



| |  |  | $8.4 million of cash provided from the sale of foreclosed real estate held for sale; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | $1.4 million decrease in restricted cash for capital expenditures relating to the payment of leasing commissions, tenant improvements and capital
improvements for the releasing of one of our joint venture properties.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash Flows from Financing Activities

Net cash used in financing activities was $48.8 million for the three months ended March 31, 2011. The
significant uses of cash for financing activities were as follows:



| |  |  | $33.9 million of net cash used for repayment of debt and other financings as a result of $33.6 million of principal payments on notes payable
and repurchase agreements and $1.0 million of payments for related financing costs, partially offset by proceeds from notes payable of $0.7 million;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $12.5 million of net cash used for distributions, after giving effect to dividends reinvested by stockholders of $11.5 million;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | $1.5 million of cash used for redemptions of common stock and $0.3 million of cash used for payments of commissions on stock sales; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $0.6 million of distributions paid to the noncontrolling interest holder of our joint venture investment in the National Industrial Portfolio.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------

Contractual Commitments and Contingencies

In order to execute our investment strategy, we utilized mortgage, mezzanine and repurchase financings to finance a portion of our investment portfolio. Management remains vigilant in monitoring the risks
inherent with the use of debt in our portfolio and is taking actions to ensure that these risks, including refinancing and interest rate risk, are properly balanced with the benefits of maintaining such leverage. Assuming our notes payable and
repurchase agreements are fully extended under the terms of the respective loan agreements, as of March 31, 2011, we had $309.6 million of debt maturing during the 12 months ending March 31, 2012, including $261.6
million due under the two repurchase agreements secured by the GKK Mezzanine Loan. See the discussion regarding the amendment and restatement of the repurchase agreements related to our GKK Mezzanine Loan investment below. After the amendment and
restatement of these two repurchase agreements, and assuming our notes payable and repurchase agreements are fully extended under the terms of the respective loan agreements, as of April 28, 2011, we had $48.0 million of debt maturing prior to
March 31, 2012. Additionally, we are required to make a minimum of $59.3 million in amortization payments of principal related to the two repurchase agreements prior to March 31, 2012 and to pay $2.7 million in fees relating to the
amendment of these two repurchase agreements by March 31, 2012.



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



As of March 31, 2011, we had a total of $533.3 million of fixed rate notes
payable and $912.8 million of variable rate notes payable and repurchase agreements; of the $912.8 million of variable rate notes payable and repurchase agreements, interest rates on $164.7 million of these notes were effectively
fixed through interest rate swaps and interest rates on $440.2 million of these notes were subject to interest rate caps. In addition, we have variable rate loans receivable with total aggregate outstanding principal balances of
$473.6 million that, when interest rate indices such as LIBOR increase, provide income to partially offset increases in interest expense on variable rate debt. As discussed above, during the last three years, the global capital markets have
experienced significant dislocations and liquidity disruptions that have caused the credit spreads of debt to fluctuate considerably and caused significant volatility in interest rates, including LIBOR. As of March 31, 2011, we have a total of
$748.1 million of variable rate notes payable and repurchase agreements not subject to interest rate swaps that are impacted by fluctuations in interest rates, which fluctuations may be partially offset by interest rate caps in place on
$440.2 million of notes payable. While LIBOR currently stands at historically low levels, future volatility in LIBOR may result in the use of increased capital resources to meet our debt obligations.

As of March 31, 2011, we had two repurchase agreements totaling $261.6 million secured by our investment in the GKK
Mezzanine Loan. KBS Real Estate Investment Trust, Inc. is a guarantor of these repurchase agreements. As of March 31, 2011, the outstanding principal balance of the GKK Mezzanine Loan was $458.6 million. The GKK Mezzanine
Loan was used to finance a portion of Gramercy Capital Corp.s (Gramercy) acquisition of American Financial Realty Trust (AFR) that closed on April 1, 2008. The borrowers under the GKK Mezzanine Loan are
certain wholly owned subsidiaries of Gramercy (collectively, the GKK Borrower). Prior to the extensions discussed below, the maturity date of the GKK Mezzanine Loan was March 11, 2011 and the maturity dates of the repurchase
agreements were March 9, 2011.

Commencing on March 11, 2011, we, through indirect wholly owned
subsidiaries, and the GKK Borrower entered into a series of agreements to extend the maturity date of the GKK Mezzanine Loan through May 6, 2011 in anticipation of negotiations among us, the GKK Borrower, Gramercy and certain other
mortgage and mezzanine lenders to the Gramercy realty portfolio regarding an agreement for an orderly transition of all or substantially all of the assets securing the Gramercy realty mortgage and mezzanine indebtedness to the lenders. We can give
no assurance as to the outcome of any of these negotiations. If the lenders and Gramercy are unable to consummate a transition agreement, we anticipate that we will thereafter attempt to pursue available remedies to enforce the loans, which will
likely include foreclosing on all or substantially all of the collateral securing the loans. The extension agreements related to the GKK Mezzanine Loan also extended the maturity dates of the mortgage loan (the Mortgage Loan) and the
junior mezzanine loan (the Junior Mezzanine Loan) related to Gramercys realty portfolio to May 6, 2011. As part of the GKK extension agreements, Gramercy agreed to pay $3.5 million in the aggregate on
March 14, 2011 for amounts due and payable by it under the GKK Mezzanine Loan, the Mortgage Loan and the Junior Mezzanine Loan and for costs and expenses the GKK Borrower or the borrowers under the Mortgage Loan or Junior Mezzanine Loan
are otherwise responsible to pay. The extension agreements provided that as of March 12, 2011 and through May 6, 2011, interest would accrue on the mezzanine loan at a rate equal to the greater of the Prime Rate plus 1% or one-month
LIBOR plus 9.2%. Beginning April 2011, the GKK Borrower failed to meet its debt payment obligation. As of March 31, 2011, we recorded interest income receivable, based on cash received in April 2011, of $1.1 million related to the GKK Mezzanine
Loan. We do not expect to receive any future contractual interest payments from the GKK Borrower. In addition, the GKK Mezzanine Loan matured on May 6, 2011 without repayment from the GKK Borrower and we anticipate commencing foreclosure
proceedings on the underlying collateral or alternately, as to all or portions of the underlying collateral, obtain such underlying collateral from the GKK Borrower on mutually agreeable terms.

Commencing on March 9, 2011, our subsidiaries that are the borrowers under the repurchase agreements (individually and
collectively, KBS GKK) entered into a series of extension agreements with the repurchase agreement lenders to extend the maturity dates of each repurchase agreement through April 28, 2011. As part of the extensions of the
repurchase agreements, we paid $5.0 million in the aggregate to the repurchase agreement lenders on March 10, 2011 and paid an additional $5.0 million in the aggregate to the repurchase agreement lenders on
March 22, 2011. Of the initial $5.0 million paid to the lenders, $4.1 million was used for the reduction of the principal balance under the repurchase agreements. The additional $5.0 million paid on March 22, 2011
was entirely applied to the reduction of the principal balance. Pursuant to the extension agreements, from and after March 9, 2011, certain amounts owed by KBS GKK to the lenders under the repurchase agreements accrued interest at an
annual rate equal to the Federal Funds Rate plus 450 basis points (4.6% at March 31, 2011), from LIBOR plus 150 basis points prior to the extension. Also pursuant to the extension agreements, KBS GKK agreed to pay to the lenders all
amounts received by KBS GKK under the GKK Mezzanine Loan in excess of interest payments.



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



On April 28, 2011, KBS GKK entered into an Amended and Restated Master
Repurchase Agreement, which agreement was amended on May 10, 2011, with Goldman Sachs Mortgage Company (Goldman) and an Amended and Restated Master Repurchase Agreement, which agreement was amended on May 10, 2011, with
Citigroup Financial Products Inc. (Citigroup and, together with Goldman, the GKK Lenders) (collectively as amended, the Amended Repurchase Agreements). The purposes of the Amended Repurchase Agreements were, among
others, to (i) extend the maturity dates of the existing Master Repurchase Agreements between KBS GKK, and Goldman and Citigroup, respectively, dated August 22, 2008, as amended, (ii) provide for additional security for the GKK
Lenders under the Amended Repurchase Agreements, and (iii) set certain conditions that, on the date met (the Conversion Date), would automatically convert the Amended Repurchase Agreements into a mezzanine loan (the
Replacement Mezzanine Loan).

The Amended Repurchase Agreements will terminate on the earliest to occur of
(i) April 28, 2013, (ii) the Conversion Date, (iii) the full payment of all obligations under the Amended Repurchase Agreements, or (iv) upon an event causing the Amended Repurchase Agreements to otherwise terminate.

As part of the closing of the Amended Repurchase Agreements, we paid $120 million in the aggregate to the GKK Lenders,
of which approximately $115 million was used for the reduction of the principal balance under the repurchase agreements (the Principal Payment), with the remaining $5 million used for accrued interest, and costs and expenses
incurred by the GKK Lenders in connection with the closing of the Amended Repurchase Agreements. As of April 28, 2011 and after the application of the Principal Payment, the Amended Repurchase Agreements had an aggregate outstanding
principal balance of $146.6 million. On May 10, 2011, the GKK Lenders advanced an additional $34.4 million under the Amended Repurchase Agreements to fund our acquisition, through KBS GKK, of a subordinated portion of the Mortgage Loan
(the KBS Tranche). Additionally, in connection with the acquisition of the KBS Tranche, we, through KBS GKK, acquired a subordinated portion of the Junior Mezzanine Loan (the KBS Junior Mezz Tranche).

The Amended Repurchase Agreements are secured by participation interests in the GKK Mezzanine Loan with an outstanding principal balance
of $458.4 million as of April 28, 2011, the KBS Tranche and the KBS Junior Mezz Tranche.

The Amended
Repurchase Agreements bear interest at an annual rate of 350 basis points over one-month LIBOR. In addition to monthly interest payments under the terms of the Amended Repurchase Agreements, KBS GKK is required to make certain mandatory payments as
follows:



| | (i) | by October 28, 2011, an amortization payment of $35 million;
| | --- | ------------------------------------------------------------



| | (ii) | every three months thereafter through April 2013, amortization payments of approximately $24.3 million, which payment amounts were increased from $18.6
million because, on May 10, 2011, the GKK Lenders made an advance to provide funding for the acquisition by us, through KBS GKK, of the KBS Tranche, and which may be decreased by KBS GKK making any prepayments of principal, including any
mandatory or voluntary prepayments of principal;
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | by October 28, 2011, payments relating to the acquisition of the KBS Tranche and the KBS Junior Mezz Tranche in the amount of $1.6 million, and every three months
thereafter through April 2013, such payments in the amount of $1.1 million;
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | all proceeds received by KBS GKK related to the GKK Mezzanine Loan; and
| | ---- | -----------------------------------------------------------------------



| | (v) | 75% to 100% of excess cash flows or net cash proceeds from: (a) the foreclosure or sale of certain properties in the Gramercy realty portfolio which indirectly
secure the GKK Mezzanine Loan (the GKK Collateral); (b) the sale of certain real estate-related debt investments owned by us; (c) the sale of substantially all other properties owned by us, in excess of $75 million in the
aggregate in any calendar year; and (d) certain indebtedness incurred or equity issued (excluding proceeds from our dividend reinvestment plan), by us.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

KBS GKK may voluntarily prepay amounts outstanding under the Amended Repurchase Agreements without prepayment penalties.



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



In the event of: (i) a default under the Amended Repurchase Agreements; or
(ii) bankruptcy or an act of insolvency with respect to the borrowers under the Mortgage Loan, GKK Borrower or the borrowers under the Junior Mezzanine Loan related to the Gramercy realty portfolio indebtedness, provided that such borrowers are
then affiliates of us, the GKK Lenders shall have all voting and consent rights with respect to the GKK Mezzanine Loan.

The
Amended Repurchase Agreements require KBS GKK and its subsidiaries, KBS Real Estate Investment Trust and certain of our subsidiaries that indirectly own most of our assets (collectively, the Guarantors) to meet certain financial and
other covenants, which include among other covenants the requirements (i) for the Guarantors to maintain minimum liquidity of $9.0 million for the four month period beginning in May 2011, and $19.0 million thereafter, and
(ii) for KBS GKK to use its best efforts to comply with certain foreclosure procedures in connection with the exercise of remedies under the GKK Mezzanine Loan. We also agreed that, unless permitted by or pursuant to the terms of the Amended
Repurchase Agreements, during the term of the Amended Repurchase Agreements we would not create or incur additional liens or indebtedness on our assets, make additional investments, or make certain dispositions except pursuant to the mandatory
payment provisions discussed above. During the term of the Amended Repurchase Agreements, we also agreed (i) except for distributions to stockholders necessary to maintain our REIT status, to limit distributions to stockholders to an amount not
to exceed $6.0 million per month, excluding any distributions to stockholders reinvested in us pursuant to the dividend reinvestment plan (currently, distributions are less than $5.0 million per month, excluding distributions reinvested
pursuant to the dividend reinvestment plan), and (ii) to continue to limit redemptions under the share redemption program to those redemptions sought upon a stockholders death, qualifying disability or determination of
incompetence (each as defined in the share redemption program).

The Guarantors have guaranteed, and other of our
subsidiaries as may be added in the future will guarantee, all amounts owed by the KBS GKK to the GKK Lenders under the Amended Repurchase Agreements.

In connection with the execution of the Amended Repurchase Agreements, we, through a wholly owned subsidiary, expect to commence foreclosure proceedings on, or otherwise take title to, the GKK Collateral.
On the Conversion Date, the Amended Repurchase Agreements will automatically convert into the Replacement Mezzanine Loan. The terms of the Replacement Mezzanine Loan are expected to be substantially similar to those of the Amended Repurchase
Agreements, including the guarantees.

The GKK Mezzanine Loan represents a significant investment to us that as of
March 31, 2011 represented 19% of our total assets and 84% of our total investments in loans receivable, after loan loss reserves. During the three months ended March 31, 2011, the GKK Mezzanine Loan provided 12% of our revenues
and 81% of our interest income from loans receivable. Although as of March 31, 2011, our investment in the GKK Mezzanine Loan was deemed to be impaired as the GKK Borrower failed to meet its contractual interest payment obligation beginning April
2011, we had not recorded an impairment charge related to our investment in the GKK Mezzanine Loan. Based on an analysis of the value of the assets securing the GKK Mezzanine Loan, we concluded that the GKK Mezzanine Loan was fully secured by
the collateral and no impairment is necessary as of March 31, 2011. We will continue to monitor the performance of the Gramercy realty portfolio. There is no assurance that we will not realize an impairment charge related to this
investment in the future and it is reasonably possible that as a result of receiving additional information related to the assets securing the GKK Mezzanine Loan or a change in other facts and circumstances that an impairment may be realized. The
interest rate under the GKK Mezzanine Loan is variable and will fluctuate based on changes in LIBOR. As of March 31, 2011, the cash flows provided by the properties securing the GKK Mezzanine Loan were insufficient to cover the GKK
Borrowers debt service obligations and beginning April 2011, the GKK Borrower failed to meet its debt payment obligation. As of March 31, 2011, we recorded interest income receivable, based on cash received in April 2011, of $1.1 million
related to the GKK Mezzanine Loan. We do not expect to receive any future contractual interest payments from the GKK Borrower. In addition, the GKK Mezzanine Loan matured on May 6, 2011 without repayment from the GKK Borrower.



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



As of March 31, 2011, we had $440.2 million of mortgage and mezzanine
loans secured by our consolidated investment in the National Industrial Portfolio joint venture. Due to a decline in the operating performance of the National Industrial Portfolio resulting from increased vacancies, lower rental rates and
tenant bankruptcies, in addition to declines in market value across all real estate types in the period following our initial investment in the National Industrial Portfolio, it is unlikely that the we will be able to refinance or extend the
mortgage and mezzanine loans secured by the National Industrial Portfolio joint venture upon their fully-extended maturities in August 2012, and we may not meet the requirement to exercise the final loan extensions in August 2011. As a
result, we may be forced to relinquish the assets to the lenders at some point prior to or concurrent with the final maturities in August 2012.

In addition to using our capital resources to meet our debt service obligations, for capital expenditures and for operating costs, we use our capital resources to make certain payments to our advisor and
the dealer manager. We pay our advisor fees in connection with the management and disposition of our assets and for certain costs incurred by our advisor in providing services to us. We may also pay the dealer manager selling commissions of up to 3%
of gross offering proceeds in connection with eligible sales under the dividend reinvestment plan and to the extent permitted under state securities laws. We will also continue to reimburse our advisor and the dealer manager for certain offering
costs related to our dividend reinvestment plan.

As of March 31, 2011, we had $111.1 million of cash and cash
equivalents and up to $29.5 million available under our revolving credit facility primarily to meet our operational and capital needs. Subsequent to March 31, 2011, we drew the entire $29.5 million available under our revolving credit
facility, borrowed an additional $18.3 million and used cash on hand of approximately $72.2 million for the payment of $120.0 million to the GKK Lenders in connection with the Amended Repurchase Agreements.

As of March 31, 2011, our borrowings were approximately 58% and 61% of the cost (before depreciation or other noncash
reserves) and book value (before depreciation) of our tangible assets, respectively.

The following is a summary of our
contractual obligations as of March 31, 2011 (in thousands):



|                                                                  |  |                                                   |           |  |                   |   |         |           |  |   |           |  |  |            |         |  |  |   |        | 
|----------------------------------------------------------------- |  | ------------------------------------------------- | --------- |  | ----------------- | - | ------- | --------- |  | - | --------- |  |  | ---------- | ------- |  |  | - | ------ | 
|                                                                  |  | Payments Due During the Years Ending December 31, |          
|Contractual Obligations                                           |  | Total                                             |           |  | Remainder of 2011 |   |         | 2012-2013 |  |   | 2014-2015 |  |  | Thereafter |        
|Outstanding debt obligations(1)                                   |  | $                                                 | 1,446,121 |  |                   | $ | 819,914 |           |  | $ | 377,241   |  |  | $          | 186,766 |  |  | $ | 62,200 | 
|Interest payments on outstandingdebt obligations(2)               |  | $                                                 | 86,943    |  |                   | $ | 29,174  |           |  | $ | 44,146    |  |  | $          | 10,808  |  |  | $ | 2,815  | 
|Outstanding funding obligationsunder real estate loans receivable |  | $                                                 | 5,864     |  |                   | $ | 5,864   |           |  | $ |          |  |  | $          |        |  |  | $ |       | 
|Other obligations(3)                                              |  | $                                                 | 6,986     |  |                   |   | (3)     |           |  |   | (3)       |  |  |            | (3)     |  |  |   | (3)    | 



(1)Amounts include principal payments under notes payable and repurchase agreements based on maturity dates of debt obligations as of March 31, 2011.

(2)Projected interest payments are based on the outstanding principal amounts and weighted-average interest rates at March 31, 2011, adjusted for the impact of interest rate caps and
swap agreements. We incurred interest expense of $13.6 million, excluding amortization of deferred financing costs totaling $0.6 million, during the three months ended March 31, 2011. Projected interest payments under the
GKK repurchase agreements were calculated based on their contractual maturity dates as of March 31, 2011. Subsequent to March 31, 2011, we amended and restated the GKK repurchase agreements as discussed above.

(3)Represents the $1.6 million of outstanding advances from our advisor and $5.4 million of incurred but unpaid performance fees as of March 31, 2011. These amounts do not
have a fixed payment date, but they may be repaid in any future year depending on our financial condition.



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



Other Obligations

We have a contingent liability with respect to advances to us from our advisor in the amount of $1.6 million for the payment of distributions and to cover expenses, excluding depreciation and
amortization, in excess of our revenues. Pursuant to the advisory agreement with KBS Capital Advisors, we are only obligated to reimburse our advisor for these advances if and to the extent that our cumulative Funds from Operations (as defined
below) for the period commencing January 1, 2006 through the date of any such reimbursement exceed the lesser of (i) the cumulative amount of any distributions declared and payable to our stockholders as of the date of such
reimbursement or (ii) an amount that is equal to a 7.0% cumulative, non-compounded, annual return on invested capital for our stockholders for the period from July 18, 2006 through the date of such reimbursement. No interest accrues
on the advance made by our advisor. The advisory agreement defines Funds from Operations as funds from operations as defined by the National Association of Real Estate Investment Trusts plus (i) any acquisition expenses and acquisition fees
expensed by us and that are related to any property, loan or other investment acquired or expected to be acquired by us and (ii) any non-operating noncash charges incurred by us, such as impairments of property or loans, any
other-than-temporary impairments of real estate securities, or other similar charges.

In addition to the advances to us from
our advisor in the amount of $1.6 million, at March 31, 2011, we have incurred but unpaid performance fees totaling $5.4 million related to our joint venture investment in the National Industrial Portfolio. The performance fee is
earned by our advisor upon our meeting certain Funds from Operations thresholds and makes our advisors cumulative asset management fees related to our investment in the National Industrial Portfolio joint venture equal to 0.75% of the cost of
the joint venture investment on an annualized basis from the date of our investment in the joint venture through the date of calculation. Our operations from the date of our investment through March 31, 2010 were sufficient to meet the
Funds from Operations condition as defined in the advisory agreement; beginning in April 2010, our operations did not meet the Funds from Operations condition as defined in the advisory agreement. Although performance fees of $5.4 million
have been incurred as of March 31, 2011, the advisory agreement further provides that the payment of the performance fee shall only be made after the repayment of advances from our advisor discussed above. The amount of cash available for
distributions in future periods will be decreased by the repayment of the advance from our advisor and the payment of our advisors unpaid performance fees.

Results of Operations

Overview

As of March 31, 2010, we owned 65 real estate properties (including one industrial property held for sale), one master
lease, 14 real estate loans receivable (five of which were impaired), two investments in securities directly or indirectly backed by commercial mortgage loans, and a preferred membership interest in a real estate joint venture. Subsequent
to March 31, 2010, we had foreclosed on two properties underlying impaired loan investments, recorded an impairment charge against one additional real estate loan receivable and received proceeds from a loan receivable pay-off. During
the second quarter of 2010, we recognized an impairment charge on real estate related to 17 properties within the National Industrial Portfolio joint venture. We also sold one office property and one industrial property in June 2010 and October
2010, respectively, and accordingly, we classified both properties as discontinued operations for all periods presented in our consolidated financial statements. As a result, as of March 31, 2011, we owned 63 real estate properties,
one master lease, 11 real estate loans receivable, two investments in securities directly or indirectly backed by commercial mortgage loans, and a preferred membership interest in a real estate joint venture. Also, as of
March 31, 2011, we owned a 10-story condominium building with 62 units acquired through foreclosure, of which eight condominium units, two retail spaces and parking spaces were held for sale. In addition, we have experienced a
decline in the occupancy of our real estate properties from 85% as of March 31, 2010 to 79% as of March 31, 2011. Our results of operations were affected by these factors during the three months ended March 31, 2011 and
2010 as discussed below.



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



Comparison of the three months ended March 31, 2011 versus the three months ended
March 31, 2010

The following table provides summary information about our results of operations for the three
months ended March 31, 2011 and 2010 (dollar amounts in thousands):



|                                                         |  |                              |        |   |                    |   |        |                  |  |   |        |   |  |  |       |  
|-------------------------------------------------------- |  | ---------------------------- | ------ | - | ------------------ | - | ------ | ---------------- |  | - | ------ | - |  |  | ----- | -
|                                                         |  | Three Months Ended March 31, |        |   | Increase(Decrease) |   |        | PercentageChange | 
|                                                         |  | 2011                         |        |   | 2010               |   |        |                 
|Rental income                                            |  | $                            | 39,767 |   |                    | $ | 43,558 |                  |  | $ | (3,791 | ) |  |  | (9%   | )
|Tenant reimbursements                                    |  |                              | 8,084  |   |                    |   | 8,289  |                  |  |   | (205   | ) |  |  | (2%   | )
|Interest income from real estate loans receivable        |  |                              | 8,476  |   |                    |   | 11,118 |                  |  |   | (2,642 | ) |  |  | (24%  | )
|Interest income from real estate securities              |  |                              | 752    |   |                    |   | 780    |                  |  |   | (28    | ) |  |  | (4%   | )
|Parking revenues and other operating income              |  |                              | 586    |   |                    |   | 880    |                  |  |   | (294   | ) |  |  | (33%  | )
|Operating, maintenance, and management costs             |  |                              | 11,816 |   |                    |   | 11,978 |                  |  |   | (162   | ) |  |  | (1%   | )
|Real estate taxes, property-related taxes, and insurance |  |                              | 7,431  |   |                    |   | 7,420  |                  |  |   | 11     |   |  |  | 0%    |  
|Asset management fees to affiliate                       |  |                              | 4,508  |   |                    |   | 5,150  |                  |  |   | (642   | ) |  |  | (12%  | )
|General and administrative expenses                      |  |                              | 2,540  |   |                    |   | 1,653  |                  |  |   | 887    |   |  |  | 54%   |  
|Depreciation and amortization expense                    |  |                              | 18,241 |   |                    |   | 21,258 |                  |  |   | (3,017 | ) |  |  | (14%  | )
|Interest expense                                         |  |                              | 14,237 |   |                    |   | 14,263 |                  |  |   | (26    | ) |  |  | (0%   | )
|Provision for loan losses                                |  |                              | (155   | ) |                    |   | (48    | )                |  |   | (107   | ) |  |  | (223% | )
|Gain on sale of foreclosed real estate held for sale     |  |                              | 51     |   |                    |   |       |                  |  |   | 51     |   |  |  | 100%  |  
|Income from unconsolidated joint venture                 |  |                              | 1,866  |   |                    |   | 1,901  |                  |  |   | (35    | ) |  |  | (2%   | )
|Other interest income                                    |  |                              | 79     |   |                    |   | 28     |                  |  |   | 51     |   |  |  | 182%  |  

The $3.8 million
decrease in rental income primarily relates to a decrease in lease termination fees and lower occupancy and rental rates for the three months ended March 31, 2011. Our rental income will vary in large part based on the occupancy rates and
rental rates of the properties in our portfolio. Occupancy decreased from 85% at March 31, 2010 to 79% at March 31, 2011. While we would generally expect rental income to increase over the long-term, the current economic
conditions could result in lower occupancy and/or rental rates and a corresponding decrease in rental income, especially in the short-term.

The $0.2 million decrease in tenant reimbursements was primarily due to lower occupancy (as a result of tenants vacating or tenants reducing leased space), lower recovery of operating expenses caused
by the reset of tenant base years (as a result of new tenants and lease renewals) and lower reimbursable utility expenses and property taxes for certain properties. Our tenant reimbursements will vary based on several factors, including
the occupancy rate of the buildings, changes in base year terms, and changes in reimbursable operating expenses. While we generally expect tenant reimbursements to increase over the long-term, the current economic conditions could result in lower
occupancy rates and increased tenant turnover and lease renewals resulting in lower tenant reimbursements, especially in the short-term. Generally, as new leases are negotiated, the base year resets to operating expenses incurred in the year the
lease is signed and the tenant generally only reimburses operating expenses to the extent and by the amount that their allocable share of the buildings operating expenses in future years increases from their base year. As a result, as new
leases are executed, tenant reimbursements would generally decrease. Rental income may or may not change by amounts corresponding to changes in tenant reimbursements due to new leases.



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



The $2.6 million decrease in interest income from loans receivable was primarily
due to the following:



| |  |  | A decrease of $1.6 million related to the 55 East Monroe Mezzanine Loan Origination was a result of the pay-off of the loan on
September 9, 2010.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease of $0.3 million related to the foreclosure on the properties secured by the Artisan Multifamily Portfolio Mezzanine Loan by the first
mortgage lender on January 21, 2011 and our write-off of this investment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A net increase of $0.3 million related to the GKK Mezzanine Loan was primarily due to the amortization of the fee paid by the borrower to extend
this loan to March 2011.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease of $1.2 million related to the 11 South LaSalle Loan was as a result of ceasing the recognition of revenue subsequent to
September 2010.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

Interest income from real estate loans receivable will decrease in future periods due
to the GKK Mezzanine Loan as the GKK Borrower failed to meet its contractual interest payment obligation beginning April 2011. We do not expect to receive any future contractual interest payments from the GKK Borrower. Additionally, interest income
from real estate loans receivable in future periods compared to historical periods will also be impacted by fluctuations in LIBOR to the extent we have variable rate loans and by the ability of borrowers under the real estate loans receivable
scheduled to mature during the next year to repay or refinance the amounts due to us. Interest income may also be affected by the potential impact of loans that may experience impairment issues in the future as a result of current or future market
conditions. Assuming our real estate-related loans are fully extended under the terms of the respective loan agreements, and excluding our loan investments with asset-specific loan loss reserves, we have investments with book values totaling
$562.4 million maturing within a year from March 31, 2011, including the $458.6 million GKK Mezzanine Loan, which matured on May 6, 2011 without repayment from the GKK Borrower. But see the discussion of our investment in the GKK
Mezzanine Loan under  Contractual Commitments and Contingencies.

If any of the borrowers under our loans
receivable are unable to repay a loan at maturity or default on their loan, the impact to future interest income may be significant and will depend on several factors unique to each individual loan. In general, if we have a first priority lien on
the collateral securing a loan, we may agree to extend the loan at similar terms, modify the terms of the loan, or foreclose on the collateral. If we foreclose on the collateral, we may either operate the property, resulting in our receipt of any
cash flows generated by the property or our payment of any cash shortfalls related to the property, or sell the property for whatever amount we are able to obtain, which may or may not be equal to the loan balance prior to foreclosure. In general,
if we own a mezzanine loan or a B-Note and the borrower is unable to repay its loan at maturity, we may have more restrictions and fewer options regarding the resolution of our investment. In certain circumstances, the senior lenders, in conjunction
with us, may be willing to grant the borrower extensions or may grant extensions in exchange for more favorable terms (such as higher interest rates, a partial payoff, or the entitlement to a portion of a junior lenders interest income, etc.).
If the senior lenders will not grant the borrower an extension, we, as the mezzanine lender, may foreclose on the ownership interests of the borrower and take legal title to the property subject to the existing senior loans. We could attempt to
negotiate an extension or modification with the senior lenders as the new borrower; however, if the senior lenders were not willing to extend or modify the loans and we were not able to repay the senior loans, we would most likely relinquish our
interests or rights in the investment to the holders of the senior loans. Actual outcomes may differ significantly from the above based on factors specific to individual loans and situations.

The $0.6 million decrease in asset management fees was primarily due to the exclusion of certain impaired real estate loans
receivable from our asset management fee calculation and the disposition of two real estate properties during the second and fourth quarters of 2010. In addition, beginning April 2010, asset management fees related to the National Industrial
Portfolio joint venture decreased because we failed to meet certain Funds from Operations (as defined in the advisory agreement) thresholds required for the advisor to earn the performance fee.

The $0.9 million increase in general and administrative expenses primarily relates to higher legal fees incurred with respect to our
investments in GKK Mezzanine Loan and the Tribeca Building. General and administrative expenses consist primarily of legal fees, audit fees, transfer agent fees, state and local income taxes and other professional fees.



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



The $3.0 million decrease in depreciation and amortization expense is primarily due
to the decrease related to the National Industrial Portfolio joint venture. As of June 30, 2010, we recorded an impairment charge with respect to 17 properties within the National Industrial Portfolio joint venture to reduce the
carrying value of these properties to their estimated fair values, and at that time, we reduced the amount of ongoing depreciation and amortization expense recognized, based on the adjusted carrying value of these properties. In addition, the
decrease in depreciation and amortization also relates to the disposition of two real estate properties during the second and fourth quarters of 2010.

The provision for loan losses for the three months ended March 31, 2011 decreased by $0.1 million compared to the three months ended March 31, 2010. During the three months ended
March 31, 2011, we recorded a reduction in loan loss reserve of $0.2 million primarily related to the recovery of additional proceeds from the 200 Professional Drive Loan Origination, which was foreclosed and sold in
December 2010. During the three months ended March 31, 2010, we recorded a reduction in loan loss reserves of $48,000, which was related to a reduction in the asset-specific reserve for the Sandmar Mezzanine Loan.

We recognized a gain of $51,000 on the sales of foreclosed real estate held for sale during the three months ended
March 31, 2011, as a result of selling three condominium units of the Tribeca Building.

Funds from Operations

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

FFO is a non-GAAP financial measure and
does not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO includes adjustments that investors may deem subjective, such as adding back expenses
such as depreciation and amortization. Accordingly, FFO should not be considered as an alternative to net income as an indicator of our operating performance.

Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the following table for the three months ended March 31, 2011 and 2010,
respectively (in thousands):



|                                                                 |  |                                      |        |   |      |   |        |  
|---------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                 |  | For the Three Months Ended March 31, |       
|                                                                 |  | 2011                                 |        |   | 2010 |  
|Net income attributable to common stockholders                   |  | $                                    | 941    |   |      | $ | 4,418  |  
|Add:                                                             |  |                                      |        |   |      |   |        |  
|Depreciation of real estate assets                               |  |                                      | 10,961 |   |      |   | 10,607 |  
|Depreciation of real estate assets - discontinued operations     |  |                                      |       |   |      |   | 413    |  
|Amortization of lease-related costs                              |  |                                      | 7,280  |   |      |   | 10,651 |  
|Amortization of lease-related costs - discontinued operations    |  |                                      |       |   |      |   | 434    |  
|Deduct:                                                          |  |                                      |        |   |      |   |        |  
|Gain on sales of foreclosed real estate held for sale            |  |                                      | (51    | ) |      |   |       |  
|Adjustments for noncontrolling interest - consolidated
entity(1) |  |                                      | (497   | ) |      |   | (1,040 | )
|                                                                 |  |                                      |        |   |      |   |        |  
|FFO                                                              |  | $                                    | 18,634 |   |      | $ | 25,483 |  
|                                                                 |  |                                      |        |   |      |   |        |  



(1) Relates to our consolidated joint venture. The noncontrolling interest holders share of our consolidated ventures
real estate depreciation was $0.4 million and $0.5 million for the three months ended March 31, 2011 and 2010, respectively. Its share of amortization of lease-related costs was $0.1 million and $0.5 million for the
three months ended March 31, 2011 and 2010, respectively.



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



Set forth below is additional information related to certain noncash items included in
our net income above, which may be helpful in assessing our operating results. Please see the accompanying consolidated statements of cash flows for details of our operating, investing and financing cash activities.

Significant Noncash Items Included in Net Income:



| |  |  | Provision for loan losses related to our real estate loans receivable was $(0.2) million and $(48,000) for the three months ended
March 31, 2011 and 2010, respectively;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revenues in excess of actual cash received of approximately $0.8 million (net of adjustment for noncontrolling interest of $5,000) for the
three months ended March 31, 2011 and $76,000 (net of adjustment for noncontrolling interest of $(98,000)) for the three months ended March 31, 2010, as a result of amortization of above-market/below-market in-place leases;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revenues in excess of actual cash received of $1.9 million (net of adjustment for noncontrolling interest of $40,000) for the three months ended
March 31, 2011 and of $2.3 million (net of adjustment for noncontrolling interest of $40,000) for the three months ended March 31, 2010, as a result of straight-line rent and amortization of lease incentives;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Accretion of discounts and origination fees on real estate loans receivable and real estate securities to interest income, net of amortization of
closing costs, of $0.7 million and $0.5 million for the three months ended March 31, 2011 and 2010, respectively; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amortization of deferred financing costs related to notes payable of approximately $0.6 million (net of adjustment for noncontrolling interest of
$31,000) for the three months ended March 31, 2011 and $0.6 million (net of adjustment for noncontrolling interest of $31,000) for the three months ended March 31, 2010, were recognized as interest expense.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Operating cash flow and FFO may be used to fund all or a portion of certain capitalizable items that are
excluded from FFO, such as tenant improvements, building improvements and deferred leasing costs. Tenant improvements and capital expenditures totaled $3.4 million and $3.9 million while leasing commissions totaled $1.9 million and
$2.0 million for the three months ended March 31, 2011 and 2010, respectively.

Distributions

Distributions declared, distributions paid and cash flows from operations were as follows for the first quarter of 2011 (in thousands,
except per share amounts):



|                   |  |                               |        |      |                                           |   |            |                        |  |       |                          |  |  |   |        |  |  |   |        |  |  |   |       | 
|------------------ |  | ----------------------------- | ------ | ---- | ----------------------------------------- | - | ---------- | ---------------------- |  | ----- | ------------------------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ----- | 
|                   |  | Distributions    Declared (1) |        |      | Distributions    Declared PerShare(1) (2) |   |            | Distributions Paid
(3) |  |       | Cash FlowsFromOperations | 
|Period             |  |                               |        | Cash |                                           |   | Reinvested |                        |  | Total |                          | 
|First Quarter 2011 |  | $                             | 24,090 |      |                                           | $ | 0.129      |                        |  | $     | 12,493                   |  |  | $ | 11,533 |  |  | $ | 24,026 |  |  | $ | 1,667 | 



(1)Distributions for the period from January 1, 2011 through March 31, 2011 are based on daily record dates and are calculated at a rate of $0.00143836 per share per
day.

(2)Assumes share was issued and outstanding each day during the period presented.

(3)Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid approximately 15 days following month-end.

For the three months ended March 31, 2011, we paid aggregate distributions of $24.0 million, including $12.5 million
of distributions paid in cash and $11.5 million of distributions reinvested through our dividend reinvestment plan. We funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with
$1.7 million of current period operating cash flows and $22.3 million of operating cash reserves from prior periods and proceeds from the sale of properties in 2010. FFO for the three months ended March 31, 2011 was
$18.6 million. See the reconciliation of FFO to net income above.



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##### Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)



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



Generally, we pay, and in the future expect to pay, distributions from our cash flow
from operations. On April 28, 2011, in connection with the execution of the Amended Repurchase Agreements we agreed that during the term of the Amended Repurchase Agreements and except for distributions to stockholders necessary to
maintain our REIT status, we would limit distributions to stockholders to an amount not to exceed $6 million per month, excluding any distributions to stockholders reinvested in our dividend reinvestment plan (currently, distributions are less than
$5.0 million per month, excluding distributions reinvested pursuant to the dividend reinvestment plan). See  Contractual Commitments and Contingencies above.

In order that our stockholders could begin earning cash distributions, our advisor, KBS Capital Advisors, agreed to advance funds to us equal to the amount by which the cumulative amount of distributions
declared by our board of directors from January 1, 2006 through the period ending August 31, 2010 exceeded the amount of our Funds from Operations (as defined in our advisory agreement) for the same period. We are only
obligated to reimburse our advisor for these expenses if and to the extent that our cumulative Funds from Operations for the period commencing January 1, 2006 through the date of any such reimbursement exceed the lesser of (i) the
cumulative amount of any distributions declared and payable to our stockholders as of the date of such reimbursement or (ii) an amount that is equal to a 7.0% cumulative, non-compounded, annual return on invested capital for our stockholders
for the period from July 18, 2006 through the date of such reimbursement. No interest will accrue on the advance made by our advisor. The advisory agreement defines Funds from Operations as funds from operations as defined by the National
Association of Real Estate Investment Trusts plus (i) any acquisition expenses and acquisition fees expensed by us and that are related to any property, loan or other investment acquired or expected to be acquired by us and (ii) any
non-operating noncash charges incurred by us, such as impairments of property or loans, any other-than-temporary impairments of marketable securities, or other similar charges. Through March 31, 2011, our advisor had advanced an aggregate
of $1.6 million to us for cash distributions and expenses in excess of revenues, all of which is outstanding. No amount has been advanced since January 2007. We have agreed with our advisor that the advisor will not extend the agreement to
advance funds for distribution record dates after August 31, 2010.

During the past year, our portfolio has
experienced increasing pressure from declines in cash flow from a number of our investments. There have been several significant factors responsible for the changes in cash flow. A decline in the occupancy of our portfolio and increases in rental
concessions given to retain tenants, which is important to the continued success of our portfolio, have resulted in lower current cash flow. Tenant specific issues, including bankruptcy and down-sizing, have place downward pressure on our operating
cash flow. Projected future declines in rental rates, slower or potentially negative net absorption of leased space and expectations of future rental concessions, including three or more months of free rent to retain tenants who are up for renewal
or to sign new tenants, are expected to result in additional decreases in cash flow. Historically low LIBOR, which is used to calculate the interest due to us on certain of our debt investments, has resulted in a reduction in interest income we earn
on those investments. LIBOR has fallen from a high of approximately 5.8% during 2007 to 0.2% as of March 31, 2011. The decrease in interest earned on our variable rate debt investments is offset by the decrease in interest expense incurred
on our variable rate notes payable and repurchase agreements. In addition, financial difficulties of borrowers under loans we own, lower rental and occupancy rates at the properties securing loans, the expiration of interest rate floor agreements
related to certain debt investments and slower sales and lower prices for condo units related to loans on which we have now foreclosed have caused cash flows to decline and/or may result in additional declines. These factors could result in
decreases to distributions in future periods to preserve capital necessary to maintain our investment portfolio.

Our
operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under Forward-Looking Statements,  Market Outlook  Real Estate and Real Estate
Finance Markets, and   Results of Operations herein and under Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC. Those
factors include: the future operating performance of our investments in the existing real estate and financial environment; the success and economic viability of our tenants; the ability of our borrowers and their sponsors to continue to make their
debt service payments and/or to repay their loans upon maturity; our ability to refinance existing indebtedness at comparable terms; changes in interest rates on our variable rate debt obligations or loans receivable; and the level of participation
in our dividend reinvestment plan. In the event our cash flow and/or FFO from operations decrease in the future, the level of our distributions may also decrease. In addition, future distributions declared and paid may exceed FFO and/or cash flow
from operations.



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



Estimated Value per Share

The estimated value per share of our common stock of $7.32 per share was based on the estimated value of our assets less the estimated
value of our liabilities divided by the number of shares outstanding, all as of September 30, 2010. The value of our shares will fluctuate over time in response to developments related to individual assets in the portfolio and the management of
those assets and in response to the real estate and finance markets. If in connection with the restructuring of our debt or for other liquidity purposes, we decide to sell properties before the end of the hold period assumed in connection with the
valuation, the estimated value per share of our stock could decrease. Further, our estimated value per share may change as a result of the restructuring of our investment in the GKK Mezzanine Loan. However, as of March 31, 2011, we had not
recorded an impairment charge related to our investment in the GKK Mezzanine Loan. Based on our analysis, we concluded that our position in the GKK Mezzanine Loan was fully secured by the collateral and no impairment was necessary as of
March 31, 2011. We will continue to monitor the performance of the collateral securing the GKK Mezzanine Loan. There is no assurance that we will not recognize an impairment charge related to this investment in the future.

We currently intend to update the estimated value per share in December 2011. Until such time, the purchase price of shares under
the dividend reinvestment plan will be $7.32, and the redemption price for shares eligible for redemption under the share redemption program will be $7.32. As described above, during the term of the Amended Repurchase Agreements, we agreed to
continue to limit redemptions under the share redemption program to those redemptions sought upon a stockholders death, qualifying disability or determination of incompetence (each as defined in the share redemption
program).

Critical Accounting Policies

Our consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires
significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other
companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve
significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC. There have been no significant changes to our policies during 2011.

Subsequent Events

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

Distributions Paid

On April 15, 2011, we paid distributions of $8.3 million, which related to distribution record dates for each day in the
period from March 1, 2011 through March 31, 2011.

Distributions Declared

On March 28, 2011, our board of directors declared distributions based on daily record dates for the period from
April 1, 2011 through April 30, 2011, which we expect to pay in May 2011. On April 19, 2011, our board of directors declared distributions based on daily record dates for the period from May 1, 2011 through
May 31, 2011, which we expect to pay in June 2011. On May 4, 2011, the our board of directors declared distributions based on daily record dates for the period from June 1, 2011 through June 30, 2011, which we
expect to pay in July 2011, and distributions based on daily record dates for the period from July 1, 2011 through July 31, 2011, which we expect to pay in August 2011. Investors may choose to receive cash distributions or
purchase additional shares through our dividend reinvestment plan.

Distributions for these periods will be calculated based
on stockholders of record each day during these periods at a rate of $0.00143836 per share per day and if paid each day for a 365-day period, would equal a 5.25% annualized rate based on a purchase price of $10.00 per share or a 7.17%
annualized rate based on shares purchased under our dividend reinvestment plan at the current price per share of $7.32.



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PART I. FINANCIAL INFORMATION (CONTINUED)



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



Financings Subsequent to March 31, 2011

Extension of GKK Repurchase Agreements

Subsequent to March 31, 2011, KBS GKK entered into a series of extension agreements to extend the maturity dates of the two repurchase agreements secured by our investment in the GKK Mezzanine
Loan. For additional information, see the discussion of our repurchase agreements secured by our investment in the GKK Mezzanine Loan under  Contractual Commitments and Contingencies.

Wells Bridge Loan

On April 28, 2011, we, through indirect wholly owned subsidiaries (collectively, the Wells Bridge Loan Borrower), entered into a loan with Wells Fargo Bank, National Association for
an amount of up to $50.0 million (the Wells Bridge Loan). As of April 28, 2011, $10.0 million had been disbursed to the Wells Bridge Loan Borrower with the remaining loan balance of $40.0 million available
for future disbursements, subject to certain conditions set forth in the loan agreement. The maturity date of the Wells Bridge Loan is January 26, 2012. The Wells Bridge Loan bears interest at a floating rate of 275 basis points over
one-month LIBOR. Monthly payments on the Wells Bridge Loan are interest-only, with the entire principal amount, plus any outstanding interest and fees, due at maturity, assuming no prior prepayment. Upon no less than three business days
notice, the Wells Bridge Loan Borrower may pre-pay all or a portion of the Wells Bridge Loan, subject to prepayment fees in certain circumstances. The Wells Bridge Loan is secured by real estate and real estate-related assets owned by the Wells
Bridge Loan Borrower and shall be used for, among other purposes, the amortization payments required under the Amended Repurchase Agreements. We and KBS REIT Properties, LLC, an indirect wholly owned subsidiary of ours that indirectly owns
substantially all of our properties, have guaranteed all amounts owed by the Wells Bridge Loan Borrower under the Wells Bridge Loan.

Millennium I Building Revolving Loan

On
February 12, 2010, we, through an indirect wholly owned subsidiary, completed the secured financing of the Millennium I Building. We obtained a three-year revolving loan from a financial institution that allowed us to draw up to
$29.5 million, subject to certain terms and restrictions, at a floating interest rate equal to 375 basis points over one-month LIBOR (the Millennium I Building Revolving Loan). On April 21, 2011, we drew the entire $29.5 million
available under the Millennium I Building Revolving Loan, which amount was used for the principal payment and fees required under the Amended Repurchase Agreements.

Small Portfolio Mortgage Loan Facility

On
February 5, 2009, certain of our wholly owned subsidiaries (the Small Portfolio Mortgage Loan Borrowers) entered into a three-year mortgage loan agreement with an unaffiliated lender related to the following properties that
secure the loan: North Creek Parkway Center, City Gate Plaza, the University Park Buildings and Meridian Tower. The principal amount of the facility is $54.0 million (the Small Portfolio Mortgage Loan Facility). The maturity date of
the loan is March 1, 2012, with a one-year extension option subject to certain conditions. The Small Portfolio Mortgage Loan Facility bears interest at a floating rate of 275 basis points over one-month LIBOR (or, at the Small
Portfolio Mortgage Loan Borrowers election, over three-month LIBOR or six-month LIBOR). At closing, $45.7 million had been disbursed to us and up to $8.3 million was available for a one-time future disbursement, subject to certain conditions
set forth in the loan agreement. On April 21, 2011, we drew the remaining $8.3 million available under the Small Portfolio Mortgage Loan Facility, which amount was used for the principal payment and fees required under the Amended Repurchase
Agreements.

Extension and Modification of the Woodfield Preserve Office Center and South Towne Corporate Center I and
II Mortgage Loans

On May 1, 2011, we, through indirect wholly owned subsidiaries, entered into a loan extension
and modification agreement to extend the maturity date of a $106.5 million mortgage loan secured by the Woodfield Preserve Office Center and South Towne Corporate Center I and II to October 31, 2011. In connection with the
extension, we paid $0.5 million of extension fees and waived the right to draw an additional $4.0 million previously available for future funding under the terms of the original loan agreement. During the extension period, interest will be
calculated at a fixed rate of 5.30% per annum. Monthly payments are interest-only, with the entire principal amount, plus any outstanding interest and fees, due at maturity, assuming no prior payments.



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PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate investment portfolio
and operations. We are also exposed to the effects of changes in interest rates as a result of our investment in mortgage, mezzanine, bridge and other loans and the acquisition of real estate securities. Our profitability and the value of our
investment portfolio may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and
to lower overall borrowing costs. We have managed and will continue to manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we utilize a variety
of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or
interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and that the losses may exceed the amount we invested in
the instruments.

We borrow funds and made investments at a combination of fixed and variable rates. Interest rate
fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt or fixed rate real estate loans receivable unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the
fair value of our fixed rate instruments. At March 31, 2011, the fair value and book value of our fixed rate real estate loans receivable were $92.5 million and $153.0 million, respectively. The fair value estimate of our real
estate loans receivable is estimated using an internal valuation model that considers the expected cash flows for the loans, underlying collateral values (for collateral-dependent loans) and the estimated yield requirements of institutional
investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements. At March 31, 2011, the fair value of our fixed rate debt was $533.5 million and the
carrying value of our fixed rate debt was $533.3 million. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining
maturity if the loans were originated at March 31, 2011. As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and
unpaid interest, we do not expect that fluctuations in interest rates, and the resulting changes in fair value of our fixed rate instruments, would have a significant impact on our operations.

Conversely, movements in interest rates on variable rate debt and loans receivable, as well as our investment in preferred membership
interests in an unconsolidated joint venture, would change our future earnings and cash flows, but would not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair
value of floating rate instruments. At March 31, 2011, we were exposed to market risks related to fluctuations in interest rates on $748.1 million of our $912.8 million of variable rate debt outstanding, after giving
consideration to the impact of interest rate swap agreements on approximately $164.7 million of our variable rate debt. Based on interest rates as of March 31, 2011, if interest rates were 100 basis points higher during the
12 months ending March 31, 2012, interest expense on our variable rate debt outstanding would increase by approximately $6.4 million and if interest rates were 100 basis points lower during the 12 months ending
March 31, 2012, interest expense on our variable rate debt outstanding would decrease by $1.5 million. Excluding real estate loans receivable with asset-specific loan loss reserves, at March 31, 2011, we were exposed to
market risks related to fluctuations in interest rates on $473.6 million of variable rate loans receivable. Based on interest rates as of March 31, 2011, if interest rates were 100 basis points higher during the 12 months
ending March 31, 2012, interest income would be increased by approximately $4.7 million, and if interest rates were 100 basis points lower during the 12 months ending March 31, 2012, interest income would be decreased by
approximately $1.2 million. At March 31, 2011, we were exposed to market risks related to fluctuations in interest rates with respect to our investment in preferred membership interests in an unconsolidated joint venture. Based on
interest rates as of March 31, 2011, if interest rates were 100 basis points higher during the 12 months ending March 31, 2012, income from the preferred membership interests in the unconsolidated joint venture would be increased
by $1.7 million, and if interest rates were 100 basis points lower during the 12 months ending March 31, 2012, income from the preferred membership interests in the unconsolidated joint venture would be decreased by $0.4 million.

The weighted-average annual effective interest rates of our fixed rate real estate loans receivable and variable rate real
estate loans receivable at March 31, 2011 were 3.7% and 6.1%, respectively. The weighted-average annual effective interest rate represents the effective interest rate at March 31, 2011, using the interest method that we use to
recognize interest income on our real estate loans receivable without asset-specific loan loss reserves. The weighted-average interest rates of our fixed rate debt and variable rate debt at March 31, 2011 were 5.6% and 3.2%, respectively.
The weighted-average interest rate represents the actual interest rate in effect at March 31, 2011 (consisting of the contractual interest rate and the effect of interest rate caps, floors and swaps), using interest rate indices as of
March 31, 2011, where applicable.



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PART I. FINANCIAL INFORMATION (CONTINUED)



For developments related to our loans receivable and notes payable subsequent to
March 31, 2011, see Managements Discussion and Analysis of Financial Conditions and Results of Operations.



|Item 4. | Controls and Procedures
|------- | -----------------------

Disclosure
Controls and Procedures

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

Internal Control Over Financial Reporting

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



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PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

None.



|Item 1A. | Risk Factors
|-------- | ------------

Please see
the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC.



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



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



| | b) | Not applicable.
| | -- | ---------------



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

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



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



| |  |  | During each calendar year, redemptions are limited to the amount of net proceeds from the issuance of shares under the dividend reinvestment plan
during the prior calendar year less amounts we deem necessary from such proceeds to fund current and future: capital expenditures, tenant improvement costs and leasing costs related to our investments in real estate properties; reserves required by
financings of our investments in real estate properties; and funding obligations under our real estate loans receivable, as each may be adjusted from time to time by management, provided that if the shares are submitted for redemption in connection
with a stockholders death, qualifying disability or determination of incompetence, we will honor such redemptions to the extent that all redemptions for the calendar year are less than the amount of the net proceeds
from the issuance of shares under the dividend reinvestment plan during the prior calendar year.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

The only
redemptions we made under the share redemption program during the three months ended March 31, 2011 were those that qualified as, and met the requirements for, special redemptions under the share redemption program, i.e., all redemptions
under the plan were made in connection with a stockholders death, qualifying disability or determination of incompetence. For the three months ended March 31, 2011, we fulfilled all redemption requests that
qualified as special redemptions under the share redemption program. On December 10, 2010, we announced that based on our 2011 budgeted expenditures, and except with respect to redemptions sought upon a stockholders death,
qualifying disability and determination of incompetence, we do not currently expect to have funds available for redemption under the share redemption program in 2011. On April 28, 2011, in connection with the amendment
and restatement of the repurchase agreements related to our investment in the GKK Mezzanine Loan, we agreed that during the term of the repurchase agreements we would continue to limit redemptions under the share redemption program to those sought
upon a stockholders death, qualifying disability or determination of incompetence. The repurchase agreements will terminate on the earliest to occur of (i) April 28, 2013 (ii) the date that the
repurchase agreements convert into a mezzanine loan (which would likely contain substantially similar terms as the repurchase agreements, including with respect to the share redemption program restrictions); (iii) the date that all obligations
under the repurchase agreements are fully paid or (iv) upon an event causing the repurchase agreements to otherwise terminate. See Managements Discussion and Analysis of Financial Condition and Results of OperationsContractual
Commitments and Contingencies above.



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PART II. OTHER INFORMATION (CONTINUED)



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



We may amend, suspend or terminate the program upon 30 days notice to our
stockholders. We may provide this notice by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to our stockholders.

During the three months ended March 31, 2011, we redeemed shares pursuant to our share redemption program as follows:



|              |  |                                   |         |  |                            |   |      |                                                                                       |  |  |     | 
|------------- |  | --------------------------------- | ------- |  | -------------------------- | - | ---- | ------------------------------------------------------------------------------------- |  |  | --- | 
|Month         |  | Total Numberof SharesRedeemed (1) |         |  | AveragePrice PaidPer
Share |   |      | Approximate Dollar Value of SharesAvailable That May Yet BeRedeemed Under the
Program | 
|January 2011  |  |                                   | 62,143  |  |                            | $ | 7.32 | (2)                                                                                   |  |  | (3) | 
|February 2011 |  |                                   | 66,590  |  |                            | $ | 7.32 | (2)                                                                                   |  |  | (3) | 
|March 2011    |  |                                   | 77,692  |  |                            | $ | 7.32 | (2)                                                                                   |  |  | (3) | 
|              |  |                                   |         |  |                            |   |      |                                                                                       |  |  |     | 
|Total         |  |                                   | 206,425 |  |                            |   |      |                                                                                       |  |  |     | 
|              |  |                                   |         |  |                            |   |      |                                                                                       |  |  |     | 



(1)We
announced commencement of the program on April 6, 2006 and amendments to the program on August 16, 2006 (which amendment became effective on December 14, 2006), August 1, 2007 (which amendment became effective
on September 13, 2007), August 14, 2008 (which amendment became effective on September 13, 2008), March 26, 2009 (which amendment became effective on April 26, 2009) and May 13, 2009 (which
amendment became effective on June 12, 2009).

(2)In accordance with our share redemption program, the redemption price for all stockholders is equal to the estimated
value per share. On December 2, 2010, our board of directors approved an estimated value per share of our common stock of $7.32 based on the estimated value of our assets less the estimated value of our liabilities divided by the number of
shares outstanding, all as of September 30, 2010. Effective for the December 2010 redemption date and until the estimated value per share is updated, the redemption price for all stockholders whose shares are eligible for redemption
is $7.32 per share. We currently expect to update our estimated value per share in December 2011.

(3)We limit the dollar value of shares that may be redeemed under the
program as described above.



|Item 3. | Defaults upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | (Removed and Reserved)
|------- | ----------------------



|Item 5. | Other Information
|------- | -----------------

None.



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PART I. FINANCIAL INFORMATION (CONTINUED)



|Item 6. | Exhibits
|------- | --------



|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ex.  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | 
|3.1  |  | Amended and Restated Charter of the Company, incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the period ended
March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                
|     | 
|3.2  |  | Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the period ended
March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                 
|     | 
|4.1  |  | Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued
shares without certificates), incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form S-11, Commission File No. 333-126087                                                                                                                                                                                                          
|     | 
|4.2  |  | Third Amended and Restated Dividend Reinvestment Plan, incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed
October 28, 2009                                                                                                                                                                                                                                                                                                                                                                                      
|     | 
|4.3  |  | Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 4.3 to the Companys Quarterly Report on Form 10-Q for the period ended
March 31, 2009                                                                                                                                                                                                                                                                                                                                                                              
|     | 
|10.1 |  | Extension of Master Repurchase Agreement (related to the extension of the GKK Mezzanine Loan) between KBS GKK Participation Holdings I, LLC and Goldman Sachs Mortgage Company, dated
as of March 9, 2011                                                                                                                                                                                                                                                                                                                                               
|     | 
|10.2 |  | Extension of Master Repurchase Agreement (related to the extension of the GKK Mezzanine Loan) between KBS GKK Participation Holdings II, LLC and Citigroup Financial Products Inc.,
dated as of March 9, 2011                                                                                                                                                                                                                                                                                                                                           
|     | 
|10.3 |  | Omnibus Extension of Loan Agreements (related to the extension of the GKK Mezzanine Loan), by and among Goldman Sachs Mortgage Company, Citicorp North America, Inc. and SL
Green Realty Corp., collectively as mortgage lender and junior mezzanine lender, KBS GKK Participation Holdings I, LLC and KBS GKK Participation Holdings II, LLC, collectively as senior mezzanine lender, and certain subsidiaries of Gramercy Capital
Corp., collectively as borrower, dated as of March 11, 2011                                                        
|     | 
|10.4 |  | Amendment #1 to Extension Agreement (related to the extension of the GKK Mezzanine Loan) between KBS GKK Participation Holdings I, LLC and Goldman Sachs Mortgage Company, dated as
of March 13, 2011                                                                                                                                                                                                                                                                                                                                                   
|     | 
|10.5 |  | Amendment #1 to Extension Agreement (related to the extension of the GKK Mezzanine Loan) between KBS GKK Participation Holdings II, LLC and Citigroup Financial Products Inc., dated
as of March 13, 2011                                                                                                                                                                                                                                                                                                                                               
|     | 
|10.6 |  | Omnibus Extension of Loan Agreements (related to the extension of the GKK Mezzanine Loan), by and among Goldman Sachs Mortgage Company, Citicorp North America, Inc. and SL
Green Realty Corp., collectively as mortgage lender and junior mezzanine lender, KBS GKK Participation Holdings I, LLC, KBS GKK Participation Holdings II, LLC and KBS Debt Holdings, LLC, collectively as senior mezzanine lender, and GKK Stars Junior
Mezz 2 LLC and certain subsidiaries of Gramercy Capital Corp., collectively as borrower, dated as of March 13, 2011



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PART II. OTHER INFORMATION (CONTINUED)



|Item 6. | Exhibits (continued)
|------- | --------------------



|     |  |                                                                                                                                 
|---- |  | --------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                              
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                              
|     | 
|32.1 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|32.2 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002



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##### Table of Contents

SIGNATURES

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



|                   |  |                                        |  |                                 
|------------------ |  | -------------------------------------- |  | --------------------------------
|                   |  | KBS REAL ESTATE INVESTMENT TRUST, INC.
|                   |  |                                       
|Date: May 13, 2011 |  | By:                                    |  | /S/    CHARLES J.
SCHREIBER, JR.
|                   |  | Charles J. Schreiber, Jr.             
|                   |  | Chairman of the Board,                
|                   |  | Chief Executive Officer and Director  
|                   |  |                                       
|Date: May 13, 2011 |  | By:                                    |  | /S/    DAVID E.
SNYDER          
|                   |  | David E. Snyder                       
|                   |  | Chief Financial Officer               



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